FORM S-4
California 6022 68-0352144
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
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Copies to:
GLENN T. DODD, ESQ. R. BRENT FAYE, ESQ.
JOSEPH G. MASON, ESQ. Lillick & Charles, LLP
Coudert Brothers Two Embarcadero Center, Suite 2700
303 Almaden Boulevard, 5th Floor San Francisco, California 94111-3996
San Jose, California 95110-2721 (415) 984-8200
(408) 297-9982
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Approximate date of commencement of proposed sale of the securities to the public: As soon as practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]
(1) This Registration Statement relates to securities of the Registrant issuable to holders of common stock of North Coast Bank, National Association, a national banking association ("NCB"), in the proposed merger of NCB with the Registrant. Represents the approximate number of shares of common stock of the Registrant to be issued upon the consummation of the merger, based upon the number of shares of NCB common stock outstanding on May 2, 2000 (including shares issuable upon the exercise of options pursuant to NCB's stock option plan), all as provided in the Agreement and Plan of Reorganization and Merger dated March 1, 2000, attached as Annex A to the attached joint proxy statement/prospectus.
(2) Pursuant to Rule 457(f), the registration fee was computed on the basis of $10.1875, the market value of the common stock of NCB to be exchanged in the merger, computed in accordance with Rule 457(c) on the basis of the average of the high and low price per share of such stock as quoted on the OTC Bulletin Board on May 2, 2000, and 664,769, the maximum number of shares of NCB which may be received by the Registrant and cancelled upon consummation of the plan of reorganization and merger described herein.
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING OFFERS TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
PRELIMINARY PROXY STATEMENT - SUBJECT TO COMPLETION
[AMERICAN RIVER HOLDINGS LOGO] [NORTH COAST BANK, N.A. LOGO]
______________, 2000
American River Holdings and North Coast Bank, N.A. Shareholders:
The boards of directors of American River Holdings and North Coast Bank, N.A. have agreed on a merger which would result in North Coast Bank, N.A. becoming a separate banking subsidiary of American River Holdings. Each of us will hold shareholders meetings to consider and vote on the merger proposal. American River Holdings shareholders will also be asked to approve proposals for the American River Holdings 2000 Stock Option Plan, the classification of the American River Holdings board of directors, the elimination of cumulative voting in the election of directors, the election of directors of American River Holdings, and the ratification of the appointment of Perry-Smith LLP as independent accountants for the year 2000. These proposals are described in the accompanying joint proxy statement/prospectus. The merger agreement is attached to this document as Annex A.
In the merger, each share of North Coast Bank, N.A. common stock outstanding at the effective time of the merger will be converted into a number of shares of American River Holdings common stock based upon a fixed conversion ratio of .9644 of a share of American River Holdings common stock for each share of North Coast Bank, N.A. common stock. The conversion ratio is described in the accompanying joint proxy statement/prospectus.
The places, dates and times of the meetings are described in the accompanying notices of the respective meetings of shareholders of American River Holdings and North Coast Bank, N.A. Whether or not you plan to attend your respective meeting, please sign, date and promptly return the enclosed proxy card.
------------------------------------- --------------------------------------- David T. Taber Kathy A. Pinkard President and Chief Executive Officer President and Chief Executive Officer |
THE DATE OF THIS JOINT PROXY STATEMENT/PROSPECTUS IS____________, 2000, AND IS FIRST BEING MAILED TO AMERICAN RIVER HOLDINGS AND NORTH COAST BANK, N.A. SHAREHOLDERS ON OR ABOUT _______________, 2000.
[AMERICAN RIVER HOLDINGS LOGO]
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON ______________, 2000
To the shareholders of American River Holdings:
Notice is hereby given that an annual meeting of shareholders of American River Holdings will be held on ___________, 2000, at __:__ _.m., local time, at 1545 River Park Drive, Suite 107, Sacramento, California for the following purposes:
1. To consider and vote on a proposal to approve the Agreement and Plan of Reorganization and Merger, dated as of March 1, 2000, among American River Holdings, North Coast Bank, N.A. and ARH Interim National Bank, the Agreement of Merger attached as exhibit A to the Agreement and Plan of Reorganization and Merger, and the transactions contemplated thereby, including the resulting issuance of shares of American River Holdings common stock in connection with the merger of North Coast Bank, N.A. into ARH Interim National Bank. The terms and conditions of the transaction are more fully described in the accompanying joint proxy statement/prospectus.
2. To approve the American River Holdings 2000 Stock Option Plan.
3. To approve amendments to the American River Holdings articles of incorporation and bylaws to provide for the classification of the board of directors.
4. To approve amendments to the American River Holdings articles of incorporation and bylaws to eliminate cumulative voting in the election of directors.
5. To elect the nine incumbent directors of American River Holdings.
6. To ratify the appointment of Perry-Smith LLP as independent accountants for the year 2000.
7. To transact such other business as may properly be brought before the annual meeting or any adjournments or postponements of the annual meeting.
The board of directors of American River Holdings has unanimously approved the transactions described above and unanimously recommends that you vote in favor of the proposals at the annual meeting.
Section 3.3 of the Bylaws of American River Holdings provides for the nomination of directors as follows:
SECTION 3.3. NOMINATIONS OF DIRECTORS. Nominations for election of
members of the board may be made by the board or by any holder of
any outstanding class of capital stock of the corporation entitled
to vote for the election of directors. Notice of intention to make
any nominations (other than for persons named in the notice of the
meeting called for the election of directors) shall be made in
writing and shall be delivered or mailed to the president of the
corporation by the later of: (i) the close of business twenty-one
(21) days prior to any meeting of shareholders called for the
election of directors; or (ii) ten (10) days after the date of
mailing of notice of the meeting to shareholders. Such
notification shall contain the following information to the extent
known to the notifying shareholder: (a) the name and address of
each proposed nominee; (b) the principal occupation of each
proposed nominee; (c) the number of shares of capital stock of the
corporation owned by each proposed nominee; (d) the name and
residence address of the notifying shareholder; (e) the number of shares of capital stock of the corporation owned by the notifying shareholder; (f) the number of shares of capital stock of any bank, bank holding company, savings and loan association or other depository institution owned beneficially by the nominee or by the notifying shareholder and the identities and locations of any such institutions; and (g) whether the proposed nominee has ever been convicted of or pleaded nolo contendere to any criminal offense involving dishonesty or breach of trust, filed a petition in bankruptcy or been adjudged bankrupt. The notification shall be signed by the nominating shareholder and by each nominee, and shall be accompanied by a written consent to be named as a nominee for election as a director from each proposed nominee. Nominations not made in accordance with these procedures shall be disregarded by the chairperson of the meeting, and upon his or her instructions, the inspectors of election shall disregard all votes cast for each such nominee. The foregoing requirements do not apply to the nomination of a person to replace a proposed nominee who has become unable to serve as a director between the last day for giving notice in accordance with this paragraph and the date of election of directors if the procedure called for in this paragraph was followed with respect to the nomination of the proposed nominee.
Shareholders of record at the close of business on _____________, 2000, are entitled to notice of the annual meeting and to vote at the annual meeting or any adjournments or postponements of the annual meeting.
By Order Of The Board Of Directors,
Secretary
Sacramento, California ______________, 2000
[NORTH COAST BANK, N.A. LOGO]
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON ____________, 2000
To the shareholders of North Coast Bank, N.A.:
Notice is hereby given that a special meeting of shareholders of North Coast Bank, N.A. will be held on ____________, 2000, at __:__ _.m., local time, at 50 Santa Rosa Avenue, Santa Rosa, California for the following purposes:
1. To consider and vote on a proposal to approve the Agreement and Plan of Reorganization and Merger, dated as of March 1, 2000, among American River Holdings, North Coast Bank, N.A. and ARH Interim National Bank, the Agreement of Merger attached as exhibit A to the Agreement and Plan of Reorganization and Merger, and the transactions contemplated thereby, including the merger of North Coast Bank, N.A. into ARH Interim National Bank. The terms and conditions of the transaction are more fully described in the accompanying joint proxy statement/prospectus.
2. To transact such other business as may properly be brought before the special meeting or any adjournments or postponements of the special meeting.
The board of directors of North Coast Bank, N.A. has unanimously approved the transaction described above and unanimously recommends that you vote in favor of the proposal at the special meeting.
Shareholders of record at the close of business on _____________, 2000, are entitled to notice of the special meeting and to vote at the special meeting or any adjournments or postponements of the special meeting.
By Order Of The Board Of Directors,
Secretary
Santa Rosa, California _______________, 2000
TABLE OF CONTENTS
PAGE
QUESTIONS AND ANSWERS ABOUT THE MERGER AGREEMENT AND MERGER .................1
SUMMARY......................................................................4
Information About American River Holdings and North Coast Bank, N.A......4
Purchase Price...........................................................5
The Meetings.............................................................5
Conditions to the Completion of the Merger...............................6
Termination of the Merger Agreement......................................7
Termination Fees.........................................................8
Fees and Expenses of the Merger..........................................9
Reasons for the Merger Agreement and Merger;
Recommendations of the Boards of Directors............................9
Recommendations to Shareholders..........................................9
Opinion of North Coast Bank, N.A.'s Financial Advisor...................10
Opinion of American River Holdings' Financial Advisor...................10
Accounting Treatment....................................................10
Federal Income Tax Consequences.........................................10
Interests of Certain Persons in the Merger..............................10
Dissenters' Rights......................................................11
Comparative Per Share Market Price and Dividend Information.............11
Comparison of Shareholder Rights........................................11
Information Regarding Forward-Looking Statements........................12
Selected Historical and Pro Forma Financial Data........................12
RISK FACTORS................................................................18
The Price of American River Holdings Common Stock May Decline...........18
Customers of North Coast Bank, N.A. May Not Be Retained
and American River Holdings May Not Be Able to Realize
Anticipated Operating Cost Savings...................................18
Additional Shares of American River Holdings Common Stock
Could Be Issued Which Could Result in a Decline in the
Market Price of the Stock............................................18
The Year 2000 Problem May Adversely Affect American River
Holdings, North Coast Bank, N.A. or the Resulting Bank...............19
Deterioration of the Real Estate Market Could Have an
Adverse Effect Upon Performance......................................19
Environmental Liability Associated with Commercial and
Real Estate Lending Could Result in Losses...........................19
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS............................21
INTRODUCTION................................................................23
The Meetings: Dates, Times and Places..................................23
Matters to be Considered at the Meetings................................23
Record Date; Stock Entitled to Vote; Quorum.............................23
Votes Required..........................................................24
Security Ownership of Certain Beneficial Owners and Management..........24
Background and Business Experience of Management........................28
Voting of Proxies.......................................................32
Dissenters' Rights......................................................34
INFORMATION ABOUT AMERICAN RIVER HOLDINGS AND SUBSIDIARIES..................35
General Development of Business.........................................35
Properties..............................................................36
Legal Proceedings.......................................................37
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF AMERICAN RIVER HOLDINGS....................38
Introduction............................................................38
Results of Operations...................................................38
Net Interest Income and Net Interest Margin.............................38
Provision for Loan Losses...............................................43
Service Charges and Fees and Other Income...............................43
Salaries and Benefits...................................................44
Occupancy, Furniture and Equipment......................................44
Other Expenses..........................................................45
Provision for Taxes.....................................................45
Balance Sheet Analysis..................................................45
Loans...................................................................45
Risk Elements...........................................................46
Nonaccrual, Past Due and Restructured Loans.............................47
Allowance for Loan Losses Activity......................................48
Other Real Estate.......................................................50
Deposits................................................................50
Capital Resources.......................................................50
Market Risk Management..................................................51
Inflation...............................................................55
Liquidity...............................................................55
Off-Balance Sheet Items.................................................59
Disclosure of Fair Value................................................59
Year 2000...............................................................60
Accounting Pronouncements...............................................60
Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure..................................60
INFORMATION ABOUT NORTH COAST BANK, N.A.....................................61
General Development of Business.........................................61
Properties..............................................................62
Legal Proceedings.......................................................62
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF NORTH COAST BANK, N.A......................63
Introduction............................................................63
Results of Operations...................................................63
Net Interest Income and Net Interest Margin.............................63
Provision for Loan Losses...............................................68
Service Charges and Fees and Other Income...............................68
Salaries and Benefits...................................................69
Occupancy, Furniture and Equipment......................................69
Other Expenses..........................................................69
Provision for Taxes.....................................................69
Balance Sheet Analysis..................................................70
Loans...................................................................70
Risk Elements...........................................................71
Non-accrual, Past Due and Restructured Loans............................72
Allowance for Loan Losses Activity......................................72
Other Real Estate.......................................................74
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Deposits................................................................74
Capital Resources.......................................................74
Market Risk Management..................................................75
Inflation...............................................................78
Liquidity...............................................................78
Off-Balance Sheet Items.................................................81
Disclosure of Fair Value................................................82
Year 2000...............................................................82
Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure..................................82
Certain Management Information..........................................82
Committees of the Board of Directors....................................83
Compensation of Directors...............................................83
Executive Compensation..................................................84
Employment Contracts and Termination of Employment and
Change in Control Arrangements.......................................86
Section 16(a) Beneficial Ownership Reporting Compliance.................86
Transactions with Management and Others.................................87
Certain Business Relationships..........................................87
Indebtedness of Management..............................................87
SUPERVISION AND REGULATION..................................................87
General.................................................................87
Capital Standards.......................................................89
Prompt Corrective Action................................................90
Additional Regulations..................................................91
Limitations on Dividends................................................92
COMPETITION.................................................................92
Competitive Data........................................................92
General Competitive Factors.............................................94
Impact of Legislative and Regulatory Proposals..........................95
PROPOSAL NO. 1 TO APPROVE THE MERGER AGREEMENT AND MERGER..................97
Background of the Merger Agreement and Merger...........................97
Reasons for the Merger Agreement and Merger;
Recommendations of the Boards of Directors...........................99
Opinion of North Coast Bank, N.A.'s Financial Advisor..................102
Opinion of American River Holdings' Financial Advisor..................108
Effective Date and Time of the Merger..................................112
Purchase Price.........................................................112
Conversion of Shares of North Coast Bank, N.A. Common
Stock...............................................................112
Exchange of North Coast Bank, N.A. Stock Certificates;
Fractional Interests................................................113
Treatment of Stock Options.............................................114
Interests of American River Holdings and North Coast
Bank, N.A. Officers and Directors in the Merger.....................114
Conduct of Business Pending the Merger.................................115
Additional Agreements..................................................118
Representations and Warranties.........................................120
Conditions to the Completion of the Merger.............................120
Termination of the Merger Agreement....................................124
Termination Fees.......................................................126
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Fees and Expenses of the Merger........................................127
Amendment..............................................................127
Extension; Waiver......................................................127
Management and Operations Following the Merger.........................127
Required Regulatory Approvals..........................................128
Federal Income Tax Consequences........................................130
Accounting Treatment...................................................131
Trading Markets for Stock..............................................132
Resales of American River Holdings Common Stock........................132
DISSENTERS' RIGHTS.........................................................132
Dissenters' Rights of American River Holdings Shareholders.............132
Dissenters' Rights of North Coast Bank, N.A. Shareholders..............134
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION...............136
MARKET PRICE AND DIVIDEND INFORMATION......................................144
Market Quotations......................................................144
Dividends and Dividend Policy..........................................145
COMPARISON OF SHAREHOLDER RIGHTS...........................................146
General................................................................146
Anti-Takeover Measures.................................................146
Quorum Requirements....................................................147
Indemnification of Directors and Executive Officers....................147
Shareholder Meetings and Action by Written Consent.....................149
Cumulative Voting......................................................150
Amendment of Articles and Bylaws.......................................150
Filling Vacancies on the Board of Directors............................150
Call of Annual or Special Meeting of Shareholders and
Action by Shareholders Without a Meeting............................151
Classified Board Provisions............................................151
DESCRIPTION OF AMERICAN RIVER HOLDINGS CAPITAL STOCK.......................152
Common Stock...........................................................152
DESCRIPTION OF NORTH COAST BANK, N.A. CAPITAL STOCK........................152
Common Stock...........................................................152
PROPOSAL NO. 2 APPROVAL OF THE AMERICAN RIVER HOLDINGS 2000
STOCK OPTION PLAN......................................................154
Introduction...........................................................154
Summary of 2000 Plan...................................................154
New Plan Benefits......................................................158
Vote Required for Approval.............................................158
Recommendation of Management...........................................159
PROPOSAL NO. 3 APPROVAL OF AMENDMENTS TO THE AMERICAN RIVER
HOLDINGS ARTICLES OF INCORPORATION AND BYLAWS TO PROVIDE
FOR THE CLASSIFICATION OF THE BOARD OF DIRECTORS.......................160
Introduction...........................................................160
Effect of Classification of Board......................................161
Other Effects..........................................................162
Vote Required for Approval.............................................163
Recommendation of Management...........................................163
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PROPOSAL NO. 4 APPROVAL OF AMENDMENTS TO THE AMERICAN RIVER
HOLDINGS ARTICLES OF INCORPORATION AND BYLAWS TO
ELIMINATE CUMULATIVE VOTING IN THE ELECTION OF DIRECTORS...............164
Introduction...........................................................164
Cumulative Voting......................................................164
Reasons for the Amendment..............................................165
Other Effects..........................................................165
Conforming Bylaw Amendment.............................................165
Vote Required for Approval.............................................165
Recommendation of Management...........................................166
PROPOSAL NO. 5 ELECTION OF AMERICAN RIVER HOLDINGS DIRECTORS..............167
Certain Management Information.........................................167
Committees of the Board of Directors...................................167
Compensation of Directors..............................................169
Board Compensation Committee Report on Executive
Compensation........................................................170
Executive Compensation.................................................172
Employment Contracts and Termination of Employment and
Change in Control Arrangements......................................174
Comparison Of American River Holdings Shareholder Return...............176
Section 16(a) Beneficial Ownership Reporting Compliance................177
Transactions with Management and Others................................177
Certain Business Relationships.........................................177
Indebtedness of Management.............................................177
PROPOSAL NO. 6 RATIFICATION OF THE APPOINTMENT OF
PERRY-SMITH LLP AS INDEPENDENT ACCOUNTANTS FOR THE YEAR
2000...................................................................179
Vote Required for Approval.............................................179
Recommendation of Management...........................................179
AMERICAN RIVER HOLDINGS AND SUBSIDIARIES UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED
MARCH 31, 2000 AND CONSOLIDATED FINANCIAL STATEMENTS AND
INDEPENDENT AUDITOR'S REPORT FOR THE YEARS ENDED DECEMBER 31,
1999, 1998 AND 1997....................................................180
Consolidated Balance Sheet (Unaudited).................................181
Consolidated Statement of Income (Unaudited) for the
Three Month Periods Ended
March 31, 2000 and 1999.............................................182
Consolidated Statement of Changes in Shareholders' Equity
(Unaudited) for the Three
Month Period Ended March 31, 2000 and the Year Ended
December 31, 1999...................................................183
Consolidated Statement of Cash Flows (Unaudited) for the
Three Month Periods Ended
March 31, 2000 and 1999.............................................184
Notes To Consolidated Financial Statements (Unaudited).................186
Perry-Smith LLP Independent Auditor's Report...........................198
Consolidated Balance Sheet December 31, 1999 and 1998..................199
Consolidated Statement of Income for the Years Ended
December 31, 1999, 1998 and 1997....................................200
Consolidated Statement of Changes In Shareholders' Equity
for the Years Ended December 31, 1999, 1998 and 1997................202
Consolidated Statement of Cash Flows for the Years Ended
December 31, 1999, 1998 and 1997....................................204
Notes to Consolidated Financial Statements.............................207
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NORTH COAST BANK, N.A. UNAUDITED FINANCIAL STATEMENTS FOR
THE PERIOD ENDED MARCH 31, 2000 AND FINANCIAL STATEMENTS
AND INDEPENDENT AUDITOR'S REPORT FOR THE YEARS ENDED
DECEMBER 31, 1999, 1998 AND 1997.......................................235
Balance Sheet (Unaudited)..............................................236
Statement of Income (Unaudited) for the Three Month
Periods Ended March 31, 2000 and 1999...............................237
Statement of Changes in Shareholders' Equity (Unaudited)
for the Three Month Period Ended March 31, 2000 and
the Year Ended December 31, 1999....................................238
Statement of Cash Flows (Unaudited) for the Three Month
Periods Ended March 31, 2000 and 1999...............................239
Notes to Financial Statements (Unaudited)..............................241
Perry-Smith LLP Independent Auditor's Report...........................250
Richardson & Company Independent Auditor's Report..................... 251
Balance Sheet December 31, 1999 and 1998...............................252
Statement of Income for the Years Ended December 31,
1999, 1998 and 1997.................................................253
Statement of Changes in Shareholders' Equity for the
Years Ended December 31, 1999, 1998 and 1997........................254
Statement of Cash Flows for the Years Ended December 31,
1999, 1998 and 1997.................................................256
Notes to Financial Statements..........................................258
EXPERTS....................................................................282
LEGAL MATTERS..............................................................282
SHAREHOLDER PROPOSALS......................................................282
SOLICITATION OF PROXIES....................................................282
ANNUAL DISCLOSURE STATEMENT................................................282
ANNUAL REPORT..............................................................283
OTHER MATTERS..............................................................283
WHERE YOU CAN FIND MORE INFORMATION........................................283
ANNEX A Merger Agreement (Agreement and Plan of Reorganization and Merger,
dated as of March 1, 2000, and Exhibits A, B, C, D and E)
ANNEX B Seapower Carpenter Capital, Inc., dba Carpenter and Company Fairness
Opinion
ANNEX C Hoefer & Arnett Incorporated Fairness Opinion
ANNEX D Chapter 13 Dissenters' Rights
ANNEX E Title 12, United States Code, Section 215a (b), (c) and (d), and OCC
Circular No. 259
ANNEX F American River Holdings 2000 Stock Option Plan
ANNEX G Amendments to the American River Holdings Articles of Incorporation
and Bylaws to Provide for the Classification of the Board of Directors
ANNEX H Amendments to the American River Holdings Articles of Incorporation
and Bylaws to Eliminate Cumulative Voting
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QUESTIONS AND ANSWERS ABOUT THE MERGER AGREEMENT AND MERGER
Q: WHOM SHOULD I CONTACT WITH QUESTIONS OR TO OBTAIN ADDITIONAL
COPIES OF THIS JOINT PROXY STATEMENT/PROSPECTUS?
A: You may contact either:
American River Holdings
1545 River Park Drive, Suite 107
Sacramento, California 95815
Attention: David T. Taber,
President and Chief Executive Officer
(916) 565-6100
or
North Coast Bank, N.A.
50 Santa Rosa Avenue
Santa Rosa, California 95404
Attention: Kathy A. Pinkard,
President and Chief Executive Officer
(707) 528-6300
See also "Where You Can Find More Information" on page 283.
Q: WHY IS THIS MERGER PROPOSED?
A: American River Holdings and North Coast Bank, N.A. are proposing this transaction because the boards of directors have concluded that a combination of the two organizations is in the best interests of the shareholders of American River Holdings and North Coast Bank, N.A. and that the combined companies can offer customers of American River Holdings, American River Bank and North Coast Bank, N.A. a broader array of services and products than each could offer on its own.
Q: WHAT WILL NORTH COAST BANK, N.A. SHAREHOLDERS RECEIVE IN THIS
TRANSACTION?
A: Each share of North Coast Bank, N.A. common stock you own will be converted into a number of shares of American River Holdings common stock based upon a fixed conversion ratio of .9644 of a share of American River Holdings common stock. Any fractional shares will be paid in cash. See "Proposal No. 1, To Approve the Merger Agreement and Merger-- Purchase Price" on page 112.
Q: WHAT WILL HAPPEN TO NORTH COAST BANK, N.A. IN THIS MERGER?
A: North Coast Bank, N.A. will become a subsidiary of American River Holdings. American River Holdings will then have two bank subsidiaries: American River Bank and North Coast Bank, N.A.
Q: WILL THE MERGER BE TAX-FREE TO ME?
A: The merger is intended to be a tax-free reorganization for federal income tax purposes for the companies and their shareholders. In general, North Coast Bank, N.A. shareholders will not recognize gain or loss on the exchange of their stock, other than on account of cash received for fractional shares or dissenting shares. American River Holdings shareholders will not recognize any gain or loss in connection with the merger. To review the tax consequences to American River Holdings and North Coast Bank, N.A. shareholders in greater detail, see "Proposal No. 1, To Approve the Merger Agreement and Merger-- Federal Income Tax Consequences" on page 130.
Q: WHAT RISKS SHOULD I CONSIDER?
A: You should carefully read the information set forth in this joint proxy statement/prospectus and also consider other specified risk factors. See "Risk Factors" on page 18.
Q: HOW DO I VOTE?
A: Simply indicate on your proxy card how you want to vote and then sign and mail your proxy card in the enclosed return envelope as soon as possible so that your shares may be represented at your meeting. See "Introduction -- Voting of Proxies -- Submitting Proxies" on page 32.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER
VOTE MY SHARES FOR ME?
A: Your broker will not vote your shares for you unless you provide instructions to your broker on how to vote. It is important that you follow the directions provided by your broker regarding how to instruct your broker to vote your shares. Your failure to instruct your broker on how to vote your shares will have the same effect as a vote against any proposal, including the merger agreement. Broker non-votes and abstentions will not have the effect of establishing dissenters' rights of American River Holdings or North Coast Bank, N.A. shareholders. See "Introduction -- Voting of Proxies -- Abstentions and Broker Non-Votes" on page 32.
Q: CAN I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY CARD?
A: Yes. If you vote by returning a proxy card, you may change your vote at any time before your proxy is voted at the meeting. If your shares are held in your name, you may do this in one of three ways. First, you may send a written notice stating that you would like to revoke your proxy. Second, you may complete and submit a new proxy card. If you choose either of these two methods, you must submit your notice of revocation or your new proxy card to the address in the first paragraph of the notice of the special meeting for North Coast Bank, N.A. or annual meeting for American River Holdings (as appropriate) and it must be received prior to the vote at the meeting. Third, you may attend the meeting and vote in person if you tell the Secretary that you want to cancel your proxy and vote in person. Simply attending the meeting, however, will not revoke your proxy. If you have instructed a broker to vote your shares, you must follow directions received from your broker to change your vote or to vote in person at the meeting. See "Introduction -- Voting of Proxies -- Revoking Proxies" on page 32.
Q: WHAT HAPPENS IF THE MERGER PROPOSAL IS APPROVED, BUT THE OTHER
PROPOSALS ARE NOT APPROVED BY AMERICAN RIVER HOLDINGS SHAREHOLDERS?
A: Included in this joint proxy statement/prospectus is "Proposal No. 2, Approval of the American River Holdings 2000 Stock Option Plan" to be considered and voted upon by American River Holdings shareholders. No stock option grants will be made under the 2000 Plan prior to the effective time of the merger, however, the merger agreement requires American River Holdings to issue substitute stock options to holders of North Coast Bank, N.A. stock options as of or as soon as practicable following the effective time of the merger. There are insufficient shares of American River Holdings common stock currently reserved for issuance upon exercise of stock options under the American River Holdings 1995 Stock Option Plan to effect the issuance of the substitute stock options. If the 2000 Plan is approved, the 1995 Plan will be terminated as to future stock option grants.
The proposal to approve the American River Holdings 2000 Stock Option Plan must be approved in order for American River Holdings to issue the substitute stock options. Therefore, unless the merger proposal and the 2000 Stock Option Plan proposal are both approved, the merger will not be consummated unless the parties agree to amend the merger agreement.
If the merger proposal and the 2000 Stock Option Plan proposal are approved, but either or both of the proposals for approval of amendments to the American River Holdings articles of incorporation and bylaws to provide for classification of the American River Holdings board of directors and to eliminate cumulative voting in the election of directors are
not approved, then the merger will nonetheless be consummated, subject to satisfaction of the conditions to the merger.
Consummation of the merger is not contingent upon the voting results for the proposals to elect directors of American River Holdings and to ratify the appointment of Perry-Smith LLP as independent accountants for the year 2000.
See "The Meetings" on page 23, "Proposal No. 1, To Approve the Merger Agreement and Merger -- Reasons for the Merger Agreement and Merger; Recommendations of the Boards of Directors" on page 99, "Proposal No. 2, Approval of the American River Holdings 2000 Stock Option Plan" on page 154, "Proposal No. 3, Approval of Amendments to the American River Holdings Articles of Incorporation and Bylaws to Provide for the Classification of the Board of Directors" on page 160, and "Proposal No. 4, Approval of Amendments to the American River Holdings Articles of Incorporation and Bylaws to Eliminate Cumulative Voting in the Election of Directors" on page 164.
Q: SHOULD I SEND IN MY NORTH COAST BANK, N.A. STOCK CERTIFICATES NOW?
A: No. After the merger is completed, the exchange agent appointed by American River Holdings will send you written instructions for exchanging your North Coast Bank, N.A. stock certificates.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: We are working toward completing this merger as quickly as possible. We currently expect to complete this merger on or before _____________, 2000.
Q: WHY HAVE YOU SENT ME THIS DOCUMENT?
A: This joint proxy statement/prospectus contains important information regarding the proposed merger, as well as information about American River Holdings and North Coast Bank, N.A. It also contains important information about what the North Coast Bank, N.A. and American River Holdings boards of directors and management considered in evaluating this proposed merger. We urge you to read this document carefully, including its exhibits and attachments. You may also want to review additional information described under "Where You Can Find More Information" on page 283.
Q: HOW WILL MY SHARES OF AMERICAN RIVER HOLDINGS COMMON STOCK BE TRADED
AFTER THE MERGER?
A: American River Holdings will take the necessary action to apply for listing of the shares of American River Holdings common stock for trading on the Nasdaq National Market, to be effective as soon as practicable following the effective time of the merger. Assuming that the merger is consummated, we expect that the application will be approved. "Proposal No. 3, Approval of Amendments to the American River Holdings Articles of Incorporation and Bylaws to Provide for the Classification of the Board of Directors" and "Proposal No. 4, Approval of Amendments to the American River Holdings Articles of Incorporation and Bylaws to Eliminate Cumulative Voting in the Election of Directors" cannot be implemented unless American River Holdings common stock is listed for trading on the Nasdaq National Market.
SUMMARY
This summary highlights selected information in this joint proxy
statement/prospectus and may not contain all of the information that is
important to you. To understand the merger agreement and the merger fully and
for a more complete description of the terms of the merger agreement and the
merger, you should carefully read this entire document and the other information
to which we have referred you. See "Where You Can Find More Information" on page
283. The merger agreement is attached as Annex A to this joint proxy
statement/prospectus. We encourage you to read the merger agreement. It is the
legal document that governs the proposed transaction.
INFORMATION ABOUT AMERICAN RIVER HOLDINGS AND NORTH COAST BANK, N.A.
(pages 35 and 61)
American River Holdings
1545 River Park Drive, Suite 107
Sacramento, California 95815
(916) 565-6100
American River Holdings is a bank holding company incorporated under the laws of the State of California and registered under the Bank Holding Company Act of 1956, as amended. American River Holdings was incorporated under the laws of the State of California in 1995. As a bank holding company, American River Holdings is authorized to engage in the activities permitted under the Bank Holding Act of 1956, as amended, and regulations thereunder. American River Holdings' banking subsidiary, American River Bank, is a California banking corporation incorporated in 1983, which presently operates four banking offices in Placer and Sacramento Counties, in the cities of Sacramento (two offices), Fair Oaks (one office) and Roseville (one office).
American River Bank is a state-chartered institution that serves small
to medium-sized businesses, professionals, merchants and individuals within its
marketplace. American River Bank offers a full range of commercial banking
services, including the acceptance of demand, savings and time deposits, and the
making of commercial, real estate (including residential mortgage), small
Business Administration, equipment financing, asset-based lines, construction
and other installment and term loans. American River Bank also offers automated
teller machine (ATM) cards, travelers checks, safe deposit boxes, notary public,
courier service and other customary bank services. American River Bank operates
an on-site computer system, which provides independent processing of its
deposits, loan and financial accounting. Offices are open from 9:00 a.m. to 4:00
p.m., Monday through Thursday and 9:00 a.m. to 6:00 p.m. on Friday. American
River Bank has automated teller machines (ATMs) located at the Fair Oaks,
Bradshaw and Roseville offices. The deposits of American River Bank are insured
by the Federal Deposit Insurance Corporation up to the applicable legal limits.
American River Bank has two inactive subsidiaries, ARBCO and American River Mortgage. ARBCO was formed in 1984 to conduct real estate development and has been inactive since 1995. American River Mortgage has been inactive since its formation in 1994.
American River Holdings' non-banking subsidiary, First Source Capital, was formed in July 1999 to conduct lease financing for most types of business assets, from computer software to heavy earth-moving equipment. Specific leasing programs are tailored for vendors of equipment in order to increase their sales. First Source Capital acts as a lease broker and receives a fee for each lease recorded on the books of the party acting as the funding source. Various funding sources are utilized in connection with multiple leasing programs made available by First Source Capital.
North Coast Bank, N.A.
50 Santa Rosa Avenue
Santa Rosa, California 95404
(707) 528-6300
North Coast Bank, N.A., formerly Windsor Oaks National Bank, is a national banking association, organized in 1990 with its administrative headquarters in Santa Rosa, California. North Coast Bank, N.A. is locally owned and presently operates three banking offices within its primary service area of Sonoma County, in the cities of Healdsburg, Santa Rosa and Windsor. North Coast Bank, N.A. also services Napa, Marin and Mendocino Counties through loan relationships in these areas. North Coast Bank N.A.'s primary business is servicing the business or commercial banking needs of small to mid-sized businesses within Sonoma County. North Coast Bank, N.A.'s marketing strategy emphasizes local ownership and a local decision process.
PURCHASE PRICE (page 112)
When the transactions contemplated by the merger agreement, including the merger, are completed, it is expected that North Coast Bank, N.A. shareholders who do not perfect dissenters' rights will receive a number of American River Holdings shares of common stock for each share of North Coast Bank, N.A. common stock held calculated in accordance with a fixed conversion ratio of .9644 of a share of American River Holdings common stock for each share of North Coast Bank, N.A. common stock. See "Proposal No. 1, To Approve the Merger Agreement and Merger -- Purchase Price" on page 112.
No fractional shares of American River Holdings common stock will be issued to holders of North Coast Bank, N.A. common stock. Instead, each holder entitled to a fraction of a share will receive, at the time of surrender of the certificate or certificates representing the holder's shares, an amount in cash equal to the average of the closing bid and asked prices for a share of American River Holdings common stock quoted on the OTC Bulletin Board for each of the twenty trading days ending on the third business day immediately preceding the effective date, multiplied by the fraction of a share of American River Holdings common stock to which such holder otherwise would be entitled and rounded to the nearest penny.
THE MEETINGS (page 23)
American River Holdings Shareholders. You can vote at the annual meeting of American River Holdings shareholders if you owned American River Holdings common stock at the close of business on the record date of _____________, 2000. You can cast one vote for each share of American River Holdings common stock that you owned at that time, except that in the election of directors, you may cumulate your votes by multiplying the number of shares you own by the number of directors to be elected and you may cast all of your votes for one or more of the persons nominated for election as a director of American River Holdings; provided that you may not be entitled to cumulate votes for a candidate whose name has not been placed in nomination prior to the voting and unless you have given notice at the meeting prior to the voting of your intention to cumulate votes. If any shareholder has given notice of intention to cumulate votes, all shareholders may cumulate their votes for candidates who have been nominated for election as directors of American River Holdings. Prior to voting, an opportunity will be given for shareholders or their proxies at the meeting to announce their intention to cumulate their votes. The proxyholders, under the terms of the proxy, are given discretionary authority to cumulate votes on shares of American River Holdings common stock for which they hold a valid proxy. See "Proposal No. 5, Election of American River Holdings Directors" on page 167. In order to approve the merger of North Coast Bank, N.A. with and into ARH Interim National Bank and the issuance of American River Holdings common stock to North Coast Bank, N.A.'s shareholders, the holders of a
majority of the shares of American River Holdings common stock outstanding on the record date must vote in its favor. Please note that a vote "FOR" approval of the merger proposal alone will not allow American River Holdings to fulfill its obligations under the merger agreement to issue substitute stock options to holders of North Coast Bank, N.A. stock options and therefore will not assure consummation of the merger. You must also vote "FOR" approval of the proposal for the American River Holdings 2000 Stock Option Plan in order for the merger to be consummated, subject to satisfaction of conditions to the merger as described in the merger agreement. Approval of the American River Holdings 2000 Stock Option Plan requires the affirmative vote of the holders of a majority of the shares of American River Holdings common stock present in person or represented by proxy and entitled to vote at the annual meeting, provided that the number of affirmative votes equals at least a majority of the shares constituting the required quorum. Approval of the amendments to the articles and bylaws of American River Holdings to provide for classification of the board of directors and to eliminate cumulative voting in the election of directors, requires holders of a majority of the shares of American River Holdings common stock outstanding on the record date to vote in favor of each of those proposals. Ratification of the appointment of Perry-Smith LLP as independent accountants for the year 2000 requires holders of a majority of the shares of American River Holdings common stock voting in person or by proxy at the annual meeting, to vote in favor of the proposal.
You can vote your shares by attending the American River Holdings annual meeting and voting in person, or you can mark the enclosed proxy card with your vote, sign it and mail it in the enclosed return envelope. You can revoke your proxy prior to the voting at the annual meeting by submitting a written revocation, sending in a new proxy or by attending the annual meeting and voting in person.
North Coast Bank, N.A. Shareholders. You can vote at the special meeting of North Coast Bank, N.A. shareholders if you owned North Coast Bank, N.A. common stock at the close of business on the record date of ___________, 2000. You can cast one vote for each share of North Coast Bank, N.A. common stock that you owned at that time. In order to approve the merger of North Coast Bank, N.A. with and into ARH Interim National Bank, the holders of at least two-thirds (2/3) equal to sixty-six and two-thirds percent (66 2/3%) of the outstanding shares of North Coast Bank, N.A. common stock outstanding on the record date must vote in its favor. You can vote your shares by attending the North Coast Bank, N.A. special meeting and voting in person, or you can mark the enclosed proxy card with your vote, sign it and mail it in the enclosed return envelope. You can revoke your proxy prior to the voting at the special meeting by submitting a written revocation, sending in a new proxy or by attending the special meeting and voting in person.
In the event that the merger is not consummated, it is the intention of North Coast Bank, N.A. to hold its annual meeting of shareholders prior to December 31, 2000. If the merger is consummated, no annual meeting of North Coast Bank, N.A. shareholders will be held following the effective time of the merger.
CONDITIONS TO THE COMPLETION OF THE MERGER (page 120)
We will not complete the merger unless a number of conditions are satisfied. These include:
o approval of the merger by both American River Holdings and North Coast Bank, N.A. shareholders;
o receipt of all required governmental approvals;
o absence of any governmental proceeding that would prohibit the merger;
o receipt of tax opinions to the effect that the merger will be treated as a tax-free reorganization under the Internal Revenue Code;
o absence of any orders suspending the effectiveness of the registration statement filed by American River Holdings to register the shares to be issued to North Coast Bank, N.A. shareholders and receipt of all required state securities law approvals;
o receipt of a letter from American River Holdings' independent accountants that no conditions exist that would preclude accounting for the merger as a pooling-of-interests and receipt of a letter from North Coast Bank, N.A.'s independent accountants to the effect that no conditions exist that would preclude North Coast Bank, N.A. from being a party to a business combination to be accounted for as a pooling-of-interests;
o receipt of a written fairness opinion dated as of the date of this joint proxy statement/prospectus from North Coast Bank, N.A.'s and American River Holdings' financial advisors; and
o other customary conditions.
American River Holdings or North Coast Bank, N.A. could decide to complete the merger even though one or more of these conditions has not been met. It is not certain when or if the conditions to the merger will be satisfied or waived, or if the merger will be completed.
TERMINATION OF THE MERGER AGREEMENT (page 124)
We can terminate the merger agreement at any time before the merger is completed, even if the shareholders of North Coast Bank, N.A. or American River Holdings have approved the merger agreement. The merger agreement can be terminated either by our mutual agreement or by one of us upon the occurrence of particular events.
Either North Coast Bank, N.A. or American River Holdings can terminate the merger agreement if:
o The merger is not completed by September 30, 2000, unless this date is extended as provided in the merger agreement;
o Any governmental agency denies or refuses to grant a required approval of the merger, unless we agree to appeal the denial or refusal or we agree to file an amended application for the governmental approval; or
o The shareholders of North Coast Bank, N.A. or American River Holdings fail to approve the merger.
American River Holdings can terminate the merger agreement if:
o Any of the conditions to American River Holdings' obligations under the merger agreement are not satisfied or waived by September 30, 2000, unless this date is extended as provided in the merger agreement;
o A material adverse change has occurred in the business, financial condition, results of operations or assets of North Coast Bank, N.A.;
o North Coast Bank, N.A. or any of its affiliates enters into an agreement by which North Coast Bank, N.A. or its subsidiaries would be acquired by another entity;
o North Coast Bank, N.A. breaches any covenant in the merger agreement which materially impairs the benefit of the merger to American River Holdings, unless North Coast Bank, N.A. cures the breach within 45 days after written notice from American River Holdings; or
o North Coast Bank, N.A. fails to deliver to American River Holdings documents required for the merger.
North Coast Bank, N.A. can terminate the merger agreement if:
o Any of the conditions to North Coast Bank, N.A.'s obligations under the merger agreement are not satisfied or waived by September 30, 2000, unless this date is extended;
o A material adverse change has occurred in the business, financial condition, results of operations or assets of American River Holdings;
o American River Holdings solicits or accepts an offer from a third party to acquire American River Holdings or American River Bank and the offer does not require American River Holdings or the third party to comply with the merger agreement;
o American River Holdings breaches any covenant in the merger agreement which materially impairs the benefit of the merger to North Coast Bank, N.A. unless American River Holdings cures the breach within 45 days after receipt of written notice from North Coast Bank, N.A.; or
o American River Holdings fails to deliver to North Coast Bank, N.A. documents required for the merger.
TERMINATION FEES (page 126)
North Coast Bank, N.A. is required to pay American River Holdings the amounts described below as liquidated damages if American River Holdings terminates the merger agreement for any of the following reasons:
o $1 million dollars if North Coast Bank, N.A. or its affiliates enters into an agreement by which North Coast Bank, N.A. would be acquired by another entity;
o $500 thousand dollars if North Coast Bank, N.A. breaches any covenant in the merger agreement which materially impairs the benefit of the merger to American River Holdings, unless North Coast Bank, N.A. cures the breach within 45 days after written notice from American River Holdings; or
o $500 thousand dollars if North Coast Bank, N.A. willfully or deliberately refuses to deliver to American River Holdings the closing documents required by the merger agreement.
American River Holdings is required to pay North Coast Bank, N.A. the amounts described below as liquidated damages if North Coast Bank, N.A. terminates the merger agreement for any of the following reasons:
o $1 million dollars if American River Holdings solicits or accepts an offer from a third party to acquire American River Holdings or American River Bank and the offer does not require American River Holdings or the third party to comply with the merger agreement;
o $500 thousand dollars if American River Holdings breaches any covenant in the merger agreement which materially impairs the benefit of the merger to North Coast Bank, N.A., unless American River Holdings cures the breach within 45 days after written notice from North Coast Bank, N.A.; or
o $500 thousand dollars if American River Holdings willfully or deliberately refuses to deliver to North Coast Bank, N.A. the closing documents required by the merger agreement.
FEES AND EXPENSES OF THE MERGER (page 127)
Other than in the situations described in "-- Termination Fees" above and for expenses which we have agreed to share equally, whether or not the merger is completed in accordance with the merger agreement, all costs and expenses incurred in connection with the merger agreement and the transactions covered by the merger agreement will be paid by the party incurring those expenses.
REASONS FOR THE MERGER AGREEMENT AND MERGER; RECOMMENDATIONS OF THE BOARDS OF
DIRECTORS (page 99)
The boards of directors of American River Holdings and North Coast Bank, N.A. believe that the merger is in the best interests of their respective institutions, shareholders, communities and banking customers. Each board expects that American River Holdings, as a larger organization in multiple and diverse markets, will be stronger in terms of growth opportunities and profitability than is either institution at present. American River Holdings will also have the advantage of centralization of management and operations functions, revenue enhancement, and economies of scale. Furthermore, it is believed that American River Holdings, as a stronger independent financial institution with a primary market area covering a greater geographic area, will be better able to compete with major banks in the communities now served by each company.
RECOMMENDATIONS TO SHAREHOLDERS (page 9)
American River Holdings Shareholders. The board of directors of American River Holdings believes that the merger is fair to you and in your best interests and unanimously recommends that you vote "FOR" the proposal to approve the merger agreement and the merger and the issuance of shares of American River Holdings common stock in connection with the merger. The board of directors also unanimously recommends that you vote "FOR" the proposals to approve the American River Holdings 2000 Stock Option Plan, the classification of the American River Holdings board of directors, the elimination of cumulative voting in the election of directors, the election of management's nominees as directors, and to ratify the appointment of Perry-Smith LLP as independent accountants for the year 2000.
North Coast Bank, N.A. Shareholders. The board of directors of North Coast Bank, N.A. believes that the merger is fair to you and in your best interests and unanimously recommends that you vote "FOR" the proposal to approve the merger agreement and the merger.
In evaluating the recommendations of the boards of directors summarized above, shareholders should carefully consider the matters described under "Risk Factors" on page 18 and "Proposal No. 1, To Approve the Merger Agreement and Merger -- Background of the Merger Agreement and Merger"
on page 97 and "--Reasons for the Merger Agreement and Merger; Recommendations of the Boards of Directors" on page 99.
OPINION OF NORTH COAST BANK, N.A.'S FINANCIAL ADVISOR (page 102)
Seapower Carpenter Capital, Inc., dba Carpenter and Company has rendered an opinion, dated March 1, 2000 and updated to ______________, 2000, to the North Coast Bank, N.A. board of directors that the merger consideration in the merger is fair, from a financial point of view, to the shareholders of North Coast Bank, N.A., as of the date of the opinion. The Carpenter and Company fairness opinion, which sets forth assumptions made, matters considered and limits of review undertaken, by Carpenter and Company, is attached to this joint proxy statement/prospectus as Annex B. North Coast Bank, N.A. shareholders are urged to read the Carpenter and Company fairness opinion in its entirety. See "Proposal No. 1, To Approve the Merger Agreement and Merger -- Opinion of North Coast Bank, N.A.'s Financial Advisor" on page 102, which also contains a discussion of the fees to be paid to Carpenter and Company.
OPINION OF AMERICAN RIVER HOLDINGS' FINANCIAL ADVISOR (page 108)
Hoefer & Arnett Incorporated has rendered an opinion, dated March 1, 2000 and updated to ____________, 2000, to American River Holdings' board of directors that the conversion ratio in the merger is fair, from a financial point of view, to the holders of American River Holdings common stock. The opinion of Hoefer & Arnett Incorporated is attached to this joint proxy statement/prospectus as Annex C. American River Holdings shareholders are urged to read the opinion of Hoefer & Arnett Incorporated in its entirety. See "Proposal No. 1, To Approve the Merger Agreement and Merger -- Opinion of American River Holdings' Financial Advisor on page 108, which also contains a discussion of the fees to be paid to Hoefer & Arnett Incorporated.
ACCOUNTING TREATMENT (page 131)
American River Holdings expects to account for the merger as a "pooling of interests." Under the pooling of interests accounting method, American River Holdings will carry forward on its books the assets and liabilities of North Coast Bank, N.A. at their historical recorded values.
FEDERAL INCOME TAX CONSEQUENCES (page 130)
The merger agreement and merger have been structured so that, in general, American River Holdings and North Coast Bank, N.A. and the shareholders of American River Holdings and North Coast Bank, N.A. will not recognize gain or loss for federal income tax purposes in the merger, except for taxes payable because of cash received by North Coast Bank, N.A. shareholders instead of fractional shares or because of dissenting shares. It is a condition, at the closing of the merger, that American River Holdings and North Coast Bank, N.A. receive a tax opinion to the effect, among other matters, that the merger should qualify as a tax-free reorganization.
TAX MATTERS ARE VERY COMPLICATED. THE TAX CONSEQUENCES OF THE MERGER TO YOU WILL DEPEND ON THE FACTS OF YOUR OWN SITUATION. WE URGE YOU TO CONSULT YOUR OWN TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES TO YOU OF THE MERGER, INCLUDING THE APPLICABLE FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS.
INTERESTS OF CERTAIN PERSONS IN THE MERGER (page 114)
Some of American River Holdings' and North Coast Bank, N.A.'s directors and officers may have interests in the merger that are different from, or in addition to, yours. As a result, these directors
and officers may be more likely to vote to approve the merger agreement and the merger than shareholders of American River Holdings and North Coast Bank, N.A. generally. The members of our boards of directors knew about these additional interests, and considered them, when they approved the transactions contemplated by the merger agreement, including the merger. See "Introduction --Security Ownership of Certain Beneficial Owners and Management" on page 24 and "Proposal No. 1, To Approve the Merger Agreement and Merger-- Interests of American River Holdings and North Coast Bank, N.A. Officers and Directors in the Merger" on page 114.
DISSENTERS' RIGHTS (page 132)
American River Holdings. No holder of American River Holdings common stock will be entitled to dissenters' rights unless the holder has perfected his or her dissenters' rights in accordance with Chapter 13 of the California General Corporation Law.
North Coast Bank, N.A. No holder of North Coast Bank, N.A. common stock will be entitled to dissenters' rights unless the holder has perfected his or her dissenter's rights in accordance with applicable provisions of the National Bank Act.
COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION (page 144)
American River Holdings common stock is not listed on any exchange and is quoted on the OTC Bulletin Board under the symbol "AMRB.OB." North Coast Bank, N.A. common stock is not listed on any exchange and is quoted on the OTC Bulletin Board under the symbol "NCTA.OB." On March 1, 2000, the last trading date prior to the public announcement of the proposed merger, American River Holdings common stock closed at $12.50 per share and North Coast Bank, N.A. common stock closed at $9.50 per share, or a pro forma equivalent per share of American River Holdings common stock (based on a conversion ratio of .9644) of $12.06. On ____________, 2000, the latest practicable trading date prior to the printing of this joint proxy statement/prospectus, American River Holdings common stock closed at $_______ per share and North Coast Bank, N.A. common stock closed at $_______ per share, or a pro forma equivalent per share of American River Holdings common stock (based on a conversion ratio of .9644) of $_________. Following the merger, no shares of North Coast Bank, N.A. common stock will be outstanding and American River Holdings will take the action necessary to apply for the listing of its common stock for trading on the Nasdaq National Market.
American River Holdings has paid cash dividends to its shareholders on a semi-annual basis from 1992 through 1999. American River Holdings paid cash dividends totaling $0.174 per share in 1997, $0.195 per share in 1998, and $0.230 per share in 1999. It is the intention of American River Holdings to pay cash dividends, subject to regulatory restrictions and depending upon the level of earnings, management's assessment of future capital needs and other factors considered by the American River Holdings board of directors. North Coast Bank, N.A. has not paid cash dividends in 1997, 1998 or 1999. North Coast Bank, N.A. does not intend to pay cash dividends prior to the closing of the transactions contemplated by the merger agreement.
COMPARISON OF SHAREHOLDER RIGHTS (page 146)
Your rights as a shareholder of North Coast Bank, N.A. are currently governed by the National Bank Act, and the articles of association and bylaws of North Coast Bank, N.A. If the merger is completed, your rights as an American River Holdings shareholder will be governed by California law but will also be determined by American River Holdings' articles of incorporation and bylaws, which differ in some respects from North Coast Bank, N.A.'s articles of association and bylaws.
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS (page 21)
Statements in this joint proxy statement/prospectus and in the documents attached to this joint proxy statement/prospectus are or may be forward-looking statements that involve risks and uncertainties. Actual results may differ materially from those expressed in the statements, depending on a variety of factors. You should carefully review all information, including the financial statements and the notes to the financial statements, included in this joint proxy statement/prospectus and attached to this joint proxy statement/prospectus.
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA (page 16)
We are providing the following information to aid you in your analysis of the financial effects of the merger. The following tables show financial results, consisting of historical figures, actually achieved by each of American River Holdings and North Coast Bank, N.A. The tables also show financial results, consisting of pro forma combined figures, as if the companies had been combined for the periods presented. Pro forma combined figures are simply arithmetical combinations of American River Holdings' and North Coast Bank, N.A.'s separate financial results; you should not assume that American River Holdings and North Coast Bank, N.A. would have achieved the pro forma combined results if they had actually been combined during the periods presented. These pro forma presentations treat our companies as if they had always been combined for accounting and financial reporting purposes, a method known as pooling of interests accounting, which is how we plan to account for the merger. When you read this information, you should also read the information under the heading "Unaudited Pro Forma Condensed Combined Financial Information" on page 136. The pro forma combined figures have been calculated using the conversion ratio of .9644.
The financial information as of and for the three months ended March 31, 2000 and 1999 has been derived from the unaudited consolidated financial statements of American River Holdings and the unaudited financial statements of North Coast Bank, N.A. In the opinion of management of American River Holdings and North Coast Bank, N.A., respectively, all adjustments, consisting of normal recurring accruals, considered necessary for the fair presentation of the results for the periods presented have been included. Annual historical figures are derived from the consolidated financial statements of American River Holdings and the financial statements of North Coast Bank, N.A. as of December 31, 1999, 1998, 1997, 1996, and 1995, and for the years then ended. American River Holdings' financial statements were audited by Perry-Smith LLP, independent accountants of American River Holdings. The financial statements of North Coast Bank, N.A. as of December 31, 1999 and for the year then ended were audited by Perry-Smith LLP, independent accountants of North Coast Bank, N.A. The financial statements of North Coast Bank, N.A. as of December 31, 1998, 1997, 1996 and 1995, and for the years then ended were audited by Richardson & Company, independent accountants of North Coast Bank, N.A. The historical figures for the other years presented have been derived from the audited consolidated financial statements of American River Holdings and the audited financial statements of North Coast Bank, N.A. The annual historical information presented below should be read together with the consolidated audited financial statements of American River Holdings, and the audited financial statements of North Coast Bank, N.A. To find this information, see "American River Holdings and Subsidiaries Unaudited Consolidated Financial Statements for the Period Ended March 31, 2000 and Consolidated Financial Statements and Independent Auditor's Report for the Years Ended December 31, 1999, 1998 and 1997--Perry-Smith LLP Independent Auditor's Report" on Page 198, and North Coast Bank, N.A. Unaudited Financial Statements for the Period Ended March 31, 2000 and Financial Statements and Independent Auditor's Report for the Years Ended December 31, 1999, 1998 and 1997--Perry-Smith LLP Independent Auditor's Report" on Page 250 and "--Richardson & Company Independent Auditor's Report" on Page 251.
We expect to incur merger and other non-recurring expenses as a result of combining our companies. We also anticipate that the merger will provide the combined company with financial benefits such as reduced operating expenses and the opportunity to earn additional revenue. However, none of these anticipated expenses or benefits has been factored into the pro forma combined income statement information. For that reason, the pro forma combined information, while helpful in illustrating the financial attributes of the combined company under one set of assumptions, does not attempt to predict or suggest future results.
The following tables present selected historical and pro forma combined consolidated financial information for American River Holdings and North Coast Bank, N.A. The following financial data should be read in conjunction with the historical consolidated financial statements of American River Holdings, the historical consolidated financial statements of North Coast Bank, N.A., and the unaudited pro forma combined consolidated financial information and the notes to such information, some of which are included elsewhere in this joint proxy statement/prospectus. The unaudited pro forma combined consolidated financial information presents selected financial information based on the historical financial statements of the parties, giving effect to the proposed merger under the pooling of interests method of accounting and the assumptions and adjustments described in the notes thereto. The unaudited pro forma combined consolidated financial information does not indicate the results or financial position that would have occurred if the merger agreement and merger had been in effect for the periods or on the dates indicated or that may occur in the future.
AMERICAN RIVER HOLDINGS
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND RATIOS)
As of and for the:
Three Months
Ended March 31, Years Ended December 31,
---------------------- ---------------------------------------------------------
STATEMENT OF OPERATIONS DATA 2000 1999 1999 1998 1997 1996 1995
Net interest income $ 2,449 $ 2,263 $ 9,299 $ 8,726 $ 7,802 $ 7,351 $ 7,195
Provision for loan or lease losses 105 94 407 360 535 490 420
Other income 455 304 1,520 1,303 998 968 1,272
Other expenses 1,525 1,380 5,743 5,600 4,986 5,134 5,249
--------- --------- --------- --------- --------- --------- ---------
Income before income taxes 1,274 1,093 4,669 4,069 3,279 2,695 2,798
Income taxes 480 420 1,768 1,564 1,278 1,034 1,153
--------- --------- --------- --------- --------- --------- ---------
Net income $ 794 $ 673 $ 2,901 $ 2,505 $ 2,001 $ 1,661 $ 1,645
========= ========= ========= ========= ========= ========= =========
PER SHARE DATA: (1)
Earnings per share - basic $ 0.44 $ 0.37 $ 1.59 $ 1.37 $ 1.09 $ 0.90 $ 0.89
Earnings per share - diluted 0.42 0.35 1.50 1.24 0.99 0.87 0.89
Cash dividends per share -- -- 0.230 0.195 0.174 0.158 0.156
Book value per share 9.70 8.64 9.26 8.46 7.75 6.95 6.21
Tangible book value per share 9.62 8.53 9.17 8.35 7.61 6.78 6.02
BALANCE SHEET DATA:
Balance sheet totals-end of period:
Assets $ 197,329 $ 174,856 $ 201,362 $ 177,824 $ 163,855 $ 136,326 $ 134,496
Loans and leases, net 118,485 113,788 117,308 112,329 100,373 89,369 90,078
Deposits 176,329 155,800 180,996 158,951 146,566 122,065 122,233
Shareholders' equity 17,400 15,847 16,613 15,376 14,215 12,839 11,455
Average balance sheet amounts:
Assets $ 198,467 $ 174,668 $ 181,722 $ 166,608 $ 150,142 $ 135,915 $ 124,251
Loans and leases 119,738 116,399 113,853 107,539 94,109 90,776 87,635
Earning assets 183,777 161,827 167,649 154,642 139,191 126,133 115,167
Deposits 177,733 158,155 162,486 148,726 135,612 122,912 112,482
Shareholders' equity 16,813 15,605 16,002 14,796 13,576 12,136 10,647
SELECTED RATIOS: (2)
Return on average equity 18.99% 17.49% 18.13% 16.93% 14.74% 13.69% 15.45%
Return on average tangible equity 19.18% 17.72% 18.34% 17.20% 15.05% 14.05% 15.98%
Return on average assets 1.61% 1.56% 1.60% 1.50% 1.33% 1.22% 1.32%
Efficiency ratio (noninterest expense
to net interest income and non
interest income) 52.51% 53.76% 53.08% 55.84% 56.66% 61.71% 61.99%
Efficiency ratio excluding the
amortization of intangibles and
goodwill 52.16% 53.37% 52.72% 55.43% 56.19% 61.22% 61.51%
Average equity to average assets 8.47% 8.93% 8.81% 8.88% 9.04% 8.93% 8.57%
Leveraged capital ratio 8.83% 8.92% 9.20% 8.90% 9.20% 9.30% 8.90%
Nonperforming loans and leases to
total loans and leases 0.05% 0.17% 0.03% 0.10% 0.37% 1.32% 0.54%
Nonperforming assets to total assets 0.03% 0.37% 0.01% 0.38% 0.72% 1.30% 0.48%
Net chargeoffs to average loans
and leases 0.02% 0.01% 0.08% 0.16% 0.56% 0.81% 0.52%
Allowance for loan or lease losses to
total loans and leases 1.44% 1.26% 1.41% 1.20% 1.16% 1.29% 1.55%
Allowance for loan or lease losses to
nonperforming loans and leases 2845.9% 725.5% 5596.7% 1238.2% 313.1% 97.7% 288.6%
(1) Adjusted for 5% stock dividends in 1997, 1998 and 1999, and 3 for 2 stock
split in 1999
(2) Selected ratios for the three months ended March 31, 2000 and 1999 have
been annualized.
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NORTH COAST BANK, N.A.
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND RATIOS)
As of and for the:
Three Months
Ended March 31, Years Ended December 31,
-------------------- ----------------------------------------------------
STATEMENT OF OPERATIONS DATA 2000 1999 1999 1998 1997 1996 1995
Net interest income $ 703 $ 534 $ 2,455 $ 2,017 $ 1,780 $ 1,754 $ 1,684
Provision for loan or lease losses 28 30 175 149 70 71 82
Other income 86 58 267 204 270 229 276
Other expenses $ 599 $ 503 2,167 1,617 1,634 1,595 1,669
-------- -------- -------- -------- -------- -------- --------
Income before income taxes 162 59 380 455 346 317 209
Income taxes 66 22 153 109 -- -- 1
-------- -------- -------- -------- -------- -------- --------
Net income $ 96 $ 37 $ 227 $ 346 $ 346 $ 317 $ 208
======== ======== ======== ======== ======== ======== ========
PER SHARE DATA: (1)
Earnings per share - basic $ .20 $ .08 $ .48 $ .73 $ .73 $ .67 $ .44
Earnings per share - diluted .19 .08 .46 .70 .72 .67 .44
Cash dividends per share
Book value per share 8.67 8.10 8.46 8.03 7.31 6.56 5.94
Tangible book value per share 8.67 8.10 8.46 8.03 7.31 6.56 5.94
BALANCE SHEET DATA:
Balance sheet totals-end of period:
Assets $ 49,545 $ 41,546 $ 47,178 $ 42,177 $ 33,322 $ 29,850 $ 31,464
Loans and leases, net 39,648 30,635 39,736 30,803 21,587 19,452 19,643
Deposits 44,345 37,625 42,081 38,153 29,763 26,605 27,780
Shareholders' equity 4,094 3,825 3,998 3,792 3,449 3,097 2,804
Average balance sheet amounts:
Assets $ 48,105 $ 41,074 $ 43,238 $ 35,350 $ 29,525 $ 29,453 $ 28,396
Loans and leases 40,241 31,122 34,062 25,472 20,657 19,520 19,438
Earning assets 44,423 37,737 39,656 32,429 26,913 26,957 25,992
Deposits 42,880 36,874 38,694 31,562 26,182 25,893 25,186
Shareholders' equity 4,083 3,858 3,914 3,638 3,225 2,937 2,669
SELECTED RATIOS: (2)
Return on average equity 9.46% 3.89% 5.80% 9.51% 10.73% 10.79% 7.79%
Return on average tangible equity 9.46% 3.89% 5.80% 9.51% 10.73% 10.79% 7.79%
Return on average assets .80% .37% .53% .98% 1.17% 1.08% .73%
Efficiency ratio (noninterest
expense to net interest income
and non interest income) 75.92% 84.97% 79.61% 72.81% 79.71% 80.43% 85.15%
Efficiency ratio excluding the
amortization of intangibles and
goodwill 75.92% 84.97% 79.61% 72.81% 79.71% 80.43% 85.15%
Average equity to average assets 8.49% 9.39% 9.05% 10.29% 10.92% 9.97% 9.40%
Leveraged capital ratio 8.54% 9.31% 9.30% 9.80% 11.20% 10.10% 9.76%
Nonperforming loans and leases to
total loans and leases 0% .03% 0% .02% .45% .15% 1.33%
Nonperforming assets to total assets 0% .02% 0% .02% .29% .10% .85%
Net chargeoffs (recoveries) to
average loans and leases (.23%) 0% .36% .67% .31% .69% .15%
Allowance for loan or lease losses to
total loans and leases 1.08% 1.16% .95% 1.06% 1.60% 1.75% 2.03%
Allowance for loan or lease losses to
nonperforming loans and leases (3) -- 3610% -- 4728.6% 359.2% 1193.1% 153.2%
(1) Adjusted for 5 for 4 stock split in 1999.
(2) Selected ratios for the three months ended March 31, 2000 and 1999 have
been annualized.
(3) There were no non-accrual loans or loans past due 90 days or more at March
31, 2000 and December 31, 1999.
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AMERICAN RIVER HOLDINGS AND NORTH COAST BANK, N.A.
SELECTED UNAUDITED PRO FORMA COMBINED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND RATIOS)
As of and for the:
Three Months
Ended March 31, Years Ended December 31,
------------------- ----------------------------------------------------
STATEMENT OF OPERATIONS DATA 2000 1999 1999 1998 1997 1996 1995
Net interest income $ 3,152 $ 2,797 $ 11,754 $ 10,743 $ 9,582 $ 9,105 $ 8,879
Provision for loan or lease losses 133 124 582 509 605 561 502
Other income 541 362 1,787 1,507 1,268 1,197 1,548
Other expenses 2,124 1,883 7,910 7,217 6,620 6,729 6,918
-------- -------- -------- -------- -------- -------- --------
Income before income taxes 1,436 1,152 5,049 4,524 3,627 3,012 3,007
Income taxes 546 442 1,921 1,673 1,278 1,034 1,154
-------- -------- -------- -------- -------- -------- --------
Net income $ 890 $ 710 $ 3,128 $ 2,851 $ 2,347 $ 1,978 $ 1,853
======== ======== ======== ======== ======== ======== ========
PER SHARE DATA: (1)
Earnings per share - basic 0.40 0.31 1.37 1.25 1.02 0.86 0.80
Earnings per share - diluted 0.38 0.29 1.30 1.14 0.95 0.84 0.80
Cash dividends per share 0.00 0.00 0.230 0.195 0.174 0.158 0.156
Book value per share 9.56 8.59 9.17 8.44 7.71 6.92 6.20
Tangible book value per share 9.49 8.50 9.09 8.35 7.60 6.79 6.05
BALANCE SHEET DATA:
Balance sheet totals-end of period:
Assets $246,874 $216,402 $248,540 $220,001 $197,177 $166,176 $165,960
Loans and leases, net 158,133 144,423 157,044 143,132 121,960 108,821 109,721
Deposits 220,674 193,425 223,077 197,104 176,329 148,670 150,013
Shareholders' equity 21,494 19,672 20,611 19,168 17,664 15,936 14,259
Average balance sheet amounts:
Assets $246,572 $215,742 $224,960 $201,958 $179,667 $165,368 $152,647
Loans and leases 159,979 147,521 147,915 133,011 114,766 110,296 107,073
Earning assets 228,200 199,564 207,305 187,071 166,104 153,090 141,159
Deposits 220,613 195,029 201,180 180,288 161,794 148,805 137,668
Shareholders' equity 20,896 19,463 19,916 18,434 16,801 15,073 13,316
SELECTED RATIOS: (2)
Return on average equity 17.13% 14.79% 15.71% 15.47% 13.97% 13.12% 13.92%
Return on average tangible equity 17.26% 14.95% 15.85% 15.66% 14.20% 13.40% 14.30%
Return on average assets 1.45% 1.33% 1.39% 1.41% 1.31% 1.20% 1.21%
Efficiency ratio (noninterest
expense to net interest income
and non interest income) 57.51% 59.61% 58.42% 58.91% 61.01% 65.32% 66.35%
Efficiency ratio excluding the
amortization of intangibles and
goodwill 57.24% 59.29% 58.12% 58.59% 60.65% 64.93% 65.96%
Average equity to average assets 8.47% 9.02% 8.85% 9.13% 9.35% 9.11% 8.72%
Leveraged capital ratio 8.71% 9.13% 9.17% 9.51% 9.85% 9.66% 9.37%
Nonperforming loans and leases to
total loans and leases 0.04% 0.14% 0.02% 0.08% 0.38% 1.11% 0.68%
Nonperforming assets to total assets 0.02% 0.31% 0.01% 0.31% 0.65% 1.09% 0.55%
Net chargeoffs to average loans
and leases -0.01% 0.00% 0.14% 0.26% 0.52% 0.79% 0.46%
Provision of allowance for loan losses
to average loans outstanding 0.08% 0.08% 0.39% 0.38% 0.53% 0.51% 0.47%
Allowance for loan or lease losses to
total loans and leases 1.35% 1.24% 1.30% 1.17% 1.24% 1.37% 1.64%
Allowance for loan or lease losses to
nonperforming loans and leases 3557.4% 862.9% 6873.3% 1447.0% 322.6% 123.7% 240.9%
(1) Adjusted for American River Holdings 5% stock dividends in 1997, 1998 and
1999, and 3 for 2 stock split in 1999, and North Coast Bank, N.A. 5 for 4
stock split in 1999.
(2) Selected ratios for the three months ended March 31, 2000 and 1999 have
been annualized.
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HISTORICAL AND PRO FORMA PER SHARE DATA
FOR AMERICAN RIVER HOLDINGS AND NORTH COAST BANK, N.A.
We have summarized below the per share information for our respective companies on a historical, pro forma combined and equivalent basis.
We have calculated the pro forma combined per share data for net income using the weighted average number of shares of American River Holdings common stock outstanding for the periods presented, increased by the weighted average number of shares of North Coast Bank, N.A. common stock outstanding for the periods presented multiplied by the conversion ratio of .9644 of a share of American River Holdings common stock for each share of North Coast Bank, N.A. common stock, as if these shares were outstanding for each period presented. The pro forma combined per share data for dividends declared represents the historical dividends for American River Holdings common stock. The pro forma combined book value per share has been calculated using shares of outstanding American River Holdings common stock increased by the shares of outstanding North Coast Bank, N.A. common stock multiplied by the conversion ratio of .9644 of a share of American River Holdings common stock for each share of North Coast Bank, N.A. common stock as if these shares were outstanding as of the dates presented.
The equivalent pro forma North Coast Bank, N.A. share information has been calculated by multiplying the pro forma combined per share information by the conversion ratio of .9644.
ARH NCB
Common Stock Common Stock
-------------------- ---------------------
Pro Forma Pro Forma
Historical Combined Historical Combined
---------- --------- ---------- ---------
Book value per share:
March 31, 2000 $ 9.70 $ 9.56 $ 8.67 $ 9.22
December 31, 1999 9.26 9.17 8.46 8.84
Tangible book value per share:
March 31, 2000 $ 9.62 $ 9.49 $ 8.67 $ 9.15
December 31, 1999 9.17 9.09 8.46 8.77
Dividends declared:
Three months ended March 31, 2000 $ -- $ -- $ -- $ --
Year ended December 31, 1999 .230 .230 -- .222
Year ended December 31, 1998 .195 .195 -- .188
Year ended December 31, 1997 .174 .174 -- .168
Earnings per share:
Basic:
Three months ended March 31, 2000 $ .44 $ .40 $ .20 $ .39
Year ended December 31, 1999 1.59 1.37 .48 1.32
Year ended December 31, 1998 1.37 1.25 .73 1.21
Year ended December 31, 1997 1.09 1.02 .73 .98
Diluted:
Three months ended March 31, 2000 $ .42 $ .38 $ .19 $ .37
Year ended December 31, 1999 1.50 1.30 .46 1.25
Year ended December 31, 1998 1.24 1.14 .70 1.10
Year ended December 31, 1997 0.99 .95 .72 .92
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RISK FACTORS
In deciding whether to vote in favor of the merger, shareholders of North Coast Bank, N.A. and American River Holdings should consider the following factors, in addition to the other matters set forth in this joint proxy statement/prospectus.
THE PRICE OF AMERICAN RIVER HOLDINGS COMMON STOCK MAY DECLINE
The market price of American River Holdings common stock after the merger takes place may vary from the price at the date of this joint proxy statement/prospectus and at the date of the meetings. Variations in the market price of American River Holdings common stock may result from changes in the business, operations or prospects of American River Holdings, North Coast Bank, N.A. or the combined company, market assessments of the likelihood that the merger will be consummated and the timing thereof, regulatory considerations, general market and economic conditions and other factors. We urge you to obtain current market quotations for American River Holdings common stock. See "Proposal No. 1, To Approve the Merger Agreement and Merger--Purchase Price" on page 112. Changes in the market price of American River Holdings common stock or North Coast Bank, N.A. common stock will not change or otherwise affect the conversion ratio, which is fixed at .9644.
CUSTOMERS OF NORTH COAST BANK, N.A. MAY NOT BE RETAINED AND AMERICAN RIVER HOLDINGS MAY NOT BE ABLE TO REALIZE ANTICIPATED OPERATING COST SAVINGS
Upon the consummation of the merger, North Coast Bank, N.A. will be merged with and into ARH Interim National Bank, and the resulting national banking association will continue as a subsidiary of American River Holdings with the national bank charter number and name of North Coast Bank, N.A. American River Holdings anticipates that, after the effective time of the merger, a significant percentage of North Coast Bank, N.A.'s existing employees and customers will be retained. There are no assurances that North Coast Bank, N.A. customers will not move their banking relationships to other financial institutions and that a greater than anticipated number of North Coast Bank, N.A. employees will not remain employed by North Coast Bank, N.A. after the merger. In addition, while American River Holdings expects to achieve operating cost savings through the elimination of duplicative corporate and administrative expenses through centralization of management and operations functions and economies of scale, there can be no assurance that American River Holdings will be able to realize those cost savings.
ADDITIONAL SHARES OF AMERICAN RIVER HOLDINGS COMMON STOCK COULD BE ISSUED WHICH COULD RESULT IN A DECLINE IN THE MARKET PRICE OF THE STOCK
Shares of American River Holdings common stock eligible for future sale could have a dilutive effect on the market for American River Holdings common stock and could adversely affect the market price. The articles of incorporation of American River Holdings authorize the issuance of 20,000,000 shares of common stock, of which ______________ shares were outstanding at ___________, 2000. Pursuant to its 1995 Stock Option Plan, at ____________, 2000, American River Holdings had outstanding options to purchase an aggregate of 270,128 shares of American River Holdings common stock. If American River Holdings shareholders approve the 2000 Stock Option Plan, the 1995 Stock Option Plan will be terminated as to future option grants. Stock options outstanding under the 1995 Stock Option Plan will remain outstanding until exercised or terminated in accordance with their terms. Substitute stock options will be issued under the 2000 Stock Option Plan to holders of North Coast Bank, N.A. stock options in accordance with the merger agreement. See "Proposal No. 2, Approval of the American River Holdings 2000 Stock Option Plan" on page 154. Sales of substantial amounts of American River Holdings common stock in the public market following the merger could adversely affect the market price of American River Holdings common stock. There are no restrictions in the merger agreement preventing
American River Holdings from issuing additional shares of American River Holdings common stock after the merger.
There can be no assurance given as to the market value of American River Holdings common stock after the merger based on future acquisitions, if any, or other factors, including but not limited to, general economic conditions or fluctuating interest rates.
THE YEAR 2000 PROBLEM MAY ADVERSELY AFFECT AMERICAN RIVER HOLDINGS, NORTH COAST BANK, N.A. OR THE RESULTING BANK
The "Year 2000 issue" relates to the fact that many computer programs and other technology utilizing microprocessors use only two digits to represent a year, such as "98" to represent "1998." In the year 2000 ("Y2K"), those programs/processors could incorrectly treat the year 2000 as the year 1900. This issue has grown in importance as the use of computers and microprocessors has become more pervasive throughout the economy, and interdependencies between systems has multiplied. The businesses of American River Holdings and North Coast Bank, N.A. are dependent on technology and data processing. American River Holdings and North Coast Bank, N.A. could be affected either directly or indirectly by the Year 2000 issue. This could happen if any of their respective critical computer systems or equipment containing embedded logic fail, if the local infrastructure (electric power, communications or water system) fails, if their respective significant vendors are adversely impacted, or if their respective borrowers or depositors are significantly impacted by their internal systems or those of their customers or suppliers.
As of the date of this proxy statement/prospectus, neither American River Holdings nor North Coast Bank, N.A. has experienced such Year 2000 problems, however, if such problems were to arise, it is impossible to quantify the potential costs to correct such problems or how the problems will affect the business, financial condition or results of operations of American River Holdings or North Coast Bank, N.A.
DETERIORATION OF THE REAL ESTATE MARKET COULD HAVE AN ADVERSE EFFECT UPON PERFORMANCE
At March 31, 2000, approximately $84,330,000 or 70% and approximately $20,831,000 or 52% of American River Bank's and North Coast Bank, N.A.'s loan portfolios, respectively, constituted real estate loans primarily secured by the underlying real estate. The ability of American River Bank and North Coast Bank, N.A. to continue to originate real estate secured loans may be impaired by adverse changes in local and regional economic conditions in the real estate market, increasing interest rates, or by acts of nature, including earthquakes and flooding. These events could have a material adverse impact on the value of the collateral resulting in increases in loan losses, the allowance for loan losses and other real estate, which could adversely impact the results of operations and financial performance of American River Bank and North Coast Bank, N.A. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of American River Holdings--Loans" on page 38 and "Management's Discussion and Analysis of Financial Condition and Results of Operations of North Coast Bank, N.A.--Loans" on page 63.
ENVIRONMENTAL LIABILITY ASSOCIATED WITH COMMERCIAL AND REAL ESTATE LENDING COULD RESULT IN LOSSES
In the course of business, American River Bank and North Coast Bank, N.A. may in the future acquire, through foreclosure, properties securing commercial and real estate loans they have originated or purchased which are in default. There is a risk that hazardous substances could be discovered on these properties. This could result in substantial expense incurred by American River Bank or North Coast Bank, N.A. to remove the hazardous substances where a prior owner, operator or other party is not
otherwise responsible for the costs of removal. The cost of removal could substantially exceed the value of the affected properties and without remedies against another responsible party, or an available market to sell the affected properties, losses could arise which could have a material adverse effect on the business, financial condition and results of operations of American River Bank and North Coast Bank, N.A.
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
This joint proxy statement/prospectus contains forward-looking statements regarding each of American River Holdings and North Coast Bank, N.A. and the combined company following the merger, including statements relating to:
o the financial condition, results of operations and business of American River Holdings following completion of the merger;
o cost savings, enhanced revenues and accretion to reported earnings that are expected to be realized from the merger; and
o the restructuring charges expected to be incurred in connection with the merger.
These forward-looking statements involve risks and uncertainties. Factors that may cause actual results to differ materially from those contemplated by the forward-looking statements include, among others, the following possibilities:
o expected cost savings from the merger cannot be fully realized or realized within the expected time frame;
o revenues following the merger are lower than expected or deposit withdrawals, operating costs or customer loss and business disruption following the merger may be greater than expected;
o competitive pressures among depository and other financial services companies increase significantly;
o costs or difficulties related to the integration of the businesses of American River Holdings and North Coast Bank, N.A. are greater than expected;
o changes in the interest rate environment reduce interest margins, cause an increase in the prepayment rate on mortgages and other loans or reduce the demand for new loans;
o general economic or business conditions, either internationally, nationally or in the State of California, are less favorable than expected, resulting in, among other things, a deterioration in credit quality or a reduced demand for credit;
o legislation or regulatory requirements or changes adversely affect the businesses in which the combined company would be engaged;
o technology-related changes, including "Year 2000" data systems compliance issues, may be harder to make or more expensive than expected;
o changes in the securities market; and
o timing of completion of the merger may be delayed, due to regulatory requirements or other factors which may delay, restrict or prohibit new operations.
With respect to estimated cost savings, American River Holdings has made assumptions regarding, among other things, the amount of general and administrative expense consolidation, costs relating to converting North Coast Bank, N.A. operations and data processing to American River Holdings systems, the size of anticipated reductions in fixed labor costs, the amount of severance expenses, the extent of the
charges that may be necessary to align the companies' respective accounting reserve policies and the costs related to the merger. The realization of the expected cost savings are subject to the risk that the foregoing assumptions are inaccurate.
Management of American River Holdings believes these forward-looking statements are reasonable; however, undue reliance should not be placed on the forward-looking statements, which are based on current expectations.
Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions. The future results and shareholder values of American River Holdings following completion of the merger may differ materially from those expressed in these forward-looking statements. Many of the factors that will determine these results and values are beyond American River Holdings' and North Coast Bank, N.A.'s ability to control or predict. For those statements, American River Holdings and North Coast Bank, N.A. claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.
INTRODUCTION
THE MEETINGS: DATES, TIMES AND PLACES
American River Holdings. American River Holdings' annual meeting will be held at 1545 River Park Drive, Suite 107, Sacramento, California at __:__ _.m., local time, on ___________, 2000.
North Coast Bank, N.A. North Coast Bank, N.A.'s special meeting will be held at 50 Santa Rosa Avenue, Santa Rosa, California at __:__ _.m., local time, on __________, 2000.
MATTERS TO BE CONSIDERED AT THE MEETINGS
American River Holdings. At American River Holdings' annual meeting, holders of American River Holdings common stock are being asked to approve the merger agreement, including the merger and issuance of American River Holdings common stock to North Coast Bank, N.A.'s shareholders as provided under the terms of the merger agreement. American River Holdings shareholders will also be asked to consider and vote on proposals to approve the American River Holdings 2000 Stock Option Plan, amendments to the articles of incorporation and bylaws of American River Holdings to provide for the classification of the board of directors and to eliminate cumulative voting in the election of directors, to elect management's nominees as directors of American River Holdings, and to ratify the appointment of Perry-Smith LLP as independent accountants for the year 2000. See "Proposal No. 1, To Approve the Merger Agreement and Merger" on page 97, "Proposal No. 2, Approval of the American River Holdings 2000 Stock Option Plan" on page 154, "Proposal No. 3, Approval of Amendments to the American River Holdings Articles of Incorporation and Bylaws to Provide for the Classification of the Board of Directors" on page 160, "Proposal No. 4, Approval of Amendments to the American River Holdings Articles of Incorporation and Bylaws to Eliminate Cumulative Voting in the Election of Directors" on page 164, "Proposal No. 5, Election of American River Holdings Directors" on page 167, and "Proposal No. 6, Ratification of the Appointment of Perry-Smith LLP as Independent Accountants for the Year 2000" on page 179.
North Coast Bank, N.A. At North Coast Bank, N.A.'s special meeting, holders of North Coast Bank, N.A. common stock are being asked to approve the merger agreement and the merger. See "Proposal No. 1, To Approve the Merger Agreement and Merger" on page 97.
RECORD DATE; STOCK ENTITLED TO VOTE; QUORUM
American River Holdings. Only holders of record of American River Holdings common stock at the close of business on _____________, 2000, the record date for American River Holdings' annual meeting, are entitled to receive notice of and to vote at American River Holdings' annual meeting. On the record date, approximately __________ shares of American River Holdings common stock were issued and outstanding and held by approximately ____ holders of record. A majority of the shares of American River Holdings common stock issued and outstanding and entitled to vote on the record date must be represented in person or by proxy at American River Holdings' annual meeting in order for a quorum to be present for purposes of transacting business at American River Holdings' annual meeting. In the event that a quorum is not present at American River Holdings' annual meeting, it is expected that the annual meeting will be adjourned or postponed to solicit additional proxies. Holders of record of American River Holdings common stock on the record date are each entitled to one vote per share on each matter to be considered at American River Holdings' annual meeting, except that in the election of directors, such holders may cumulate votes. See "Proposal No. 5, Election of American River Holdings Directors" on page 167.
North Coast Bank, N.A. Only holders of record of North Coast Bank, N.A. common stock at the close of business on ______________, 2000, the record date for North Coast Bank, N.A.'s special meeting, are entitled to receive notice of and to vote at North Coast Bank, N.A.'s special meeting. On the record date, approximately __________ shares of North Coast Bank, N.A. common stock were issued and outstanding and held by approximately ____ holders of record. A majority of the shares of North Coast Bank, N.A. common stock issued and outstanding and entitled to vote on the record date must be represented in person or by proxy at North Coast Bank, N.A.'s special meeting in order for a quorum to be present for purposes of transacting business at North Coast Bank, N.A.'s special meeting. In the event that a quorum is not present at North Coast Bank, N.A.'s special meeting, it is expected that the special meeting will be adjourned or postponed to solicit additional proxies. Holders of record of North Coast Bank, N.A. common stock on the record date are each entitled to one vote per share on each matter to be considered at North Coast Bank, N.A.'s special meeting.
VOTES REQUIRED
American River Holdings. Approval of the merger agreement, the merger and the issuance of the shares of American River Holdings common stock to North Coast Bank, N.A.'s shareholders requires holders of a majority of the shares of American River Holdings common stock outstanding on the record date to vote in favor of the proposal. Approval of the American River Holdings 2000 Stock Option Plan requires the affirmative vote of the holders of a majority of the shares of American River Holdings common stock present in person or represented by proxy and entitled to vote at the annual meeting, provided that the number of affirmative votes equals at least a majority of the shares constituting the required quorum. Approval of the amendments to the American River Holdings articles of incorporation and bylaws to provide for the classification of the board of directors and to eliminate cumulative voting in the election of directors, requires the affirmative vote of the holders of record of at least a majority of the shares of American River Holdings common stock outstanding on the record date for American River Holdings' annual meeting. Ratification of the appointment of Perry-Smith LLP as independent accountants requires the affirmative vote of the holders of record of a majority of the shares of American River Holdings common stock voting in person or by proxy at the annual meeting. An abstention or a broker non-vote will not count as a vote cast at American River Holdings' annual meeting, but will count only for purposes of determining whether or not a quorum is present. See "--Voting of Proxies--Abstentions and Broker Non-Votes" on page 32.
North Coast Bank, N.A. The approval of the merger agreement and the merger requires the affirmative vote of the holders of record of at least two-thirds of the shares of North Coast Bank, N.A. common stock outstanding on the record date for North Coast Bank, N.A.'s special meeting. An abstention or a broker non-vote will not count as a vote cast at North Coast Bank, N.A.'s special meeting, but will count only for purposes of determining whether or not a quorum is present. See "--Voting of Proxies--Abstentions and Broker Non-Votes" on page 32.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
American River Holdings. At the close of business on the record date, directors and executive officers of American River Holdings and their affiliates beneficially owned and were entitled to vote approximately 620,680 shares of American River Holdings common stock, which represented approximately 31.8% of the shares of American River Holdings common stock outstanding on that date. Each of those directors and executive officers has agreed to vote, or cause to be voted, the American River Holdings common stock owned by him or her "FOR" approval of the merger agreement, the merger and the resulting issuance of American River Holdings common stock to North Coast Bank, N.A.'s shareholders under the terms of the merger agreement and "FOR" the proposals to approve the American River Holdings 2000 Stock Option Plan, the amendments to the American River Holdings articles of incorporation and
bylaws to provide for the classification of the board of directors and to eliminate cumulative voting in the election of directors, election of management's nominees as directors of American River Holdings, and to ratify the appointment of Perry-Smith LLP as independent accountants for the year 2000, at American River Holdings' annual meeting.
As of the record date, no individual known to American River Holdings owned more than five percent (5%) of the outstanding shares of its common stock except as described in the table below and the directors and executive officers of American River Holdings beneficially owned shares of American River Holdings common stock as described in the following table. Unless otherwise indicated in the table or the notes to the table, (i) each beneficial owner listed below possesses sole voting power and sole investment power; (ii) all of the shares shown in the following table are owned both of record and beneficially; (iii) the address for beneficial owners, all of whom are incumbent directors and executive officers of American River Holdings and American River Bank, is the address of American River Holdings, 1545 River Park Drive, Suite 107, Sacramento, California 95815; and (iv) American River Holdings no par value common stock is the only class of shares outstanding.
Name and Address Amount and Nature of Beneficial Owner of Beneficial Ownership (1) Percent of Class (2) ------------------- -------------------------- -------------------- Kevin B. Bender 4,351 * Richard M. Borst 5,306(3) * James O. Burpo 37,111(4) 1.9% Mitchell A. Derenzo 18,472(5) 1.0% Charles D. Fite 98,162(6) 5.0% Sam J. Gallina 83,527(7) 4.3% Wayne C. Matthews, M.D. 55,007(8) 2.8% David T. Taber 68,243(9) 3.5% Marjorie G. Taylor 32,056(10) 1.7% Roger J. Taylor, D.D.S. 114,615(11) 5.9% Douglas E. Tow 6,597(12) * Stephen H. Waks 24,277(13) 1.2% William L. Young 72,951(14) 3.7% All directors and 620,680(15) 31.8% executive officers as a group (13 persons) ---------------------------- |
(1) Except as otherwise noted, may include shares held by or with such person's
spouse (except where legally separated) and minor children; shares held by
any other relative of such person who has the same home; shares held by a
family trust as to which such person is a trustee with sole voting and
investment power (or shared power with a spouse); or shares held in an
individual retirement account or pension plan of which such person is the
sole beneficiary, and as to which such person has pass-through voting
rights and investment power.
(2) Includes stock options outstanding to purchase common stock exercisable
within 60 days of the record date. The shares "beneficially owned" are
determined under Securities and Exchange
Commission Rules, and do not necessarily indicate ownership for any other
purpose. In general, beneficial ownership includes shares over which a
person has sole or shared voting or investment power and shares which the
person has the right to acquire within 60 days. An * indicates less than
one percent.
(3) Includes 3,819 shares which Mr. Borst has the right to acquire upon the
exercise of stock options within 60 days of the record date.
(4) Includes 3,473 shares which Mr. Burpo has the right to acquire upon the
exercise of stock options within 60 days of the record date.
(5) Includes 10,419 shares which Mr. Derenzo has the right to acquire upon the
exercise of stock options within 60 days of the record date.
(6) Includes 13,842 shares which Mr. Fite has the right to acquire upon the
exercise of stock options within 60 days of the record date. Mr. Fite has
indirect voting powers as to 43,247 shares under general proxies signed by
D. Bruce and Darlyne Fite, and Charles F. Fite.
(7) Includes 13,892 shares which Mr. Gallina has the right to acquire upon the
exercise of stock options within 60 days of the record date.
(8) Includes 4,442 shares which Dr. Matthews has the right to acquire upon the
exercise of stock options within 60 days of the record date.
(9) Includes 34,730 shares which Mr. Taber has the right to acquire upon the
exercise of stock options within 60 days of the record date.
(10) Includes 2,960 shares which Ms. Taylor has the right to acquire upon the
exercise of stock options within 60 days of the record date.
(11) Includes 13,892 shares which Dr. Taylor has the right to acquire upon the
exercise of stock options within 60 days of the record date. Dr. Taylor has
indirect voting powers as to 20,908 shares under general proxies signed by
Gary W. Taylor, Robert P. Taylor and Frederick S. Taylor.
(12) Includes 5,285 shares which Mr. Tow has the right to acquire upon the
exercise of stock options within 60 days of the record date.
(13) Includes 6,946 shares which Mr. Waks has the right to acquire upon the
exercise of stock options within 60 days of the record date.
(14) Includes 34,730 shares which Mr. Young has the right to acquire upon the
exercise of stock options within 60 days of the record date.
(15) Includes 148,480 stock options outstanding to purchase common stock
exercisable within 60 days of the record date.
North Coast Bank, N.A. At the close of business on the record date, directors and executive officers of North Coast Bank, N.A. and their affiliates beneficially owned and were entitled to vote approximately 276,652 shares of North Coast Bank, N.A. common stock, which represented approximately 42.8% of the shares of North Coast Bank, N.A. common stock outstanding on that date. Each of those directors and executive officers has agreed to vote, or cause to be voted, the North Coast Bank, N.A. common stock owned by him or her "FOR" approval of the merger agreement and the merger at North Coast Bank, N.A.'s special meeting. See "Proposal No. 1, To Approve the Merger Agreement and Merger--Interests of American River Holdings and North Coast Bank, N.A. Officers and Directors in the Merger" on page 114.
As of the record date, no individual known to North Coast Bank, N.A.
owned more than five percent (5%) of the outstanding shares of its common stock
except as described in the table below and the directors and executive officers
of North Coast Bank, N.A. beneficially owned shares of North Coast Bank, N.A.
common stock as described in the following table. Unless otherwise indicated in
the table or the notes to the table, (i) each director and executive officer
listed below possesses sole voting power and sole investment power; (ii) all of
the shares shown in the following table are owned both of record and
beneficially; (iii) the address for beneficial owners, all of whom are incumbent
directors and executive officers of North Coast Bank, N.A., is the address of
North Coast Bank, N.A., 50 Santa Rosa Avenue, Santa Rosa, California 95404; and
(iv) North Coast Bank, N.A. $4.00 par value common stock is the only class of
shares outstanding.
Name and Address Amount and Nature of Beneficial Owner of Beneficial Ownership (1) Percent of Class (2) ------------------- -------------------------- -------------------- Leo J. Becnel 22,593(3) 4.6% M. Edgar Deas 32,830(4) 6.7% Debbie K. Fakalata 2,925(5) * Michael P. Merrill 30,750(6) 6.3% Kathy A. Pinkard 19,843(7) 4.0% William A. Robotham 35,124(8) 7.2% Herbert C. Steiner 31,250(9) 6.4% Larry L. Wasem 38,150(10) 7.8% David A. Wattell 2,500(11) * Philip A. Wright 32,887(12) 6.7% Robert A. Young 27,800(13) 5.7% All directors and 276,652(14) 42.8% executive officers as a group (11) persons ---------------------- |
(1) Except as otherwise noted, may include shares held by or with the person's spouse (except where legally separated) and minor children; shares held by any other relative of the person who has the same home; shares held by a family trust as to which the person is a beneficiary and trustee with sole vesting and investment power (or shared with a spouse); or shares held in an individual retirement account or pension plan of which the person is the sole beneficiary, and as to which shares the person has pass-through voting rights and investment power.
(2) Includes stock options outstanding to purchase common stock exercisable
based upon accelerated vesting in connection with the merger under the
North Coast Bank, N.A. 1990 Stock Option Plan. The shares "beneficially
owned" are determined under Securities and Exchange Commission Rules, and
do not necessarily indicate ownership for any other purpose. In general,
beneficial ownership includes shares over which a person has sole or shared
voting or investment power and shares which the person has the right to
acquire within 60 days. An * indicates less than one percent.
(3) Includes 18,750 shares which Mr. Becnel has the right to acquire upon the
exercise of stock options.
(4) Includes 18,750 shares which Mr. Deas has the right to acquire upon the
exercise of stock options.
(5) Includes 2,500 shares which Ms. Fakalata has the right to acquire upon the
exercise of stock options.
(6) Includes 18,750 shares which Mr. Merrill has the right to acquire upon the
exercise of stock options.
(7) Includes 19,290 shares which Ms. Pinkard has the right to acquire upon the
exercise of stock options.
(8) Includes 18,750 shares which Mr. Robotham has the right to acquire upon the
exercise of stock options.
(9) Includes 18,750 shares which Mr. Steiner has the right to acquire upon the
exercise of stock options.
(10) Includes 18,750 shares which Mr. Wasem has the right to acquire upon the
exercise of stock options.
(11) Includes 2,500 shares which Mr. Wattell has the right to acquire upon the
exercise of stock options.
(12) Includes 18,750 shares which Mr. Wright has the right to acquire upon the
exercise of stock options.
(13) Includes 18,750 shares which Mr. Young has the right to acquire upon the
exercise of stock options.
(14) Includes 174,290 stock options outstanding to purchase common stock
exercisable based upon accelerated vesting in connection with the merger
under the North Coast Bank, N.A. 1990 Stock Option Plan.
BACKGROUND AND BUSINESS EXPERIENCE OF MANAGEMENT
American River Holdings. The following table sets forth certain information as of the record date ___________, 2000 with respect to those persons whom management has nominated for election as directors of American River Holdings, each of whom is an incumbent director, as well as all executive officers, including their respective ages, positions with American River Holdings and its subsidiaries and a brief account of the business experience for a minimum of five years of each director and executive officer listed below.
American River Holdings knows of no arrangements, including any pledge by any person of securities of American River Holdings, the operation of which may, at a subsequent date, result in a change in control of American River Holdings. There are no arrangements or understandings by which any of the executive officers or directors of either American River Holdings or its subsidiaries were selected. There is no family relationship between any of the directors or executive officers, except that Marjorie G. Taylor was married to Roger J. Taylor's deceased father.
Name Age Position
---- --- --------
Kevin B. Bender 36 Senior Vice President and Chief Information
Officer of American River Bank since 1999.
Formerly, Vice President of Credit
Administration of American River Bank since
1986.
Richard M. Borst 44 Senior Vice President and Client Services
Manager of American River Bank since 1991.
James O. Burpo 77 Director of American River Holdings, American
River Bank and First Source Capital since 1995,
1994 and 1999, respectively. Chairman of the
Sacramento office of Alburger Basso De Grosz,
Inc. Insurance Brokers, which engages in
commercial insurance brokerage. Real estate
developer in Sacramento.
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Mitchell A. Derenzo 38 Chief Financial Officer of American River
Holdings since 1995. Senior Vice President and
Chief Financial Officer of American River Bank
since 1992. Chief Financial Officer of First
Source Capital since 1999.
Charles D. Fite 42 Director of American River Holdings, American
River Bank and First Source Capital since 1995,
1993 and 1999, respectively. President, Fite
Development Company, a real estate development
firm in Sacramento.
Sam J. Gallina 67 Director (Chairman) of American River Holdings,
American River Bank and First Source Capital
since 1995, 1986 and 1999, respectively. Senior
Partner, S. J. Gallina & Co., Certified Public
Accountants in Sacramento.
Wayne C. Matthews, M.D. 70 Director of American River Holdings, American
River Bank and First Source Capital since 1995,
1984 and 1999, respectively. Family Practitioner
in Sacramento.
David T. Taber 39 Director of American River Holdings, American
River Bank and First Source Capital since 1995,
1989 and 1999, respectively. President and Chief
Executive Officer of American River Holdings
since 1995 and Executive Vice President of
American River Bank since 1989. President and
Chief Executive Officer of First Source Capital
since 1999.
Marjorie G. Taylor 66 Director of American River Holdings, American
River Bank and First Source Capital since 1995,
1983 and 1999, respectively. Property Manager
(self-employed) in Sacramento.
Roger J. Taylor D.D.S. 54 Director (Vice-Chairman) of American River
Holdings, American River Bank and First Source
Capital since 1995, 1983 and 1999, respectively.
Dentist (Retired) and National Executive
Director of Impax Health Prime, a worldwide
distributor of nutritional supplements, based in
Sacramento, and a real estate developer in
Sacramento.
Douglas E. Tow 46 Senior Vice President and Credit Administrator
of American River Bank since 1994.
Stephen H. Waks 52 Director of American River Holdings, American
River Bank and First Source Capital since 1995,
1986 and 1999, respectively. Attorney-at-Law and
owner of Stephen H. Waks, Inc. in Sacramento.
William L. Young 58 Director of American River Holdings, American
River Bank and First Source Capital since 1995,
1988 and 1999, respectively. President and Chief
Executive Officer of American River Bank since
1989.
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None of the directors of American River Holdings or its subsidiaries is a director of any other company with a class of securities registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended, or subject to the requirements of Section 15(d) of such Act or any company registered as an investment company under the Investment Company Act of 1940, whose common stock is registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended.
North Coast Bank, N.A. The following table sets forth certain information as of the record date ___________, 2000 with respect to incumbent directors, as well as all executive officers, including their respective ages, positions with North Coast Bank, N.A., and a brief account of the business experience for a minimum of five years of each director and executive officer listed below.
Other than the merger, North Coast Bank, N.A. knows of no arrangements, including any pledge by any person of securities of North Coast Bank, N.A., the operation of which may, at a subsequent date, result in a change in control of North Coast Bank, N.A. There are no arrangements or understandings by which any of the executive officers or directors of North Coast Bank, N.A. were selected. There is no family relationship between any of the directors or executive officers.
Name Age Position
---- --- --------
Leo J. Becnel 63 Director of North Coast Bank, N.A. since 1990.
Optometry practitioner in Windsor.
M. Edgar Deas 64 Director (Chairman) of North Coast Bank, N.A.
since 1990. President and Chief Executive
Officer of E&M Electric in Healdsburg.
Debbie K. Fakalata 41 Senior Vice President and Chief Financial
Officer of North Coast Bank, N.A. since 1998.
Formerly, Vice President and Chief Financial
Officer of Stockmans Bank in Elk Grove since
April, 1991, and Operations Manager of
California Livestock Production Credit
Association since 1980.
Michael P. Merrill 58 Director (Vice-Chairman) of North Coast Bank,
N.A. since 1990. Attorney-at-Law and senior
partner of Merrill, Arnone & Jones in Santa
Rosa.
Kathy A. Pinkard 47 President and Chief Executive Officer of North
Coast Bank, N.A. since 1998. Formerly, Executive
Vice President and Chief Operating Officer, and
Senior Vice President and Chief Financial
Officer, of North Coast Bank, N.A., since
September 1, 1997 and February 6, 1996,
respectively. Senior Vice President and Chief
Financial Officer of Gold Country National Bank
in Marysville since May, 1993. Vice
President/Cashier of Stockmans Bank in Elk Grove
since 1990.
William A. Robotham 58 Director of North Coast Bank, N.A. since 1990.
Executive partner of Pisenti & Brinker,
Certified Public Accountants, in Santa Rosa.
Herbert C. Steiner 62 Director of North Coast Bank, NA. since 1990.
Pharmacist and owner of the Prescription Center
Pharmacy in Healdsburg.
Larry L. Wasem 47 Director of North Coast Bank, N.A. since 1990.
Real estate developer and partner of the Airport
Business Center in Santa Rosa since 1985.
David A. Wattell 54 Senior Vice President and Chief Credit Officer
of North Coast Bank, N.A. since 1997. Formerly,
Senior Vice President and
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Senior Credit Officer of National Bank of the
Redwoods in Santa Rosa since November, 1991.
President and Chief Executive Officer of Codding
Bank in Rohnert Park since September, 1988.
Philip A. Wright 53 Director of North Coast Bank, N.A. since 1990.
Owner of Wright Realty, a real estate and
development business in Windsor.
Robert A. Young 80 Director of North Coast Bank, N.A. since 1990.
President of Robert Young Vineyards, Inc. in
Geyserville.
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None of the directors of North Coast Bank, N.A. is a director of any other company with a class of securities registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended, or subject to the requirements of Section 15(d) of such Act or any company registered as an investment company under the Investment Company Act of 1940, whose common stock is registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended.
VOTING OF PROXIES
Submitting Proxies. American River Holdings and North Coast Bank, N.A. shareholders may vote their shares in person by attending their respective meeting or vote their shares by proxy by completing the enclosed proxy card, signing and dating it and mailing it in the enclosed postage pre-paid envelope.
If a written proxy card is signed by a shareholder and returned without instructions, the shares represented by the proxy will be voted "FOR" the proposals presented at American River Holdings' annual meeting or "FOR" the proposal presented at North Coast Bank, N.A.'s special meeting, as applicable. American River Holdings and North Coast Bank, N.A. shareholders whose shares are held in "street name" (i.e., in the name of a broker, bank or other record holder) must either direct the record holder of their shares as to how to vote their shares or obtain a proxy from the record holder to vote at their respective meeting.
Revoking Proxies. American River Holdings and North Coast Bank, N.A. shareholders of record may revoke their proxies at any time before the time their proxies are voted at American River Holdings' annual meeting or North Coast Bank, N.A.'s special meeting, respectively. Proxies may be revoked by written notice, including by telegram or telecopy, to the Corporate Secretary of American River Holdings or North Coast Bank, N.A., as applicable, by a later-dated proxy signed and returned by mail or by attending American River Holdings' annual meeting or North Coast Bank, N.A.'s special meeting, as applicable, and voting in person. Attendance at American River Holdings' annual meeting or North Coast Bank, N.A.'s special meeting will not in and of itself constitute a revocation of a proxy. The shareholder must inform the Secretary at the applicable meeting, prior to the vote, that he or she wants to revoke his or her proxy and vote in person. Any written notice of a revocation of a proxy must be sent so as to be received before the taking of the vote at the applicable meeting as follows:
For American River Holdings For North Coast Bank, N.A.
Shareholders, to: Shareholders, to:
American River Holdings North Coast Bank, N.A.
1545 River Park Drive, Suite 107 50 Santa Rosa Avenue
Sacramento, California 95815 Santa Rosa, California 95404
Attention: David T. Taber, President Attention: Kathy A. Pinkard, President
and Chief Executive Officer and Chief Executive Officer
|
Abstentions and Broker Non-Votes. The presence, in person or by properly executed proxy, of the holders of a majority of the outstanding shares is necessary to constitute a quorum at each of American
River Holdings' annual meeting and North Coast Bank, N.A.'s special meeting. Abstentions and broker non-votes will be counted solely for the purpose of determining whether a quorum is present. Under the applicable rules of the National Association of Securities Dealers, Inc., brokers or members who hold shares in street name for customers who are the beneficial owners of the shares are prohibited from giving a proxy to vote those shares with respect to the approval of the transactions contemplated by the merger agreement including the merger in the absence of specific instructions from the customers. We refer to these as "broker non-votes". Abstentions and broker non-votes will not be counted as a vote "FOR" or "AGAINST" any proposal at either the American River Holdings annual meeting or the North Coast Bank, N.A. special meeting but will have the same effect as a vote "AGAINST" any proposal. See "Dissenters' Rights" on page 132.
If any other matters are properly presented for consideration at American River Holdings' annual meeting, in the case of the American River Holdings shareholders, or at North Coast Bank, N.A.'s special meeting, in the case of the North Coast Bank, N.A. shareholders, the persons named in the enclosed form of proxy will have discretion to vote or not vote on those matters in accordance with their best judgment, unless authorization to use that discretion is withheld. If a proposal to adjourn American River Holdings' annual meeting or North Coast Bank, N.A.'s special meeting is properly presented, however, the persons named in the enclosed form of proxy will not have discretion to vote in favor of the adjournment proposal any shares which have been voted against the proposal(s) to be presented at the respective meetings.
Neither American River Holdings nor North Coast Bank, N.A. is aware of any matters expected to be presented at their respective meeting other than as described in their respective notice of meetings. The cost of solicitation of proxies will be paid by American River Holdings and North Coast Bank, N.A., as applicable. In addition to solicitation by mail, the directors, officers and employees of American River Holdings and North Coast Bank, N.A. may also solicit proxies from shareholders by telephone, facsimile, telegram or in person. Arrangements will also be made with brokerage houses and other custodians, nominees and fiduciaries to send the proxy materials to beneficial owners; and American River Holdings or North Coast Bank, N.A., as the case may be, will, upon request, reimburse those brokerage houses and custodians for their reasonable expenses in so doing. North Coast Bank, N.A. has retained Chase Mellon Shareholder Services, San Francisco, California, to aid in the solicitation of proxies and to verify records related to the solicitations. Chase Mellon Shareholder Services will receive $4,500 as compensation for its services and up to $2,000 as reimbursement for its related out-of-pocket expenses.
Shareholders who submit proxy cards should not send in any stock certificates with their proxy cards. Instructions for the surrender of certificates representing shares of North Coast Bank, N.A. common stock will be mailed by American River Holdings to former North Coast Bank, N.A. shareholders shortly after the merger is completed. See "Proposal No. 1, To Approve the Merger Agreement and Merger--Exchange of North Coast Bank, N.A. Stock Certificates; Fractional Interests" on page 113.
Recommendation of the American River Holdings Board of Directors and North Coast Bank, N.A. Board of Directors. Each of the American River Holdings board of directors and North Coast Bank, N.A. board of directors has unanimously approved the merger and unanimously recommends that their respective shareholders vote "FOR" the merger agreement and the merger at their respective meetings. The American River Holdings board of directors also unanimously recommends that their shareholders vote "FOR" the proposals to approve the American River Holdings 2000 Stock Option Plan, the amendments to the American River Holdings articles of incorporation and bylaws to provide for the classification of the board of directors and to eliminate cumulative voting in the election of directors, election of management's nominees as directors of American River Holdings, and to ratify the appointment of Perry-Smith LLP as independent accountants for the year 2000, at American River Holdings' annual meeting.
DISSENTERS' RIGHTS
American River Holdings. Dissenters' rights will be available to the shareholders of American River Holdings in accordance with Chapter 13 of the California General Corporation Law ("Chapter 13"). A copy of Chapter 13 is attached as Annex D to this joint proxy statement/prospectus and should be read for more complete information concerning dissenters' rights. If the merger is consummated, shareholders of American River Holdings who dissent from the merger by complying with the procedures set forth in Chapter 13 would be entitled to receive an amount equal to the fair market value of their shares as of March 1, 2000, the last business day before the public announcement of the merger. The bid, asked and closing prices for American River Holdings common stock quoted on the OTC Bulletin Board on March 1, 2000 were $12.50, $13.50, and $12.50, respectively. The required procedure set forth in Chapter 13 must be followed exactly or any dissenters' rights may be lost. See "Dissenters' Rights--Dissenters' Rights of American River Holdings Shareholders" on page 132.
North Coast Bank, N.A. If the merger agreement is approved by the required vote of North Coast Bank, N.A. shareholders, and is not abandoned or terminated, shareholders of North Coast Bank, N.A. who voted "AGAINST" the merger or who give notice in writing at or prior to the special meeting that the shareholder dissents, may be entitled to dissenters' rights under Section 215a(b),(c) and (d) of Title 12 of the United States Code. A copy of Section 215a(b), (c) and (d) and Office of the Comptroller of the Currency Banking Circular 259 are attached as Annex E to this joint proxy statement/prospectus and should be read for more complete information concerning dissenters' rights. Banking Circular 259 describes the specific requirements of the appraisal process conducted by the Office of the Comptroller of the Currency discussed below and includes examples of appraisal results in various transactions. The required procedure set forth in Section 215a(b), (c) and (d) of Title 12 of the United States Code must be followed exactly or any dissenters' rights may be lost. See "Dissenters' Rights--Dissenters' Rights of North Coast Bank, N.A. Shareholders" on page 134.
INFORMATION ABOUT AMERICAN RIVER HOLDINGS AND SUBSIDIARIES
GENERAL DEVELOPMENT OF BUSINESS
American River Holdings is a bank holding company registered under the Bank Holding Company Act of 1956, as amended. American River Holdings was incorporated under the laws of the State of California in 1995. As a bank holding company, American River Holdings is authorized to engage in the activities permitted under the Bank Holding Company Act of 1956, as amended, and regulations thereunder. Its principal office is located at 1545 River Park Drive, Suite 107, Sacramento, California 95815 and its telephone number is (916) 565-6100.
American River Holdings owns 100% of the issued and outstanding common shares of American River Bank. American River Bank was incorporated and commenced business in Fair Oaks, California, in 1983 and thereafter moved its headquarters office to Sacramento, California in 1985. American River Bank accepts checking and savings deposits, offers money market deposit accounts and certificates of deposit, makes secured and unsecured commercial, secured real estate, and other installment and term loans and offers other customary banking services.
At March 31, 2000, American River Holdings had total assets of $197 million, total net loans of $118 million, deposits of $176 million and shareholders' equity of $17 million. American River Holdings and its bank subsidiary, American River Bank, compete with approximately 38 other banking or savings institutions in Sacramento County and 22 in Placer County. At March 31, 2000, American River Bank's market share of Federal Deposit Insurance Corporation-insured deposits in the service areas of Sacramento County and Placer County was approximately 1.15% and 1.60%, respectively, (based upon the most recent information made available by the Federal Deposit Insurance Corporation through June 30, 1999). See "Competition--Competitive Data" on page 92.
American River Bank owns 100% of two inactive companies, ARBCO and American River Mortgage. ARBCO was formed in 1984 to conduct real estate development and has been inactive since 1995. American River Mortgage has been inactive since its formation in 1994. American River Bank operates four banking offices in Placer and Sacramento Counties including the head office at 1545 River Park Drive, Suite 107, Sacramento, and branch offices at 9750 Business Park Drive, Sacramento, 10123 Fair Oaks Boulevard, Fair Oaks and 2240 Douglas Boulevard, Roseville. American River Bank's deposits are insured by the Federal Deposit Insurance Corporation up to applicable legal limits. American River Bank does not offer trust services or international banking services and does not plan to do so in the near future.
American River Holdings also owns 100% of First Source Capital formed in July 1999 to conduct lease financing for most types of business assets, from computer software to heavy earth-moving equipment. Specific leasing programs are tailored for vendors of equipment in order to increase their sales. First Source Capital acts as a lease broker and receives a fee for each lease recorded on the books of the party acting as the funding source. Various funding sources are utilized in connection with multiple leasing programs made available by First Source Capital.
Other than holding the shares of American River Bank and First Source Capital, American River Holdings conducts no significant activities. However, it is authorized, with the prior approval of the Board of Governors of the Federal Reserve System (the "Board of Governors"), American River Holdings' principal regulator, to engage in a variety of activities which are deemed closely related to the business of banking. See "Supervision and Regulation" on page 87.
As of December 31, 1999, American River Bank had total deposits of $180,996,000. Of this total, $47,994,000 represented noninterest-bearing demand deposits, $68,419,000 represented interest-bearing demand deposits, and $64,583,000 represented interest-bearing savings and time deposits. At March 31, 2000, total deposits were $176,329,000. Of this total $45,311,000 represented noninterest-bearing demand deposits, $63,778,000 represented interest-bearing demand deposits, and $66,920,000 represented interest-bearing savings and time deposits.
American River Bank's deposits are not received from a single depositor or group of affiliated depositors, the loss of any one of which would have a materially adverse effect on the business of American River Bank. A material portion of American River Bank's deposits are not concentrated within a single industry or group of related industries.
As of March 31, 2000 and December 31, 1999, American River Bank held $6,000,000 in certificates of deposit for the State of California. In connection with these deposits American River Bank is generally required to pledge securities to secure such deposits, except for the first $100,000, which are insured by the Federal Deposit Insurance Corporation ("FDIC").
The principal sources of American River Bank's revenues are: (i) interest and fees on loans; (ii) interest on investments (principally government securities); and (iii) interest on Federal funds sold (funds loaned on a short-term basis to other banks). For the fiscal year ended December 31, 1999, these sources comprised 78%, 20%, and 2%, respectively, of American River Bank's total interest income. At March 31, 2000 these items amounted to 74%, 25% and 1%, respectively.
At March 31, 2000, American River Holdings and its subsidiaries employed 69 persons on a full-time basis. American River Holdings believes its employee relations are excellent.
PROPERTIES
American River Holdings and its subsidiaries lease their respective premises and do not own any real property. American River Bank's head office is located at 1545 River Park Drive, Suite 107, Sacramento, California, in a modern, five floor building which has offstreet parking for its clients. American River Bank leases premises in the building from Spieker Properties, L.P., a California limited partnership. The lease term is ten years and expires on March 31, 2010. The premises consist of 8,375 square feet on the ground floor and 506 square feet on the second floor. The current monthly rent is $14,688.75. The monthly rent will increase to $16,634.00 upon the completion of tenant improvements by the Landlord not later than September 1, 2000, and increases annually during the term of the lease to $19,961.00 during the last month of the lease term.
American River Bank leases premises at 9750 Business Park Drive, Sacramento, California. The office space is leased from Bradshaw Plaza Group, which is owned in part by Charles D. Fite, a director of American River Holdings. The lease term is seven years and expires on November 30, 2006. The premises consist of 4,590 square feet on the ground floor. The current monthly rent is $7,100.
American River Bank leases premises at 10123 Fair Oaks Boulevard, Fair Oaks, California. The office space is leased from Marjorie Taylor, a director of American River Holdings. The lease term is 12 years and expires on March 1, 2009. The premises consist of 2,380 square feet on the ground floor and the current monthly rent is $1,653.
American River Bank leases premises at 2240 Douglas Boulevard, Roseville, California. The office space is leased from Sandalwood Land Company. The lease term is 10 years and expires on
December 18, 2006. The premises consist of 3,790 square feet on the ground floor and the current monthly rent is $6,898.
American River Holdings leases premises (used by First Source Capital) at 1540 River Park Drive, Suite 108, Sacramento California. The office space is leased from Union Bank of California, Trustees for Agnes M. and William S. Bourn Trusts. The lease term is one year and expires on June 30, 2000. The premises consist of 381 square feet on the ground floor and the current monthly rent is $533.
The premises located at 1545 River Park Drive, 9750 Business Park Drive and 2240 Douglas Boulevard contain options to extend for five years. Included in the above are two facilities leased from directors of American River Holdings at terms and conditions which management believes are consistent with the commercial lease market. See "American River Holdings and Subsidiaries Consolidated Financial Statements and Independent Auditor's Report--Note 10, Commitments and Contingencies" on page 219 for a description of the annual minimum lease commitments under the above leases. The foregoing summary descriptions of leased premises are qualified in their entirety by reference to the lease agreements listed as exhibits to the registration statement of which this joint proxy statement/prospectus is a part.
LEGAL PROCEEDINGS
There are no material legal proceedings adverse to American River Holdings and its subsidiaries to which any director, officer, affiliate of American River Holdings, or 5% shareholder of American River Holdings or its subsidiaries, or any associate of any such director, officer, affiliate or 5% shareholder of American River Holdings or its subsidiaries are a party, and none of the above persons has a material interest adverse to American River Holdings or its subsidiaries.
From time to time, American River Holdings and/or its subsidiaries is a party to claims and legal proceedings arising in the ordinary course of business. American River Holdings' management is not aware of any material pending legal proceedings to which either it or its subsidiaries may be a party or has recently been a party, which will have a material adverse effect on the financial condition or results of operations of American River Holdings or its subsidiaries, taken as a whole.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF AMERICAN RIVER HOLDINGS
The following is American River Holdings management's discussion and analysis of the significant changes in income and expense accounts for the years ended December 31, 1999, 1998 and 1997 and the three months ended March 31, 2000 and 1999.
The following information includes forward-looking statements which are subject to various uncertainties and risks which could cause actual results to differ materially from those projected. Factors which could cause or contribute to changes in actual results from those projected include, but are not limited to, variances in the actual versus projected growth in assets, return on assets, loan losses, expenses, rates charged on loans and earned on securities investments, rates paid on deposits, and fee and other noninterest income earned, competitive effects in the banking industry, changes in the interest rate environment, general economic conditions, nationally, regionally and in the operating market areas of American River Holdings and its subsidiaries, changes in the regulatory environment, changes in business conditions and inflation, changes in securities markets, and the effects of computer problems related to the year 2000. Therefore, the following information should be carefully considered when evaluating the business prospects of American River Holdings and its subsidiaries and to assess the uncertainties and risks involved in the business conducted by American River Holdings and its subsidiaries.
INTRODUCTION
The discussion below is designed to provide a better understanding of significant trends related to American River Holdings' financial condition, results of operations, liquidity, capital resources and interest rate sensitivity. It should be read in conjunction with the American River Holdings' audited financial statements and unaudited interim financial statements and notes thereto and the other financial information appearing elsewhere in this joint proxy statement/prospectus.
RESULTS OF OPERATIONS
NET INTEREST INCOME AND NET INTEREST MARGIN
Net interest income represents the excess of interest and fees earned on interest earning assets (loans, securities, federal funds sold and investments in time deposits) over the interest paid on deposits and borrowed funds. Net interest margin is net interest income expressed as a percentage of average earning assets.
American River Holdings' net interest margin was 5.64% in 1997, 5.69% in 1998, and 5.61% in 1999. The net interest margin for the three months ended March 31, 1999 was 5.73% and for the three months ended March 31, 2000 was 5.44%.
The fully taxable equivalent interest income component increased from $12,076,000 in 1997 to $13,265,000 in 1998, and to $13,693,000 in 1999, representing a 9.8% increase in 1998 over 1997 and a 3.2% increase in 1999 over 1998. Total interest income increased from $3,304,000 for the three months ended March 31, 1999, to $3,804,000 for the three months ended March 31, 2000, representing a 15.1% increase. The total interest income increase in 1998 was primarily the result of a 12% growth in the loan portfolio resulting from a concentrated effort on business lending and the effects of a strong construction market. The interest income increase in 1999 was primarily the result of an increase in average outstanding loan balances of $6,314,000, which reflected a 5.9% increase over 1998 balances. This increase contributed an additional $615,000 to interest income and was offset in part by an average 48 basis point decrease in loan yields that caused a reduction of $544,000 in interest income. Competitive pressures and
three 25 basis point decreases in the prime rate late in 1998 contributed to the lower yields in 1999. The securities portfolio average balances grew $5,823,000 or 15.8%, which added $352,000 to interest income. The average yield received on securities was down just 1 basis point and caused a reduction of $8,000 to interest income. Federal funds sold and investments in time deposits combined added an additional $13,000 in interest income.
Total interest expense increased from $4,214,000 in 1997 to $4,461,000 in 1998 and decreased to $4,280,000 in 1999, representing a 5.9% increase in 1998 over 1997 and a 4.1% decrease in 1999 as compared to 1998. The increase in interest expense in 1998 over 1997 was primarily the result from a 7.4% increase in interest bearing deposits. The average balances of interest bearing liabilities increased $8,746,000 (8.6%). Average other borrowings were up $2,904,000 as American River Holdings advanced $2,300,000 on a borrowing line with the Federal Home Loan Bank. Lower rates paid on NOW, MMDA, savings and time deposits helped offset the higher expense by $225,000. The decrease in interest expense in 1999 as compared to 1998 was primarily the result of an overall decrease in market rates starting in late 1998 and continuing through the middle of 1999. The average rate on time deposits decreased 51 basis points representing a $252,000 reduction in interest expense. The decrease in interest expense was offset in part by an increase in average time deposit balances of $4,549,000 (10.14%). The total interest expense increased from $1,019,000 for the three months ended March 31, 1999, to $1,317,000 for the three months ended March 31, 2000, representing a 29.2% increase. The increase in interest expense in the first quarter of 2000 over the first quarter of 1999 was primarily the result of a 16.8% increase in average interest bearing deposits and an increase in interest rates. The average interest rate on deposits increased 35 basis from the first quarter of 1999 to the first quarter of 2000. This increase in rates added $110,000 in expense, while the increase in deposit balances added another $188,000 in interest expense.
Table One, Analysis of Net Interest Margin on Earning Assets, and Table Two, Analysis of Volume and Rate Changes on Net Interest Income and Expenses, are provided to enable the reader to understand the components and past trends of American River Bank's interest income and expenses. Table One provides an analysis of net interest margin on earning assets setting forth average assets, liabilities and shareholders' equity; interest income earned and interest expense paid and average rates earned and paid; and the net interest margin on earning assets. Table Two presents an analysis of volume and rate change on net interest income and expense.
Three Months Ended March 31,
2000 1999
---------------------------- ----------------------------
(Taxable Equivalent Basis) Avg Avg Avg Avg
(In thousands, except percentages) Balance Interest Yield Balance Interest Yield
--------- -------- ----- --------- -------- -----
ASSETS:
Earning assets
Loans (1) $ 119,738 $2,804 9.42% $ 116,399 $2,649 9.23%
Taxable investment
securities 45,822 711 6.24% 31,282 453 5.87%
Tax-exempt investment
securities (2) 8,903 145 6.55% 5,280 82 6.30%
Corporate stock 983 20 8.18% 766 16 8.47%
Federal funds sold 2,724 38 5.61% 2,768 32 4.69%
Investments in time deposits 5,607 86 6.17% 5,332 72 5.48%
--------- ------ --------- ------
Total earning assets 183,777 3,804 8.33% 161,827 3,304 8.28%
------ ------
Cash & due from banks 11,412 10,978
Other assets 3,278 1,952
--------- ---------
$ 198,467 $ 174,757
========= =========
LIABILITIES & SHAREHOLDERS' EQUITY
Interest bearing liabilities:
NOW & MMDA $ 65,809 445 2.72% $ 58,440 342 2.37%
Savings 8,612 48 2.24% 7,435 41 2.24%
Time deposits 57,718 786 5.48% 47,207 602 5.17%
Other borrowings 2,493 38 6.13% 2,215 34 6.23%
--------- ------ --------- ------
Total interest bearing
liabilities 134,632 1,317 3.93% 115,297 1,019 3.58%
------ ------
Demand deposits 45,594 42,858
Other liabilities 1,428 997
--------- ---------
Total liabilities 181,654 159,152
Shareholders' equity 16,813 15,605
--------- ---------
$ 198,467 $ 174,757
========= =========
Net interest income & margin (3) $2,487 5.44% $2,285 5.73%
====== ==== ====== =====
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(1) Loan interest includes loan fees of $53,000 and $68,000 during the three
months ending March 31, 2000 and March 31, 1999, respectively.
(2) Includes taxable-equivalent adjustments that primarily relate to income on
certain securities that is exempt from federal income taxes. The effective
federal statutory tax rate was 34% for the periods presented.
(3) Net interest margin is computed by dividing net interest income by total
average earning assets.
--------------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
1999 1998 1997
------------------------------ ---------------------------- ---------------------------
(Taxable Equivalent Basis) Avg Avg Avg Avg Avg Avg
(In thousands, except Balance Interest Yield Balance Interest Yield Balance Interest Yield
percentages) --------- -------- ----- --------- -------- ----- ------- -------- -----
ASSETS:
Earning assets
Loans (1) $ 113,853 $ 10,543 9.26% $ 107,539 $ 10,472 9.74% $ 94,109 $ 9,352 9.94%
Taxable investment
securities 35,167 2,066 5.87% 31,717 1,867 5.89% 31,340 1,872 5.97%
Tax-exempt investment
securities (2) 6,811 432 6.34% 4,239 272 6.42% 2,937 195 6.64%
Corporate stock 765 63 8.24% 964 78 8.05% 876 76 8.68%
Federal funds sold 5,958 299 5.02% 5,371 283 5.27% 5,470 300 5.48%
Investments in time
deposits 5,095 290 5.69% 4,812 293 6.09% 4,549 281 6.18%
--------- -------- --------- ------- -------- ------
Total earning assets 167,649 13,693 8.17% 154,642 13,265 8.58% 139,281 12,076 8.67%
-------- ------- ------
Cash & due from banks 11,460 9,799 8,834
Other assets 2,693 2,263 2,144
--------- --------- --------
$ 181,802 $ 166,704 $150,259
========= ========= ========
LIABILITIES & SHAREHOLDERS' EQUITY:
Interest bearing liabilities:
NOW & MMDA $ 59,491 1,420 2.39% $ 56,488 1,604 2.84% $ 55,793 1,727 3.10%
Savings 8,240 186 2.26% 7,349 182 2.48% 6,546 164 2.51%
Time deposits 49,391 2,537 5.14% 44,843 2,532 5.65% 39,689 2,310 5.82%
Other borrowings 2,264 137 6.05% 2,317 143 6.17% 223 13 5.83%
--------- -------- --------- ------- -------- ------
Total interest bearing
liabilities 119,386 4,280 3.59% 110,997 4,461 4.02% 102,251 4,214 4.12%
--------
Demand deposits 45,364 40,046 33,584
Other liabilities 1,050 865 848
--------- --------- --------
Total liabilities 165,800 151,908 136,683
Shareholders' equity 16,002 14,796 13,576
--------- --------- --------
$ 181,802 $ 166,704 $150,259
Net interest income & ========= ========= ========
margin (3) $ 9,413 5.61% $ 8,804 5.69% $ 7,862 5.64%
======== ==== ======= ==== ======= ====
(1) Loan interest includes loan fees of $287,000, $290,000 and $240,000 in
1999, 1998 and 1997, respectively.
(2) Includes taxable-equivalent adjustments that primarily relate to income on
certain securities that is exempt from federal income taxes. The effective
federal statutory tax rate was 34% for the periods presented.
(3) Net interest margin is computed by dividing net interest income by total
average earning assets.
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Increase (decrease) due to change in:
Volume Rate (4) Net Change
Interest-earning assets: ------ -------- ----------
Net loans (1)(2) $ 76 $ 79 $ 155
Taxable investment securities 211 47 258
Tax exempt investment securities (3) 56 7 63
Corporate stock 5 (1) 4
Federal funds sold (1) 7 6
Investment in time deposits 4 10 14
---- ----- ----
Total 351 149 500
---- ----- ----
Interest-bearing liabilities:
Demand deposits 43 60 103
Savings deposits 7 0 7
Time deposits 134 50 184
Other borrowings 4 -- 4
---- ----- ----
Total 188 110 298
---- ----- ----
Interest differential $163 $ 39 $202
==== ===== ====
--------------------------------------------------------------------------------
(In thousands) Year Ended December 31, 1999 over 1998
Increase (decrease) due to change in:
Volume Rate (4) Net Change
Interest-earning assets: ------ -------- ----------
Net loans (1)(2) $ 615 $ (544) $ 71
Taxable investment securities 203 (4) 199
Tax exempt investment securities (3) 165 (5) 160
Corporate stock (16) 1 (15)
Federal funds sold 31 (15) 16
Investment in time deposits 17 (20) (3)
------ ------- ------
Total 1,015 (587) 428
------ ------- ------
Interest-bearing liabilities:
Demand deposits 85 (269) (184)
Savings deposits 22 (18) 4
Time deposits 257 (252) 5
Other borrowings (3) (3) (6)
------ ------- ------
Total 361 (542) (181)
------ ------- ------
Interest differential $ 654 $ (45) $ 609
====== ======= ======
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Increase (decrease) due to change in:
Volume Rate (4) Net Change
Interest-earning assets: ------ -------- ----------
Net loans (1)(2) $1,335 $ (215) $1,120
Taxable investment securities 22 (27) (5)
Tax exempt investment securities(3) 86 (9) 77
Corporate stock 8 (6) 2
Federal funds sold & other (5) (12) (17)
Investment in time deposits 16 (4) 12
------ ------- ------
Total 1,462 (273) 1,189
------ ------- ------
Interest-bearing liabilities:
Demand deposits 22 (145) (123)
Savings deposits 20 (2) 18
Time deposits 300 (78) 222
Other borrowings 122 8 130
------ ------- ------
Total 464 (217) 247
------ ------- ------
Interest differential $ 998 $ (56) $ 942
====== ======= ======
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(1) The average balance of non-accruing loans is immaterial as a percentage of
total loans and, as such, has been included in net loans.
(2) Loan fees of $53,000 and $68,000 during the three months ended March 31,
2000 and 1999, respectively, and $287,000, $290,000 and $240,000 for the
years ended December 31, 1999, 1998 and 1997, respectively, have been
included in the interest income computation.
(3) Includes taxable-equivalent adjustments that primarily relate to income on
certain securities that is exempt from federal income taxes. The effective
federal statutory tax rate was 34% for the periods presented.
(4) The rate/volume variance has been included in the rate variance.
PROVISION FOR LOAN LOSSES
American River Bank provided $105,000 for loan losses for the three months ended March 31, 2000 as compared to $94,000 for the three months ended March 31, 1999. Net loan charge-offs for the three months ended March 31, 2000 were $7,000 as compared to less than $4,000 for the three months ended March 31, 1999. In 1999, American River Bank made provisions for loan losses of $407,000 and net loan charge-offs were $90,000 or .08% of average loans outstanding. In 1998, net loan charge-offs totaled $172,000 or .16% of average loans outstanding. During 1998 and 1997, American River Bank made provisions for loan losses of $360,000 and $535,000, respectively. The higher loan loss provision in 1997 was a direct result of higher than average loan charge-offs. Net loan charge-offs in 1997 were $530,000 or .56% of average loans outstanding.
SERVICE CHARGES AND FEES AND OTHER INCOME
Noninterest income was up $151,000 (49.7%) to $455,000 for the three months ended March 31, 2000 as compared to $304,000 for the three months ended March 31, 1999. The increase in the noninterest income from March 31, 1999 to March 31, 2000 can be attributed to an increase in accounts receivable servicing (up $60,000 or 206.9%) and revenue of $37,000 from First Source Capital, which did not exist during the first quarter of 1999. For the year ended December 31, 1999, noninterest income was up $222,000 (17.02%) to $1,526,000. Increases were in accounts receivable servicing (up $170,000 or 168.63%) and the state servicing contract (up $58,000 or 89.23%). These increases were offset by a decrease of $121,000 (47.64%) in loan organization fees from American River Bank's residential lending division. The increase in accounts receivable servicing was a result of four new clients and increasing average accounts receivable balances outstanding from $652,000 in 1998 to $1,505,000 (130.8%) in 1999.
The increase in fees from the state servicing contract was the result of additional loans serviced for the State of California. The residential lending division experienced a decrease in loan volume as a direct result of an increase in mortgage rates, which caused the number of refinances to decrease.
Noninterest income was up $305,000 (30.6%) from 1997 to $1,303,000 in 1998. Increases were in the accounts receivable servicing (up $89,000 or 684.6%), the state servicing contract (up $65,000) and the residential lending division (up $86,000 or 51.24%). The increase in the accounts receivable servicing resulted from an increase in average balances outstanding from $64,000 in 1997 to $652,000 (up 901.8%) in 1998 due to adding new clients. The increase in income from the state servicing contract was the result of 1998 being the first full year of servicing loans for the State of California. Low mortgage rates contributed to the increase in origination fees in the residential lending division in 1998 as compared to 1997.
SALARIES AND BENEFITS
Salaries and benefits were $935,000 (up $93,000 or 11.0%) for the three months ended March 31, 2000 as compared to $842,000 for the three months ended March 31, 1999; $28,000 of the increase related to salaries in the newly formed First Source Capital. For the year ended December 31, 1999, salaries and benefits totaled $3,493,000, (up $186,000 or 5.6%) from 1998. Base salaries increased $105,000, consisting of $63,000 (2.6%) due to normal merit increases and $42,000 (1.7%) due to the opening of First Source Capital in July 1999. Incentive compensation increased $97,000 (21.0%) as American River Bank moved closer to the goal of providing small cost of living increases and higher incentive compensation based on American River Holdings' results of operation performance. Benefit costs increased commensurate with the salaries. At the end of 1999, the full time equivalent (FTE) staff was 69 versus 67 at the end of 1998, with the addition of two new employees at First Source Capital.
Salary and benefits expenses increased $417,000 (14.4%) to $3,310,000 in 1998 from the level in 1997. Components of salaries and benefits that increased significantly included base salary and wages of $68,000 (2.8%) and incentive compensation of $281,000 (99%). The increase in incentive compensation expense consisted of gross-up plan payments (up $75,000), executive incentive compensation (up $88,000) and staff incentive compensation (up $118,000). The increase in the gross-up plan is a result of 1998 being the first full year of the plan. The executive incentive compensation increased in direct correlation to the increase in American River Holdings' return on equity. The staff incentive compensation increase was in part due to the increased earnings and the gradual phase-in of American River Bank's plan to provide small cost of living increases and higher incentive compensation based on American River Holdings' performance. At December 31, 1998 and 1997, the full time equivalent (FTE) staff was 67.
See "Proposal No. 5, Election of American River Holdings Directors -- Board Compensation Committee Report on Executive Compensation" on page 170 and "-- Executive Compensation" on page 172 for more information regarding compensation of executive officers.
OCCUPANCY, FURNITURE AND EQUIPMENT
Occupancy and fixed assets expense was $170,000 (up $10,000 or 6.3%) for the three months ended March 31, 2000 as compared to $160,000 for the three months ended March 31, 1999. For the year ended December 31, 1999, occupancy and fixed assets expense was down $21,000 (3.0%) from 1998. Annual rent adjustments under the lease agreements, as well as the opening of the First Source Capital location, increased occupancy expense by $27,000 (8.7%). These increases were offset by the fact that certain fixed assets at American River Holdings' headquarters were fully depreciated in 1998. Fixed asset depreciation expense was $42,000 in 1999 compared to $58,000 in 1998, representing a 27.6% decrease.
Occupancy and fixed asset expenses were $698,000 in 1998. This was a decrease of $42,000 from 1997, primarily due to the fact that American River Bank's mainframe computer was fully depreciated in 1997.
OTHER EXPENSES
Other expenses were $420,000 (up $42,000 or 11.1%) for the three months ended March 31, 2000 as compared to $378,000 for the three months ended March 31, 1999. For the year ended December 31, 1999, other expenses decreased $22,000 (-1.4%). Normal price increases and growth in American River Holdings' operations that accounted for slight increases in the other expense items were offset by a decrease in other real estate (ORE) expense of $76,000 (49.7%). This decrease was a result of decreasing the ORE portfolio. The average balance in ORE for 1999 was $224,000 compared to $807,000 for 1998. The amount of ORE held at December 31, 1999 was zero. The overhead efficiency ratio for 1999 was 52.7% as compared to 55.4% in 1998.
Other expenses increased $239,000 (17.7%) to $1,592,000 in 1998. ORE expense was up $97,000 (173.2%) due to a larger ORE portfolio. Average balance in ORE for 1998 was $807,000 compared to $688,000 for 1997. American River Bank charged-off $104,000 of the ORE balances in 1998 for ORE properties acquired in 1997. Director expenses were up $79,000 (64.8%) in 1997 due to the implementation of the gross-up plan. The gross-up plan expense for 1997 was $20,000 compared to $102,000 in 1998. The overhead efficiency ratio for 1997 was 56.4%.
PROVISION FOR TAXES
The effective tax rate on income was 37.7 % for the three months ended March 31, 2000 as compared to 38.4% for the three months ended March 31, 1999. The effective tax rate on income was 37.9%, 38.4% and 39.0% in 1999, 1998 and 1997, respectively. The effective tax rate has decreased slightly each of the last three years as a result of an increase in investments made in tax qualified municipal bonds. The effective tax rate was greater than the federal statutory tax rate due to state tax expense (net of federal tax effect) of $290,000, $230,000 and $227,000 in these years. Tax-exempt income of $330,000, $209,000 and $150,000 from investment securities in these years helped to reduce the effective tax rate.
BALANCE SHEET ANALYSIS
American River Holdings' total assets were $197,329,000 at March 31, 2000 as compared to $174,856,000 at March 31, 1999, representing an increase of 12.9%. The average balances of total assets at March 31, 2000 was $ 198,467,000 which represent an increase of $23,799,000 or 13.6% over the $174,668,000 at March 31, 1999. Total assets at December 31, 1999 were $201,362,000 compared to $177,824,000 at December 31, 1998, representing an increase of 13.2%. The average balances of total assets of $181,722,000 in 1999 represent an increase of $15,114,000 or 9.1% over the $166,608,000 in 1998.
LOANS
American River Bank concentrates its lending activities in four principal areas: 1) commercial loans; 2) real estate-mortgage; 3) real estate construction loans (both commercial and personal); and 4) consumer loans. Real estate-mortgage loans are generally secured by improved commercial property, with original maturities of 5-10 years. At December 31, 1999, these four categories accounted for approximately 25%, 53%, 18%, and 4%, respectively, of American River Bank's loan portfolio. This mix was relatively unchanged compared to 24%, 54%, 18%, and 4% at December 31, 1998. Continuing strong economic activity in American River Bank's market area, combined with ongoing marketing efforts, offset
by normal loan paydowns and payoffs, resulted in net increases in loan balances for all loan categories in 1999 over 1998. The deferred loan fees have been decreasing over the same period as a competitive market has reduced loan origination fees. Table Three below summarizes the composition of the loan portfolio for the three months ended March 31, 2000 and the past five years as of December 31.
TABLE THREE: LOAN PORTFOLIO COMPOSITION
-------------------------------------------------------------------------------------------------------------
March 31, December 31,
----------------- ----------------------------------------------------------
(In thousands) 2000 1999 1999 1998 1997 1996 1995
-------------------------------------------------------------------------------------------------------------
Commercial $ 31,840 $ 25,816 $ 30,265 $ 27,615 $ 24,354 $ 26,849 $ 26,702
Real estate:
Mortgage 71,243 61,824 62,867 61,034 61,375 59,000 57,862
Construction 13,087 22,920 21,307 20,768 10,552 2,894 5,175
Consumer 4,411 5,011 4,859 4,644 5,665 2,202 2,238
Deferred loan fees (360) (333) (311) (370) (399) (407) (482)
-------------------------------------------------------------------------------------------------------------
Total loans 120,221 115,238 118,987 113,691 101,547 90,538 91,495
Allowance for
credit losses (1,736) (1,450) (1,679) (1,362) (1,174) (1,169) (1,417)
-------------------------------------------------------------------------------------------------------------
Total net loans $ 118,485 $ 113,788 $ 117,308 $ 112,329 $ 100,373 $ 89,369 $ 90,078
=============================================================================================================
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The majority of American River Bank's loans are direct loans made to individuals and local businesses. American River Bank relies substantially on local promotional activity, personal contacts by bank officers, directors and employees to compete with other financial institutions. American River Bank makes loans to borrowers whose applications include a sound purpose, and a viable primary repayment source generally backed by a secondary source of repayment.
Commercial loans consist of credit lines for operating needs, loans for equipment purchases, working capital, and various other business loan products. Consumer loans include a range of traditional consumer loan products offered by American River Bank such as personal lines of credit and loans to finance purchases of autos, boats, recreational vehicles, mobile homes and various other consumer items. Construction loans are generally composed of commitments to customers within American River Bank's service area for construction of both commercial properties and custom and semi-custom single family residences. Other real estate loans consist primarily of loans secured by first trust deeds on commercial and residential properties typically with maturities from 3 to 10 years and original loan to value ratios generally from 70% to 80%. In general, except in the case of loans with SBA guarantees, American River Bank does not make long-term mortgage loans; however, American River Bank has a residential lending division to assist customers in securing most forms of longer term single-family mortgage financing.
Average net loans during the three months ended March 31, 2000 were $119,738,000 which represents a 2.9% increase over the average of $116,399,000 during the three months ended March 31, 1999. Average loans in 1999 were $113,853,000 representing an increase of $6,314,000 or 5.9% over 1998. Loan growth in 1999 resulted from a favorable economy in American River Bank's market area and new borrowers were developed through American River Bank's marketing efforts and credit extensions were expanded to existing borrowers. Average loans in 1998 were $107,539,000 representing an increase of $13,430,000 or 14.3% over 1997.
RISK ELEMENTS
American River Holdings assesses and manages credit risk on an ongoing basis through a total credit culture that emphasizes excellent credit quality, extensive internal monitoring and established formal lending policies. Additionally, American River Holdings contracts with an outside loan review consultant to periodically review the existing loan portfolio. Management believes its ability to identify and assess
risk and return characteristics of American River Holdings' loan portfolio is critical for profitability and growth. Management strives to continue its emphasis on credit quality in the loan approval process, active credit administration and regular monitoring. With this in mind, management has designed and implemented a comprehensive loan review and grading system that functions to continually assess the credit risk inherent in the loan portfolio.
Ultimately, credit quality may be influenced by underlying trends in economic and business cycles. American River Holdings' business is concentrated in the Sacramento Metropolitan Statistical Area, which is a diversified economy, but with a large State of California government presence and employment base. American River Holdings has significant extensions of credit and commitments to extend credit which are secured by real estate. The ultimate recovery of these loans is generally dependent on the successful operation, sale or refinancing of the real estate. American River Holdings monitors the effects of current and expected market conditions and other factors on the collectability of real estate loans. The more significant factors management considers involve the following: lease, absorption and sale rates; real estate values and rates of return; operating expenses; inflation; and sufficiency of collateral independent of the real estate including, in limited instances, personal guarantees.
In extending credit and commitments to borrowers, American River Holdings generally requires collateral and/or guarantees as security. The repayment of such loans is expected to come from cash flow or from proceeds from the sale of selected assets of the borrowers. American River Holdings' requirement for collateral and/or guarantees is determined on a case-by-case basis in connection with management's evaluation of the credit-worthiness of the borrower. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment, income-producing properties, residences and other real property. American River Holdings secures its collateral by perfecting its interest in business assets, obtaining deeds of trust, or outright possession among other means.
Management believes that its lending policies and underwriting standards will tend to minimize losses in an economic downturn, however, there is no assurance that losses will not occur under such circumstances. American River Bank loan policies and underwriting standards include, but are not limited to, the following: (1) maintaining a thorough understanding of American River Bank's service area and originating a significant majority of its loans within that area, (2) maintaining a thorough understanding of borrowers' knowledge, capacity, and market position in their field of expertise, (3) basing real estate loan approvals not only on market demand for the project, but also on the borrowers' capacity to support the project financially in the event it does perform to expectations (whether sale or income performance), and (4) maintaining conforming and prudent loan to value and loan to cost ratios based on independent outside appraisals and ongoing inspection and analysis by American River Bank's lending officers.
NONACCRUAL, PAST DUE AND RESTRUCTURED LOANS
Management generally places loans on nonaccrual status when they become 90 days past due, unless the loan is well secured and in the process of collection. Loans are charged off when, in the opinion of management, collection appears unlikely. Table Four below sets forth nonaccrual loans and loans past due 90 days or more for March 31, 2000 and the past five years as of December 31.
TABLE FOUR: NON-PERFORMING LOANS
--------------------------------------------------------------------------------
March 31, December 31,
--------- -----------------------------------------
(In thousands) 2000 1999 1998 1997 1996 1995
--------------------------------------------------------------------------------
Past due 90 days or more
and still accruing:
Commercial $ 52 $ -- $ -- $ 87 $ 18 $ --
Real estate -- -- -- -- -- 265
Consumer and other -- -- -- -- -- --
--------------------------------------------------------------------------------
Nonaccrual:
Commercial 9 30 110 281 712 85
Real estate -- -- -- -- 466 141
Consumer and other -- -- -- 7 -- --
--------------------------------------------------------------------------------
Total nonperforming loans $ 61 $ 30 $ 110 $ 375 $1,196 $ 491
================================================================================
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Interest due but excluded from interest income on nonaccrual loans was not considered material during the three months ended March 31, 2000, and 1999, and the year ended December 31, 1999; for December 31, 1998 and 1997, these amounts were $77,000 and $64,000, respectively. In 1999, 1998 and 1997 interest income recognized from payments received on nonaccrual loans was $45,000, $8,000 and $7,000, respectively. During the three months ended March 31, 2000, interest recognized from payments received on nonaccrual loans was less than $1,000.
The recorded investments in loans that were considered to be impaired totaled $61,000, $30,000 and $110,000 at March 31, 2000 and December 31, 1999 and 1998, respectively. The related allowance for loan losses for these loans at March 31, 2000 and December 31, 1999 and 1998 was $9,000, $12,000 and $47,000, respectively. Management believes that the reserve allocations are adequate for the inherent risk of those loans. The average recorded investment in impaired loans for the years ended December 31, 1999, 1998 and 1997 was $279,000, $254,000 and $548,000, respectively. The average recorded investment in impaired loans for the three months ended March 31, 2000 was $20,000.
There were no troubled debt restructurings or loan concentrations in excess of 10% of total loans not otherwise disclosed as a category of loans as of March 31, 2000 or December 31, 1999. Management is not aware of any potential problem loans, which were accruing and current at March 31, 2000 or December 31, 1999, where serious doubt exists as to the ability of the borrower to comply with the present repayment terms.
ALLOWANCE FOR LOAN LOSSES ACTIVITY
The provision for credit losses is based upon management's evaluation of the adequacy of the existing allowance for loans outstanding. This allowance is increased by provisions charged to expense and recoveries, and is reduced by loan charge-offs. Management determines an appropriate provision based upon the interaction of three primary factors: (1) loan portfolio growth, (2) a comprehensive grading and review formula for total loans outstanding, and (3) estimated potential credit losses.
The allowance for credit losses totaled $1,736,000 or 1.44% of total loans at March 31, 2000, $1,679,000 or 1.41% of total loans at December 31, 1999, $1,362,000 or 1.20% at December 31, 1998, and $1,174,000 or 1.16% at December 31, 1997. During the first quarter of 2000, $41,000 was transferred out of the allowance for loan loss account into a separate valuation reserve for the accounts receivable servicing receivables. It is the policy of management to maintain the allowance for credit losses at a level adequate for known and future risks inherent in the loan portfolio. Based on information currently available to analyze credit loss potential, including economic factors, overall credit quality, historical delinquency and a history of actual charge-offs, management believes that the credit loss provision and
allowance is prudent and adequate. However, no prediction of the ultimate level of loans charged off in future years can be made with any certainty.
Table Five below summarizes, for the periods indicated, the activity in the allowance for loan losses.
TABLE FIVE: ALLOWANCE FOR LOAN LOSSES
--------------------------------------------------------------------------------------------------------------------------------
Three Months
In thousands (except for Ended
percentages) March 31, Year Ended December 31,
---------------------- ---------------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
--------------------------------------------------------------------------------------------------------------------------------
Average loans outstanding $ 119,738 $ 116,399 $ 114,489 $ 108,664 $ 95,210 $ 92,086 $ 89,095
--------------------------------------------------------------------------------------------------------------------------------
Allowance for possible loan
losses at beginning of period $ 1,679 $ 1,362 $ 1,362 $ 1,174 $ 1,169 $ 1,417 $ 1,457
Loans charged off:
Commercial 7 4 100 295 433 679 338
Real estate -- -- -- 22 70 56 104
Installment -- -- -- 7 47 19 18
--------------------------------------------------------------------------------------------------------------------------------
Total 7 4 100 324 550 754 460
--------------------------------------------------------------------------------------------------------------------------------
Recoveries of loans previously charged off:
Commercial -- -- 10 152 20 14 --
Real estate -- -- -- -- -- -- --
Consumer -- -- -- -- -- 2 --
--------------------------------------------------------------------------------------------------------------------------------
Total -- -- 10 152 20 16 --
--------------------------------------------------------------------------------------------------------------------------------
Net loans charged off 7 4 90 172 530 738 460
Amount transferred for accounts
receivable servicing valuation
reserve (41) -- -- -- -- -- --
Additions to allowance charged
to operating expenses 105 94 407 360 535 490 420
--------------------------------------------------------------------------------------------------------------------------------
Allowance for possible loan
losses at end of period $ 1,736 $ 1,452 $ 1,679 $ 1,362 $ 1,174 $ 1,169 $ 1,417
--------------------------------------------------------------------------------------------------------------------------------
Ratio of net charge-offs to average
loans outstanding .02% .01% .08% .16% .56% .81% .52%
Provision of allowance for possible
loan losses to average loans
outstanding .35% .33% .36% .33% .57% .54% .48%
Allowance for possible loan losses
to loans net of deferred fees at
end of period 1.44% 1.26% 1.41% 1.20% 1.16% 1.29% 1.55%
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As part of its loan review process, management has allocated the overall allowance based on specific identified problem loans and historical loss data. Table Six below summarizes the allocation of the allowance for loan losses at March 31, 2000, and at December 31, 1999 and 1998.
TABLE SIX: ALLOWANCE FOR LOAN LOSSES BY LOAN CATEGORY
---------------------------------------------------------------------------------------------------------------------
(In thousands,
except percentages) March 31, 2000 December 31, 1999 December 31, 1998
---------------------------------------------------------------------------------------------------------------------
Percent of loans Percent of loans Percent of loans
in each category in each category in each category
Amount to total loans Amount to total loans Amount to total loans
---------------------------------------------------------------------------------------------------------------------
Commercial $ 459 26.5% $ 494 25.4% $ 382 24.3%
Real estate 1,177 69.8% 1,118 70.6% 921 71.6%
Consumer 100 3.7% 67 4.0% 59 4.1%
---------------------------------------------------------------------------------------------------------------------
Total allocated $ 1,736 100.0% $1,679 100.0% $1,362 100.0%
---------------------------------------------------------------------------------------------------------------------
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OTHER REAL ESTATE
At March 31, 2000 and at December 31, 1999, American River Holdings did not have any ORE properties. At March 31, 1999, American River Holdings' portfolio included two ORE properties valued at $454,000. At December 31, 1998, American River Holdings held three ORE properties valued at $561,000.
DEPOSITS
At March 31, 2000, total deposits were $176,329,000 representing an increase of $20,529,000 (13.2%) over the March 31, 1999, balance of $155,800,000. During 1999, deposits increased $22,045,000 (13.9%) to a total of $180,996,000 at year-end. State of California certificates of deposit accounted for $6,000,000 of the deposit growth. The remainder of the increase in total deposits is attributable to internal growth in noninterest-bearing demand, interest-bearing demand, savings and time deposit categories. Deposits at December 31, 1998, totaled $158,951,000 and were up $12,385,000 (8.5%) over the 1997 year-end balances of $146,566,000.
CAPITAL RESOURCES
The current and projected capital position of American River Holdings and the impact of capital plans and long-term strategies is reviewed regularly by management. American River Holdings' capital position represents the level of capital available to support continued operations and expansion.
In May of 1997, the board of directors of American River Holdings authorized a stock repurchase plan. American River Holdings acquired 77,000 shares of its common stock in the open market during 1999, 60,000 in 1998 and 25,000 in 1997. These repurchases were made periodically in the open market with the intention to lessen the dilutive impact of issuing new shares in connection with stock option plans and in conjunction with annual distributions of a five percent common stock dividend.
American River Holdings and American River Bank are subject to regulations issued by the Board of Governors of the Federal Reserve Bank and the FDIC, which require maintenance of certain levels of capital. At March 31, 2000, shareholders' equity was $17,400,000 representing an increase of $787,000 or 4.7% from $16,613,000 at December 31, 1999. In 1999, shareholders' equity increased $1.2 million or 8.1% from 1998 and increased $1.2 million or 8.2% from 1997. The ratio of total risk-based capital to risk adjusted assets was 13.5% at March 31, 2000 compared to 12.8% at December 31, 1999, and 12.4% at December 31, 1998. Tier 1 risk-based capital to risk-adjusted assets was 12.3% at March 31, 2000, 11.6% at December 31, 1999, and 11.3% at December 31, 1998.
Table Seven below lists the American River Holdings' actual capital ratios at March 31, 2000, December 31, 1999 and December 31, 1998 as well as the minimum capital ratios for capital adequacy.
TABLE SEVEN: CAPITAL RATIOS
---------------------------------------------------------------------------------------------------------------
Capital to Risk-Adjusted Assets At March 31, At December 31, Minimum Regulatory
2000 1999 1998 Capital Requirements
---------------------------------------------------------------------------------------------------------------
Leverage ratio 8.8% 9.2% 8.9% 4.00%
Tier 1 Risk-Based Capital 12.3% 11.6% 11.3% 4.00%
Total Risk-Based Capital 13.5% 12.8% 12.4% 8.00%
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The risk-based capital ratios increased in 1999 primarily due to earnings and the exercise of stock options less reductions resulting from the share repurchase program. Capital ratios are reviewed on a regular basis to ensure that capital exceeds the prescribed regulatory minimums and is adequate to meet future needs. All ratios are in excess of the regulatory definition of "well capitalized."
See "Supervision and Regulation" on page 87 and "American River Holdings and Subsidiaries Consolidated Financial Statements and Independent Auditor's Report--Note 11, Shareholders' Equity" on page 221 for a discussion of regulatory capital requirements. Management believes that American River Holdings' capital is adequate to support current operations and anticipated growth, cash dividends and future capital requirements of American River Holdings and its subsidiaries.
MARKET RISK MANAGEMENT
Overview. Market risk is the risk of loss from adverse changes in market prices and rates. American River Bank's market risk arises primarily from interest rate risk inherent in its loan and deposit functions. The goal for managing the assets and liabilities of American River Bank is to maximize shareholder value and earnings while maintaining a high quality balance sheet without exposing American River Bank to undue interest rate risk. The Board of Directors has overall responsibility for the interest rate risk management policies. American River Bank has an Asset and Liability Management Committee (ALCO) which establishes and monitors guidelines to control the sensitivity of earnings to changes in interest rates.
Asset/Liability Management. Activities involved in asset/liability management include but are not limited to lending, accepting and placing deposits and investing in securities. Interest rate risk is the primary market risk associated with asset/liability management. Sensitivity of earnings to interest rate changes arises when yields on assets change in a different time period or in a different amount from that of interest costs on liabilities. To mitigate interest rate risk, the structure of the balance sheet is managed with the goal that movements of interest rates on assets and liabilities are correlated and contribute to earnings even in periods of volatile interest rates. The asset/liability management policy sets limits on the acceptable amount of variance in net interest margin and market value of equity under changing interest environments. American River Bank uses simulation models to forecast earnings, net interest margin and market value of equity.
Simulation of earnings is the primary tool used to measure the sensitivity of earnings to interest rate changes. Using computer modeling techniques, American River Bank is able to estimate the potential impact of changing interest rates on earnings. A balance sheet forecast is prepared quarterly using inputs of actual loans, securities and interest bearing liabilities (i.e. deposits/borrowings) positions as the
beginning base. The forecast balance sheet is processed against seven interest rate scenarios. The scenarios include a 300, 200 and 100 basis point rising rate forecast, a flat rate forecast and a 300, 200 and 100 basis point falling rate forecast which take place within a one year time frame. The net interest income is measured during the year assuming a gradual change in rates over the twelve-month horizon. American River Bank's 2000 net interest income, as forecast below, was modeled utilizing a forecast balance sheet projected from year-end 1999 balances.
Table Eight below summarizes the effect on net interest income of a
+/-300, +/-200 and +/-100 basis point change in interest rates as measured
against a constant rate (no change) scenario. There were no material changes or
trends reflected at March 31, 2000 compared to December 31, 1999.
% Change in NII % Change in NII
from Current from Current
12 Month Horizon 12 Month Horizon
---------------- ----------------
Variation from a constant rate scenario
+300bp 6.0% $ 561
+200bp 3.8% $ 354
+100bp 1.9% $ 175
-100bp (0.8)% $ (79)
-200bp (1.7)% $(159)
-300bp (2.5)% $(236)
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The simulations of earnings do not incorporate any management actions, which might moderate the negative consequences of interest rate deviations. Therefore, they do not reflect likely actual results, but serve as conservative estimates of interest rate risk.
American River Bank also uses a second simulation scenario that rate
shocks the balance sheet also using a gradual change in rates of +/-300, +/-200
and +/-100 basis points over a twelve month horizon. This scenario provides
estimates of the future market value of equity (MVE). MVE measures the impact on
equity due to the changes in the market values of assets and liabilities as a
result of a change in interest rates. American River Bank measures the
volatility of these benchmarks using a twelve month time horizon. Using the
December 31, 1999 balance sheet as the base for the simulation, Table Nine below
summarizes the effect on the market value of equity with shifts of a +/-100,
+/-200 and +/-300 basis point change in interest rates. There were no material
changes or trends reflected at March 31, 2000 compared to December 31, 1999.
% Change in MVE % Change in MVE
12 Month Horizon 12 Month Horizon
---------------- ----------------
Variation from a constant rate scenario
+300bp (11.62)% $(2,662)
+200bp (7.68)% $(1,760)
+100bp (3.81)% $ (872)
-100bp 3.74% $ 857
-200bp 7.42% $ 1,699
-300bp 11.03% $ 2,525
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These results indicate that the balance sheet is asset sensitive since earnings increase when interest rates rise. The magnitude of the NII change is within American River Bank's policy guidelines. The asset liability management policy limits aggregate market risk, as measured in this fashion, to an acceptable level within the context of risk-return trade-offs.
Gap analysis provides another measure of interest rate risk. American River Bank is becoming less reliant on gap analysis and in the future will not actively use gap analysis in managing interest rate risk. It is presented here for comparative purposes. Interest rate sensitivity is a function of the repricing characteristics of the portfolio of assets and liabilities. These repricing characteristics are the time frames within which the interest-bearing assets and liabilities are subject to change in interest rates either at replacement, repricing or maturity. Interest rate sensitivity management focuses on the maturity of assets and liabilities and their repricing during periods of changes in market interest rates. Interest rate sensitivity is measured as the difference between the volumes of assets and liabilities in the current portfolio that are subject to repricing at various time horizons. The differences are known as interest sensitivity gaps.
A positive cumulative gap may be equated to an asset sensitive position. An asset sensitive position in a rising interest rate environment will cause a bank's interest rate margin to expand. This results as floating or variable rate loans reprice more rapidly than fixed rate certificates of deposit that reprice as they mature over time. Conversely, a declining interest rate environment will cause the opposite effect. A negative cumulative gap may be equated to a liability sensitive position. A liability sensitive position in a rising interest rate environment will cause a bank's interest rate margin to contract, while a declining interest rate environment will have the opposite effect.
As reflected in Table Ten below, at December 31, 1999, the cumulative gap through the one-year time horizon indicates a liability sensitive position. Somewhere between one and five years, American River Bank moves into an asset sensitive position. This interest rate sensitivity table categorizes interest-bearing transaction deposits and savings deposits, also known as non-maturing deposits, as repricing according to the following assumptions table.
ASSUMPTIONS: The following assumptions were used in the gap analysis with regards to non-maturing deposits.
Non-Maturing Deposit Repricing Assumptions
0-3 4-6 7-12 1-2 3-5
Immediate Months Months Months Years Years
DDA-Interest 25% 25% 20% 15% 10% 5%
MMA 25% 25% 20% 15% 15% 0%
Savings 25% 25% 20% 10% 10% 10%
--------------------------------------------------------------------------------
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Table Ten below indicates that American River Bank is liability sensitive through the one-year time horizon, however, the non-maturing deposit liabilities, which have the characteristics of immediate repricing, have not repriced immediately during past interest rate cycles, nor do they actually reprice according to management's assumptions. The assumptions are merely management's estimate based on past interest rate cycles. Consequently, American River Bank's net interest income varies as though American River Bank is asset sensitive (i.e. as interest rates rise, net interest income increases and vice versa). This phenomenon is validated by the modeling as presented in Tables Eight and Nine above.
TABLE TEN: INTEREST RATE SENSITIVITY
March 31, 2000
-----------------------------------------------------------------------------------------------------
Assets and Liabilities Over three
which Mature or Reprice: Next day months and Over one
and within within and within Over
(In thousands) Immediately three months one year five years five years Total
-----------------------------------------------------------------------------------------------------
Interest earning assets:
Federal funds sold $ 1,150 $ -- $ -- $ -- $ -- $ 1,150
Investment securities -- 5,291 16,101 28,408 9,428 59,228
Loans, excluding
nonaccrual loans
and overdrafts 44,016 20,285 20,133 33,500 2,647 120,581
-----------------------------------------------------------------------------------------------------
Total $ 45,166 $ 25,576 $ 36,234 $ 61,908 $12,075 $180,959
=====================================================================================================
Interest bearing
liabilities:
Interest bearing
demand $ 15,958 $ 15,958 $ 22,340 $ 9,542 $ -- $ 63,798
Savings 2,099 2,099 2,519 1,679 -- 8,396
Time certificates 10,144 24,441 20,057 4,182 -- 58,824
Other borrowings -- 9 28 175 1,903 2,115
-----------------------------------------------------------------------------------------------------
Total $ 28,201 $ 42,507 $ 44,944 $ 15,608 $ 1,903 $133,133
=====================================================================================================
Interest rate
sensitivity gap $ 16,965 $(16,931) $ (8,710) $ 46,330 $10,172 $ 47,826
Cumulative interest
rate sensitivity gap $ 16,965 $ (34) $ (8,676) $ 37,654 $47,826
-----------------------------------------------------------------------------------------------------
December 31, 1999
-----------------------------------------------------------------------------------------------------
Assets and Liabilities Over three
which Mature or Reprice: Next day months and Over one
and within within and within Over
(In thousands) Immediately three months one year five years five years Total
-----------------------------------------------------------------------------------------------------
Interest earning assets:
Federal funds sold $ 7,125 $ -- $ -- $ -- $ -- $ 7,125
Investment securities -- 13,637 11,744 28,860 8,853 63,094
Loans, excluding
nonaccrual loans
and overdrafts 40,814 20,732 18,982 36,022 2,748 119,172
-----------------------------------------------------------------------------------------------------
Total $ 47,939 $ 34,117 $ 30,726 $ 64,882 $11,601 $189,265
=====================================================================================================
Interest bearing
liabilities:
Interest bearing
demand $ 17,126 $ 17,126 $ 23,976 $ 10,191 $ -- $ 68,419
Savings 2,127 2,127 2,552 1,700 -- 8,506
Time certificates 10,286 23,542 18,420 3,797 32 56,077
Other borrowings -- 9 28 175 1,913 2,125
-----------------------------------------------------------------------------------------------------
Total $ 29,539 $ 42,804 $ 44,976 $ 15,863 $ 1,945 $135,127
=====================================================================================================
Interest rate
sensitivity gap $ 18,400 $ (8,561) $(14,250) $ 49,019 $ 9,656 $ 54,264
Cumulative interest
rate sensitivity gap $ 18,400 $ 9,839 $ (4,411) $ 44,608 $54,264
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INFLATION
The impact of inflation on a financial institution differs significantly from that exerted on manufacturing, or other commercial concerns, primarily because its assets and liabilities are largely monetary. In general, inflation primarily affects American River Holdings and American River Bank through its effect on market rates of interest, which affects American River Bank's ability to attract loan customers. Inflation affects the growth of total assets by increasing the level of loan demand, and potentially adversely affects capital adequacy because loan growth in inflationary periods can increase at rates higher than the rate that capital grows through retention of earnings which may be generated in the future. In addition to its effects on interest rates, inflation increases overall operating expenses. Inflation has not had a material effect upon the results of operations of American River Holdings and its subsidiaries during the periods ending March 31, 2000 and December 31, 1999, 1998, and 1997.
LIQUIDITY
Liquidity management refers to American River Holdings' ability to provide funds on an ongoing basis to meet fluctuations in deposit levels as well as the credit needs and requirements of its clients. Both assets and liabilities contribute to American River Holdings' liquidity position. Federal funds lines, short-term investments and securities, and loan repayments contribute to liquidity, along with deposit increases, while loan funding and deposit withdrawals decrease liquidity. American River Bank assesses the likelihood of projected funding requirements by reviewing historical funding patterns, current and forecasted economic conditions and individual client funding needs. Commitments to fund loans and outstanding standby letters of credit at March 31, 2000 and December 31, 1999, were approximately $41,218,000 and $1,455,000, and $42,540,000 and $2,311,000, respectively. Such loans relate primarily to revolving lines of credit and other commercial loans, and to real estate construction loans.
American River Holdings' sources of liquidity consist of overnight funds sold to correspondent banks, unpledged marketable investments and loans held for sale. On March 31, 2000, consolidated liquid assets totaled $28.5 million or 14.4% compared to $37.6 million or 18.7% of total assets and $27.1 million or 15.3% of total consolidated assets on December 31, 1999 and December 31, 1998, respectively. In addition to liquid assets, American River Bank maintains short term lines of credit with correspondent banks. At March 31, 2000 and December 31, 1999, American River Bank had $11,000,000 available under these credit lines. Additionally, American River Bank is a member of the Federal Home Loan Bank. At March 31, 2000 and December 31, 1999, American River Bank could have arranged for up to $4,464,000 and $4,624,000, respectively, in secured borrowings from the FHLB. American River Bank also has informal agreements with various other banks to purchase participations in loans, if necessary. American River Holdings serves primarily a business and professional customer base and, as such, its deposit base is susceptible to economic fluctuations. Accordingly, management strives to maintain a balanced position of liquid assets to volatile and cyclical deposits.
Liquidity is also affected by portfolio maturities and the effect of interest rate fluctuations on the marketability of both assets and liabilities. In 1998, American River Holdings adopted Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities". American River Bank can sell any of its unpledged securities held in the Available for Sale category to meet liquidity needs. Due to the rising interest rate environment throughout the last half of 1999, much of the investment portfolio has experienced price declines, which has resulted in unrealized losses. These unrealized losses limit American River Bank's ability to sell these securities without realizing those losses. However, these securities are available to pledge as collateral for borrowings if the need should arise. American River Bank has established a master repurchase agreement with a correspondent bank to enable such transactions. American River Bank can also pledge securities to borrow from the Federal Reserve Bank and the FHLB.
The maturity distribution of certificates of deposit in denominations of $100,000 or more is set forth in Table Eleven below for the periods presented. These deposits are generally more rate sensitive than other deposits and, therefore, are more likely to be withdrawn to obtain higher yields elsewhere if available.
Three Months Ended Year Ended
(In thousands) 3/31/00 12/31/99
--------------------------------------------------------------------------------
Three months or less $ 14,239 $ 17,352
Over three months through six months 8,651 8,138
Over six months through twelve months 5,193 3,903
Over twelve months 6,438 6,110
--------------------------------------------------------------------------------
Total $ 34,521 $ 35,503
================================================================================
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Loan demand also affects American River Bank's liquidity position. Table Twelve below presents the maturities of loans for the period indicated.
March 31, 2000
--------------------------------------------------------------------------------
One year One year through Over
(In thousands) or less five years five years Total
--------------------------------------------------------------------------------
Commercial $ 14,971 $ 9,475 $ 7,394 $ 31,840
Real estate -
construction 9,618 3,469 -- 13,087
Real estate -
mortgage 3,991 22,882 44,370 71,243
Consumer 1,284 1,926 1,201 4,411
--------------------------------------------------------------------------------
Total $ 29,864 $ 37,752 $ 52,965 $120,581
================================================================================
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Loans shown above with maturities greater than one year include $74,307,000 of floating interest rate loans and $16,410,000 of fixed rate loans.
December 31, 1999
--------------------------------------------------------------------------------
One year One year through Over
(In thousands) or less five years five years Total
--------------------------------------------------------------------------------
Commercial $ 12,141 $ 11,540 $ 6,584 $ 30,265
Real estate -
construction 9,774 11,533 -- 21,307
Real estate -
mortgage 5,019 25,969 31,879 62,867
Consumer 1,320 2,337 1,202 4,859
--------------------------------------------------------------------------------
Total $ 28,254 $ 51,379 $ 39,665 $119,298
================================================================================
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Loans shown above with maturities greater than one year include $75,138,000 of floating interest rate loans and $15,906,000 of fixed rate loans.
The maturity distribution and yields of the investment portfolios are presented in Table Thirteen below.
TABLE THIRTEEN: SECURITIES MATURITIES AND WEIGHTED AVERAGE YIELDS
MARCH 31, 2000 AND DECEMBER 31, 1999 AND 1998
--------------------------------------------------------------------------------------------------------------
Weighted
Amortized Unrealized Unrealized Market Average
(In thousands) Cost Gain Losses Value Yield
--------------------------------------------------------------------------------------------------------------
March 31, 2000
AVAILABLE-FOR-SALE SECURITIES:
U.S. Treasury and agency securities
Maturing within 1 year $ 5,981 $ 1 $ (10) $ 5,972 6.188%
Maturing after 1 year but within 5 years 13,147 (209) 12,938 6.264%
State & political subdivisions
Maturing within 1 year 200 200 6.100%
Maturing after 1 year but within 5 years 1,295 (41) 1,254 6.705%
Maturing after 5 years but within 10 Years 450 (27) 423 6.337%
Maturing after 10 years 6,853 32 (217) 6,668 7.634%
Other
Maturing within 1 year 4,890 4,890 6.180%
Maturing after 5 years but within 10 years 482 (12) 470 8.382%
Maturing after 10 years 486 14 (1) 499 10.125%
Non maturing 650 10 660 5.590%
----------------------------------------------------------------------------------------------------
Total investment securities $ 34,434 $ 57 $ (517) $ 33,974 6.596%
====================================================================================================
December 31, 1999
AVAILABLE-FOR-SALE SECURITIES:
U.S. Treasury and agency securities
Maturing within 1 year $ 6,481 $ 4 $ (6) $ 6,479 6.173%
Maturing after 1 year but within 5 years 11,356 (138) 11,218 6.104%
State & political subdivisions
Maturing after 1 year but within 5 years 1,156 (27) 1,129 6.426%
Maturing after 5 years but within 10 Years 450 (26) 424 6.333%
Maturing after 10 years 6,856 15 (295) 6,576 7.855%
Other
Maturing within 1 year 9,908 9,908 6.168%
Maturing after 5 years but within 10 years 252 (17) 235 8.652%
Maturing after 10 years 486 25 511 10.135%
Non maturing 573 15 588 5.580%
----------------------------------------------------------------------------------------------------
Total investment securities $ 37,518 $ 59 $ (509) $ 37,068 6.520%
====================================================================================================
December 31, 1998
AVAILABLE-FOR-SALE SECURITIES:
U.S. Treasury and agency securities
Maturing within 1 year $ 6,111 $ 33 $ 6,144 6.161%
Maturing after 1 year but within 5 years 6,049 107 6,156 6.177%
State & political subdivisions
Maturing within 1 year 200 200 6.070%
Maturing after 10 years 2,744 92 $ (4) 2,832 7.412%
Other
Maturing within 1 year 7,952 7,952 5.555%
Maturing after 5 years but within 10 years 252 17 269 8.652%
Maturing after 10 years 486 38 524 10.117%
Non maturing 539 9 (2) 546 5.620%
----------------------------------------------------------------------------------------------------
Total investment securities $ 24,333 $ 296 $ (6) $ 24,623 6.212%
====================================================================================================
|
---------------------------------------------------------------------------------------------------------
Weighted
Amortized Unrealized Unrealized Market Average
(In thousands) Cost Gain Losses Value Yield
---------------------------------------------------------------------------------------------------------
March 31, 2000
HELD-TO-MATURITY SECURITIES:
U.S. Treasury and agency securities
Maturing within 1 year $ 1,999 -- $ (7) $ 1,992 6.004%
Maturing after 1 year but within 5 years 502 502 6.807%
State & political subdivisions
Maturing within 1 year 116 $ 1 117 8.250%
Maturing after 1 year but within 5 years 1,880 8 (9) 1,879 7.054%
Maturing after 5 years but within 10 Years 23 23 15.840%
Government guaranteed mortgage backed securities 11,462 1 (187) 11,276 6.417%
Other
Maturing within 1 year 1,311 (15) 1,296 5.513%
Maturing after 1 year but within 5 years 2,330 (34) 2,296 6.535%
---------------------------------------------------------------------------------------------
Total investment securities $19,623 $ 10 $ (252) $19,381 6.422%
=============================================================================================
December 31, 1999
HELD-TO-MATURITY SECURITIES:
U.S. Treasury and agency securities
Maturing within 1 year $ 1,505 -- $ (3) $ 1,502 5.862%
Maturing after 1 year but within 5 years 1,498 $ 3 (4) 1,497 6.397%
State & political subdivisions
Maturing within 1 year 116 2 118 8.250%
Maturing after 1 year but within 5 years 2,041 14 (7) 2,048 6.979%
Maturing after 5 years but within 10 Years 31 31 15.840%
Government guaranteed mortgage backed securities 11,891 -- (155) 11,736 6.421%
Other
Maturing within 1 year 753 (3) 750 5.703%
Maturing after 1 year but within 5 years 2,664 (42) 2,622 6.054%
---------------------------------------------------------------------------------------------
Total investment securities $20,499 $ 19 $ (214) $20,304 6.384%
=============================================================================================
December 31, 1998
HELD-TO-MATURITY SECURITIES:
U.S. Treasury and agency securities
Maturing within 1 year $ 1,503 $ 9 -- $ 1,512 6.366%
Maturing after 1 year but within 5 years 3,012 63 3,075 6.128%
State & political subdivision
Maturing within 1 year
Maturing after 1 year but within 5 years 1,971 72 $ (1) 2,042 6.901%
Maturing after 5 years but within 10 Years 238 6 244 8.259%
Government guaranteed mortgage backed securities 6,534 8 (45) 6,497 6.421%
Other
Maturing within 1 year 1,837 6 1,843 5.876%
Maturing after 1 year but within 5 years 1,082 2 1,084 5.733%
---------------------------------------------------------------------------------------------
Total investment securities $16,177 $ 166 $ (46) $16,297 6.339%
=============================================================================================
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The principal cash requirements of American River Holdings are for expenses incurred in the support of administration and operations. For nonbanking functions, American River Holdings is dependent upon the payment of cash dividends by American River Bank to service its commitments. American River Holdings expects that the cash dividends paid by American River Bank to American River Holdings will be sufficient to meet this payment schedule.
OFF-BALANCE SHEET ITEMS
American River Bank has certain ongoing commitments under operating leases. See "American River Holdings and Subsidiaries Consolidated Financial Statements and Independent Auditor's Report--Note 10, Commitments and Contingencies" on page 219. These commitments do not significantly impact operating results.
As of March 31, 2000 and December 31, 1999, commitments to extend credit and letters of credit were the only financial instruments with off-balance sheet risk. American River Bank has not entered into any contracts for financial derivative instruments such as futures, swaps, options or similar instruments. Loan commitments and letters of credit were $42,673,000, $44,851,000 and $36,921,000 at March 31, 2000, December 31, 1999 and December 31, 1998, respectively. As a percentage of net loans these off-balance sheet items represent 36.0%, 38.2% and 32.9%, respectively.
DISCLOSURE OF FAIR VALUE
The Financial Accounting Standards Board (FASB), Statement of Financial Accounting Standards Number 107, Disclosures about Fair Value of Financial Statements, requires the disclosure of fair value of most financial instruments, whether recognized or not recognized in the financial statements. The intent of presenting the fair values of financial instruments is to depict the market's assessment of the present value of net future cash flows discounted to reflect both current interest rates and the market's assessment of the risk that the cash flows will not occur.
In determining fair values, American River Holdings used the carrying amount for cash and cash equivalents, accounts receivable, servicing receivable, accrued interest receivable and accrued interest payable as all of these instruments are short term in nature. Securities are reflected at quoted market values. Loans and deposits have a long term time horizon which required more complex calculations for fair value determination. Loans are grouped into homogeneous categories and broken down between fixed and variable rate instruments. Loans with a variable rate, which reprice immediately, are valued at carrying value. The fair value of fixed rate instruments is estimated by discounting the future cash flows using current rates. Credit risk and repricing risk factors are included in the current rates. Fair value for nonaccrual loans is reported at carrying value and is included in the net loan total. Since the allowance for loan losses exceeds any potential adjustment for nonaccrual valuation, no further valuation adjustment has been made.
Demand deposits, savings and certain money market accounts are short term in nature so the carrying value equals the fair value. For certificates of deposit, the fair value is estimated by discounting the future cash payments using the rates currently offered for deposits of similar remaining maturities.
At year-end 1999, the fair values calculated on American River Bank's financial instruments are 0.1% below the carrying values versus .03% above the carrying values at year-end 1998. The change in the calculated fair value percentage relates to the loan and investment categories and is the result of changes in interest rates in 1999. See "American River Holdings and Subsidiaries Consolidated Financial Statements and Independent Auditor's Report--Note 16, Disclosures About Fair Value of Financial Instruments" on
page 229. There were no material changes or trends reflected at March 31, 2000 compared to December 31, 1999.
YEAR 2000
During 1998 and 1999, management of American River Holdings focused the appropriate resources to address the potential problems that could arise regarding the Year 2000 (Y2K) century date change. American River Holdings' mission critical systems were evaluated, modified as required and contingency plans were put into place should the systems have experienced any failures. The century date change passed without any operational difficulties. There are certain dates within the year 2000 that have been identified as critical processing dates. The first was January 31, the end of the first month of the year, the second was February 29, leap year day, and the third was March 31, the end of the first quarter. American River Holdings did not experience any processing problems on those dates. Upcoming dates during the year are October 10, the first date to require an 8-digit field (10/10/2000), and December 31, the end of the year. Those dates were tested as part of the Y2K project. American River Holdings does not anticipate having any processing problems on those dates, however, failure by third parties adequately to remediate Y2K issues could have an impact upon American River Holdings, which is impossible to quantify. Nevertheless, American River Holdings currently expects that its Y2K compliance efforts will be successful without material adverse effects on its business.
ACCOUNTING PRONOUNCEMENTS
The Financial Standards Accounting Board has proposed the elimination of "pooling of interests" accounting by December 31, 2000. The result of this accounting change will be that all mergers consummated after December 31, 2000 will be accounted for as "purchase" transactions, resulting in the amortization of goodwill in any merger where the purchase price exceeds the asset value of the acquired company. The goodwill amortization will reduce future reported income of the merged companies. Additionally, in bank mergers, the goodwill in a purchase accounting transaction will not be included in the calculation of regulatory capital requirements. The effect of the elimination of "pooling of interests" accounting is uncertain, however, it could result in lower merger premiums for sellers with the possibility of fewer transactions occurring after December 31, 2000.
In June 1998, the Financial Accounting Standards Board issued SFAS 133, Accounting for Derivative Instruments and Hedging Activity, which was subsequently amended on June 15, 2000. The Statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires that entities recognize all derivatives as either assets or liabilities on the balance sheet and measure those instruments at fair value. Management does not believe that the adoption of SFAS 133 will have a significant impact on its financial position and results of operations when implemented.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
There has been no change in the independent accountants engaged to audit the financial statements of American River Holdings and its subsidiaries during the last two fiscal years ended December 31, 1999. There have been no disagreements with such independent accountants during the last two fiscal years ended December 31, 1999, on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure.
INFORMATION ABOUT NORTH COAST BANK, N.A.
GENERAL DEVELOPMENT OF BUSINESS
North Coast Bank, N.A., formerly Windsor Oaks National Bank, is a national banking association, organized in 1990 with its administrative headquarters in Santa Rosa, California. North Coast Bank, N.A. is locally owned and presently operates three full service banking offices within its primary service area of Sonoma County, in the cities of Healdsburg, Santa Rosa and Windsor. North Coast Bank, N.A. also services Napa, Marin and Mendocino Counties through loan relationships in these areas. North Coast Bank, N.A.'s primary business is servicing the business or commercial banking needs of small to mid-sized businesses within Sonoma County. North Coast Bank, N.A.'s marketing strategy emphasizes local ownership and a local decision process.
North Coast Bank, N.A. is chartered under the laws of the United States and is governed by the National Bank Act, and is a member of the Federal Reserve System. The deposits of North Coast Bank, N.A. are insured by the Federal Deposit Insurance Corporation up to the applicable legal limits. North Coast Bank, N.A. is subject to regulation, supervision and regular examination by the Office of the Comptroller of the Currency. The regulations of the Federal Deposit Insurance Corporation, Board of Governors of the Federal Reserve System, and the Office of the Comptroller of the Currency govern many aspects of North Coast Bank, N.A.'s business and activities, including investments, loans, borrowings, branching, mergers and acquisitions, reporting and numerous other areas. North Coast Bank, N.A. is also subject to applicable provisions of California law to the extent those provisions are not in conflict with or preempted by federal banking law. See "Supervision and Regulation" on page 87.
North Coast Bank, N.A. offers a broad range of services to individuals and businesses in its primary service area with an emphasis upon efficiency and personalized attention. North Coast Bank, N.A. provides a full line of business financial products with specialized services such as courier, appointment banking, and business internet banking. North Coast Bank, N.A. offers personal and business checking and savings accounts, including individual interest-bearing negotiable orders of withdrawal ("NOW"), money market accounts and/or accounts combining checking and savings accounts with automatic transfer capabilities, IRA accounts, time certificates of deposit and direct deposit of social security, pension and payroll checks and computer cash management with access through the internet. North Coast Bank, N.A. also makes available commercial, standby letters of credit, construction, accounts receivable, inventory, automobile, home improvement, residential real estate, commercial real estate, single family mortgage, Small Business Administration, office equipment, leasehold improvement and installment loans as well as overdraft protection lines of credit. In addition, North Coast Bank, N.A. sells travelers checks and cashiers checks, offers automated teller machine (ATM) services tied in with major statewide and national networks and offers other customary commercial banking services.
Most of North Coast Bank, N.A.'s deposits are obtained from commercial businesses, professionals and individuals. As of March 31, 2000 North Coast Bank had a total of 1,712 accounts consisting of demand deposit, NOW and money market accounts with an average balance of approximately $11,762; 740 savings accounts with an average balance of approximately $4,646; time certificates of $100,000 or more with an average balance of $115,600; and other time deposits with an average balance of approximately $26,425. On occasion, North Coast Bank, N.A. has obtained deposits through deposit brokers for which North Coast Bank, N.A. pays a broker fee. As of March 31, 2000, North Coast Bank, N.A. has 12 of such deposits totaling $1,141,000. There is no concentration of deposits or any customer with 5% or more of North Coast Bank, N.A.'s deposits.
At March 31, 2000, North Coast Bank, N.A. had total assets of $49,545,000, total net loans of $39,648,000, deposits of $44,345,000 and shareholders' equity of $4,094,000. North Coast Bank, N.A.
competes with approximately 18 other banking or savings institutions in its service areas. North Coast Bank, N.A.'s market share of Federal Deposit Insurance Corporation insured deposits in the service area of Sonoma County was approximately .63% (based upon the most recent information made available by the Federal Deposit Insurance Corporation through June 30, 1999). See "Competition--Competitive Data" on page 92.
At March 31, 2000, North Coast Bank, N.A. employed 25 persons on a full-time basis. North Coast Bank, N.A. believes its employee relations are excellent.
PROPERTIES
North Coast Bank, N.A. leases premises at 8733 Lakewood Drive, Windsor, California. The office space is leased from Hotel St. Paul Partnership. The lease term is 10 years and expires on February 1, 2003. The premises consist of approximately 5,760 square feet on the first and second floors and the current monthly rent is $7,760.
North Coast Bank, N.A. owns premises at 412 Center Street, Healdsburg, California. The premises were purchased June 1, 1993. The purchase price for the land and building was $343,849. The building is 2,620 square feet sitting on 10,835 square feet of land.
North Coast Bank, N.A. leases premises at 50 Santa Rosa Avenue, Santa Rosa, California. The office space is leased from Rosario LLC. The lease term is 10 years and expires on October 31, 2008. The premises consist of 7,072 square feet on the ground floor and the current monthly rent is $8,840.
LEGAL PROCEEDINGS
There are no material legal proceedings adverse to North Coast Bank, N.A. which any director, officer, affiliate of North Coast Bank, N.A., or 5% shareholder of North Coast Bank, N.A. or its subsidiaries, or any associate of any such director, officer, affiliate or 5% shareholder of North Coast Bank, N.A. or its subsidiaries are a party, and none of the above persons has a material interest adverse to North Coast Bank, N.A.
From time to time, North Coast Bank, N.A. is a party to claims and legal proceedings arising in the ordinary course of business. North Coast Bank, N.A.'s management is not aware of any material pending legal proceedings to which either it or its subsidiaries may be a party or has recently been a party, which will have a material adverse effect on the financial condition or results of operations of North Coast Bank, N.A.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF NORTH COAST BANK, N.A.
The following is North Coast Bank, N.A. management's discussion and analysis of the significant changes in income and expense accounts for the years ended December 31, 1999, 1998 and 1997 and the three months ended March 31, 2000 and 1999.
The following information includes forward-looking statements which are subject to various uncertainties and risks which could cause actual results to differ materially from those projected. Factors which could cause or contribute to changes in actual results from those projected include, but are not limited to, variances in the actual versus projected growth in assets, return on assets, loan losses, expenses, rates charged on loans and earned on securities investments, rates paid on deposits, and fee and other noninterest income earned, competitive effects in the banking industry, changes in the interest rate environment, general economic conditions, nationally, regionally and in the operating market areas of North Coast Bank, N.A., changes in the regulatory environment, changes in business conditions and inflation, changes in securities markets, and the effects of computer problems related to the year 2000. Therefore, the following information should be carefully considered when evaluating the business prospects of North Coast Bank, N.A. and to assess the uncertainties and risks involved in the business conducted by North Coast Bank, N.A.
INTRODUCTION
The discussion below is designed to provide a better understanding of significant trends related to North Coast Bank, N.A.'s financial condition, results of operations, liquidity, capital resources and interest rate sensitivity. It should be read in conjunction with the North Coast Bank, N.A.'s audited financial statements and unaudited interim financial statements and notes thereto and the other financial information appearing elsewhere in this joint proxy statement/prospectus.
RESULTS OF OPERATIONS
NET INTEREST INCOME AND NET INTEREST MARGIN
Net interest income represents the excess of interest and fees earned on interest earning assets (loans, securities, federal funds sold and investments in time deposits) over the interest paid on deposits and borrowed funds. Net interest margin is net interest income expressed as a percentage of average earning assets.
North Coast Bank, N.A.'s net interest margin was 6.61% in 1997, 6.23% in 1998, and 6.20% in 1999. The net interest margin for the three months ended March 31, 1999 was 5.76% and for the three months ended March 31, 2000 was 6.46%.
The fully taxable equivalent interest income component increased from $2,533,000 in 1997 to $2,993,000 in 1998, and to $3,653,000 in 1999, representing an 18.2% increase in 1998 over 1997 and a 22.1% increase in 1999 over 1998. Total interest income increased from $827,000 for the three months ended March 31, 1999, to $1,062,000 for the three months ended March 31, 2000, representing a 28.4% increase. The total interest income increase in 1998 was primarily the result of a 23.1% growth in the loan portfolio resulting from a concentrated effort on business lending and the effects of a strong construction market. The interest income increase in 1999 was primarily the result of an increase in average outstanding loan balances of $8,674,000 for 1999, which reflected a 33.6% increase over 1998 balances. This increase contributed an additional $876,000 to interest income and was offset in part by an average 30 basis point decrease in loan yields that caused a reduction of $103,000 in interest income. Competitive pressures and
three 25 basis point decreases in the prime rate late in 1998 contributed to the lower yields. The securities portfolio average balances decreased by $1,413,000 or 54.6% from 1998 to 1999 and the average weighted yield received on securities was down 32 basis points due to rate decreases and the calling and payoffs of higher yielding investments.
Total interest expense increased from $753,000 in 1997 to $973,000 in 1998 and to $1,195,000 in 1999, representing a 29.2% increase in 1998 over 1997 and a 22.8% increase in 1999 over 1998. The increase in interest expense in 1998 over 1997 was the result of a 26.2% increase in average interest bearing deposits along with a minor 9 basis point increase in the weighted average yield. The increase in interest expense in 1999 over 1998 primarily resulted from a 28.4% increase in average interest bearing deposits offset by a 17 basis point reduction in the average weighted yield. The total interest expense increased from $291,000 for the three months ended March 31, 1999, to $354,000 for the three months ended March 31, 2000, representing a 21.6% increase.
Table One, Analysis of Net Interest Margin on Earning Assets, and Table Two, Analysis of Volume and Rate Changes on Net Interest Income and Expenses, are provided to enable the reader to understand the components and past trends of North Coast Bank, N.A.'s interest income and expenses. Table One provides an analysis of net interest margin on earning assets setting forth average assets, liabilities and shareholders' equity; interest income earned and interest expense paid and average rates earned and paid; and the net interest margin on earning assets. Table Two presents an analysis of volume and rate change on net interest income and expense.
TABLE ONE: ANALYSIS OF NET INTEREST MARGIN ON EARNING ASSETS
------------------------------------------------------------------------------------------------------
Three Months Ended March 31, 2000 1999
---------------------------- -----------------------------
(Taxable Equivalent Basis) Avg Avg Avg Avg
(In Thousands, Except Percentages) Balance Interest Yield Balance Interest Yield
------- -------- ----- ------- -------- -----
ASSETS:
Earning assets
Loans (1) $ 40,756 $ 1,003 9.98% $ 31,550 $ 754 9.69%
Taxable investment
securities 1,181 20 6.87% 826 13 6.38%
Tax-exempt investment
securities (2) 173 3 7.03% 173 3 7.03%
Corporate stock 290 4 5.59% 210 3 5.79%
Federal funds sold 1,379 21 6.18% 4,208 48 4.63%
Investments in time deposits 644 11 6.93% 770 6 3.16%
-------- ------- -------- -----
Total earning assets 44,423 1,062 9.70% 37,737 827 8.89%
Cash & due from banks 2,769 ------- 2,447 -----
Other assets 913 890
-------- --------
$ 48,105 $ 41,074
======== ========
LIABILITIES & SHAREHOLDERS' EQUITY
Interest bearing liabilities:
NOW & MMDA $ 14,199 111 3.17% $ 11,372 88 3.14%
Savings 4,352 27 2.52% 4,570 29 2.57%
Time deposits 15,645 201 5.21% 14,113 174 5.00%
Other borrowings 1,034 15 5.80% -- -- --%
-------- ------- -------- -----
Total interest bearing
liabilities 35,230 354 4.08% 30,055 291 3.93%
Demand deposits 8,684 ------- 6,819 -----
Other liabilities 108 342
-------- --------
Total liabilities 44,022 37,216
Shareholders' equity 4,083 3,858
-------- --------
$ 48,105 $ 41,074
======== ========
Net interest income & margin (3) $ 708 6.46% $ 536 5.76%
======= ===== ===== =====
(1) Loan interest includes loan fees of $25,000 and $21,000 during the three
months ending March 31, 2000 and March 31, 1999, respectively.
(2) Includes taxable-equivalent adjustments that primarily relate to income on
certain securities that is exempt from federal income taxes. The effective
federal statutory tax rate was 34% for the periods presented.
(3) Net interest margin is computed by dividing net interest income by total
average earning assets.
65
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-------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
1999 1998 1997
-------------------------- -------------------------- --------------------------
(Taxable Equivalent Basis) Avg Avg Avg Avg Avg Avg
(In Thousands, Except Balance Interest Yield Balance Interest Yield Balance Interest Yield
percentages) ------- -------- ----- ------- -------- ----- ------- -------- -----
ASSETS:
Earning assets
Loans (1) $ 34,516 $3,383 9.80% $ 25,842 $2,610 10.10% $ 20,990 $2,162 10.30%
Taxable investment
securities 755 46 6.09% 2,248 146 6.49% 3,862 256 6.63%
Tax-exempt investment
securities (2) 173 12 6.86% 137 9 6.49% -- -- --%
Corporate stock 247 14 5.67% 203 12 5.91% 184 12 6.52%
Federal funds sold 3,065 152 4.96% 3,621 192 5.30% 1,821 98 5.38%
Investments in time
deposits 900 46 5.11% 378 24 6.35% 56 5 8.93%
-------- ------ -------- ------ -------- ------
Total earning assets 39,656 3,653 9.21% 32,429 2,993 9.23% 26,913 2,533 9.41%
Cash & due from banks 2,629 ------ 2,158 ------ 1,865 ------
Other assets 953 763 747
-------- -------- --------
$ 43,238 $ 35,350 $ 29,525
======== ======== ========
LIABILITIES & SHAREHOLDERS' EQUITY:
Interest bearing liabilities:
NOW & MMDA $ 12,557 381 3.03% $ 7,678 210 2.74% $ 5,443 138 2.54%
Savings 4,814 121 2.51% 5,139 134 2.61% 4,701 122 2.60%
Time deposits 13,769 671 4.87% 11,731 629 5.36% 9,309 493 5.30%
Other borrowings 380 22 5.79% -- -- --% -- -- --%
-------- ------ -------- ------ -------- ------
Total interest bearing
liabilities 31,520 1,195 3.79% 24,548 973 3.96% 19,453 753 3.87%
Demand deposits 7,554 ------ 7,014 ------ 6,729 ------
Other liabilities 250 150 118
-------- -------- --------
Total liabilities 39,324 31,712 26,300
Shareholders' equity 3,914 3,638 3,225
-------- -------- --------
$ 43,238 $ 35,350 $ 29,525
========= ======== ========
Net interest income &
margin (3) $2,458 6.20% $2,020 6.23% $1,780 6.61%
====== ===== ====== ===== ====== =====
|
(1) Loans interest includes loan fees of $104,000, $55,000 and $28,000 in 1999,
1998 and 1997, respectively.
(2) Includes taxable-equivalent adjustments that primarily relate to income on
certain securities that is exempt from federal income taxes. The effective
federal statutory tax rate was 34% for the periods presented.
(3) Net interest margin is computed by dividing net interest income by total
average earning assets.
Increase (decrease) due to change in:
Interest-earning Assets: Volume Rate (4) Net Change
------ -------- ----------
Net loans (1)(2) $ 220 $ 29 $ 249
Taxable investment securities 6 1 7
Tax exempt investment securities (3)
Corporate stock 1 1
Federal funds sold (32) 5 (27)
Investment in time deposits (1) 6 5
----- ----- -----
Total 194 41 235
----- ----- -----
Interest-bearing liabilities:
Demand deposits 22 1 23
Savings deposits (1) (1) (2)
Time deposits 19 8 27
Other borrowings 0 15 15
----- ----- -----
Total 40 23 63
----- ----- -----
Interest differential $ 154 $ 18 $ 172
===== ===== =====
|
Increase (decrease) due to change in:
Interest-earning Assets: Volume Rate (4) Net Change
------ -------- ----------
Net loans (1)(2) $ 876 $(103) $ 773
Taxable investment securities (97) (3) (100)
Tax exempt investment securities (3) 2 1 3
Corporate stock 3 (1) 2
Federal funds sold (29) (11) (40)
Investment in time deposits 33 (11) 22
----- ----- -----
Total 788 (128) 660
----- ----- -----
Interest-bearing liabilities:
Demand deposits 133 38 171
Savings deposits (8) (5) (13)
Time deposits 109 (67) 42
Other borrowings -- 22 22
----- ----- -----
Total 234 (12) 222
----- ----- -----
Interest differential $ 554 $(116) $ 438
===== ===== =====
|
Interest-earning assets: Volume Rate (4) Net Change
--------- --------- ---------
Net loans (1)(2) $ 500 $ (52) $ 448
Taxable investment securities (107) (3) (110)
Tax exempt investment securities(3) -- 9 9
Corporate stock 1 (1) --
Federal funds sold & other 97 (3) 94
Investment in time deposits
29 (10) 19
-------- -------- --------
Total 520 (60) 460
-------- -------- --------
Interest-bearing liabilities:
Demand deposits 57 15 72
Savings deposits 11 1 12
Time deposits 128 8 136
Other borrowings -- -- --
-------- -------- --------
Total 196 24 220
-------- -------- --------
Interest differential $ 324 $ (84) $ 240
======== ======== ========
|
PROVISION FOR LOAN LOSSES
North Coast Bank, N.A. provided $28,000 for loan losses for the three months ended March 31, 2000 as compared to $30,000 for the three months ended March 31, 1999. North Coast Bank, N.A. experienced net loan recovery of $23,000 for the three months ended March 31, 2000 and had no charge-offs or recoveries in the same period during 1999. In 1999, North Coast Bank, N.A. made provisions for loan losses of $175,000 and net charge-offs were $122,000 or .36% of average loans outstanding. In 1998, net loans charged-off totaled $170,000 or .67% of average loans outstanding. During 1998 and 1997, North Coast Bank, N.A. made provisions for loan losses of $149,000 and $70,000, respectively.
SERVICE CHARGES AND FEES AND OTHER INCOME
Noninterest income was up 28,000 or 47.5% to $86,000 for the three months ended March 31, 2000 as compared to $58,000 for the three months ended March 31, 1999. For the year ended December 31, 1999, noninterest income was up $63,000 or 30.9% to $267,000 from December 31, 1998. Increases were primarily in merchant credit cards due to an increased portfolio (up $48,000 or 89.1%), ATM foreign transactions (up $15,000 or 119.4%), and increased service charge income due to deposit growth.
For 1998, noninterest income was down $66,000 or 24.4% from 1997 results to $204,000. This was a result of an extraordinary gain on sale of SBA loans in 1997 amounting to $83,000 offset by an increase of $13,000 in SBA servicing fees for 1998.
SALARIES AND BENEFITS
Salaries and benefits were up $23,000 or 10.0% to $252,000 for the three months ended March 31, 2000 as compared to $229,000 for the three months ended March 31, 1999. For the year ended December 31, 1999, salaries and benefits totaled $870,000, up $158,000 or 22.2% from 1998. Base salaries increased due to the addition of a CFO salary for a full year in 1999 versus 3 months in 1998, additional staffing due to the opening of the Santa Rosa Branch in February 1999, and normal merit increases. Benefit costs increased commensurate with the salaries. At the end of 1999, the full time equivalent (FTE) staff was 24 versus 20 at the end of 1998.
Salary and benefits expenses decreased $64,000 or 8.2% to $712,000 in 1998 from 1997. The major factor contributing to this decrease was the unoccupied CFO position for 9 months in 1998. At December 31, 1997, the full time equivalent (FTE) staff was 19.
OCCUPANCY, FURNITURE AND EQUIPMENT
Occupancy and fixed assets expense increased $19,000 or 19.6% to $117,000 for the three months ended March 31, 2000 as compared to $98,000 for the three months ended March 31, 1999. For the year ended December 31, 1999, occupancy and fixed assets expense was up $178,000 or 59.2% from 1998. This was a result of opening the Santa Rosa Branch in February 1999 which added lease payments of $97,000, common area maintenance (CAM) charges of $22,000, leasehold improvement amortization of $9,000, $7,500 in janitorial and utilities, and $35,000 in additional fixed asset depreciation, insurance, maintenance and support. Premises and fixed asset related expenses were $301,000 in 1998 compared to $299,000 in 1997.
OTHER EXPENSES
Other expenses increased $55,000 or 31.2% to $231,000 for the three months ended March 31, 2000 as compared to $176,000 for the three months ended March 31, 1999. For the year ended December 31, 1999, other expenses increased $214,000 or 35.4% from 1998 totals. The opening of the Santa Rosa Branch in February 1999 contributed to this increase with marketing and business development expenses up $48,000 or 83% and $20,000 or 44.3% in supplies. Other factors contributing to this increase include merchant credit card expenses up $66,000 or 88.9% to due a doubling of the merchant portfolio, data and item processing expense up $21,000 or 16.8% as a result of growth, and loan expense up $18,000 or 94% due to increased loan volume and loan collection expenses. Other normal price increases and growth in North Coast Bank, N.A.'s operations also contributed to the increase in other expenses.
Other expenses increased $45,000 or 8.0% to $604,000 in 1998 over 1997. Marketing and business development expense was up $29,000 or 70.5% due to media advertising campaigns and merchant credit card expenses were up $17,000 or 30.3% due to merchant portfolio growth.
PROVISION FOR TAXES
The effective tax rate on income was 40.7% for the three months ended March 31, 2000 as compared to 37.1% for the three months ended March 31, 1999. The effective tax rate on income was 40.3% and 24.0% at December 31, 1999 and 1998, respectively. Due to the existence of operating loss carry-forwards, tax expense for 1998 was limited to the last five months of the year and no taxes were expensed against income in 1997. The carryforward expired in 1998.
BALANCE SHEET ANALYSIS
North Coast Bank, N.A.'s total assets were $49,545,000 at March 31, 2000 as compared to $41,546,000 at March 31, 1999, representing an increase of 19.3%. The average balances of total assets at March 31, 2000 was $48,105,000 which represent an increase of $7,031,000 or 17.1% over $41,074,000 at March 31, 1999. Total assets at December 31, 1999 were $47,178,000 compared to $42,177,000 at December 31, 1998, representing an increase of 11.9%. The average balances of total assets of $43,238,000 in 1999 represent an increase of $7,888,000 or 22.3% over $35,350,000 in 1998.
LOANS
North Coast Bank, N.A.'s lending activities are focused primarily
towards making direct loans to local businesses and business owners. The various
short and medium-termed lines of credit and commercial loans are for such
purposes as operating capital, account receivable and inventory financing,
business and professional start-ups, equipment purchases and interim
construction financing. Table Three summarizes the composition of the loan
portfolio at March 31, 2000 and for the past five calendar year ends starting
with December 31, 1995:
TABLE THREE: LOAN PORTFOLIO COMPOSITE
-----------------------------------------------------------------------------------------------------
March 31 December 31,
---------------- ----------------------------------------------------
(In thousands) 2000 1999 1999 1998 1997 1996 1995
-----------------------------------------------------------------------------------------------------
Commercial $ 11,687 $ 8,526 $ 11,883 $ 9,301 $ 6,316 $ 6,556 $ 5,376
Real estate:
Mortgage 17,094 15,849 15,510 15,542 11,027 10,070 10,723
Construction 3,738 1,210 4,477 1,587 1,977 1,271 1,931
Agriculture 6,588 4,208 7,200 3,416 1,221 -- --
Consumer 1,076 1,277 1,158 1,374 1,393 1,878 2,102
Deferred loan fees (101) (74) (109) (86) 5 23 (80)
-----------------------------------------------------------------------------------------------------
Total loans 40,082 30,996 40,119 31,134 21,939 19,798 20,052
Allowance for
credit losses (434) (361) (383) (331) (352) (346) (409)
-----------------------------------------------------------------------------------------------------
Total net loans $ 39,648 $ 30,635 $ 39,736 $ 30,803 $ 21,587 $ 19,452 $ 19,643
-----------------------------------------------------------------------------------------------------
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The success of North Coast Bank, N.A.'s lending program relies substantially on personal contacts by its bank officers, directors and employees, in order to compete with other local financial institutions. Local promotional activities are also utilized in order to generate new business opportunities. North Coast Bank, N.A. provides loans to borrowers who demonstrate sound business practice and good financial acumen. Each approved loan is made based on a specific purpose coupled with viable primary and secondary sources of repayment.
Commercial loan products include: credit lines to support business operations; term loans for working capital, expansion, or equipment purchases; letters of credit to facilitate domestic and foreign trade; and business credit cards for company purchases or travel expenses. Real estate loans include: land purchase or bridge loans; interim construction loans to build new commercial or residential projects; term loans to facilitate the purchase or refinance of office, industrial, warehouse and single family and multi-family residential properties; agricultural development loans to plant vineyards. Interim construction loans are typically made to owner-users of the property, but are occasionally granted to a well-qualified borrower for "resale" purposes. Term real estate loans are typically made to either investors or owner-users of a property with maturities usually ranging between five to ten years and original loan to values not exceeding 75% for commercial or 80% for residential properties. In general, the Bank does not make long term
mortgage loans unless they are made through a government guaranteed loan program such as the Small Business Administration, the Farm Services Agency or the USDA Business and Industry program. Consumer loans available to our borrowers include auto loans, home equity loans and lines of credit, credit cards and personal loans.
Average net loans (net of deferred fees and allowance for loan loss) during the three months ended March 31, 2000 were $40,241,000 which represents a 29.3% increase over the average of $31,122,000 during the three months ended March 31, 1999. Average net loans in 1999 were $34,062,000 representing an increase of $8,590,000 or 33.7% over 1998. The favorable economic conditions and lower interest rates provided the impetus for continuing loan growth. Average net loans in 1998 were $25,472,000 representing an increase of $4,815,000 or 23.3% over 1997.
RISK ELEMENTS
North Coast Bank, N.A. assesses and manages credit risk on an ongoing basis through a credit culture that emphasizes excellent credit quality, extensive internal monitoring and established lending policies. Additionally, North Coast Bank, N.A. contracts with an outside loan review consultant to periodically grade new loans and to review the existing loan portfolio. Management believes its ability to identify and assess risk and return characteristics of North Coast Bank, N.A.'s loan portfolio is critical for profitability and growth. Management strives to continue its emphasis on credit quality in the loan approval process through active credit administration and regular monitoring. With this in mind, management has designed and implemented a comprehensive loan review and grading system that functions to continually assess the credit risk inherent in the loan portfolio.
The overall credit quality of North Coast Bank, N.A.'s loan portfolio may be influenced by underlying trends in both economic and business cycles. North Coast Bank, N.A.'s business is focused into all of Sonoma County. Special emphasis is placed within the three communities that the Bank has offices, i.e., Santa Rosa, Windsor, and Healdsburg. The economy of Sonoma County is diversified with professional services, manufacturing, agriculture and real estate investment and construction. North Coast Bank, N.A. has significant extensions of credit and commitments secured by real estate. The ultimate recovery of these loans is generally dependent on the successful operation, sale or refinancing of the real estate. North Coast Bank, N.A. monitors the effects of current and expected market conditions and other factors related to its ability to collect on its real estate collateral. When approving a real estate related loan, Bank management considers the following items: appraised values; absorption and sale rates; leases and operating expenses; and, rates of return.
In extending credit and commitments to borrowers, North Coast Bank, N.A. generally requires collateral and/or guarantees as security. The repayment of such loans is expected to come from cash flow or from proceeds from the sale of selected assets of the borrowers. North Coast Bank, N.A.'s requirement for collateral and/or guarantees is determined on a case-by-case basis in connection with management's evaluation of the credit-worthiness of the borrower. Collateral held varies but may include accounts receivable, inventory, commercial real estate, equipment, income-producing properties, single family residences and other assets. North Coast Bank, N.A. secures its collateral by perfecting its interest in business assets, obtaining deeds of trust, or outright possession through other means.
North Coast Bank, N.A.'s management believes that its lending policies and underwriting standards will tend to minimize losses in an economic downturn, however, there is no assurance that losses will not occur under such circumstances. North Coast Bank, N.A.'s lending policies and underwriting standards include, but are not limited to: a) maintaining a thorough understanding of North Coast Bank, N.A.'s service area and originating a significant majority of its loans within that area; b) maintaining a thorough understanding of a borrowers' management abilities, their capacity and willingness to repay a
loan, and their expertise within their field of endeavor; c) making real estate loan approvals not only based on market demand for a project, but also on the borrowers' capacity to support the project financially in the event it does perform to expectations; and d) maintaining conforming and prudent loan to value and loan to cost ratios based on independent outside appraisals and ongoing inspection and analysis by North Coast Bank, N.A.'s lending officers.
NON-ACCRUAL, PAST DUE AND RESTRUCTURED LOANS
Management generally places loans on non-accrual status when the loan becomes 90 days past due, unless the loan is well secured and in the process of collection. Loans are charged off when in the opinion of management, collection appears unlikely. Table Four sets forth non-accrual loans and loans past due 90 days or more at March 31, 2000 and for the past five calendar year ends starting with December 31, 1995:
TABLE FOUR: NON-PERFORMING LOANS
-----------------------------------------------------------------------------------------
March 31, December 31,
--------- ---------------------------------
In thousands 2000 1999 1998 1997 1996 1995
-----------------------------------------------------------------------------------------
Past due 90 days or more and still accruing
Commercial $ -- $ -- $ -- $ -- $ -- $ --
Real estate -- -- -- -- -- --
Consumer and other -- -- 7 -- -- --
-----------------------------------------------------------------------------------------
Non-accrual:
Commercial $ -- $ -- $ -- $ -- $ -- $ --
Real estate -- -- -- 98 -- 267
Consumer and other -- -- -- -- 29 --
-----------------------------------------------------------------------------------------
Total non-performing loans $ -- $ -- $ 7 $ 98 $ 29 $267
-----------------------------------------------------------------------------------------
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At March 31, 2000 and for the years ended December 31, 1999, 1998 and 1997, the Bank had no significant impaired loans or loans placed on non-accrual status.
There were also no troubled debt restructures or loan concentrations in excess of 10% of total outstanding loans, not otherwise disclosed as a category of loans as of March 31, 2000 and December 31, 1999. Management is not aware of any potential problem loans beyond those reported as of March 31, 2000 and December 31, 1999.
ALLOWANCE FOR LOAN LOSSES ACTIVITY
The provision for credit losses is based upon management's evaluation of the adequacy of the existing allowance for loans outstanding. This allowance is increased by provisions charged to expense and recoveries, and is reduced by loan charge-off. Management determines an appropriate provision based upon the interaction of three primary factors: (1) loan portfolio growth, (2) a comprehensive grading and review formula for total loans outstanding, and (3) projected potential credit losses.
The allowance for credit losses totaled $434,000 or 1.08% of total loans at March 31, 2000 compared to $383,000 or .95% at December 31, 1999, $331,000 or 1.06% at December 31, 1998, and $352,000 or 1.60% at December 31, 1997. It is the policy of management to maintain the allowance for credit losses at a level adequate for known and future risks inherent in the loan portfolio. Based on information currently available to analyze credit loss potential, including economic factors, overall credit quality, historical delinquency and a history of actual charge-off, management believes that the credit loss
provision and allowance is prudent and adequate. However, no prediction of the ultimate level of loans charged off in future years can be made with any certainty.
Table Five below summarizes, for the periods indicated, the activity in the allowance for loan losses.
TABLE FIVE: ALLOWANCE FOR LOAN LOSSES
-------------------------------------------------------------------------------------------------------------------------------
Three Months Ended
In thousands (except for March 31, Year Ended December 31
percentages) --------------------- --------------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
-------------------------------------------------------------------------------------------------------------------------------
Average loans outstanding $ 40,241 $ 31,122 $ 34,062 $ 25,472 $ 20,657 $ 19,520 $ 19,438
-------------------------------------------------------------------------------------------------------------------------------
Allowance for possible loan losses
at beginning of period $ 383 $ 331 $ 331 $ 352 $ 346 $ 409 $ 357
Loans charged off:
Commercial -- -- 128 183 53 9 7
Real estate -- -- -- -- 16 65 --
Installment -- -- 3 -- 2 61 22
-------------------------------------------------------------------------------------------------------------------------------
Total -- -- 131 183 71 135 29
-------------------------------------------------------------------------------------------------------------------------------
Recoveries of loans previously charged off:
Commercial 23 -- 5 13 5 1 --
Real estate -- -- -- -- -- -- --
Consumer -- -- 3 -- 2 1 --
-------------------------------------------------------------------------------------------------------------------------------
Total 23 -- 8 13 7 2 --
-------------------------------------------------------------------------------------------------------------------------------
Net loans (recovered) charged off (23) -- 123 170 64 133 29
Additions to allowance charged
to operating expenses 28 30 175 149 70 70 81
-------------------------------------------------------------------------------------------------------------------------------
Allowance for possible loans
losses at end of period $ 434 $ 361 $ 383 $ 331 $ 352 $ 346 $ 409
Ratio of net (recoveries)
charge-offs to average loans
outstanding (1) (.23)% -- .36% .67% .31% .68% .15%
Provision of allowance for possible
loan losses to average loans
outstanding .28% .39% .51% .58% .34% .36% .42%
Allowance for possible loan losses to
loans net of deferred fees at end of
period 1.08% 1.16% .95% 1.06% 1.60 1.75% 2.03%
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(1) There were no charge-offs during the three months ended March 31, 1999.
As part of its loan review process, North Coast Bank, N.A.'s management has allocated the overall allowance based on specific identified problem loans and historical loss data. Table Six summarizes the allocation of the allowance for loan losses at March 31, 2000, December 31, 1999 and 1998.
TABLE SIX: ALLOWANCE FOR LOAN LOSSES BY LOAN CATEGORY
---------------------------------------------------------------------------------------------------------------
March 31, 2000 December 31, 1999 December 31, 1998
-------------- ----------------- -----------------
Percent of loans Percent of loans Percent of loans
In thousands in each category in each category in each category
(except percentages) Amount to total loans Amount to total loans Amount to total loans
---------------------------------------------------------------------------------------------------------------
Commercial $ 179 46.0% $ 168 48.1% $ 134 42.2%
Real estate 234 51.9% 194 49.7% 170 54.9%
Consumer 21 2.1% 21 2.2% 27 2.9%
---------------------------------------------------------------------------------------------------------------
Total $ 434 100.0% $ 383 100.0% $ 331 100.0%
---------------------------------------------------------------------------------------------------------------
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OTHER REAL ESTATE
North Coast Bank, N.A. did not have any Other Real Estate ("ORE") properties as of March 31, 2000, December 31, 1999, or December 31, 1998.
DEPOSITS
At March 31, 2000, total deposits were $44,345,000 representing an increase of $6,720,000 or 17.9% over the March 31, 1999 balance of $37,625,000. During 1999, deposits increased $3,928,000 or 10.3% to total $42,081,000 at year-end. The increase in total deposits is attributable to internal growth in noninterest-bearing demand and interest-bearing demand categories. Deposits at December 31, 1998 totaled $38,153,000 and were up $8,390,000 or 28.2% over the 1997 year-end balances of $29,763,000.
CAPITAL RESOURCES
The current and projected capital position of North Coast Bank, N.A. and the impact of capital plans and long-term strategies is reviewed regularly by management. North Coast Bank, N.A.'s capital position represents the level of capital available to support continued operations.
North Coast Bank, N.A. is subject to regulations by the Office of the Comptroller of the Currency, the Federal Reserve and the Federal Deposit Insurance Corporation which require maintenance of certain levels of capital. At March 31, 2000, shareholders' equity was $4,094,000 representing an increase of $96,000 or 2.4% from $3,998,000 at December 31, 1999. Shareholders' equity increased $206,000 or 5.4% from December 31, 1998. The ratio of total risk-based capital to risk adjusted assets was 11.4% as of March 31, 2000 compared to 11% at December 31, 1999, and 13% at December 31, 1998. Tier 1 risk-based capital to risk-adjusted assets was 10.3% at March 31, 2000, 10% at December 31, 1999, and 12% at December 31, 1998.
Table Seven below lists North Coast Bank, N.A.'s actual capital ratios at March 31, 2000, December 31, 1999, and December 31, 1998, as well as the minimum capital ratios for capital adequacy.
TABLE SEVEN: CAPITAL RATIOS
------------------------------------------------------------------------------------------------
Capital to Risk-Adjusted Assets At March 31, At December 31, Minimum Regulatory
2000 1999 1998 Capital Requirements
------------------------------------------------------------------------------------------------
Leverage ratio 8.5% 9.3% 9.8% 4.00%
Tier 1 Risk-Based Capital 10.3% 10.0% 12.0% 4.00%
Total Risk-Based Capital 11.4% 11.0% 13.0% 8.00%
|
Capital ratios are reviewed on a regular basis to ensure that capital exceeds the prescribed regulatory minimums and is adequate to meet future needs. All ratios are in excess of the regulatory definition of "well capitalized."
See "North Coast Bank, N.A. Financial Statements and Independent Auditor's Report--Note 9, Shareholders' Equity" on page 273 for a discussion of regulatory capital requirements. Management believes that North Coast Bank, N.A.'s capital is adequate to support current operations and anticipated growth of North Coast Bank, N.A.
MARKET RISK MANAGEMENT
Overview. Market risk is the risk of loss from adverse changes in market prices and rates. North Coast Bank, N.A.'s market risk arises primarily from interest rate risk inherent in its loan and deposit functions. The goal for managing the assets and liabilities of North Coast Bank, N.A. is to maximize shareholder value and earnings while maintaining a high quality balance sheet without exposing North Coast Bank, N.A. to undue interest rate risk. The Board of Directors has overall responsibility for the interest rate risk management policies. North Coast Bank, N.A. has an Asset and Liability Management Committee (ALCO) which establishes and monitors guidelines to control the sensitivity of earnings to changes in interest rates.
Asset/Liability Management. Activities involved in asset/liability management include but are not limited to lending, accepting and placing deposits and investing in securities. Interest rate risk is the primary market risk associated with asset/liability management. Sensitivity of earnings to interest rate changes arises when yields on assets change in a different time period or in a different amount from that of interest costs on liabilities. To mitigate interest rate risk, the structure of the balance sheet is managed with the goal that movements of interest rates on assets and liabilities are correlated and contribute to earnings even in periods of volatile interest rates. The asset/liability management policy sets limits on the acceptable amount of variance in net interest margin and market value of equity under changing interest environments. North Coast Bank, N.A. uses simulation models to forecast earnings, net interest margin and market value of equity.
Simulation of earnings is the primary tool used to measure the sensitivity of earnings to interest rate changes. Using computer modeling techniques, North Coast Bank, N.A. is able to estimate the potential impact of changing interest rates on earnings. A balance sheet forecast is prepared monthly using inputs of actual loans, securities and interest bearing liabilities (i.e. deposits/borrowings) positions as the beginning base. The forecast balance sheet is processed against seven interest rate scenarios. The scenarios include a 300, 200 and 100 basis point rising rate forecast, a flat rate forecast and a 300, 200 and 100 basis point falling rate forecast which take place within a one year time frame. The net interest income is measured during the first year of the rate changes and in the year following the rate changes. North Coast Bank, N.A.'s 2000 net interest income, as forecast below, was modeled utilizing a forecast balance sheet projected from year-end 1999 balances.
Table Eight below summarizes the effect on net interest income of a
+/-300, +/-200 and +/-100 basis point change in interest rates as measured
against a constant rate (no change) scenario.
As of March 31, 2000 Estimated Impact on 2000
Net Interest Income
------------------------
(in thousands)
Variation from a constant rate scenario
+300bp $(129)
+200bp $ (86)
+100bp $ (43)
-100bp $ 43
-200bp $ 86
-300bp $ 129
--------------------------------------------------------------------------------
As of December 31, 1999 Estimated Impact on 2000
Net Interest Income
------------------------
(in thousands)
Variation from a constant rate scenario
+300bp $ (99)
+200bp $ (66)
+100bp $ (33)
-100bp $ 33
-200bp $ 66
-300bp $ 99
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The simulations of earnings do not incorporate any management actions, which might moderate the negative consequences of interest rate deviations. Therefore, they do not reflect likely actual results, but serve as conservative estimates of interest rate risk. North Coast Bank, N.A. does not use a second simulation scenario based on a balance sheet rate shock as used by American River Bank.
Gap analysis provides another measure of interest rate risk. It is presented here for comparative purposes. Interest rate sensitivity is a function of the repricing characteristics of the portfolio of assets and liabilities. These repricing characteristics are the time frames within which the interest-bearing assets and liabilities are subject to change in interest rates either at replacement, repricing or maturity. Interest rate sensitivity management focuses on the maturity of assets and liabilities and their repricing during periods of changes in market interest rates. Interest rate sensitivity is measured as the difference between the volumes of assets and liabilities in the current portfolio that are subject to repricing at various time horizons. The differences are known as interest sensitivity gaps.
A positive cumulative gap may be equated to an asset sensitive position. An asset sensitive position in a rising interest rate environment will cause a bank's interest rate margin to expand. This results as floating or variable rate loans reprice more rapidly than fixed rate certificates of deposit that reprice as they mature over time. Conversely, a declining interest rate environment will cause the opposite effect. A negative cumulative gap may be equated to a liability sensitive position. A liability sensitive position in a rising interest rate environment will cause a bank's interest rate margin to contract, while a declining interest rate environment will have the opposite effect.
As reflected in Table Nine below, at March 31, 2000 and December 31, 1999, the cumulative gap indicates a liability sensitive position at the one year mark. This interest rate sensitivity table categorizes interest-bearing transaction deposits and savings deposits, also known as non-maturing deposits, as repricing according to the following assumptions table.
ASSUMPTIONS: The following assumptions were used in the gap analysis with regards to non-maturing deposits.
Non-Maturing Deposit Repricing Assumptions
0-30 31-90 91-180 181-365
Days Days Days Days
DDA-Interest 25% 25% 25% 25%
MMA 25% 25% 25% 25%
Savings 25% 25% 25% 25%
---------------------------------------------------------------------------
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TABLE NINE: INTEREST RATE SENSITIVITY
MARCH 31, 2000
-------------------------------------------------------------------------------------------------------------------------
Assets and Liabilities
which Mature or Reprice: Over one
and within Over
In thousands 0-30 Days 31-90 Days 91-365 Days five years five years Total
-------------------------------------------------------------------------------------------------------------------------
Interest earning assets:
Federal funds sold $ 3,150 $ -- $ -- $ -- $ -- $ 3,150
Interest bearing bank balances 141 -- 297 600 -- 1,038
Investment securities
Loans, excluding 2 5 150 1,024 164 1,345
nonaccrual loans and overdrafts 15,881 5,016 6,440 9,478 3,368 40,183
-------------------------------------------------------------------------------------------------------------------------
Total $ 19,174 $ 5,021 $ 6,887 $ 11,102 $ 3,532 $ 45,716
=========================================================================================================================
Interest bearing liabilities:
Interest bearing demand $ 3,717 $ 3,717 $ 7,435 $ -- $ -- $ 14,869
Savings 1,138 1,138 2,275 -- -- 4,551
Time certificates 3,132 2,859 8,820 1,016 -- 15,827
Other borrowings 1,000 -- -- -- -- 1,000
-------------------------------------------------------------------------------------------------------------------------
Total $ 8,987 $ 7,714 $ 18,530 $ 1,016 $ -- $ 36,247
=========================================================================================================================
Interest rate sensitivity gap $ 10,187 $ (2,693) $(11,643) $ 10,086 $ 3,532 $ 9,469
Cumulative interest
rate sensitivity gap $ 10,187 $ 7,494 $ (4,149) $ 5,937 $ 9,469
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DECEMBER 31, 1999
------------------------------------------------------------------------------------------------------------------------
Assets and Liabilities
which Mature or Reprice: Over one
and within Over
In thousands 0-30 Days 31-90 Days 91-365 Days five years five years Total
------------------------------------------------------------------------------------------------------------------------
Interest earning assets:
Federal funds sold $ 1,000 $ -- $ -- $ -- $ -- $ 1,000
Interest bearing bank
balances 298 -- 198 297 -- 793
Investment securities 5 11 46 1,105 192 1,359
Loans, excluding
nonaccrual loans
and overdrafts 13,282 5,731 8,160 9,073 3,982 40,228
------------------------------------------------------------------------------------------------------------------------
Total $ 14,585 $ 5,742 $ 8,404 $ 10,475 $ 4,174 $ 43,380
========================================================================================================================
Interest bearing liabilities:
Interest bearing demand $ 3,370 $ 3,370 $ 6,740 $ -- $ -- $ 13,480
Savings 1,058 1,058 2,116 -- -- 4,232
Time certificates 2,072 3,360 8,247 541 -- 14,220
Other borrowings 1,000 -- -- -- -- 1,000
------------------------------------------------------------------------------------------------------------------------
Total $ 7,500 $ 7,788 $ 17,103 $ 541 $ -- $ 32,932
========================================================================================================================
Interest rate
sensitivity gap $ 7,085 $ (2,046) $ (8,699) $ 9,934 $ 4,174 $ 10,448
Cumulative interest
rate sensitivity gap $ 7,085 $ 5,039 $ (3,660) $ 6,274 $ 10,448
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INFLATION
The impact of inflation on a financial institution differs significantly from that exerted on manufacturing, or other commercial concerns, primarily because its assets and liabilities are largely monetary. In general, inflation primarily affects North Coast Bank, N.A. through its effect on market rates of interest, which affects North Coast Bank, N.A.'s ability to attract loan customers. Inflation affects the growth of total assets by increasing the level of loan demand, and potentially adversely affects capital adequacy because loan growth in inflationary periods can increase at rates higher than the rate that capital grows through retention of earnings which may be generated in the future. In addition to its effects on interest rates, inflation increases overall operating expenses. Inflation has not had a material effect upon the results of operations of North Coast Bank, N.A. during the periods ended March 31, 2000 and December 31, 1999, 1998, and 1997.
LIQUIDITY
Liquidity management refers to North Coast Bank, N.A.'s ability to provide funds on an ongoing basis to meet fluctuations in deposit levels as well as the credit needs and requirements of its clients. Both assets and liabilities contribute to North Coast Bank, N.A.'s liquidity position. Deposit increases, Federal funds lines, short-term investments and securities, and loan repayments contribute to liquidity, while loan funding and deposit withdrawals decrease liquidity. North Coast Bank, N.A. assesses the likelihood of projected funding requirements by reviewing historical funding patterns, current and forecasted economic conditions and individual client funding needs. Commitments to fund loans and outstanding standby letters
of credit at March 31. 2000, were approximately $9,635,000 and $50,000, respectively and approximately $9,154,000 and $150,000, respectively at December 31, 1999. Such loans relate primarily to revolving lines of credit and other commercial loans, and to real estate construction loans.
North Coast Bank, N.A.'s sources of liquidity consist of overnight funds sold to correspondent banks, unpledged marketable investments, loans available for sale, correspondent fed funds lines and cash. On March 31, 2000, liquid assets totaled $8,658,000 or 17.5% of total assets as compared to $6,237,000 or 13.2% of total assets at December 31, 1999 and $11,391,000 or 27.0% of total assets on December 31, 1998. Included in the sources of liquidity is a total of $2,000,000 in unsecured Federal funds lines of credit with two correspondent banks. In addition, at March 31, 2000, North Coast Bank, N.A. had a line of credit available with the Federal Home Loan Bank totaling $1,000,000 which is secured by pledged mortgage loans. An advance totaling $1,000,000 was outstanding from the Federal Home Loan Bank at March 31, 2000 bearing an interest rate of 5.9% and a maturity date of April 12, 2000. The Federal Home Loan Bank line of credit available at December 31, 1999, stood at $1,400,000 with the same above mentioned $1,000,000 advance outstanding. There were no short-term borrowings outstanding at December 31, 1998. North Coast Bank, N.A. also has informal agreements with various other banks to purchase participations in loans, if necessary. North Coast Bank, N.A. serves primarily a business and professional customer base and, as such, its deposit base is susceptible to economic fluctuations. Accordingly, management strives to maintain a balanced position of liquid assets to volatile and cyclical deposits.
The maturity distribution of certificates of deposit in denominations of $100,000 or more is set forth in Table Ten below. These deposits are generally more rate sensitive than other deposits and, therefore, are more likely to be withdrawn to obtain higher yields elsewhere if available.
Three Months Ended Year Ended
(In thousands) 3/31/00 12/31/99
--------------------------------------------------------------------------------
Three months or less $ 3,041 $ 2,037
Over three months through six months 2,062 1,895
Over six months through twelve months 1,533 1,681
Over twelve months 453 --
--------------------------------------------------------------------------------
Total $ 7,089 $ 5,613
================================================================================
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Loan demand also affects North Coast Bank, N.A.'s liquidity position. Table Eleven below presents the maturities of loans for the period indicated.
TABLE ELEVEN: LOAN MATURITIES
---------------------------------------------------------------------------------------------------------------
March 31, 2000
---------------------------------------------------------------------------------------------------------------
One year One year through Over
(In thousands) or less five years five years Total
---------------------------------------------------------------------------------------------------------------
Commercial $ 6,218 $ 3,980 $ 1,489 $11,687
Real estate - Construction 2,632 168 938 3,738
Real estate - Mortgage 1,991 4,155 10,947 17,093
Agriculture 349 2,426 3,814 6,589
Consumer 546 403 127 1,076
---------------------------------------------------------------------------------------------------------------
Total $11,736 $11,132 $17,315 $40,183
===============================================================================================================
Loans shown above with maturities greater than one year include
$21,100,000 of floating interest rate loans and $7,347,000 of fixed rate loans.
---------------------------------------------------------------------------------------------------------------
December 31, 1999
---------------------------------------------------------------------------------------------------------------
One year One year through Over
(In thousands) or less five years five years Total
---------------------------------------------------------------------------------------------------------------
Commercial $ 6,468 $ 4,043 $ 1,372 $11,883
Real estate - Construction 2,924 744 809 4,477
Real estate -
Mortgage 1,606 3,629 10,275 15,510
Agriculture 398 2,283 4,519 7,200
Consumer 588 440 130 1,158
---------------------------------------------------------------------------------------------------------------
Total $11,984 $11,139 $17,105 $40,228
===============================================================================================================
|
Loans shown above with maturities greater than one year include $19,890,000 of floating interest rate loans and $8,354,000 of fixed rate loans.
TABLE TWELVE: SECURITIES MATURITIES
------------------------------------------------------------------------------------------------------
Amortized Unrealized Unrealized Market Weighted
In thousands Cost Gain Losses Value Average Yield
------------------------------------------------------------------------------------------------------
March 31, 2000
Available-for-sale securities:
U.S. Treasury and agency securities
maturing after 1 year but $ 983 $ -- $ (12) $ 971 6.54%
within 5 Years
State & political subdivisions
maturing after 10 years 173 (9) 164 7.03%
Government guaranteed mortgage
backed securities 213 (3) 210 6.30%
Other
Non-maturing 352 352 1.19%
------------------------------------------------------------------------------------------------------
Total investment securities $1,721 $ -- $ (24) $1,697 5.45%
======================================================================================================
December 31, 1999
Available-for-sale securities:
U.S. Treasury and agency securities
maturing after 1 year but within 5 $ 982 $ -- $ (9) $ 973 6.54%
years
State & political subdivisions
maturing after 10 years 173 (12) 161 6.86%
Government guaranteed mortgage
backed securities 228 -- (3) 225 6.26%
Other
Non-maturing 349 -- -- 349 1.18%
------------------------------------------------------------------------------------------------------
Total investment securities $1,732 $ -- $ (24) $1,708 5.45%
======================================================================================================
December 31, 1998
Available-for-sale securities:
U.S. Treasury and agency securities
maturing within 1 year $ 450 $ 1 $ -- $ 451 6.32%
State & political subdivisions
maturing after 10 years 173 4 -- 177 6.86%
Government guaranteed mortgage
backed securities 530 3 (1) 532 6.09%
Other
Non-maturing 269 -- -- 269 1.01%
------------------------------------------------------------------------------------------------------
Total investment securities $1,422 $ 8 $ (1) $1,429 5.32%
======================================================================================================
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OFF-BALANCE SHEET ITEMS
North Coast Bank, N.A. has certain ongoing commitments under operating leases. See "North Coast Bank, N.A. Financial Statements and Independent Auditor's Report--Note 7, Commitments and Contingencies" on page 269.
As of March 31, 2000 and December 31, 1999, commitments to extend credit and letters of credit were the only financial instruments with off-balance sheet risk. North Coast Bank, N.A. has not entered
into any contracts for financial derivative instruments such as futures, swaps, options or similar instruments. Loan commitments and letters of credit were 9,685,000, 9,304,000 and 5,109,000 at March 31, 2000, December 31, 1999 and December 31, 1998, respectively. As a percentage of net loans these off-balance sheet items represent 24.4%, 23.4% and 16.6%, respectively.
DISCLOSURE OF FAIR VALUE
The Financial Accounting Standards Board (FASB), Statement of Financial Accounting Standards Number 107, Disclosures about Fair Value of Financial Statements, requires the disclosure of fair value of most financial instruments, whether recognized or not recognized in the financial statements. The intent of presenting the fair values of financial instruments is to depict the market's assessment of the present value of net future cash flows discounted to reflect both current interest rates and the market's assessment of the risk that the cash flows will not occur.
At year-end 1999, the fair values calculated on North Coast Bank, N.A.'s assets are 0.9% below the carrying values versus .08% above the carrying values at year-end 1998. See "North Coast Bank, N.A. Financial Statements and Independent Auditor's Report--Note 14, Disclosures About Fair Value of Financial Instruments" on page 279. There were no material changes or trends reflected at March 31, 2000 compared to December 31, 1999.
YEAR 2000
During 1998 and 1999, management of North Coast Bank, N.A. focused the appropriate resources to address the potential problems that could arise regarding the Year 2000 (Y2K) century date change. North Coast Bank, N.A.'s mission critical systems were evaluated, modified as required and contingency plans were put into place should the systems have experienced any failures. The century date change passed without any operational difficulties. There are certain dates within the year 2000 that have been identified as critical processing dates. North Coast Bank, N.A. has not experienced any processing problems with the first three critical dates of 2000; January 31 (end of the first month of the year), February 29 (leap year day), and March 31 (end of the first quarter). Upcoming dates during the year are October 10 (first date to require and 8-digit field, i.e. 10/10/2000) and December 31 (end of the year). These dates were tested as part of the Y2K project and North Coast Bank, N.A. does not anticipate any processing problems. North Coast Bank, N.A. currently expects that its Y2K compliance efforts will be successful without material adverse effects on its business.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
In 1999, North Coast Bank, N.A. changed independent accountants from Richardson & Company to Perry-Smith LLP. Accordingly, Perry-Smith LLP audited North Coast Bank, N.A.'s financial statements as of and for the year ended December 31, 1999. Richardson & Company audited North Coast Bank, N.A.'s financial statements as of and for the years ended December 31, 1998 and 1997. The change of independent accountants was not the result of a disagreement with Richardson & Company on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure.
CERTAIN MANAGEMENT INFORMATION
See "Security Ownership of Beneficial Owners and Management -- North Coast Bank, N.A." on page 86 and "Background and Business Experience of Management -- North Coast Bank, N.A." on page 28, for information regarding the ownership of North Coast Bank, N.A. common stock and the background and business experience of each of the directors and executive officers of North Coast Bank, N.A.
COMMITTEES OF THE BOARD OF DIRECTORS
The board of directors has established the following standing committees, with membership as noted:
The board of directors has not established nominating or compensation committees. The full board of directors performs the functions of nominating and compensation committees with responsibility for considering appropriate candidates for election as directors and for determining appropriate compensation for management, respectively.
The Investment/Audit Committee is composed of William A. Robotham (Chairman), Philip Wright (Vice-Chairman), Herbert C. Steiner, Larry L. Wasem, and Robert A. Young. The functions of the Audit Committee are to recommend the appointment of and to oversee a firm of independent public accountants who audit the books and records of North Coast Bank, N.A. for the fiscal year for which they are appointed, to approve each professional service rendered by such accountants and to evaluate the possible effect of each such service on the independence of North Coast Bank, N.A.'s accountants. The function of the Investment Committee is to oversee the investments of North Coast Bank, N.A. to ensure that North Coast Bank, N.A. maintains suitable investments while being sufficiently liquid to meet demands for funds for withdrawals and loans, and to use best efforts to obtain a reasonable return on those investments. The Investment/Audit Committee met twelve (12) times during 1999.
The Loan Committee is composed of Larry L. Wasem (Chairman), Michael P. Merrill (Vice- Chairman), Philip A. Wright and Leo J. Becnel. The functions of the Loan Committee are to set the lending limits for North Coast Bank, N.A.'s officers, to monitor compliance with North Coast Bank, N.A.'s loan policy and CRA requirements, to meet regularly to review North Coast Bank, N.A.'s overall position and to review and act upon all loans in excess of the lending limits of North Coast Bank's officers. The Loan Committee met thirty (30) times during 1999.
M. Edgar Deas (Chairman of the board of directors) is an ex-officio member of each committee and has attended substantially all of each committee's meetings.
During 1999, North Coast Bank, N.A.'s board of directors held fifty-four (54) meetings. All directors attended at least 75% of the aggregate of the total number of meetings of the board of directors and the number of meetings of the committees on which they served, except director Robotham who attended 71% of these meetings.
COMPENSATION OF DIRECTORS
No fees were paid to non-employee directors during 1999. The non-employee directors of North Coast Bank, N.A. participate in the North Coast Bank, N.A. 1990 Stock Option Plan. No options were granted under the 1990 Stock Option Plan to any non-employee director during 1999.
EXECUTIVE COMPENSATION
Set forth below is the summary compensation paid during the three years ended December 31, 1999 to Kathy A. Pinkard, Debbie K. Fakalata, and David A. Wattell, the only executive officers of North Coast Bank, N.A.
Summary Compensation Table
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Long-Term Compensation
---------------------------------------
Annual Compensation Awards Payouts
-----------------------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Restricted Securities
Other Annual Stock Underlying LTIP All Other
Name and Salary Bonus Compensation Award(s) Options/SARs Payouts Compensation
Principal Position Year ($) (1) ($) (2) ($) (3) ($) (#) (4) ($) ($) (5)
-----------------------------------------------------------------------------------------------------------------------------------
Kathy A. Pinkard, 1999 $ 95,000 $ 10,000 $ 3,240 -- 2,500 $ -- $ 1,425
President and Chief
Executive Officer 1998 95,000 -- 3,505 -- -- -- --
1997 68,667 3,500 3,505 -- -- -- --
-----------------------------------------------------------------------------------------------------------------------------------
Debbie K. Fakalata, 1999 75,000 1,500 2,280 -- 2,500 -- --
Senior Vice President and
Chief Financial Officer 1998 18,750 -- 523 -- -- -- --
1997 -- -- -- -- -- -- --
-----------------------------------------------------------------------------------------------------------------------------------
David A. Wattell, 1999 80,000 8,500 3,820 -- 2,500 -- 2,300
Senior Vice President and
Chief Credit Officer 1998 75,000 2,000 3,487 -- -- -- --
1997 18,634 -- -- -- -- -- --
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(1) Amounts shown include cash compensation earned and received by executive
officers as well as amounts earned but deferred at the election of those
officers under the 401(k) Plan.
(2) Amounts indicated as incentive bonus payments are listed in the year paid.
(3) No executive officer received perquisites or other personal benefits in
excess of the lesser of $50,000 or 10% of each such officer's total annual
salary and bonus during 1999, 1998 and 1997.
(4) Amounts shown represent the number of shares granted. North Coast Bank,
N.A. has a 1990 Stock Option Plan (the "1990 Plan") pursuant to which
options can be granted to directors and key, full-time salaried, officers
and employees of North Coast Bank, N.A. Options granted under the 1990 Plan
were either incentive options or nonstatutory options. Options granted
under the 1990 Plan became exercisable in accordance with a vesting
schedule established at the time of grant. Vesting can not extend beyond
ten years from the date of grant. Upon a change in control of North Coast
Bank, N.A., all outstanding options under the 1990 Plan will become fully
vested and exercisable. Options granted under the 1990 Plan are adjusted to
protect against dilution in the event of certain changes in North Coast
Bank, N.A.'s capitalization, including stock splits and stock dividends.
All options granted to the named executive officers are incentive stock
options and have an exercise price equal to the fair market value of North
Coast Bank, N.A. common stock on the date of grant. There were 2,500
options granted to each of Ms. Pinkard, Mr. Fakalata and Mr. Wattell during
1999.
(5) Amounts shown for each named executive officer include 401(k) matching contributions.
The following table sets forth certain information concerning the granting of options under the 1990 Stock Option Plan during the year ended December 31, 1999.
Option/SAR Grants In Last Fiscal Year
--------------------------------------------------------------------------------------------------
Individual Grants
--------------------------------------------------------------------------------------------------
Number of Percentage of
Securities Total
Underlying Options/SARs
Option/SARs Granted to Exercise or
Granted Employees in Base Price Expiration
Name (#) (1) Fiscal Year ($/Sh) (2) Date
-------------------------------------------------------------------------------------------------
Kathy Pinkard 2,500 100% $ 8.75 12/16/09
-------------------------------------------------------------------------------------------------
Debbie K. Fakalata 2,500 100% $ 8.75 12/16/09
-------------------------------------------------------------------------------------------------
David A. Wattell 2,500 100% $ 8.75 12/16/09
-------------------------------------------------------------------------------------------------
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(1) Options granted under the 1990 Plan were either incentive options or nonstatutory options. Options granted under the 1990 Plan became exercisable in accordance with a vesting schedule established at the time of grant. Vesting can not extend beyond ten years from the date of grant. Upon a change in control of North Coast Bank, N.A., all outstanding options under the 1990 Plan will become fully vested and exercisable. Options granted under the 1990 Plan are adjusted to protect against dilution in the event of certain changes in North Coast Bank, N.A.'s capitalization, including stock splits and stock dividends. All options granted to the named executive officers are incentive stock options and have an exercise price equal to the fair market value of North Coast Bank, N.A. common stock on the date of grant.
(2) The exercise price was determined based upon the closing price of North Coast Bank, N.A.'s common stock on the grant date.
The following table sets forth the number of shares of common stock acquired by each of the named executive officers upon the exercise of stock options during fiscal 1999, the net value realized upon exercise, the number of shares of common stock represented by outstanding stock options held by each of the named executive officers as of December 31, 1999, the value of such options based on the closing price of North Coast Bank, N.A. common stock, and certain information concerning unexercised options under the 1990 Stock Option Plan.
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Aggregated Option/SAR Exercises In Last Fiscal Year And
FY-End Option/SAR Values
--------------------------------------------------------------------------------------------------------------------
Number of
Securities Value of
Underlying Unexercised
Unexercised in-the-Money
Options/SARs Options/SARs
at Fiscal Year- at Fiscal Year-
Shares Value End (#) End ($)
Acquired on Realized Exercisable/ Exercisable/
Name Exercise (#) ($) Unexercisable Unexercisable
(a) (b) (c) (d) (e) (1)
--------------------------------------------------------------------------------------------------------------------
Kathy A. Pinkard - - 6,824 / 12,466 6,484 / 6,956
--------------------------------------------------------------------------------------------------------------------
Debbie K. Fakalata - - - / 2,500 - / -
--------------------------------------------------------------------------------------------------------------------
David A. Wattell - - - / 2,500 - / -
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(1) The aggregate value has been determined based upon the closing price for North Coast Bank, N.A.'s common stock at year-end, minus the exercise price.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL ARRANGEMENTS
On December 16, 1999, North Coast Bank, N.A. entered into an
employment agreement with Kathy A. Pinkard. The agreement is for a term of three
(3) years and will be automatically extended each year after its initial term,
unless either party gives written notice to the contrary ninety (90) days prior
the renewal date, and provides for a base salary of $104,500, to be reviewed
annually. The agreement also provides for a performance bonus ranging from 0% to
50% of Ms. Pinkard's base salary based upon mutually agreed upon goals. The
board of directors has sole discretion as to the goals of the bonus program. Ms.
Pinkard is also entitled to participate in any retirement or employee benefits
that the board of directors may adopt for its employees; is entitled to four (4)
weeks' vacation; and will be reimbursed for mileage associated with business and
reasonable expenses for attending annual and periodic meetings of trade
associations. If Ms. Pinkard is terminated after a change of control of North
Coast Bank, N.A. for any reason other than cause, she will receive her base
salary through the last day of the calendar month of the termination. If the
termination occurs within three (3) years after the change of control, she will
also receive payment in an amount equal to two (2) times her then current base
salary.
On December 16, 1999, North Coast Bank, N.A. also entered into change of control employment agreements with each of Debbie K. Fakalata and David A. Wattell. The agreements are for a term of three (3) years and will be automatically extended each year after the initial term, unless either party gives written notice to the contrary ninety (90) days prior the renewal date. If Ms. Fakalata or Mr. Wattell is terminated after a change of control of North Coast Bank, N.A. for any reason other than cause, he or she, as the case may be, shall receive his or her base salary through the last day of the calendar month of the termination. If such termination occurs within one hundred eighty (180) days after the change of control, he or she will also receive payment in an amount equal to one (1) times his or her then current base salary.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
North Coast Bank, N.A. does not currently have a class of securities registered under Section 12 of the Securities Exchange Act of 1934, as amended, nor is it required to file reports with the Securities
and Exchange Commission under Section 13 of the Securities Exchange Act of 1934. Consequently, North Coast Bank, N.A. directors, executive officers and ten percent or more shareholders of North Coast Bank, N.A. equity securities are not required to file reports of initial ownership and changes in ownership of its equity securities with the Securities and Exchange Commission under Section 16(a) of the Securities Exchange Act of 1934.
In connection with the merger, American River Holdings will register
its common stock under Section 12 of the Securities Exchange Act and thereafter
will be required to file reports under Section 13 of the Securities Exchange Act
with the Securities and Exchange Commission. Following the effective time of the
merger, Kathy A. Pinkard and the two North Coast Bank, N.A. directors who are
appointed to the American River Holdings board of directors, and ten percent or
more shareholders of North Coast Bank, N.A. equity securities, will be required
to file ownership reports with the Securities and Exchange Commission under
Section 16(a) of the Securities Exchange Act of 1934.
TRANSACTIONS WITH MANAGEMENT AND OTHERS
There have been no transactions, or series of similar transactions, during 1999, or any currently proposed transaction, or series of similar transactions, to which North Coast Bank, N.A. and its subsidiaries was or is to be a party, in which the amount involved exceeded or will exceed $60,000 and in which any director or executive officer of North Coast Bank, N.A., any shareholder owning of record or beneficially 5% or more of North Coast Bank, N.A.'s common stock, or any member of the immediate family of any of the foregoing persons, had, or will have, a direct or indirect material interest.
CERTAIN BUSINESS RELATIONSHIPS
There were no business relationships during 1999 of the type requiring disclosure under Item 404(b) of Regulation S-K.
INDEBTEDNESS OF MANAGEMENT
North Coast Bank, N.A., through its subsidiaries, has had, and expects in the future to have banking transactions in the ordinary course of its business with many of North Coast Bank, N.A. directors and officers and their associates, including transactions with corporations of which such persons are directors, officers or controlling shareholders, on substantially the same terms (including interest rates and collateral) as those prevailing for comparable transactions with others. Management believes that in 1999 such transactions comprising loans did not involve more than the normal risk of collectibility or present other unfavorable features. Loans to executive officers of North Coast Bank, N.A. are subject to limitations as to amount and purposes prescribed in part by the Federal Reserve Act, as amended, and the regulations of the Federal Deposit Insurance Corporation.
SUPERVISION AND REGULATION
GENERAL
American River Holdings and Subsidiaries. The common stock of American River Holdings is subject to the registration requirements of the Securities Act of 1933, as amended, and the qualification requirements of the California Corporate Securities Law of 1968, as amended. American River Bank's common stock, however, is exempt from those requirements. American River Holdings is not currently subject to the periodic reporting requirements of Section 13 of the Securities Exchange Act of 1934, as amended, which include, but are not limited to, annual, quarterly and other current reports with the Securities and Exchange Commission. American River Holdings intends to register its securities under Section 12(g) of the Securities Exchange Act of 1934, as amended, following filing of this joint proxy
statement/prospectus with the Securities and Exchange Commission. Thereafter, American River Holdings will be subject to the periodic reporting requirements of Section 13 of the Securities Exchange Act of 1934, as amended.
American River Bank is licensed by the California Commissioner of Financial Institutions, its deposits are insured by the Federal Deposit Insurance Corporation, and it has chosen not to become a member of the Federal Reserve System. Consequently, American River Bank is subject to the supervision of, and is regularly examined by, the California Commissioner of Financial Institutions and the Federal Deposit Insurance Corporation. The supervision and regulation includes comprehensive reviews of all major aspects of American River Bank's business and condition, including its capital ratios, allowance for possible loan losses and other factors. However, no inference should be drawn that such authorities have approved any such factors. American River Holdings and American River Bank are required to file reports with the Board of Governors of the Federal Reserve System (the "Board of Governors"), the California Commissioner of Financial Institutions, and the Federal Deposit Insurance Corporation and provide the additional information that the Board of Governors, California Commissioner of Financial Institutions, and Federal Deposit Insurance Corporation may require. American River Bank's deposits are insured by the Federal Deposit Insurance Corporation up to the applicable legal limits.
First Source Capital is a California corporation which conducts a lease brokerage business as a permissible non-banking activity under the Federal Reserve Act. First Source Capital is subject to regulatory supervision by the Board of Governors and the California Commissioner of Corporations.
American River Holdings is a bank holding company within the meaning of the Bank Holding Company Act of 1956, as amended (the "Bank Holding Company Act"), and is registered as such with, and subject to the supervision of, the Board of Governors. American River Holdings is required to obtain the approval of the Board of Governors before it may acquire all or substantially all of the assets of any bank, or ownership or control of the voting shares of any bank if, after giving effect to such acquisition of shares, American River Holdings would own or control more than 5% of the voting shares of such bank. The Bank Holding Company Act prohibits American River Holdings from acquiring any voting shares of, or interest in, all or substantially all of the assets of, a bank located outside the State of California unless such an acquisition is specifically authorized by the laws of the state in which such bank is located. Any such interstate acquisition is also subject to the provisions of the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994.
American River Holdings, and any subsidiaries, which it may acquire or organize, are deemed to be "affiliates" of American River Bank within the meaning of that term as defined in the Federal Reserve Act. This means, for example, that there are limitations (a) on loans by American River Bank to affiliates, and (b) on investments by American River Bank in affiliates' stock as collateral for loans to any borrower. American River Holdings and its subsidiaries are also subject to certain restrictions with respect to engaging in the underwriting, public sale and distribution of securities.
In addition, regulations of the Board of Governors under the Federal Reserve Act require that reserves be maintained by American River Bank in conjunction with any liability of American River Holdings under any obligation (promissory note, acknowledgement of advance, banker's acceptance or similar obligation) with a weighted average maturity of less than seven (7) years to the extent that the proceeds of such obligations are used for the purpose of supplying funds to American River Bank for use in its banking business, or to maintain the availability of such funds.
North Coast Bank, N.A. As a national bank licensed under the national banking laws of the United States, North Coast Bank, N.A. is regularly examined by the Office of the Comptroller of the
Currency and is subject to the supervision of the Federal Deposit Insurance Corporation, Board of Governors, and the Office of the Comptroller of the Currency. The supervision and regulation includes comprehensive reviews of all major aspects of North Coast Bank, N.A.'s business and condition, including its capital ratios, allowance for possible loan losses and other factors. However, no inference should be drawn that such authorities have approved any such factors. North Coast Bank, N.A. is required to file reports with the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation. North Coast Bank, N.A.'s deposits are insured by the Federal Deposit Insurance Corporation up to the applicable legal limits.
CAPITAL STANDARDS
The Board of Governors, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency have adopted risk-based capital guidelines for evaluating the capital adequacy of bank holding companies and banks. The guidelines are designed to make capital requirements sensitive to differences in risk profiles among banking organizations, to take into account off-balance sheet exposures and to aid in making the definition of bank capital uniform internationally. Under the guidelines, American River Holdings, American River Bank, and North Coast Bank, N.A. are required to maintain capital equal to at least 8.0% of its assets and commitments to extend credit, weighted by risk, of which at least 4.0% must consist primarily of common equity (including retained earnings) and the remainder may consist of subordinated debt, cumulative preferred stock, or a limited amount of loan loss reserves.
Assets, commitments to extend credit, and off-balance sheet items are categorized according to risk and certain assets considered to present less risk than others permit maintenance of capital at less than the 8% ratio. For example, most home mortgage loans are placed in a 50% risk category and therefore require maintenance of capital equal to 4% of those loans, while commercial loans are placed in a 100% risk category and therefore require maintenance of capital equal to 8% of those loans.
Under the risk-based capital guidelines, assets reported on an institution's balance sheet and certain off-balance sheet items are assigned to risk categories, each of which has an assigned risk weight. Capital ratios are calculated by dividing the institution's qualifying capital by its period-end risk-weighted assets. The guidelines establish two categories of qualifying capital: Tier 1 capital (defined to include common shareholders' equity and noncumulative perpetual preferred stock) and Tier 2 capital which includes, among other items, limited life (and in case of banks, cumulative) preferred stock, mandatory convertible securities, subordinated debt and a limited amount of reserve for credit losses. Tier 2 capital may also include up to 45% of the pretax net unrealized gains on certain available-for-sale equity securities having readily determinable fair values (i.e. the excess, if any, of fair market value over the book value or historical cost of the investment security). The federal regulatory agencies reserve the right to exclude all or a portion of the unrealized gains upon a determination that the equity securities are not prudently valued. Unrealized gains and losses on other types of assets, such as bank premises and available-for-sale debt securities, are not included in Tier 2 capital, but may be taken into account in the evaluation of overall capital adequacy and net unrealized losses on available-for-sale equity securities will continue to be deducted from Tier 1 capital as a cushion against risk. Each institution is required to maintain a risk-based capital ratio (including Tier 1 and Tier 2 capital) of 8%, of which at least half must be Tier 1 capital.
A leverage capital standard was adopted as a supplement to the risk-weighted capital guidelines. Under the leverage capital standard, an institution is required to maintain a minimum ratio of Tier 1 capital to the sum of its quarterly average total assets and quarterly average reserve for loan losses, less intangibles not included in Tier 1 capital. Period-end assets may be used in place of quarterly average total assets on a case-by-case basis. The Board of Governors and the Federal Deposit Insurance
Corporation have also adopted a minimum leverage ratio for bank holding companies as a supplement to the risk-weighted capital guidelines. The leverage ratio establishes a minimum Tier 1 ratio of 3% (Tier 1 capital to total assets) for the highest rated bank holding companies or those that have implemented the risk-based capital market risk measure. All other bank holding companies must maintain a minimum Tier 1 leverage ratio of 4% with higher leverage capital ratios required for bank holding companies that have significant financial and/or operational weakness, a high risk profile, or are undergoing or anticipating rapid growth.
At March 31, 2000, American River Holdings, American River Bank and North Coast Bank, N.A. were in compliance with the risk-weighted capital and leverage ratios. See "Information About American River Holdings and Subsidiaries--Management's Discussion and Analysis of Financial Condition and Results of Operations of American River Holdings--Capital Resources" on page 45 and "Information About North Coast Bank, N.A.--Management's Discussion and Analysis of Financial Condition and Results of Operations of North Coast Bank, N.A.--Capital Resources" on page 63.
PROMPT CORRECTIVE ACTION
The Board of Governors, Federal Deposit Insurance Corporation, and Office of the Comptroller of the Currency have adopted regulations implementing a system of prompt corrective action pursuant to Section 38 of the Federal Deposit Insurance Act and Section 131 of the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"). The regulations establish five capital categories with the following characteristics: (1) "Well capitalized" - consisting of institutions with a total risk-based capital ratio of 10% or greater, a Tier 1 risk-based capital ratio of 6% or greater and a leverage ratio of 5% or greater, and the institution is not subject to an order, written agreement, capital directive or prompt corrective action directive; (2) "Adequately capitalized" - consisting of institutions with a total risk-based capital ratio of 8% or greater, a Tier 1 risk-based capital ratio of 4% or greater and a leverage ratio of 4% or greater, and the institution does not meet the definition of a "well capitalized" institution; (3) "Undercapitalized" - consisting of institutions with a total risk-based capital ratio less than 8%, a Tier 1 risk-based capital ratio of less than 4%, or a leverage ratio of less than 4%; (4) "Significantly undercapitalized" - consisting of institutions with a total risk-based capital ratio of less than 6%, a Tier 1 risk-based capital ratio of less than 3%, or a leverage ratio of less than 3%; (5) "Critically undercapitalized" - consisting of an institution with a ratio of tangible equity to total assets that is equal to or less than 2%.
The regulations established procedures for classification of financial institutions within the capital categories, filing and reviewing capital restoration plans required under the regulations and procedures for issuance of directives by the appropriate regulatory agency, among other matters. The regulations impose restrictions upon all institutions to refrain from certain actions which would cause an institution to be classified within any one of the three "undercapitalized" categories, such as declaration of dividends or other capital distributions or payment of management fees, if following the distribution or payment the institution would be classified within one of the "undercapitalized" categories. In addition, institutions which are classified in one of the three "undercapitalized" categories are subject to certain mandatory and discretionary supervisory actions. Mandatory supervisory actions include (1) increased monitoring and review by the appropriate federal banking agency; (2) implementation of a capital restoration plan; (3) total asset growth restrictions; and (4) limitation upon acquisitions, branch expansion, and new business activities without prior approval of the appropriate federal banking agency. Discretionary supervisory actions may include (1) requirements to augment capital; (2) restrictions upon affiliate transactions; (3) restrictions upon deposit gathering activities and interest rates paid; (4) replacement of senior executive officers and directors; (5) restrictions upon activities of the institution and its affiliates; (6) requiring divestiture or sale of the institution; and (7) any other supervisory action that the appropriate federal banking agency determines is necessary to further the purposes of the
regulations. Further, the federal banking agencies may not accept a capital restoration plan without determining, among other things, that the plan is based on realistic assumptions and is likely to succeed in restoring the depository institution's capital. In addition, for a capital restoration plan to be acceptable, the depository institution's parent holding company must guarantee that the institution will comply with such capital restoration plan. The aggregate liability of the parent holding company under the guaranty is limited to the lesser of (i) an amount equal to 5 percent of the depository institution's total assets at the time it became undercapitalized, and (ii) the amount that is necessary (or would have been necessary) to bring the institution into compliance with all capital standards applicable with respect to such institution as of the time it fails to comply with the plan. If a depository institution fails to submit an acceptable plan, it is treated as if it were "significantly undercapitalized." FDICIA also restricts the solicitation and acceptance of and interest rates payable on brokered deposits by insured depository institutions that are not "well capitalized." An "undercapitalized" institution is not allowed to solicit deposits by offering rates of interest that are significantly higher than the prevailing rates of interest on insured deposits in the particular institution's normal market areas or in the market areas in which such deposits would otherwise be accepted.
Any financial institution which is classified as "critically
undercapitalized" must be placed in conservatorship or receivership within 90
days of such determination unless it is also determined that some other course
of action would better serve the purposes of the regulations. Critically
undercapitalized institutions are also prohibited from making (but not accruing)
any payment of principal or interest on subordinated debt without prior
regulatory approval and regulators must prohibit a critically undercapitalized
institution from taking certain other actions without prior approval, including
(1) entering into any material transaction other than in the usual course of
business, including investment expansion, acquisition, sale of assets or other
similar actions; (2) extending credit for any highly leveraged transaction; (3)
amending articles or bylaws unless required to do so to comply with any law,
regulation or order; (4) making any material change in accounting methods; (5)
engaging in certain affiliate transactions; (6) paying excessive compensation or
bonuses; and (7) paying interest on new or renewed liabilities at rates which
would increase the weighted average costs of funds beyond prevailing rates in
the institution's normal market areas.
ADDITIONAL REGULATIONS
Under the FDICIA, the federal financial institution agencies have adopted regulations which require institutions to establish and maintain comprehensive written real estate policies which address certain lending considerations, including loan-to-value limits, loan administrative policies, portfolio diversification standards, and documentation, approval and reporting requirements. The FDICIA further generally prohibits an insured state bank from engaging as a principal in any activity that is impermissible for a national bank, absent Federal Deposit Insurance Corporation determination that the activity would not pose a significant risk to the Bank Insurance Fund, and that American River Bank is, and will continue to be, within applicable capital standards.
The Federal Financial Institution Examination Counsel ("FFIEC") on December 13, 1996, approved an updated Uniform Financial Institutions Rating System ("UFIRS"). In addition to the five components traditionally included in the so-called "CAMEL" rating system which has been used by bank examiners for a number of years to classify and evaluate the soundness of financial institutions (including capital adequacy, asset quality, management, earnings and liquidity), UFIRS includes for all bank regulatory examinations conducted on or after January 1, 1997, a new rating for a sixth category identified as sensitivity to market risk. Ratings in this category are intended to reflect the degree to which changes in interest rates, foreign exchange rates, commodity prices or equity prices may adversely affect an institution's earnings and capital. The revised rating system is identified as the "CAMELS" system.
The federal financial institution agencies have established bases for analysis and standards for assessing a financial institution's capital adequacy in conjunction with the risk-based capital guidelines including analysis of interest rate risk, concentrations of credit risk, risk posed by non-traditional activities, and factors affecting overall safety and soundness. The safety and soundness standards for insured financial institutions include analysis of (1) internal controls, information systems and internal audit systems; (2) loan documentation; (3) credit underwriting; (4) interest rate exposure; (5) asset growth; (6) compensation, fees and benefits; and (7) excessive compensation for executive officers, directors or principal shareholders which could lead to material financial loss. If an agency determines that an institution fails to meet any standard, the agency may require the financial institution to submit to the agency an acceptable plan to achieve compliance with the standard. If the agency requires submission of a compliance plan and the institution fails to timely submit an acceptable plan or to implement an accepted plan, the agency must require the institution to correct the deficiency. The agencies may elect to initiate enforcement action in certain cases rather than rely on an existing plan particularly where failure to meet one or more of the standards could threaten the safe and sound operation of the institution.
Community Reinvestment Act ("CRA") regulations evaluate banks' lending to low and moderate income individuals and businesses across a four-point scale from "outstanding" to "substantial noncompliance," and are a factor in regulatory review of applications to merge, establish new branches or form bank holding companies. In addition, any bank rated in "substantial noncompliance" with the CRA regulations may be subject to enforcement proceedings. American River Bank and North Coast Bank, N.A. each have current ratings of "satisfactory" for CRA compliance.
LIMITATIONS ON DIVIDENDS
American River Holdings' ability to pay cash dividends is subject to restrictions set forth in the California General Corporation Law. Funds for payment of any cash dividends by American River Holdings would be obtained from its investments as well as dividends and/or management fees from American River Bank. The payment of cash dividends and/or management fees by American River Bank is subject to restrictions set forth in the California Financial Code, as well as restrictions established by the Federal Deposit Insurance Corporation. North Coast Bank, N.A.'s ability to pay cash dividends is subject to restrictions imposed under the National Bank Act and regulations promulgated by the Office of the Comptroller of the Currency. See "Market Price and Dividend Information--Dividends and Dividend Policy" on page 145 for further information regarding the payment of cash dividends by American River Holdings, American River Bank, and North Coast Bank, N.A.
COMPETITION
COMPETITIVE DATA
American River Bank. At June 30, 1999, based on the most recent "Data Book Summary of Deposits in Federal Deposit Insurance Corporation Insured Commercial and Savings Banks" report at that date, the competing commercial and savings banks had 139 offices in the cities of Fair Oaks, Roseville and Sacramento, California, where American River Bank has its 4 offices. Additionally, American River Bank competes with thrifts and, to a lesser extent, credit unions, finance companies and other financial service providers for deposit and loan customers.
Larger banks may have a competitive advantage because of higher lending limits and major advertising and marketing campaigns. They also perform services, such as trust services, international banking, discount brokerage and insurance services, which American River Bank is not authorized nor prepared to offer currently. American River Bank has made arrangements with its correspondent banks
and with others to provide some of these services for its customers. For borrowers requiring loans in excess of American River Bank's legal lending limits, American River Bank has offered, and intends to offer in the future, such loans on a participating basis with its correspondent banks and with other independent banks, retaining the portion of such loans which is within its lending limits. As of March 31, 2000, American River Bank's aggregate legal lending limits to a single borrower and such borrower's related parties were $2,825,000 on an unsecured basis and $4,708,000 on a fully secured basis based on regulatory capital of $18,833,000.
American River Bank's business is concentrated in its service area, which primarily encompasses Sacramento County and South Western Placer County. The economy of American River Bank's service area is dependent upon government, manufacturing, tourism, retail sales, population growth and smaller service oriented businesses.
Based upon the most recent "Data Book Summary of Deposits in Federal Deposit Insurance Corporation Insured Commercial and Savings Banks" report dated June 30, 1999, there were 186 operating commercial and savings bank offices in Sacramento County with total deposits of $10,491,810,000. This was an increase of $356,658,000 over the June 30, 1998 balances. American River Bank held a total of $120,623,000 in deposits, representing approximately 1.2% of total commercial and savings banks deposits in Sacramento County as of June 30, 1999.
Based upon the most recent "Data Book Summary of Deposits in Federal Deposit Insurance Corporation Insured Commercial and Savings Banks" report dated June 30, 1999, there were 70 operating commercial and savings bank offices in Placer County with total deposits of $2,188,633,000. This was an increase of $138,464,000 over the June 30, 1998 balances. American River Bank held a total of $35,038,000 in deposits, representing approximately 1.6% of total commercial and savings banks deposits in Placer County as of June 30, 1999.
In 1996, pursuant to Congressional mandate, the Federal Deposit Insurance Corporation reduced bank deposit insurance assessment rates to a range from $0 to $0.27 per $100 of deposits, dependent upon a bank's risk. Based upon the risk-based assessment rate schedule, American River Bank's current capital ratios and levels of deposits, American River Bank anticipates no change in the assessment rate applicable to it during 2000 from that in 1999.
North Coast Bank, N.A. At June 30, 1999, based on the most recent "Data Book Summary of Deposits in Federal Deposit Insurance Corporation Insured Commercial and Savings Banks" report at that date, the competing commercial and savings banks had 51 offices in the cities of Healdsburg, Santa Rosa and Windsor, California, where North Coast Bank, N.A. has its 3 offices. Additionally, North Coast Bank, N.A. competes with thrifts and, to a lesser extent, credit unions, finance companies and other financial service providers for deposit and loan customers.
North Coast Bank, N.A. has also made arrangements with its correspondent banks and with others to provide some of the services for its customers, such as trust services, international banking, discount brokerage and insurance services, which North Coast Bank, N.A. is not authorized nor prepared to offer currently. For borrowers requiring loans in excess of North Coast Bank N.A.'s legal lending limits, North Coast Bank has offered, and intends to offer in the future, such loans on a participating basis with its correspondent banks and with other independent banks, retaining the portion of such loans which is within its lending limits. As of March 31, 2000, North Coast Bank N.A.'s aggregate legal lending limits to a single borrower and such borrower's related parties were $680,000 based on regulatory capital of $4,536,000.
North Coast Banks, N.A.'s business is concentrated in its service area, which primarily encompasses Sonoma County. The economy of North Coast Bank, N.A.'s service area is dependent upon agriculture, tourism, retail sales, population growth and smaller service oriented businesses.
Based upon the most recent "Data Book Summary of Deposits in Federal Deposit Insurance Corporation Insured Commercial and Savings Banks" report dated June 30, 1999, there were 19 operating commercial and savings bank offices in Sonoma County with total deposits of $5.9 billion. This was an increase of $305 million over the June 30, 1998 balances. North Coast Bank, N.A. held a total of $37 million in deposits, representing approximately .63% of total commercial and savings banks deposits in Sonoma County as of June 30, 1999.
Based upon the risk-based assessment rate schedule implemented by the Federal Deposit Insurance Corporation in 1996, North Coast Bank, N.A.'s current capital ratios and levels of deposits, North Coast Bank, N.A. anticipates no change in the assessment rate applicable to it during 2000 from that in 1999.
GENERAL COMPETITIVE FACTORS
In order to compete with the major financial institutions in their primary service areas, community banks such as American River Bank and North Coast Bank, N.A. use to the fullest extent possible the flexibility which is accorded by their independent status. This includes an emphasis on specialized services, local promotional activity, and personal contacts by their respective officers, directors and employees. They also seek to provide special services and programs for individuals in their primary service area who are employed in the agricultural, professional and business fields, such as loans for equipment, furniture, tools of the trade or expansion of practices or businesses. In the event there are customers whose loan demands exceed their respective lending limits, they seek to arrange for such loans on a participation basis with other financial institutions. They also assist those customers requiring services not offered by either bank to obtain such services from correspondent banks.
Banking is a business that depends on interest rate differentials. In general, the difference between the interest rate paid by a bank to obtain their deposits and other borrowings and the interest rate received by a bank on loans extended to customers and on securities held in a bank's portfolio comprise the major portion of a bank's earnings.
Commercial banks compete with savings and loan associations, credit unions, other financial institutions and other entities for funds. For instance, yields on corporate and government debt securities and other commercial paper affect the ability of commercial banks to attract and hold deposits. Commercial banks also compete for loans with savings and loan associations, credit unions, consumer finance companies, mortgage companies and other lending institutions.
The interest rate differentials of a bank, and therefore their earnings, are affected not only by general economic conditions, both domestic and foreign, but also by the monetary and fiscal policies of the United States as set by statutes and as implemented by federal agencies, particularly the Federal Reserve Board. The Federal Reserve Board can and does implement national monetary policy, such as seeking to curb inflation and combat recession, by its open market operations in United States government securities, adjustments in the amount of interest free reserves that banks and other financial institutions are required to maintain, and adjustments to the discount rates applicable to borrowing by banks from the Federal Reserve Board. These activities influence the growth of bank loans, investments and deposits and also affect interest rates charged on loans and paid on deposits. The nature and timing of any future changes in monetary policies and their impact on American River Bank and North Coast Bank, N.A. are not predictable.
IMPACT OF LEGISLATIVE AND REGULATORY PROPOSALS
Since 1996, California law implementing certain provisions of prior federal law has (1) permitted interstate merger transactions; (2) prohibited interstate branching through the acquisition of a branch business unit located in California without acquisition of the whole business unit of the California bank; and (3) prohibited interstate branching through de novo establishment of California branch offices. Initial entry into California by an out-of-state institution must be accomplished by acquisition of or merger with an existing whole bank which has been in existence for at least five years.
The federal financial institution agencies, especially the Office of the Comptroller of the Currency and the Board of Governors, have taken steps to increase the types of activities in which national banks and bank holding companies can engage, and to make it easier to engage in such activities. The Office of the Comptroller of the Currency has issued regulations permitting national banks to engage in a wider range of activities through subsidiaries. "Eligible institutions" (those national banks that are well capitalized, have a high overall rating and a satisfactory CRA rating, and are not subject to an enforcement order) may engage in activities related to banking through operating subsidiaries subject to an expedited application process. In addition, a national bank may apply to the Office of the Comptroller of the Currency to engage in an activity through a subsidiary in which American River Bank itself may not engage.
On November 12, 1999, President Clinton signed into law The Financial Services Modernization Act of 1999 (the "FSMA"), which is potentially the most significant banking legislation in many years. The FSMA eliminates most of the remaining depression-era "firewalls" between banks, securities firms and insurance companies which was established by The Banking Act of 1933, also known as the Glass-Steagall Act ("Glass-Steagall). Glass-Steagall sought to insulate banks as depository institutions from the perceived risks of securities dealing and underwriting, and related activities. The FSMA repeals Section 20 of Glass-Steagall which prohibited banks from affiliating with securities firms. Bank holding companies that can qualify as "financial holding companies" can now acquire securities firms or create them as subsidiaries, and securities firms can now acquire banks or start banking activities through a financial holding company. The FSMA includes provisions which permit national banks to conduct financial activities through a subsidiary that are permissible for a national bank to engage in directly, as well as certain activities authorized by statute, or that are financial in nature or incental to financial activities to the same extent as permitted to a "financial holding company" or its affiliates. This liberalization of United States banking and financial services regulation applies both to domestic institutions and foreign institutions conducting business in the United States. Consequently, the common ownership of banks, securities firms and insurance firms is now possible, as is the conduct of commercial banking, merchant banking, investment management, securities underwriting and insurance within a single financial institution using a "financial holding company" structure authorized by the FSMA.
Prior to the FSMA, significant restrictions existed on the affiliation of banks with securities firms and on the direct conduct by banks of securities dealing and underwriting and related securities activities. Banks were also (with minor exceptions) prohibited from engaging in insurance activities or affiliating with insurers. The FSMA removes these restrictions and substantially eliminates the prohibitions under the Bank Holding Company Act on affiliations between banks and insurance companies. Bank holding companies which qualify as financial holding companies can now insure, guarantee, or indemnify against loss, harm, damage, illness, disability, or death; issue annuities; and act as a principal, agent, or broker regarding such insurance services.
In order for a commercial bank to affiliate with a securities firm or an insurance company pursuant to the FSMA, its bank holding company must qualify as a financial holding company. A bank holding company will qualify if (i) its banking subsidiaries are "well capitalized" and "well managed"
and (ii) it files with the Board of Governors a certification to such effect and a declaration that it elects to become a financial holding company. The amendment of the Bank Holding Company Act now permits financial holding companies to engage in activities, and acquire companies engaged in activities, that are financial in nature or incidental to such financial activities. Financial holding companies are also permitted to engage in activities that are complementary to financial activities if the Board of Governors determines that the activity does not pose a substantial risk to the safety or soundness of depository institutions or the financial system in general. These standards expand upon the list of activities "closely related to banking" which have to date defined the permissible activities of bank holding companies under the Bank Holding Company Act.
One further effect of the Act is to require that federal financial institution and securities regulatory agencies prescribe regulations to implement the policy that financial institutions must respect the privacy of their customers and protect the security and confidentiality of customers' non-public personal information. Implementing regulations have recently been issued for comment by all of the federal financial institution regulatory agencies and the Securities and Exchange Commission. These regulations will require, in general, that financial institutions (1) may not disclose non-public personal information of customers to non-affiliated third parties without notice to their customers, who must have opportunity to direct that such information not be disclosed; (2) may not disclose customer account numbers except to consumer reporting agencies; and (3) must give prior disclosure of their privacy policies before establishing new customer relationships.
Neither American River Holdings and American River Bank nor North Coast Bank, N.A. have determined whether or when they may seek to acquire and exercise new powers or activities under the FSMA, and the extent to which competition will change among financial institutions affected by the FSMA has not yet become clear.
Certain legislative and regulatory proposals that could affect American River Holdings, American River Bank, North Coast Bank, N.A., and the banking business in general are periodically introduced before the United States Congress, the California State Legislature and Federal and state government agencies. It is not known to what extent, if any, legislative proposals will be enacted and what effect such legislation would have on the structure, regulation and competitive relationships of financial institutions. It is likely, however, that such legislation could subject American River Holdings, American River Bank and North Coast Bank, N.A. to increased regulation, disclosure and reporting requirements, competition, and costs of doing business.
In addition to legislative changes, the various Federal and state financial institution regulatory agencies frequently propose rules and regulations to implement and enforce already existing legislation. It cannot be predicted whether or in what form any such rules or regulations will be enacted or the effect that such regulations may have on American River Holdings, American River Bank, and North Coast Bank, N.A.
PROPOSAL NO. 1
TO APPROVE THE MERGER AGREEMENT AND MERGER
BACKGROUND OF THE MERGER AGREEMENT AND MERGER
The following is a brief description of the events that resulted in the execution of the merger agreement dated as of March 1, 2000, among American River Holdings, ARH Interim National Bank and North Coast Bank, N.A.
American River Holdings. On November 17, 1999, the executive committee of the American River Holdings board of directors met to discuss a proposal to acquire North Coast Bank, N.A. as an additional banking subsidiary. Later that day, the board of directors reviewed the proposal to acquire North Coast Bank, N.A. and authorized the executive committee to communicate interest in such a proposal to North Coast Bank, N.A. David T. Taber, President and Chief Executive Officer of American River Holdings contacted Kathy A. Pinkard, President and Chief Executive Officer of North Coast Bank, N.A. on November 18, 1999 to discuss interest in the proposed transaction. She advised him that the matter would be brought to the attention of the board of directors of North Coast Bank, N.A. during its strategic planning meeting on December 1, 1999. On December 2, 1999, Ms. Pinkard asked Mr. Taber provide further information regarding the proposal to Chairman of the Board, Mr. M. Edgar Deas. Mr. Taber contacted Chairman Deas and after a preliminary discussion it was determined that a meeting among members of the respective executive committees of American River Holdings and North Coast Bank, N.A. should be held to further discuss the proposed transaction. On December 9, 1999, a meeting was held among members of the respective executive committees. On December 14, 1999, the executive committee of American River Holdings authorized Mr. Taber to deliver additional information and a written expression of interest in connection with the proposed transaction, which he delivered the next day to Ms. Pinkard. American River Holdings received a letter from North Coast Bank, N.A. on December 20, 1999 requesting more time to evaluate matters pertaining to the proposed transaction prior to responding to American River Holdings' expression of interest. On January 6, 2000, American River Holdings received a letter from North Coast Bank, N.A. proposing changes to various factors for such proposed transaction. On January 7, 2000, the executive committee of American River Holdings authorized Mr. Taber to prepare and deliver a revised expression of interest in response to the letter from North Coast Bank, N.A. received on January 6, 2000. On January 10, 2000, Ms. Pinkard delivered to Mr. Taber a letter accepting the terms outlined in American River Holdings' expression of interest dated January 7, 2000.
On January10, 2000, American River Holdings and North Coast Bank, N.A. entered into a confidentiality agreement to facilitate exchange of confidential information and due diligence reviews of their respective businesses. Thereafter, from January 10 through January 19, American River Holdings conducted its due diligence reviews.
On January 19, 2000, American River Holdings' board of directors
reviewed the letter from North Coast Bank, N.A. received on January 10, 2000,
and various other factors including certain financial due diligence matters
pertaining to the on-site review of North Coast Bank, N.A. The board of
directors authorized the executive committee to proceed to negotiate with
representatives of North Coast Bank, N.A. On February 2, 2000, the executive
committee of American River Holdings reviewed a draft merger agreement. On
February 16, 2000, the board of directors of American River Holdings reviewed a
revised draft of the merger agreement. On February 18, 2000, the executive
committee of American River Holdings reviewed a further revised draft of the
merger agreement and discussed various issues raised in negotiations between
representatives for American River Holdings and North Coast Bank, N.A. On
February 29, 2000, the boards of directors of American River Holdings, American
River Bank and First Source Capital met in a special joint meeting to review the
merger agreement and related
documents. Following review of such documents and the results of due diligence, the respective boards of directors authorized and approved the execution of the merger agreement and the issuance of a joint press release announcing the signing of the merger agreement.
North Coast Bank, N.A. On November 18, 1999, Kathy Pinkard, President and CEO of North Coast Bank was contacted by David T. Taber, President and Chief Executive Officer of American River Holdings to discuss the possibility of interest in a strategic alliance with American River Holdings. Ms. Pinkard advised Mr. Taber that the proposal would be brought to the attention of the North Coast Bank board of directors at a strategic planning meeting scheduled for December 1, 1999. During the regularly scheduled strategic planning meeting, it was determined that North Coast Bank, N.A. was interested in pursuing the matter further and Ms. Pinkard was instructed by the board to contact Mr. Taber with instructions for Mr. Taber to contact Mr. Edgar Deas, North Coast Bank, N.A. Chairman of the Board. After contact with Mr. Deas, it was decided that the respective members of both executive committees should meet for further discussion on the proposed transaction. A meeting of the executive committees was held on December 9, 1999 at American River Bank's board room in Sacramento. On December 15, 1999, Mr. Taber delivered to Ms. Pinkard additional information and a written expression of interest in connection with the proposed merger. On December 16, 1999, at a regularly scheduled board of directors meeting, the proposal was reviewed by the board of directors. At this meeting, Ms. Pinkard was instructed to deliver a letter to Mr. Taber asking for an extension to the December 24, 1999 deadline for response stating that the board of directors had scheduled another strategic planning session for January 6 at which time North Coast Bank, N.A. would respond to the proposal. On January 6, 2000, North Coast Bank, N.A. responded to Mr. Taber with specific changes to the original proposal. On January 7, 2000, Ms. Pinkard received a revised expression of interest from American River Holdings. After a special meeting held by the board of directors, Ms. Pinkard was instructed to deliver a letter confirming the terms outlined in the January 7, 2000 American River Holdings expression of interest. On January 10, 2000, North Coast Bank, N.A. signed a confidentiality agreement with American River Holdings to begin the exchange of information and respective due diligence examinations.
On January 27, 2000, the board of directors of North Coast Bank, N.A. reviewed the written report discussing the due diligence review performed by Ms. Pinkard and Mr. Wattell during the week of January 24, 2000. On February 17, 2000, the board of directors reviewed a draft merger agreement with revisions associated with issues raised during the negotiation process with American River Holdings. On February 24, 2000, the board of directors met to verify that all concerns with the merger agreement had been addressed and were satisfactory and the merger agreement was tentatively approved by the board of directors. On March 1, 2000, a special board of directors meeting was held to hear the presentation of the fairness opinion by Seapower Carpenter Capital, Inc., dba Carpenter and Company, concerning the proposed transaction. After review and discussion of the fairness opinion with Carpenter and Company, and final review of the merger agreement, the merger agreement was approved by the board of directors. Ms. Pinkard was authorized to execute the merger agreement and issue a joint press release announcing the signing of the merger agreement.
On March 1, 2000, American River Holdings and North Coast Bank, N.A. executed the merger agreement. Prior to the opening of the OTC Bulletin Board on March 2, 2000, the parties issued a joint press release publicly announcing the merger.
Annex A to the joint proxy statement/prospectus contains a copy of the merger agreement which is incorporated here by this reference.
See "--Reasons for the Merger Agreement and Merger; Recommendations of the Boards of Directors" on page 99, "--Opinion of North Coast Bank, N.A.'s Financial Advisor" on page 102 and "--Opinion of American River Holdings Financial Advisor" on page 108.
REASONS FOR THE MERGER AGREEMENT AND MERGER; RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
American River Holdings. The strategy of the board of directors of American River Holdings for enhancing long-term value for American River Holdings shareholders recognizes that further consolidation will occur in the banking and financial services industry in the United States and that American River Holdings must be in a position to take advantage of this change. Under this strategy, management of American River Holdings, at the direction of the board of directors of American River Holdings, continually explores and evaluates acquisition opportunities, such as the acquisition of North Coast Bank, N.A. as a continuing subsidiary of American River Holdings, through the merger of North Coast Bank, N.A. into ARH Interim National Bank.
In reaching the conclusion that the merger of North Coast Bank, N.A. into ARH Interim National Bank is fair to and in the best interests of the shareholders of American River Holdings, the board of directors of American River Holdings considered numerous factors, including:
o the board of directors' familiarity with and review of North Coast Bank, N.A.'s business, results of operations, prospects and financial condition and the willingness of the board of directors of North Coast Bank, N.A. to consider a merger with ARH Interim National Bank;
o the opinion of Hoefer & Arnett Incorporated that the terms of the merger are fair, from a financial point of view, to American River Holdings shareholders;
o economic conditions and prospects for the markets in which American River Holdings and North Coast Bank, N.A. operate, and competitive pressures in the financial services industry in general and the banking industry in particular;
o the enhancement of American River Holdings' competitiveness and its ability to serve its customers, depositors, creditors, other constituents and the communities in which it operates as a result of the merger;
o information concerning the business, results of operations, asset quality and financial condition of American River Holdings and North Coast Bank, N.A. on a stand-alone and combined basis, and the future growth prospects of American River Holdings and North Coast Bank, N.A. following the merger. In this regard, the board of directors of American River Holdings gave consideration to the results of the initial review conducted by American River Holdings' management with respect to North Coast Bank, N.A.'s business and operations, including, in particular, its asset quality and related conditions in the merger agreement. That review included an assessment of the opportunities to achieve increased market penetration in its existing market and to expand into North Coast Bank, N.A.'s market area in California;
o the revenue enhancements, cost savings and operational synergies which the management of American River Holdings believes may be achieved as a result of the merger through the elimination of duplicative efforts;
o an assessment that, in the current economic environment, expansion through acquisition of another financial institution is most economically advantageous to American River Holdings' shareholders when compared to other alternatives such as de novo branch openings or branch acquisitions;
o the geographic and business fit of American River Holdings and North Coast Bank, N.A. and the complementary nature of their respective businesses, including the compatibility of their existing branch structures;
o information with respect to historical trading ranges and multiples for American River Holdings common stock and North Coast Bank, N.A. common stock, and possible trading ranges and multiples for each on a stand-alone basis and for the two companies on a combined basis and the evaluation by the board of directors of American River Holdings of the financial terms of the merger and their effect on the shareholders of American River Holdings and the belief of the American River Holdings board of directors that those terms are fair to American River Holdings and its shareholders;
o the expectation that for federal income tax purposes the merger will constitute a tax-free reorganization to American River Holdings and its subsidiaries;
o the expectation that the merger will be accounted for under the pooling of interests method of accounting;
o the terms and conditions of the merger agreement and the related agreements;
o the likelihood of the merger being approved by the appropriate regulatory authorities; and
o the structure of the merger and the resulting corporate entities.
The board of directors of American River Holdings did not assign any relative or specific weights to the factors considered and individual directors may have assigned different weights to the above factors.
The board of directors of American River Holdings unanimously recommends that the merger agreement, the related agreements, the transactions contemplated by the merger agreement, including the merger and the issuance of American River Holdings common stock in connection with the merger, and the proposals to approve the American River Holdings 2000 Stock Option Plan, the amendments to the American River Holdings articles of incorporation and bylaws to provide for the classification of the board of directors and to eliminate cumulative voting in the election of directors, election of management's nominees as directors of American River Holdings, and to ratify the appointment of Perry-Smith LLP as independent accountants for the year 2000, at American River Holdings' annual meeting, be approved by the American River Holdings shareholders.
North Coast Bank, N.A. The board of directors of North Coast Bank, N.A. believes that the merger is fair to and in the best interests of the shareholders of North Coast Bank, N.A. In reaching their conclusion to approve the merger, the board of directors of North Coast Bank, N.A. considered numerous factors, including the following:
Historical and Recent Market Prices of North Coast Bank, N.A. Shares Compared to American River Holdings Shares to be Received. The North Coast Bank, N.A. board of directors reviewed the historical and recent trading prices for North Coast Bank, N.A. stock.
The Likelihood that "Pooling of Interests" Accounting Will No Longer Be Available Following December 31, 2000. The North Coast Bank, N.A. board of directors considered the impact of the Financial Standards Accounting Board draft by which so-called "pooling of interests" accounting will be eliminated by December 31, 2000. The result of this accounting change will be that all mergers
consummated after December 31, 2000 will be accounted for as "purchase" transactions, resulting in the amortization of goodwill in any merger where the purchase price exceeds the asset value of the acquired company. The goodwill amortization will reduce future reported income of the merged companies. Additionally, in bank mergers, the goodwill in a purchase accounting transaction will not be included in the calculation of regulatory capital requirements. Therefore, it is the belief of the management and directors of North Coast Bank, N.A. that future bank mergers may result in lower premiums for the seller. The North Coast Bank, N.A. board of directors believes that by combining with American River Holdings at this time, it can take advantage of the "pooling of interests" accounting rules. The North Coast Bank, N.A. board also believes that should the North Coast Bank, N.A. shareholders fail to approve the American River Holdings proposal, it would be extremely unlikely that an alternative transaction can be completed that would be eligible for "pooling of interests" accounting treatment. Therefore, the American River Holdings transaction is most likely the last opportunity that North Coast Bank, N.A. will have to engage in a "pooling of interests" merger.
North Coast Bank, N.A.'s Business, Conditions and Geographic Prospects. The North Coast Bank, N.A. board of directors considered information with respect to the financial condition, results of operations and business risks of North Coast Bank, N.A. on both an historical and prospective basis and current industry, economic and market conditions. The American River Holdings merger will significantly expand the geographic base of the combined companies and will give North Coast Bank, N.A. a greater market for the products and services of North Coast Bank, N.A. The combination with American River Holdings will provide greater flexibility to North Coast Bank, N.A. in meeting the credit needs of its borrowers. The North Coast Bank, N.A. board of directors believes that this will greatly enhance the long-term prospects for stock value.
American River Holdings' Business, Conditions and Prospects. The North Coast Bank, N.A. board of directors considered information with respect to the financial condition, financial performance, business operations, capital levels, asset quality, loan portfolio breakdown and prospects of American River Holdings on both an historical and prospective basis. The North Coast Bank, N.A. board of directors also considered information regarding current industry, economic and market conditions in the financial services industry. North Coast Bank, N.A.'s financial advisers, Seapower Carpenter Capital, Inc., dba Carpenter and Company, made presentations to and provided the North Coast Bank, N.A. board of directors with information regarding American River Holdings' financial condition and prospects after conducting business and financial due diligence. Officers of North Coast Bank, N.A. also made presentations to the North Coast Bank, N.A. board of directors regarding American River Holdings' financial condition, business and prospects after conducting business and financial due diligence. These officers expressed their views that the corporate culture and operating philosophies of American River Holdings were very compatible to those of North Coast Bank, N.A. The North Coast Bank, N.A. board viewed these observations as favorable for the future prospects of the combined entity and the creation of further shareholder value. In evaluating American River Holdings' prospects, the North Coast Bank, N.A. board of directors considered, among other things, American River Holdings' financial performance, the geographic areas in which American River Holdings conducts business compared to those in which North Coast Bank, N.A. conducts business, the state of the economy in Northern California, the market conditions in the primary areas in which American River Holdings conducts its business, and the effect those economies may have on American River Holdings' performance. The North Coast Bank, N.A. board of directors also considered and found favorable the fact that the American River Holdings' stock when combined with North Coast Bank, N.A.'s stock will have greater market capitalization and liquidity compared to North Coast Bank, N.A.'s current stock liquidity.
Opinion of Seapower Carpenter Capital, Inc., dba Carpenter and Company. At its March 1, 2000 meeting, the North Coast Bank, N.A. board of directors considered as favorable to its determination, Seapower Carpenter Capital, Inc., dba Carpenter and Company's oral opinion delivered to
the North Coast Bank, N.A. board of directors at that meeting (which Carpenter and Company subsequently confirmed in a written opinion dated March 1, 2000) that the merger consideration to be received by North Coast Bank, N.A. shareholders in the merger was, as of that date, fair to North Coast Bank, N.A.'s shareholders, from a financial point of view.
The Need of North Coast Bank, N.A. to Obtain 2/3 Shareholder Vote for Approval of the Proposed Merger. The articles of association of North Coast Bank, N.A. require that two-thirds (2/3) equal to sixty-six and two-thirds percent (66 2/3%) of all of the outstanding shares of North Coast Bank, N.A. be voted in favor of a merger. This means that for a merger proposal to be successful it must meet the expectations of a broad cross-section of the shareholders of North Coast Bank, N.A. A merger proposal that does not meet the expectations of all shareholder constituencies is likely to fail. For this reason, in evaluating the options that were available to North Coast Bank, N.A., the board of directors believed that the American River Holdings transaction would yield the greatest support of the North Coast Bank, N.A. shareholders. The board of directors believes that the transactions contemplated by the merger agreement, including the merger, offer the best financial prospects for North Coast Bank, N.A. shareholders.
Terms of the Merger. The North Coast Bank, N.A. board of directors considered the terms, conditions, covenants and representations contained in the merger agreement and that the number and value of shares of American River Holdings common stock to be issued in exchange for each outstanding share of North Coast Bank, N.A. common stock represented favorable terms for a merger with American River Holdings.
The Tax-Free Nature of the Merger. The North Coast Bank, N.A. board of directors considered and found favorable the fact that the merger is structured to be tax-free for federal income tax purposes. North Coast Bank, N.A. shareholders will recognize no gain for federal income tax purposes in connection with the exchange of North Coast Bank, N.A. common stock for American River Holdings common stock (except with respect to cash received in lieu of fractional shares of American River Holdings common stock or dissenters' shares).
Impact on Communities, Depositors, Customers and Employees. The North Coast Bank, N.A. board of directors considered the impact of the merger upon North Coast Bank, N.A.'s communities, depositors, customers, employees, and the overall compatibility of North Coast Bank, N.A.'s office and branch structure compared to those of American River Holdings. The ability of North Coast Bank, N.A. to continue as an on-going bank under the American River Holdings holding company was viewed as being least disruptive of the communities served by North Coast Bank, N.A., its depositors, customers and employees. The North Coast Bank, N.A. board of directors believes that all of these constituencies will be in favor of the merger.
The North Coast Bank, N.A. board of directors did not assign any relative or specific value to any of the factors.
The board of directors of North Coast Bank, N.A. unanimously recommends that the merger agreement, the related agreements and the transactions contemplated by those agreements, including the merger of North Coast Bank, N.A. into ARH Interim National Bank, be approved by the North Coast Bank, N.A. shareholders.
OPINION OF NORTH COAST BANK, N.A.'S FINANCIAL ADVISOR
General. Pursuant to an engagement letter dated January 26, 2000, North Coast Bank, N.A. engaged Seapower Carpenter Capital, Inc., dba Carpenter and Company to provide financial advisory services and a fairness opinion with respect to the North Coast Bank, N.A./American River Holdings
merger. Carpenter and Company is an investment banking firm specializing in California financial institutions, and, as part of its investment banking activities, is regularly engaged in the valuation of businesses and their securities in connection with merger transactions and other types of acquisitions, underwritings, private placements and valuations for corporate and other purposes. North Coast Bank, N.A. selected Carpenter and Company to render the opinion on the basis of its experience and expertise in transactions similar to the merger and its reputation in the banking and investment communities. No limitations were imposed by North Coast Bank, N.A. on Carpenter and Company with respect to the investigations made or procedures followed in rendering its opinion.
At a meeting of the North Coast Bank, N.A. board of directors on March 1, 2000, Carpenter and Company delivered its oral opinion that, as of the date of the opinion and subject to the limitations and assumptions set forth in the opinion, the merger consideration pursuant to the merger agreement was fair to North Coast Bank, N.A. shareholders from a financial point of view. Carpenter and Company's oral opinion was subsequently confirmed in writing as of such date and reconfirmed in writing as of ______________, 2000.
The full text of Carpenter and Company's written opinion to the North Coast Bank, N.A. board of directors, which sets forth the assumptions made, matters considered, and limitations of the review, by Carpenter and Company, is attached hereto and is incorporated herein by reference. The following summary of Carpenter and Company's opinion is qualified in its entirety by reference to the full text of the opinion, which should be read carefully and in its entirety. In furnishing such opinion, Carpenter and Company does not admit that it is an expert with respect to the registration statement of which this proxy statement/prospectus is part within the meaning of the term "experts" as used in the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder. Carpenter and Company does not admit that its opinion constitutes a report or valuation within the meaning of Section 11 of the Securities Act. Carpenter and Company's opinion is directed to the North Coast Bank, N.A. board of directors, covers only the fairness of the merger consideration to be received by holders of North Coast Bank, N.A. common stock from a financial point of view as of the date of the opinion, and does not constitute a recommendation to any holder of North Coast Bank, N.A. common stock as to how such shareholder should vote.
In connection with its opinion, Carpenter and Company, among other things: (i) reviewed certain publicly available financial and other data with respect to North Coast Bank, N.A. and American River Holdings, including the consolidated financial statements for recent years through December 31, 1999, and certain other relevant financial and operating data relating to these companies made available to Carpenter and Company from published sources and from the internal records and projections of North Coast Bank, N.A.; (ii) reviewed the merger agreement; (iii) reviewed certain information concerning the trading of, and the trading market for, North Coast Bank, N.A. common stock and American River Holdings common stock; (iv) compared North Coast Bank, N.A. and American River Holdings from a financial point of view with certain other companies in the banking industry which Carpenter and Company deemed to be relevant; (v) considered the financial terms, to the extent publicly available, of selected recent business combinations of companies in the banking industry which Carpenter and Company deemed to be comparable, in whole or in part, to the merger; (vi) reviewed and discussed with representatives of the management of North Coast Bank, N.A. certain information of a business and financial nature regarding North Coast Bank, N.A. and American River Holdings, furnished to Carpenter and Company by them; (vii) made inquiries regarding and discussed the merger and the merger agreement and other matters related thereto with North Coast Bank, N.A.'s counsel; and (vii) performed such other analyses and examinations as Carpenter and Company deemed appropriate.
In connection with its review, Carpenter and Company did not assume any obligation independently to verify the foregoing information and relied on such information being accurate and complete in all material respects. Carpenter and Company also assumed that there were no material changes in the assets, financial condition, results of operations, business or prospects of all companies involved in the merger since the respective dates of their last financial statements made available to it. Carpenter and Company relied on advice of counsel to North Coast Bank, N.A. as to all legal matters with respect to North Coast Bank, N.A., the merger and the merger agreement. North Coast Bank, N.A. acknowledged that Carpenter and Company did not discuss with North Coast Bank, N.A.'s independent accountants any financial reporting matters with respect to North Coast Bank, N.A., the merger or the merger agreement. North Coast Bank, N.A. informed Carpenter and Company, and Carpenter and Company assumed that the merger would be accounted for as a pooling of interests under generally accepted accounting principles. Carpenter and Company assumed that the merger would be consummated in a manner that complies in all respects with the applicable provisions of the Securities Act, the Securities Exchange Act of 1934, as amended, and all other applicable federal and state statutes, rules and regulations. Carpenter and Company assumed that the allowance for loan losses for each of North Coast Bank, N.A. and American River Holdings are in the aggregate adequate to cover such losses. In addition, Carpenter and Company did not assume responsibility for reviewing any individual credit files, or making an independent evaluation, appraisal or physical inspection of any of the assets or liabilities (contingent or otherwise) of the companies involved in the merger, nor was Carpenter and Company furnished with any such appraisals. Finally, Carpenter and Company's opinion was based on economic, monetary and market and other conditions as in effect on, and the information made available to Carpenter and Company as of, the date of the opinion. Accordingly, although subsequent developments may affect Carpenter and Company's opinion, it has not assumed any obligation to update, revise or reaffirm such opinion.
Set forth below is a summary of Carpenter and Company's analysis in connection with its opinion that is complete in all material respects.
Review of American River Holdings and North Coast Bank, N.A. Carpenter and Company, analyzed North Coast Bank, N.A. and American River Holdings as reported by the companies in their respective financial reports and regulatory filings, and by combining them on a pro-forma basis. Specifically, Carpenter and Company reviewed total loans, total assets, total deposits, total shareholders' equity, net income, and net yield on earning assets. The following tables summarizes these values for each company at or for the period ending December 31, 1999 and on a pro-forma basis:
NCB ARH Pro-Forma
--- --- ---------
(Dollars in millions)
Total loans $40.1 $121.6 $161.7
Total assets 47.3 201.3 248.5
Total deposits 42.1 181.0 223.1
Total shareholders' equity 4.0 16.6 20.6
Total net income .2 2.9 3.1
Net yield on earning assets 6.2% 5.7% 5.8%
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Trading Activity and Prices. The common stock of both North Coast Bank, N.A. and American River Holdings are quoted on the over-the-counter bulletin board. However, neither is publicly traded in any significant volume. In its analyses Carpenter and Company, derived a valuation for North Coast Bank, N.A. of $13.26 per share by applying the exchange ratio of .9644 to an average trading price for American River Holdings of $13.75 (the average closing price for American River Holdings during the previous four weeks.).
Analysis of Selected Merger Transactions. Using publicly available information, Carpenter and Company reviewed the consideration paid in recently announced transactions whereby certain banks and bank holding companies of various sizes were acquired. Specifically, Carpenter and Company reviewed 18 transactions involving acquisitions of banks based in California, announced since April 1, 1998, with total assets less than $125 million, consisting of the following (acquirer/target):
o Bank of the Sierra/Sierra National Bank
o Rancho Santa Fe National Bank/First Community Bank of the Desert
o Civic BanCorp/East County Bank NA
o First Banks Inc./Lippo Bank
o VIB Corp./Kings River Bancorp
o Valencia Bank & Trust/First Valley National Bank
o Humboldt Bancorp/Global Bancorp
o City Holding Company/Frontier Bancorp
o Belvedere Capital Partners Inc./Cerritos Valley Bancorp
o East West Bancorp Inc./First Central Bank NA
o Washington Mutual Inc./Industrial Bank
o First Coastal Bancshares/American Independent Bank NA
o Belvedere Capital Partners Inc./ The Bank of Orange County
o Belvedere Capital Partners Inc./Downey Bancorp
o Western Sierra Bancorp/Roseville 1st Community Bancorp
o Western Sierra Bancorp/Lake Community Bank
o First Banks Inc./Republic Bank
o Summit Bank Corporation/California Security Bank
For each bank acquired or to be acquired in such transactions, Carpenter and Company analyzed data illustrating, among other things purchase price to book value and to tangible book value, purchase price to last 12 months' earnings, purchase price as a percentage of assets and the ratio of the premium (i.e., purchase price in excess of tangible book value) to core deposits.
No other company or transaction used in the above analysis as a comparison is identical to North Coast Bank, N.A. or the North Coast Bank, N.A./American River Holdings merger. Accordingly, an analysis of the results of the foregoing is not mathematical. Rather, it involves complex considerations and judgments concerning differences in financial and operating characteristics of the companies and other factors that could affect the public trading value and the announced acquisition prices of the companies to which North Coast Bank, N.A. and the merger are being compared.
Carpenter and Company derived the value for each share of North Coast Bank, N.A. common stock of $13.26 by applying the exchange ratio of .9644 times the average trading value of American River Holdings of $13.75 per share. Based upon this valuation, the following table compares the relative valuation ratios (average and median) for California bank acquisitions to the valuation ratios for North Coast Bank, N.A. in the North Coast Bank, N.A./American River Holdings merger:
Comparable Transactions
Average Median NCB
------- ------ ---
Price to book value 2.09x 2.01x 1.69x
Price to tangible book value 2.10x 2.03x 1.69x
Price to last twelve months earnings 24.09x 27.90x 29.83x
Price as a percentage of assets 17.64% 17.25% 14.32%
Premium to core deposits 12.11% 11.34% 7.71%
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Four of these ratios derived from comparable transactions are higher than the ratios found in the merger; one ratio, the price to earnings ratio, is higher than the comparable transactions. Given the high importance of the price to earnings ratio in most analyses of stock value, these relative ratios support the conclusion that the merger is fairly priced. Further, Carpenter and Company also reviewed the S&P 500 Bank Index and noted that trading prices for banks had declined by over 30% since the middle of 1999. The decline in trading prices for banks suggests declining valuations of banks in stock based transactions in the current merger and acquisition environment as compared to those in recent periods. Taking into account the recent decline in trading valuations of bank stocks, this comparison indicates that the valuation attributed to North Coast Bank, N.A. in the North Coast Bank, N.A./American River Holdings merger is generally consistent or better than the value that would be suggested by the other bank mergers reviewed.
Earnings Accretion Analysis. Carpenter and Company analyzed the historical earnings of each North Coast Bank, N.A. and American River Holdings comparing the earnings per share for North Coast Bank, N.A. shareholders on a stand-alone basis and on a combined pro forma basis without assuming any cost savings to be derived through this combination. Additionally, Carpenter and Company performed this same analysis utilizing management budgets for 2000 assuming both no cost savings and cost savings equal to 20% of North Coast Bank, N.A.'s noninterest expense. The following table summarizes the stand-alone and pro forma earnings per share and the dollar and percent accretion to North Coast Bank, N.A. shareholders in each scenario:
Earnings Accretion
------------------
NCB Pro Forma Amount Percent
----- --------- ------ -------
Historical 1999 $0.44 $1.29 $0.84 189%
2000 Budget $0.76 $1.66 $0.90 118%
2000 Budget with cost savings $0.76 $1.77 $1.01 133%
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This analysis suggests that there is greater potential value for North Coast Bank, N.A. shareholders in completing the merger than in remaining independent.
Pro-Forma Merger and Contribution Analysis. Carpenter and Company analyzed the contribution of each of North Coast Bank, N.A. and American River Holdings to, among other things, total assets, total deposit liabilities, total equity, last twelve months' net income of the pro forma combined companies. For purposes of this analysis, Carpenter and Company used the balance sheets and income statements for the period ending December 31, 1999.
Based upon the exchange ratio of .9644, taking into account outstanding options for both companies, the fully diluted ownership of the North Coast Bank, N.A. shareholders in the combined company would be approximately 21.8%. The following table details the percentage contribution of North Coast Bank, N.A. to the combined company:
NCB Contribution
--------------------------------------------------
Total assets 19.0%
Total deposit liabilities 19.0%
Total shareholders' equity 19.4%
Last twelve months' net income 20.4%
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This analysis suggests that the ownership interest of North Coast Bank, N.A. shareholders in American River Holdings after the merger is consistent with or greater than what would be indicated by North Coast Bank, N.A.'s share of assets, deposit liabilities, equity and earnings.
Regression Analysis. Carpenter and Company undertook an analysis to determine the price to earnings and price to book multiple at which North Coast Bank, N.A. might actively trade on a stand-alone basis. A regression analysis of publicly available data on comparable banks and bank holding companies indicated a correlation between return on equity and price to last twelve months' earnings and price to book value. This analysis utilized trading prices of the comparable banks and bank holding companies as of February 25, 2000. Based on North Coast Bank, N.A.'s last twelve months ended December 31, 1999 return on equity of 5.86%, this analysis yielded a price to last twelve months' earnings ratio at which North Coast Bank, N.A. might trade of 21.3x and an implied value of $9.47 per share for North Coast Bank, N.A. Based on North Coast Bank, N.A.'s December 31, 1999 fully diluted book value of $7.83, this analysis yielded a price to book ratio at which North Coast Bank, N.A. might trade of 1.19x and an implied value of $9.32 per share for North Coast Bank, N.A.. Because the imputed value of $13.26 per North Coast Bank, N.A. share substantially exceeds this value range, the regression analyses support that the consideration being received by North Coast Bank, N.A. shareholders is fair.
Discounted Value Analysis. Carpenter and Company estimated the present value (current share price) based on estimated earnings that (a) North Coast Bank, N.A. could produce on a stand-alone basis through fiscal year 2004 without giving effect to, among other things, potential cost savings that could be realized in a sale to an in-market acquiror, and (b) that American River Holdings and North Coast Bank, N.A. combined could produce. Carpenter and Company utilized North Coast Bank, N.A. and American River Holdings management projections for the years 2000 through 2004. The range of estimated future prices was calculated by applying market multiples ranging from 14.0x to 22.0x to the projected 2004 cash earnings of North Coast Bank, N.A. alone and of the combined companies. The estimated future share prices were then discounted to present values using discount rates ranging from 12% to 20%. This analysis indicated an implied per share price range for North Coast Bank, N.A. on a stand-alone basis of approximately $5.71 to $12.66. The corresponding range for the combined companies, including estimated consolidation savings provided by North Coast Bank, N.A. and American River Holdings management, is $14.68 to $32.57 in North Coast Bank, N.A. equivalent shares. These analyses do not purport to be indicative of actual values or expected values of North Coast Bank, N.A. common stock or of American River Holdings common stock.
Because the value range for the combined companies is higher than the range for North Coast Bank, N.A. on a stand-alone basis, the discounted value analyses suggest that there is greater potential value for North Coast Bank, N.A. shareholders in completing the merger than in remaining independent.
The summary set forth above does not purport to be a complete description of the presentation by Carpenter and Company to the North Coast Bank, N.A. board of directors or of the analyses performed by Carpenter and Company. The preparation of a fairness opinion is not necessarily susceptible to partial analysis or summary description. Carpenter and Company believes that its analyses and the summary set forth above must be considered as a whole and that selecting a portion of its analyses and factors, without
considering all analyses and factors, would create an incomplete view of the process underlying the analyses set forth in its presentation to the North Coast Bank, N.A. board of directors. The ranges of valuations resulting from any particular analysis described above should not be taken to be Carpenter and Company's view of the actual value of North Coast Bank, N.A. or the combined companies.
In performing its analyses, Carpenter and Company made numerous assumptions with respect to industry performance, general business and economic conditions and other matters, many of which are beyond the control of North Coast Bank, N.A. or American River Holdings. Material among those assumptions were that of a reasonably stable economic and interest rate environment and no significant changes in the regulatory and statutory regime governing the businesses of both American River Holdings and North Coast Bank, N.A. sufficient to materially impact their results. The analyses performed by Carpenter and Company are not necessarily indicative of actual values or actual future results, which may be significantly more or less favorable than suggested by such analyses. Such analyses were prepared solely as part of Carpenter and Company's analysis of the fairness of the consideration to be received by the holders of North Coast Bank, N.A. common stock in the merger and were provided to the North Coast Bank, N.A. board of directors in connection with the delivery of Carpenter and Company's opinion. The analyses do not purport to be appraisals or to reflect the prices at which a company might actually be sold or the prices at which any securities may trade at the present time or any time in the future. The forecasts utilized by Carpenter and Company in certain of its analyses are based on numerous variables and assumptions, which are inherently unpredictable and must be considered not certain of occurrence as projected. Accordingly, actual results could vary significantly from those contemplated in such forecasts.
In the ordinary course of our business, we represent acquirers and sellers of financial institutions, and Carpenter and Company has performed other financial advisory services for North Coast Bank, N.A. in the past. Under the terms of the engagement letter, North Coast Bank, N.A. paid Carpenter and Company a fee of $20,000 for the fairness opinion. North Coast Bank, N.A. has also agreed to reimburse Carpenter and Company for its reasonable out-of-pocket expenses. North Coast Bank, N.A. has agreed to indemnify Carpenter and Company, its affiliates, and their respective partners, directors, officers, agents, consultants, employees and controlling persons against certain liabilities including liabilities under federal securities laws.
The full text of Carpenter and Company's written opinion, dated ______________, 2000, is attached as Annex B to this joint proxy statement/prospectus and is incorporated here by this reference.
North Coast Bank, N.A. shareholders are urged to read the opinion in its entirety for a description of the procedures followed, assumptions made, matters considered, and qualifications and limitations on the review undertaken by Seapower Carpenter Capital, Inc., dba Carpenter and Company.
OPINION OF AMERICAN RIVER HOLDINGS' FINANCIAL ADVISOR
General. On February 4, 2000, American River Holdings engaged Hoefer & Arnett Incorporated to act as its financial advisor in connection with the merger. Hoefer & Arnett agreed to assist American River Holdings in analyzing a transaction with North Coast Bank, NA. American River Holdings selected Hoefer & Arnett because Hoefer & Arnett is a nationally recognized investment-banking firm with substantial experience in transactions similar to the merger and is familiar with American River Holdings and its business. As part of its investment banking business, Hoefer & Arnett is continually engaged in the valuation of businesses and their securities in connection with mergers and acquisitions.
As part of its engagement, representatives of Hoefer & Arnett participated telephonically at the meeting of the American River Holdings board of directors held on February 29, 2000 during which the
board considered and approved the merger agreement. At the February 29, 2000 meeting, Hoefer & Arnett rendered an oral opinion (subsequently confirmed in writing) that, as of that date, the conversion ratio was fair to American River Holdings and its shareholders from a financial point of view. That opinion was reconfirmed in writing as of _____________, 2000.
The full text of Hoefer & Arnett's updated written opinion is attached as Annex C to this joint proxy statement/prospectus and is incorporated here by reference. American River Holdings shareholders are urged to read the opinion in its entirety for a description of the procedures followed, assumptions made, matters considered, and qualifications and limitations on the review undertaken by Hoefer & Arnett.
Hoefer & Arnett's opinion is directed to the American River Holdings board of directors and addresses only the fairness from a financial point of view of the conversion ratio. It does not address the underlying business decision to proceed with the merger and does not constitute a recommendation to American River Holdings shareholders as to how they should vote at the American River Holdings annual meeting with respect to the merger or any matter related thereto.
In rendering its opinion, Hoefer & Arnett:
(a) reviewed, among other things, (i) the merger agreement; (ii) annual
reports to shareholders of American River Holdings and North Coast Bank, N.A.,
(iii) FFIEC consolidated reports of American River Holdings and North Coast
Bank, N.A.; and (iv) certain internal financial analyses and forecasts prepared
by management of American River Holdings and North Coast Bank, N.A;
(b) held discussions with members of senior management of American River Holdings and North Coast Bank, N.A. regarding (i) past and current business operations; (ii) regulatory relationships; (iii) financial condition; and (iv) future prospects of the respective companies;
(c) compared certain financial and stock market information for American River Holdings and North Coast Bank, N.A. with similar information for certain other companies with publicly traded securities;
(d) reviewed the financial terms of certain recent business combinations in the banking industry; and
(e) performed other studies and analyses that it considered appropriate.
In rendering its opinion, Hoefer & Arnett relied, without independent verification, on the accuracy and completeness of the material furnished to it by American River Holdings and North Coast Bank, N.A. and the material otherwise made available to it, including information from published sources. With respect to the financial information, Hoefer & Arnett assumed (with American River Holdings' consent) that they had been reasonably prepared reflecting the best currently available estimates and judgment of American River Holdings management. In addition, Hoefer & Arnett did not make or obtain any independent appraisals or evaluations of the assets or liabilities, and potential and/or contingent liabilities of American River Holdings or North Coast Bank, N.A. Hoefer & Arnett further relied on the assurances of American River Holdings and North Coast Bank, N.A. management that they are not aware of any facts that would make such information inaccurate or misleading. Hoefer & Arnett's opinion is necessarily based on the market, economic and other relevant considerations as they existed and could be evaluated on the date thereof.
Analysis of the Merger Consideration. Hoefer & Arnett calculated the multiple which the merger consideration represents based on the conversion ratio as set forth in the merger agreement of
each share of North Coast Bank, N.A. common stock being exchanged for 0.9644 of a share of American River Holdings common stock and the closing price of American River Holdings common stock as of February 25, 2000. Based on the $12.50 closing price of American River Holdings common stock on February 25, 2000, the merger consideration represented a per share value of $12.06 for each share of North Coast Bank, N.A. common stock. The multiples were calculated based on North Coast Bank, N.A.'s December 31, 1999 book value per share of $8.47 and its last twelve month earnings per share of $0.44. The price to book value was 1.42 times and the price to last twelve month earnings per share was 27.4 times.
Analysis of Comparable Acquisition Transactions. In rendering its opinion, Hoefer & Arnett analyzed certain comparable merger and acquisition transactions of both pending and completed bank deals, comparing the acquisition price relative to book value, tangible book value, last twelve month earnings, and assets. The analysis included a comparison of the low and median of the above ratios for completed and pending acquisitions from California transactions from January 1, 1998 to February 25, 2000 with announced transaction values less than $100.0 million and return on average assets between 0.5% and 1.5%.
The information in the following table summarizes the material information analyzed by Hoefer & Arnett with respect to the merger. The summary is not a complete description of the analysis performed by Hoefer & Arnett and should not be construed independently of the other information considered by Hoefer & Arnett in rendering its opinion. Selecting portions of Hoefer & Arnett's analysis or isolating certain aspects of the comparable transactions without considering all analysis and factors, could create an incomplete or potentially misleading view of the evaluation process.
Multiple of Price to Factors
Comparable Comparable Comparable American River
Group Group Group Holdings/North Coast
Factor Considered (1) Low Median High Bank, NA Merger (2)
--------------------------------------------------------------------------------
Trailing Twelve Months 10.6x 21.2x 44.2x 27.4x
Earnings
Book Value 1.1x 2.3x 5.0x 1.4x
Tangible Book Value 1.3x 2.3x 5.0x 1.4x
Assets 9.8% 21.1% 44.4% 13.6%
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(1) Financial data as of December 31, 1999.
(2) Based on a conversion ratio of 0.9644 and American River Holdings price of
$12.50 as of February 25, 2000.
Contribution Analysis. Hoefer & Arnett reviewed the relative contribution of each American River Holdings and North Coast Bank, N.A. to certain pro forma balance sheet and income statement items of the combined entity. The contribution analysis showed:
North Coast Bank, N.A. Contribution To:
Combined Shareholders' Equity 19.6% Combined 1999 Estimated Net Income without Cost Savings 12.4% Combined Total Assets 19.0% North Coast Bank, N.A. Estimated Pro Forma Ownership 20.1% |
Hoefer & Arnett compared the relative contribution of the balance sheet and income statement items with the estimated pro forma ownership for North Coast Bank, N.A. shareholders based on a conversion ratio of 0.9644.
Discounted Dividends Analysis. Using a discounted dividends analysis, Hoefer & Arnett estimated the future stream of dividends that North Coast Bank, N.A. could produce over the next five years, under various circumstances, assuming North Coast Bank, N.A. performed in accordance with the earnings forecasts of North Coast Bank, N.A.'s management. Hoefer & Arnett then estimated the terminal values for North Coast Bank, N.A. common stock at the end of the period by applying multiples ranging from 9.0 times to 11.0 times earnings projected in year five. The dividend streams and terminal values were then discounted to present values using different discount rates (ranging from 12.5% to 15.0%) chosen to reflect different assumptions regarding the required rates of return to holders or prospective buyers of North Coast Bank, N.A. common stock. This discounted dividends analysis indicated reference ranges of between $12.17 and $15.59 per share for North Coast Bank, N.A. common stock. These values compare to the merger consideration of $12.06 based on a conversion ratio of 0.9644 and American River Holdings closing price of $12.50 as of February 25, 2000.
The summary set forth above describes the material analyses prepared by Hoefer & Arnett in connection with the rendering of its opinion. The preparation of a fairness opinion is not necessarily susceptible to partial analysis or summary description. Hoefer & Arnett believes that its analysis and the above summary above must be considered as a whole and that selecting portions of its analysis, or selecting part of the summary above, without considering all factors and analyses, would create an incomplete view of the process underlying the analysis set forth in Hoefer & Arnett's presentation and opinion. The ranges of valuations resulting from any particular analysis described above should not be taken to be Hoefer & Arnett's view of the actual value of American River Holdings or North Coast Bank, N.A. The fact that any specific analysis has been referred to in the summary above is not meant to indicate that such analysis was given greater weight that any other analysis.
In preparing its analysis, Hoefer & Arnett made numerous assumptions with respect to industry performance, business and economic conditions, and other matters, many of which are beyond the control of Hoefer & Arnett and American River Holdings. The analyses performed by Hoefer & Arnett are not necessarily indicative of actual values or future results, which may be significantly more or less favorable than suggested by such analyses and do not purport to be appraisals or reflect the prices at which a business may be sold or the prices at which any securities may trade at the present time or at any time in the future. In addition, as described above, Hoefer & Arnett's opinion, along with its presentation to the American River Holdings board of directors, was just one of the many factors taken into consideration by the American River Holdings board of directors in approving the agreement.
In connection with its opinion dated as of ________, 2000, Hoefer & Arnett performed procedures to update, as necessary, certain of the analyses described above. Hoefer & Arnett reviewed the assumptions on which the analyses described above were based and the factors considered in connection therewith. Hoefer & Arnett did not perform any analysis in addition to those described above in updating its February 29, 2000 written opinion.
The American River Holdings board of directors has retained Hoefer & Arnett as an independent contractor to act as financial advisor to American River Holdings regarding the merger. As part of its investment banking business, Hoefer & Arnett is continually engaged in the valuation of banking businesses and their securities in connection with mergers and acquisitions, negotiated underwritings, competitive biddings, secondary distributions of listed and unlisted securities, private placements, and valuations for estate, corporate and other purposes. Hoefer & Arnett has experience in, and knowledge of, the valuation of banking enterprises. In the ordinary course of its business as a broker-dealer, Hoefer
& Arnett may, from time to time, purchase securities from, and sell securities to, American River Holdings and North Coast Bank, N.A. As a market maker in securities, Hoefer & Arnett may from time to time have a long or short position in, and buy or sell, debt or equity securities of American River Holdings and North Coast Bank, N.A. for Hoefer & Arnett's own account and for the accounts of its customers.
Pursuant to its engagement letter with American River Holdings, Hoefer & Arnett will receive a fee of $20,000. As of the date of this joint proxy statement/prospectus, Hoefer & Arnett has received $15,000 of such fee. The remainder is due upon mailing of the joint proxy statement/prospectus. American River Holdings has also agreed to indemnify Hoefer & Arnett against certain liabilities, including liabilities under the federal securities laws, and to reimburse Hoefer & Arnett for certain out-of-pocket expenses.
The full text of Hoefer & Arnett Incorporated's opinion, dated ________, 2000, is attached as Annex C and is incorporated here by this reference. American River Holdings shareholders are urged to read the opinion in its entirety.
EFFECTIVE DATE AND TIME OF THE MERGER
The merger agreement provides that the merger will be effective on the date and at the time selected by the parties after the merger has been certified by the Office of the Comptroller of the Currency, an executed copy of the bank merger agreement has been filed with and accepted by the Office of the Comptroller of the Currency, all government approvals have been received and satisfied and all other conditions to the merger have been satisfied. The date and time on which the merger is effective as specified in the merger agreement is referred to in this document as the effective date and effective time, respectively. Although the parties have not adopted any formal timetable, it is presently anticipated that the merger will be consummated on or before September 30, 2000, assuming all of the conditions set forth in the merger agreement are satisfied or waived.
PURCHASE PRICE
Each share of North Coast Bank, N.A. common stock issued and outstanding prior to the effective time of the merger, other than shares as to which dissenters' rights have been perfected, will be converted into the right to receive a number of American River Holdings shares of common stock, plus cash in lieu of fractional shares, according to a fixed conversion ratio of .9644 of a share of American River Holdings common stock for each share of North Coast Bank, N.A. common stock. The merger agreement does not contain any provisions to adjust the conversion ratio.
CONVERSION OF SHARES OF NORTH COAST BANK, N.A. COMMON STOCK
At the effective time, by virtue of the merger and without any action
on the part of the holders of North Coast Bank, N.A. common stock, each issued
and outstanding share of North Coast Bank, N.A. common stock (other than
dissenting and fractional shares) will be converted into the right to receive
the per share consideration of American River Holdings common stock as discussed
above. See "--Purchase Price" on page 112. All shares of North Coast Bank, N.A.
common stock will no longer be outstanding and will automatically be canceled
and retired and will cease to exist, and each certificate previously
representing any North Coast Bank, N.A. shares will thereafter represent the
shares of American River Holdings common stock into which such shares of North
Coast Bank, N.A. common stock have been converted. Certificates previously
representing shares of North Coast Bank, N.A. common stock will be exchanged for
certificates representing whole shares of American River Holdings common stock
issued in consideration therefor upon the surrender of those certificates. Cash
will be paid in lieu of any
fractional share of American River Holdings common stock. See "--Exchange of North Coast Bank, N.A. Stock Certificates; Fractional Interests" on page 113. From and after the effective date, the holders of certificates formerly representing shares of North Coast Bank, N.A. common stock will cease to have any rights with respect to those shares.
EXCHANGE OF NORTH COAST BANK, N.A. STOCK CERTIFICATES; FRACTIONAL INTERESTS
Prior to the effective date, American River Holdings has agreed to appoint U.S. Stock Transfer Corporation, or its successor as exchange agent (the "Exchange Agent") for the purpose of exchanging certificates representing shares of American River Holdings common stock, and at and after the effective date, American River Holdings will issue and deliver to the Exchange Agent certificates representing the shares of American River Holdings common stock to be delivered to holders of shares of North Coast Bank, N.A. common stock. As soon as practicable after the effective date, each holder of shares of North Coast Bank, N.A. common stock, other than a dissenting holder, upon surrender to the exchange agent of one or more certificates for the shares of North Coast Bank, N.A. common stock for cancellation, will be entitled to receive a certificate representing the number of shares of American River Holdings common stock into which the number of shares of North Coast Bank, N.A. common stock will have been converted and a payment in cash with respect to fractional shares, if any.
No dividends or other distributions of any kind which are declared payable to shareholders of record of the shares of American River Holdings common stock after the effective date will be paid to persons entitled to receive the certificates for shares of American River Holdings common stock until those persons surrender their certificates representing shares of North Coast Bank, N.A. common stock. Upon surrender of certificates representing shares of North Coast Bank, N.A. common stock, the holder thereof will be paid, without interest, any dividends or other distributions with respect to the shares of American River Holdings common stock as to which the record date and payment date occurred on or after the effective date and on or before the date of surrender.
If any certificate for shares of American River Holdings common stock is to be issued in a name other than that in which the certificate for shares of North Coast Bank, N.A. common stock surrendered in exchange therefor is registered, it will be a condition of the exchange that the person requesting the exchange will pay to the Exchange Agent any transfer costs or other expenses (except taxes) required by reason of the issuance of certificates for the shares of American River Holdings common stock in a name other than the registered holder of the certificate surrendered.
All dividends or distributions, and any cash to be paid in lieu of fractional shares, if held by the Exchange Agent for payment or delivery to the holders of unsurrendered certificates representing shares of North Coast Bank, N.A. common stock and unclaimed at the end of one year from the effective date, will (together with any interest earned thereon) at that time be paid or redelivered by the Exchange Agent to American River Holdings, and after that time any holder of a certificate representing shares of North Coast Bank, N.A. common stock who has not surrendered the certificate to the Exchange Agent will, subject to applicable law, look as a general creditor only to American River Holdings for payment or delivery of the shares of American River Holdings common stock and dividends or distributions or cash, as the case may be.
No fractional shares of American River Holdings common stock will be issued to holders of shares of North Coast Bank, N.A. common stock. In lieu thereof, each holder entitled to a fraction of a share of American River Holdings common stock will receive, at the time of surrender of the certificate or certificates representing the holder's shares of North Coast Bank, N.A. common stock, an amount in cash equal to the average of the closing bid and asked prices for a share of American River Holdings common stock quoted on the OTC Bulletin Board for each of the twenty trading days ending on the third
business day immediately preceding the effective date, multiplied by the fraction of a share of American River Holdings common stock to which such holder otherwise would be entitled and rounded to the nearest penny. No holder will be entitled to dividends, voting rights, interest on the value of, or any other rights in respect of, a fractional share.
TREATMENT OF STOCK OPTIONS
At the effective time of the merger, the obligations under the North Coast Bank, N.A. 1990 Stock Option Plan will be assumed by American River Holdings. At the effective time of the merger, options to purchase shares of North Coast Bank, N.A. common stock issued under North Coast Bank, N.A.'s 1990 Stock Option Plan that are outstanding will be converted, without any action on the part of the holders thereof, into substitute options to acquire the number of shares of American River Holdings common stock the option holder would have received in the merger if he or she had exercised all of his or her options immediately prior to the effective date. The option exercise price will be adjusted to equal the exercise price per share for the options immediately prior to the merger divided by the conversion ratio. Except as noted above, each North Coast Bank, N.A. stock option will otherwise continue on terms and conditions that are consistent with those that were applicable on the effective date.
INTERESTS OF AMERICAN RIVER HOLDINGS AND NORTH COAST BANK, N.A. OFFICERS AND DIRECTORS IN THE MERGER
American River Holdings. Directors and executive officers of American River Holdings have interests in the merger in addition to their interest as American River Holdings shareholders. The board of directors of American River Holdings was aware of these interests and considered them, among other matters, in approving the merger agreement. See "Introduction -- Security Ownership of Certain Beneficial Owners and Management" -- American River Holdings on page 24.
As of the record date, the directors and executive officers of American River Holdings owned an aggregate of 620,680 shares of American River Holdings common stock (including 148,480 shares subject to options exercisable within 60 days of the record date). Under the merger agreement, North Coast Bank, N.A. has agreed to appoint two current directors of American River Holdings (David T. Taber and Roger J. Taylor, D.D.S.) to the North Coast Bank, N.A. board of directors. Dr. Taylor will be entitled to receive the directors' fees and benefits which North Coast Bank, N.A. extends to its directors. Additionally, all of the current American River Holdings and American River Bank directors will continue to serve on the boards of directors of American River Holdings and American River Bank and continue to receive the directors' fees and benefits which American River Holdings and American River Bank extend to their directors.
North Coast Bank, N.A. North Coast Bank, N.A. directors and executive officers have interests in the merger in addition to their interests as North Coast Bank, N.A. shareholders. The North Coast Bank, N.A. board of directors was aware of these interests and considered them, among other matters, in approving the merger agreement. See "Introduction-- Security Ownership of Certain Beneficial Owners and Management"-- North Coast Bank, N.A. on page 27.
As of the record date, the directors and executive officers of North Coast Bank, N.A. beneficially owned an aggregate of 276,652 shares of North Coast Bank, N.A. common stock (including 174,290 shares subject to options exercisable based upon accelerated vesting in connection with the merger under the North Coast Bank, N.A. 1990 Stock Option Plan). Under the merger agreement, American River Holdings has agreed to appoint two current directors of North Coast Bank, N.A., M. Edgar Deas and Larry L. Wasem, to the American River Holdings board of directors who will be entitled to receive the directors' fees and benefits which American River Holdings extends to its directors. Additionally, all of
the current North Coast Bank, N.A. directors will continue to serve on the board of directors of North Coast Bank, N.A. and two of American River Holdings' current directors, Roger J. Taylor, D.D.S. and David T. Taber, will become members of the board of directors of North Coast Bank, N.A. Dr. Taylor will be entitled to receive the directors' fees and benefits which North Coast Bank, N.A. extends to its directors. After the effective time of the merger, Kathy A. Pinkard will continue to serve as President and Chief Executive Officer of North Coast Bank, N.A. She will also be a member of the executive management committee of American River Holdings.
Kathy A. Pinkard is a party to an employment agreement dated December 16, 1999, and Debbie K. Fakalata and David A. Wattell are parties to change of control employment agreements each dated December 16, 1999. These agreements include provisions that provide severance benefits upon the occurrence of a change of control of North Coast Bank, N.A. such as the merger. These agreements provide that, upon termination following a change of control for reasons other than cause, Ms. Pinkard, Ms. Fakalata and Mr. Wattell will each receive their respective base salary through the last day of the calendar month of the termination. If the termination occurs within three (3) years of the change of control in the case of Ms. Pinkard and one hundred eighty (180) days in the case of Ms. Fakalata and Mr. Wattell, additional payments will be received by each of them equal to two (2) times the then current base salary in the case of Ms. Pinkard and one (1) times the then current base salary in the case of Ms. Fakalata and Mr. Wattell. Under these provisions, Ms. Pinkard, Ms. Fakalata, and Mr. Wattell would be entitled to $209,000, $78,750 and $85,000, respectively.
In addition, the merger agreement provides North Coast Bank, N.A. directors and officers with rights to indemnification by American River Holdings. See "Comparison Of Shareholder Rights--Indemnification of Directors and Executive Officers" on page 147.
CONDUCT OF BUSINESS PENDING THE MERGER
Under the merger agreement, American River Holdings and North Coast Bank, N.A. have each agreed that, during the period from the date of the merger agreement to the effective time of the merger, it and each of its respective subsidiaries will:
o carry on its business in the ordinary course conducted prior to the execution of the merger agreement and in compliance with safe and sound banking practices and applicable law;
o preserve its business and business organizations intact, and preserve the goodwill of its customers and others having business relations with it;
o maintain its in customary repair, working order and condition;
o comply with all applicable laws, regulations, decrees and regulatory requirements; promptly forward to each party all communications received from any regulatory agency that are not prohibited by the regulatory agency from being disclosed; and inform each party of any material restrictions imposed by any regulatory agency on its business;
o use its best efforts to keep in force at not less than its present limits all insurance policies (including deposit insurance of the Federal Deposit Insurance Corporation) to the extent reasonably practicable;
o use its reasonable best commercial efforts to keep available the services of its present officers and employees;
o timely file all reports, tax returns and other documents required to be filed with federal, state, local and other authorities;
o prior to foreclosure on any property concerning which it has knowledge, or should have knowledge, that any hazardous material was or is present, manufactured, recycled, reclaimed, released, stored, treated, or disposed of at or from the property, conduct an environmental audit and provide the results of the audit to and consult with each party regarding the significance of the audit;
o not sell, lease, pledge, assign, encumber or otherwise dispose of any of its assets except in the ordinary course of its business, for adequate value, without recourse and consistent with its customary practice;
o not take any action with respect to its investments or risk management arrangements which are inconsistent with the policies established by its board of directors;
o not take any action to create, locate or terminate the operations of any banking office or branch, or to form any new subsidiary or affiliated entity;
o not settle or otherwise take any action to release or reduce any of its rights with respect to any litigation involving a claim of more than twenty-five thousand dollars ($25,000) in which it is a party;
o not amend its articles of incorporation or association or bylaws or the articles of incorporation or bylaws of any subsidiary; make any change in its authorized, issued or outstanding capital stock or any other equity security; issue, grant, sell, pledge, assign or otherwise encumber or dispose of, or purchase, redeem, retire or otherwise acquire (other than in a fiduciary capacity), shares of or securities convertible into, capital stock or other equity securities of their respective companies, or enter into any agreement, call or commitment of any character so to do; grant or issue any stock option relating to or right to acquire shares of its capital stock or other equity security; or agree to do any of the foregoing, except as expressly provided in the merger agreement; except for issuance of shares upon exercise of options granted under the American River Holdings 1995 Stock Option Plan or the North Coast Bank, N.A. 1990 Stock Option Plan and outstanding at the time the merger agreement was executed;
o not declare, set aside or pay any dividend or other distribution in respect of its common stock other than regular quarterly or semi-annual cash dividends on its common stock in amounts substantially equivalent to cash dividends paid in the two years prior to the date of the merger agreement;
o not change lending, investment, liability management and other material policies and procedures except as required by law or regulation; and
o not change the methods of accounting for their businesses, except as required by generally accepted accounting principles.
In addition, North Coast Bank, N.A. has agreed that it will:
o take all necessary action to terminate the North Coast Bank, N.A. 1990 Stock Option Plan at the effective time of the merger and to allow the exercise or surrender (in exchange for substitute options) of North Coast Bank, N.A. options outstanding thereunder;
o pending consummation of the merger, North Coast Bank, N.A. has agreed that it will not make, approve, or grant to any of its directors, officers, employees or agents with annual salaries in excess of $75,000: (1) any increase in the compensation payable or to become payable by it (including but not limited to compensation through any profit sharing, pension, retirement, severance, incentive or other employee benefit program or arrangement); (2) any bonus payment or any agreement to make a bonus payment; (3) any stock option, warrant or other right to acquire capital stock (except as provided in the merger agreement); (4) any employment or consulting agreement, unless American River Holdings has given its prior written consent, and except for payments to officers and employees of North Coast Bank, N.A. of regular salary increases, consistent with past practices in connection with regular salary reviews or bonuses consistent with past practices, as disclosed to American River Holdings;
o not cause, allow or suffer its officers or agents to commit to any loan, loan renewal or amendment, loan participation or other extension of credit, which does not comply in all material respects with its credit policies in effect and as disclosed to American River Holdings prior to the date of the merger agreement; All loan participations, real estate construction or development loans and loans to North Coast Bank, N.A. directors and officers regardless of amount and all other extensions of credit over $650,000, except for conforming FHLMC and FNMA loans, will be subject to American River Holdings' prior written consent. The prior written consent of American River Holdings will be deemed waived for any new stand-alone extension of credit that is below $650,000 and where the new stand-alone extension of credit is in compliance with North Coast Bank, N.A. credit policy and either the approving officer has the requisite lending authority or the loan(s) has (have) been approved by the North Coast Bank, N.A. loan committee or equivalent committee of the North Coast Bank, N.A. board of directors performing that function;
o notify American River Holdings promptly in writing upon the occurrence of: (1) the classification of any loan as "Non-Accrual," "Watch," "Other Assets Specially Mentioned," "Substandard," "Doubtful" or "Loss"; or (2) the filing or commencement of any legal action or other proceeding or investigation against North Coast Bank, N.A., its directors, officers or employees will provide to American River Holdings on request reports on specified loans as described in the merger agreement; and maintain adequate reserves for loan losses;
o subject to specified exceptions, incur or commit to any capital expenditures for more than $25,000 in the aggregate; and
o until the effective time of the merger, subject to its fiduciary duties to its shareholders, not effect a merger or other business combination with a third party, and neither it or its officers, directors, affiliates, agents or advisors, shall solicit or encourage, directly or indirectly, any inquiries, discussions or proposals, or enter into discussions or negotiations providing for any business combination with a third party.
Additionally, American River Holdings has agreed that it will:
o amend the articles of association and bylaws of ARH Interim National Bank, subject to obtaining requisite shareholder and governmental approvals, to change the name of the resulting bank to "North Coast Bank, National Association" and to provide for a board of directors consisting of five to twenty-five members with the exact number of directors set at eleven or another number agreed by the parties;
o take action to offer substitute stock options, exercisable for an equivalent number of shares of American River Holdings common stock, to all holders of North Coast Bank, N.A. stock options;
o take all necessary corporate action, including any required approval of the shareholders of American River Holdings, to amend its 1995 Stock Option Plan or establish a new stock option plan (see "Proposal No. 2, Approval of the American River Holdings 2000 Stock Option Plan" on page 154) and cause to be filed and become effective under the Securities Act of 1933, as amended, a registration statement with respect to the options to be granted and shares to be issued thereunder to fulfill the obligations to grant substitute options to holders of North Coast Bank, N.A. options pursuant to the merger agreement;
o take all necessary action to list American River Holdings common stock for trading on the Nasdaq National Market, to be effective as soon as practicable following the effective time of the merger;
o amend, subject to shareholder approval and listing of American River Holdings common stock for trading on the Nasdaq National Market, its articles of incorporation and bylaws to classify its board of directors, and to appoint two of the existing directors of North Coast Bank, N.A. to the classified American River Holdings board of directors; if the proposal to classify the American River Holdings board of directors is approved by its shareholders, then one appointed director will be a class II director and the other appointed director will be a class III director, under the classified board structure described in "Proposal No. 3, Approval of Amendments to the American River Holdings Articles of Incorporation and Bylaws to Provide for the Classification of the Board of Directors" on page 160; and
o until the effective time of the merger, not solicit or accept a takeover proposal from a third party unless the proposal is expressly conditioned upon the performance by American River Holdings or the successor in interest of American River Holdings of its obligations under the merger agreement.
ADDITIONAL AGREEMENTS
Shareholders' Meetings. In the merger agreement, each of American River Holdings and North Coast Bank, N.A. has agreed to call a meeting of its shareholders to be held as promptly as practicable for the purpose of voting on the merger. Each of American River Holdings and North Coast Bank, N.A. is required through its board of directors to recommend to its shareholders approval of the merger agreement unless its board of directors determines in good faith, based upon the written advice of outside counsel, that making the recommendation, or failing to withdraw, modify or amend any previously made recommendation, would constitute a breach of fiduciary duty by its board of directors under applicable law.
No Solicitations. Subject to the fiduciary duty of North Coast Bank, N.A. board of directors, prior to the effective time of the merger, North Coast Bank, N.A. has agreed not to enter into a transaction or series of transactions with one or more third persons or groups providing for the acquisition of all or a substantial part of North Coast Bank, N.A., whether by way of merger, exchange of stock, sale of assets, or otherwise ("Business Combination") or directly or indirectly. North Coast Bank, N.A. also agreed not to acquire or agree to acquire any of its own capital stock or the capital stock or asset (except in a fiduciary capacity or in the ordinary course of business) of any other entity, or commence any proceedings for winding up and dissolution affecting either of them, solicit or encourage any inquiries, discussions or proposals for any Business Combination with any third party; or disclose, directly or indirectly, any nonpublic information to any group concerning North Coast Bank, N.A.'s business, properties, books or records or otherwise encourage any person, having any actual or prospective role with respect to any Business Combination. However, in the event the North Coast Bank, N.A. board of directors receives a bona fide unsolicited offer for a Business Combination of North Coast Bank, N.A. with another entity, and reasonably determines, upon advice of counsel, that as a result of the offer, any duty to act or to refrain from doing any act under the merger agreement is inconsistent with the continuing fiduciary duties of the board to its shareholders, subject to the provisions of the merger agreement, including payment of a termination fee to American River Holdings, a violation of North Coast Bank, N.A.'s covenants will be excused and the violation will not constitute the failure of any condition or a breach of the merger agreement. If the merger is terminated because North Coast Bank, N.A. breaches the agreement against entering into a Business Combination, North Coast Bank, N.A. is required to pay to American River Holdings a termination fee. See "--Termination Fees" on page 126.
Filings and Other Actions. In the merger agreement, American River Holdings and North Coast Bank, N.A. have each agreed to use all reasonable efforts:
o to take all actions necessary to comply promptly with all legal requirements which may be imposed on each party or its subsidiaries with respect to the transactions contemplated by the merger agreement; and
o to obtain (and to cooperate with the other party to obtain) any governmental or private consent, authorization, order, exemption or approval which is required to be obtained or made by each party or any of its subsidiaries in connection with the merger and the other transactions contemplated by the merger agreement. In addition, each of North Coast Bank, N.A. and American River Holdings has agreed to use its best efforts to take all actions necessary and proper or advisable to complete, as soon as practicable, the transactions contemplated by the merger agreement.
Indemnification; Directors' And Officers' Insurance. Under the merger agreement, from and after the effective date, American River Holdings will indemnify and hold harmless each officer or director of North Coast Bank, N.A. (determined as of the effective time of the merger) against all losses, claims, damages, liabilities, costs, expenses or judgments or amounts that are paid in the settlement of or in connection with any claim, action, suit, proceeding or investigation based on or arising out of (1) the fact that the person is or was a director or officer of North Coast Bank, N.A. and (2) the merger agreement or the transactions contemplated by the merger agreement, in each case to the full extent permitted by law.
Additionally, from and after the effective date, American River Holdings will include in its director and officer insurance policy persons who served as directors and officers of North Coast Bank, N.A. or obtain extended coverage under North Coast Bank, N.A.'s director and officer insurance policy to cover claims made for a period of three years after the effective date regarding acts or omissions of North Coast Bank, N.A.'s directors or officers prior to the effective date. However, American River
Holdings will not be obligated to make annual premium payments for the insurance to the extent the premiums exceed 150% of the premiums paid by North Coast Bank, N.A. for the insurance, as previously disclosed to American River Holdings. If the premiums for the insurance would at any time exceed 150% of the premiums paid by North Coast Bank, N.A. for the insurance, then American River Holdings will maintain policies of insurance which, in American River Holdings' good faith determination, provide a maximum coverage available at an annual premium equal to 150% of the premiums paid by North Coast Bank, N.A. in respect of the insurance.
REPRESENTATIONS AND WARRANTIES
The merger agreement contains customary mutual representations by each of American River Holdings and North Coast Bank, N.A. relating to, among other things (1) corporate organization, existence and power to enter into the merger agreement and consummate the merger, (2) capitalization, (3) due authorization, execution, delivery, performance and enforceability of the merger agreement, (4) required governmental and third party consents and approvals and that neither the merger agreement nor the transactions contemplated by the merger agreement violate either party's organizational documents, applicable law and specified material agreements, (5) financial statements, (6) compensation of officers and employees, (7) the accuracy of the information provided by each of American River Holdings and North Coast Bank, N.A. for inclusion in this joint proxy statement/prospectus, (8) compliance with applicable laws and possession of requisite governmental permits and licenses, (9) filing of tax returns, payment of taxes and related matters, (10) material contracts, (11) employee benefit plans and agreements, (12) title to properties, (13) transactions with affiliates, (14) the absence of material litigation, (15) insurance, (16) bank regulatory matters, (17) the absence of material changes or events since December 31, 1999, (18) the absence of undisclosed liabilities, (19) brokers' and finders' fees, (20) ownership of intellectual property, (21) adequacy of loan reserves, (22) compliance with the Community Reinvestment Act, (23) Year 2000 readiness, (24) validity and enforceability of all loans, other extensions of credit, commitments or other interest-bearing assets and investments of North Coast Bank, N.A., (25) absence of restrictions on ability to dispose of investments, (26) absence of collective bargaining agreements, (27) validity and prudence of risk management instruments,(28) accuracy of information in governmental filings to be made in connection with the merger, and (29) accuracy of representations and warranties as of the closing date.
The representations and warranties of American River Holdings and North Coast Bank, N.A. terminate as of the effective time of the merger.
CONDITIONS TO THE COMPLETION OF THE MERGER
The merger will occur only if specified conditions are satisfied, unless we agree to waive any condition that is not satisfied. It is not certain when or if the conditions to the merger will be satisfied or waived, or if the merger will be consummated.
Each party's obligation to complete the merger is subject to various conditions which include the following, in addition to other customary closing conditions:
o the merger agreement and the terms of the merger must be approved by the affirmative vote or consent of shareholders holding at least a majority of the outstanding shares of American River Holdings common stock and at least two-thirds of the outstanding shares of North Coast Bank, N.A. common stock;
o all necessary governmental filings must have been made and all necessary governmental approvals must have been obtained and be in effect. In addition, no governmental approval
must require either of us to divest or cease any of our present businesses or operations or impose any other condition or requirement which we, in our reasonable judgment, consider to be materially burdensome;
o no legal, administrative, arbitration, investigatory or other proceeding by any governmental or regulatory authority which seeks to restrain or prohibit the merger must have been commenced or be threatened;
o the registration statement must have been declared effective and must not be subject to a stop order of the SEC, and no proceedings for that purpose must have been initiated or threatened by the SEC. In addition, the shares of American River Holdings common stock included in the registration statement must have received all permits or approvals required under all applicable state securities laws;
o each of us must have received a tax opinion from Perry-Smith LLP, based on customary assumptions and exceptions and factual statements and representations provided by the parties, substantially to the effect that, under federal income tax law and California income and franchise tax law: (a) the merger will not result in any recognized gain or loss to American River Holdings or North Coast Bank, N.A.; (b) except for cash received in lieu of any fractional share, no gain or loss will be recognized by holders of North Coast Bank, N.A. common stock who receive shares of American River Holdings common stock in exchange for the shares of North Coast Bank, N.A. common stock they hold; (c) the holding period for the shares of American River Holdings common stock issued in exchange for the shares of North Coast Bank, N.A. common stock in the merger will include the holding period of the shares of the North Coast Bank, N.A. common stock for which they are exchanged, assuming that the shares of North Coast Bank, N.A. common stock are capital assets in the hands of the North Coast Bank, N.A. shareholder at the effective date of the merger; (d) the basis of the shares of American River Holdings common stock received by the North Coast Bank, N.A. shareholders in the merger will be the same as the basis of the shares of North Coast Bank, N.A. common stock for which they are exchanged, less any basis attributable to fractional shares for which cash is received; (e) any North Coast Bank, N.A. shareholder who dissents to the merger and receives cash for his or her shares of North Coast Bank, N.A. common stock will be treated as having received a distribution in redemption of his or her shares of North Coast Bank, N.A. common stock, subject to the provisions and limitations of Section 302 of the Internal Revenue Code. Those North Coast Bank, N.A. shareholders who receive solely cash, who immediately after the merger hold no shares of American River Holdings common stock directly or through the application of Section 318 of the Internal Revenue Code, and thus whose interests are completely terminated within the meaning of Section 302(b)(3) of the Internal Revenue Code, will be treated as receiving a cash distribution in full payment for the shares of North Coast Bank, N.A. common stock as provided in Section 302(a) of the Internal Revenue Code. Gain or loss will be recognized to such North Coast Bank, N.A. shareholders measured by the difference between the redemption price and the adjusted basis of the shares of North Coast Bank, N.A. common stock. If the North Coast Bank, N.A. shareholder holds such shares of North Coast Bank, N.A. common stock as a capital asset, such gain or loss will be a capital gain or loss; (f) no gain or loss will be recognized by the holders of nonqualified options to buy shares of North Coast Bank, N.A. common stock upon the conversion of those options into nonqualified options to buy shares of American River Holdings common stock under the same terms and conditions as in effect immediately prior to the merger; and (g) the substitution of incentive stock options to acquire shares of American River Holdings common stock for incentive stock options to acquire shares of North Coast Bank, N.A. common stock will not be a modification as defined in
Section 424(h)(3) of the Internal Revenue Code, and will not result in the recognition of income, gain, or loss to the holders of the incentive stock options to acquire shares of North Coast Bank, N.A. common stock. Such options to acquire shares of American River Holdings common stock will be incentive stock options as defined in Section 422(b) of the Internal Revenue Code;
o American River Holdings must receive a letter from American River Holdings' independent accountants that no conditions exist that would preclude accounting for the merger as a pooling-of-interests and North Coast Bank, N.A. must receive a letter from North Coast Bank, N.A.'s independent accountants to the effect that no conditions exist that would preclude North Coast Bank, N.A. from being a party to a business combination to be accounted for as a pooling-of-interests. In addition, no determination by any court, governmental or regulatory agency must have been made that the merger fails or will fail to qualify for pooling-of-interests accounting treatment;
o each party must have received an opinion from its financial advisor, dated within three days prior to the date this joint proxy statement/prospectus is mailed to you, to the effect that the conversion ratio is fair, from a financial point of view, to that party and its shareholders, and the opinion must not have been withdrawn prior to the effective time of the merger. Hoefer & Arnett Incorporated is the financial advisor to American River Holdings and Seapower Carpenter Capital, Inc., dba Carpenter and Company is the financial advisor to North Coast Bank, N.A. and the parties have received their respective opinions;
o the representations and warranties that each of us have made in the merger agreement must remain true and correct in all material respects as of the closing date and effective time of the merger; and each of us must have performed and complied, in all material respects, with all of the agreements we made in the merger agreement at or prior to the effective time of the merger;
o each party must have received a certificate signed by the other party's president and chief financial officer to the effect that the representations and warranties of each party set forth in the merger agreement, subject to the disclosure schedules delivered by each party to the other party on or prior to the closing date, are true and correct in all material respects as of the closing date;
o holders of not more than nine percent (9%) of the outstanding shares of North Coast Bank, N.A. common stock and American River Holdings common stock will have perfected their dissenter's rights in the manner required by the National Bank Act and the rules and regulations of the Office of the Comptroller of the Currency, and under Chapter 13 of the California General Corporation Law, as applicable;
o each party must have received from the other party the certificates and other closing documents that their counsel reasonably requires in order to close the merger;
o we must have received signed affiliate agreements from each person who, in our opinion, might be deemed to be an affiliate of North Coast Bank, N.A. or American River Holdings under Rule 144 or Rule 145 of the Securities Act of 1933, as amended. The affiliate agreements include provisions restricting specified actions by the affiliates of American River Holdings and North Coast Bank, N.A., including the purchase, sale or other transfer of shares of American River Holdings common stock or North Coast Bank, N.A. common stock
in a manner that could prevent the merger from qualifying for pooling-of-interests accounting treatment; and
o our boards of directors and executive officers must have delivered to us signed shareholder agreements, under which they agree to vote their shares of American River Holdings common stock and North Coast Bank, N.A. common stock, respectively, in favor of the merger, and to recommend to shareholders that they also vote in favor of the merger.
The obligation of American River Holdings to consummate the merger is subject to the following additional conditions:
o no material adverse change must have occurred since December 31, 1999, in the business, financial condition, results of operations or assets of North Coast Bank, N.A., and North Coast Bank, N.A. must not have become a party to or threatened with any litigation or governmental proceeding that was not previously disclosed to American River Holdings;
o American River Holdings must have received a legal opinion from Lillick & Charles LLP, counsel to North Coast Bank, N.A., dated the effective date and in form and substance reasonably acceptable to American River Holdings and its counsel;
o American River Holdings must have received, on or before the effective date of the registration statement, a comfort letter on North Coast Bank, N.A. financial information as of March 31, 2000, and for the three month period then ended from North Coast Bank, N.A.'s independent public accountants, prepared in accordance with Statement of Accounting Standards No. 71, Interim Financial Information, and in form and substance satisfactory to American River Holdings and its counsel;
o not later than five business days prior to the effective date, North Coast Bank, N.A. will have furnished to American River Holdings a copy of its most recently prepared unaudited month-end consolidated financial statements for the month ended at least 10 business days prior to the effective date;
o North Coast Bank, N.A. must have received, or American River Holdings must be satisfied that North Coast Bank, N.A. will receive, all consents from third parties as may be required to close the merger, and the consents must remain in effect at the closing date; and
o as of the determination date, the closing date and the effective date, North Coast Bank, N.A. must have (a) total shareholders' equity and leverage, tier 1 and total risk-based capital ratios, respectively, in amounts required to comply with the "well-capitalized" category of applicable federal banking regulations, (b) total reserves for losses on outstanding loans in compliance with the North Coast Bank, N.A. loan loss policy and procedures and at a level which, in the reasonable determination of American River Holdings, are adequate for regulatory purposes and for purposes of generally accepted accounting principles, (c) total shareholders' equity of $4,030,000, and (d) assets classified as "Substandard", "Doubtful", and "Loss" shall not exceed 15% of total shareholders' equity.
The obligation of North Coast Bank, N.A. to consummate the merger is subject to the following additional conditions:
o no material adverse change must have occurred since December 31, 1999, in the business, financial condition, results of operations or assets of American River Holdings and American
River Bank, taken together, and American River Holdings must not have become a party to or threatened with any litigation or governmental proceeding which, in North Coast Bank, N.A.'s reasonable judgment, could have a material adverse effect on the business, financial condition, results of operations or assets of American River Holdings and American River Bank taken together;
o North Coast Bank, N.A. must have received a legal opinion from Coudert Brothers, counsel to American River Holdings, dated the effective date of the merger and in form and substance reasonably acceptable to North Coast Bank, N.A. and its counsel;
o North Coast Bank, N.A. must have received, on or before the effective date of the registration statement, a comfort letter on American River Holdings financial information as of March 31, 2000, and for the three month period then ended from American River Holdings' independent public accountants, prepared in accordance with Statement of Accounting Standards No. 71, Interim Financial Information, and in form and substance satisfactory to North Coast Bank, N.A. and its counsel;
o not later than five business days prior to the effective date, American River Holdings will have furnished to North Coast Bank, N.A. a copy of its most recently prepared unaudited month-end consolidated financial statements for the month ended at least 10 business days prior to the effective date of the merger; and
o American River Holdings must have received, or North Coast Bank, N.A. must be satisfied that American River Holdings will receive, all consents from third parties as may be required to close the merger, and the consents must remain in effect at the closing date; and
o as of the determination date, closing date and effective date,
American River Holdings must have (a) total shareholders' equity
and leverage, tier 1 and total risk-based capital ratios,
respectively, in amounts required to comply with the "well
capitalized" category of applicable federal banking regulations,
(b) total reserves for losses on outstanding loans in compliance
with the American River Holdings loan loss policy and procedures
and at a level which, in the reasonable determination of North
Coast Bank, N.A., are adequate for regulatory purposes and for
purposes of generally accepted accounting principles, and (c)
total shareholders' equity of $16,700,000.
TERMINATION OF THE MERGER AGREEMENT
We can agree at any time to terminate the merger agreement without completing the merger, even if the shareholders of both American River Holdings and North Coast Bank, N.A. have approved it. Also, the merger agreement can be terminated either by our mutual agreement or by one of us if specified events occur. If the merger agreement is terminated, the merger will not occur.
Either American River Holdings or North Coast Bank, N.A. can terminate the merger agreement if any of the following events occurs:
o if the merger is not completed by September 30, 2000 or another date that we approve; provided, however, that if the only conditions to the closing that remain unsatisfied at September 30, 2000 (or other date that we approve) are the receipt of any requisite governmental approvals or the expiration of any legally required waiting periods, then the closing will be automatically extended to November 30, 2000 or other date we approve;
o thirty days after any governmental agency denies or refuses to grant an approval, consent or qualification that is required for the merger, unless we agree, during the 30 day period, to appeal the denial or refusal or we agree to file an amended application for the governmental approval, consent or qualification; and
o the shareholders of either American River Holdings or North Coast Bank, N.A. fail to approve the merger agreement and related transactions, including the merger, by the required vote.
American River Holdings can elect to terminate the merger agreement if any of the following events occur:
o any of the conditions to American River Holdings' obligations to complete the merger under the merger agreement have not been satisfied or waived by September 30, 2000 (or other date that we may approve);
o a material adverse change has occurred since December 31, 1999 in the business, financial condition, results of operations or assets of North Coast Bank, N.A.;
o North Coast Bank, N.A. or any of its affiliates enters into a transaction or series of transactions with one or more third persons providing for the acquisition of all or a substantial part of North Coast Bank, N.A. or its subsidiaries, whether by way of merger, exchange or stock, sale of assets, or otherwise;
o North Coast Bank, N.A. breaches or fails to satisfy any of its agreements in the merger agreement which would materially impair the benefits reasonably expected to be derived by American River Holdings and American River Bank from the merger, unless the breach or failure is waived by American River Holdings or cured by North Coast Bank, N.A. within 45 days after American River Holdings gives North Coast Bank, N.A. written notice of the breach or failure; and
o North Coast Bank, N.A. fails to deliver to American River Holdings the shareholder agreements, affiliates agreements, officer's certificate or opinion of North Coast Bank, N.A.'s legal counsel which are required by the merger agreement or if those documents are not in a form that is reasonably acceptable to American River Holdings.
North Coast Bank, N.A. can elect to terminate the merger agreement if any of the following events occur:
o any of the conditions to North Coast Bank, N.A.'s obligations to complete the merger under the merger agreement have not been satisfied or waived by September 30, 2000 (or other date that we may approve);
o a material adverse change has occurred since December 31, 1999 in the business, financial condition, results of operations or assets of American River Holdings and its subsidiaries, taken as a whole;
o American River Holdings solicits or accepts any offer from any third party providing for the acquisition of all or a substantial part of American River Holdings or American River Bank, whether by way of merger, exchange or stock, sale of assets, or otherwise, unless the offer is
expressly conditioned on the performance by American River Holdings or its successor of American River Holdings' obligations under the merger agreement;
o American River Holdings breaches or fails to satisfy any of its agreements in the merger agreement which would materially impair the benefits reasonably expected to be derived by North Coast Bank, N.A. from the merger, unless the breach or failure is waived by North Coast Bank, N.A. or cured by American River Holdings within 45 days after North Coast Bank, N.A. gives American River Holdings written notice of the breach or failure; and
o American River Holdings fails to deliver to North Coast Bank, N.A. the shareholder agreements, affiliates agreements, officer's certificate or opinion of American River Holdings' legal counsel which are required by the merger agreement or if those documents are not in a form that is reasonably acceptable to North Coast Bank, N.A.
Any termination must be made by written notice from the party seeking termination to the other party. In the event the merger agreement is terminated, it will become void and have no effect, except that the termination will not affect the provisions regarding payment of expenses, confidentiality, payment of any termination fees if applicable or any relevant general provisions of the merger agreement. Also, if the merger agreement is terminated due to a party's breach, the termination will not relieve the breaching party from its liability and the non-breaching party will retain all of its legal rights and remedies against the breaching party for its breach.
TERMINATION FEES
North Coast Bank, N.A. is required to pay American River Holdings the amounts described below as liquidated damages if American River Holdings terminates the merger agreement for any of the following reasons:
o $1 million dollars if North Coast Bank, N.A. or its affiliates enters into an agreement by which North Coast Bank, N.A. or its subsidiaries would be acquired by another entity;
o $500 thousand dollars if North Coast Bank, N.A. breaches any covenant in the merger agreement which materially impairs the benefit of the merger to American River Holdings, unless North Coast Bank, N.A. cures the breach within 45 days after written notice from American River Holdings; or
o $500 thousand dollars if North Coast Bank, N.A. willfully or deliberately refuses to deliver to American River Holdings closing documents required by the merger agreement.
American River Holdings is required to pay North Coast Bank, N.A. the amounts described below as liquidated damages if North Coast Bank, N.A. terminates the merger agreement for any of the following reasons:
o $1 million dollars if American River Holdings solicits or accepts an offer from a third party to acquire American River Holdings or American River Bank and the offer does not require American River Holdings or the third party to comply with the merger agreement;
o $500 thousand dollars if American River Holdings breaches any covenant in the merger agreement which materially impairs the benefit of the merger to North Coast Bank, N.A., unless American River Holdings cures the breach within 45 days after written notice from North Coast Bank, N.A.; or
o $500 thousand dollars if American River Holdings willfully or deliberately refuses to deliver to North Coast Bank, N.A. closing documents required by the merger agreement.
FEES AND EXPENSES OF THE MERGER
Other than in the situations described in "Termination Fees" on page
126. and in the following paragraphs, whether or not the merger is completed in
accordance with the merger agreement, all costs and expenses incurred in
connection with the merger agreement and the transactions covered by the merger
agreement will be paid by the party incurring those expenses.
American River Holdings and North Coast Bank, N.A. will each bear the costs of distributing this joint proxy statement/prospectus and other proxy materials and information relating to the merger agreement to its shareholders and of conducting a meeting of its shareholders, but each party will pay one-half of the (1) printing costs, (2) the fees and costs related to obtaining a tax opinion, (3) the fees and costs related to obtaining a letter from their independent accountants regarding pooling-of-interests accounting treatment, (4) all fees and costs payable under state "blue sky" securities laws, (5) the fee required to be paid to the Securities and Exchange Commission to register the shares of American River Holdings common stock, (6) the fees and costs related to any amendments to the American River Holdings 1995 Stock Option Plan or for the preparation of a new American River Holdings stock option plan for the North Coast Bank, N.A. optionees, and (7) the fees related to preparation and filing of applications to governmental agencies for approval of the merger agreement and merger.
The fees and costs related to the listing of the shares of American River Holdings common stock for trading on the Nasdaq National Market will be paid by American River Holdings.
AMENDMENT
The merger agreement may be amended by the parties at any time before or after approval of the merger agreement by the shareholders of American River Holdings and North Coast Bank, N.A. However, after the approval by the shareholders of American River Holdings and North Coast Bank, N.A., no amendment will be made which by law requires further approval by those shareholders without that further approval. The merger agreement may not be amended except by an instrument in writing signed on behalf of each of the parties.
EXTENSION; WAIVER
At any time prior to the closing of the merger, the parties, by action taken or authorized by their respective board of directors, may, to the extent legally allowed, (1) extend the time for the performance of any of the obligations or other acts of the other parties, (2) waive any inaccuracies in the representations and warranties contained in the merger agreement or in any document delivered under it, and (3) waive compliance with any of the agreements or conditions contained in the merger agreement. To "waive" means to give up rights.
Any agreement on the part of a party to the merger agreement to any extension or waiver will be valid only if set forth in a written instrument signed on behalf of the party.
MANAGEMENT AND OPERATIONS FOLLOWING THE MERGER
Upon the consummation of the merger, the separate corporate existence
of North Coast Bank, N.A. will cease and North Coast Bank, N.A. will be merged
with and into ARH Interim National Bank. All rights, franchises and interests of
North Coast Bank, N.A. will be assumed by and vested in ARH Interim National
Bank and the resulting bank will continue as a subsidiary of American River
Holdings
with the national bank charter number and name of North Coast Bank, N.A. The directors and executive officers of North Coast Bank, N.A. prior to the effective date will be the directors and executive officers of North Coast Bank, N.A. following the merger, except that (a) two of the existing directors of American River Holdings, David T. Taber and Dr. Roger J. Taylor, will become directors of the resulting national banking association, (b) two North Coast Bank, N.A. directors, M. Edgar Deas and Larry L. Wasem, will be added to the board of directors of American River Holdings, and (c) Kathy A. Pinkard, President and Chief Executive Officer of North Coast Bank, N.A., will be appointed to serve on the executive management committee of American River Holdings.
REQUIRED REGULATORY APPROVALS
The merger must be approved by the Board of Governors of the Federal Reserve System under the provisions of the Bank Holding Company Act of 1956, as amended. American River Holdings intends to file an application with the Board of Governors for approval of the merger. The application will address all of the statutory and regulatory requirements of the Board of Governors.
In conducting a review of any application for a merger, the Board of Governors is required to consider the financial and managerial resources (including the competence, experience and integrity of the officers, directors and principal shareholders) and future prospects of the banks concerned and the convenience and needs of the community to be served. The Bank Holding Company Act also prohibits the Board of Governors from approving a merger if it would result in a monopoly or be in furtherance of any combination or conspiracy to monopolize or to attempt to monopolize the business of banking in any part of the United States, or if its effect would be substantially to lessen competition or to tend to create a monopoly, or if it would in any other manner result in a restraint of trade, unless the Board of Governors finds that the anticompetitive effects of the merger are clearly outweighed in the public interest by the probable effect of the merger in meeting the convenience and needs of the communities to be served. In addition, the Board of Governors has the authority to deny an application if it concludes that the requirements of the Community Reinvestment Act of 1977, as amended, are not satisfied.
A transaction approved by the Board of Governors may not be consummated for at least 30 days (in some circumstances a 15-day waiting period is allowed) after the approval. During that period, the Department of Justice may commence a legal action challenging the transaction under federal antitrust laws. If the Department of Justice does not commence a legal action during the 30-day period (in some circumstances a 15-day waiting period is allowed), it may not thereafter challenge the transaction except in an action commenced under the antimonopoly provisions of Section 2 of the Sherman Antitrust Act.
The Bank Holding Company Act provides for the publication of notice and the opportunity for administrative hearings relating to an application for approval under the Act and authorizes the Board of Governors to permit interested parties to intervene in the proceedings. If an interested party is permitted to intervene, the intervention could substantially delay the regulatory approval required for consummation of the merger.
The merger of North Coast Bank, N.A. and ARH Interim National Bank is subject to the prior approval of the Office of the Comptroller of the Currency under Section 18(c) of the Federal Deposit Insurance Act, as amended (the "Bank Merger Act") and Section 215a of the National Bank Act, as amended. American River Holdings intends to file an application for approval of the merger with the Office of the Comptroller of the Currency.
The application filed with the Office of the Comptroller of the Currency will include an application for approval to organize an interim national bank, named ARH Interim National Bank. Interim national banks are federally chartered banks established to facilitate interim bank mergers and
they do not operate as banks in their own right. Nonetheless, they must comply with chartering and organization requirements. The directors of American River Holdings are the organizers of ARH Interim National Bank and they will serve as its board of directors. Upon receipt of preliminary approval to organize, the organizers of ARH Interim National Bank will file articles of association with the Office of the Comptroller of the Currency and will comply with the other conditions stated in the preliminary approval. Once organized, ARH Interim National Bank is expected to become a party to the merger agreement by entering into an addendum with American River Holdings and North Coast Bank, N.A. With the approval of the Office of the Comptroller of the Currency, North Coast Bank, N.A. is expected to merge into ARH Interim National Bank pursuant to a bank merger agreement, as described in the merger agreement.
The Bank Merger Act requires the Office of the Comptroller of the Currency, when approving a transaction like the merger, to take into consideration the financial and managerial resources (including the competence, experience and integrity of the officers, directors and principal shareholders) and future prospects of the existing and proposed institutions and the convenience and needs of the communities to be served. In considering financial resources and future prospects, the Office of the Comptroller of the Currency will, among other things, evaluate the adequacy of the capital levels of the parties to a proposed transaction and of the resulting institutions.
The Bank Merger Act prohibits the Office of the Comptroller of the Currency from approving a merger if it would result in a monopoly or be in furtherance of any combination or conspiracy to monopolize or to attempt to monopolize the business of banking in any part of the United States, or if its effect in any section of the country would be substantially to lessen competition or to tend to create a monopoly, or if it would in any other manner result in a restraint of trade, unless the Office of the Comptroller of the Currency finds that the anti-competitive effects of the merger are clearly outweighed in the public interest by the probable effect of the transaction in meeting the convenience and needs of the communities to be served. In addition, under the Community Reinvestment Act, the Office of the Comptroller of the Currency must take into account the record of performance of the existing institutions in meeting the credit needs of the entire community, including low- and moderate-income neighborhoods, served by those institutions.
The Office of the Comptroller of the Currency will furnish notice and a copy of the application for approval of the merger to the Board of Governors, the Federal Deposit Insurance Corporation and the United States Department of Justice. These agencies have 30 days to submit their views and recommendations to the Office of the Comptroller of the Currency. The Bank Merger Act also provides for the publication of notice and public comment on applications filed with the Office of the Comptroller of the Currency and authorizes the agency to permit interested parties to intervene in the proceedings. If an interested party is permitted to intervene, the intervention could delay the regulatory approvals required for completion of the merger.
Under the merger agreement, prior to the merger, all governmental approvals required for the merger will be in effect, and all conditions or requirements prescribed by law or any governmental approval will be satisfied. However, no governmental approval will be deemed to have been received if it will require the divestiture or cessation of any of the present businesses or operations conducted by the parties or imposes any condition or requirement which, in the reasonable opinion of the board of directors of American River Holdings is deemed to be materially burdensome.
The merger cannot proceed in the absence of the necessary regulatory
approvals. The respective managements of American River Holdings and North Coast
Bank, N.A. believe that the merger should be approved by the Board of Governors
and the Office of the Comptroller of the Currency and the merger should not be
subject to challenge by the Department of Justice under federal antitrust laws.
However,
no assurance can be provided that the Board of Governors, the Office of the Comptroller of the Currency or the Department of Justice will concur in this assessment or that, in connection with the grant of any approval by the Board of Governors or the Office of the Comptroller of the Currency, action taken, or statute, rule, regulation or order enacted, entered, enforced or deemed applicable to the merger or transactions contemplated thereby, will not contain conditions or requirements which are materially burdensome as further described in the merger agreement. If any materially burdensome condition or requirement is imposed in connection with a governmental approval, a condition to American River Holdings' obligation to consummate the merger will be deemed not to have occurred and American River Holdings will have the right to terminate the merger agreement.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the material United States federal income tax consequences of the merger. The discussion does not address all aspects of United States federal taxation that may be relevant to you, and it may not be applicable to North Coast Bank, N.A. shareholders who, for United States federal income tax purposes, are nonresident alien individuals, foreign corporations, foreign partnerships, foreign trusts or foreign estates, or who acquired their North Coast Bank, N.A. common stock by the exercise of North Coast Bank, N.A. stock options or otherwise as compensation. YOU SHOULD CONSULT YOUR OWN TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES TO YOU OF THE MERGER.
This discussion is based on the Internal Revenue Code of 1986, as amended, regulations thereunder, current administrative rulings and practice, and judicial precedent, all of which are subject to change. Any change, which may or may not be retroactive, could alter the tax consequences to you as discussed in this joint proxy statement/prospectus. This discussion assumes that you hold your North Coast Bank, N.A. common stock as a capital asset within the meaning of Section 1221 of the Internal Revenue Code.
American River Holdings' and North Coast Bank, N.A.'s obligation to complete the merger is conditioned upon American River Holdings and North Coast Bank, N.A. receiving an opinion of Perry-Smith LLP, based upon customary assumptions, exceptions and representations made by American River Holdings and North Coast Bank, N.A., to the effect that under federal income tax law and California income and franchise tax law:
o the merger will not result in any recognized gain or loss to American River Holdings or North Coast Bank, N.A.;
o except for any cash received in lieu of any fractional share, no gain or loss will be recognized by the holders of North Coast Bank, N.A. common stock who receive American River Holdings common stock in exchange for the North Coast Bank, N.A. common stock which they hold;
o the holding period of the American River Holdings common stock exchanged for North Coast Bank, N.A. common stock will include the holding period of the North Coast Bank, N.A. common stock for which it is exchanged, assuming the shares of North Coast Bank, N.A. common stock are capital assets in the hands of the holder thereof at the effective date;
o the basis of the American River Holdings common stock received in the exchange will be the same as the basis of the North Coast Bank, N.A. common stock for which it was exchanged, less any basis attributable to fractional shares for which cash is received; and
o a North Coast Bank, N.A. shareholder who dissents to the merger and receives cash for his or her North Coast Bank, N.A. common stock will be treated as having received a distribution in redemption of his or her North Coast Bank, N.A. common stock, subject to the provisions and limitations of Section 302 of the Internal Revenue Code. Those North Coast Bank, N.A. shareholders who receive solely cash, who immediately after the merger hold no shares of American River Holdings common stock directly or through the application of Section 318 of the Internal Revenue Code, and thus whose interests are completely terminated within the meaning of Section 302(b)(3) of the Internal Revenue Code, will be treated as receiving a cash distribution in full payment for the shares of North Coast Bank, N.A. common stock as provided in Section 302(a) of the Internal Revenue Code. Gain or loss will be recognized to such North Coast Bank, N.A. shareholders measured by the difference between the redemption price and the adjusted basis of the shares of North Coast Bank, N.A. common stock. If the North Coast Bank, N.A. shareholder holds such shares of North Coast Bank, N.A. common stock as a capital asset, such gain or loss will be a capital gain or loss.
o No gain or loss will be recognized by the holders of nonqualified options to buy shares of North Coast Bank, N.A. common stock upon the conversion of those options into nonqualified options to buy shares of American River Holdings common stock under the same terms and conditions as in effect immediately prior to the merger.
o The substitution of incentive stock options to acquire shares of American River Holdings common stock for incentive stock options to acquire shares of North Coast Bank, N.A. common stock will not be a modification as defined in Section 424(h)(3) of the Internal Revenue Code, and will not result in the recognition of income, gain, or loss to the holders of the incentive stock options to acquire shares of North Coast Bank, N.A. common stock. Such options to acquire shares of American River Holdings common stock will be incentive stock options as defined in Section 422(b) of the Internal Revenue Code.
Perry-Smith LLP has indicated that it expects to be able to deliver its tax opinion. Opinions are not binding on the Internal Revenue Service or the courts and no ruling has been or will be obtained from the Internal Revenue Service in connection with the merger.
THE FOREGOING IS A GENERAL DISCUSSION OF THE MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER AND IS INCLUDED FOR GENERAL INFORMATION ONLY. THE FOREGOING DISCUSSION DOES NOT TAKE INTO ACCOUNT THE PARTICULAR FACTS AND CIRCUMSTANCES OF YOUR STATUS AND ATTRIBUTES. AS A RESULT, THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES ADDRESSED IN THE FOREGOING DISCUSSION MAY NOT APPLY TO YOU. IN VIEW OF THE INDIVIDUAL NATURE OF INCOME TAX CONSEQUENCES, YOU ARE URGED TO CONSULT YOUR OWN TAX ADVISOR TO DETERMINE THE SPECIFIC TAX CONSEQUENCES TO YOU OF THE MERGER, INCLUDING THE APPLICATION AND EFFECT OF UNITED STATES FEDERAL, STATE, LOCAL AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN UNITED STATES FEDERAL AND OTHER TAX LAWS.
ACCOUNTING TREATMENT
For accounting and financial reporting purposes, the merger is expected to qualify as a pooling of interests of North Coast Bank, N.A. by American River Holdings under generally accepted accounting principles. Under the pooling of interests accounting method, American River Holdings will carry forward on its books the assets and liabilities of North Coast Bank, N.A. at their historical recorded values, subject to any adjustments required to conform the accounting policies and financial statement classification of the two companies. Income of the combined American River Holdings will include income of American River Holdings and North Coast Bank, N.A. for the entire fiscal year in which the combination occurs and the reported income, assets, liabilities and shareholders' equity of the separate
companies for previous periods will be combined and restated as income, assets, liabilities and shareholders' equity of American River Holdings. The unaudited pro forma combined financial information contained in this joint proxy statement/prospectus have been prepared using the pooling of interests method of accounting to account for the merger. See "Summary--Selected Historical and Pro Forma Financial Data" on page 12 and "Unaudited Pro Forma Condensed Combined Financial Information" on page 136.
TRADING MARKETS FOR STOCK
The American River Holdings common stock is not listed on any exchange and is quoted on the OTC Bulletin Board under the symbol "AMRB.OB." American River Holdings will take the action necessary to apply for the listing of shares of American River Holdings common stock (including the shares to be issued in the merger and the shares of American River Holdings common stock to be reserved for issuance upon the exercise of existing North Coast Bank, N.A. stock options) to be approved for trading on the Nasdaq National Market, subject to official notice of issuance, on or as soon as practicable following the effective time of the merger.
The North Coast Bank, N.A. common stock is not listed on any exchange and is quoted on the OTC Bulletin Board under the symbol "NCTA.OB." If the merger is consummated, American River Holdings will take action to cause the North Coast Bank, N.A. shares to cease to be quoted on the OTC Bulletin Board and public trading of the North Coast Bank, N.A. shares will cease.
RESALES OF AMERICAN RIVER HOLDINGS COMMON STOCK
The American River Holdings common stock issued in the merger will be freely transferable under the Securities Act of 1933, as amended, except for shares issued to any North Coast Bank, N.A. shareholder who may be deemed to be an "affiliate" of American River Holdings or North Coast Bank, N.A. for purposes of Rule 145 under the Securities Act of 1933, as amended. Each director and executive officer of North Coast Bank, N.A. is deemed to be an affiliate. Each North Coast Bank, N.A. director and each other person deemed to be an affiliate has entered into an agreement with American River Holdings providing that the person will not transfer any shares of American River Holdings common stock received in the merger, except in compliance with the Securities Act of 1933, as amended, and applicable rules thereunder.
DISSENTERS' RIGHTS
DISSENTERS' RIGHTS OF AMERICAN RIVER HOLDINGS SHAREHOLDERS
Dissenters' rights will be available to the shareholders of American
River Holdings in accordance with Chapter 13 of the California General
Corporation Law ("Chapter 13"). A copy of Chapter 13 is attached as Annex D to
this joint proxy statement/prospectus and should be read for more complete
information concerning dissenters' rights. If the merger is consummated,
shareholders of American River Holdings who dissent from the merger by complying
with the procedures set forth in Chapter 13 would be entitled to receive an
amount equal to the fair market value of their shares as of March 1, 2000, the
last business day before the public announcement of the merger. The bid, asked
and closing prices for American River Holdings common stock quoted on the OTC
Bulletin Board on March 1, 2000 were $12.50, $13.50, and $12.50, respectively.
THE REQUIRED PROCEDURE SET FORTH IN CHAPTER 13 MUST BE FOLLOWED EXACTLY OR ANY
DISSENTERS' RIGHTS MAY BE LOST. The information set forth below is a general
summary of dissenters' rights as they apply to American River Holdings
shareholders and is qualified in its entirety by reference to Annex D.
In order to be entitled to exercise dissenters' rights, the shares of American River Holdings common stock which are outstanding and are entitled to be voted at the annual meeting must not have been voted by the holder of such shares "FOR" the merger. Thus, any American River Holdings shareholder who wishes to dissent and executes and returns a proxy in the accompanying form or votes at the annual meeting must not vote "FOR" the merger. If the shareholder returns a proxy with instructions to vote "FOR" the merger, or votes in person or by proxy at the annual meeting "FOR" the merger, the shareholder will lose any dissenters' rights.
Furthermore, in order to preserve his or her dissenters' rights, an American River Holdings shareholder must make a written demand upon American River Holdings for the purchase of dissenting shares and payment to the shareholder of their fair market value, specifying the number of shares held of record by the shareholder and a statement of what the shareholder claims to be the fair market value of those shares as of March 1, 2000. The demand must be addressed to American River Holdings,1545 River Park Drive, Suite 107, Sacramento, California 95815; Attention: Corporate Secretary, and must be received by American River Holdings not later than 30 days after the date on which the written notice of approval described below is sent to shareholders who have not voted "FOR" approval of the merger. A vote "AGAINST" the merger does not constitute the written demand.
If the merger is approved by the shareholders, American River Holdings will have 10 days after the approval to send to those shareholders who have note voted "FOR" approval of the merger, a written notice of the approval accompanied by a copy of sections 1300 through 1304 of Chapter 13, a statement of the price determined by American River Holdings to represent the fair market value of the dissenting shares as of March 1, 2000, and a brief description of the procedure to be followed if a shareholder desires to exercise dissenters' rights. Within 30 days after the date on which the notice of the approval of the merger is mailed, the dissenting shareholder must surrender to American River Holdings, at the office designated in the notice of approval, both the written demand and the certificates representing the dissenting shares to be stamped or endorsed with a statement that they are dissenting shares or to be exchanged for certificates of appropriate denomination so stamped or endorsed. Any shares of American River Holdings common stock that are transferred prior to their submission for endorsement lose their status as dissenting shares.
If American River Holdings and the dissenting shareholder agree that the surrendered shares are dissenting shares and agree upon the price of the shares, the dissenting shareholder will be entitled to the agreed price with interest thereon at the legal rate on judgments from the date of the agreement. Payment of the fair market value of the dissenting shares will be made within 30 days after the amount thereof has been agreed upon or 30 days after any statutory or contractual conditions to the merger have been satisfied, whichever is later, subject to the surrender of the certificates therefor, unless provided otherwise by agreement.
If American River Holdings denies that the shares surrendered are dissenting shares, or American River Holdings and the dissenting shareholder fail to agree upon a fair market value of the shares of American River Holdings common stock, then the dissenting shareholder of American River Holdings must, within six months after the notice of approval is mailed, file a complaint at the Superior Court of the proper county requesting the court to make the determinations or intervene in any pending action brought by any other dissenting shareholder. If the complaint is not filed or intervention in a pending action is not made within the specified six-month period, the dissenters' rights are lost. If the fair market value of the dissenting shares is at issue, the court will determine, or will appoint one or more impartial appraisers to determine, the fair market value.
A dissenting shareholder may not withdraw his or her dissent or demand for payment unless American River Holdings consents to the withdrawal.
DISSENTERS' RIGHTS OF NORTH COAST BANK, N.A. SHAREHOLDERS
If the merger agreement is approved by the required vote of North Coast Bank, N.A. shareholders, and is not abandoned or terminated, shareholders of North Coast Bank, N.A. who voted "AGAINST" the merger or who give notice in writing at or prior to the special meeting that the shareholder dissents, may be entitled to dissenters' rights under Section 215a(b),(c) and (d) of Title 12 of the United States Code. A copy of Section 215a(b), (c) and (d) and Office of the Comptroller of the Currency Banking Circular 259 are attached as Annex E to this joint proxy statement/prospectus and should be read for more complete information concerning dissenters' rights. Banking Circular 259 describes the specific requirements of the appraisal process conducted by the Office of the Comptroller of the Currency discussed below and includes examples of appraisal results in various transactions. THE REQUIRED PROCEDURE SET FORTH IN SECTION 215A(b), (c) AND (d) OF TITLE 12 OF THE UNITED STATES CODE MUST BE FOLLOWED EXACTLY OR ANY DISSENTERS' RIGHTS MAY BE LOST. The information set forth below is a general summary of dissenters' rights as they apply to North Coast Bank, N.A. shareholders and is qualified in its entirety by reference to Annex E.
In order to be entitled to exercise dissenters' rights, a shareholder of North Coast Bank, N.A. must vote "AGAINST" the merger or give notice in writing at or prior to the special meeting that the shareholder dissents. Thus, any North Coast Bank, N.A. shareholder who executes and returns a proxy in the accompanying form and wishes to dissent, must specify that his or her shares are to be voted "AGAINST" the merger. If the shareholder returns a proxy without voting instructions or with instructions to vote "FOR" the merger, his or her shares will automatically be voted in favor of the merger and the shareholder will lose any dissenters' rights. In addition, if the shareholder abstains from voting his or her shares, the shareholder will lose his or her dissenters' rights.
Furthermore, in order to preserve his or her dissenters' rights, a North Coast Bank, N.A. shareholder must make a written demand upon North Coast Bank, N.A. for the purchase of dissenting shares and payment to the shareholder of the fair market value. The written demand must be made prior to thirty days after the date of consummation of the merger, and be accompanied by the surrendered certificates representing the dissenting North Coast Bank, N.A. shareholders' interest in North Coast Bank, N.A. common stock. American River Holdings will mail notice of the date of consummation of the merger immediately after consummation to all dissenting North Coast Bank, N.A. shareholders, together with a letter of transmittal for their use in submitting their North Coast Bank, N.A. stock certificates to American River Holdings for payment. A vote "AGAINST" the merger does not constitute the required written demand.
The value of the North Coast Bank, N.A. common stock to be purchased by American River Holdings from dissenting North Coast Bank, N.A. shareholders will be determined as of the effective date of the merger, by an appraisal made by a committee of three persons, one selected by the majority vote of the dissenting North Coast Bank, N.A. shareholders, one by the directors of North Coast Bank, N.A. and one by the two so selected. The valuation agreed upon by any two of the three appraisers will govern. The appraisers will determine the value of any dissenting shares within ninety days from the date of consummation of the merger. In the event that any one or more appraiser is not selected or the appraisers fail to determine the value of the dissenting shares within this ninety day time period, any party may request an appraisal to be made by the Office of the Comptroller of the Currency, which appraisal will be final and binding on all parties.
If the valuation determined by the appraiser is unsatisfactory to any dissenting North Coast Bank, N.A. shareholder, that shareholder may appeal to the Office of the Comptroller of the Currency within five days after being notified of the appraised value of the shares. In this event, the Office of the Comptroller of the Currency will cause a reappraisal to be made and this reappraisal will be final and
binding as to the value of the shares of the appealing North Coast Bank, N.A. shareholder. The expenses of the Office of the Comptroller of the Currency incurred in making the appraisal or reappraisal, as the case may be, will be paid by the resulting bank in the merger.
UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL INFORMATION
The following Unaudited Pro Forma Condensed Combined Balance Sheet as of March 31, 2000 combines the historical consolidated balance sheets of American River Holdings and North Coast Bank, N.A. as if the merger had been effective on March 31, 2000, after giving effect to adjustments. These adjustments are based on estimates. The Unaudited Pro Forma Condensed Combined Statements of Operations for the three months ended March 31, 2000 and 1999 and for the years ended December 31, 1999, 1998 and 1997 present the combined results of operations of American River Holdings and North Coast Bank, N.A. as if the merger had been effective at the beginning of each period. The Unaudited Pro Forma Condensed Combined Financial Information has been prepared from, and should be read in conjunction with, the historical consolidated financial statements and notes thereto of American River Holdings and North Coast Bank, N.A.
The Unaudited Pro Forma Condensed Combined Financial Information and accompanying notes reflect the application of the pooling of interests method of accounting for the merger. Under this method of accounting, the recorded assets, liabilities, shareholders' equity, income and expenses of American River Holdings and North Coast Bank, N.A. are combined and reflected at their historical amounts.
The pro forma combined figures shown in the Unaudited Pro Forma Condensed Combined Financial Information are simply arithmetical combinations of American River Holdings' and North Coast Bank, N.A.'s separate financial results; you should not assume that American River Holdings and North Coast Bank, N.A. would have achieved the pro forma combined results if they had actually been combined during the periods presented.
THE COMBINED COMPANY EXPECTS TO ACHIEVE MERGER BENEFITS IN THE FORM OF OPERATING COST SAVINGS AND REVENUE ENHANCEMENTS. THE PRO FORMA EARNINGS, WHICH DO NOT REFLECT ANY DIRECT COSTS OR POTENTIAL SAVINGS WHICH ARE EXPECTED TO RESULT FROM THE CONSOLIDATION OF THE OPERATIONS OF AMERICAN RIVER HOLDINGS AND NORTH COAST BANK, N.A., ARE NOT INDICATIVE OF THE RESULTS OF FUTURE OPERATIONS. NO ASSURANCES CAN BE GIVEN WITH RESPECT TO THE ULTIMATE LEVEL OF EXPENSE SAVINGS OR REVENUE ENHANCEMENTS. FOR FURTHER EXPLANATION ABOUT THESE RISKS, READ THE INFORMATION UNDER "INFORMATION REGARDING FORWARD-LOOKING STATEMENTS" ON PAGE 21 AND "RISK FACTORS" ON PAGE 18.
AMERICAN RIVER HOLDINGS AND NORTH COAST BANK, N.A.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF MARCH 31, 2000
(IN THOUSANDS)
ARH
and NCB
ARH NCB Adjustments(1) Combined
--------- --------- ------------- ---------
ASSETS
Cash and cash equivalents:
Cash and due from banks $ 12,536 $ 2,862 $ - $ 15,398
Federal funds sold 1,150 3,150 (316) 3,984
--------- --------- --------- ---------
Total cash and cash equivalents 13,686 6,012 (316) 19,382
Interest bearing deposits in other financial 5,631 899 - 6,530
institutions
Securities:
Available for sale, at fair value 33,974 1,697 - 35,671
Held to maturity, at amortized cost 19,623 - - 19,623
Loans and leases, net of allowance for loan and
lease losses
and deferred fees 118,485 39,648 - 158,133
Premises and equipment, net of
accumulated depreciation and amortization 542 730 - 1,272
Accrued interest receivable 1,283 275 - 1,558
Intangibles 151 - - 151
Accounts receivable servicing receivables 2,280 - - 2,280
Other assets 1,674 284 - 1,958
--------- --------- --------- ---------
TOTAL ASSETS $ 197,329 $ 49,545 $ (316) $ 246,558
========= ========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Deposits:
Noninterest-bearing demand deposits $ 45,311 $ 9,098 $ 54,409
Interest-bearing deposits 131,018 35,247 - 166,265
--------- --------- --------- ---------
Total deposits 176,329 44,345 220,674
Other borrowings 2,115 1,000 3,115
Accrued expenses and other liabilities 1,485 106 - 1,591
--------- --------- --------- ---------
Total liabilities 179,929 45,451 225,380
SHAREHOLDERS' EQUITY:
Preferred stock - - - -
Common stock 6,722 1,889 - 8,611
Additional paid in capital - 1,827 - 1,827
Retained earnings 10,965 392 (316) 11,041
Accumulated other comprehensive loss, net of tax
(287) (14) - (301)
--------- --------- --------- ---------
Total shareholders' equity 17,400 4,094 (316) 21,178
--------- --------- --------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 197,329 $ 49,545 $ (316) $ 246,558
========= ========= ========= =========
|
AMERICAN RIVER HOLDINGS AND NORTH COAST BANK, N.A.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE THREE MONTH PERIOD ENDED MARCH 31, 2000
(IN THOUSANDS, EXCEPT PER SHARE DATA)
ARH
and NCB
ARH NCB Adjustments(1) Combined
---------- -------- -------------- ----------
INTEREST INCOME
Loans including fees $ 2,804 $ 1,000 $ - $ 3,804
Securities:
Taxable 711 19 - 730
Exempt from federal taxes 111 2 - 113
Dividends 16 4 - 20
Investments in time deposits 86 11 - 97
Federal funds sold 38 21 - 59
---------- -------- --------- ----------
TOTAL INTEREST INCOME 3,766 1,057 - 4,823
---------- -------- --------- ----------
INTEREST EXPENSE
Interest on deposits 1,279 339 - 1,618
Other borrowings 38 15 - 53
---------- -------- --------- ----------
TOTAL INTEREST EXPENSE 1,317 354 - 1,671
---------- -------- --------- ----------
NET INTEREST INCOME 2,449 703 - 3,152
PROVISION FOR LOAN LOSSES 105 28 - 133
---------- -------- --------- ----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 2,344 675 - 3,019
---------- -------- --------- ----------
NONINTEREST INCOME
Service charges on deposit accounts 113 31 - 144
Other fees and charges 337 55 - 392
Gain on sale of available for sale securities 5 - - 5
---------- -------- --------- ----------
TOTAL NONINTEREST INCOME 455 86 - 541
---------- -------- --------- ----------
NONINTEREST EXPENSE
Salaries and employee benefits 935 252 - 1,187
Occupancy 111 72 - 183
Furniture and equipment expense 59 45 - 104
Professional fees 66 42 - 108
Advertising and promotion 36 26 - 62
Supplies 22 14 - 36
Outsourced item processing 68 51 - 119
Telephone and postage 53 11 - 64
Other 175 86 - 261
---------- -------- --------- ----------
TOTAL NONINTEREST EXPENSE 1,525 599 - 2,124
---------- -------- --------- ----------
INCOME BEFORE PROVISION FOR INCOME TAXES 1,274 162 - 1,436
Provision for income taxes 480 66 - 546
---------- -------- --------- ----------
NET INCOME $ 794 $ 96 $ - $ 890
========== ======== ========= ==========
EARNINGS PER SHARE:(2)
Basic $ 0.44 $ .20 $ - $ .40
========== ======== ========= ==========
Diluted $ 0.42 $ .19 $ - $ .38
========== ======== ========= ==========
Weighted average common shares outstanding-basic 1,793,274 472,354 (16,816) 2,248,812
========== ======== ========= ==========
Weighted average common shares and common share
equivalents outstanding-diluted 1,877,503 500,977 (17,835) 2,360,645
========== ======== ========= ==========
|
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1999
(IN THOUSANDS EXCEPT PER SHARE DATA)
ARH
and NCB
ARH NCB Adjustments(1) Combined
---------- -------- ------------- ----------
INTEREST INCOME
Loans including fees $ 2,649 $ 753 $ - $ 3,402
Securities:
Taxable 453 13 - 466
Exempt from federal taxes 63 2 - 65
Dividends 13 3 - 16
Investments in time deposits 72 6 - 78
Federal funds sold 32 48 - 80
---------- -------- ------- ----------
TOTAL INTEREST INCOME 3,282 825 - 4,107
---------- -------- ------- ----------
INTEREST EXPENSE
Interest on deposits 985 291 - 1,276
Other borrowings 34 - - 34
---------- -------- ------- ----------
OTAL INTEREST EXPENSE 1,019 291 - 1,310
---------- -------- ------- ----------
NET INTEREST INCOME 2,263 534 - 2,797
PROVISION FOR LOAN LOSSES 94 30 - 124
---------- -------- ------- ----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 2,169 504 - 2,673
---------- -------- ------- ----------
NONINTEREST INCOME
Service charges on deposit accounts 114 23 - 137
Other fees and charges 190 35 - 225
Gain on sale of available for sale securities - - - -
---------- -------- ------- ----------
TOTAL NONINTEREST INCOME 304 58 - 362
---------- -------- ------- ----------
NONINTEREST EXPENSE
Salaries and employee benefits 842 229 - 1,071
Occupancy 101 54 - 155
Furniture and equipment expense 59 44 - 103
Professional fees 35 18 - 53
Advertising and promotion 23 20 - 43
Supplies 30 16 - 46
Outsourced item processing 54 48 - 102
Telephone and postage 50 11 - 61
Other 186 63 - 249
---------- -------- ------- ----------
TOTAL NONINTEREST EXPENSE 1,380 503 - 1,883
---------- -------- ------- ----------
INCOME BEFORE PROVISION FOR INCOME TAXES 1,093 59 - 1,152
Provision for income taxes 420 22 - 442
---------- -------- ------- ----------
NET INCOME $ 673 $ 37 $ - $ 710
========== ======== ======= ==========
EARNINGS PER SHARE: (2)
Basic $ 0.37 $ .08 $ - $ .31
========== ======== ======= ==========
Diluted $ 0.35 $ .08 $ - $ .29
========== ======== ======= ==========
Weighted average common shares outstanding-basic 1,832,036 472,354 (16,816) 2,287,574
========== ======== ======= ==========
Weighted average common shares and common share
equivalents outstanding-diluted 1,946,703 491,088 (17,483) 2,420,308
========== ======== ======= ==========
|
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
ARH
and NCB
ARH NCB Adjustments(1) Combined
---------- -------- -------------- ----------
INTEREST INCOME
Loans including fees $ 10,543 $ 3,383 $ - $ 13,926
Securities:
Taxable 2,066 46 2,112
Exempt from federal taxes 330 9 - 339
Dividends 51 14 - 65
Investments in time deposits 290 46 - 336
Federal funds sold 299 152 - 451
---------- -------- -------- ----------
TOTAL INTEREST INCOME 13,579 3,650 - 17,229
---------- -------- -------- ----------
INTEREST EXPENSE
Interest on deposits 4,143 1,173 - 5,316
Other borrowings 137 22 - 159
---------- -------- -------- ----------
TOTAL INTEREST EXPENSE 4,280 1,195 - 5,475
---------- -------- -------- ----------
NET INTEREST INCOME 9,299 2,455 - 11,754
PROVISION FOR LOAN LOSSES 407 175 - 582
---------- -------- -------- ----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 8,892 2,280 - 11,172
---------- -------- -------- ----------
NONINTEREST INCOME
Service charges on deposit accounts 438 99 - 537
Other fees and charges 1,082 168 - 1,250
Gain on sale of available for sale securities - - - -
---------- -------- -------- ----------
TOTAL NONINTEREST INCOME 1,520 267 - 1,787
---------- -------- -------- ----------
NONINTEREST EXPENSE
Salaries and employee benefits 3,496 870 - 4,366
Occupancy 420 279 - 699
Furniture and equipment expense 257 200 - 457
Professional fees 165 64 - 229
Advertising 105 106 - 211
Supplies 121 71 - 192
Outsourced item processing 222 188 - 410
Telephone and postage 198 51 - 249
Other 759 338 - 1,097
---------- -------- -------- ----------
TOTAL NONINTEREST EXPENSE 5,743 2,167 - 7,910
---------- -------- -------- ----------
INCOME BEFORE PROVISION FOR INCOME TAXES 4,669 380 - 5,049
Provision for income taxes 1,768 153 - 1,921
---------- -------- -------- ----------
NET INCOME 2,901 227 - 3,128
========== ======== ======== ==========
EARNINGS PER SHARE:(2)
Basic $ 1.59 $ 0.48 $ - $ 1.37
========== ======== ======== ==========
Diluted $ 1.50 $ 0.46 $ - $ 1.30
========== ======== ======== ==========
Weighted average common shares outstanding - basic 1,820,013 472,354 (16,816) 2,275,551
========== ======== ======== ==========
Weighted average common shares and common share
equivalents outstanding-diluted 1,932,813 489,672 (17,432) 2,405,053
========== ======== ======== ==========
|
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
ARH
and NCB
ARH NCB Adjustments(1) Combined
----------- -------- ------------- ----------
INTEREST INCOME
Loans including fees $ 10,472 $ 2,610 $ - $ 13,082
Securities:
Taxable 1,867 146 - 2,013
Exempt from federal taxes 209 6 - 215
Dividends 63 12 - 75
Investments in time deposits 293 24 - 317
Federal funds sold 283 192 - 475
----------- --------- ---------- ----------
TOTAL INTEREST INCOME 13,187 2,990 - 16,177
----------- --------- ---------- ----------
INTEREST EXPENSE
Interest on deposits 4,318 973 - 5,291
Other borrowings 143 - - 143
----------- --------- ---------- ----------
TOTAL INTEREST EXPENSE 4,461 973 - 5,434
----------- --------- ---------- ----------
NET INTEREST INCOME 8,726 2,017 - 10,743
PROVISION FOR LOAN LOSSES 360 149 - 509
----------- --------- ---------- ----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 8,366 1,868 - 10,234
----------- --------- ---------- ----------
NONINTEREST INCOME
Service charges on deposit accounts 447 88 - 535
Other fees and charges 856 116 - 972
Gain on sale of available for sale securities - - - -
----------- --------- ---------- ----------
TOTAL NONINTEREST INCOME 1,303 204 - 1,507
----------- --------- ---------- ----------
NONINTEREST EXPENSE
Salaries and employee benefits 3,310 712 - 4,022
Occupancy 409 147 - 556
Furniture and equipment expense 289 154 - 443
Professional fees 158 77 - 235
Advertising 91 58 - 149
Supplies 118 45 - 163
Outsourced item processing 213 188 - 401
Telephone and postage 194 34 - 228
Other 818 202 - 1,020
----------- --------- ---------- ----------
TOTAL NONINTEREST EXPENSE 5,600 1,617 - 7,217
----------- --------- ---------- ----------
INCOME BEFORE PROVISION FOR INCOME TAXES 4,069 455 - 4,524
Provision for income taxes 1,564 109 - 1,673
----------- --------- ---------- ----------
NET INCOME (LOSS) $ 2,505 $ 346 $ - $ 2,851
=========== ========= ========== ==========
EARNINGS PER SHARE: (2)
Basic $ 1.37 $ 0.73 $ - $ 1.25
=========== ========= ========== ==========
Diluted $ 1.24 $ 0.70 $ - $ 1.14
=========== ========= ========== ==========
Weighted average common shares outstanding-basic 1,829,351 471,794 (16,796) 2,284,349
=========== ========= ========== ==========
Weighted average common shares and common share equivalents
outstanding-diluted 2,024,187 493,830 (17,580) 2,500,437
=========== ========= ========== ==========
|
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
ARH
and NCB
ARH NCB Adjustments(1) Combined
----------- -------- -------------- ---------
INTEREST INCOME
Loans including fees $ 9,352 $ 2,162 $ - $ 11,514
Securities:
Taxable 1,872 256 - 2,128
Exempt from federal taxes 150 - - 150
Dividends 61 12 - 73
Investments in time deposits 281 5 - 286
Federal funds sold 300 98 - 398
----------- --------- ---------- ----------
TOTAL INTEREST INCOME 12,016 2,533 - 14,549
----------- --------- ---------- ----------
INTEREST EXPENSE
Interest on deposits 4,201 753 - 4,954
Other borrowings 13 - - 13
----------- --------- ---------- ----------
TOTAL INTEREST EXPENSE 4,214 753 - 4,964
----------- --------- ---------- ----------
NET INTEREST INCOME 7,802 1,780 - 9,582
PROVISION FOR LOAN LOSSES 535 70 - 605
----------- --------- ---------- ----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 7,267 1,710 - 8,977
----------- --------- ---------- ----------
NONINTEREST INCOME
Service charges on deposit accounts 424 104 - 528
Other fees and charges 574 166 - 740
Gain on sale of available for sale securities - - - -
----------- --------- ---------- ----------
TOTAL NONINTEREST INCOME 998 270 - 1,268
----------- --------- ---------- ----------
NONINTEREST EXPENSE
Salaries and employee benefits 2,893 776 - 3,669
Occupancy 405 142 - 547
Furniture and equipment expense 335 157 - 492
Professional fees 141 76 - 217
Advertising 73 42 - 115
Supplies 122 48 - 170
Outsourced item processing 185 168 - 353
Telephone and postage 184 39 - 223
Other 648 186 - 834
----------- --------- ---------- ----------
TOTAL NONINTEREST EXPENSE 4,986 1,634 - 6,620
----------- --------- ---------- ----------
INCOME BEFORE PROVISION FOR INCOME TAXES 3,279 346 - 3,625
Provision for income taxes 1,278 - - 1,278
----------- --------- ---------- ----------
NET INCOME $ 2,001 $ 346 $ - $ 2,349
=========== ========= ========== ==========
EARNINGS PER SHARE: (2)
Basic $ 1.09 $ 0.73 $ - $ 1.02
=========== ========= ========== ==========
Diluted $ 0.99 $ 0.72 $ - $ .95
=========== ========= ========== ==========
Average common shares outstanding-basic 1,844,151 471,667 (16,791) 2,299,027
=========== ========= ========== ==========
Average common shares and common share equivalents
outstanding-diluted 2,016,475 481,845 (17,154) 2,481,166
=========== ========= ========== ==========
|
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(1) Merger Costs
The following table reflects all nonrecurring American River Holdings and North Coast Bank, N.A. incurred and estimated merger-related costs. Merger costs incurred as of March 31, 2000 have been expensed on the unaudited pro forma condensed combined statements of operations. Anticipated merger costs are included on the March 31, 2000 unaudited pro forma condensed combined balance sheets as a reduction to shareholders' equity, net of the related tax benefit. Merger costs will be charged to expense as incurred. These estimated merger costs are summarized below. The financial advisory costs do not include out-of-pocket expenses which may arise, but are not deemed to be material in amount.
ARH NCB Total
Financial advisory $ 20,000 $ 20,000 $ 40,000
Professional fees 250,000 200,000 450,000
Printing 20,000 20,000 40,000
Termination and severance benefits - - -
Other 5,000 - 5,000
-------- -------- --------
$295,000 $240,000 535,000
======== ======== --------
Estimated tax benefit 219,000
--------
Total $316,000
========
|
(2) Common Stock
American River Holdings and North Coast Bank, N.A. combined earnings per share and average outstanding shares and common share equivalents are calculated using the historical American River Holdings weighted average shares plus the historical North Coast Bank, N.A. weighted average shares adjusted by the conversion ratio of .9644.
MARKET PRICE AND DIVIDEND INFORMATION
MARKET QUOTATIONS
The American River Holdings common stock is not listed on any exchange and is quoted on the OTC Bulletin Board under the symbol "AMRB.OB." The North Coast Bank, N.A. common stock is not listed on any exchange and is quoted on the OTC Bulletin Board under the symbol "NCTA.OB." As of the record date, there were approximately ____ holders of record of American River Holdings common stock and approximately ____ holders of record of North Coast Bank, N.A. common stock.
The following table sets forth for American River Holdings common stock and North Coast Bank, N.A. common stock the high and low bid or closing prices and per share cash dividends declared for the quarters indicated, adjusted to reflect stock splits and stock dividends.
ARH NCB
------------------------------ -----------------------------
Common Stock Dividends Common Stock Dividends
High Low Declared High Low Declared
---- ----- ---------- ----- ---- ---------
1997
First Quarter ........................... $ 9.50 $ 7.85 $ - $ 7.00 $ 6.75 -
Second Quarter .......................... 11.06 9.21 .083 8.00 6.75 -
Third Quarter ........................... 13.25 10.80 - 9.63 9.00 -
Fourth Quarter .......................... 17.08 13.61 .091 10.38 9.75 -
1998
First Quarter ........................... $17.23 $16.25 $ - $11.00 $10.00 -
Second Quarter .......................... 20.56 16.33 .094 12.38 11.00 -
Third Quarter ........................... 18.75 16.33 - 12.50 12.38 -
Fourth Quarter .......................... 17.14 14.60 .101 12.38 11.00 -
1999
First Quarter ........................... $17.38 $14.92 $ - $11.38 $10.50 -
Second Quarter .......................... 16.98 15.24 .110 13.00 11.50 -
Third Quarter ........................... 17.38 15.36 - 10.00 8.50 -
Fourth Quarter .......................... 16.88 14.13 .120 10.38 8.75 -
2000
First Quarter ........................... $16.00 $11.00 $ - $11.75 $ 9.38 -
Second Quarter (through _______, 2000)
|
At the close of business on March 1, 2000, the last trading day immediately prior to the first public announcement of the merger, the bid, asked and closing prices for American River Holdings common stock on the OTC Bulletin Board were $12.50, $13.50, and $12.50, respectively.
At the close of business on March 1, 2000, the last trading day immediately prior to the first public announcement of the merger, there were no bid, asked or closing prices quoted for North Coast Bank, N.A. common stock on the OTC Bulletin Board. February 29, 2000 was the last day prior to the first public announcement of the merger when bid, asked and closing prices for shares of North Coast Bank, N.A. common stock were quoted on the OTC Bulletin Board. On that date, the bid, asked and closing prices for shares of North Coast Bank, N.A. common stock were $9.38, $10.25, and $9.50, respectively.
DIVIDENDS AND DIVIDEND POLICY
American River Holdings. American River Holdings' board of directors considers the advisability and amount of proposed dividends each year. Future dividends will be determined after consideration of American River Holdings' earnings, financial condition, future capital funds, regulatory requirements and other factors as the board of directors may deem relevant. American River Holdings' primary source of funds for payment of dividends to its shareholders will be receipt of dividends and management fees from American River Bank. The payment of dividends by a bank is subject to various legal and regulatory restrictions.
From 1992 through 1999, American River Holdings maintained a policy of paying semi-annual dividends to its shareholders. American River Holdings has declared and paid cash dividends on its outstanding shares of common stock totaling $0.174 per share in 1997, $0.195 per share in 1998 and $0.230 per share in 1999. It is the intention of American River Holdings to pay cash dividends, subject to the restrictions on the payment of cash dividends and depending upon the level of earnings, management's assessment of future capital needs and other factors considered by the American River Holdings board of directors.
Holders of American River Holdings common stock are entitled to receive dividends as and when declared by the board of directors of American River Holdings out of funds legally available therefor under the laws of the State of California. The California General Corporation Law provides that a corporation may make a distribution to its shareholders if the corporation's retained earnings equal at least the amount of the proposed distribution. The California General Corporation Law further provides that, in the event sufficient retained earnings are not available for the proposed distribution, a corporation may nevertheless make a distribution to its shareholders if, after giving effect to the distribution, it meets two conditions, which generally stated are as follows: (i) the corporation's assets must equal at least 125% of its liabilities; and (ii) the corporation's current assets must equal at least its current liabilities or, if the average of the corporation's earnings before taxes on income and before interest expense for the two preceding fiscal years was less than the average of the corporation's interest expense for those fiscal years, then the corporation's current assets must equal at least 125% of its current liabilities.
The Board of Governors of the Federal Reserve System 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 Board of Governors' 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.
Under the merger agreement, without the prior written consent of North Coast Bank, N.A., American River Holdings is prohibited from declaring or paying any dividends on or making other distributions in respect of any of its capital stock, except regular quarterly or semi-annual cash dividends in an amount substantially equivalent to cash dividends paid in the two years prior to the date of the merger agreement.
North Coast Bank, N.A. North Coast Bank, N.A.'s shareholders are entitled to receive dividends when and as declared by its board of directors, out of funds legally available therefor, subject to the restrictions set forth in the National Bank Act.
The payment of cash dividends by North Coast Bank, N.A. may be subject to the approval of the Office of the Comptroller of the Currency, as well as restrictions established by federal banking law and
the Federal Deposit Insurance Corporation. Approval of the Office of the Comptroller of the Currency is required if the total of all dividends declared by North Coast Bank, N.A.'s board of directors in any calendar year will exceed North Coast Bank, N.A.'s net profits for that year combined with its retained net profits for the preceding two years, less any required transfers to surplus or to a fund for the retirement of preferred stock. Additionally, the Federal Deposit Insurance Corporation and/or Office of the Comptroller of the Currency, might, under some circumstances, place restrictions on the ability of a bank to pay dividends based upon peer group averages and the performance and maturity of that bank.
North Coast Bank, N.A. has not paid cash dividends in 1997, 1998 and 1999. North Coast Bank, N.A. does not intend to pay cash or stock dividends prior to the closing of the transactions contemplated by the merger agreement.
Under the merger agreement, without the prior written consent of American River Holdings, North Coast Bank, N.A. is prohibited from declaring or paying any dividends on or making other distributions in respect of any of its capital stock, except regular quarterly or semi-annual cash dividends in an amount substantially equivalent to cash dividends paid in the two years prior to the date of the merger agreement.
COMPARISON OF SHAREHOLDER RIGHTS
GENERAL
American River Holdings is incorporated under and subject to the provisions of the California General Corporation Law. North Coast Bank, N.A. is a national banking association, organized under and subject to the National Bank Act.
Upon consummation of the merger, except for those persons, if any, who perfect dissenters' rights under the National Bank Act, the shareholders of North Coast Bank, N.A. will become shareholders of American River Holdings. See "Dissenters' Rights" on page 132.
American River Holdings is a California corporation and, accordingly, is governed by the California General Corporation Law and by its articles of incorporation and bylaws. North Coast Bank, N.A. is chartered by the Office of the Comptroller of the Currency and is governed by the National Bank Act, its articles of association and bylaws, which differ in some material respects from the American River Holdings articles and American River Holdings bylaws.
The following is a general comparison of similarities and material differences between the rights of American River Holdings and North Coast Bank, N.A. shareholders under their respective governing articles and bylaws. This discussion is only a summary of selected provisions and is not a complete description of the similarities and differences, and is qualified in its entirety by reference to the California General Corporation Law, the National Bank Act, the common law thereunder and the full text of the American River Holdings articles, American River Holdings bylaws, North Coast Bank, N.A. articles and North Coast Bank, N.A. bylaws.
ANTI-TAKEOVER MEASURES
The proposals to amend the articles and bylaws of American River Holdings to provide for the classification of the board of directors and the proposal to amend the articles and bylaws of American River Holdings to eliminate cumulative voting in the election of directors
may deter efforts to obtain control of American River Holdings on a basis which some shareholders might deem favorable. Those provisions are designed to encourage any person attempting a change in control of American River Holdings to enter into negotiations with the board of directors of American River Holdings. See "Proposal No. 3, Approval of Amendments to the American River Holdings Articles of Incorporation and Bylaws to Provide for the Classification of the Board of Directors" on page 160 and "Proposal No. 4, Approval of Amendments to the American River Holdings Articles of Incorporation and Bylaws to Eliminate Cumulative Voting in the Election of Directors" on page 164.
QUORUM REQUIREMENTS
Both the American River Holdings bylaws and the North Coast Bank, N.A. bylaws provide that the presence in person or by proxy of the holders of a majority of the shares entitled to vote at any meeting of the shareholders will constitute a quorum for the transaction of business.
INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS
Overview of California Law. Section 317 of the California General Corporation Law expressly grants to each California corporation the power to indemnify its directors, officers and agents against liabilities and expenses incurred in the performance of their duties. Rights to indemnification beyond those provided by Section 317 may be valid to the extent that the rights are authorized in the corporation's articles of incorporation. Indemnification may not be made, however, with respect to liability incurred in connection with any of the following acts for which the liability of directors may not be limited under the California General Corporation Law: (1) acts or omissions that involve intentional misconduct or a knowing and culpable violation of law; (2) acts or omissions that a director believes to be contrary to the best interests of the corporation or its shareholders or that involve the absence of good faith on the part of the director; (3) any transaction from which a director derived a personal benefit; (4) acts or omissions that show a reckless disregard for the director's duty to the corporation or its shareholders in circumstances in which the director was aware, or should have been aware, in the ordinary course of performing a director's duties, of a risk of serious injury to the corporation or its shareholders; (5) acts or omissions that constitute an unexcused pattern of inattention that amounts to an abdication of the director's duty to the corporation or its shareholders; (6) acts or omissions arising out of interested party transactions; or (7) acts in connection with illegal distributions, loans or guarantees.
With respect to all proceedings other than shareholder derivative actions, Section 317 permits a California corporation to indemnify any of its directors, officers or other agents only if the person acted in good faith and in a manner the person reasonably believed to be in the best interests of the corporation and, in the case of a criminal proceeding, had no reasonable cause to believe the conduct of the person was unlawful. In the case of derivative actions, a California corporation may indemnify any of its directors, officers or agents only if the person acted in good faith and in a manner the person believed to be in the best interests of the corporation and its shareholders. Furthermore, in derivative actions, no indemnification is permitted (1) with respect to any matter with respect to which the person to be indemnified has been held liable to the corporation, unless the indemnification is approved by the court; (2) of amounts paid in settling or otherwise disposing of a pending action without court approval; or (3) of expenses incurred in defending a pending action which is settled or otherwise disposed of without court approval. To the extent that a director, officer or agent of a corporation has been successful on the merits in defense of any proceeding for which indemnification is permitted by Section 317, a corporation is obligated by Section 317 to indemnify the person against expenses actually and reasonably incurred by him in connection with the proceeding.
American River Holdings. The American River Holdings articles eliminate the liability of its directors for monetary damages to the fullest extent permissible under California law and authorize American River Holdings to indemnify its directors, officers and agents through agreements with the persons, bylaw provisions, vote of shareholders or disinterested directors, or otherwise, in excess of the
indemnification otherwise permitted by Section 317, subject to applicable statutory prohibitions upon indemnification.
The American River Holdings articles and bylaws obligate American River Holdings to indemnify to the maximum extent permitted by California General Corporation Law its directors, officers and other agents against liabilities and expenses incurred in the performance of their duties, subject to the prohibitions of the California General Corporation Law.
American River Holdings maintains directors' and officers' liability insurance policies that indemnify its directors and officers against losses in connection with claims made against them for specified wrongful acts.
The American River Holdings bylaws entitle the directors of American River Holdings to be indemnified against liabilities and reasonable expenses incurred in connection with any claims brought against them by reason of the fact that they are or were directors. American River Holdings may pay expenses incurred in defending the proceedings specified above in advance of their final disposition, but such advance would be subject to receipt of an undertaking from the directors to return any amounts advanced to the extent that it is ultimately determined that they were not legally entitled to be indemnified by American River Holdings in the proceeding. The directors may also bring suit against American River Holdings to recover unpaid amounts claimed with respect to indemnification and any expenses incurred in bringing an action. While it is a defense to a suit that indemnification is prohibited by the California General Corporation Law, the burden of proving a defense is on American River Holdings.
North Coast Bank, N.A. The North Coast Bank, N.A. articles are substantially similar to the American River Holdings articles regarding elimination of the liability of its directors for monetary damages to the fullest extent permissible under California law and the power of indemnification in excess of the indemnification otherwise permitted by Section 317, subject to applicable statutory prohibitions upon indemnification and the restriction that no indemnification is available for expenses, penalties, or other payments incurred in an administrative proceeding or action instituted by an appropriate bank regulatory agency, which proceeding or action results in a final order assessing civil money penalties or requiring affirmative action by an individual or individuals in the form of payments to North Coast Bank, N.A.
The North Coast Bank, N.A. bylaws do not include indemnification provisions and they are exclusively covered in the North Coast Bank, N.A. articles. North Coast Bank, N.A. also maintains directors' and officers' liability insurance policies that indemnify its directors and officers against losses in connection with claims made against them for specified wrongful acts.
North Coast Bank, N.A. has entered into indemnity agreements with its directors which obligate North Coast Bank, N.A. to pay litigation expenses as well as judgments, fines, penalties and settlements, incurred in connection with any claims brought against them by reason of the fact that they are or were directors. Directors are indemnified against expenses, judgments, fines, penalties, settlements, and other amounts, actually and reasonably incurred in defending or settling the proceeding. The director must have acted in good faith and in a manner he or she reasonably believed to be in the best interests of North Coast Bank, N.A.
North Coast Bank, N.A. will advance expenses prior to the final disposition of a proceeding if the director agrees to repay advances to the extent it is ultimately determined that the director was not entitled to indemnification or, if required by law, if the director agrees to repay any advances received above those to which it is ultimately determined the director was entitled.
If legal action is brought to enforce the agreement, the prevailing party is entitled to recover attorneys' fees and court costs, in addition to any other amounts to which the prevailing party may be entitled.
Under the merger agreement, from and after the effective date, American River Holdings will indemnify and hold harmless each present or former officer or director of North Coast Bank, N.A. (determined as of the effective time) against all losses, claims, damages, liabilities, costs, expenses or judgments or amounts that are paid in the settlement of or in connection with any claim, action, suit, proceeding or investigation based on or arising out of (a) the fact that the person is or was a director or officer of North Coast Bank, N.A. and (b) the merger agreement or the transactions contemplated by the merger agreement, in each case to the full extent permitted by law.
Additionally, from and after the effective date, American River Holdings will include in its director and officer insurance policy persons who served as directors and officers of North Coast Bank, N.A. or obtain extended coverage under North Coast Bank, N.A.'s director and officer insurance policy to cover claims made for a period of three years after the effective date of the merger regarding acts or omissions of North Coast Bank, N.A.'s directors or officers prior to the effective date of the merger. However, American River Holdings will not be obligated to make annual premium payments for the insurance to the extent the premiums exceed 150% of the premiums paid by North Coast Bank, N.A. for the insurance, as previously disclosed to American River Holdings. If the premiums for the insurance would at any time exceed 150% of the premiums paid by North Coast Bank, N.A. for the insurance, then American River Holdings will maintain policies of insurance which, in American River Holdings' good faith determination, provide a maximum coverage available at an annual premium equal to 150% of the premiums paid by North Coast Bank, N.A. in respect of the insurance.
Overview of Federal Law. Federal law authorizes the Federal Deposit Insurance Corporation to limit, by regulation or order, the payment of indemnification by insured banks or bank holding companies to their directors and officers. The Federal Deposit Insurance Corporation has enacted a regulation that permits the payment of indemnification by banks and bank holding companies to institution-affiliated directors, officers and other parties only if specified requirements are satisfied. This regulation permits an institution to make an indemnification payment to, or for the benefit of, a director, officer or other party only if the institution's board of directors, in good faith, certifies in writing that the individual has a substantial likelihood of prevailing on the merits and that the payment of indemnification will not adversely affect the institution's safety and soundness. An institution's board of directors is obligated to cease making or authorizing indemnification payments in the event that it believes, or reasonably should believe, that the conditions discussed in the preceding sentence are no longer being met. Further, an institution's board of directors must provide the Federal Deposit Insurance Corporation and any other appropriate bank regulatory agency with prior written notice of any authorization of indemnification. In addition, indemnification payments related to an administrative proceeding or civil action instituted by an appropriate federal bank regulatory agency are limited to the payment or reimbursement of reasonable legal or other professional expenses. Finally, the director, officer or other party must agree in writing to reimburse the institution for any indemnification payments received should the proceeding result in a final order being instituted against the individual assessing a civil money penalty, removing the individual from office, or requiring the individual to cease and desist from specified institutional activities.
SHAREHOLDER MEETINGS AND ACTION BY WRITTEN CONSENT
American River Holdings. The American River Holdings articles authorize shareholder action by written consent only when first authorized by the board of directors. Additionally, the American River Holdings bylaws permit a director to be elected at any time to fill a vacancy on the board of
directors that has not been filled by the directors by the written consent of the holders of a majority of the outstanding shares entitled to vote for the election of directors.
North Coast Bank, N.A. The North Coast Bank, N.A. articles do not authorize shareholder action by written consent for purposes permitted to California state chartered banks.
CUMULATIVE VOTING
Cumulative voting allows a shareholder to cast a number of votes equal to the number of directors to be elected multiplied by the number of shares held in the shareholder's name on the record date. American River Holdings shareholders and North Coast Bank, N.A. shareholders are also entitled to cumulative voting in the election of directors. If Proposal No. 4 to eliminate cumulative voting is approved, the election of directors of American River Holdings following the effective time of the merger will not permit the use of cumulative voting by American River Holdings shareholders. See "Proposal No. 4, Approval of Amendments to the American River Holdings Articles of Incorporation and Bylaws to Eliminate Cumulative Voting in the Election of Directors" on page 164.
AMENDMENT OF ARTICLES AND BYLAWS
American River Holdings. The American River Holdings articles and bylaws may be amended or repealed by the affirmative vote or written consent of a majority of the outstanding shares entitled to vote.
The American River Holdings bylaws may be amended or repealed by the affirmative vote or written consent of a majority of the outstanding shares entitled to vote, provided that any amendment which reduces (a) the number of directors on a fixed-number board or (b) the minimum number of directors on a variable-number board to a number less than five, cannot be adopted if the votes cast or consents given opposing the action are equal to or more than 16 2/3% of all outstanding shares entitled to vote.
Subject to the rights of shareholders to amend the bylaws, the American River Holdings bylaws provide that the bylaws may be adopted, amended or repealed by its board of directors, except that only the shareholders can adopt a bylaw or amendment to the bylaws which (a) specifies or changes the number of directors on a fixed number board, (b) specifies or changes the minimum or maximum number of directors on a variable number board or (c) changes from a fixed number board to a variable number board or vice versa.
North Coast Bank, N.A. Subject to the laws of the United States, North Coast Bank, N.A.'s articles of association may be amended or repealed by the affirmative vote of a majority of the outstanding shares unless the vote of a greater amount of shares is required by law, and in that case with the vote of the greater amount. North Coast Bank, N.A.'s bylaws may be amended, altered or repealed, at any duly called meeting of the North Coast Bank, N.A. board of directors by a majority vote of the total number of directors.
FILLING VACANCIES ON THE BOARD OF DIRECTORS
American River Holdings. The American River Holdings bylaws provide that vacancies occurring on their respective boards of directors may be filled by a vote of a majority of the remaining directors, though less than a quorum, or by a sole remaining director, except that a vacancy created by the removal of a director may only be filled by the vote of a majority of the shares entitled to vote represented at a duly held meeting or by unanimous written consent of the outstanding shares entitled to vote. The American River Holdings bylaws also provide that the shareholders may elect a director at any
time to fill any vacancy not filled by the directors, except that any election by written consent, other than to fill a vacancy created by removal of a director, requires the consent of a majority of the outstanding shares entitled to vote.
In addition, the California General Corporation Law provides that if, after the filling of any vacancy by the directors, the directors then in office who have been elected by the shareholders constitute less than a majority of the directors then in office, (a) any holder or holders of an aggregate of 5% or more of the total number of shares at the time outstanding having the right to vote for the directors may call a special meeting of shareholders; or (b) the California Superior Court of the proper county will, upon application of the shareholder or shareholders, summarily order a special meeting of shareholders, to be held to elect the entire board of directors.
North Coast Bank, N.A. Any vacancy on the North Coast Bank, N.A. board of directors for any reason, including an increase in the number of directors, may be filled by action of the board of directors, provided that an increase in the number of directors may not be more than two directors between shareholder meetings. Directors appointed by the North Coast Bank, N.A. board hold office until their successors are elected and qualified.
CALL OF ANNUAL OR SPECIAL MEETING OF SHAREHOLDERS AND ACTION BY SHAREHOLDERS WITHOUT A MEETING
American River Holdings. The American River Holdings bylaws provide that a special meeting of the shareholders may be called at any time by the board of directors, chairman of the board, president or one or more shareholders holding shares in the aggregate entitled to cast not less than 10% of the votes at that special meeting. Under the California General Corporation Law, unless otherwise provided in the articles of incorporation, any action which may be taken at any annual or special meeting may be taken without a meeting and without prior notice, if a consent in writing, setting forth the action so taken, is signed by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take the action at a meeting at which all shares entitled to vote thereon were present and voted. The American River Holdings articles provide that action without a meeting can be taken if the board of directors of American River Holdings has by resolution first approved any of the action without a meeting.
North Coast Bank, N.A. Any ten or more shareholders owning, in the aggregate, not less than twenty percent of the outstanding shares of North Coast Bank, N.A., may call a special meeting of the shareholders at any time. Other than amending the articles, no provision is made in the North Coast Bank, N.A. articles of association for the shareholders to take any action in the absence of a duly called meeting.
CLASSIFIED BOARD PROVISIONS
American River Holdings. At present, neither the American River Holdings articles nor the American River Bank bylaws provide for a classified board. Assuming that Proposal No. 3 providing for classification of the American River Holdings board of directors is approved by the shareholders of American River Holdings and the common stock of American River Holdings is listed for trading on the Nasdaq National Market, the American River Holdings articles will be amended to provide that, in the event that the authorized number of directors will be fixed at nine or more, the board of directors will be divided into three classes: Class I, Class II and Class III, each consisting of a number of directors equal to as nearly as practicable one-third the total number of directors. Directors in Class I, Class II and Class III will initially serve for a term expiring respectively at the 2001, 2002 and 2003 annual meeting of shareholders. Thereafter, each director will serve for a term ending at the third annual shareholders meeting following the annual meeting at which the director was elected. In the event that the authorized
number of directors will be fixed with at least six but less than nine, the board of directors will be divided into two classes, designated as Class I and Class II, each consisting of one-half of the directors or as close an approximation as possible. At each annual meeting, each of the successors to the directors of the class whose term will have expired at such annual meeting will be elected for a term running until the second annual meeting next succeeding his or her election and until his or her successor will have been duly elected and qualified. The number of directors is currently set between eight and 15. The use of a classified board may have the effect of discouraging takeover attempts.
North Coast Bank, N.A. North Coast Bank, N.A.'s articles do not provide for a classified board of directors.
DESCRIPTION OF AMERICAN RIVER HOLDINGS CAPITAL STOCK
The authorized capital stock of American River Holdings consists of 20,000,000 shares of American River Holdings common stock, without par value. As of ___________, 2000, there were ________ shares of American River Holdings common stock outstanding and an additional ________ shares of the authorized American River Holdings common stock were available for future grant and reserved for issuance to holders of outstanding stock options under American River Holdings' 1995 Stock Option Plan.
COMMON STOCK
Holders of American River Holdings common stock are entitled to one vote for each share held of record on all matters submitted to a vote of shareholders, except that shareholders may cumulate their votes for the election of directors. Shareholders are entitled to receive ratably dividends as may be legally declared by American River Holdings' board of directors. There are legal and regulatory restrictions on the ability of American River Holdings to declare and pay dividends. See "Market Price and Dividend Information--Dividends and Dividend Policy" on page 145. In the event of a liquidation, common shareholders are entitled to share ratably in all assets remaining after payment of liabilities and liquidation preference for securities with a priority over the American River Holdings common stock. Shareholders of American River Holdings common stock have no preemptive or conversion rights. American River Holdings common stock is not subject to calls or assessments.
DESCRIPTION OF NORTH COAST BANK, N.A. CAPITAL STOCK
The authorized capital stock of North Coast Bank, N.A. consists of 5,000,000 shares of common stock, par value $4.00 per share. As of ____________, 2000, there were 472,354 shares of common stock outstanding, and an additional 253,126 shares of the authorized North Coast Bank, N.A. common stock available for future grant and reserved for issuance to holders of outstanding stock options under the North Coast Bank, N.A. 1990 Stock Option Plan.
COMMON STOCK
Holders of North Coast Bank, N.A. common stock are entitled to one vote for each share held of record on all matters submitted to a vote of shareholders, except that shareholders may cumulate their votes for the election of directors. Shareholders are entitled to receive ratably dividends as may be legally declared by North Coast Bank, N.A.'s board of directors. There are legal and regulatory restrictions on the ability of North Coast Bank, N.A. to declare and pay dividends. See "Market Price and Dividend Information--Dividends and Dividend Policy" on page 145. In the event of a liquidation,
common shareholders are entitled to share ratably in all assets remaining after payment of liabilities and liquidation preferences for securities with a priority over the North Coast Bank, N.A. common stock. Shareholders of North Coast Bank, N.A. common stock have no preemptive or conversion rights. North Coast Bank, N.A. common stock is not subject to calls or assessments, except as required by Section 55 of the National Bank Act. The transfer agent and registrar for North Coast Bank, N.A. common stock is Chase Mellon Shareholder Services, San Francisco, California.
PROPOSAL NO. 2
APPROVAL OF THE AMERICAN RIVER HOLDINGS
2000 STOCK OPTION PLAN
INTRODUCTION
Shareholders are being asked to vote on a proposal to approve the American River Holdings 2000 Stock Option Plan (the "2000 Plan"), which was approved and adopted by the board of directors on April 26, 2000, subject to shareholder approval and consummation of the transactions described in the merger agreement, including the merger, to be effective as of the effective time of the merger or as soon thereafter as is practicable and following registration of the shares to be issued upon exercise of stock options under the 2000 Plan with the Securities and Exchange Commission under the Securities Act of 1933, as amended.
No stock option grants will be made under the 2000 Plan prior to the effective time of the merger, however, the merger agreement requires American River Holdings to issue substitute stock options to holders of North Coast Bank, N.A. stock options as of or as soon as practicable following the effective time of the merger. The proposal to approve the American River Holdings 2000 Stock Option Plan must be approved in order for American River Holdings to issue the substitute stock options. Consequently, unless the merger proposal and the 2000 Stock Option Plan proposal are both approved, the merger will not be consummated unless the parties agree to amend the merger agreement. The following discussion summarizes the principal features of the 2000 Plan. This description is qualified in its entirety by reference to the full text of the 2000 Plan, a copy of which is attached to this joint proxy statement/prospectus as Annex F and is incorporated here by reference.
SUMMARY OF 2000 PLAN
Purpose of the 2000 Plan. The purpose of the 2000 Plan is to offer selected key employees, directors and consultants of American River Holdings and its affiliates, which are collectively referred to in this Proposal No. 2 as the "Company", an opportunity to acquire a proprietary interest in the success of the Company, or to increase such interest, by purchasing shares of the Company's common stock.
The stock options issued under the 2000 Plan, at the discretion of the board of directors, may be either incentive stock options or nonstatutory stock options; however, only employees of the Company are eligible to receive grants of incentive stock options under the 2000 Plan.
Administration. The board of directors will have authority to administer the 2000 Plan.
Shares Reserved. The Company has a 1995 Stock Option Plan. Upon approval of the 2000 Plan, subject to consummation of the transactions described in the merger agreement, including the merger, and in connection with registration of the shares to be issued upon exercise of stock options under the 2000 Plan with the Securities and Exchange Commission under the Securities Act of 1933, as amended, the 1995 Plan will be terminated as to future grants. As of ___________, 2000, stock options to acquire 270,128 shares of American River Holdings common stock remained outstanding under the 1995 Plan. The aggregate number of shares available for issuance pursuant to the exercise of stock options to be granted under the 2000 Plan will be equal to thirty percent (30%) of the Company's issued and outstanding shares immediately after the effective time of the merger, not to exceed 674,644 shares, minus such number of shares, not to exceed 270,128 shares, which are subject to stock options then outstanding under the 1995 Plan. The following calculations demonstrate the approximate number of the stock options to be reserved for issuance under the 2000 Plan immediately after the effective time of the merger as reduced by the stock options outstanding under the 1995 Plan:
Shares outstanding (2,248,812) x 30% = 674,644
Less shares reserved for outstanding stock options under 1995 Plan (270,128) = 404,516
If the 2000 Plan is approved by the shareholders, subject to consummation of the transactions described in the merger agreement, including the merger, and registration of the shares to be issued upon exercise of stock options under the 2000 Plan with the Securities and Exchange Commission under the Securities Act of 1933, as amended, a maximum of 185,565 shares for substitute stock options will be allocated to holders of North Coast Bank, N.A. stock options as soon as practicable following the effective time of the merger, based on 192,415 shares of North Coast Bank, N.A. common stock reserved for issuance in respect of stock options currently outstanding under the North Coast Bank, N.A. 1990 Stock Option Plan multiplied by the conversion ratio of .9644. Consequently, assuming the allocation of 185,565 shares for substitute stock options, the maximum number of shares available for future grants of stock options under the 2000 Plan would be 218,951. Should any stock options granted under the 1995 or 2000 Plans expire or become unexercisable for any reason without having been exercised in full, the shares subject to the portion of the stock options not so exercised will be available for subsequent stock option grants under the 2000 Plan. The following calculations demonstrate the effect of the allocation of the substitute stock options under the 2000 Plan immediately after the effective time of the merger, adjusted for the shares currently reserved under the 1995 Plan:
Shares outstanding (2,248,812) x 30% = 674,644
Less shares reserved for outstanding stock options under 1995 Plan (270,128) = 404,516
Less shares reserved for substitute stock options (185,565) = 218,951
Eligibility. Any individual who is an employee of the Company, any member of the board of directors, and any independent contractor consultant who performs services for the Company and who is not a member of the board of directors will be eligible to participate in the 2000 Plan. As of the date of this joint proxy statement/prospectus, the persons eligible to receive grants under the 2000 Plan include approximately 69 employees (including executive officers) of the Company and seven non-employee directors.
Terms of Stock Options. Under the 2000 Plan, the board of directors selects the individuals to whom stock options will be granted, the type of stock option to be granted, the exercise price of each stock option, the number of shares covered by the stock options and the other terms and conditions of each stock option. Non-employee directors and consultants are eligible to receive only nonstatutory stock option grants while eligible employees of the Company are able to receive grants of nonstatutory or incentive stock options; provided, however, that the aggregate fair market value (determined at the time the incentive stock options are granted) of the stock with respect to which incentive stock options are exercisable for the first time by the optionee during any calendar year (under all incentive stock option plans of the Company) may not exceed one hundred thousand dollars ($100,000). Should it be determined that any incentive stock options granted exceed such dollar maximum, such incentive stock options are considered to be nonstatutory stock options and not to qualify for treatment as incentive stock options under Section 422 of the Internal Revenue Code to the extent, but only to the extent, of the excess.
The vesting of any stock options granted under the 2000 Plan will be determined by the board of directors in its sole discretion, provided however, that (i) each stock option will vest in the manner and at the time as the board of directors determines and the board of directors may accelerate the time of exercise of any stock options, (ii) no stock options will vest at a rate less than twenty percent per year during the five year period following the date of grant, and (iii) in the event that an optionee's service as an employee,
director or consultant of the Company terminates, the stock options will be exercisable only to the extent they were vested as of the date of termination.
The exercise price of stock options granted under the 2000 Plan ordinarily may not be less than one hundred percent (100%) of the fair market value of the stock subject to the stock options on the date the stock options are granted; provided, however, that the purchase price of the stock subject to incentive stock options may not be less than one hundred ten percent (110%) for incentive stock options where the optionee owns stock possessing more than ten percent (10%) of the total combined voting power of the Company. For purposes of establishing the exercise price and for all other valuation purposes under the 2000 Plan, the fair market value per share of common stock on any relevant date will be the value as determined by the board of directors in reliance upon prices reported or quoted upon any exchange or transaction reporting system on which the common stock is listed or reported. If the common stock is not so listed or quoted, fair market value may be determined in any manner which the board of directors deems reasonable.
Payment for Shares. The exercise of incentive and nonstatutory stock options under the 2000 Plan may generally be made by delivery of (i) the required form of exercise notice or instructions together with payment of the exercise price in cash, certified check, official bank check, or equivalent means acceptable to the Company, or shares which have already been owned by the optionee or his or her representative for more than six months, having an aggregate fair market value on the date of surrender equal to the exercise price, or (ii) the required form of an irrevocable direction to a securities broker approved by the Company to sell shares and to deliver all or part of the sales proceeds to the Company in payment of all or part of the exercise price and any withholding taxes.
Adjustments Upon Changes In Shares. In the event of changes to the shares of common stock of the Company including where the shares are changed into or exchanged for a different number or kind of shares of stock or other securities resulting from, among other matters, a reorganization, merger, consolidation, recapitalization, reclassification, stock split, reverse stock split, combination of shares, or otherwise, or where an increase in the number of shares occurs resulting from a stock dividend, then appropriate adjustments will be made in the number and kind of shares as to which outstanding stock options, or unexercised portions of stock options, will be exercisable, in order to maintain an optionee's proportionate interest in the Company as existed prior to the occurrence of any of those changes to the Company's common stock. The adjustment in outstanding stock options will be made without change in the total price of the unexercised portion of the stock options, and with a corresponding adjustment in the stock option price per share.
Expiration, Termination and Transfer of Stock Options. Under the 2000 Plan, no incentive stock options may extend more than ten years (or five years, in the case incentive stock options granted to an employee who owns more than 10 percent of the combined voting power of all classes of stock of the Company) from the date of grant; the terms of all stock options, including stock options to directors, may otherwise be determined by the board of directors in its sole discretion. In the event of termination of an optionee's employment, consulting relationship or tenure on the board of directors, as applicable, due to death or disability, stock options will generally expire twelve months after such termination unless the stock options by their terms were scheduled to expire earlier. If the optionee's employment or consulting relationship and in certain circumstances, tenure on the board of directors, is terminated for "cause," the stock option expires thirty days after the Company gives notice of such termination. The term "cause" is defined to include embezzlement, fraud, dishonesty, breach of fiduciary duty, the deliberate disregard of rules of the Company which results in loss, damage or injury to the Company, the unauthorized disclosure of any of the secrets or confidential information of the Company, the inducement of any client or customer of the Company to break any contract with the Company, or the inducement of any principal for whom the Company acts as agent to terminate such agency relationship, the engagement in any conduct which
constitutes unfair competition with the Company, or the removal of the optionee from office by any court or bank regulatory agency. In the event that such a termination occurs for a reason other than death, disability or for "cause", the optionee will generally be required to exercise stock options within three months of such termination to the extent that the stock options remain exercisable. Generally, stock options will be transferable only by will or the laws of descent and distribution or as may otherwise be permitted under Rule 16b-3 promulgated by the Securities and Exchange Commission or Section 422 of the Internal Revenue Code, and shall be exercisable during the optionee's lifetime only by the optionee, or in the event of disability, by the optionee's qualified representative. The 2000 Plan provides for the termination of stock options not exercised prior to dissolution or liquidation of the Company or upon a reorganization, merger or consolidation in which the Company does not survive.
Termination and Amendment of the Plan. The board of directors may amend, suspend or terminate the 2000 Plan at any time and for any reason. An amendment of the 2000 Plan is subject to the approval of the shareholders of the Company only to the extent required by applicable laws or regulations. Under current federal and California regulations applicable to the 2000 Plan, shareholder approval is only required to obtain the tax attributes of incentive stock option treatment under Section 422 of the Internal Revenue Code. Shareholder approval requirements previously imposed under Rule 16b-3 have been eliminated by recent amendments to Rule 16b-3, resulting in increased board of directors discretion to effect material amendments to the 2000 Plan. Such material amendments may include, among other matters, (i) an increase in the number of shares subject to the 2000 Plan, (ii) changes to the class of eligible insiders, (iii) the repricing of stock options, or (iii) other material increases in benefits under the 2000 Plan. Consequently, if shareholders approve the 2000 Plan, no further shareholder approval will be required prior to effecting material amendments to the 2000 Plan including the types of material amendments discussed above and others deemed appropriate in the sole discretion of the board of directors. If not previously terminated by the board of directors, the 2000 Plan will terminate ten years from the date of adoption of the 2000 Plan by the board of directors.
Dissolution, Liquidation, Sale or Merger. In the event of a proposed
(i) dissolution or liquidation of the Company; (ii) reorganization, merger, or
consolidation of the Company, with the result that (A) the Company is not the
surviving corporation, or (B) the Company becomes a subsidiary of another
corporation, which shall be deemed to have occurred if another corporation shall
own, directly or indirectly, eighty percent (80%) or more of the aggregate
voting power of all outstanding equity securities of the Company; or (iii) sale
of substantially all the assets of the Company to another corporation; or (iv)
sale of the equity securities of the Company representing eighty percent (80%)
or more of the aggregate voting power of all outstanding equity securities of
the Company to any person or entity, or any group of persons and/or entities
acting in concert, then in those events, the Company will deliver to each
optionee no less than thirty (30) days prior to each event, written notification
of the occurrence of the event and the optionee's right to exercise all stock
options granted under the 2000 Plan, whether or not vested under the 2000 Plan
or applicable stock option agreement, and all outstanding stock options granted
under the 2000 Plan will completely vest and become immediately exercisable
prior to the occurrence of the event. This right of exercise will be conditional
upon execution of a final plan of dissolution or liquidation, or a definitive
agreement of reorganization, merger or consolidation. Upon occurrence of the
event, all outstanding stock options and the 2000 Plan will terminate; provided,
however, that any outstanding stock options not exercised as of the occurrence
of the event will not terminate if a successor corporation assumes the
outstanding stock options or substitutes for the stock options, new stock
options covering shares of the successor corporation's stock with appropriate
adjustments as to the number, kind and prices of shares, and substantially on
the same terms as the outstanding stock options.
Federal Income Tax Consequences. The following discussion is only a summary of the principal federal income tax consequences of the stock options and rights to be granted under the 2000 Plan, and is based on existing federal law, including administrative regulations and rulings, which is subject to change,
in some cases retroactively. State and local tax consequences may differ. This discussion is also qualified by the particular circumstances of individual optionees, which may substantially alter or modify the federal income tax consequences discussed.
Incentive stock options and nonstatutory stock options are treated differently for federal income tax purposes. Incentive stock options are intended to comply with the requirements of Section 422 of the Internal Revenue Code. Nonstatutory stock options need not comply with such requirements.
An optionee is not taxed on the grant or exercise of incentive stock options. The difference between the exercise price and the fair market value of the shares on the exercise date will, however, be a preference item for the purposes of the alternative minimum tax. If an optionee holds the shares acquired upon exercise of incentive stock options for at least two years following grant and at least one year following exercise, the optionee's gain, if any, upon a subsequent disposition of the shares is long-term capital gain. The measure of the gain is the difference between the proceeds received on disposition and the optionee's basis in the shares, which generally equals the exercise price. If an optionee disposes of stock acquired by exercise of incentive stock options before satisfying the one- and two-year holding periods, the optionee will recognize both ordinary income and capital gain in the year of disposition. The amount of ordinary income will be the lesser of (i) the amount realized on disposition less the optionee's adjusted basis in the stock, which is usually the exercise price or (ii) the difference between the fair market value of the stock on the exercise date and the stock option price. The balance of the consideration received on the disposition will be long-term capital gain if the stock had been held for at least one year following exercise of the incentive stock options. The Company will not be entitled to an income tax deduction on the grant or exercise of an incentive stock option or on the optionee's disposition of the shares after satisfying the holding period requirement. If the holding periods are not satisfied, the Company will be entitled to a deduction in the year the optionee disposes of the shares, in an amount equal to the ordinary income recognized by the optionee.
An optionee is not taxed on the grant of a nonstatutory stock option. Upon exercise, however, the optionee recognizes ordinary income equal to the difference between the stock option price and the fair market value of the shares on the date of exercise. The Company will be entitled to an income tax deduction in the year of exercise in the amount recognized by the optionee as ordinary income. Any gain on subsequent disposition of the shares is long-term capital gain if the shares are held for at least one year following exercise. The Company will not receive a deduction for this gain.
NEW PLAN BENEFITS
As of the date of this joint proxy statement/prospectus, (i) no stock options have been granted to eligible participants under the 2000 Plan, (ii) no substitute stock options have been issued to holders of North Coast Bank, N.A. stock options, and (iii) no stock options will be granted and no substitute stock options will be issued, prior to the effective time of the merger. If the 2000 Plan is approved by shareholders, future grants of stock options under the 2000 Plan, if any, will be subject to the sole discretion of the board of directors. Any such stock option grants would be made in compliance with the provisions of the 2000 Plan; however, no amounts or benefits are currently determinable respecting future grants. See the full text of the 2000 Plan, a copy of which is attached to this joint proxy statement/prospectus as Annex F for further information regarding the 2000 Plan.
VOTE REQUIRED FOR APPROVAL
The affirmative vote of the holders of a majority of the shares of American River Holdings common stock present in person or represented by proxy and entitled to vote at the annual meeting is
required to approve the 2000 Plan provided that the number of affirmative votes equals at least a majority of the shares constituting the required quorum.
RECOMMENDATION OF MANAGEMENT
The board of directors believes that this proposal is in the best interests of American River Holdings and its shareholders, and unanimously recommends a vote "FOR" its approval.
PROPOSAL NO. 3
APPROVAL OF AMENDMENTS TO THE AMERICAN RIVER HOLDINGS ARTICLES OF
INCORPORATION AND BYLAWS TO PROVIDE FOR THE CLASSIFICATION OF
THE BOARD OF DIRECTORS
INTRODUCTION
The terms of the merger agreement require that two of the existing directors of North Coast Bank, N.A. will be appointed to the American River Holdings board of directors promptly after the consummation of the merger. Consequently, the American River Holdings board of directors will be increased to eleven (11) after the effective time of the merger. The two directors to be appointed are M. Edgar Deas and Larry L. Wasem. In addition, American River Holdings agreed under the merger agreement to adopt amendments to the American River Holdings articles of incorporation and bylaws to divide its board of directors into three classes. If the amendments are approved by the American River Holdings shareholders, and subject to American River Holdings common stock being listed for trading on the Nasdaq National Market, one of the existing directors of North Coast Bank, N.A. is to serve as a Class II director and another director of North Coast Bank, N.A. is to serve as a Class III director, as discussed below.
On ______________, 2000, the board of directors adopted amendments to the American River Holdings articles of incorporation and bylaws which provide, subject to American River Holdings common stock being listed for trading on the Nasdaq National Market, that the board of directors be divided into three classes of directors, each consisting of a number of directors equal as nearly as practicable to one-third the total number of directors, for so long as the board consists of at least nine authorized directors and, in the event that the total number of authorized directors on the board is at least six but less than nine, for classification of the board of directors into two classes, each consisting of a number of directors equal as nearly as practicable to one-half the total number of directors. After initial implementation at the 2000 annual meeting of shareholders, each class of directors would be subject to election every third year and would serve for a three-year term for so long as the board remained classified into three classes, or would be subject to election every second year and would serve for a two-year term in the event the board were classified into two classes. Currently, all of American River Holdings' directors are elected each year to serve a one-year term.
If the proposal is approved by the shareholders and subject to the common stock of American River Holdings being listed for trading on the Nasdaq Stock Market, the board of directors will, for purposes of initial implementation, designate three classes of directors for election at the 2000 annual meeting. Class I will be elected initially for a one-year term expiring at the 2001 annual meeting of shareholders; Class II will be elected initially for a two-year term expiring at the 2002 annual meeting of shareholders; and Class III will be elected for a three-year term expiring at the annual meeting of shareholders to be held in the year 2003; and, in each case, until their successors are duly elected and qualified. At each annual meeting after the 2000 annual meeting, only directors of the class whose term is expiring would be voted upon, and upon election each director would serve a three-year term. Commencing with the annual meeting of shareholders scheduled to occur in 2001, directors elected to Class I would serve for a three-year term and until their successors are duly elected and qualified, subject to any decrease in the total number of authorized directors. Subsequently, in the years 2002 and 2003, directors elected to Class II and Class III, respectively, would also be elected for a three-year term and until their successors are duly elected and qualified.
Classification of the board of directors is permitted by Section 301.5 of the California Corporations Code. Under Section 301.5, a qualifying California corporation, may divide its board of directors into two or three classes, with one-half or one-third of the directors, respectively, elected at each annual meeting (or
as near to one-half or one-third as practicable). The authorized number of directors must be not less than six in the case of a two-class board and not less than nine in the case of a three-class board. Classified boards of directors are permitted under the corporate law of a majority of states, and American River Holdings believes that well over one-half of Fortune 500 companies provide for classified boards.
The text of the proposed amendment to the articles of incorporation is set forth in Annex G attached to this joint proxy statement/prospectus. If this proposal is adopted by the American River Holdings shareholders, in order to make the bylaws consistent with the amendment to the articles of incorporation described in this proposal, upon effectiveness of the filing of the amendment to the articles of incorporation with the Secretary of State of the State of California, Section 3.4 of Article III of the bylaws will be amended to read as set forth in Annex G, which is incorporated here by this reference.
EFFECT OF CLASSIFICATION OF BOARD
If adopted, the classification of the board will apply to every subsequent election of directors for so long as at least six directors are authorized under the American River Holdings bylaws and the classification provision is not amended. The American River Holdings bylaws provide that the board of directors will consist of not less than nine and not more than seventeen directors, with the exact number of directors currently set at eleven. So long as the board continues to consist of at least nine authorized directors, after initial implementation of the classified board, directors will serve for a term of three years rather than one year, and one-third of the directors (or as near to one-third as practicable) will be elected each year.
In the event that the number of directors increases, the increase will be apportioned by the board among the classes of directors to make each class as nearly equal in number as possible. If the number of authorized directors is decreased to at least six but less than nine, the directors will be apportioned by the board among two classes, each consisting of one-half of the directors or as close an approximation as possible, directors will serve for a term of two years, and one-half the directors (or as near to one-half as practicable) will be elected each year. In any event, a decrease in the number of directors cannot shorten the term of any incumbent director. Vacancies on the board created by any resignation, removal or other reason, or by an increase in the size of the board, may be filled for the remainder of the term by the vote of the majority of the directors remaining in office or by the vote of holders of a majority of the outstanding shares of the American River Holdings common stock.
Under California law, members of the board of directors may be removed by the board of directors for cause (defined to be a felony conviction or court declaration of unsound mind), by the shareholders without cause or by court order for fraudulent or dishonest acts or gross abuse of authority or discretion. In the case of a board of directors that is not classified, no director may be removed by the shareholders if the votes cast against the removal (or, if done by written consent, the votes eligible to be cast by the non-consenting shareholders) would have been sufficient to elect the director if voted cumulatively at an election at which the same total number of votes were cast (or, if the action is taken by written consent, all shares entitled to vote were voted) and the entire number of directors authorized at the time of the director's most recent election were then being elected (the "relevant number of directors"). In the case of classified boards, the relevant number of directors is (i) the number of directors elected at the most recent annual meeting of shareholders or, if greater, (ii) the number of directors sought to be removed. It should be noted that this removal provision applies equally to corporations that permit cumulative voting and to those that do not.
OTHER EFFECTS
The board of directors believes that the amendment of the articles of incorporation and bylaws is in the best interests of American River Holdings and its shareholders.
Public companies are potentially subject to attempts by various individuals and entities to acquire significant minority positions in the company with the intent either of obtaining actual control of the company by electing their own slate of directors, or of achieving some other goal, such as the repurchase of their shares by the company at a premium. Public companies also are potentially subject to inadequately priced or coercive bids for control through majority share ownership. These prospective acquirors may be in a position to elect a company's entire board of directors through a proxy contest or otherwise, even though they do not own a majority of American River Holdings' outstanding shares at the time. If this proposal is approved, a majority of American River Holdings' directors could not be removed by those persons until two annual meetings of shareholders have occurred, unless the removal was for cause and the requisite vote was obtained. By providing this additional time to the board of directors and eliminating the possibility of rapid removal of the board, the directors of American River Holdings will have the necessary time to most effectively satisfy their responsibility to the American River Holdings shareholders to evaluate any proposal and to assess and develop alternatives without the pressure created by the threat of imminent removal. In addition, this proposal, by providing that directors will serve three-year terms rather than one-year terms, will enhance continuity and stability in the composition of American River Holdings' board of directors and in the policies formulated by the board. The board believes that this, in turn, will permit it more effectively to represent the interests of all shareholders, including responding to demands or actions by any shareholder or group. Following adoption of the classified board structure, at any given time at least one-third of the members of the board of directors will generally have had prior experience as directors of American River Holdings. The board believes that this will facilitate long-range planning, strategy and policy and will have a positive impact on customer and employee loyalty. American River Holdings has not historically had problems with either the continuity or stability of its board of directors.
The classification of the board of directors will have the effect of making it more difficult to replace incumbent directors. So long as the board is classified into three classes, a minimum of three annual meetings of shareholders would generally be required to replace the entire board, absent intervening vacancies. While the proposal is not intended as a takeover-resistive measure in response to a specific threat, it may discourage the acquisition of large blocks of American River Holdings' shares by causing it to take longer for a person or group of persons who acquire a block of shares to effect a change in management.
If this proposal is approved and implemented, a shareholder or group of shareholders seeking to replace a majority of the directors on the board will generally need to influence the voting of at least a majority of the outstanding shares at two consecutive annual meetings. In addition, American River Holdings has other corporate attributes that may also have the effect of helping American River Holdings to resist an unfriendly acquisition. These include existing provisions in the American River Holdings articles of incorporation and bylaws eliminating, subject to specified exceptions, the liability of directors for monetary damages; provisions in the articles of incorporation and bylaws providing for indemnification of directors and officers; provisions in the bylaws requiring advance notice of nomination of a candidate for election to the board of directors of American River Holdings when the nomination is made by a person other than the nominating committee of the board; and, if approved by the American River Holdings shareholders, the elimination of cumulative voting in the election of directors as described in Proposal No. 4 and Annex H of this joint proxy statement/prospectus.
This proposal is not in response to any attempt to acquire control of American River Holdings. However, the board believes that adopting this proposal is prudent, advantageous and in the best interests
of shareholders because it will give the board more time to fulfill its responsibilities to shareholders, and it will provide greater assurance of continuity and stability in the composition and policies of the board of directors. The board also believes the advantages outweigh any disadvantage relating to discouraging potential acquirors from attempting to obtain control of American River Holdings.
VOTE REQUIRED FOR APPROVAL
Approval of the proposed amendments to the articles of incorporation and the bylaws requires the affirmative vote of the holders of a majority of the outstanding shares of American River Holdings common stock. If this proposal is not approved, it is the intention of American River Holdings and North Coast Bank, N.A. that the American River Holdings board of directors will be increased to eleven (11) members and the two existing directors of North Coast Bank, N.A. (M. Edgar Deas and Larry L. Wasem) will be appointed to the American River Holdings board of directors to serve along with the existing American River Holdings directors, without classification as contemplated by this proposal.
RECOMMENDATION OF MANAGEMENT
The board of directors believes that the advantages of the proposed amendments to the articles of incorporation and bylaws classifying the board of directors for purposes of the election of directors greatly outweigh the possible disadvantages of the amendments. Accordingly, the board of directors has unanimously approved the proposed amendments and unanimously recommends that the American River Holdings shareholders vote "FOR" their approval.
PROPOSAL NO. 4
APPROVAL OF AMENDMENTS TO THE AMERICAN RIVER HOLDINGS ARTICLES
OF INCORPORATION AND BYLAWS TO ELIMINATE CUMULATIVE VOTING IN THE
ELECTION OF DIRECTORS
INTRODUCTION
Effective on January 1, 1990, the California General Corporation Law was amended to permit California corporations with widely traded securities to provide, with the approval of their shareholders, for majority rule voting in electing directors in lieu of cumulative voting. California law specifically allows a corporation with its common stock quoted on the New York Stock Exchange, the American Stock Exchange or the Nasdaq National Market to eliminate cumulative voting by an amendment to its bylaws or articles of incorporation. Prior to such legislation, cumulative voting in electing directors was mandatory for California corporations upon proper notice by any shareholder of the corporation. By permitting shareholders of California corporations to provide for majority rule voting in electing directors, the new law substantially conforms California corporate law with the corporate laws of a majority of other states (including Delaware, Illinois, Michigan, New Jersey, New York, Ohio, Pennsylvania and Texas) which either provide that cumulative voting is optional or make no provision for cumulative voting at all. Only a small majority of states still require that shareholders be permitted to invoke cumulative voting. American River Holdings intends to list its common stock for trading on the Nasdaq National Market, such listing to be made effective as soon as practicable following the effective time of the merger.
CUMULATIVE VOTING
Cumulative voting in the election of directors may currently be invoked by any shareholder of American River Holdings who complies with statutory notice requirements. Cumulative voting entitles shareholders to a number of votes per share of common stock equal to the number of directors to be elected, and all nominees are voted upon simultaneously. Holders of shares may cast all of their votes for a single nominee or distribute them among two to more nominees.
As a consequence of cumulative voting, a shareholder with a relatively small number of voting shares may be able to elect one or more directors. For example, if a shareholder were to give the appropriate notice and properly nominate a nominee, and nine directors were to be elected at an annual meeting, a shareholder holding 10% of the voting shares could elect one director by cumulating and casting his or her votes for one candidate. This is true even if shareholders holding 90% of the voting shares are opposed to the election of that candidate and cast their votes to elect nine other nominees.
Absent cumulative voting, a nominee cannot be elected without relatively wide support, as shareholders are entitled to only one vote per share with the nominee receiving the greatest number of votes being elected. Consequently, the holder or holders of a majority of the shares entitled to vote in an election of directors will be able to elect all directors of American River Holdings, and holders of less than a majority of the shares may not be able to elect any directors.
For reasons set forth below, the board believes that the articles of incorporation should be amended to eliminate cumulative voting. The text of the proposed amendment to the articles of incorporation is set forth in Annex H attached to this joint proxy statement/prospectus and is incorporated here by this reference.
REASONS FOR THE AMENDMENT
The board believes that the elimination of cumulative voting is advantageous to American River Holdings and its shareholders because each director of a publicly held corporation has a duty to represent the interests of all shareholders rather than any specific shareholder or group of shareholders. The presence on the board of directors of one or more directors representing the interests of a minority shareholder or group of shareholders could disrupt the management of American River Holdings and prevent it from operating in the most effective manner. Furthermore, the election of directors who view themselves as representing a particular minority constituency could introduce an element of discord on the board of directors, impair the ability of the directors to work effectively and discourage qualified independent individuals from serving as directors. Providing for majority rule voting in the election of directors by eliminating cumulative voting will help ensure that each director acts in the best interests of all shareholders.
This proposal to eliminate cumulative voting is not being made in response to any effort by a minority shareholder or group of shareholders to attain representation on the board of directors or acquire greater influence in the management of the American River Holdings' business, nor is American River Holdings aware of any such effort. Furthermore, this proposal is not being made in response to any attempt to acquire control of American River Holdings, nor is American River Holdings aware of any such attempt.
OTHER EFFECTS
Approval of the proposed amendment may render more difficult any attempt by a holder or group of holders of a significant number of voting shares, but less than a majority, to change or influence the management or policies of American River Holdings. In addition, under certain circumstances, the proposed amendment, along with other measures that may be viewed as having anti-takeover effects (such as Proposal No. 3 to classify the American River Holdings board of directors), may discourage an unfriendly acquisition or business combination involving American River Holdings that a shareholder might consider to be in such shareholder's best interest, including an unfriendly acquisition or business combination that might result in payment of a premium over the market price for the shares held by the shareholder. For example, the proposed amendment may discourage the accumulation of large minority shareholdings, as a prelude to an unfriendly acquisition or business combination proposal or otherwise, by persons who would not make that acquisition without being assured of representation on the board of directors.
CONFORMING BYLAW AMENDMENT
If this Proposal No. 4 is adopted by the American River Holdings shareholders, in order to make the bylaws consistent with the amendment to the articles of incorporation set forth in this Proposal No. 4, upon effectiveness of the filing of the amended and restated articles of incorporation with the California Secretary of State, Section 2.8 of Article II of the bylaws will be amended to read as set forth in Annex H which is incorporated here by this reference.
VOTE REQUIRED FOR APPROVAL
Approval of the proposal to add Article Eight to the articles of incorporation and to amend Section 2.8 of the bylaws requires that holders of a majority of the outstanding shares of common stock of American River Holdings vote "FOR" the proposal.
RECOMMENDATION OF MANAGEMENT
The board of directors believes that this proposal is in the best interests of American River Holdings and its shareholders, and unanimously recommends a vote "FOR" its approval.
PROPOSAL NO. 5
ELECTION OF AMERICAN RIVER HOLDINGS DIRECTORS
The number of directors authorized for election at this meeting is nine
(9). Management has nominated the nine (9) incumbent directors to serve as the
American River Holdings' directors. Each director will hold office until his or
her successor is elected and qualified.
All proxies will be voted for the election of the nine (9) nominees listed below (all of whom are incumbent directors) recommended by the board of directors unless authority to vote for the election of any directors is withheld. The nominees receiving the highest number of affirmative votes of the shares entitled to be voted for them shall be elected as directors, and will be elected (a) to the class designated opposite their names, provided that Proposal No. 3 is approved and American River Holdings common stock is listed for trading on the Nasdaq National Market, and (b) in the event Proposal No. 3 is not approved and/or American River Holdings common stock is not listed for trading on the Nasdaq National Market, then as directors without classification. Abstentions and votes cast against nominees have no effect on the election of directors. If any of the nominees should unexpectedly decline or be unable to act as a director, their proxies may be voted for a substitute nominee to be designated by the board of directors. The board of directors has no reason to believe that any nominee will be become unavailable and has no present intention to nominate persons in addition to or in lieu of those named below.
James O. Burpo (Class 2) Wayne C. Matthews, M.D. (Class 1) Roger J. Taylor, D.D.S. (Class 2) Charles D. Fite (Class 3) David T. Taber (Class 3) Stephen H. Waks (Class 3) Sam J. Gallina (Class 2) Marjorie G. Taylor (Class 1) William L. Young (Class 1) |
See "Proposal No. 3, Approval of Amendments to the American River Holdings Articles of Incorporation and Bylaws to Provide for the Classification of the Board of Directors" on page 160, for information regarding the classification of the board of directors.
CERTAIN MANAGEMENT INFORMATION
See "Security Ownership of Beneficial Owners and Management -- American River Holdings" on page 24 and "Background and Business Experience of Management -- American River Holdings" on page 28, for information regarding the ownership of American River Holdings common stock and the background and business experience of each of management's nominees for directors of American River Holdings listed above, each of whom is an incumbent director.
COMMITTEES OF THE BOARD OF DIRECTORS
The Audit Committee, whose members are James O. Burpo, Wayne C. Matthews, M.D. (Chairman) and Marjorie G. Taylor, oversees American River Holdings and its subsidiaries' independent public accountants, analyzes the
results of internal and regulator examinations and monitors the financial and accounting organization and reporting. The Audit Committee met four (4) times in 1999.
The board of directors has not established a nominating committee. The full board of directors performs the functions of a nominating committee with responsibility for considering appropriate candidates for election as directors.
The Compensation Committee, whose members include Charles D. Fite, Sam J. Gallina, and Roger J. Taylor, D.D.S. (Chairman), oversees the performance and reviews the compensation of the executive officers of American River Holdings and its subsidiaries. The Compensation Committee met one (1) time during 1999.
The Finance and Capital Committee, whose members include Wayne C. Matthews, M.D., David T. Taber and Marjorie G. Taylor (Chairman), has the responsibility to oversee asset liability management and the investment portfolio including recommending to the full board of directors the annual investment strategy; approve and recommend to the full board of directors capital expenditures of $20,000 and above; oversee and recommend to the full board of directors the annual operating budget for American River Holdings and its subsidiaries; and review premises leases for recommendation to the full board of directors. The Finance and Capital Committee met five (5) times during 1999.
The Loan and Discount Committee, whose members include James O. Burpo, Charles D. Fite (Chairman), Sam J. Gallina, Roger J. Taylor, D.D.S. (Chairman), and Stephen H. Waks, has the responsibility for establishing loan policy and approving loans which exceed certain dollar limits and reviews the outside loan review firm's examination of the loan portfolio. The Loan and Discount Committee met twenty-nine (29) times during 1999.
The Executive Committee, whose members include Charles D. Fite, Sam J. Gallina (Chairman), David T. Taber, Roger J. Taylor, D.D.S., and William L. Young, oversees long range planning, and the Technology Strategic Plan and its implementation; formulates and recommends policy positions for the full board of directors to consider; and is responsible for evaluating and recommending to the full board of directors matters pertaining to mergers and acquisitions. The Executive Committee met eight (8) times during 1999.
During 1999, American River Holdings' board of directors held twelve
(12) meetings. All directors attended at least 75% of the aggregate of the total
number of meetings of the board of directors and the number of meetings of the
committees on which they served.
COMPENSATION OF DIRECTORS
The fees paid to non-employee directors during 1999 included a retainer of $250 per month, a base fee of $250 per month for attendance at board meetings of American River Holdings and its subsidiaries, and a fee of $150 per month for attendance at committee meetings, other than the Loan and Discount Committee whose outside director members received a fee of $200 for each meeting attended. Outside director members of the Executive Committee received an additional retainer fee of $150 per month. In addition to the fees received as non-employee directors in connection with the meetings and matters described above, the chairman of the board of directors also received a retainer fee of $100 per month, each chairman of the Loan and Discount Committee, Audit Committee, and Finance and Capital Committee also received a retainer fee of $50 per month, and the chairman of the Compensation Committee received a retainer fee of $150 per year. The total amount of fees paid to all directors as a group was $100,700 in 1999.
On August 25, 1995, the board of directors authorized the grant to each outside director of a nonstatutory stock option to purchase 10,000 shares of American River Holdings common stock at $10.50 per share ($6.047 as adjusted for stock splits and stock dividends).
On June 18, 1997, the board of directors approved a Gross-Up Plan to compensate for the tax effects of the exercise of nonstatutory stock options. The Plan encourages participating optionees to retain shares acquired through the exercise of nonstatutory stock options by American River Holdings paying to the participating optionee, an amount equal to the taxable income resulting from an exercise of a nonstatutory stock option multiplied by American River Holdings' effective tax rate, subject to the optionee's agreement to hold the shares acquired for a minimum of one (1) year. In the event that the shares acquired upon exercise are not held for at least one year from the date of acquisition, the optionee is required to reimburse the amount paid to the optionee under the Plan. During 1999, one director executed an agreement in return for a payment of $29,187, and two other directors deferred payments in the aggregate amount of $56,960 to January, 2000.
Effective May 1, 1998, a Deferred Fee Plan was established for the purpose of providing the directors an opportunity to defer director fees. Participating directors may elect to defer a portion, up to 100%, of their monthly directors fees. American River Bank bears the administration costs, but does not make contributions to the Plan. During 1999, one director participated in the Plan and deferred $5,609.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The compensation of the executive officers of American River Holdings and its subsidiaries is reviewed and approved annually by the board of directors on recommendation by the Compensation Committee. During 1999, Charles D. Fite, Sam J. Gallina, and Roger J. Taylor, D.D.S. (Chairman), served as members of the Committee. Executive officers of American River Holdings and/or subsidiaries during 1999 were David T. Taber, Mitchell A. Derenzo, William L. Young, Richard M. Borst, Douglas E. Tow, and Kevin B. Bender.
The Compensation Committee's philosophy is that compensation should be designed to reflect the value created for shareholders while supporting American River Holdings' strategic goals. The Compensation Committee reviews annual the compensation of the executive officers to insure that American River Holdings' compensation programs are related to financial performance and consistent generally with employers of comparable size in the industry. Annual compensation for American River Holdings' executive officers includes the following components:
Base salary is related to the individual executive officer's level of responsibility and comparison with comparable employers in the industry.
Annual incentive bonus compensation under the Incentive Compensation Plan for Executive Management based on the return on beginning shareholder equity for each year and individual performance criteria are considered by the Compensation Committee for payment to executive officers. Messrs. Young and Taber are eligible to receive incentive bonus compensation when American River Bank achieves a 12% net return on beginning shareholder equity in a given year. Messrs. Derenzo, Borst, Tow, and Bender are entitled to receive incentive bonus compensation in the discretion of the board of directors and based on the return on beginning shareholder equity. During 1999, these individuals were eligible to receive 22% of their annual compensation, which was paid in January 2000.
Stock option grants are intended to increase the executive officers' interest in American River Holdings' long-term success and link interests of the executive officer with those of shareholders as measured by American River Holdings' share price. Stock options are granted in the discretion of the board of directors and at the prevailing market value of American River Holdings common stock. Consequently, the value of the options is directly connected to the increase in value of American River Holdings' stock price.
American River Holdings matches salary deferred by employees participating in its 401(k) Plan at a rate equal to 50% of the participant's contribution up to maximum of 6% of such participant's annual compensation. Executive officers are eligible to participate in the 401(k) plan.
Executive officers may participate in the Gross-Up Plan to the extent that an executive receives a grant of nonstatutory stock options. The Plan encourages executive officers to retain shares acquired through the exercise of nonstatutory stock options by American River Holdings paying to the participating executive officer, an amount equal to the taxable income resulting from an exercise of a nonstatutory stock option multiplied by American River Holdings' effective tax rate, subject to the executive officer agreeing to hold the shares acquired for a minimum of one (1) year. In the event that the shares acquired upon exercise are not held for at least one year from the date of acquisition, the executive officer is required to reimburse the amount received under the Plan. During 1999, no executive officers received payments under the Gross-Up Plan, but Messrs. Taber, Young, Derenzo and Bender deferred payments of $32,416, $69,922, $14,799, and $15,434, respectively, which were paid in January 2000.
Effective May 1, 1998, the American River Bank Deferred Compensation Plan was established for the purpose of providing certain highly compensated individuals, which includes the executive officers, an opportunity to defer compensation. Participants, who are selected by a committee designated by the board of directors, may elect to defer annually a minimum of $5,000 or a maximum of eighty percent of their base salary and all of their cash bonus. American River Bank bears all administration costs, but does not make contributions to the plan.
American River Bank purchased additional life insurance policies on the lives of David T. Taber and William L. Young. Mr. Taber's policy is a 10-year, $1,000,000 level-term life insurance policy with American River Bank as the owner and sole beneficiary. The annual premium cost for the policy on Mr. Taber is approximately $700. Two policies were purchased on the life of Mr. Young in the amount of $250,000 each. Each term life insurance policy consists of two 5-year step rates with American River Bank as the owner and sole beneficiary. The annual premium cost for the policies on Mr. Young is approximately $5,000 for the first 5-year period and $8,000 for the second 5-year period.
/s/ CHARLES D. FITE /s/ SAM J. GALLINA /s/ ROGER J. TAYLOR, D.D.S.
------------------------ ----------------------- ---------------------------
Charles D. Fite Sam J. Gallina Roger J. Taylor, D.D.S.
|
EXECUTIVE COMPENSATION
Set forth below is the summary compensation paid during the three years ended December 31, 1999 to David T. Taber, Mitchell A. Derenzo, William L. Young, Richard M. Borst, Douglas E. Tow and Kevin B. Bender, the only executive officers of American River Holdings and its subsidiaries.
Summary Compensation Table
------------------------------------------------------------------------------------------------------------------------------------
Long-Term Compensation
Annual Compensation Awards Payouts
------------------------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Name and Year Salary Bonus Other Annual Restricted Securities LTIP All Other
Principal Position ($) (1) ($) (2) Compensation Stock Underlying Payouts Compensation
($) (3) Award(s) Options/SARs ($) ($) (5)
($) (#) (4)
------------------------------------------------------------------------------------------------------------------------------------
David T. Taber, President and 1999 $123,057 $ 98,152 - - - - $ 42,694
Chief Executive Officer,
American River Holdings; 1998 123,057 54,033 - - - - 39,149
Executive Vice President,
American River Bank; 1997 121,000 50,078 - - - - 5,455
President and Chief Executive
Officer of First
Source Capital
------------------------------------------------------------------------------------------------------------------------------------
Mitchell A. Derenzo, 1999 82,734 19,557 - - - - 17,868
Chief Financial Officer,
American River Holdings; 1998 78,168 7,759 - - - - 10,926
Senior Vice President and
Chief Financial Officer, 1997 73,700 8,344 - - 17,365 - 2,461
American River Bank; Chief
Financial Officer,
First Source Capital
------------------------------------------------------------------------------------------------------------------------------------
William L. Young, President 1999 123,057 98,152 - - - - 75,618
and Chief Executive Officer,
American River Bank 1998 123,057 54,093 - - - - 5,672
1997 121,000 54,313 - - - - 5,440
------------------------------------------------------------------------------------------------------------------------------------
Richard M. Borst, Senior Vice 1999 71,373 16,895 - - - - 2,648
President and Client Services
Manager, American River Bank 1998 67,519 6,914 - - - - 2,233
1997 64,800 7,302 - - 17,365 - 8,405
------------------------------------------------------------------------------------------------------------------------------------
Douglas E. Tow, Senior Vice 1999 92,922 22,786 - - - - 4,057
President and Credit
Administrator, American River 1998 91,144 9,423 - - 7,875 - 3,017
Bank
1997 89,400 18,420 - - - - 3,234
------------------------------------------------------------------------------------------------------------------------------------
Kevin B. Bender, Senior Vice 1999 58,782 11,153 - - 10,000 - 17,444
President and Chief
Information Officer, American 1998 55,689 4,391 - - - - 1,802
River Bank
1997 51,044 4,543 - - - - 1,668
------------------------------------------------------------------------------------------------------------------------------------
|
(1) Amounts shown include cash compensation earned and received by
executive officers as well as amounts earned but deferred at the
election of those officers under the 401(k) Plan and the Deferred
Compensation Plan.
(2) Amounts indicated as incentive bonus payments are listed in the year
paid. Additional amounts accrued in 1999 and paid in the first quarter
of 2000 were $144,465 to Mr. Taber, $18,202 to Mr. Derenzo, $144,465 to
Mr. Young, $15,702 to Mr. Borst, $20,443 to Mr. Tow, and $10,777 to Mr.
Bender.
(3) No executive officer received perquisites or other personal benefits in
excess of the lesser of $50,000 or 10% of each such officer's total
annual salary and bonus during 1999, 1998 and 1997.
(4) Amounts shown represent the number of shares granted as adjusted for
stock splits and stock dividends. American River Bank has a 1995 Stock
Option Plan (the "1995 Plan") pursuant to which options can be granted
to directors and key, full-time salaried, officers and employees of
American River Holdings and its subsidiaries. Options granted under the
1995 Plan were either incentive options or nonstatutory options.
Options granted under the 1995 Plan became exercisable in accordance
with a vesting schedule established at the time of grant. Vesting can
not extend beyond ten years from the date of grant. Upon a change in
control of American River Holdings, all outstanding options under the
1995 Plan will become fully vested and exercisable. Options granted
under the 1995 Plan are adjusted to protect against dilution in the
event of certain changes in American River Holdings' capitalization,
including stock splits and stock dividends. All options granted to the
named executive officers are incentive stock options and have an
exercise price equal to the fair market value of American River
Holdings common stock on the date of grant.
(5) Amounts shown for each named executive officer include 401(k) matching
contributions, the use of an automobile owned by American River Bank,
payments received as well as amounts deferred at the election of those
executive officers under the Gross-Up Plan, and earned but unpaid
interest on amounts deferred under the American River Bank Deferred
Compensation Plan.
The following table sets forth certain information concerning the granting of options under the 1995 Stock Option Plan during the year ended December 31, 1999.
Option/SAR Grants In Last Fiscal Year
--------------------------------------------------------------------------------
Individual Grants
--------------------------------------------------------------------------------
Number of Percentage
Securities of Total
Underlying Options/SARs Exercise
Option/SARs Granted to or Base
Granted Employees in Price Expiration
Name (#)(1) Fiscal Year ($/Sh)(2) Date
--------------------------------------------------------------------------------
Kevin B. Bender 10,000 100% $ 15.375 11/17/09
--------------------------------------------------------------------------------
|
(1) Options granted under the 1995 Plan were either incentive options or nonstatutory options. Options granted under the 1995 Plan became exercisable in accordance with a vesting schedule established at the time of grant. Vesting can not extend beyond ten years from the date of grant. Upon a change in control of American River Holdings, all outstanding options under the 1995 Plan will become fully vested and exercisable. Options granted under the 1995 Plan are adjusted to protect against dilution in the event of certain changes in American River Holdings' capitalization, including stock splits and stock dividends. All options granted to the named executive officers are incentive stock options and
have an exercise price equal to the fair market value of American River
Holdings common stock on the date of grant.
(2) The exercise price was determined based upon the closing price of
American River Holdings common stock on the grant date.
The following table sets forth the number of shares of common stock acquired by each of the named executive officers upon the exercise of stock options during fiscal 1999, the net value realized upon exercise, the number of shares of common stock represented by outstanding stock options held by each of the named executive officers as of December 31, 1999, the value of such options based on the closing price of American River Holdings common stock, and certain information concerning unexercised options under the 1995 Stock Option Plan.
Aggregated Option/SAR Exercises In Last Fiscal Year And
FY-End Option/SAR Values
--------------------------------------------------------------------------------------------------------------------
Number of
Securities Value of
Underlying Unexercised
Unexercised in-the-Money
Options/SARs Options/SARs
at Fiscal Year- at Fiscal Year-
Shares Value End (#) End ($)
Acquired on Realized Exercisable/ Exercisable/
Name Exercise (#) ($) Unexercisable Unexercisable
(a) (b) (c) (d) (e) 1/
--------------------------------------------------------------------------------------------------------------------
David T. Taber 5,788 84,969 34,730 / 8,682 297,920 / 74,480
--------------------------------------------------------------------------------------------------------------------
Mitchell A. Derenzo 2,910 38,791 6,946 /10,419 27,585 / 41,378
--------------------------------------------------------------------------------------------------------------------
William L. Young 12,679 183,282 34,730 / 8,682 297,920 / 74,480
--------------------------------------------------------------------------------------------------------------------
Richard M. Borst 6,600 21,756 346 /10,419 1,374 / 41,378
--------------------------------------------------------------------------------------------------------------------
Douglas E. Tow 1,500 8,881 5,285 / 9,774 18,757 / 21,053
--------------------------------------------------------------------------------------------------------------------
Kevin B. Bender 2,756 40,457 - /10,000 - / -
--------------------------------------------------------------------------------------------------------------------
|
(1) The aggregate value has been determined based upon the closing price for American River Holdings common stock at year-end, minus the exercise price.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL ARRANGEMENTS
On May 29, 1996, American River Bank entered into employment agreements with David T. Taber and William L. Young. The agreements provide for an original term of two years subject to automatic extensions of two years following expiration of the original term and one-year extensions thereafter unless terminated in accordance with the terms of the agreements. The agreements provide for a base salary which is disclosed for 1999 in the Summary Compensation Table on page 172. The base salary under each agreement is reviewed annually and is subject to adjustment at the discretion of the board of directors. Additionally, the agreements provide for, among other things (i) an annual incentive bonus based upon American River Bank's achievement of certain profitability, growth and asset quality standards as set forth in the agreements; (ii) reduction of base salary payments by the amounts received from state disability insurance or workers' compensation or other similar insurance benefits through policies provided by American River Bank; (iii) stock option grants in the discretion of the board of directors under American
River Holdings' stock option plan; (iv) four weeks annual paid vacation leave;
(v) use of an automobile; and (vi) reimbursement for ordinary and necessary
expenses incurred in connection with employment.
The agreements may be terminated with or without cause, but if the agreements are terminated without cause due to the occurrence of circumstances that make it impossible or impractical for American River Bank to conduct or continue its business, the loss by American River Bank of its legal capacity to contract or American River Bank's breach of the terms of the agreement, the employee is entitled to receive severance compensation equal to six months of the existing base salary plus any incentive bonus due. The agreements further provide that in the event of a "change in control" as defined therein and within a period of two years following consummation of such change in control (i) the employee's employment is terminated; or (ii) any adverse change occurs in the nature and scope of the employee's position, responsibilities, duties, salary, benefits or location of employment; or (iii) any event occurs which reasonably constitutes a demotion, significant diminution or constructive termination of employment, then the employee will be entitled to receive severance compensation in an amount equal to one and one-half times the employee's average annual compensation for the five years immediately preceding the change in control.
On March 18, 1998, American River Bank adopted the American River Bank Employee Severance Policy. The Policy allows for certain named employees to receive severance payments equal to six times their monthly base pay should these named employees be terminated within one year of a "change in control." The board of directors has designated executive officers, Mitchell A. Derenzo, Douglas E. Tow, Richard M. Borst and Kevin B. Bender to be covered under the Policy.
COMPARISON OF AMERICAN RIVER HOLDINGS SHAREHOLDER RETURN
Set forth below is a line graph comparing the annual percentage change in the cumulative total return on American River Holdings common stock with the cumulative total return of the SNL Securities Index of National Peer Banks (asset size of less than $500 million) and the S&P 500 Index as of the end of each of American River Holdings' last five fiscal years.
The following table assumes that $100.00 was invested on December 31, 1994 in American River Holdings common stock and each index, and that all dividends were reinvested. Returns have been adjusted for any stock dividends and stock splits declared by American River Holdings. Shareholder returns over the indicated period should not be considered indicative of future shareholder returns.
[GRAPHIC CHART OMITTED]
AMERICAN RIVER HOLDINGS
Total Return Performance
PERIOD ENDING
--------------------------------------------------------------------------------------------------
Index 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
-------------------------------------------------------------------------------------------------------------------
American River Holdings 100.00 137.69 168.44 361.49 344.58 328.68
S&P 500 100.00 137.58 169.03 225.44 289.79 350.78
SNL <$500M Bank Index 100.00 136.80 176.08 300.16 274.06 253.69
|
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
American River Holdings does not currently have a class of securities registered under Section 12 of the Securities Exchange Act of 1934, as amended, nor is it required to file reports with the Securities and Exchange Commission under Section 13 of the Securities Exchange Act of 1934. Consequently, American River Holdings' directors, executive officers and ten percent or more shareholders of American River Holdings equity securities are not required to file reports of initial ownership and changes in ownership of its equity securities with the Securities and Exchange Commission under Section 16(a) of the Securities Exchange Act of 1934.
In connection with the merger, American River Holdings will register its common stock under Section 12 of the Securities Exchange Act and thereafter will be required to file reports under Section 13 of the Securities Exchange Act with the Securities and Exchange Commission. At that time, the directors, executive officers and ten percent or more shareholders of American River Holdings equity securities will be required to file such ownership reports with the Securities and Exchange Commission under Section 16(a) of the Securities Exchange Act of 1934.
TRANSACTIONS WITH MANAGEMENT AND OTHERS
There have been no transactions, or series of similar transactions, during 1999, or any currently proposed transaction, or series of similar transactions, to which American River Holdings and its subsidiaries was or is to be a party, in which the amount involved exceeded or will exceed $60,000 and in which any director or executive officer of American River Holdings or its subsidiaries, any shareholder owning of record or beneficially 5% or more of American River Holdings common stock, or any member of the immediate family of any of the foregoing persons, had, or will have, a direct or indirect material interest, except as follows:
American River Bank leases premises at 9750 Business Park Drive, Sacramento, California, from Bradshaw Plaza Group, which is owned in part by Charles D. Fite, a director of American River Holdings. The lease term is 7 years and expires on November 30, 2006, subject to extension for one five year option term. The premises consist of 4,590 square feet on the ground floor. The current monthly rent is $7,100. The approximate aggregate rental payments for the period from January 1, 2000 through the lease term expiring on November 30, 2006 will be $613,000. If the five year option is exercised, the approximate aggregate rental payments for the option term will be $474,000.
American River Bank leases premises at 10123 Fair Oaks Boulevard, Fair Oaks, California, from Marjorie Taylor, a director of American River Holdings. The lease term is 12 years and expires on March 1, 2009. The premises consist of 2,380 square feet on the ground floor and the current monthly rent is $1,653. The approximate aggregate rental payments for the period from January 1, 2000 through the lease term expiring on March 1, 2009 will be $201,000.
CERTAIN BUSINESS RELATIONSHIPS
There were no business relationships during 1999 of the type requiring disclosure under Item 404(b) of Regulation S-K.
INDEBTEDNESS OF MANAGEMENT
American River Holdings, through its subsidiaries, has had, and expects in the future to have banking transactions in the ordinary course of its business with many of American River Holdings' directors and officers and their associates, including transactions with corporations of which such persons
are directors, officers or controlling shareholders, on substantially the same terms (including interest rates and collateral) as those prevailing for comparable transactions with others. Management believes that in 1999 such transactions comprising loans did not involve more than the normal risk of collectibility or present other unfavorable features. Loans to executive officers of American River Holdings and its subsidiaries are subject to limitations as to amount and purposes prescribed in part by the Federal Reserve Act, as amended, and the regulations of the Federal Deposit Insurance Corporation.
PROPOSAL NO. 6
RATIFICATION OF THE APPOINTMENT OF PERRY-SMITH LLP AS INDEPENDENT
ACCOUNTANTS FOR THE YEAR 2000
The board of directors has selected Perry-Smith LLP as independent accountants for American River Holdings for the fiscal year ending December 31, 2000 and recommends that the appointment of Perry-Smith LLP be ratified by the shareholders of American River Holdings. Perry-Smith LLP audited American River Holdings' financial statements for the fiscal year ending December 31, 1999.
A representative from Perry-Smith LLP will be present at the annual meeting of shareholders and will be afforded the opportunity to make a statement if he or she desires to do so and will be available to respond to questions.
VOTE REQUIRED FOR APPROVAL
The ratification of the appointment of Perry-Smith LLP as American River Holdings' independent accountants requires that holders of a majority of the shares of common stock of American River Holdings voting in person or by proxy at the annual meeting, cast votes "FOR" the proposal.
RECOMMENDATION OF MANAGEMENT
The Board of Directors believes that this proposal is in the best interests of American River Holdings and its shareholders, and unanimously recommends a vote "FOR" its approval.
AMERICAN RIVER HOLDINGS AND SUBSIDIARIES
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED MARCH 31, 2000
AND
CONSOLIDATED FINANCIAL STATEMENTS
AND
INDEPENDENT AUDITOR'S REPORT
FOR THE YEARS ENDED
DECEMBER 31, 1999, 1998 AND 1997
AMERICAN RIVER HOLDINGS AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
March 31, December 31,
2000 1999
------------ ------------
ASSETS
Cash and due from banks $ 12,536,000 $ 8,274,000
Federal funds sold 1,150,000 7,125,000
Interest-bearing deposits in banks 5,631,000 5,527,000
Investment securities (market value of $53,355,000 at
March 31, 2000 and $57,372,000 at December 31,
1999) (Note 2) 53,597,000 57,567,000
Loans, less allowance for loan losses of $1,736,000 at
March 31, 2000 and $1,679,000 at December 31,
1999 (Notes 3, 8, 9 and 12) 118,485,000 117,308,000
Bank premises and equipment, net (Note 4) 542,000 463,000
Accounts receivable servicing receivables (Notes 5
and 11) 2,280,000 2,123,000
Accrued interest receivable and other assets 3,108,000 2,975,000
------------ ------------
$197,329,000 $201,362,000
============ ============
LIABILITIES AND
SHAREHOLDERS' EQUITY
Deposits:
Non-interest bearing $ 45,311,000 $ 47,994,000
Interest bearing (Note 6) 131,018,000 133,002,000
------------ ------------
Total deposits 176,329,000 180,996,000
Long-term debt (Note 8) 2,115,000 2,125,000
Accrued interest payable and other liabilities 1,485,000 1,628,000
------------ ------------
Total liabilities 179,929,000 184,749,000
------------ ------------
Commitments and contingencies (Note 9)
Shareholders' equity (Note 10):
Common stock - no par value; 20,000,000 shares
authorized; issued and outstanding - 1,793,274
shares 6,722,000 6,722,000
Retained earnings 10,965,000 10,171,000
Accumulated other comprehensive loss (Notes 2
and 13) (287,000) (280,000)
------------ ------------
Total shareholders' equity 17,400,000 16,613,000
------------ ------------
$197,329,000 $201,362,000
============ ============
|
The accompanying notes are an integral part of these financial statements.
AMERICAN RIVER HOLDINGS AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
FOR THE THREE MONTH PERIODS ENDED MARCH 31, 2000 AND 1999
2000 1999
---------- ----------
Interest income:
Interest and fees on loans $2,804,000 $2,649,000
Interest on Federal funds sold 38,000 32,000
Interest on deposits in banks 86,000 72,000
Interest and dividends on investment securities:
Taxable 711,000 453,000
Exempt from Federal income taxes 111,000 63,000
Dividends 16,000 13,000
---------- ----------
Total interest income 3,766,000 3,282,000
---------- ----------
Interest expense:
Interest on deposits (Note 6) 1,279,000 985,000
Interest on short-term borrowings (Note 7) 6,000 1,000
Interest on long-term debt (Note 8) 32,000 33,000
---------- ----------
Total interest expense 1,317,000 1,019,000
---------- ----------
Net interest income 2,449,000 2,263,000
Provision for loan losses (Note 3) 105,000 94,000
---------- ----------
Net interest income after provision for loan losses 2,344,000 2,169,000
---------- ----------
Non-interest income:
Service charges 113,000 114,000
Gains on sale of investment securities (Note 2) 5,000
Other income (Note 11) 337,000 190,000
---------- ----------
Total non-interest income 455,000 304,000
---------- ----------
Other expenses:
Salaries and employee benefits (Note 3) 935,000 842,000
Occupancy (Note 4) 111,000 101,000
Furniture and equipment (Note 4) 59,000 59,000
Other expense (Note 11) 420,000 378,000
---------- ----------
Total other expenses 1,525,000 1,380,000
---------- ----------
Income before income taxes 1,274,000 1,093,000
Income taxes 480,000 420,000
---------- ----------
Net income $ 794,000 $ 673,000
========== ==========
Basic earnings per share (Note 10) $ .44 $ .37
======= =======
Diluted earnings per share (Note 10) $ .42 $ .35
======= =======
|
The accompanying notes are an integral part of these financial statements.
AMERICAN RIVER HOLDINGS AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(UNAUDITED)
FOR THE THREE MONTH PERIOD ENDED MARCH 31, 2000
AND THE YEAR ENDED DECEMBER 31, 1999
Common Stock
------------------------------ Retained
Shares Amount Earnings
------------- ------------- -------------
Balance, January 1, 1999 1,148,271 $ 6,031,000 $ 9,167,000
Comprehensive income (Note 13):
Net income 2,901,000
Other comprehensive loss, net of tax:
Unrealized losses on available-for-sale investment
securities
Total comprehensive income
Cash dividends (416,000)
Three-for-two stock split 582,669
5% stock dividend 85,879 1,474,000 (1,474,000)
Fractional shares redeemed (7,000)
Stock options exercised 52,989 692,000
Retirement of common stock (76,534) (1,475,000)
--------- ---------- ----------
Balance, December 31, 1999 1,793,274 6,722,000 10,171,000
Comprehensive income (Note 13):
Net income 794,000
Other comprehensive loss, net of tax:
Unrealized losses on available-for-sale investment
securities
Total comprehensive income
Balance, March 31, 2000 1,793,274 $ 6,722,000 $ 10,965,000
==========================================================================================================================
Accumulated
Other
Comprehensive Shareholders' Comprehensive
Income (Loss) Equity Income
-------------- ------------- -------------
Balance, January 1, 1999 $ 178,000 $ 15,376,000
Comprehensive income (Note 13):
Net income 2,901,000 $ 2,901,000
Other comprehensive loss, net of tax:
Unrealized losses on available-for-sale investment
securities (458,000) (458,000) (458,000)
------------
$ 2,443,000
============
Total comprehensive income
Cash dividends (416,000)
Three-for-two stock split
5% stock dividend
Fractional shares redeemed (7,000)
Stock options exercised 692,000
Retirement of common stock (1,475,000)
------------ ------------
Balance, December 31, 1999 (280,000) 16,613,000
Comprehensive income (Note 13):
Net income 794,000 $ 794,000
Other comprehensive loss, net of tax:
Unrealized losses on available-for-sale investment
securities (7,000) (7,000) (7,000)
Total comprehensive income $ 787,000
============
------------ ------------
Balance, March 31, 2000 $ (287,000) $ 17,400,000
==========================================================================================================================
|
The accompanying notes are an integral part of these financial statements.
AMERICAN RIVER HOLDINGS AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
FOR THE THREE MONTH PERIODS ENDED MARCH 31, 2000 AND 1999
2000 1999
------------ ------------
Cash flows from operating activities:
Net income $ 794,000 $ 673,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 105,000 94,000
Deferred loan origination fees (costs), net 49,000 (37,000)
Depreciation and amortization 59,000 59,000
(Accretion) amortization of investment security
discounts premiums, net (93,000) 2,000
Gain on sale of securities (5,000)
Gain on sale of equipment (2,000)
Loss on sale of other real estate
Increase in accrued interest receivable and
other assets (186,000) (7,000)
Increase (decrease) in accrued interest payable
and other liabilities 72,000 (11,000)
------------ ------------
Net cash provided by operating activities 793,000 776,000
------------ ------------
Cash flows from investing activities:
Proceeds from the sale of available-for-sale
investment securities 7,000 998,000
Proceeds from called held-to-maturity investment
securities 155,000
Proceeds from matured available-for-sale investment
securities 11,500,000 8,200,000
Proceeds from matured held-to-maturity investment
securities 750,000 1,000,000
Purchases of available-for-sale investment securities (8,289,000) (5,493,000)
Purchases of held-to-maturity investment securities (487,000) (1,989,000)
Proceeds from principal repayments for held-to-
maturity mortgage-related securities 422,000 495,000
Net increase in interest-bearing deposits in banks (104,000)
Net increase in loans (1,290,000) (1,597,000)
Net (increase) decrease in accounts receivable servicing
receivables (157,000) 314,000
Proceeds from the sale of equipment 10,000
Purchases of equipment (131,000) (12,000)
Proceeds from sale of other real estate 104,000
------------ ------------
Net cash used in investing activities 2,386,000 2,020,000
------------ ------------
|
(Continued)
AMERICAN RIVER HOLDINGS AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(Continued)
FOR THE THREE MONTH PERIODS ENDED MARCH 31, 2000 AND 1999
2000 1999
------------ ------------
Cash flows from financing activities:
Net decrease in demand, interest-bearing and
savings deposits $ (7,414,000) $ (6,502,000)
Net increase in time deposits 2,747,000 3,351,000
Repayment of Federal Home Loan Bank advance (10,000) (10,000)
Payment of cash dividends (215,000) (185,000)
Cash paid for fractional shares (2,000)
Cash paid to repurchase common stock (440,000)
Exercise of stock options 303,000
------------ ------------
Net cash used by financing activities (4,892,000) (3,485,000)
------------ ------------
Decrease in cash and cash equivalents (1,713,000) (689,000)
Cash and cash equivalents at beginning of period 15,399,000 15,263,000
------------ ------------
Cash and cash equivalents at end of period $ 13,686,000 $ 14,574,000
============ ============
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest expense $ 1,265,000 $ 1,036,000
Income taxes $ 260,000 $ 235,000
Net change in unrealized gain on available-for-sale
investment securities $ (10,000) $ (102,000)
|
The accompanying notes are an integral part of these financial statements.
AMERICAN RIVER HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared in a condensed format and, therefore, do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. However, in the opinion of management, all adjustments, consisting only of normal recurring adjustments, considered necessary for a fair presentation have been reflected in the financial statements. The results of operations for the three months ended March 31, 2000 are not necessarily indicative of the results to be expected for the full year. Certain reclassifications have been made to prior period amounts to present them on a basis consistent with classifications for the three months ended March 31, 2000.
2. INVESTMENT SECURITIES
The amortized cost and estimated market value of investment securities at March 31, 2000 and December 31, 1999 consisted of the following:
AVAILABLE-FOR-SALE:
March 31, 2000
-----------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------------ ------------ ------------ ------------
U.S. Government
agencies $ 19,128,000 $ 1,000 $ (219,000) $ 18,910,000
Obligations of states
and political sub-
divisions 8,798,000 32,000 (285,000) 8,545,000
Corporate stock 1,063,000 24,000 (13,000) 1,074,000
Federal Home Loan
Bank stock 555,000 555,000
Commercial paper 4,890,000 4,890,000
------------ ------------ ------------ ------------
$ 34,434,000 $ 57,000 $ (517,000) $ 33,974,000
============ ============ ============ ============
|
Net unrealized losses on available-for-sale investment securities totaling $460,000 were recorded, net of $173,000 in tax benefits, as accumulated other comprehensive loss within shareholders' equity. Proceeds and gross realized gains from the sale of available-for-sale investment securities for the three months ended March 31, 2000 totaled $7,000 and $5,000, respectively.
AMERICAN RIVER HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Continued)
2. INVESTMENT SECURITIES (Continued)
AVAILABLE-FOR-SALE: (Continued)
December 31, 1999
-----------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------------ ------------ ------------ ------------
U.S. Government
agencies $ 17,837,000 $ 4,000 $ (144,000) $ 17,697,000
Obligations of states
and political sub-
divisions 8,462,000 15,000 (348,000) 8,129,000
Corporate stock 764,000 40,000 (17,000) 787,000
Federal Home Loan
Bank stock 547,000 547,000
Commercial paper 9,908,000 9,908,000
------------ ------------ ------------ ------------
$ 37,518,000 $ 59,000 $ (509,000) $ 37,068,000
============ ============ ============ ============
|
Net unrealized losses on available-for-sale investment securities totaling $450,000 were recorded, net of $170,000 in tax benefits, as accumulated other comprehensive loss within shareholders' equity. There were no sales of available-for-sale investment securities for the three month period ended March 31, 1999.
HELD-TO-MATURITY:
March 31, 2000
-----------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------------ ------------ ------------ ------------
U.S. Government
agencies $ 2,501,000 $ (7,000) $ 2,494,000
Obligations of states
and political sub-
divisions 2,019,000 $ 9,000 (9,000) 2,019,000
Government guaran-
teed mortgage-
backed secur-
ities 11,462,000 1,000 (187,000) 11,276,000
Corporate debt
securities 3,613,000 (49,000) 3,564,000
Other debt securities 28,000 28,000
------------ ------------ ------------ ------------
$ 19,623,000 $ 10,000 $ (252,000) $ 19,381,000
============ ============ ============ ============
|
AMERICAN RIVER HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Continued)
2. INVESTMENT SECURITIES (Continued)
HELD-TO-MATURITY: (Continued)
December 31, 1999
-------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------------- ------------ ------------- ------------
U.S. Government
agencies $ 3,003,000 $ 3,000 $ (7,000) $ 2,999,000
Obligations of states
and political sub-
divisions 2,188,000 16,000 (7,000) 2,197,000
Government guaran-
teed mortgage-
backed secur-
ities 11,891,000 (155,000) 11,736,000
Corporate debt
securities 3,387,000 (45,000) 3,342,000
Other debt securities 30,000 30,000
------------- ------------ ------------ ------------
$ 20,499,000 $ 19,000 $ (214,000) $ 20,304,000
============= ============ ============ ============
|
There were no sales or transfers of held-to-maturity investment securities for the three month periods ended March 31, 2000 and 1999.
AMERICAN RIVER HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Continued)
2. INVESTMENT SECURITIES (Continued)
The amortized cost and estimated market value of investment securities at March 31, 2000 by contractual maturity are shown below. Expected maturities will differ from contractual maturities because the issuers of the securities may have the right to call or prepay obligations with or without call or prepayment penalties.
Available-for-Sale Held-to-Maturity
------------------------------ ------------------------------
Estimated Estimated
Amortized Market Amortized Market
Cost Value Cost Value
----------- ------------ ----------- -----------
Within one year $ 11,071,000 $ 11,062,000 $ 3,426,000 $ 3,405,000
After one year
through five years 14,442,000 14,192,000 4,684,000 4,649,000
After five years
through ten years 450,000 423,000 23,000 23,000
After ten years 6,853,000 6,668,000
------------ ------------ ------------ ------------
32,816,000 32,345,000 8,133,000 8,077,000
Investment securities
not due at a single
maturity date:
SBA loan pools 28,000 28,000
Government
guaranteed mortgage-
backed securities 11,462,000 11,276,000
Corporate stock 1,063,000 1,074,000
Federal Home Loan Bank stock 555,000 555,000
------------ ------------ ------------ ------------
$ 34,434,000 $ 33,974,000 $ 19,623,000 $ 19,381,000
============ ============ ============ ============
|
Investment securities with amortized costs totaling $8,018,000 and $8,021,000 and market values totaling $7,929,000 and $7,957,000 were pledged to secure treasury tax and loan accounts, U.S. Bankruptcy Court trustee accounts and State Treasury funds on deposit at March 31, 2000 and December 31, 1999, respectively.
AMERICAN RIVER HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Continued)
3. LOANS
Outstanding loans are summarized as follows:
March 31, December 31,
2000 1999
------------- -------------
Commercial $ 31,840,000 $ 30,265,000
Real estate-mortgage 71,243,000 62,867,000
Real estate-construction 13,087,000 21,307,000
Consumer 4,411,000 4,859,000
------------- -------------
120,581,000 119,298,000
Deferred loan fees, net (360,000) (311,000)
Allowance for loan losses (1,736,000) (1,679,000)
------------- -------------
$ 118,485,000 $ 117,308,000
============= =============
|
Changes in the allowance for loan losses were as follows:
Three Month Periods Ended
March 31, Year Ended
-------------------------------- December 31,
2000 1999 1999
----------- ----------- -----------
Balance, beginning of period $ 1,679,000 $ 1,362,000 $ 1,362,000
Provision charged to operations 105,000 94,000 407,000
Losses charged to allowance (7,000) (4,000) (100,000)
Amounts transferred to accounts
receivable servicing receivables
valuation reserve (41,000)
Recoveries 10,000
----------- ----------- -----------
Balance, end of period $ 1,736,000 $ 1,452,000 $ 1,679,000
=========== =========== ===========
|
At March 31, 2000 and December 31, 1999, nonaccrual loans totaled $9,000 and $30,000, respectively. Interest foregone on nonaccrual loans for the three month periods ended March 31, 2000 and 1999 were not material. The recorded investment in loans that were considered to be impaired totaled $9,000 and $30,000 at March 31, 2000 and December 31, 1999, respectively. The related allowance for loan losses for these loans at March 31, 2000 and December 31, 1999 was $1,000 and $12,000, respectively. The average recorded investment in impaired loans for the three month periods ended March 31, 2000 and 1999, was $20,000 and $107,000, respectively. Interest income on impaired loans recognized during those same periods using a cash-basis method was not material.
AMERICAN RIVER HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Continued)
3. LOANS (Continued)
Salaries and employee benefits totaling $80,000 and $60,000 have been deferred as loan origination costs for the three month periods ended March 31, 2000 and 1999, respectively.
4. BANK PREMISES AND EQUIPMENT
Bank premises and equipment consisted of the following:
March 31, December 31,
2000 1999
------------------ ------------------
Furniture, fixtures and equipment $ 1,805,000 $ 1,778,000
Leasehold improvements 490,000 432,000
------------------ ------------------
2,295,000 2,210,000
Less accumulated depreciation
and amortization (1,753,000) (1,747,000)
------------------ ------------------
$ 542,000 $ 463,000
================== ==================
|
Depreciation and amortization included in occupancy and furniture and equipment expenses totaled $44,000 and $49,000 for the three month periods ended March 31, 2000 and 1999, respectively.
5. ACCOUNTS RECEIVABLE SERVICING RECEIVABLES
The Bank purchases existing accounts receivable on a discounted basis from selected borrowers and assumes the related billing and collection responsibilities. Accounts receivable servicing fees included in other income totaled $89,000 and $29,000 for the three month periods ended March 31, 2000 and 1999, respectively (see Note 11).
6. INTEREST-BEARING DEPOSITS
Interest-bearing deposits consisted of the following:
March 31, December 31,
2000 1999
------------------ ------------------
Savings $ 8,396,000 $ 8,506,000
Money market 47,235,000 53,111,000
NOW accounts 16,563,000 15,308,000
Time, $100,000 or more 34,521,000 35,503,000
Other time 24,303,000 20,574,000
------------------ ------------------
$ 131,018,000 $ 133,002,000
================== ==================
|
AMERICAN RIVER HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Continued)
6. INTEREST-BEARING DEPOSITS (Continued)
Interest expense recognized on interest-bearing deposits consisted of the following:
Three Month Periods Ended
March 31,
---------------------------------------------
2000 1999
------------------ ------------------
Savings $ 48,000 $ 41,000
Money market 402,000 301,000
NOW accounts 44,000 41,000
Time, $100,000 or more 321,000 328,000
Other time 464,000 274,000
------------------ ------------------
$ 1,279,000 $ 985,000
================== ==================
|
7. SHORT-TERM BORROWING ARRANGEMENTS
The Bank has a total of $11,000,000 in unsecured short-term borrowing arrangements with two of its correspondent banks. There were no borrowings outstanding under these arrangements at March 31, 2000 and December 31, 1999.
8. LONG-TERM DEBT
The Bank can borrow up to $4,464,000 from the Federal Home Loan Bank secured by qualifying mortgage loans with unpaid balances of $6,232,000 at March 31, 2000. Long-term debt consisted of an advance from the Federal Home Loan Bank totaling $2,115,000 and $2,125,000 at March 31, 2000 and December 31, 1999, respectively, bearing a fixed interest rate of 6.13%, due in monthly installments of approximately $14,000, including principal and interest, with the final principal payment of $1,711,000 due December 21, 2007.
9. COMMITMENTS AND CONTINGENCIES
SIGNIFICANT CONCENTRATIONS OF CREDIT RISK
The Bank grants real estate mortgage, real estate construction, commercial and consumer loans to clients throughout Sacramento, Placer, Yolo and El Dorado counties.
Although the Bank has a diversified loan portfolio, a substantial portion of its portfolio is secured by commercial and residential real estate. However, personal and business income represent the primary source of repayment for a majority of these loans.
AMERICAN RIVER HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Continued)
9. COMMITMENTS AND CONTINGENCIES (Continued)
CONTINGENCIES
The Company and its subsidiaries are subject to legal proceedings and claims which arise in the ordinary course of business. In the opinion of management, the amount of ultimate liability with respect to such actions will not materially affect the financial position or results of operations of the Company or its subsidiaries.
10. SHAREHOLDERS' EQUITY
REGULATORY CAPITAL
The Bank is subject to certain regulatory capital requirements administered by the Federal Deposit Insurance Corporation (FDIC). Failure to meet these minimum capital requirements can initiate certain 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. The Company is subject to similar capital requirements administered by the Board of Governors of the Federal Reserve System.
Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios of total and Tier 1 capital to risk-weighted assets and of Tier 1 capital to average assets. Each of these components is defined in the regulations. The consolidated average assets and risk-weighted assets of the Company and the average assets and risk-weighted assets of the Bank are not materially different at March 31, 2000 and December 31, 1999. Management believes that the Company and the Bank meet all their capital adequacy requirements as of March 31, 2000.
In addition, the most recent notification from the FDIC categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank must maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth on the following page. There are no conditions or events since that notification that management believes have changed the Bank's category.
AMERICAN RIVER HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Continued)
10. SHAREHOLDERS' EQUITY (Continued)
REGULATORY CAPITAL (Continued)
March 31, 2000 December 31, 1999
--------------------------- ----------------------------
Amount Ratio Amount Ratio
----------- -------- ----------- --------
LEVERAGE RATIO
American River Holdings and
Subsidiaries $17,536,000 8.8% $16,741,000 9.2%
American River Bank $17,232,000 8.7% $16,414,000 9.0%
Minimum requirement for "Well-
Capitalized" institution $ 9,915,000 5.0% $ 9,095,000 5.0%
Minimum regulatory requirement $ 7,932,000 4.0% $ 7,276,000 4.0%
TIER 1 RISK-BASED CAPITAL RATIO
American River Holdings and
Subsidiaries $17,536,000 12.3% $16,741,000 11.6%
American River Bank $17,232,000 12.1% $16,414,000 11.4%
Minimum requirement for "Well-
Capitalized" institution $ 8,571,000 6.0% $ 8,639,000 6.0%
Minimum regulatory requirement $ 5,714,000 4.0% $ 5,759,000 4.0%
TOTAL RISK-BASED CAPITAL RATIO
American River Holdings and
Subsidiaries $19,272,000 13.5% $18,420,000 12.8%
American River Bank $18,968,000 13.3% $18,093,000 12.6%
Minimum requirement for "Well-
Capitalized" institution $14,286,000 10.0% $14,398,000 10.0%
Minimum regulatory requirement $11,429,000 8.0% $14,518,000 8.0%
|
AMERICAN RIVER HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Continued)
10. SHAREHOLDERS' EQUITY (Continued)
EARNINGS PER SHARE
A reconciliation of the numerators and denominators of the basic and diluted earnings per share computations is as follows:
Weighted
Average
Number of
For the Three Month Shares Per Share
Periods Ended Net Income Outstanding Amount
---------------------------------------- ---------- ----------- ---------
MARCH 31, 2000
Basic earnings per share $ 794,000 1,793,274 $ .44
=========
Effect of dilutive stock options 84,229
--------- ---------
Diluted earnings per share $ 794,000 1,877,503 $ .42
========= ========= =========
MARCH 31, 1999
Basic earnings per share $ 673,000 1,832,036 $ .37
=========
Effect of dilutive stock options 114,667
--------- ---------
Diluted earnings per share $ 673,000 1,946,703 $ .35
========= ========= =========
|
11. OTHER INCOME AND EXPENSE
Other income consisted of the following:
Three Month Periods Ended
March 31,
--------------------------
2000 1999
----------- -----------
Accounts receivable servicing fees $ 89,000 $ 29,000
Merchant fee income 52,000 42,000
Income from residential lending division 22,000 34,000
State servicing contract fees 39,000 26,000
Financial services income 45,000 19,000
Other 208,000 154,000
----------- -----------
$ 455,000 $ 304,000
=========== ===========
|
AMERICAN RIVER HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Continued)
11. OTHER INCOME AND EXPENSE (Continued)
Other expense consisted of the following:
Three Month Periods Ended
March 31,
-------------------------
2000 1999
---------- ----------
Outsourced item processing $ 68,000 $ 54,000
Telephone and postage 53,000 50,000
Directors compensation 46,000 52,000
Professional fees 69,000 35,000
Stationery and supplies 22,000 30,000
Advertising and promotion 36,000 23,000
Other real estate 14,000
Other operating expenses 126,000 120,000
---------- ----------
$ 420,000 $ 378,000
========== ==========
12. RELATED PARTY TRANSACTIONS
|
During the normal course of business, the Bank enters into transactions with related parties, including Directors and affiliates. These transactions include borrowings from the Bank with substantially the same terms, including rates and collateral, as loans to unrelated parties. The following is a summary of the aggregate activity involving related party borrowers during 2000:
Balance, January 1, 2000 $ 2,246,000
Amounts repaid (9,000)
-------------
Balance, March 31, 2000 $ 2,237,000
=============
|
The Bank also leases bank premises from members of the Board of Directors. Rental payments to the Directors totaled $26,000 for each of the three month periods ended March 31, 2000 and 1999.
13. COMPREHENSIVE INCOME
Comprehensive income is reported in addition to net income for all periods presented. Comprehensive income is a more inclusive financial reporting methodology that includes disclosure of other comprehensive income (loss) that historically has not been recognized in the calculation of net income. Unrealized gains and losses on the Company's available-for-sale investment securities are included in other comprehensive income (loss). Total comprehensive income and the components of accumulated other comprehensive income (loss) are presented in the Statement of Changes in Shareholders' Equity.
AMERICAN RIVER HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Continued)
13. COMPREHENSIVE INCOME (Continued)
At March 31, 2000 and December 31, 1999, the Company held securities classified as available-for-sale which had unrealized losses as follows:
Before Tax After
Tax Benefit Tax
--------------- --------------- ----------------
FOR THE THREE MONTHS ENDED MARCH 31, 2000
Other comprehensive loss:
Unrealized holding losses $ (10,000) $ 3,000 $ (7,000)
=============== =============== ================
FOR THE YEAR ENDED DECEMBER 31, 1999
Other comprehensive income:
Unrealized holding gains $ (740,000) $ 282,000 $ (458,000)
=============== =============== ================
|
14. MERGER AND ACQUISITION ACTIVITY
On March 1, 2000, the Directors of American River Holdings and North Coast Bank approved a definitive merger agreement between the two companies. As a result, North Coast Bank, American River Bank, and first source capital will operate as wholly-owned subsidiaries under American River Holdings. Under the agreement, each share of North Coast Bank will be converted into the right to receive .9644 of a share of the common stock of American River Holdings. The transaction will be accounted for under the pooling-of-interests method of accounting. It is expected that this merger will be accomplished in the third quarter of 2000, subject to shareholder and regulatory approval.
The unaudited pro forma information set forth below assumes that the merger of the two companies took place on January 1, 1999. This information is presented for informational purposes only and is not necessarily indicative of the results of operations that actually would have been achieved had the merger been consummated at that time, nor do they consider any potential cost savings or revenue enhancements.
Three Month Periods Ended
March 31,
---------------------------------- Year Ended
December 31,
2000 1999 1999
------------- ------------- --------------
Net interest income $ 3,152,000 $ 2,797,000 $ 11,754,000
Net income $ 890,000 $ 710,000 $ 3,128,000
Basic earnings per common share $ .40 $ .31 $ 1.37
Diluted earnings per common share $ .38 $ .29 $ 1.30
|
INDEPENDENT AUDITOR'S REPORT
The Shareholders and Board of Directors
American River Holdings and Subsidiaries
We have audited the accompanying consolidated balance sheet of American River Holdings and subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of income, changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 1999. 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 audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of American River Holdings and subsidiaries as of December 31, 1999 and 1998, and the consolidated results of their operations and their consolidated cash flows for each of the three years in the period ended December 31, 1999, in conformity with generally accepted accounting principles.
/s/ PERRY-SMITH LLP ---------------------------- Certified Public Accountants |
Sacramento, California
February 24, 2000,
except for Note 18, as to which
the date is March 1, 2000
AMERICAN RIVER HOLDINGS AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1999 AND 1998
1999 1998
------------ ------------
ASSETS
Cash and due from banks $ 8,274,000 $ 11,538,000
Federal funds sold 7,125,000 3,725,000
Interest-bearing deposits in banks 5,527,000 5,015,000
Investment securities (market value of $57,372,000
in 1999 and $40,920,000 in 1998) (Note 2) 57,567,000 40,800,000
Loans, less allowance for loan losses of $1,679,000
in 1999 and $1,362,000 in 1998 (Notes 3, 8, 10
and 14) 117,308,000 112,329,000
Other real estate 561,000
Bank premises and equipment, net (Note 4) 463,000 450,000
Accounts receivable servicing receivables (Notes 5
and 12) 2,123,000 1,189,000
Accrued interest receivable and other assets (Note 9) 2,975,000 2,217,000
------------ -------------
$201,362,000 $ 177,824,000
============ =============
LIABILITIES AND
SHAREHOLDERS' EQUITY
Deposits:
Non-interest bearing $ 47,994,000 $ 43,255,000
Interest bearing (Note 6) 133,002,000 115,696,000
------------- -------------
Total deposits 180,996,000 158,951,000
Long-term debt (Note 8) 2,125,000 2,164,000
Accrued interest payable and other liabilities 1,628,000 1,333,000
------------- -------------
Total liabilities 184,749,000 162,448,000
------------- -------------
Commitments and contingencies (Note 10)
Shareholders' equity (Note 11):
Common stock - no par value; 20,000,000 shares
authorized; issued and outstanding - 1,793,274
shares in 1999 and 1,148,271 shares in 1998 6,722,000 6,031,000
Retained earnings 10,171,000 9,167,000
Accumulated other comprehensive (loss) income
(Notes 2 and 15) (280,000) 178,000
------------- -------------
Total shareholders' equity 16,613,000 15,376,000
------------- -------------
$ 201,362,000 $ 177,824,000
============= =============
|
The accompanying notes are an integral part of these financial statements.
AMERICAN RIVER HOLDINGS AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1999 1998 1997
----------- ----------- -----------
Interest income:
Interest and fees on loans $10,543,000 $10,472,000 $ 9,352,000
Interest on Federal funds sold 299,000 283,000 300,000
Interest on deposits in banks 290,000 293,000 281,000
Interest and dividends on
investment securities:
Taxable 2,066,000 1,867,000 1,872,000
Exempt from Federal income
taxes 330,000 209,000 150,000
Dividends 51,000 63,000 61,000
----------- ----------- -----------
Total interest income 13,579,000 13,187,000 12,016,000
----------- ----------- -----------
Interest expense:
Interest on deposits (Note 6) 4,143,000 4,318,000 4,201,000
Interest on short-term borrowings
(Note 7) 6,000 8,000 3,000
Interest on long-term debt (Note 8) 131,000 135,000 10,000
----------- ----------- -----------
Total interest expense 4,280,000 4,461,000 4,214,000
----------- ----------- -----------
Net interest income 9,299,000 8,726,000 7,802,000
Provision for loan losses (Note 3) 407,000 360,000 535,000
----------- ----------- -----------
Net interest income after
provision for loan losses 8,892,000 8,366,000 7,267,000
----------- ----------- -----------
Non-interest income:
Service charges 438,000 447,000 424,000
Other income (Notes 5 and 12) 1,082,000 856,000 574,000
----------- ----------- -----------
Total non-interest income 1,520,000 1,303,000 998,000
----------- ----------- -----------
|
(Continued)
AMERICAN RIVER HOLDINGS AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(Continued)
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1999 1998 1997
-------------------- -------------------- --------------------
Other expenses:
Salaries and employee benefits
(Notes 3 and 13) $ 3,496,000 $ 3,310,000 $ 2,893,000
Occupancy (Notes 4 and 10) 420,000 409,000 405,000
Furniture and equipment (Note 4) 257,000 289,000 335,000
Other expense (Note 12) 1,570,000 1,592,000 1,353,000
-------------------- -------------------- --------------------
Total other expenses 5,743,000 5,600,000 4,986,000
-------------------- -------------------- --------------------
Income before income
taxes 4,669,000 4,069,000 3,279,000
Income taxes (Note 9) 1,768,000 1,564,000 1,278,000
-------------------- -------------------- --------------------
Net income $ 2,901,000 $ 2,505,000 $ 2,001,000
==================== ==================== ====================
Basic earnings per share (Note 11) $ 1.59 $ 1.37 $ 1.09
============== ============== ==============
Diluted earnings per share (Note 11) $ 1.50 $ 1.24 $ .99
============== ============== ==============
Cash dividends per share of issued and
outstanding common stock, adjusted
for stock splits and dividends $ .230 $ .195 $ .174
============== ============== ==============
|
The accompanying notes are an integral part of these financial statements
AMERICAN RIVER HOLDINGS AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
Common Stock
-------------------------------- Retained
Shares Amount Earnings
------------- ------------- ------------
Balance, January 1, 1997 1,072,053 $ 4,757,000 $ 8,040,000
Comprehensive income (Note 15):
Net income 2,001,000
Other comprehensive income, net of tax:
Unrealized gains on available-for-sale investment
securities
Total comprehensive income
Cash dividends (322,000)
5% stock dividend 53,165 1,164,000 (1,164,000)
Stock options exercised (Note 11) 11,300 151,000
Retirement of common stock (Note 11) (24,876) (531,000)
--------- ----------- -----------
Balance, December 31, 1997 1,111,642 5,541,000 8,555,000
Comprehensive income (Note 15):
Net income 2,505,000
Other comprehensive income, net of tax:
Unrealized gains on available-for-sale investment
securities
Total comprehensive income
Cash dividends (357,000)
5% stock dividend 54,501 1,531,000 (1,531,000)
Fractional shares redeemed (5,000)
Stock options exercised (Note 11) 42,164 610,000
Retirement of common stock (Note 11) (60,036) (1,651,000)
--------- ----------- -----------
Balance, December 31, 1998 1,148,271 6,031,000 9,167,000
--------- ----------- -----------
Accumulated
Other
Comprehensive Shareholders' Comprehensive
Income (Loss) Equity Income
------------- ------------- ------------
Balance, January 1, 1997 $ 42,000 $12,839,000
Comprehensive income (Note 15):
Net income 2,001,000 $ 2,001,000
Other comprehensive income, net of tax:
Unrealized gains on available-for-sale investment
securities 77,000 77,000 77,000
-----------
$ 2,078,000
===========
Total comprehensive income
Cash dividends (322,000)
5% stock dividend
Stock options exercised (Note 11) 151,000
Retirement of common stock (Note 11) (531,000)
--------- -----------
Balance, December 31, 1997 119,000 14,215,000
Comprehensive income (Note 15):
Net income 2,505,000 $ 2,505,000
Other comprehensive income, net of tax:
Unrealized gains on available-for-sale investment
securities 59,000 59,000 59,000
-----------
Total comprehensive income
$ 2,564,000
===========
Cash dividends (357,000)
5% stock dividend
Fractional shares redeemed (5,000)
Stock options exercised (Note 11) 610,000
Retirement of common stock (Note 11) (1,651,000)
--------- -----------
Balance, December 31, 1998 178,000 15,376,000
--------- -----------
|
(Continued)
AMERICAN RIVER HOLDINGS AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(Continued)
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
Common Stock
-------------------------------- Retained
Shares Amount Earnings
----------- ---------- -----------
Balance, December 31, 1998 1,148,271 $ 6,031,000 $ 9,167,000
Comprehensive income (Note 15):
Net income 2,901,000
Other comprehensive loss, net of tax:
Unrealized losses on available-for-sale investment
securities (Note 2)
Total comprehensive income
Cash dividends
Three-for-two stock split 582,669 (416,000)
5% stock dividend 85,879 1,474,000 (1,474,000)
Fractional shares redeemed (7,000)
Stock options exercised (Note 11) 52,989 692,000
Retirement of common stock (Note 11) (76,534) (1,475,000)
----------- ---------- -----------
Balance, December 31, 1999 1,793,274 $ 6,722,000 $10,171,000
=========== =========== ===========
Accumulated
Other
Comprehensive Shareholders' Comprehensive
Income (Loss) Equity Income
------------- ------------- ------------
Balance, December 31, 1998 $ 178,000 $15,376,000
Comprehensive income (Note 15):
Net income 2,901,000 $ 2,901,000
Other comprehensive loss, net of tax:
Unrealized losses on available-for-sale investment
securities (Note 2) (458,000) (458,000) (458,000)
-----------
Total comprehensive income 2,443,000
===========
Cash dividends (416,000)
Three-for-two stock split
5% stock dividend
Fractional shares redeemed (7,000)
Stock options exercised (Note 11) 692,000
Retirement of common stock (Note 11) (1,475,000)
------------ -------------
Balance, December 31, 1999 $ (280,000) $16,613,000
=========== =============
|
The accompanying notes are an integral part of these financial statements.
AMERICAN RIVER HOLDINGS AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1999 1998 1997
----------- ----------- -----------
Cash flows from operating activities:
Net income $ 2,901,000 $ 2,505,000 $ 2,001,000
Adjustments to reconcile net income
to net cash provided by operating
activities:
Provision for loan losses 407,000 360,000 535,000
Deferred loan origination fees
and costs, net (59,000) (29,000) (8,000)
Depreciation and amortization 206,000 280,000 324,000
Accretion of investment
security discounts, net (54,000) (60,000) (260,000)
Loss on sale of other real estate 3,000 9,000
Provision for losses on other
real estate 7,000 104,000
Increase in accrued interest
receivable and other assets (351,000) (252,000) (93,000)
Increase in accrued interest
payable and other liabilities 265,000 686,000 132,000
Deferred taxes (166,000) (169,000) 8,000
----------- ----------- -----------
Net cash provided by
operating activities 3,159,000 3,425,000 2,648,000
----------- ----------- -----------
|
(Continued)
AMERICAN RIVER HOLDINGS AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Continued)
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1999 1998 1997
------------ ------------ ------------
Cash flows from investing activities:
Proceeds from the sale of available-
for-sale investment securities $ 1,996,000
Proceeds from called available-for-
sale investment securities $ 250,000
Proceeds from matured available-
for-sale investment securities 23,370,000 30,507,000 $ 32,609,000
Proceeds from matured held-to-
maturity investment securities 3,330,000 1,750,000 1,260,000
Purchases of available-for-sale
investment securities (38,331,000) (29,295,000) (41,492,000)
Purchases of held-to-maturity
investment securities (10,865,000) (6,553,000) (6,140,000)
Proceeds from principal repayments
for held-to-maturity mortgage-
related securities 3,047,000 4,906,000 1,476,000
Net increase in interest-bearing
deposits in banks (512,000) (387,000) (101,000)
Net increase in loans (5,203,000) (12,401,000) (11,836,000)
Net increase in accounts receivable
servicing receivables (934,000) (906,000) (125,000)
Purchases of equipment (201,000) (114,000) (68,000)
Proceeds from the sale of other
real estate 450,000 291,000 363,000
Purchase of other real estate (23,000) (233,000)
Capitalized other real estate costs (4,000) (28,000)
------------ ------------ ------------
Net cash used in
investing activities (23,853,000) (11,979,000) (24,315,000)
------------ ------------ ------------
|
(Continued)
AMERICAN RIVER HOLDINGS AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Continued)
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1999 1998 1997
------------ ------------ ------------
Cash flows from financing activities:
Net increase in demand, interest-
bearing and savings deposits $ 11,472,000 $ 8,334,000 $ 20,878,000
Net increase in time deposits 10,573,000 4,051,000 3,623,000
Proceeds from Federal Home Loan
Bank advance 2,200,000
Repayment of Federal Home Loan
Bank advance (39,000) (36,000)
Net decrease in short-term
borrowings (650,000)
Exercise of stock options 692,000 610,000 151,000
Cash paid to repurchase common
stock (1,475,000) (1,651,000) (531,000)
Payment of cash dividends (386,000) (338,000) (306,000)
Cash paid for fractional shares (7,000) (5,000)
------------ ------------ ------------
Net cash provided by
financing activities 20,830,000 10,965,000 25,365,000
------------ ------------ ------------
Increase in cash and
cash equivalents 136,000 2,411,000 3,698,000
Cash and cash equivalents at
beginning of year 15,263,000 12,852,000 9,154,000
------------ ------------ ------------
Cash and cash equivalents at
end of year $ 15,399,000 $ 15,263,000 $ 12,852,000
============ ============ ============
Supplemental disclosure of cash
flow information:
Cash paid during the year for:
Interest expense $ 4,328,000 $ 4,451,000 $ 4,147,000
Income taxes $ 1,720,000 $ 1,325,000 $ 1,153,000
Non-cash investing activities:
Real estate acquired through
foreclosure $ 128,000 $ 395,000
Net change in unrealized gain
on available-for-sale
investment securities $ (740,000) $ 96,000 $ 127,000
Non-cash financing activities:
Dividends declared, adjusted for
stock splits and dividends, $.12
per share in 1999, $.10 per share
in 1998 and $.09 per share in
1997 $ 215,000 $ 185,000 $ 166,000
|
The accompanying notes are an integral part of these financial statements.
AMERICAN RIVER HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL
American River Holdings (the "Company") was incorporated on January 24, 1995 and subsequently obtained approval of the Board of Governors of the Federal Reserve System to be a bank holding company. On June 16, 1995, American River Bank (the "Bank") consummated a merger with American River Holdings that was effected through the exchange of one share of the Company's stock for each share of the Bank's stock. The Bank's primary source of revenue is generated from providing a wide-range of products to small and middle-market businesses and individuals throughout Sacramento, Placer, Yolo and El Dorado counties.
On June 29, 1999, first source capital was incorporated as a wholly-owned subsidiary of American River Holdings, providing brokerage leasing services to businesses.
The accounting and reporting policies of the Company and its subsidiaries conform with generally accepted accounting principles and prevailing practices within the banking industry.
Certain reclassifications have been made to prior years' balances to conform to classifications used in 1999.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All material intercompany transactions and accounts have been eliminated in consolidation.
INVESTMENT SECURITIES
Investments are classified into the following categories:
o Available-for-sale securities, reported at fair value, with unrealized gains and losses excluded from earnings and reported, net of taxes, as accumulated other comprehensive income (loss) within shareholders' equity.
o Held-to-maturity securities, which management has the positive intent and ability to hold, reported at amortized cost, adjusted for the accretion of discounts and amortization of premiums.
Management determines the appropriate classification of its investments at the time of purchase and may only change the classification in certain limited circumstances. All transfers between categories are accounted for at fair value.
Gains or losses on the sale of investment securities are computed on the specific identification method. Interest earned on investment securities is reported in interest income, net of applicable adjustments for accretion of discounts and amortization of premiums. In addition, unrealized losses that are other than temporary are recognized in earnings for all investments.
AMERICAN RIVER HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
LOANS
Loans are stated at principal balances outstanding. Interest is accrued daily based upon outstanding loan balances. However, when, in the opinion of management, loans are considered to be impaired and the future collectibility of interest and principal is in serious doubt, loans are placed on nonaccrual status and the accrual of interest income is suspended. Any interest accrued but unpaid is charged against income. Payments received are applied to reduce principal to the extent necessary to ensure collection. Subsequent payments on these loans, or payments received on nonaccrual loans for which the ultimate collectibility of principal is not in doubt, are applied first to earned but unpaid interest and then to principal.
An impaired loan is measured based on the present value of expected future cash flows discounted at the loan's effective interest rate or, as a practical matter, at the loan's observable market price or the fair value of collateral if the loan is collateral dependent. A loan is considered impaired when, based on current information and events, it is probable that the Bank will be unable to collect all amounts due (including both principal and interest) in accordance with the contractual terms of the loan agreement.
Loan origination fees, commitment fees, direct loan origination costs and purchase premiums and discounts on loans are deferred and recognized as an adjustment of yield, to be amortized to interest income over the contractual term of the loan. The unamortized balance of deferred fees and costs is reported as a component of net loans.
LOAN SALES AND SERVICING
Included in the portfolio are loans which are 75% to 90% guaranteed by the Small Business Administration (SBA). The guaranteed portion of these loans may be sold to a third party, with the Bank retaining the unguaranteed portion. The Bank generally receives a premium in excess of the adjusted carrying value of the loan at the time of sale. The Bank may be required to refund a portion of the sales premium if the borrower defaults or the loan prepays within ninety days of the settlement date. However, there were no sales of loans subject to these recourse provisions at December 31, 1999, 1998 and 1997.
The Bank serviced SBA loans for others totaling $4,106,000 and $4,916,000 as of December 31, 1999 and 1998, respectively. The Bank also serviced loans that are participated with other financial institutions totaling $5,330,000 and $8,133,000 as of December 31, 1999 and 1998, respectively. In addition, the Bank serviced loans originated by others totaling $21,517,000 and $15,087,000 as of December 31, 1999 and 1998, respectively.
Servicing rights acquired through 1) a purchase or 2) the origination of loans which are sold or securitized with servicing rights retained are recognized as separate assets or liabilities. Servicing assets or liabilities are recorded at the difference between the contractual servicing fees and adequate compensation for performing the servicing, and are subsequently amortized in proportion to and over the period of the related net servicing income or expense. Servicing assets are periodically evaluated for impairment. Servicing assets were not considered material for disclosure purposes.
AMERICAN RIVER HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is maintained to provide for losses related to impaired loans and other losses that can be expected to occur in the normal course of business. The determination of the allowance is based on estimates made by management, to include consideration of the character of the loan portfolio, specifically identified problem loans, potential losses inherent in the portfolio taken as a whole and economic conditions in the Bank's service area. These estimates are particularly susceptible to changes in the economic environment and market conditions. The allowance is established through a provision for loan losses which is charged to expense.
OTHER REAL ESTATE
Other real estate includes real estate acquired in full or partial settlement of loan obligations. When property is acquired, any excess of the Bank's recorded investment in the loan balance and accrued interest income over the estimated fair market value of the property is charged against the allowance for loan losses. A valuation allowance for losses on other real estate is maintained to provide for temporary declines in value. The allowance is established through a provision for losses on other real estate which is included in other expenses. Subsequent gains or losses on sales or writedowns resulting from permanent impairments are recorded in other income or expense as incurred.
BANK PREMISES AND EQUIPMENT
Bank premises and equipment are carried at cost. Depreciation is determined using the straight-line method over the estimated useful lives of the related assets. The useful lives of furniture, fixtures and equipment are estimated to be three to ten years. Leasehold improvements are amortized over the life of the asset or the term of the related lease, whichever is shorter. When assets are sold or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts, and any resulting gain or loss is recognized in income for the period. The cost of maintenance and repairs is charged to expense as incurred.
INCOME TAXES
The Company files its income taxes on a consolidated basis with its subsidiaries. The allocation of income tax expense (benefit) represents each entity's proportionate share of the consolidated provision for income taxes.
Deferred tax assets and liabilities are recognized for the tax consequences of temporary differences between the financial statement and tax basis of existing assets and liabilities. On the balance sheet, net deferred tax assets are included in accrued interest receivable and other assets.
AMERICAN RIVER HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
CASH EQUIVALENTS
For the purpose of the statement of cash flows, cash and due from banks and Federal funds sold are considered to be cash equivalents. Generally, Federal funds are sold for one day periods.
EARNINGS PER SHARE
Basic earnings per share (EPS), which excludes dilution, is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock, such as stock options, result in the issuance of common stock which shares in the earnings of the Company. The treasury stock method has been applied to determine the dilutive effect of stock options in computing diluted EPS. Earnings per share is retroactively adjusted for stock splits and stock dividends for all periods presented.
STOCK-BASED COMPENSATION
Stock options are accounted for under the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees. Accordingly, compensation cost for stock options is measured as the excess, if any, of the quoted market price of the Company's stock at the date of grant over the exercise price. However, if the fair value of stock-based compensation computed under a fair value based method, as prescribed in Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation, is material to the financial statements, pro forma net income and earnings per share are disclosed as if the fair value method had been applied.
USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.
NEW FINANCIAL ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued SFAS 133, Accounting for Derivative Instruments and Hedging Activity, which was subsequently amended by SFAS 137 to delay the effective date to all fiscal quarters of fiscal years beginning after June 15, 2000. This Statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires that entities recognize all derivatives as either assets or liabilities on the balance sheet and measure those instruments at fair value. Management does not believe that the adoption of SFAS 133 will have a significant impact on its financial position and results of operations when implemented.
AMERICAN RIVER HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
2. INVESTMENT SECURITIES
The amortized cost and estimated market value of investment securities at December 31, 1999 and 1998 consisted of the following:
AVAILABLE-FOR-SALE:
1999
-----------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------------ ------------ ------------ ------------
U.S. Government
agencies $ 17,837,000 $ 4,000 $ (144,000) $ 17,697,000
Obligations of states
and political sub-
divisions 8,462,000 15,000 (348,000) 8,129,000
Corporate stock 764,000 40,000 (17,000) 787,000
Federal Home Loan
Bank stock 547,000 547,000
Commercial paper 9,908,000 9,908,000
------------ ------------ ------------ ------------
$ 37,518,000 $ 59,000 $ (509,000) $ 37,068,000
============ ============ ============ ============
|
Net unrealized losses on available-for-sale investment securities totaling $450,000 were recorded, net of $170,000 in tax benefits, as accumulated other comprehensive loss within shareholders' equity. Proceeds from the sale of available-for-sale investment securities for the year ended December 31, 1999 totaled $1,996,000. No gains or losses were recognized.
1998
-----------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------------ ------------ ------------ ------------
U.S. Treasury
securities $ 502,000 $ 1,000 $ 503,000
U.S. Government
agencies 11,658,000 139,000 11,797,000
Obligations of states
and political sub-
divisions 2,944,000 92,000 $ (4,000) 3,032,000
Corporate stock 765,000 64,000 (2,000) 827,000
Federal Home Loan
Bank stock 512,000 512,000
Commercial paper 7,952,000 7,952,000
------------ ------------ ------------ ------------
$ 24,333,000 $ 296,000 $ (6,000) $ 24,623,000
============ ============ ============ ============
|
AMERICAN RIVER HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
2. INVESTMENT SECURITIES (Continued)
AVAILABLE-FOR-SALE: (Continued)
Net unrealized gains on available-for-sale investment securities totaling $290,000 were recorded, net of $112,000 in tax liabilities, as accumulated other comprehensive income within shareholders' equity. There were no sales or transfers of available-for-sale investment securities for the years ended December 31, 1998 and 1997.
HELD-TO-MATURITY:
1999
-------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------------ ---------- ------------- ------------
U.S. Government
agencies $ 3,003,000 $ 3,000 $ (7,000) $ 2,999,000
Obligations of states
and political sub-
divisions 2,188,000 16,000 (7,000) 2,197,000
Government guaran-
teed mortgage-
backed secur-
ities 11,891,000 (155,000) 11,736,000
Corporate debt
securities 3,387,000 (45,000) 3,342,000
Other debt securities 30,000 30,000
------------ ---------- ------------- ------------
$ 20,499,000 $ 19,000 $ (214,000) $ 20,304,000
============ ========== ============= ============
1998
-------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------------ ---------- ------------- ------------
U.S. Treasury
securities $ 504,000 $ 5,000 $ 509,000
U.S. Government
agencies 4,011,000 67,000 4,078,000
Obligations of states
and political sub-
divisions 2,209,000 78,000 $ (1,000) 2,286,000
Government guaran-
teed mortgage-
backed secur-
ities 6,534,000 8,000 (45,000) 6,497,000
Corporate debt
securities 2,868,000 8,000 2,876,000
Other debt securities 51,000 51,000
------------ ---------- ------------- ------------
$ 16,177,000 $ 166,000 $ (46,000) $ 16,297,000
============ ========== ============= ============
|
AMERICAN RIVER HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
2. INVESTMENT SECURITIES (Continued)
HELD-TO-MATURITY: (Continued)
There were no sales or transfers of held-to-maturity investment securities for the years ended December 31, 1999, 1998 and 1997.
The amortized cost and estimated market value of investment securities at December 31, 1999 by contractual maturity are shown below. Expected maturities will differ from contractual maturities because the issuers of the securities may have the right to call or prepay obligations with or without call or prepayment penalties.
Available-for-Sale Held-to-Maturity
-------------------------- -------------------------
Estimated Estimated
Amortized Market Amortized Market
Cost Value Cost Value
------------ ------------ ----------- -----------
Within one year $16,389,000 $16,387,000 $ 2,375,000 $ 2,371,000
After one year
through five years 12,512,000 12,348,000 6,172,000 6,136,000
After five years
through ten years 450,000 424,000 31,000 31,000
After ten years 6,856,000 6,575,000
----------- ----------- ----------- -----------
36,207,000 35,734,000 8,578,000 8,538,000
Investment securities
not due at a single
maturity date:
SBA loan pools 30,000 30,000
Government guaran-
teed mortgage-
backed securities 11,891,000 11,736,000
Corporate stock 764,000 787,000
Federal Home Loan
Bank stock 547,000 547,000
----------- ----------- ----------- -----------
$37,518,000 $37,068,000 $20,499,000 $20,304,000
=========== =========== =========== ===========
|
Investment securities with amortized costs totaling $8,021,000 and $1,500,000 and market values totaling $7,957,000 and $1,524,000 were pledged to secure treasury tax and loan accounts, U.S. Bankruptcy Court trustee accounts and State Treasury funds on deposit at December 31, 1999 and 1998, respectively.
AMERICAN RIVER HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
3. LOANS
Outstanding loans are summarized as follows:
December 31,
------------------------------
1999 1998
------------- -------------
Commercial $ 30,265,000 $ 27,615,000
Real estate-mortgage 62,867,000 61,034,000
Real estate-construction 21,307,000 20,768,000
Consumer 4,859,000 4,644,000
------------- -------------
119,298,000 114,061,000
Deferred loan fees, net (311,000) (370,000)
Allowance for loan losses (1,679,000) (1,362,000)
------------- -------------
$ 117,308,000 $ 112,329,000
============= =============
|
Changes in the allowance for loan losses were as follows:
Year Ended December 31,
-----------------------------------------
1999 1998 1997
----------- ----------- -----------
Balance, beginning of year $ 1,362,000 $ 1,174,000 $ 1,169,000
Provision charged to operations 407,000 360,000 535,000
Losses charged to allowance (100,000) (324,000) (550,000)
Recoveries 10,000 152,000 20,000
----------- ----------- -----------
Balance, end of year $ 1,679,000 $ 1,362,000 $ 1,174,000
=========== =========== ===========
|
At December 31, 1999 and 1998, nonaccrual loans totaled $30,000 and $110,000, respectively. Interest foregone on nonaccrual loans for the year ended December 31, 1999 was not material. Interest foregone on nonaccrual loans totaled $77,000 and $64,000 for the years ended December 31, 1998 and 1997, respectively.
The recorded investment in loans that were considered to be impaired totaled $30,000 and $110,000 at December 31, 1999 and 1998, respectively. The related allowance for loan losses for these loans at December 31, 1999 and 1998 was $12,000 and $47,000, respectively. The average recorded investment in impaired loans for the years ended December 31, 1999, 1998 and 1997 was $279,000, $254,000 and $548,000, respectively. The Bank recognized $45,000, $8,000 and $7,000 in interest income on impaired loans during those same periods using a cash-basis method.
Salaries and employee benefits totaling $312,000, $336,000 and $300,000 have been deferred as loan origination costs for the years ended December 31, 1999, 1998 and 1997, respectively.
AMERICAN RIVER HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
4. BANK PREMISES AND EQUIPMENT
Bank premises and equipment consisted of the following:
December 31,
--------------------------
1999 1998
----------- -----------
Furniture, fixtures and equipment $ 1,778,000 $ 1,832,000
Leasehold improvements 432,000 538,000
2,210,000 2,370,000
Less accumulated depreciation
and amortization (1,747,000) (1,920,000)
----------- -----------
$ 463,000 $ 450,000
=========== ===========
|
Depreciation and amortization included in occupancy and furniture and equipment expenses totaled $188,000, $253,000 and $307,000 for the years ended December 31, 1999, 1998 and 1997, respectively.
5. ACCOUNTS RECEIVABLE SERVICING RECEIVABLES
The Bank purchases existing accounts receivable on a discounted basis from selected borrowers and assumes the related billing and collection responsibilities. Accounts receivable servicing fees included in other income totaled $272,000, $102,000 and $13,000 for the years ended December 31, 1999, 1998 and 1997, respectively (see Note 12).
6. INTEREST-BEARING DEPOSITS
Interest-bearing deposits consisted of the following:
December 31,
--------------------------
1999 1998
----------- -----------
Savings $ 8,506,000 $ 7,541,000
Money market 53,111,000 47,588,000
NOW accounts 15,308,000 15,063,000
Time, $100,000 or more 35,503,000 27,305,000
Other time 20,574,000 18,199,000
------------ -------------
$133,002,000 $ 115,696,000
============ =============
|
AMERICAN RIVER HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
6. INTEREST-BEARING DEPOSITS (Continued)
Aggregate annual maturities of time deposits are as follows:
Year Ending
December 31,
------------
2000 $ 45,556,000
2001 3,429,000
2002 732,000
2003 2,211,000
2004 4,114,000
Thereafter 35,000
------------------
$ 56,077,000
==================
Interest expense recognized on interest-bearing
|
deposits consisted of the following:
Year Ended December 31,
------------------------------------------------------
1999 1998 1997
---------- ---------- ----------
Savings $ 186,000 $ 182,000 $ 164,000
Money market 1,250,000 1,412,000 1,550,000
NOW accounts 170,000 192,000 177,000
Time, $100,000 or more 1,392,000 1,314,000 1,103,000
Other time 1,145,000 1,218,000 1,207,000
---------- ---------- ----------
$4,143,000 $4,318,000 $4,201,000
========== ========== ==========
|
7. SHORT-TERM BORROWING ARRANGEMENTS
The Bank has a total of $11,000,000 in unsecured short-term borrowing arrangements with two of its correspondent banks. There were no borrowings outstanding under these arrangements at December 31, 1999 and 1998.
8. LONG-TERM DEBT
The Bank can borrow up to $4,624,000 from the Federal Home Loan Bank secured by qualifying mortgage loans with unpaid balances of $6,471,000 at December 31, 1999. Long-term debt consisted of an advance from the Federal Home Loan Bank totaling $2,125,000 and $2,164,000 at December 31, 1999 and 1998, respectively, bearing a fixed interest rate of 6.13%, due in monthly installments of approximately $14,000, including principal and interest, with the final principal payment of $1,711,000 due December 21, 2007.
AMERICAN RIVER HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
8. LONG-TERM DEBT (Continued)
Future minimum principal payments on long-term debt are as follows:
Year Ending
December 31,
------------
2000 $ 41,000
2001 44,000
2002 47,000
2003 50,000
2004 54,000
Thereafter 1,889,000
------------------
$ 2,125,000
==================
9. INCOME TAXES
|
The provision for income taxes for the years ended December 31, 1999, 1998 and 1997 consisted of the following:
Federal State Total
----------- ----------- -----------
1999
----
Current $ 1,419,000 $ 515,000 $ 1,934,000
Deferred (122,000) (44,000) (166,000)
----------- ----------- -----------
Income tax expense $ 1,297,000 $ 471,000 $ 1,768,000
=========== =========== ===========
1998
----
Current $ 1,267,000 $ 466,000 $ 1,733,000
Deferred (125,000) (44,000) (169,000)
----------- ----------- -----------
Income tax expense $ 1,142,000 $ 422,000 $ 1,564,000
=========== =========== ===========
1997
----
Current $ 934,000 $ 336,000 $ 1,270,000
Deferred (9,000) 17,000 8,000
----------- ----------- -----------
Income tax expense $ 925,000 $ 353,000 $ 1,278,000
=========== =========== ===========
|
AMERICAN RIVER HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
9. INCOME TAXES (Continued)
Deferred tax assets (liabilities) consisted of the following at December 31, 1999 and 1998:
1999 1998
--------- ---------
Deferred tax assets:
Allowance for loan losses $ 560,000 $ 409,000
Future benefit of State tax deduction 157,000 133,000
Bank premises and equipment 56,000 42,000
Unrealized loss on available-for-sale
investment securities 170,000
Other real estate 46,000
Deferred compensation 41,000 5,000
Other 8,000 8,000
--------- ---------
Total deferred tax assets 992,000 643,000
--------- ---------
Deferred tax liabilities:
Discount on purchased loans (57,000) (73,000)
Future liability of State deferred tax assets (46,000) (30,000)
Unrealized gain on available-for-sale
investment securities (112,000)
Federal Home Loan Bank stock dividends (37,000) (24,000)
--------- ---------
Total deferred tax liabilities (140,000) (239,000)
--------- ---------
Net deferred tax assets $ 852,000 $ 404,000
========= =========
|
The provision for income taxes differs from amounts computed by applying the statutory Federal income tax rate to operating income before income taxes. The significant items comprising these differences for the years ended December 31, 1999, 1998 and 1997 consisted of the following:
1999 1998 1997
----------------------- ----------------------- -----------------------
Amount Rate% Amount Rate % Amount Rate %
----------- ------ ----------- ------ ----------- ------
Federal income tax
expense, at
statutory rate $ 1,588,000 34.0 $ 1,383,000 34.0 $ 1,115,000 34.0
State franchise tax,
net of Federal tax
effect 290,000 6.2 230,000 5.6 227,000 6.9
Tax benefit of interest
on obligations of
states and political
subdivisions (102,000) (2.2) (63,000) (1.6) (45,000) (1.4)
Tax benefit of corpor-
ate dividends (12,000) (.3) (15,000) (.4) (15,000) (.4)
Other 4,000 .2 29,000 .8 (4,000) (.1)
----------- ------ ----------- ------ ----------- ------
Total income
tax expense $ 1,768,000 37.9 $ 1,564,000 38.4 $ 1,278,000 39.0
=========== ====== =========== ====== =========== ======
|
AMERICAN RIVER HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
10. COMMITMENTS AND CONTINGENCIES
LEASES
The Bank leases its branch facilities and administrative offices under noncancelable operating leases which expire on various dates through the year 2009 and have five year renewal options. Certain branch facilities are leased from members of the Board of Directors.
Future minimum lease payments are as follows:
Year Ending
December 31,
------------
2000 $ 235,000
2001 189,000
2002 195,000
2003 198,000
2004 206,000
Thereafter 454,000
------------------
$ 1,477,000
==================
|
Rental expense included in occupancy expense totaled $334,000 for the year ended December 31, 1999 and $309,000 for each of the years ended December 31, 1998 and 1997.
FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Bank is a party to financial instruments with off-balance-sheet risk in the normal course of business in order to meet the financing needs of its customers and to reduce its own exposure to fluctuations in interest rates. These financial instruments consist of commitments to extend credit and letters of credit. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheet.
The Bank's exposure to credit loss in the event of nonperformance by the other party for commitments to extend credit and letters of credit is represented by the contractual amount of those instruments. The Bank uses the same credit policies in making commitments and letters of credit as it does for loans included on the balance sheet.
AMERICAN RIVER HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
10. COMMITMENTS AND CONTINGENCIES (Continued)
FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK (Continued)
The following financial instruments represent off-balance-sheet credit risk:
December 31,
-----------------------------------
1999 1998
----------- -----------
Commitments to extend credit:
Revolving lines of credit secured by
1-4 family residences $ 1,107,000 $ 1,212,000
Commercial real estate, construction
and land development commitments
secured by real estate 13,352,000 13,553,000
Other commercial commitments not
secured by real estate 28,081,000 21,461,000
----------- -----------
$42,540,000 $36,226,000
=========== ===========
Letters of credit $ 2,311,000 $ 695,000
=========== ===========
|
Real estate commitments are generally secured by property with a loan-to-value ratio of 70% to 80%. In addition, the majority of the Bank's commitments have variable interest rates.
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any conditions established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since some of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each client's creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on management's credit evaluation of the borrower. Collateral held varies, but may include accounts receivable, inventory, equipment and deeds of trust on real estate and income-producing commercial properties.
Letters of credit are conditional commitments issued by the Bank to guarantee the performance or financial obligation of a client to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to clients.
AMERICAN RIVER HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
10. COMMITMENTS AND CONTINGENCIES (Continued)
SIGNIFICANT CONCENTRATIONS OF CREDIT RISK
The Bank grants real estate mortgage, real estate construction, commercial and consumer loans to clients throughout Sacramento, Placer, Yolo and El Dorado counties.
Although the Bank has a diversified loan portfolio, a substantial portion of its portfolio is secured by commercial and residential real estate. However, personal and business income represent the primary source of repayment for a majority of these loans.
CORRESPONDENT BANKING AGREEMENTS
The Bank maintains funds on deposit with other federally insured financial institutions under correspondent banking agreements. Uninsured deposits totaled $9,854,000 at December 31, 1999.
FEDERAL RESERVE REQUIREMENTS
Banks are required to maintain reserves with the Federal Reserve Bank equal to a percentage of their reservable deposits. Reserve balances held with the Federal Reserve Bank totaled $540,000 and $470,000 at December 31, 1999 and 1998, respectively.
CONTINGENCIES
The Company and its subsidiaries are subject to legal proceedings and claims which arise in the ordinary course of business. In the opinion of management, the amount of ultimate liability with respect to such actions will not materially affect the financial position or results of operations of the Company or its subsidiaries.
11. SHAREHOLDERS' EQUITY
DIVIDENDS
Upon declaration by the Board of Directors of the Company, all shareholders of record will be entitled to receive dividends. The Company's primary source of income with which to pay dividends is dividends from the Bank. The California Financial Code restricts the total dividend payment of any bank in any calendar year to the lesser of (1) the bank's retained earnings or (2) the bank's net income for its last three fiscal years, less distributions made to shareholders during the same three-year period. At December 31, 1999, the Bank had $3,862,000 in retained earnings available for dividend payments to the Company.
AMERICAN RIVER HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
11. SHAREHOLDERS' EQUITY (Continued)
EARNINGS PER SHARE
A reconciliation of the numerators and denominators of the basic and diluted earnings per share computations is as follows:
Weighted
Average
Number of
Net Shares Per-Share
For the Year Ended Income Outstanding Amount
---------------------------------- ----------- ----------- ---------
DECEMBER 31, 1999
Basic earnings per share $2,901,000 1,820,013 $ 1.59
========
Effect of dilutive stock options 112,800
---------- ---------
Diluted earnings per share $2,901,000 1,932,813 $ 1.50
========== ========= ========
DECEMBER 31, 1998
Basic earnings per share $2,505,000 1,829,351 $ 1.37
========
Effect of dilutive stock options 194,836
---------- ---------
Diluted earnings per share $2,505,000 2,024,187 $ 1.24
========== ========= ========
DECEMBER 31, 1997
Basic earnings per share $2,001,000 1,844,151 $ 1.09
========
Effect of dilutive stock options 172,324
---------- ---------
Diluted earnings per share $2,001,000 2,016,475 $ .99
========== ========= ========
|
STOCK OPTION PLAN
In 1995, the Board of Directors adopted a stock option plan for which 336,182 shares of common stock are reserved for issuance to employees and directors under incentive and nonstatutory agreements. The plan requires that the option price may not be less than the fair market value at the date the option is granted. The purchase price of exercised options is payable in full in cash or shares of the Company's common stock owned by the optionee. The options expire on dates determined by the Board of Directors, but not later than ten years from the date of grant. Options vest ratably over a five year period.
AMERICAN RIVER HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
11. SHAREHOLDERS' EQUITY (Continued)
STOCK OPTION PLAN (Continued)
The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation. Accordingly, no compensation expense has been recognized for its stock option plans. Had compensation cost been determined based on the fair value at grant date for awards in 1995 through 1998 consistent with the provisions of SFAS No.123, the Company's net earnings and earnings per share would have been reduced to the pro forma amounts indicated below. Compensation expense for awards in 1999 is not included because these options do not begin to vest until 2000. Pro forma compensation expense is recognized in the years in which the options have become vested.
Year Ended December 31,
-----------------------------------------------------
1999 1998 1997
------------- ------------- -------------
Net earnings - as reported $ 2,901,000 $ 2,505,000 $ 2,001,000
Net earnings - pro forma $ 2,795,000 $ 2,449,000 $ 1,960,000
Basic earnings per share - as reported $ 1.59 $ 1.37 $ 1.09
Basic earnings per share - pro forma $ 1.54 $ 1.34 $ 1.06
Diluted earnings per share - as reported $ 1.50 $ 1.24 $ .99
Diluted earnings per share - pro forma $ 1.45 $ 1.21 $ .97
The fair value of each option is estimated on the date of grant using
an option-pricing model with the following assumptions:
|
Year Ended December 31,
-----------------------------------------------------
1999 1998 1997
------------- ------------- -------------
Dividend yield 1.53% 1.13% 1.51%
Expected volatility 66.32% 50.87% 55.49%
Risk-free interest rate 6.59% 5.20% 5.78%
Expected option life 10 years 10 years 10 years
|
AMERICAN RIVER HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
11. SHAREHOLDERS' EQUITY (Continued)
STOCK OPTION PLAN (Continued)
A summary of the combined activity within the plans follows:
1999 1998 1997
---------------------- ------------------------ ------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
--------- -------- -------- -------- -------- ---------
Options outstanding,
beginning of year 226,793 $ 13.52 213,125 $ 10.32 194,000 $ 9.97
Options granted 10,000 $ 15.38 44,500 $ 26.47 20,000 $ 17.62
Options from stock
split 91,644 $ 9.38
Options from stock
dividend 13,699 $ 9.40 11,332 $ 12.89 10,425 $ 10.30
Options exercised (52,989) $ 7.33 (42,164) $ 8.34 (11,300) $ 9.10
------- ------- -------
Options outstanding,
end of year 289,147 $ 9.59 226,793 $ 13.52 213,125 $ 10.32
======= ======= =======
Options exercisable,
end of year 156,745 $ 7.31 102,377 $ 9.34 78,725 $ 9.27
======= ======= =======
Weighted average
fair value of options
granted during the
year $ 6.04 $ 10.06 $ 6.69
|
A summary of options outstanding at December 31, 1999 follows:
Number of Weighted Number of
Options Average Options
Outstanding Remaining Exercisable
December 31, Contractual December 31,
Range of Exercise Prices 1999 Life 1999
------------------------ ------------------ ---------------- ----------------
$ 6.05 170,632 5.6 years 131,101
$ 7.92 7,184 6.0 years 3,710
$ 10.65 28,130 7.4 years 7,292
$ 16.93 65,326 8.7 years 13,067
$ 15.71 7,875 9.0 years 1,575
$ 15.38 10,000 9.9 years
------------------ ----------------
289,147 156,745
================== ================
|
AMERICAN RIVER HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
11. SHAREHOLDERS' EQUITY (Continued)
COMMON STOCK REPURCHASE PROGRAM
During 1997, the Board of Directors authorized the annual repurchase of up to five percent of the Company's common stock in conjunction with recurring annual distributions of a five percent common stock dividend. Repurchases are generally made in the open market at market prices.
REGULATORY CAPITAL
The Bank is subject to certain regulatory capital requirements administered by the Federal Deposit Insurance Corporation (FDIC). Failure to meet these minimum capital requirements can initiate certain 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. The Company is subject to similar capital requirements administered by the Board of Governors of the Federal Reserve System.
Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios of total and Tier 1 capital to risk-weighted assets and of Tier 1 capital to average assets. Each of these components is defined in the regulations. The consolidated average assets and risk-weighted assets of the Company and the average assets and risk-weighted assets of the Bank are not materially different at December 31, 1999, 1998 and 1997. Management believes that the Company and the Bank meet all their capital adequacy requirements as of December 31, 1999.
In addition, the most recent notification from the FDIC categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank must maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth below. There are no conditions or events since that notification that management believes have changed the Bank's category.
1999 1998 1997
----------------------- --------------------- ---------------------
Amount Ratio Amount Ratio Amount Ratio
------------- ----- -------------- ----- ------------- -----
LEVERAGE RATIO
American River Holdings and
Subsidiaries $ 16,741,000 9.2% $ 15,005,000 8.9% $ 13,862,000 9.2%
American River Bank $ 16,414,000 9.0% $ 14,740,000 8.8% $ 13,656,000 9.1%
Minimum requirement for "Well-
Capitalized" institution $ 9,095,000 5.0% $ 8,376,000 5.0% $ 7,503,000 5.0%
Minimum regulatory requirement $ 7,276,000 4.0% $ 6,700,000 4.0% $ 6,002,000 4.0%
|
AMERICAN RIVER HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
11. SHAREHOLDERS' EQUITY (Continued)
REGULATORY CAPITAL (CONTINUED)
1999 1998 1997
---------------------- ---------------------- ---------------------
Amount Ratio Amount Ratio Amount Ratio
------------- ----- -------------- ----- ------------- -----
TIER 1 RISK-BASED CAPITAL RATIO
American River Holdings and
Subsidiaries $ 16,741,000 11.6% $ 15,005,000 11.3% $ 13,862,000 11.3%
American River Bank $ 16,414,000 11.4% $ 14,740,000 11.1% $ 13,656,000 11.1%
Minimum requirement for "Well-
Capitalized" institution $ 8,639,000 6.0% $ 7,927,000 6.0% $ 7,382,000 6.0%
Minimum regulatory requirement $ 5,759,000 4.0% $ 5,283,000 4.0% $ 4,921,000 4.0%
TOTAL RISK-BASED CAPITAL RATIO
American River Holdings and
Subsidiaries $ 18,420,000 12.8% $ 16,366,000 12.4% $ 15,036,000 12.2%
American River Bank $ 18,093,000 12.6% $ 16,102,000 12.2% $ 14,830,000 12.1%
Minimum requirement for "Well-
Capitalized" institution $ 14,398,000 10.0% $ 13,212,000 10.0% $ 12,303,000 10.0%
Minimum regulatory requirement $ 11,518,000 8.0% $ 10,569,000 8.0% $ 9,842,000 8.0%
|
12. OTHER INCOME AND EXPENSE
Other income consisted of the following:
Year Ended December 31,
----------------------------------------------------------
1999 1998 1997
----------------- ------------------ ------------------
Accounts receivable servicing fees $ 272,000 $ 102,000 $ 13,000
Merchant fee income 191,000 156,000 149,000
Income from residential lending
division 133,000 254,000 168,000
State servicing contract fees 123,000 65,000
Financial services income 111,000 44,000 24,000
Other 253,000 235,000 220,000
------------------ ------------------ ------------------
$ 1,083,000 $ 856,000 $ 574,000
================== ================== ==================
|
AMERICAN RIVER HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
12. OTHER INCOME AND EXPENSE (Continued)
Other expense consisted of the following:
Year Ended December 31,
----------------------------------------------------------
1999 1998 1997
----------------- ------------------ ------------------
Outsourced item processing $ 222,000 $ 213,000 $ 185,000
Telephone and postage 198,000 194,000 184,000
Directors' compensation 194,000 201,000 122,000
Professional fees 165,000 158,000 141,000
Stationery and supplies 121,000 118,000 122,000
Advertising and promotion 105,000 91,000 73,000
Other real estate 77,000 153,000 56,000
Other operating expenses 488,000 464,000 470,000
------------------ ------------------ ------------------
$ 1,570,000 $ 1,592,000 $ 1,353,000
================== ================== ==================
|
13. EMPLOYEE BENEFIT PLANS
AMERICAN RIVER BANK 401(K) PLAN
The American River Bank 401(k) Plan commenced January 1, 1993 and is available to all employees. Under the plan, the Bank will match 50% of each participants' contribution up to a maximum of 6% of their annual compensation. Employer contributions vest at a rate of 20% per year over a five year period and totaled $72,000, $64,000 and $56,000 for the years ended December 31, 1999, 1998 and 1997, respectively.
EMPLOYEE STOCK PURCHASE PLAN
The Company is the administrator of an Employee Stock Purchase Plan which allows employees to purchase the Company's stock at fair market value as of the date of purchase. The Company bears all costs of administering the Plan, including broker's fees, commissions, postage and other costs actually incurred.
DEFERRED COMPENSATION PLAN
Effective May 1, 1998, the Bank established the American River Bank Deferred Compensation Plan for certain members of the management group and the Deferred Fee Agreement for Directors for the purpose of providing the opportunity to defer compensation to participants. Participants, who are selected by a Committee designated by the Board of Directors, may elect to defer annually a minimum of $5,000 or a maximum of eighty percent of their base salary and all of their cash bonus. Directors may also elect to defer up to one hundred percent of their monthly fees. The Bank bears all administration costs, and funds the interest earned on participant deferrals at a rate based on U.S. Government Treasury rates. Deferred compensation, including interest earned, totaled $91,000 and $12,000 for the years ended December 31, 1999 and 1998, respectively.
AMERICAN RIVER HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
14. RELATED PARTY TRANSACTIONS
During the normal course of business, the Bank enters into transactions with related parties, including Directors and affiliates. These transactions include borrowings from the Bank with substantially the same terms, including rates and collateral, as loans to unrelated parties. The following is a summary of the aggregate activity involving related party borrowers during 1999:
Balance, January 1, 1999 $ 2,283,000
Amounts repaid (37,000)
------------------
Balance, December 31, 1999 $ 2,246,000
==================
|
The Bank also leases bank premises from members of the Board of Directors (see Note 9). Rental payments to the Directors totaled $106,000, $102,000 and $98,000 for the years ended December 31, 1999, 1998 and 1997, respectively.
15. COMPREHENSIVE INCOME
Comprehensive income is reported in addition to net income for all periods presented. Comprehensive income is a more inclusive financial reporting methodology that includes disclosure of other comprehensive income (loss) that historically has not been recognized in the calculation of net income. Unrealized gains and losses on the Company's available-for-sale investment securities are included in other comprehensive income (loss). Total comprehensive income and the components of accumulated other comprehensive income (loss) are presented in the Statement of Changes in Shareholders' Equity.
At December 31, 1999, 1998 and 1997, the Company held securities classified as available-for-sale which had unrealized (losses) gains as follows:
Tax
Before Benefit After
Tax (Expense) Tax
--------------- --------------- ----------------
FOR THE YEAR ENDED DECEMBER 31, 1999
Other comprehensive loss:
Unrealized holding losses $ (740,000) $ 282,000 $ (458,000)
=============== =============== ================
FOR THE YEAR ENDED DECEMBER 31, 1998
Other comprehensive income:
Unrealized holding gains $ 96,000 $ (37,000) $ 59,000
=============== =============== ================
FOR THE YEAR ENDED DECEMBER 31, 1997
Other comprehensive income:
Unrealized holding gains $ 127,000 $ (50,000) $ 77,000
=============== =============== ================
228
|
AMERICAN RIVER HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
16. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
Estimated fair values are disclosed for financial instruments for which
it is practicable to estimate fair value. These estimates are made at a
specific point in time based on relevant market data and information
about the financial instruments. These estimates do not reflect any
premium or discount that could result from offering the Company's
entire holdings of a particular financial instrument for sale at one
time, nor do they attempt to estimate the value of anticipated future
business related to the instruments. In addition, the tax ramifications
related to the realization of unrealized gains and losses can have a
significant effect on fair value estimates and have not been considered
in any of these estimates.
Because no market exists for a significant portion of the Company's
financial instruments, fair value estimates are based on judgments
regarding 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 fair values presented.
The following methods and assumptions were used by the Company to
estimate the fair value of its financial instruments at December 31,
1999 and 1998:
CASH AND CASH EQUIVALENTS: For cash and cash equivalents, the carrying
amount is estimated to be fair value.
INTEREST-BEARING DEPOSITS IN BANKS: The fair values of interest-bearing
deposits in banks are estimated by discounting their future cash flows
using rates at each reporting date for instruments with similar
remaining maturities offered by comparable financial institutions.
INVESTMENT SECURITIES: For investment securities, fair values are based
on quoted market prices, where available. If quoted market prices are
not available, fair values are estimated using quoted market prices for
similar securities and indications of value provided by brokers.
LOANS: For variable-rate loans that reprice frequently with no
significant change in credit risk, fair values are based on carrying
values. The fair values for other loans are estimated using discounted
cash flow analyses, using interest rates being offered at each
reporting date for loans with similar terms to borrowers of comparable
creditworthiness. The carrying amount of accrued interest receivable
approximates its fair value.
ACCOUNTS RECEIVABLE SERVICING RECEIVABLES: The carrying amount of
accounts receivable servicing receivables approximates its fair value
because of the relatively short period of time between the origination
of the receivables and their expected collection.
DEPOSITS: The fair values for demand deposits are, by definition, equal
to the amount payable on demand at the reporting date represented by
their carrying amount. Fair values for fixed-rate certificates of
deposit are estimated using a discounted cash flow analysis using
interest rates offered at each reporting date by the Bank for
certificates with similar remaining maturities. The carrying amount of
accrued interest payable approximates its fair value.
229
|
AMERICAN RIVER HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
16. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
LONG-TERM DEBT: The fair value of long-term debt is estimated using a
discounted cash flow analysis using interest rates currently available
to the Bank for similar debt instruments.
COMMITMENTS TO EXTEND CREDIT: Commitments to extend credit are
primarily for variable rate loans. For these commitments, there is no
difference between the committed amounts and their fair values.
Commitments to fund fixed rate loans and letters of credit are at rates
which approximate fair value at each reporting date.
The carrying amounts and estimated fair values of the Company's
financial instruments are as follows:
December 31, 1999 December 31, 1998
-------------------------------- ---------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
---------------- --------------- --------------- ----------------
Financial assets:
Cash and due from banks $ 8,274,000 $ 8,274,000 $ 11,538,000 $ 11,538,000
Federal funds sold 7,125,000 7,125,000 3,725,000 3,725,000
Interest-bearing deposits
in banks 5,527,000 5,527,000 5,015,000 5,035,000
Investment securities 57,567,000 57,372,000 40,800,000 40,920,000
Loans 117,308,000 117,288,000 112,329,000 112,794,000
Accounts receivable servicing
receivable 2,123,000 2,123,000 1,189,000 1,189,000
Accrued interest receivable 1,219,000 1,219,000 1,140,000 1,140,000
---------------- --------------- --------------- ----------------
$ 199,143,000 $ 198,928,000 $ 175,736,000 $ 176,341,000
================ =============== =============== ================
Financial liabilities:
Deposits $ 180,996,000 $ 180,942,000 $ 158,951,000 $ 159,069,000
Long-term debt 2,125,000 2,028,000 2,164,000 2,160,000
Accrued interest payable 214,000 214,000 262,000 262,000
---------------- --------------- --------------- ----------------
$ 183,335,000 $ 183,184,000 $ 161,377,000 $ 161,491,000
================ =============== =============== ================
Off-balance-sheet financial
instruments:
Commitments to extend
credit $ 42,540,000 $ 42,540,000 $ 36,226,000 $ 36,226,000
Letters of credit 2,311,000 2,311,000 695,000 695,000
---------------- --------------- --------------- ----------------
$ 44,851,000 $ 44,851,000 $ 36,921,000 $ 36,921,000
================ =============== =============== ================
|
AMERICAN RIVER HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
17. PARENT ONLY CONDENSED FINANCIAL STATEMENTS
BALANCE SHEET
December 31, 1999 and 1998
1999 1998
------------ ------------
ASSETS
Cash and due from banks $ 327,000 $ 241,000
Investment in subsidiaries 16,367,000 15,112,000
Dividends receivable from subsidiary 215,000 185,000
Other assets 7,000 23,000
------------ ------------
$ 16,916,000 $ 15,561,000
============ ============
LIABILITIES AND
SHAREHOLDERS' EQUITY
Liabilities:
Dividends payable to shareholders $ 215,000 $ 185,000
Other liabilities 88,000
------------ ------------
Total liabilities 303,000 185,000
------------ ------------
Shareholders' equity:
Common stock 6,722,000 6,031,000
Retained earnings 10,171,000 9,167,000
Accumulated other comprehensive (loss)
income (280,000) 178,000
------------ ------------
Total shareholders' equity 16,613,000 15,376,000
------------ ------------
$ 16,916,000 $ 15,561,000
============ ============
|
AMERICAN RIVER HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
17. PARENT ONLY CONDENSED FINANCIAL STATEMENTS (Continued)
STATEMENT OF INCOME
For the Years Ended December 31, 1999, 1998 and 1997
1999 1998 1997
---------- ---------- ----------
Income:
Dividends declared by subsidiaries -
eliminated in consolidation $1,368,000 $1,558,000 $ 848,000
---------- ---------- ----------
Expenses:
Directors' compensation 80,000 103,000 20,000
Professional fees 19,000 33,000 11,000
Other expenses 32,000 20,000 22,000
---------- ---------- ----------
Total expenses 131,000 156,000 53,000
---------- ---------- ----------
Income before equity in
undistributed income of
subsidiaries 1,237,000 1,402,000 795,000
Equity in undistributed income of
subsidiaries 1,613,000 1,043,000 1,186,000
---------- ---------- ----------
Income before income taxes 2,850,000 2,445,000 1,981,000
Income tax benefit 51,000 60,000 20,000
---------- ---------- ----------
Net income $2,901,000 $2,505,000 $2,001,000
========== ========== ==========
|
AMERICAN RIVER HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
17. PARENT ONLY CONDENSED FINANCIAL STATEMENTS (Continued)
STATEMENT OF CASH FLOWS
For the Years Ended December 31, 1999, 1998 and 1997
1999 1998 1997
----------- ----------- -----------
Cash flows from operating activities:
Net income $ 2,901,000 $ 2,505,000 $ 2,001,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Undistributed earnings of subsidiaries (1,643,000) (1,062,000) (1,201,000)
Decrease (increase) in other assets 16,000 13,000 (12,000)
Increase in other liabilities 88,000
----------- ----------- -----------
Net cash provided by operating
activities 1,362,000 1,456,000 788,000
----------- ----------- -----------
Cash flows used in investing activities:
Investment in leasing company (100,000)
----------- ----------- -----------
Cash flows from financing activities:
Cash dividends paid (386,000) (338,000) (306,000)
Exercise of stock options 692,000 610,000 151,000
Cash paid to repurchase common stock (1,475,000) (1,651,000) (531,000)
Cash paid for fractional shares (7,000) (5,000)
----------- ----------- -----------
Net cash used in financing activities (1,176,000) (1,384,000) (686,000)
----------- ----------- -----------
Net increase in cash and cash
equivalents 86,000 72,000 102,000
Cash and cash equivalents at beginning
of year 241,000 169,000 67,000
----------- ----------- -----------
Cash and cash equivalents at end of year $ 327,000 $ 241,000 $ 169,000
=========== =========== ===========
Supplemental disclosures of cash flow information:
Non-cash investing activities:
Net change in unrealized gain on available-
for-sale investment securities $ (740,000) $ 96,000 $ 127,000
Non-cash financing activities:
Dividends declared, adjusted for stock
splits and dividends, $.12 per share in
1999, $.10 per share in 1998 and
$.09 per share in 1997 $ 215,000 $ 185,000 $ 166,000
|
AMERICAN RIVER HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
18. SUBSEQUENT EVENT
On March 1, 2000, the Directors of American River Holdings and North Coast Bank approved a definitive merger agreement between the two companies. As a result, North Coast Bank, American River Bank, and first source capital will operate as wholly-owned subsidiaries under American River Holdings. Under the agreement, each share of North Coast Bank will be converted into the right to receive .9644 of a share of the common stock of American River Holdings. The transaction will be accounted for under the pooling-of-interests method of accounting. It is expected that this merger will be accomplished in the third quarter of 2000, subject to shareholder and regulatory approval.
The unaudited pro forma information set forth below assumes that the merger of the two companies took place on January 1, 1997. This information is presented for informational purposes only and is not necessarily indicative of the results of operations that actually would have been achieved had the merger been consummated at that time, nor do they consider any potential cost savings or revenue enhancements.
Years Ended December 31,
------------------------------------------------
1999 1998 1997
-------------- -------------- -------------
Net interest income $ 11,754,000 $ 10,743,000 $ 9,582,000
Net income $ 3,128,000 $ 2,850,000 $ 2,347,000
Basic earnings per common share $ 1.37 $ 1.25 $ 1.02
Diluted earnings per common share $ 1.30 $ 1.14 $ .94
|
NORTH COAST BANK, N.A
UNAUDITED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED MARCH 31, 2000
AND
FINANCIAL STATEMENTS AND
INDEPENDENT AUDITOR'S REPORT
FOR THE YEARS ENDED
DECEMBER 31, 1999, 1998 AND 1997
NORTH COAST BANK
BALANCE SHEET
(Unaudited)
March 31, December 31,
2000 1999
------------ ------------
ASSETS
Cash and due from banks $ 2,723,715 $ 2,626,289
Federal funds sold 3,150,000 1,000,000
Interest-bearing deposits in banks 1,037,600 793,000
Available-for-sale investment securities (Note 2) 1,696,400 1,708,000
Loans and leases, less allowance for loan and lease
losses of $433,727 in 2000 and $383,310 in 1999
(Notes 3, 5 and 8) 39,648,285 39,735,527
Bank premises and equipment, net 729,643 750,750
Accrued interest receivable and other assets 559,034 564,358
------------ ------------
$ 49,544,677 $ 47,177,924
============ ============
LIABILITIES AND
SHAREHOLDERS' EQUITY
Deposits:
Non-interest bearing $ 9,097,714 $ 10,149,768
Interest bearing (Note 4) 35,246,858 31,931,394
------------ ------------
Total deposits 44,344,572 42,081,162
Short-term borrowings (Note 6) 1,000,000 1,000,000
Accrued interest payable and other liabilities 106,324 98,342
------------ ------------
Total liabilities 45,450,896 43,179,504
------------ ------------
Commitments and contingencies (Note 5)
Shareholders' equity (Note 7):
Common stock - $4.00 par value; 6,250,000
shares authorized; 472,354 shares issued
and outstanding 1,889,416 1,889,416
Additional paid-in capital 1,826,945 1,826,945
Retained earnings 391,666 295,630
Accumulated other comprehensive loss
(Notes 2 and 10) (14,246) (13,571)
------------ ------------
Total shareholders' equity 4,093,781 3,998,420
------------ ------------
$ 49,544,677 $ 47,177,924
============ ============
|
The accompanying notes are an integral part of these financial statements.
NORTH COAST BANK
STATEMENT OF INCOME
(Unaudited)
For the Three Month Periods Ended March 31, 2000 and 1999
2000 1999
---------- ----------
Interest income:
Interest and fees on loans $1,000,095 $ 752,871
Interest on investment securities:
Taxable 19,503 12,458
Exempt from Federal income taxes 2,122 2,122
Dividends 4,121 2,998
Interest on Federal funds sold 20,710 48,296
Interest on deposits in banks 10,911 6,308
---------- ----------
Total interest income 1,057,462 825,053
Interest expense:
Deposits (Note 4) 338,748 291,264
Short-term borrowings (Note 6) 15,053
---------- ----------
Total interest expense 353,801 291,264
---------- ----------
Net interest income 703,661 533,789
---------- ----------
Provision for loan and lease losses (Note 3) 27,500 30,000
---------- ----------
Net interest income after provision for
loan and lease losses 676,161 503,789
---------- ----------
Non-interest income:
Service charges 31,417 22,603
Other income 54,285 35,512
---------- ----------
Total non-interest income 85,702 58,115
---------- ----------
Other expenses:
Salaries and employee benefits (Note 3) 251,937 228,824
Occupancy and equipment 117,088 97,885
Other (Note 9) 230,802 175,937
---------- ----------
Total other expenses 599,827 502,646
---------- ----------
Income before income taxes 162,036 59,258
Income taxes 66,000 22,000
---------- ----------
Net income $ 96,036 $ 37,258
========== ==========
Basic earnings per share (Note 7) $ .20 $ .08
========== ==========
Diluted earnings per share (Note 7) $ .19 $ .08
========== ==========
|
The accompanying notes are an integral part of these financial statements.
NORTH COAST BANK
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited)
For the Three Month Period Ended March 31, 2000 and The Year Ended December 31, 1999
Common Stock Additional
----------------------- Paid-in Retained
Shares Amount Capital Earnings
------- ------------ ------------ ---------
Balance, January 1, 1999 377,902 $ 1,889,510 $ 1,826,851 $ 68,636
Comprehensive income (Note 10):
Net income 226,994
Other comprehensive loss, net of tax:
Unrealized losses on available-for-sale
investment securities
Total comprehensive income
Five-for-four stock split 94,452 (94) 94
------- ------------ ------------ ---------
Balance, December 31, 1999 472,354 1,889,416 1,826,945 295,630
Comprehensive income (Note 10):
Net income 96,036
Other comprehensive loss, net of tax:
Unrealized losses on available-for-sale
investment securities (Note 2)
Total comprehensive income
------- ------------ ------------ ---------
Balance, March 31, 2000 472,354 $ 1,889,416 $ 1,826,945 $ 391,666
======= ============ ============ =========
Accumulated
Other
Comprehensive Shareholders' Comprehensive
Income (Loss) Equity Income
------------- ------------ -------------
Balance, January 1, 1999 $ 7,029 $ 3,792,026
Comprehensive income (Note 10):
Net income 226,994 $ 226,994
Other comprehensive loss, net of tax:
Unrealized losses on available-for-sale
investment securities (20,600) (20,600) (20,600)
----------
Total comprehensive income $ 206,394
==========
Five-for-four stock split ------------- ------------
Balance, December 31, 1999 (13,571) 3,998,420
Comprehensive income (Note 10):
Net income 96,036 $ 96,036
Other comprehensive loss, net of tax:
Unrealized losses on available-for-sale
investment securities (Note 2) (675) (675) (675)
----------
Total comprehensive income $ 95,361
=========
Balance, March 31, 2000 $ (14,246) $ 4,093,781
=========== ============
|
The accompanying notes are an integral part of these financial statements.
NORTH COAST BANK
STATEMENT OF CASH FLOWS
(Unaudited)
For the Three Month Periods Ended March 31, 2000 and 1999
2000 1999
--------- ---------
Cash flows from operating activities:
Net income $ 96,036 $ 37,258
Adjustments to reconcile net income to
cash provided by (used in) operating activities:
Provision for loan losses 27,500 30,000
Depreciation, amortization and accretion, net 28,082 26,165
Decrease in deferred loan origination
fees and costs, net (7,761) (11,169)
Decrease (increase) in accrued interest
receivable and other assets 5,411 (74,233)
Increase (decrease) in accrued interest
payable and other liabilities 7,982 (135,447)
--------- ---------
Net cash provided by (used in) operating
activities 157,250 (127,426)
--------- ---------
Cash flows from investing activities:
Net increase in interest-bearing
deposits in banks (244,600) (198,000)
Proceeds from matured and called
available-for-sale investment securities 450,000
Principal payments received from available-
for-sale mortgage-backed securities 14,869 126,322
Purchase of available-for-sale investment
securities (2,400) (250,400)
Net decrease in loans 67,503 150,759
Purchase of premises and equipment (8,606) (182,946)
--------- ---------
Net cash (provided by) used in
investing activities (173,234) 95,735
--------- ---------
|
(Continued)
NORTH COAST BANK
STATEMENT OF CASH FLOWS
(Unaudited)
(Continued)
For the Three Month Periods Ended March 31, 2000 and 1999
2000 1999
--------- ----------
Cash flows from financing activities:
Net increase in demand, interest bearing
and savings deposits $ 656,738 $ 582,349
Net increase (decrease) in time deposits 1,606,672 (1,110,465)
----------- -----------
Net cash provided by (used in) financing
activities 2,263,410 (528,116)
----------- -----------
Increase (decrease) in cash and cash
equivalents 2,247,426 (559,807)
Cash and cash equivalents at beginning of
period 3,626,289 8,084,967
----------- -----------
Cash and cash equivalents at end of period $ 5,873,715 $ 7,525,160
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest expense $ 352,901 $ 288,327
Income taxes $ 97,000
Non-cash investing activities:
Net change in unrealized (loss) gain on
available-for-sale investment securities $ (762) $ (3,890)
|
The accompanying notes are an integral part of these financial statements.
NORTH COAST BANK
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in a condensed format and, therefore, do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. However, in the opinion of management, all adjustments, consisting only of normal recurring adjustments, considered necessary for a fair presentation have been reflected in the financial statements. The results of operations for the three months ended March 31, 2000 are not necessarily indicative of the results to be expected for the full year. Certain reclassifications have been made to prior period amounts to present them on a basis consistent with classifications for the three months ended March 31, 2000.
2. AVAILABLE-FOR-SALE INVESTMENT SECURITIES
The amortized cost and estimated market value of available-for-sale investment securities at March 31, 2000 and December 31, 1999 consisted of the following:
March 31, 2000
------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------------ ----------- ---------- ----------
U.S. Government agencies $ 983,341 $ (12,341) $ 971,000
U.S. Government guaranteed
mortgage-backed securities 212,844 (2,844) 210,000
Obligations of states
and political sub-
divisions 173,120 (9,120) 164,000
Federal Home Loan
Bank stock 178,900 178,900
Federal Reserve
Bank stock 111,500 111,500
Other investments 61,000 61,000
------------ ---------- ----------- ----------
$ 1,720,705 $ -- $ (24,305) $1,696,400
============ ========== =========== ==========
|
Net unrealized losses on available-for-sale investment securities totaling $24,305 were recorded, net of $10,059 in tax benefits, as accumulated other comprehensive loss within shareholders' equity at March 31, 2000. There were no sales of available-for-sale investment securities for the three month period ended March 31, 2000.
NORTH COAST BANK
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
(Continued)
2. AVAILABLE-FOR-SALE INVESTMENT SECURITIES (Continued)
December 31, 1999
-----------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------- ---------- ---------- -----------
U.S. Government
agencies $ 981,633 -- $ (8,633) $ 973,000
U.S. Government
guaranteed
mortgage-backed
securities 227,815 -- (2,815) 225,000
Obligations of states
and political sub-
divisions 173,095 -- (12,095) 161,000
Federal Home Loan
Bank stock 176,500 -- -- 176,500
Federal Reserve
Bank stock 111,500 -- -- 111,500
Other investments 61,000 -- -- 61,000
----------- -------- -------- -----------
$ 1,731,543 $ -- $(23,543) $ 1,708,000
=========== ======== ======== ===========
|
Net unrealized losses on available-for-sale investment securities totaling $23,543 were recorded, net of $9,972 in tax benefits, as accumulated other comprehensive loss within shareholders' equity at December 31, 1999. There were no sales of available-for-sale investment securities in 1999.
NORTH COAST BANK
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
(Continued)
2. AVAILABLE-FOR-SALE INVESTMENT SECURITIES (Continued)
The amortized cost and estimated market value of investment securities at March 31, 2000 by contractual maturity are shown below. Expected maturities will differ from contractual maturities because the issuers of the securities may have the right to call or prepay obligations with or without call or prepayment penalties.
Estimated
Amortized Market
Cost Value
---------- ----------
After one year through five years $1,067,531 $1,054,000
After ten years 301,774 291,000
---------- ----------
1,369,305 1,345,000
Investment securities not due at a single
maturity date:
Federal Home Loan Bank stock 178,900 178,900
Federal Reserve Bank stock 111,500 111,500
Other investments 61,000 61,000
---------- ----------
$1,720,705 $1,696,400
========== ==========
|
Investment securities with amortized costs of $250,000 and $250,000 and estimated market values of $241,000 and $242,000 were pledged to secure treasury tax and loan accounts at March 31, 2000 and December 31, 1999, respectively.
3. LOANS AND LEASES
Outstanding loans and leases are summarized below:
March 31, December 31,
2000 1999
----------- -----------
Commercial $11,687,009 $11,883,098
Real estate - commercial 13,557,687 12,711,222
Real estate - residential 3,535,747 2,798,572
Real estate - construction 3,737,706 4,476,824
Agriculture 6,588,533 7,199,565
Lease financing receivables 78,352 121,521
Consumer 863,032 898,050
Other 135,039 138,839
----------- -----------
40,183,105 40,227,691
Deferred loan fees, net (101,093) (108,854)
Allowance for loan and lease losses (433,727) (383,310)
----------- -----------
$39,648,285 $39,735,527
=========== ===========
|
NORTH COAST BANK
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
(Continued)
3. LOANS AND LEASES (Continued)
Changes in the allowance for loan and lease losses were as follows:
Three Month Periods Ended
March 31, Year Ended
------------------------- December 31,
2000 1999 1999
--------- --------- ------------
Balance, beginning of year $ 383,310 $ 330,755 $ 330,755
Provision charged to operations 27,500 30,000 175,000
Losses charged to allowance (130,804)
Recoveries 22,917 8,359
--------- --------- ---------
Balance, end of year $ 433,727 $ 360,755 $ 383,310
========= ========= =========
|
During the three month period ended March 31, 2000 and the year ended December 31, 1999, the Bank had no significant impaired loans or loans placed on nonaccrual status.
Salaries and employee benefits totaling $40,130 and $26,216 were deferred as loan origination costs for the three month periods ended March 31, 2000 and 1999, respectively.
4. INTEREST-BEARING DEPOSITS
Interest-bearing deposits consisted of the following:
March 31, December 31,
2000 1999
----------- -----------
Savings $ 4,551,110 $ 4,231,966
Money market 11,359,943 9,759,646
NOW accounts 3,509,348 3,719,997
Time, $100,000 or more 7,089,290 5,612,900
Other time 8,737,167 8,606,885
----------- -----------
$35,246,848 $31,931,394
=========== ===========
|
NORTH COAST BANK
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
(Continued)
4. INTEREST-BEARING DEPOSITS (Continued)
Interest expense recognized on interest-bearing consisted of the following:
Three Month Periods Ended
March 31,
-------------------------
2000 1999
-------- --------
Savings $ 26,848 $ 29,288
Money market 97,818 73,699
NOW accounts 12,953 14,361
Time, $100,000 or more 90,316 76,005
Other time 110,813 97,911
-------- --------
$338,748 $291,264
======== ========
|
5. COMMITMENTS AND CONTINGENCIES
FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The following financial instruments represent off-balance-sheet credit risk:
March 31, December 31,
2000 1999
---------- ------------
Commitments to extend credit $9,234,000 $ 8,757,000
Credit card arrangements $ 401,000 $ 397,000
Letters of credit $ 50,000 $ 150,000
|
CONTINGENCIES
The Bank is subject to legal proceedings and claims which arise in the ordinary course of business. In the opinion of management, the amount of ultimate liability with respect to such actions will not materially affect the financial position or results of operations of the Bank.
6. SHORT-TERM BORROWING ARRANGEMENTS
The Bank has a total of $2,000,000 in unsecured Federal funds lines of credit with two of its correspondent banks to meet short-term liquidity needs. In addition, the Bank has a line of credit available with the Federal Home Loan Bank totaling $1,000,000 which is secured by pledged mortgage loans. An advance from the Federal Home Loan Bank totaling $1,000,000 was outstanding at March 31, 2000 and December 31, 1999 bearing an interest rate of 5.9% and a maturity date of April 12, 2000.
NORTH COAST BANK
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
(Continued)
7. SHAREHOLDERS' EQUITY
EARNINGS PER SHARE
A reconciliation of the numerators and denominators of the basic and diluted earnings per share computations is as follows:
Weighted
Average
Number of
For the Three Month Shares Per Share
Periods Ended Net Income Outstanding Amount
-------------------------------- ---------- ----------- -------------
MARCH 31, 2000
Basic earnings per share $ 96,036 472,354 $ .20
=============
Effect of dilutive stock options 28,623
---------- -----------
Diluted earnings per share $ 96,036 500,977 $ .19
=========== ========== =============
MARCH 31, 1999
Basic earnings per share $ 37,258 472,354 $ .08
=============
Effect of dilutive stock options 18,734
----------- ----------
Diluted earnings per share $ 37,258 491,088 $ .08
=========== ========== =============
|
REGULATORY CAPITAL
The Bank is subject to certain regulatory capital requirements administered by the Office of the Comptroller of the Currency (OCC). Failure to meet these minimum capital requirements can initiate certain 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 of total and Tier 1 capital to risk-weighted assets and of Tier 1 capital to average assets. Each of these components is defined in the regulations. Management believes that the Bank meets all its capital adequacy requirements as of March 31, 2000.
NORTH COAST BANK
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
(Continued)
7. SHAREHOLDERS' EQUITY (Continued)
REGULATORY CAPITAL (Continued)
In addition, the most recent notification from the OCC categorized the
Bank as well capitalized under the regulatory framework for prompt
corrective action. To be categorized as well capitalized, the Bank must
maintain minimum total risk-based, Tier 1 risk-based and Tier 1
leverage ratios as set forth below. There are no conditions or events
since that notification that management believes have changed the
Bank's category.
2000 1999
------------------ ------------------
Amount Ratio Amount Ratio
---------- ----- ---------- -----
LEVERAGE RATIO
North Coast Bank $4,108,000 8.5% $4,012,000 9.3%
Minimum requirement for "Well-
Capitalized" institution $2,406,000 5.0% $2,163,000 5.0%
Minimum regulatory requirement $1,925,000 4.0% $1,730,000 4.0%
TIER 1 RISK-BASED CAPITAL RATIO
North Coast Bank $4,108,000 10.3% $4,012,000 10.0%
Minimum requirement for "Well-
Capitalized" institution $2,383,000 6.0% $2,395,000 6.0%
Minimum regulatory requirement $1,589,000 4.0% $1,597,000 4.0%
TOTAL RISK-BASED CAPITAL RATIO
North Coast Bank $4,542,000 11.4% $4,395,000 11.0%
Minimum requirement for "Well-
Capitalized" institution $3,972,000 10.0% $3,992,000 10.0%
Minimum regulatory requirement $3,177,000 8.0% $3,194,000 8.0%
|
8. RELATED PARTY TRANSACTIONS
During the normal course of business, the Bank enters into transactions with related parties, including Directors and officers. These transactions include borrowings from the Bank with substantially the same terms, including rates and collateral, as loans to unrelated parties. The following is a summary of the aggregate activity involving related party borrowers during the three months ended March 31, 2000:
Balance, January 1, 2000 $ 1,511,542
Disbursements 66,444
Amounts repaid (772,670)
--------------
Balance, March 31, 2000 $ 805,316
==============
Undisbursed commitments to related parties,
March 31, 2000 $ 488,531
==============
|
NORTH COAST BANK
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
(Continued)
9. OTHER EXPENSES
Other expenses consisted of the following:
Three Month Periods Ended
March 31,
----------------------
2000 1999
--------- ---------
Data processing $ 50,530 $ 47,736
Merchant processing fees 35,953 22,190
Advertising 17,392 12,778
Stationery and supplies 13,838 16,270
Legal and accounting 34,670 6,315
Brokerage and consulting fees 7,272 11,247
Insurance 9,759 7,714
Other operating expenses 61,388 51,687
--------- ---------
$230,802 $175,937
========= =========
10. COMPREHENSIVE INCOME
|
Comprehensive income is reported in addition to net income for all periods presented. Comprehensive income is a more inclusive financial reporting methodology that includes disclosure of other comprehensive income (loss) that historically has not been recognized in the calculation of net income. Unrealized gains and losses on the Bank's available-for-sale investment securities are included in other comprehensive income (loss). Total comprehensive income and the components of accumulated other comprehensive income (loss) are presented in the Statement of Changes in Shareholders' Equity.
For the three month period ended March 31, 2000 and the year ended December 31, 1999, the Bank held securities classified as available-for-sale which had unrealized losses as follows:
Before Tax After
Tax Benefit Tax
-------- ------- --------
For the Three Months Period Ended
March 31, 2000
---------------------------------
Other comprehensive loss:
Unrealized holding losses $ (762) $ 87 $ (675)
======== ======= ========
|
NORTH COAST BANK
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
(Continued)
10. COMPREHENSIVE INCOME (Continued)
Before Tax After
Tax Benefit Tax
---------- -------- ----------
For the Year Ended
December 31, 1999
------------------
Other comprehensive loss:
Unrealized holding losses $ (30,572) $ 9,972 $ (20,600)
---------- -------- ----------
|
11. MERGER AND ACQUISITION ACTIVITY
On March 1, 2000, the Directors of North Coast Bank and American River Holdings approved a definitive merger agreement between the two companies. As a result, North Coast Bank, American River Bank, and first source capital will operate as wholly-owned subsidiaries under American River Holdings. Under the agreement, each share of North Coast Bank will be converted into the right to receive .9644 of a share of the common stock of American River Holdings. The transaction will be accounted for under the pooling-of-interests method of accounting. It is expected that this merger will be accomplished in the third quarter of 2000, subject to shareholder and regulatory approval.
The unaudited pro forma information set forth below assumes that the merger of the two companies took place on January 1, 1999. This information is presented for informational purposes only and is not necessarily indicative of the results of operations that actually would have been achieved had the merger been consummated at that time, nor do they consider any potential cost savings or revenue enhancements.
Three Month Periods Ended
March 31, Year Ended
----------------------------------- December 31,
2000 1999 1999
------------- ------------- --------------
Net interest income $ 3,152,000 $ 2,797,000 $ 11,754,000
Net income $ 890,000 $ 710,000 $ 3,128,000
Basic earnings per common share $ .40 $ .31 $ 1.37
Diluted earnings per common share $ .38 $ .29 $ 1.30
|
INDEPENDENT AUDITOR'S REPORT
The Shareholders and
Board of Directors
North Coast Bank
We have audited the accompanying balance sheet of North Coast Bank as of December 31, 1999 and the related statements of income, changes in shareholders' equity and cash flows for the year then ended. These financial statements are the responsibility of the Bank's management. Our responsibility is to express an opinion on these financial statements based on our audit. The financial statements of North Coast Bank as of December 31, 1998 and 1997 were audited by other auditors whose report dated February 19, 1999 expressed an unqualified opinion on those statements.
We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the 1999 financial statements referred to above present fairly, in all material respects, the financial position of North Coast Bank as of December 31, 1999, and the results of its operations and its cash flows for the year then ended, in conformity with generally accepted accounting principles.
/s/ PERRY-SMITH LLP ---------------------------- Certified Public Accountants |
Sacramento, California
February 17, 2000,
except for Note 15, as to which
the date is March 1, 2000
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Shareholders
North Coast Bank
Santa Rosa, California
We have audited the accompanying balance sheets of North Coast Bank as of December 31, 1998 and 1997, and the related statements of operations, changes in shareholders' equity and cash flows for the years then ended. These financial statements are the responsibility of the Bank's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of North Coast Bank at December 31, 1998 and 1997, and the results of its operations and cash flows for the years then ended, in conformity with generally accepted accounting principles.
/s/ RICHARDSON & COMPANY
--------------------------------------
February 19, 1999
|
NORTH COAST BANK
BALANCE SHEET
December 31, 1999 and 1998
1999 1998
------------ ------------
ASSETS
Cash and due from banks $ 2,626,289 $ 3,484,967
Federal funds sold 1,000,000 4,600,000
Interest-bearing deposits in banks 793,000 693,000
Available-for-sale investment securities (Note 2) 1,708,000 1,428,995
Loans and leases, less allowance for loan and lease
losses of $383,310 in 1999 and $330,755 in 1998
(Notes 3, 7 and 11) 39,735,527 30,802,994
Bank premises and equipment, net (Note 4) 750,750 608,930
Accrued interest receivable and other assets (Note 6) 564,358 557,804
------------ ------------
$ 47,177,924 $ 42,176,690
============ ============
LIABILITIES AND
SHAREHOLDERS' EQUITY
Deposits:
Non-interest bearing $ 10,149,768 $ 8,153,261
Interest bearing (Note 5) 31,931,394 29,999,782
------------ ------------
Total deposits 42,081,162 38,153,043
Short-term borrowings (Note 8) 1,000,000
Accrued interest payable and other liabilities 98,342 231,621
------------ ------------
Total liabilities 43,179,504 38,384,664
------------ ------------
Commitments and contingencies (Note 7)
Shareholders' equity (Note 9):
Common stock - $4.00 and $5.00 par value in
1999 and 1998, respectively; 6,250,000 and 5,000,000 shares authorized
in 1999 and 1998, respectively; 472,354 and 377,902 shares issued
and outstanding in 1999 and 1998, respectively 1,889,416 1,889,510
Additional paid-in capital 1,826,945 1,826,851
Retained earnings 295,630 68,636
Accumulated other comprehensive (loss) income
(Notes 2 and 13) (13,571) 7,029
------------ ------------
Total shareholders' equity 3,998,420 3,792,026
------------ ------------
$ 47,177,924 $ 42,176,690
============ ============
|
The accompanying notes are an integral part of these financial statements.
NORTH COAST BANK
STATEMENT OF INCOME
For the Years Ended December 31, 1999, 1998 and 1997
1999 1998 1997
---------- ---------- ----------
Interest income:
Interest and fees on loans $3,382,954 $2,610,116 $2,162,208
Interest on investment securities:
Taxable 46,471 145,723 256,034
Exempt from Federal income taxes 8,488 5,988
Dividends 13,916 12,195 11,711
Interest on Federal funds sold 151,845 191,987 98,451
Interest on deposits in banks 45,845 23,422 5,097
---------- ---------- ----------
Total interest income 3,649,519 2,989,431 2,533,501
Interest expense:
Deposits (Note 5) 1,173,013 972,712 753,233
Short-term borrowings (Note 8) 21,785
---------- ---------- ----------
Total interest expense 1,194,798 972,712 753,233
---------- ---------- ----------
Net interest income 2,454,721 2,016,719 1,780,268
---------- ---------- ----------
Provision for loan and lease losses (Note 3) 175,000 148,585 70,500
---------- ---------- ----------
Net interest income after provision for
loan and lease losses 2,279,721 1,868,134 1,709,768
---------- ---------- ----------
Non-interest income:
Service charges 99,670 87,905 103,566
Gain on sale of loans 82,707
Gain on sale of investment securities, net
(Note 2) 6,593
Other income 167,713 109,723 83,891
---------- ---------- ----------
Total non-interest income 267,383 204,221 270,164
---------- ---------- ----------
Other expenses:
Salaries and employee benefits (Notes 3
and 10) 869,878 712,255 775,868
Occupancy and equipment (Notes 4 and 7) 479,100 300,989 299,029
Other (Note 12) 818,132 604,155 559,185
---------- ---------- ----------
Total other expenses 2,167,110 1,617,399 1,634,082
---------- ---------- ----------
Income before income taxes 379,994 454,956 345,850
Income taxes (Note 6) 153,000 109,000
---------- ---------- ----------
Net income $ 226,994 $ 345,956 $ 345,850
========== ========== ==========
Basic earnings per share (Note 9) $ .48 $ .73 $ .73
====== ======= =======
Diluted earnings per share (Note 9) $ .46 $ .70 $ .72
====== ======= =======
|
The accompanying notes are an integral part of these financial statements.
NORTH COAST BANK
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
For the Years Ended December 31, 1999, 1998 and 1997
Retained
Common Stock Additional Earnings
----------------------- Paid-in (Accumulated
Shares Amount Capital Deficit)
------- ------------ ------------ -----------
Balance, January 1, 1997 377,334 $ 1,886,670 $ 1,825,715 $ (623,170)
Comprehensive income (Note 13):
Net income 345,850
Other comprehensive income, net of tax:
Unrealized gains on available-for-sale
investment securities
Total comprehensive income
------- ------------ ------------ -----------
Balance, December 31, 1997 377,334 1,886,670 1,825,715 (277,320)
Comprehensive income (Note 13):
Net income 345,956
Other comprehensive loss, net of tax:
Unrealized losses on available-for-
sale investment securities, net of
reclassification adjustment
Total comprehensive income
Stock options exercised (Note 568 2,840 1,136
------- ------------ ------------ -----------
Balance, December 31, 1998 377,902 1,889,510 1,826,851 68,636
(Continued)
Accumulated
Other
Comprehensive Shareholders' Comprehensive
Income (Loss) Equity Income
----------- ----------- --------------
Balance, January 1, 1997 $ 7,696 $ 3,096,911
Comprehensive income (Note 13):
Net income 345,850 $ 345,850
Other comprehensive income, net of tax:
Unrealized gains on available-for-sale
investment securities 5,944 5,944 5,944
-------------
Total comprehensive income $ 351,794
=============
----------- -----------
Balance, December 31, 1997 13,640 3,448,705
Comprehensive income (Note 13):
Net income 345,956 $ 345,956
Other comprehensive loss, net of tax:
Unrealized losses on available-for-
sale investment securities, net of
reclassification adjustment (6,611) (6,611) (6,611)
--------------
Total comprehensive income $ 339,345
=============
Stock options exercised (Note 3,976
----------- -----------
Balance, December 31, 1998 7,029 3,792,026
----------- -----------
|
NORTH COAST BANK
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(Continued)
For the Years Ended December 31, 1999, 1998 and 1997
Retained
Common Stock Additional Earnings
----------------------- Paid-in (Accumulated
Shares Amount Capital Deficit)
------- ----------- ------------ -----------
Balance, December 31, 1998 377,902 $ 1,889,510 $ 1,826,851 $ 68,636
Comprehensive income (Note 13):
Net income 226,994
Other comprehensive income, net of tax:
Unrealized gains on available-for-sale
investment securities (Note 2)
Total comprehensive income
Five-for-four stock split 94,452 (94) 94
------- ------------ ------------ ---------
Balance, December 31, 1999 472,354 $ 1,889,416 $ 1,826,945 $ 295,630
======= ============ ============= =========
Disclosure of reclassification amount, net of taxes (Note 13):
Unrealized holding losses arising during 1998
Reclassification adjustment for gains included in net income
Net unrealized losses on available-for-sale investment securities
The accompanying notes are an integral
part of these financial statements.
(Continued)
Accumulated
Other
Comprehensive Shareholders' Comprehensive
Income (Loss) Equity Income
----------- ------------ --------------
Balance, December 31, 1998 $ 7,029 $ 3,792,026
Comprehensive income (Note 13):
Net income 226,994 $ 226,994
Other comprehensive income, net of tax:
Unrealized gains on available-for-sale
investment securities (Note 2) (20,600) (20,600) (20,600)
----------
Total comprehensive income $ 206,394
===========
Five-for-four stock split
Balance, December 31, 1999 $ (13,571) $ 3,998,420
=========== ============
Disclosure of reclassification amount,
net of taxes (Note 13):
Unrealized holding losses arising
during 1998 $ (10,567)
Reclassification adjustment for gains
included in net income (3,956)
------------
Net unrealized losses on available-for-sale
investment securities $ (6,611)
============
|
The accompanying notes are an integral part of these financial statements.
NORTH COAST BANK
STATEMENT OF CASH FLOWS
For the Years Ended December 31, 1999, 1998 and 1997
1999 1998 1997
----------- ----------- -----------
Cash flows from operating activities:
Net income $ 226,994 $ 345,956 $ 345,850
Adjustments to reconcile net income to
cash provided by operating activities:
Provision for loan losses 175,000 148,585 70,500
Depreciation, amortization and
accretion, net 71,514 96,115 102,804
Net gain on the sale of available-for-
sale investment securities (6,593)
Increase (decrease) in deferred loan
origination fees and costs, net 23,137 90,631 (4,913)
Increase in accrued interest receivable
and other assets (92,199) (58,385) (82,001)
Decrease (increase) in servicing assets 36,617 4,104 (40,721)
(Decrease) increase in accrued interest
payable and other liabilities (133,279) 121,830 (38,951)
Loss on sale of other real estate 2,000
Deferred taxes 59,000 (47,000) (59,000)
----------- ----------- -----------
Net cash provided by operating
activities 366,784 695,243 295,568
----------- ----------- -----------
Cash flows from investing activities:
Net (increase) decrease in interest-bearing
deposits in banks (100,000) (672,134) 99,488
Proceeds from the sale of available-for-
sale investment securities 599,023
Proceeds from matured and called
available-for-sale investment securities 450,000 1,963,170 1,518,743
Principal payments received from available-
for-sale mortgage-backed securities 301,500
Purchase of available-for-sale investment
securities (1,060,425) (532,395) (415,088)
Proceeds from sale of other real estate 2,700
Net increase in loans (9,067,256) (9,455,022) (2,205,593)
Purchase of premises and equipment (277,400) (121,800) (59,885)
----------- ----------- -----------
Net cash used in investing activities (9,753,581) (8,219,158) (1,059,635)
----------- ----------- -----------
|
(Continued)
NORTH COAST BANK
STATEMENT OF CASH FLOWS
(Continued)
For the Years Ended December 31, 1999, 1998 and 1997
1999 1998 1997
----------- ----------- -----------
Cash flows from financing activities:
Net increase in demand, interest bearing
and savings deposits $ 4,066,930 $ 3,901,583 $ 1,890,124
Net (decrease) increase in time deposits (138,811) 4,488,243 1,267,913
Increase in short-term borrowings 1,000,000
Proceeds from exercise of stock options 3,976
----------- ----------- -----------
Net cash provided by financing
activities 4,928,119 8,393,802 3,158,037
----------- ----------- -----------
(Decrease) increase in cash and
cash equivalents (4,458,678) 869,887 2,393,970
Cash and cash equivalents at beginning of
year 8,084,967 7,215,080 4,821,110
----------- ----------- -----------
Cash and cash equivalents at end of year $ 3,626,289 $ 8,084,967 $ 7,215,080
=========== =========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest expense $ 1,192,061 $ 965,663 $ 747,147
Income taxes $ 237,066 $ 93,300 $ 56,000
Non-cash investing activities:
Net change in unrealized gain on
available-for-sale investment securities $ (30,572) $ (6,611) $ 5,944
Loans transferred to other real estate
during the year $ 80,300
Sale of foreclosed other real estate
financed through loans $ 75,600
|
The accompanying notes are an integral part of these financial statements.
NORTH COAST BANK
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL
North Coast Bank (the "Bank") is a National Banking Association and, as such, is regulated by the Office of the Comptroller of the Currency, the Federal Reserve and the Federal Deposit Insurance Corporation. The regulations of these agencies govern most aspects of the Bank's business. The Bank was incorporated on March 26, 1990 as Windsor Oaks National Bank and was in organization until operations formally commenced on October 25, 1990. Effective January 8, 1997, the Bank changed its name to North Coast Bank.
The Bank provides a variety of banking services to individuals and businesses in its primary service area of northern Sonoma County, California and the immediate surrounding area. The Bank offers depository and lending services primarily to meet the needs of its business and professional clientele. These services include a variety of demand deposit, savings and time deposit account alternatives, and special merchant and business services. The Bank's lending activities are directed primarily towards granting short and medium-term commercial loans and customized lines of credits for such purposes as operating capital, business and professional start-ups, inventory, equipment and accounts receivable, and interim construction financing. The Bank also targets Small Business Administration guaranteed loans to qualified small business borrowers.
The accounting and reporting policies of the Bank conform with generally accepted accounting principles and prevailing practices within the banking industry.
RECLASSIFICATIONS
Certain reclassifications have been made to prior years' balances to conform to classifications used in 1999.
INVESTMENT SECURITIES
Investments are classified into one of the following categories:
o Available-for-sale securities, reported at fair value, with unrealized gains and losses excluded from earnings and reported, net of taxes, as accumulated other comprehensive income (loss) within shareholders' equity.
o Held-to-maturity securities, which management has the positive intent and ability to hold, reported at amortized cost, adjusted for the accretion of discounts and amortization of premiums.
Management determines the appropriate classification of its investments at the time of purchase and may only change the classification in certain limited circumstances. All transfers between categories are accounted for at fair value.
NORTH COAST BANK
NOTES TO FINANCIAL STATEMENTS
(Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
INVESTMENT SECURITIES (Continued)
Gains or losses on the sale of securities are computed using the specific identification method. Interest earned on investment securities is reported in interest income, net of applicable adjustments for accretion of discounts and amortization of premiums. In addition, unrealized losses that are other than temporary are recognized in earnings for all investments.
LOANS AND LEASES
Loans and leases are stated at principal balances outstanding, except for loans and leases transferred from loans and leases held for sale which are carried at the lower of principal balance or market value at the date of transfer, adjusted for accretion of discounts. Interest is accrued daily based upon outstanding loan and lease balances. However, when, in the opinion of management, loans and leases are considered to be impaired and the future collectibility of interest and principal is in serious doubt, loans and leases are placed on nonaccrual status and the accrual of interest income is suspended. Any interest accrued but unpaid is charged against income. Payments received are applied to reduce principal to the extent necessary to ensure collection. Subsequent payments on these loans and leases, or payments received on nonaccrual loans or leases for which the ultimate collectibility of principal is not in doubt, are applied first to earned but unpaid interest and then to principal.
An impaired loan or lease is measured based on the present value of expected future cash flows discounted at the instrument's effective interest rate or, as a practical matter, at the instrument's observable market price or the fair value of collateral if the loan or lease is collateral dependent. A loan or lease is considered impaired when, based on current information and events, it is probable that the Bank will be unable to collect all amounts due (including both principal and interest) in accordance with the contractual terms of the loan or lease agreement.
Loan and lease origination fees, commitment fees, direct loan and lease origination costs and purchase premiums and discounts on loans and leases are deferred and recognized as an adjustment of yield, to be amortized to interest income over the contractual term of the loan or lease. The unamortized balance of deferred fees and costs is reported as a component of net loans and leases.
Loans with unpaid balances of $6,236,305 and $3,868,698 were serviced for others at December 31, 1999 and 1998, respectively.
NORTH COAST BANK
NOTES TO FINANCIAL STATEMENTS
(Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
LOAN SALES AND SERVICING
The guaranteed portion of certain Small Business Administration (SBA) loans are sold to third parties with the Bank retaining the unguaranteed portion. The Bank generally receives a premium in excess of the adjusted carrying value of the loan at the time of sale. The Bank may be required to refund a portion of this premium if the borrower defaults or the loan prepays within ninety days of the settlement date. However, there were no sales of loans subject to these recourse provisions at December 31, 1999, 1998 or 1997. SBA loans with unpaid balances of $138,950 and $1,227,623 were being serviced for others at December 31, 1999 and 1998, respectively.
Servicing rights acquired through 1) a purchase or 2) the origination of loans which are sold or securitized with servicing rights retained are recognized as separate assets or liabilities. Servicing assets or liabilities are recorded at the difference between the contractual servicing fees and adequate compensation for performing the servicing, and are subsequently amortized in proportion to and over the period of the related net servicing income or expense. Servicing assets are periodically evaluated for impairment. Fair values are estimated using discounted cash flows based on current market interest rates. For purposes of measuring impairment, servicing assets are stratified based on note rate and term. The amount of impairment recognized is the amount by which the servicing assets for a stratum exceed their fair value.
In addition, assets (accounted for as interest-only (IO) strips) are recorded at the fair value of the difference between note rates and rates paid to purchasers (the interest spread) and contractual servicing fees, if applicable. IO strips are carried at fair value with gains or losses recorded as a component of shareholders' equity, similar to available-for-sale investment securities.
The Bank's investment in the loan is allocated between the retained portion of the loan, the servicing asset, the IO strip, and the sold portion of the loan based on their relative fair values on the date the loan is sold. The gain on the sold portion of the loan is recognized as income at the time of sale. The carrying value of the retained portion of the loan is discounted based on the estimated value of a comparable non-guaranteed loan. The servicing asset is amortized over the estimated life of the related loan. Significant future prepayments of these loans will result in the recognition of additional amortization of related servicing assets and an adjustment to the carrying value of related IO strips.
In connection with the Bank's sale of SBA loans during the year ended December 31, 1997, the Bank recognized servicing assets totaling $40,721. Amortization of these servicing assets totaled $4,104 for the year ended December 31, 1998. The carrying amount at December 31, 1998 was $36,617, which approximates the fair value. During the year ended December 31, 1997, the Bank recognized interest-only strips of $23,761. The carrying amount at December 31, 1998 was $19,298, which approximates the fair value. The loans related to these servicing assets and IO strips were repaid during 1999. Accordingly, the servicing assets and IO strips were written off and losses of $53,323 were recognized. In addition, revenue of $60,735 related to the discounted retained portion of the loans was recognized.
NORTH COAST BANK
NOTES TO FINANCIAL STATEMENTS
(Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
ALLOWANCE FOR LOAN AND LEASE LOSSES
The allowance for loan and lease losses is maintained to provide for losses related to impaired loans and leases and other losses that can be expected to occur in the normal course of business. The determination of the allowance is based on estimates made by management, to include consideration of the character of the loan and lease portfolio, specifically identified problem loans and leases, potential losses inherent in the portfolio taken as a whole and economic conditions in the Bank's service area. These estimates are particularly susceptible to changes in the economic environment and market conditions. The allowance is established through a provision for loan and lease losses which is charged to expense.
OTHER REAL ESTATE
Other real estate includes real estate acquired in full or partial settlement of loan obligations. When property is acquired, any excess of the Bank's recorded investment in the loan balance and accrued interest income over the estimated fair market value of the property, net of estimated selling costs, is charged against the allowance for loan and lease losses. A valuation allowance for losses on other real estate is maintained to provide for temporary declines in value. The allowance is established through a provision for losses on other real estate which is included in other expenses. Subsequent gains or losses on sales or writedowns resulting from permanent impairments are recorded in other income or expense as incurred. On the balance sheet, other real estate is included in accrued interest receivable and other assets.
BANK PREMISES AND EQUIPMENT
Bank premises and equipment are carried at cost. Depreciation is determined using the straight-line method over the estimated useful lives of the related assets. The useful lives of furniture, fixtures and equipment are estimated to be three to forty years. Leasehold improvements are amortized over the life of the asset or the term of the related lease, whichever is shorter. When assets are sold or otherwise disposed of, the cost and related accumulated depreciation and amortization are removed from the accounts, and any resulting gain or loss is recognized in income for the period. The cost of maintenance and repairs is charged to expense as incurred.
INCOME TAXES
Deferred tax assets and liabilities are recognized for the tax consequences of temporary differences between the financial statement and tax basis of existing assets and liabilities. On the balance sheet, net deferred tax assets are included in accrued interest receivable and other assets.
CASH EQUIVALENTS
For the purpose of the statement of cash flows, cash and due from banks and Federal funds sold are considered to be cash equivalents. Generally, Federal funds are sold for one day periods.
NORTH COAST BANK
NOTES TO FINANCIAL STATEMENTS
(Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
EARNINGS PER SHARE
Basic earnings per share (EPS), which excludes dilution, is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock, such as stock options, result in the issuance of common stock which shares in the earnings of the Bank. The treasury stock method has been applied to determine the dilutive effect of stock options in computing diluted EPS.
STOCK-BASED COMPENSATION
Stock options are accounted for under the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees. Accordingly, compensation cost for stock options is measured as the excess, if any, of the quoted market price of the Bank's stock at the date of grant over the exercise price. However, if the fair value of stock-based compensation computed under a fair value based method, as prescribed in Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation, is material to the financial statements, pro forma net income and earnings per share are disclosed as if the fair value method had been applied.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.
NEW FINANCIAL ACCOUNTING STANDARD
In June 1998, the Financial Accounting Standards Board issued SFAS 133, Accounting for Derivative Instruments and Hedging Activity, which was subsequently amended by SFAS 137 to delay the effective date to all fiscal quarters of fiscal years beginning after June 15, 2000. This Statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires that entities recognize all derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value. Management does not believe that the adoption of SFAS 133 will have a significant impact on its financial position and results of operations when implemented.
NORTH COAST BANK
NOTES TO FINANCIAL STATEMENTS
(Continued)
2. AVAILABLE-FOR-SALE INVESTMENT SECURITIES
The amortized cost and estimated market value of available-for-sale investment securities at December 31, 1999 and 1998 consisted of the following:
1999
--------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
-------------- ------------ --------------- --------------
U.S. Government
agencies $ 981,633 $ (8,633) $ 973,000
U.S. Government
guaranteed
mortgage-backed
securities 227,815 (2,815) 225,000
Obligations of states
and political sub-
divisions 173,095 (12,095) 161,000
Federal Home Loan
Bank stock 176,500 176,500
Federal Reserve
Bank stock 111,500 111,500
Other investments 61,000 61,000
-------------- ------------ --------------- --------------
$ 1,731,543 $ -- $ (23,543) $ 1,708,000
============== ============ =============== ==============
|
Net unrealized losses on available-for-sale investment securities totaling $23,543 were recorded, net of $9,972 in tax benefits, as accumulated other comprehensive loss within shareholders' equity for the year ended December 31, 1999. There were no sales of available-for-sale investment securities for the year ended December 31, 1999.
NORTH COAST BANK
NOTES TO FINANCIAL STATEMENTS
(Continued)
2. AVAILABLE-FOR-SALE INVESTMENT SECURITIES (Continued)
1998
-------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---------- ---------- --------- ----------
U.S. Treasury $ 249,674 $ 1,263 $ 250,937
U.S. Government
agencies 200,000 313 200,313
U.S. Government
guaranteed
mortgage-backed
securities 530,325 3,065 $ (1,443) 531,947
Obligations of states
and political sub-
divisions 173,017 3,831 176,848
Federal Home Loan
Bank stock 104,200 104,200
Federal Reserve
Bank stock 105,450 105,450
Other investments 59,300 59,300
---------- ---------- --------- ----------
$1,421,966 $ 8,472 $ (1,443) $1,428,995
========== ========== ========= ==========
|
Net unrealized gains on available-for-sale investment securities totaling $7,029 were recorded as accumulated other comprehensive income within shareholders' equity for the year ended December 31, 1998. Proceeds and gross realized gains on available-for-sale investment securities totaled $599,023 and $6,593, respectively, for the year ended December 31, 1998. There were no sales of available-for-sale investment securities in 1997.
NORTH COAST BANK
NOTES TO FINANCIAL STATEMENTS
(Continued)
2. AVAILABLE-FOR-SALE INVESTMENT SECURITIES (Continued)
The amortized cost and estimated market value of investment securities at December 31, 1999 by contractual maturity are shown below. Expected maturities will differ from contractual maturities because the issuers of the securities may have the right to call or prepay obligations with or without call or prepayment penalties.
Estimated
Amortized Market
Cost Value
---------- ----------
Within one year $ 136,719 $ 135,000
After one year through five years 1,072,729 1,063,000
After ten years 173,095 161,000
---------- ----------
1,382,543 1,359,000
Investment securities not due at a single
maturity date:
Federal Home Loan Bank stock 176,500 176,500
Federal Reserve Bank stock 111,500 111,500
Other investments 61,000 61,000
---------- ----------
$1,731,543 $1,708,000
========== ==========
|
Investment securities with amortized costs of $250,000 and $249,675 and estimated market values of $242,000 and $251,000 were pledged to secure treasury tax and loan accounts at December 31, 1999 and 1998, respectively.
3. LOANS AND LEASES
Outstanding loans and leases are summarized below:
December 31,
----------------------------
1999 1998
------------ ------------
Commercial $ 11,883,098 $ 9,301,330
Real estate - commercial 12,711,222 11,298,073
Real estate - residential 2,798,572 4,243,403
Real estate - construction 4,476,824 1,586,915
Agriculture 7,199,565 3,416,398
Lease financing receivables 121,521 363,913
Consumer 898,050 914,736
Other 138,839 94,698
------------ ------------
40,227,691 31,219,466
Deferred loan fees, net (108,854) (85,717)
Allowance for loan and lease losses (383,310) (330,755)
------------ ------------
$ 39,735,527 $ 30,802,994
============ ============
|
NORTH COAST BANK
NOTES TO FINANCIAL STATEMENTS
(Continued)
3. LOANS AND LEASES (Continued)
Changes in the allowance for loan and lease losses were as follows:
Year Ended December 31,
-----------------------------------
1999 1998 1997
--------- --------- ---------
Balance, beginning of year $ 330,755 $ 352,417 $ 345,785
Provision charged to operations 175,000 148,585 70,500
Losses charged to allowance (130,804) (183,322) (71,105)
Recoveries 8,359 13,075 7,237
--------- --------- ---------
Balance, end of year $ 383,310 $ 330,755 $ 352,417
========= ========= =========
|
During the years ended December 31, 1999, 1998 and 1997, the Bank had no significant impaired loans or loans placed on nonaccrual status.
Salaries and employee benefits totaling $189,501, $152,461 and $143,519 were deferred as loan origination costs for the years ended December 31, 1999, 1998 and 1997, respectively.
4. BANK PREMISES AND EQUIPMENT
Bank premises and equipment consisted of the following:
December 31,
--------------------------
1999 1998
----------- -----------
Land $ 149,001 $ 149,001
Building and improvements 212,975 212,975
Furniture, fixtures and equipment 967,466 841,019
Leasehold improvements 180,188 118,120
----------- -----------
1,509,630 1,321,115
Less accumulated depreciation
and amortization (758,880) (712,185)
----------- -----------
$ 750,750 $ 608,930
=========== ===========
|
Depreciation and amortization included in occupancy and equipment expense totaled $135,580, $104,064 and $118,861 for the years ended December 31, 1999, 1998 and 1997, respectively.
NORTH COAST BANK
NOTES TO FINANCIAL STATEMENTS
(Continued)
5. INTEREST-BEARING DEPOSITS
Interest-bearing deposits consisted of the following:
December 31,
---------------------------
1999 1998
----------- -----------
Savings $ 4,231,966 $ 4,977,851
Money market 9,759,646 7,222,047
NOW accounts 3,719,997 3,441,288
Time, $100,000 or more 5,612,900 6,313,085
Other time 8,606,885 8,045,511
----------- -----------
$31,931,394 $29,999,782
=========== ===========
|
Aggregate annual maturities of time deposits are as follows:
Year Ending
December 31,
------------
2000 $ 13,678,479
2001 511,949
2002 13,012
2003 16,345
-------------
$ 14,219,785
=============
|
Interest expense recognized on interest-bearing deposits for the years ended December 31, 1999, 1998 and 1997 consisted of the following:
1999 1998 1997
---------- ---------- ----------
Savings $ 120,664 $ 133,546 $ 122,160
Money market 325,503 151,591 84,149
NOW accounts 56,226 58,819 54,294
Time, $100,000 or more 285,373 256,524 167,701
Other time 385,247 372,232 324,929
---------- ---------- ----------
$1,173,013 $ 972,712 $ 753,233
========== ========== ==========
|
NORTH COAST BANK
NOTES TO FINANCIAL STATEMENTS
(Continued)
6. INCOME TAXES
The provision for income taxes for the years ended December 31, 1999, 1998 and 1997 consisted of the following:
Federal State Total
--------- --------- ---------
1999
----
Current $ 82,000 $ 12,000 $ 94,000
Deferred 32,000 27,000 59,000
--------- --------- ---------
Income tax expense $ 114,000 $ 39,000 $ 153,000
========= ========= =========
1998
----
Current $ 107,000 $ 49,000 $ 156,000
Deferred (32,000) (15,000) (47,000)
--------- --------- ---------
Income tax expense $ 75,000 $ 34,000 $ 109,000
========= ========= =========
1997
----
Current $ 17,000 $ 42,000 $ 59,000
Deferred (17,000) (42,000) (59,000)
--------- --------- ---------
Income tax expense $ -- $ -- $ --
========= ========= =========
|
Deferred tax assets (liabilities) consisted of the following:
December 31,
----------------------
1999 1998
--------- ---------
Deferred tax assets:
Allowance for loan losses $ 114,000 $ 98,000
Loans held for sale 27,000
Future benefit of State income tax deduction 5,000 16,000
Other 14,000
Unrealized losses on available-for-sale
investment securities 10,000
--------- ---------
Total deferred tax assets 129,000 155,000
--------- ---------
Deferred tax liabilities:
Bank premises and equipment (32,000) (21,000)
Future liability of State deferred tax asset (7,000)
Other (11,000) (6,000)
--------- ---------
Total deferred tax liabilities (50,000) (27,000)
--------- ---------
Net deferred tax assets $ 79,000 $ 128,000
========= =========
|
NORTH COAST BANK
NOTES TO FINANCIAL STATEMENTS
(Continued)
6. INCOME TAXES (Continued)
The provision for income taxes differs from amounts computed by applying the statutory Federal income tax rates to operating income before income taxes. The significant items comprising these differences for the years ended December 31, 1999, 1998 and 1997 consisted of the following:
1999 1998 1997
-------------------- -------------------- -------------------
Amount Rate % Amount Rate % Amount Rate %
--------- ------ --------- ------ --------- ------
Federal income tax
expense, at statutory
rate $ 129,000 34.0 $ 155,000 34.0 $ 118,000 34.0
Graduated rate benefit (1,000) (.2)
State franchise tax,
net of Federal tax
effect 28,000 7.4 32,000 7.1 24,000 6.9
Interest on obligations
of states and political
subdivisions (3,000) (.8)
Valuation allowance for
deferred tax assets (81,000) (17.8) (140,000) (40.5)
Other (1,000) (.3) 3,000 .7 (1,000) (.2)
--------- --------- --------- -------- --------- --------
Total income
tax expense $ 153,000 40.3 $ 109,000 24.0 $ -- --
========= ========= ========= ======== ========= ========
|
7. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Bank leases two of its branch offices and various equipment under noncancelable operating leases. Future minimum lease payments are as follows:
Year Ending
December 31,
------------
2000 $ 213,264
2001 219,419
2002 225,759
2003 128,802
2004 122,976
Thereafter 506,851
---------------
$ 1,417,071
===============
|
The Bank has an option to renew its Windsor branch office lease for two five-year terms after the initial lease ends February 1, 2003. Additionally, the Bank has an option to renew its Santa Rosa branch office lease for two five-year terms after the initial lease ends October 31, 2008.
NORTH COAST BANK
NOTES TO FINANCIAL STATEMENTS
(Continued)
7. COMMITMENTS AND CONTINGENCIES (Continued)
OPERATING LEASES (Continued)
Rental expense included in occupancy and equipment expense, net of related rental income, totaled $175,123, $84,134 and $70,136 for the years ended December 31, 1999, 1998 and 1997, respectively.
The Bank subleases a portion of the Windsor branch office for $2,012 per month. The sublease ends September 1, 2000. Additionally, the Bank sublet a portion of the Santa Rosa branch office for $600 per month. This lease ended in November 1999 and was not renewed. The Bank received rental income of $26,944, $20,744 and $20,272 for the years ended December 31, 1999, 1998 and 1997, respectively.
FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Bank is a party to financial instruments with off-balance-sheet risk in the normal course of business in order to meet the financing needs of its customers and to reduce its own exposure to fluctuations in interest rates. These financial instruments include commitments to extend credit and letters of credit. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized on the balance sheet.
The Bank's exposure to credit loss in the event of nonperformance by the other party for commitments to extend credit and letters of credit is represented by the contractual amount of those instruments. The Bank uses the same credit policies in making commitments as it does for loans included on the balance sheet.
The following financial instruments represent off-balance-sheet credit risk:
December 31,
-----------------------
1999 1998
---------- ----------
Commitments to extend credit $8,757,000 $4,462,000
Credit card arrangements $ 397,000 $ 497,000
Letters of credit $ 150,000 $ 150,000
|
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since some of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on management's credit evaluation of the borrower. Collateral held varies, but may include savings accounts, accounts receivable, inventory, equipment, and deeds of trust on residential real estate and income-producing commercial properties.
NORTH COAST BANK
NOTES TO FINANCIAL STATEMENTS
(Continued)
7. COMMITMENTS AND CONTINGENCIES (Continued)
FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK (Continued)
Letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers.
At December 31, 1999, commercial loan commitments represent approximately 62% of total commitments and are generally secured by accounts receivable and inventory. Real estate loan commitments represent approximately 37% of total commitments and are generally secured by property with a loan-to-value ratio not to exceed 80%. Unsecured credit card and equity line commitments represent the remaining 1% of total commitments. In addition, the majority of the Bank's loan commitments have variable interest rates.
SIGNIFICANT CONCENTRATIONS OF CREDIT RISK
The Bank grants real estate mortgage, real estate construction, commercial, agricultural and consumer loans to customers in Northern California, primarily in Sonoma County. Although the Bank has a diversified loan portfolio, a substantial portion of its portfolio is secured by commercial and residential real estate. However, personal and business income represent the primary source of repayment for a majority of these loans.
CORRESPONDENT BANKING AGREEMENTS
The Bank maintains funds on deposit with other federally insured financial institutions under correspondent banking agreements. There were no uninsured deposits at December 31, 1999.
FEDERAL RESERVE REQUIREMENTS
Banks are required to maintain reserves with the Federal Reserve Bank equal to a percentage of their reservable deposits. The Bank had a reserve requirement with the Federal Reserve Bank of $156,000 and $86,000 as of December 31, 1999 and 1998, respectively.
CONTINGENCIES
The Bank is subject to legal proceedings and claims which arise in the ordinary course of business. In the opinion of management, the amount of ultimate liability with respect to such actions will not materially affect the financial position or results of operations of the Bank.
NORTH COAST BANK
NOTES TO FINANCIAL STATEMENTS
(Continued)
8. SHORT-TERM BORROWING ARRANGEMENT
The Bank has a total of $2,000,000 in unsecured Federal funds lines of credit with two of its correspondent banks to meet short-term liquidity needs. In addition, the Bank has a line of credit available with the Federal Home Loan Bank totaling $1,400,000 which is secured by pledged mortgage loans. An advance totaling $1,000,000 was outstanding from the Federal Home Loan Bank at December 31, 1999 bearing an interest rate of 5.9% and a maturity date of April 12, 2000. There were no short-term borrowings outstanding at December 31, 1998.
9. SHAREHOLDERS' EQUITY
DIVIDENDS
Upon declaration by the Board of Directors, all shareholders of record will be entitled to receive dividends. Under applicable Federal laws, the Comptroller of the Currency (OCC) restricts the total dividend payment of any national banking association in any calendar year to the net income of the year, as defined, combined with the net income for the two preceding years, less distributions made to shareholders during the same three-year period. At December 31, 1999, retained earnings of $295,630 were free of such restrictions.
EARNINGS PER SHARE
A reconciliation of the numerators and denominators of the basic and diluted earnings per share computations is as follows:
Weighted
Average
Number of
Shares Per Share
For the Year Ended Net Income Outstanding Amount
-------------------------------- ---------- ----------- ---------
DECEMBER 31, 1999
Basic earnings per share $226,994 472,354 $ .48
=======
Effect of dilutive stock options 17,318
-------- -------
Diluted earnings per share $226,994 489,672 $ .46
======== ======= =======
DECEMBER 31, 1998
Basic earnings per share $345,956 471,794 $ .73
=======
Effect of dilutive stock options 22,036
-------- -------
Diluted earnings per share $345,956 493,830 $ .70
======== ======= =======
|
NORTH COAST BANK
NOTES TO FINANCIAL STATEMENTS
(Continued)
9. SHAREHOLDERS' EQUITY (Continued)
EARNINGS PER SHARE (Continued)
Weighted
Average
Number of
Shares Per Share
For the Year Ended Net Income Outstanding Amount
-------------------------------- ---------- ----------- --------
DECEMBER 31, 1997
Basic earnings per share $345,850 471,667 $ .73
=======
Effect of dilutive stock options 10,178
--------- ----------
Diluted earnings per share $345,850 481,845 $ .72
========= ========== =======
|
Weighted average number of shares outstanding are adjusted for stock splits for all periods presented.
Options to purchase 62,500 shares of common stock at $9.26 per share were outstanding during the first and third quarters of 1999 and options to purchase 135,625 shares of common stock at a weighted average price of $8.87 were outstanding during the fourth quarter of 1999 but were not included in the computation of diluted earnings per share because the exercise price was greater than the average market price of the common shares. Options to purchase 16,500 shares of common stock at $10 per share were outstanding during 1997, but were not included in the computation of diluted earnings per share because the exercise price was greater than the average market price of the common shares.
STOCK OPTIONS
In 1990, the Bank established a stock option plan for which 128,126 shares of common stock are reserved for issuance to employees and directors under incentive and nonstatutory agreements. The plan requires that the option price may not be less than the fair market value of the stock at the date the option is granted, and that the stock must be paid for in full at the time the option is exercised. All options expire on a date determined by the Board of Directors, but not later than ten years from the date of grant. Nonstatutory options become twenty percent vested immediately upon grant, with the remaining options vesting ratably over the next four years. Incentive options vest ratably over a five year period beginning one year from the date of grant.
NORTH COAST BANK
NOTES TO FINANCIAL STATEMENTS
(Continued)
9. SHAREHOLDERS' EQUITY (Continued)
STOCK OPTIONS (Continued)
The Bank has adopted the disclosure-only provisions of Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation. Accordingly, no compensation expense has been recognized under its stock option plan. Had compensation cost for the plan been determined based on the fair value at grant date for awards in 1999, 1998 and 1996 consistent with the provisions of SFAS No. 123, the Bank's net income and income per share for the years ended December 31, 1999, 1998 and 1997 would have been reduced to the pro forma amounts indicated below. Compensation expense is included in pro forma income when the options become vested. The fair value of options granted in 1999 and 1998 was estimated to be $4.45 and $3.61, respectively.
1999 1998 1997
----------- ----------- -----------
Net income - as reported $ 226,994 $ 345,956 $ 345,850
Net income - pro forma $ 154,403 $ 295,057 $ 321,490
Basic income per share - as reported $ .48 $ .73 $ .73
Basic income per share - pro forma $ .33 $ .63 $ .68
Diluted income per share - as reported $ .46 $ .70 $ .72
Diluted income per share - pro forma $ .32 $ .60 $ .66
|
The fair value of each option was estimated on the date of grant using an option-pricing model with the following assumptions:
1999 1998
--------- --------
Dividend yield (not applicable)
Expected volatility 73.32% 9.53%
Risk-free interest rate 6.00% 4.91%
Expected option life 10 years 10 years
|
NORTH COAST BANK
NOTES TO FINANCIAL STATEMENTS
(Continued)
9. SHAREHOLDERS' EQUITY (Continued)
STOCK OPTIONS (Continued)
A summary of the activity within the plan follows:
1999 1998 1997
----------------------- ------------------------ ------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------- -------- ------ --------- ------ --------
INCENTIVE OPTIONS
Options outstanding
beginning of year 122,932 $ 9.33 74,200 $ 7.78 101,500 $ 7.74
Options granted 52,500 $ 8.75 50,000 $ 11.58
Options exercised (568) $ 7.00
Options canceled (13,750) $ 7.65 (700) $ 7.00 (27,300) $ 7.65
Options resulting
from stock split 30,733 $ 7.61
------- ------- -------
Options outstanding,
end of year 192,415 $ 7.80 122,932 $ 9.33 74,200 $ 7.78
======= ======= =======
Options exercisable,
end of year 102,949 $ 7.19 63,032 $ 8.64 42,200 $ 8.33
======= ======= =======
A summary of options outstanding at December 31, 1999 follows:
|
Number of Weighted Number of
Options Average Options
Outstanding Remaining Exercisable
December 31, Contractual December 31,
Range of Exercise Prices 1999 Life 1999
------------------------ -------------------- ---------------------------- ----------------
$ 5.60 52,415 6.8 years 40,199
$ 6.20 12,500 4.2 years 12,500
$ 8.00 18,750 .7 years 18,750
$ 8.75 52,500 10 years 9,000
$ 9.26 56,250 8.7 years 2 2,500
-------------------- ----------------
192,415 102,949
==================== ================
|
NORTH COAST BANK
NOTES TO FINANCIAL STATEMENTS
(Continued)
9. SHAREHOLDERS' EQUITY (Continued)
REGULATORY CAPITAL
The Bank is subject to certain regulatory capital requirements administered by the Office of the Comptroller of the Currency (OCC). Failure to meet these minimum capital requirements can initiate certain 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 of total and Tier 1 capital to risk-weighted assets and of Tier 1 capital to average assets. Each of these components is defined in the regulations. Management believes that the Bank meets all its capital adequacy requirements as of December 31, 1999.
In addition, the most recent notification from the OCC categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank must maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth below. There are no conditions or events since that notification that management believes have changed the Bank's category.
1999 1998 1997
--------------------- ---------------------- ---------------------
Amount Ratio Amount Ratio Amount Ratio
---------- ----- ---------- ----- ---------- -----
LEVERAGE RATIO
North Coast Bank $4,012,000 9.3% $3,781,000 9.8% $3,432,000 11.2%
Minimum requirement for "Well-
Capitalized" institution $2,163,000 5.0% $1,937,000 5.0% $1,525,000 5.0%
Minimum regulatory requirement $1,730,000 4.0% $1,550,000 4.0% $1,220,000 4.0%
TIER 1 RISK-BASED CAPITAL RATIO
North Coast Bank $4,012,000 10.0% $3,781,000 12.0% $3,432,000 15.9%
Minimum requirement for "Well-
Capitalized" institution $2,395,000 6.0% $1,898,000 6.0% $1,297,000 6.0%
Minimum regulatory requirement $1,597,000 4.0% $1,265,000 4.0% $ 865,000 4.0%
TOTAL RISK-BASED CAPITAL RATIO
North Coast Bank $4,395,000 11.0% $4,112,000 13.0% $3,703,000 17.1%
Minimum requirement for "Well-
Capitalized" institution $3,992,000 10.0% $3,163,000 10.0% $2,161,000 10.0%
Minimum regulatory requirement $3,194,000 8.0% $2,531,000 8.0% $1,729,000 8.0%
|
NORTH COAST BANK
NOTES TO FINANCIAL STATEMENTS
(Continued)
10. EMPLOYEE BENEFIT PLANS
SAVINGS PLAN
The North Coast Bank 401(k) Savings Plan commenced January 1, 1993 and is available to employees meeting certain service requirements. Under the plan, employees may defer a selected percentage of their annual compensation. The Bank's contribution to the plan is discretionary and is allocated as follows:
o A matching contribution to be determined by the Board of Directors each plan year under which the Bank will match a percentage of each participant's contribution.
o The Bank may make additional contributions to the plan at the discretion of the Board of Directors that shall be allocated in the same ratio as each participant's contribution bears to total compensation.
Bank contributions totaled $13,216, $8,560 and $8,031 for the years ended December 31, 1999, 1998, and 1997, respectively.
11. RELATED PARTY TRANSACTIONS
During the normal course of business, the Bank enters into transactions with related parties, including Directors and officers. These transactions include borrowings from the Bank with substantially the same terms, including rates and collateral, as loans to unrelated parties. The following is a summary of the aggregate activity involving related party borrowers during 1999:
Balance, January 1, 1999 $ 291,596
Disbursements 1,586,068
Amounts repaid (366,122)
------------
Balance, December 31, 1999 $ 1,511,542
============
Undisbursed commitments to related parties,
December 31, 1999 $ 934,195
============
|
NORTH COAST BANK
NOTES TO FINANCIAL STATEMENTS
(Continued)
12. OTHER EXPENSES
Other expenses for the years ended December 31, 1999, 1998 and 1997
consisted of the following:
1999 1998 1997
-------- -------- --------
Data processing $188,234 $165,602 $168,186
Merchant processing fees 139,819 74,019 56,809
Advertising 72,521 37,566 16,882
Stationery and supplies 71,190 45,119 47,525
Legal and accounting 33,276 38,746 51,082
Brokerage and consulting fees 30,746 38,401 24,875
Insurance 26,805 27,938 29,399
Other operating expenses 255,581 176,764 164,427
-------- -------- --------
$818,132 $604,155 $559,185
======== ======== ========
|
13. COMPREHENSIVE INCOME
Comprehensive income is reported in addition to net income for all periods presented. Comprehensive income is a more inclusive financial reporting methodology that includes disclosure of other comprehensive income (loss) that historically has not been recognized in the calculation of net income. Unrealized gains and losses on the Bank's available-for-sale investment securities are included in other comprehensive income (loss). Total comprehensive income and the components of accumulated other comprehensive income (loss) are presented in the Statement of Changes in Shareholders' Equity.
At December 31, 1999, 1998 and 1997, the Bank held securities classified as available-for-sale which had unrealized (losses) gains as follows:
Tax
Before Benefit After
Tax (Expense) Tax
-------- -------- --------
FOR THE YEAR ENDED DECEMBER 31, 1999
Other comprehensive loss:
Unrealized holding losses $(30,572) $ 9,972 $(20,600)
======== ======== ========
FOR THE YEAR ENDED DECEMBER 31, 1998
Other comprehensive loss:
Unrealized holding losses $(17,824) $ 7,257 $(10,567)
Reclassification adjustment for net
gains included in net income 6,593 (2,637) 3,956
-------- -------- --------
Total other comprehensive
loss $(11,231) $ 4,620 $ (6,611)
======== ======== ========
|
NORTH COAST BANK
NOTES TO FINANCIAL STATEMENTS
(Continued)
13. COMPREHENSIVE INCOME (Continued)
Tax
Before Benefit After
Tax (Expense) Tax
------ --------- -------
FOR THE YEAR ENDED DECEMBER 31, 1997
Other comprehensive income:
Unrealized holding gains $10,099 $(4,155) $ 5,944
======= ======= =======
|
14. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
Estimated fair values are disclosed for financial instruments for which it is practicable to estimate fair value. These estimates are made as of a specific point in time based on relevant market data and information about the financial instruments. These estimates do not reflect any premium or discount that could result from offering the Bank's entire holdings of a particular financial instrument for sale at one time, nor do they attempt to estimate the value of anticipated future business related to the instruments. In addition, the tax ramifications related to the realization of unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in any of these estimates.
Because no market exists for a significant portion of the Bank's financial instruments, fair value estimates are based on judgments regarding 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 fair values presented.
The following methods and assumptions were used by the Bank to estimate the fair value of its financial instruments at December 31, 1999 and 1998:
CASH AND DUE FROM BANKS, CASH EQUIVALENTS AND SHORT-TERM BORROWINGS:
For cash and due from banks, cash equivalents and short-term
borrowings, the carrying amount is estimated to be fair value.
INTEREST-BEARING DEPOSITS IN BANKS: The fair value of interest-bearing deposits in banks are estimated by discounting their future cash-flows using rates at each reporting date for instruments with similar remaining maturities offered by comparable financial institutions.
INVESTMENT SECURITIES: For investment securities, fair values are based on quoted market prices, where available. If quoted market prices are not available, fair values are estimated using quoted market prices for similar securities and indications of value provided by brokers.
NORTH COAST BANK
NOTES TO FINANCIAL STATEMENTS
(Continued)
14. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
LOANS AND LEASES: For variable-rate loans and leases that reprice frequently with no significant change in credit risk, fair values are based on carrying values. The fair values for other loans and leases are estimated using discounted cash flow analyses, using interest rates offered at each reporting date for loans with similar terms to borrowers of comparable creditworthiness. The carrying amount of accrued interest receivable approximates its fair value.
DEPOSITS: The fair values for demand deposits are, by definition, equal to the amount payable on demand at the reporting date represented by their carrying amount. Fair values for fixed-rate certificates of deposit are estimated using discounted cash flow analyses using interest rates offered at each reporting date by the Bank for certificates with similar remaining maturities. The carrying amount of accrued interest payable approximates its fair value.
COMMITMENTS TO EXTEND CREDIT AND LETTERS OF CREDIT: Commitments to extend credit and letters of credit are primarily for variable rate loans. For these commitments, there is no difference between the committed amounts and their fair values. Commitments to fund fixed rate loans and letters of credit are at rates which approximate fair value at each reporting date.
December 31, 1999 December 31, 1998
------------------------ -------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
----------- ----------- ----------- -----------
Financial assets:
Cash and due from banks $ 2,626,289 $ 2,626,289 $ 3,484,967 $ 3,484,967
Federal funds sold 1,000,000 1,000,000 4,600,000 4,600,000
Interest-bearing deposits
in banks 793,000 793,000 693,000 693,000
Investment securities 1,708,000 1,708,000 1,428,995 1,428,995
Loans and leases 39,735,527 39,323,000 30,802,994 30,836,411
Accrued interest receivable 250,478 250,478 206,119 206,119
----------- ----------- ----------- -----------
$46,113,294 $45,700,767 $41,216,075 $41,249,492
=========== =========== =========== ===========
Financial liabilities:
Deposits $42,081,162 $42,113,000 $38,153,043 $38,155,639
Accrued interest payable 39,624 39,624 36,887 36,887
----------- ----------- ----------- -----------
$42,120,786 $42,152,624 $38,189,930 $38,192,526
=========== =========== =========== ===========
Off-balance-sheet financial
instruments:
Commitments to extend
credit $ 8,757,000 $ 8,757,000 $ 4,462,000 $ 4,462,000
Credit card arrangements 397,000 397,000 497,000 497,000
Letters of credit 150,000 150,000 150,000 150,000
----------- ----------- ----------- -----------
$ 9,304,000 $ 9,304,000 $ 5,109,000 $ 5,109,000
=========== =========== =========== ===========
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NORTH COAST BANK
NOTES TO FINANCIAL STATEMENTS
(Continued)
15. SUBSEQUENT EVENT
On March 1, 2000, the Directors of North Coast Bank and American River Holdings approved a definitive merger agreement between the two companies. As a result, North Coast Bank, American River Bank, and first source capital will operate as wholly-owned subsidiaries under American River Holdings. Under the agreement, each share of North Coast Bank will be converted into the right to receive .9644 of a share of the common stock of American River Holdings. The transaction will be accounted for under the pooling-of-interests method of accounting. It is expected that this merger will be accomplished in the third quarter of 2000, subject to shareholder and regulatory approval.
The unaudited pro forma information set forth below assumes that the merger of the two companies took place on January 1, 1997. This information is presented for informational purposes only and is not necessarily indicative of the results of operations that actually would have been achieved had the merger been consummated at that time.
Years Ended December 31,
----------------------------------------------
1999 1998 1997
------------- ------------- ------------
Net interest income $ 11,754,000 $ 10,743,000 $ 9,582,000
Net income $ 3,128,000 $ 2,850,000 $ 2,347,000
Basic earnings per common share $ 1.37 $ 1.25 $ 1.02
Diluted earnings per common share $ 1.30 $ 1.14 $ .94
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EXPERTS
The consolidated financial statements of American River Holdings included in this joint proxy statement/prospectus for the year ended December 31, 1999 have been audited by Perry-Smith LLP, independent accountants, as stated in their report, given upon their authority as experts in accounting and auditing.
The financial statements of North Coast Bank, N.A. included in this joint proxy statement/prospectus for the year ended December 31, 1999 have been audited by Perry-Smith LLP, independent accountants, as stated in their report, given upon their authority as experts in accounting and auditing.
LEGAL MATTERS
The validity of the shares of American River Holdings common stock offered hereby and certain legal matters in connection with the merger will be passed upon for American River Holdings by Coudert Brothers, San Jose, California. Certain federal and California tax matters will be passed upon by Perry-Smith LLP, Sacramento, California.
SHAREHOLDER PROPOSALS
Next years' annual meeting of shareholders of American River Holdings is currently scheduled to be held on May ___, 2001. Any shareholder desiring to submit a proposal for action and to be included in the Proxy Statement for the 2001 Annual Meeting of Shareholders, should mail such proposal by certified mail, return receipt requested, to American River Holdings, 1545 River Park Drive, Suite 107, Sacramento, California 95815, Attention: David T. Taber, President and Chief Executive Officer. All such proposals must be received by American River Holdings not later than ____________, 2000. Matters pertaining to such proposals, including the number and length thereof, eligibility of persons entitled to have such proposals included, and other aspects related to such proposals, are regulated by the Securities Exchange Act of 1934, as amended.
SOLICITATION OF PROXIES
Each of American River Holdings and North Coast Bank, N.A. will bear the cost of the solicitation of proxies from their respective shareholders. In addition to solicitation by mail, the directors, officers and employees of American River Holdings or North Coast Bank, N.A. may solicit proxies from their respective shareholders by telephone or telegram or in person. Those persons will not be additionally compensated, but will be reimbursed for reasonable out-of-pocket expenses incurred in connection with the solicitations. Arrangements will also be made with brokerage firms, nominees, fiduciaries and other custodians, for the forwarding of solicitation materials to the beneficial owners of shares held of record by those persons, and American River Holdings or North Coast Bank, N.A., as applicable, will reimburse those persons for their reasonable out-of-pocket expenses in connection with those solicitations. North Coast Bank, N.A. has retained Chase Mellon Shareholder Services of San Francisco, California, to aid in the solicitation of proxies and to verify records related to the solicitations. Chase Mellon Shareholder Services will receive $4,500 as compensation for its services and $2,000 as reimbursement for its related out-of-pocket expenses.
ANNUAL DISCLOSURE STATEMENT
Copies of the Annual Disclosure Statements of American River Bank and North Coast Bank, N.A., respectively, are available, upon request, at no cost to you. Additional copies may be obtained for a nominal fee. See "Where You Can Find More Information" on page 283.
ANNUAL REPORT
The Annual Reports to Shareholders for American River Holdings and North Coast Bank, N.A., respectively, for the year ended December 31, 1999, were previously mailed to their respective shareholders. A copy of the American River Holdings and/or the North Coast Bank, N.A. Annual Report to Shareholders is available, upon request, at no cost to you. Additional copies may be obtained for a nominal fee. See "Where You Can Find More Information" on page 283.
OTHER MATTERS
Management is not aware of any other matters to be presented at the American River Holdings annual meeting or North Coast Bank, N.A. special meeting other than those set forth above. However, if other matters properly come before the respective annual meeting or special meeting, it is the intention of the persons named in the accompanying Proxy to vote the Proxy in accordance with the recommendations of the board of directors, and the discretionary authority granted to the proxy holders named in the Proxy.
WHERE YOU CAN FIND MORE INFORMATION
Neither American River Holdings nor North Coast Bank, N.A. is currently subject to the informational reporting requirements under the Securities Exchange Act of 1934, as amended. In connection with the merger, American River Holdings will register its common stock under Section 12 of the Securities Exchange Act of 1934, as amended, and thereafter will be required to file reports, proxy statements and other information with the Securities Exchange Commission.
American River Holdings has filed with the Securities and Exchange Commission a registration statement on Form S-4 under the Securities Act of 1933, as amended, relating to the shares of American River Holdings common stock to be issued in connection with the merger. This joint proxy statement/prospectus also constitutes the prospectus of American River Holdings filed as part of the registration statement and does not contain all the information set forth in the registration statement and exhibits thereto. You may copy and read the registration statement and its exhibits at the Securities and Exchange Commission's public reference rooms in Washington, D.C., New York, New York and Chicago, Illinois. You may also obtain copies of this information by mail from the Public Reference Section of the SEC, 450 5th Street, N.W., Room 1024, Washington, D.C. 20549 at prescribed rates. Please call the Securities and Exchange Commission at (800) SEC-0330 for further information on the public reference rooms. The Securities and Exchange Commission also maintains an Internet World Wide Web site at "http://www.sec.gov" at which any information filed by American River Holdings will be available.
American River Holdings and North Coast Bank, N.A. will provide without charge, to each person to whom this joint proxy statement/prospectus is delivered, upon written or oral request, a copy of their respective Annual Disclosure Statement and Annual Report to Shareholders. These requests should be directed respectively to:
American River Holdings North Coast Bank, N.A.
1545 River Park Drive, Suite 107 50 Santa Rosa Avenue
Sacramento, California 95815 Santa Rosa, California 95404
Attention: David T. Taber, President and Attention: Kathy A. Pinkard, President and
Chief Executive Officer Chief Executive Officer
(916) 565-6100 (707) 443-8400
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In deciding how to vote on the transactions contemplated by the merger agreement, including the merger, you should rely only on the information contained in this joint proxy statement/prospectus. Neither American River Holdings nor North Coast Bank, N.A. has authorized any person to provide you with any information that is different from what is contained in this joint proxy statement/prospectus. This joint proxy statement/prospectus is dated _____________, 2000. You should not assume that the information contained in this joint proxy statement/prospectus is accurate as of any date other than the date of this proxy statement/prospectus, and neither the mailing to you of this joint proxy statement/prospectus nor the issuance to you of shares of American River Holdings common stock will create any implication to the contrary. This joint proxy statement/prospectus does not constitute an offer to sell or a solicitation of any offer to buy any securities, or the solicitation of a proxy in any jurisdiction in which, or to any person to whom, it is unlawful.
ANNEX A
AGREEMENT
AND
PLAN OF REORGANIZATION AND MERGER
BY AND AMONG
AMERICAN RIVER HOLDINGS,
ARH INTERIM NATIONAL BANK
AND
NORTH COAST BANK, NATIONAL ASSOCIATION
MARCH 1, 2000
TABLE OF CONTENTS
PAGE
1. The Merger.............................................................2
1.1 Effective Date and Time.........................................2
1.2 Effect of the Merger............................................2
2. Conversion And Cancellation Of Shares..................................3
2.1 Conversion of NCB Shares........................................3
2.2 Fractional Shares...............................................3
2.3 Surrender of NCB Shares.........................................3
2.4 Further Transfers of NCB Shares.................................4
2.5 Adjustments.....................................................4
2.6 Treatment of Stock Options......................................4
2.7 Dissenting Shareholders.........................................5
2.8 Interim Bank as Party...........................................5
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3. Covenants Of The Parties...............................................5
3.1 Covenants of ARH................................................5
a. Amendment of Interim Bank Articles and Bylaws..............5
b. Appointment of ARH Directors...............................6
c. Amendment of ARH Stock Option Plan.........................6
d. Reservation, Issuance and Registration of ARH Shares.......6
e. Nasdaq Stock Market Listing................................6
f. Director and Officer Liability.............................7
g. Business Combination.......................................8
3.2 Covenants of NCB................................................9
a. Termination of NCB Stock Option Plan.......................9
b. Termination or Merger of NCB Benefit Plans.................9
c. Capital Commitments and Expenditures.......................9
d. Compensation...............................................9
e. Loans......................................................9
f. Certain Notices...........................................10
g. Loan Review...............................................10
h. Loan Provision............................................11
i. No Merger or Solicitation.................................11
3.3 Mutual Covenants of ARH and NCB................................12
PAGE
a. Appointment of Executive Officers.........................12
b. Appointment of Bank Directors.............................12
c. Executive Management Committee............................12
d. Cumulative Voting; Classified Board of Directors..........12
e. Approval by Shareholders..................................13
f. Shareholder Lists and Other Information...................14
g. Government Approvals......................................14
h. Notification of Breach of Representations, Warranties
and Covenants.............................................14
i. Financial Statements......................................14
j. Conduct of Business in the Ordinary Course................15
k. Press Releases............................................17
l. Employee Benefit Plans....................................17
m. Certain Changes; Dividends................................17
n. Access to Properties, Books and Records; Confidentiality..18
o. Loan Performance..........................................19
p. Preparation of Joint Proxy Statement/Prospectus...........20
q. Pooling Accounting........................................20
4. Representations And Warranties Of NCB.................................20
a. Corporate Status and Power to Enter Into Agreements.......20
b. Articles, Bylaws, Books and Records.......................20
c. Compliance With Laws, Regulations and Decrees.............21
d. Capitalization............................................21
e. Trademarks and Trade Names................................21
f. Financial Statements, Regulatory Reports..................22
g. Tax Returns...............................................22
h. Material Adverse Change...................................23
i. No Undisclosed Liabilities................................23
j. Properties and Leases.....................................24
k. Material Contracts........................................25
l. Classified Loans..........................................25
m. No Restrictions on Investments............................26
n. Employment Benefit Plans/ERISA............................26
o. Collective Bargaining and Employment Agreements...........27
p. Compensation of Officers and Employees....................28
q. Legal Actions and Proceedings.............................28
r. Execution and Delivery of the Agreements..................28
s. Retention of Broker or Consultant.........................29
t. Insurance.................................................29
u. Loan Loss Reserves........................................29
v. Transactions With Affiliates..............................30
w. Risk Management Instruments...............................30
x. Year 2000.................................................30
PAGE
y. Community Reinvestment Act Compliance.....................31
z. Information in ARH Registration Statement.................31
aa. Accuracy and Effective Date of Representations and
Warranties, Covenants and Agreements......................31
bb. Brokered Deposits.........................................32
5. Representations And Warranties Of ARH.................................32
a. Corporate Status and Power to Enter Into Agreements.......32
b. Articles, Bylaws, Books and Records.......................33
c. Compliance With Laws, Regulations and Decrees.............33
d. Capitalization............................................33
e. Trademarks and Trade Names................................34
f. Financial Statements, Regulatory Reports..................34
g. Tax Returns...............................................35
h. Material Adverse Change...................................35
i. No Undisclosed Liabilities................................36
j. Properties and Leases.....................................36
k. Material Contracts........................................37
l. Classified Loans..........................................38
m. No Restrictions on Investments............................38
n. Employment Benefit Plans/ERISA............................38
o. Collective Bargaining and Employment Agreements...........39
p. Compensation of Officers and Employees....................40
q. Legal Actions and Proceedings.............................40
r. Execution and Delivery of the Agreements..................40
s. Retention of Broker or Consultant.........................41
t. Insurance.................................................41
u. Loan Loss Reserves........................................42
v. Transactions With Affiliates..............................42
w. Risk Management Instruments...............................42
x. Year 2000.................................................43
y. Community Reinvestment Act Compliance.....................43
z. Information in ARH Registration Statement.................43
aa. Accuracy and Effective Date of Representations and
Warranties, Covenants and Agreements......................44
bb. Brokered Deposits.........................................44
6. Securities Act Of 1933; Securities Exchange Act Of 1934...............44
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a. Preparation and Filing of Registration Statement..........44
b. Effectiveness of Registration Statement...................45
c. Sales and Resales of Common Stock.........................45
d. Rule 145..................................................45
7. Conditions To The Obligations Of ARH..................................45
a. Representations and Warranties............................46
b. Compliance and Performance Under Agreements...............46
c. Material Adverse Change...................................46
d. Approval of Agreements....................................46
e. Officer's Certificate.....................................46
f. Opinion of Counsel........................................46
g. Absence of Proceedings....................................46
h. Effectiveness of Registration Statement...................47
i. Government Approvals......................................47
j. Tax Opinion...............................................47
k. Accountant's Comfort Letters..............................48
l. Dissenting Shares.........................................49
m. Unaudited Financials......................................49
n. Affiliate Agreements......................................49
o. Closing Documents.........................................49
p. Consents..................................................49
q. Fairness Opinion..........................................49
r. Accounting Treatment......................................49
s. Shareholder Agreements....................................50
t. Performance Tests.........................................50
8. Conditions To The Obligations Of NCB..................................50
a. Representations and Warranties............................50
b. Compliance and Performance Under Agreement................51
c. Material Adverse Change...................................51
d. Approval of Agreements....................................51
e. Officer's Certificate.....................................51
f. Opinion of Counsel........................................51
g. Absence of Proceedings....................................51
h. Effectiveness of Registration Statement...................51
i. Government Approvals......................................52
j. Tax Opinion...............................................52
k. Accountant's Comfort Letters..............................53
l. Dissenting Shares.........................................53
m. Unaudited Financials......................................54
n. Affiliate Agreements......................................54
o. Closing Documents.........................................54
p. Consents..................................................54
q. Fairness Opinion..........................................54
r. Accounting Treatment......................................54
s. Shareholder Agreements....................................54
t. Performance Tests.........................................55
9. Closing...............................................................55
a. Closing Date..............................................55
b. Delivery of Documents.....................................55
c. Filings...................................................55
10. Post-Closing Matters..................................................55
11. Expenses..............................................................56
12. Amendment; Termination................................................56
a. Amendment.................................................56
b. Termination...............................................56
c. Termination Date..........................................58
d. Notice....................................................59
e. Effect of Termination; Liquidated Damages.................59
13. Indemnification.......................................................59
a. By ARH....................................................59
b. By NCB....................................................60
c. Notification..............................................60
14. Miscellaneous.........................................................61
a. Notices...................................................61
b. Knowledge.................................................61
c. Binding Agreement.........................................61
d. Material Adverse Effect...................................62
e. Survival of Representations and Warranties................62
f. Governing Law.............................................62
g. Attorneys' Fees...........................................62
h. Entire Agreement; Severability............................62
i. Counterparts..............................................63
EXHIBITS
A. Agreement of Merger
B. NCB Affiliate Agreement
C. NCB Shareholder Agreement
D. ARH Affiliate Agreement
E. ARH Shareholder Agreement
AGREEMENT
AND
PLAN OF REORGANIZATION AND MERGER
THIS AGREEMENT AND PLAN OF REORGANIZATION AND MERGER, dated as of March 1, 2000, ("Merger Agreement"), is made and entered into by and among American River Holdings, a California corporation and bank holding company registered under the Bank Holding Company Act of 1956, as amended ("ARH"), ARH Interim National Bank, an interim national banking association to be formed at the direction of ARH ("Interim Bank") and North Coast Bank, National Association, a national banking association chartered under the laws of the United States ("NCB").
A. The Boards of Directors of ARH and NCB deem it advisable and in the best interests of ARH and NCB, and their respective shareholders, that ARH, Interim Bank and NCB enter into a business combination, with the expectation that the resulting multibank holding company structure will combine the best elements of ARH and its subsidiaries, American River Bank, a California state chartered banking corporation ("ARB") and First Source Capital, a California corporation ("FSC"), and NCB. Pursuant to a forward triangular merger under the authority of 12 U.S.C. 215a, NCB shall merge with and into Interim Bank (the "Merger") and the resulting national banking association will continue with the national bank charter number of NCB and the name "North Coast Bank, National Association" as a wholly-owned subsidiary of ARH.
B. Upon organization of the Interim Bank, the Interim Bank will become a party to this Merger Agreement by the execution and delivery of an addendum or amendment to this Merger Agreement, in form and substance acceptable to ARH, NCB and the directors and shareholders of the Interim Bank.
C. This Merger Agreement and the Agreement of Merger, substantially in the form attached hereto as Exhibit A and intended to be filed with the Office of the Comptroller of the Currency (the "Agreement of Merger"), have been approved by the Boards of Directors of ARH and NCB, and will be approved by the directors and shareholders of the Interim Bank, and the principal terms of the Merger will be submitted for approval of the shareholders of ARH and NCB at special meetings of their respective shareholders.
D. The Merger is intended to qualify as a tax-free reorganization within the meaning of Section 368 of the Internal Revenue Code of 1986, as amended (the "IRC"), and the Merger shall be accounted for as a "pooling of interests."
E. Pursuant to the Merger, each NCB shareholder will receive, in exchange for each share of NCB common stock ("NCB Share" or "NCB Shares"), the number of shares of ARH common stock ("ARH Share" or "ARH Shares") determined in accordance with the conversion ratio as more fully set forth in this Merger Agreement and in the Agreement of Merger (the "Conversion Ratio").
F. The Boards of Directors of ARH, ARB, FSC and NCB have determined that the Merger and the other transactions contemplated by this Merger Agreement are consistent with, and will contribute to the furtherance of, their respective business strategies and goals.
NOW, THEREFORE, in consideration of the premises and the mutual agreements contained herein and in the Agreement of Merger, the parties hereto agree as follows:
1. THE MERGER.
1.1 EFFECTIVE DATE AND TIME. Subject to the terms and conditions of this Merger Agreement, the Merger shall become effective on the date ("Effective Date") and at the time ("Effective Time of the Merger") selected by the parties after the Merger has been certified by the Office of the Comptroller of the Currency ("OCC"), an executed copy of the Agreement of Merger has been filed with and accepted by the OCC, all Government Approvals have been received and satisfied and all other conditions to the Merger set forth in this Merger Agreement have been satisfied.
1.2 EFFECT OF THE MERGER. Subject to the terms and conditions of this Merger Agreement, at the Effective Time of the Merger, NCB shall be merged with and into the Interim Bank and the resulting national banking association in the Merger (the "Resulting Association") will continue as a wholly-owned subsidiary of ARH with the national bank charter number of NCB and the name "North Coast Bank, National Association." All assets, rights, privileges, immunities, powers, franchises and interests of NCB in and to every type of property (real, personal and mixed) and choses in action, as they exist as of the Effective Date, including appointments, designations and nominations and all other rights and interests as assignee, receiver and in any fiduciary capacity, shall pass and be transferred to and vest in the Resulting Association by virtue of the Merger at the Effective Time of the Merger without any deed, conveyance or other transfer; the separate corporate existence of NCB and the Interim Bank shall cease; and the Resulting Association shall be deemed to be the same entity as each of NCB and the Interim Bank and shall be subject to all of their duties and liabilities of every kind and description. The Resulting Association shall be responsible and liable for all the liabilities and obligations of each of NCB and the Interim Bank; and any claim existing or action or proceeding pending by or against NCB or the Interim Bank may be prosecuted as if the Merger had not taken place, or the Resulting Association may be substituted in the place of NCB or the Interim Bank. Neither the rights of creditors nor any liens upon the property of either NCB or the Interim Bank shall be impaired by reason of the Merger.
2. CONVERSION AND CANCELLATION OF SHARES.
2.1 CONVERSION OF NCB SHARES. At the Effective Time of the Merger, by virtue of the Merger and without any action on the part of ARH, NCB or any holder of NCB Shares, subject to Section 2.2, 2.3 and 2.5 of this Merger Agreement, each outstanding NCB Share (other than any shares as to which dissenters' rights have been perfected as provided in Section 2.7 of this Merger Agreement), shall be converted into the right to receive a number of ARH Shares (or fraction thereof, subject to Section 2.2 of this Merger Agreement) based on a conversion ratio of .9644 of an ARH Share for each such NCB Share (the "Conversion Ratio").
2.2 FRACTIONAL SHARES. Notwithstanding any other provision hereof, no fractional shares of ARH Shares shall be issued to holders of NCB Shares. In lieu thereof, each such holder entitled to a fraction of an ARH Share shall receive, at the time of surrender of the certificate or certificates representing such holder's NCB Shares, an amount in cash equal to the average of the closing bid and asked prices for an ARH Share quoted on the OTC Bulletin Board for each of the twenty (20) trading days ending on the third business day immediately preceding the Effective Date, multiplied by the fraction of an ARH Share to which such holder otherwise would be entitled and rounded to the nearest penny. No such holder shall be entitled to dividends, voting rights, interest on the value of, or any other rights in respect of a fractional share.
2.3 SURRENDER OF NCB SHARES.
a. Prior to the Effective Date, ARH shall appoint U.S. Stock
Transfer Corporation, or its successor, or any other bank or trust company
(having capital of at least $50 million) mutually acceptable to ARH and NCB, as
exchange agent (the "Exchange Agent") for the purpose of exchanging certificates
representing NCB Shares and at and after the Effective Time of the Merger, ARH
shall issue and deliver to the Exchange Agent such number of certificates
representing ARH Shares and cash for payment of fractional shares, as shall be
required to be delivered to holders of NCB Shares pursuant to the Agreement of
Merger. As soon as practicable after the Effective Time of the Merger, each
holder of NCB Shares converted pursuant to Section 2.1, upon surrender to the
Exchange Agent of one or more certificates for such NCB Shares for cancellation,
will be entitled to receive a certificate or certificates representing the
number of ARH Shares determined in accordance with Section 2.1 and a payment in
cash with respect to fractional shares, if any, determined in accordance with
Section 2.2.
b. No dividends or other distributions of any kind which are declared payable to shareholders of record of the ARH Shares after the Effective Date will be paid to persons entitled to receive such certificates for ARH Shares until such persons surrender their certificates representing NCB Shares. Upon surrender of such certificates representing NCB Shares, the holder thereof shall be paid, without interest, any dividends or other distributions with respect to
the ARH Shares as to which the record date and payment date occurred on or after the Effective Date and on or before the date of surrender.
c. If any certificate for ARH Shares is to be issued in a name other than that in which the certificate for NCB Shares surrendered in exchange therefor is registered, any transfer costs or expenses (except taxes) required by reason of the issuance of certificates for such ARH Shares in a name other than the registered holder of the certificate surrendered shall be paid by the person requesting such change.
d. All dividends or distributions, and any cash to be paid pursuant to Section 2.2 in lieu of fractional shares, if held by the Exchange Agent for payment or delivery to the holders of unsurrendered certificates representing NCB Shares and unclaimed at the end of one year from the Effective Date, shall (together with any interest earned thereon) at such time be paid or redelivered by the Exchange Agent to ARH, and after such time any holder of a certificate representing NCB Shares who has not surrendered such certificate to the Exchange Agent shall, subject to applicable law, only have the rights of a general creditor of ARH for payment or delivery by ARH of such dividends or distributions or cash, as the case may be.
2.4 FURTHER TRANSFERS OF NCB SHARES. At the Effective Time of the Merger, the stock transfer books of NCB shall be closed and no transfer of NCB Shares theretofore outstanding shall thereafter be made.
2.5 ADJUSTMENTS. If, between the date of this Merger Agreement and the Effective Date, the outstanding shares of ARH Shares or NCB Shares shall have been changed into a different number of shares or a different class by reason of any reclassification, recapitalization, split-up, combination, exchange of shares or readjustment, or a stock dividend or stock split thereon shall be declared with a record date within such period, the Conversion Ratio shall be proportionately adjusted with the result that the holders of NCB Shares shall receive the same economic benefit set forth in Section 2.1 of this Merger Agreement.
2.6 TREATMENT OF STOCK OPTIONS.
a. Each person holding one or more options to purchase NCB Shares ("NCB Option" or "NCB Options") including NCB Options issued pursuant to the North Coast Bank, National Association 1990 Stock Option Plan, as amended to date ("NCB Stock Option Plan") and NCB Options issued directly by NCB outside of the NCB Stock Option Plan, shall have the right, in his or her discretion, to either:
(i) exercise any vested portion (including any portion vested as a result of the Merger) of the NCB Option to acquire NCB Shares prior to the Effective Date; or
(ii) as of the Effective Time of the Merger, surrender the NCB Option agreement to ARH, in which event such person will be entitled to receive a substitute option ("Substitute Option") exercisable for (a) the number of ARH Shares equal to the number of NCB Shares for which such person held NCB Options multiplied by the Conversion Ratio and rounded down to the nearest whole share, and (b) the exercise price for the shares subject to the NCB Option shall be adjusted by dividing the pre-Merger exercise price for the NCB Option by the Conversion Ratio, rounded to the nearest penny.
b. The Substitute Options to be received in exchange for NCB Options shall be, to the greatest extent practicable, vested to the same extent as before the Merger (including any portion vested as a result of the Merger), shall continue to vest on the same vesting schedule as provided under the original applicable NCB Option agreement, shall be exercisable as provided in the original applicable NCB Option agreement and shall otherwise preserve the characteristics, terms and conditions of the original NCB Option to the greatest extent possible, subject to the requirements of law and any applicable rules and regulations of the OCC.
2.7 DISSENTING SHAREHOLDERS. Any NCB Shares held by persons who
have satisfied the requirements of 12 U.S.C. Section 215a(b), (c) and (d) with
respect to such NCB Shares shall not be converted pursuant to this Merger
Agreement, but the holders thereof shall be entitled only to such rights as are
granted them by Section 215a(b), (c) and (d). Each dissenting shareholder who is
entitled to payment of his or her NCB Shares pursuant to Section 215a(b), (c)
and (d) shall receive payment from ARH in an amount as determined pursuant to
Section 215a(b), (c) and (d).
2.8 INTERIM BANK AS PARTY. ARH and NCB agree that, when organized and chartered by the OCC, the Interim Bank shall become a party to this Merger Agreement by the execution and delivery of an addendum or an amendment to the Merger Agreement, in form and substance acceptable to ARH, NCB and the directors and shareholders of the Interim Bank.
3. COVENANTS OF THE PARTIES.
3.1 COVENANTS OF ARH. During the period from the date of this Merger Agreement and continuing until the Effective Time of the Merger, except as expressly contemplated or permitted by this Merger Agreement or to the extent that NCB shall otherwise consent in writing, which consent will not be unreasonably withheld or delayed more than three (3) business days after the request for consent is delivered:
a. AMENDMENT OF INTERIM BANK ARTICLES AND BYLAWS. The Board of Directors of ARH shall take all necessary corporate action, to be effective at the Effective Time of the Merger, to amend the Articles of Association and Bylaws of the Interim Bank to the extent required by applicable law or regulation and subject to any required approvals of shareholders, government agencies or regulatory authorities, to: (i) change the name of the Resulting
Association to "North Coast Bank, National Association"; and (ii) provide for a range in the number of authorized directors of not less than five (5) and not more than twenty-five (25), and to adopt a resolution fixing the exact number of directors at eleven (11) or such other number agreed to by ARH and NCB.
b. APPOINTMENT OF ARH DIRECTORS. Promptly after the Effective Time of the Merger, two (2) of the existing directors of NCB (to be initially designated by the NCB Board of Directors and subject to ARH approval) shall be appointed to the ARH Board of Directors. One such director shall serve as a Class II Director and the other such director shall serve as a Class III Director, under the classified Board structure contemplated by Section 3.3.d. below, provided that (i) a proposal for classification of the ARH Board of Directors is approved by ARH shareholders as contemplated by Section 3.3.d. below and (ii) ARH Shares are listed for trading on the Nasdaq National Market as contemplated by Section 3.1.e. below. If the ARH shareholders do not approve the proposal to classify the ARH Board of Directors, or the ARH Shares are not listed for trading on the Nasdaq National Market, the two NCB directors intended to be appointed to the ARH Board of Directors to serve as a Class II Director and as a Class III Director, respectively, shall instead be appointed to the ARH Board of Directors without classification to serve until their successors are duly elected and qualified. In such event, ARH shall nominate the two NCB directors for election in 2001 and 2002 in connection with any proposal to elect directors to the ARH Board of Directors whether at a meeting of ARH shareholders or as otherwise permitted by the ARH bylaws.
c. AMENDMENT OF ARH STOCK OPTION PLAN. ARH shall take all necessary corporate action, including any required approval of the shareholders of ARH to amend its 1995 Stock Option Plan ("ARH Stock Option Plan") or establish a new stock option plan (at the meeting described in Section 3.3.e hereof) and shall cause to be filed and become effective under the Securities Act of 1933, as amended (the "1933 Act"), as of or as soon as practicable following the Effective Time of the Merger, a registration statement with respect to the options to be granted and shares to be issued thereunder to fulfill the obligations to grant Substitute Options to holders of NCB Options pursuant to Section 2.6 of this Merger Agreement.
d. RESERVATION, ISSUANCE AND REGISTRATION OF ARH SHARES. ARH shall reserve for issuance in connection with the Merger and in accordance with the terms of this Merger Agreement (i) a number of ARH Shares sufficient to complete the exchange of ARH Shares for the outstanding NCB Shares pursuant to the Conversion Ratio and the provisions of Section 2.1 above and (ii) the maximum number of ARH Shares to which the holders of Substitute Options may be entitled pursuant to Section 2.6 above at or after the Effective Time of the Merger. ARH shall cause such ARH Shares to be registered under the 1933 Act, as provided in Section 6 below.
e. NASDAQ STOCK MARKET LISTING. ARH shall take all necessary action to list ARH's Shares with the Nasdaq Stock Market for trading on the Nasdaq National Market, to be effective as soon as practicable following the Effective Time of the Merger.
f. DIRECTOR AND OFFICER LIABILITY. In the event of any threatened or actual claim, action, suit, proceeding or investigation, whether civil, criminal or administrative, including, without limitation, any such claim, action, suit, proceeding or investigation in which any person who is now, or has been at any time prior to the date of this Merger Agreement, or who becomes prior to the Effective Time of the Merger, a director, officer or employee of NCB ("Indemnified Parties") is, or is threatened to be, made a party based in whole or in part on, or arising in whole or in part out of, or pertaining to (i) the fact that he is or was a director or officer of NCB or any predecessor or (ii) this Merger Agreement or any of the transactions contemplated hereby, whether in any case asserted or arising before or after the Effective Date, ARH and NCB agree to cooperate and use their best efforts to defend against and respond thereto. It is understood and agreed that after the Effective Date, ARH shall indemnify and hold harmless, as and to the fullest extent permitted by law, each such Indemnified Party against any losses, claims, damages, liabilities, costs, expenses (including reasonable attorney's fees and expenses in advance of the final disposition of any claim, suit, proceeding or investigation to each Indemnified Party to the fullest extent permitted by law upon receipt of any undertaking required by applicable law), judgments, fines and amounts paid in settlement in connection with any such threatened or actual claim, action, suit, proceeding or investigation and in the event of any such threatened or actual claim, action, suit, proceeding, or investigation (whether asserted or arising before or after the Effective Date), the Indemnified Parties may retain counsel reasonably satisfactory to them after consultation with ARH; provided, however, that (1) ARH shall have the right to assume the defense thereof and upon such assumption ARH shall not be liable to any Indemnified Party for any legal expenses of other counsel or any other expenses subsequently incurred by any Indemnified Party in connection with the defense thereof, except that if ARH elects not to assume such defense or counsel for the Indemnified Parties reasonably advises the Indemnified Parties that there are issues which raise conflicts of interest between ARH and the Indemnified Parties, the Indemnified Parties may retain counsel reasonably satisfactory to them after consultation with ARH, and ARH shall pay the reasonable fees and expenses of such counsel for the Indemnified Parties, (2) ARH shall be obligated pursuant to this paragraph to pay for only one firm of counsel for all Indemnified Parties, unless an Indemnified Party shall have reasonably concluded based on the advice of counsel that in order to be adequately represented, separate counsel is necessary for such Indemnified Party, in which case, ARH shall be obligated to pay for such separate counsel, (3) ARH shall not be liable for any settlement effected without its prior written consent (which consent shall not be unreasonably withheld), and (4) ARH shall have no obligation hereunder to any Indemnified Party when and if a court of competent jurisdiction shall ultimately determine, and such determination shall have become final and non-appealable, that indemnification of such Indemnified Party in the manner contemplated hereby is prohibited by applicable law; provided, further, that ARH hereby expressly undertakes the indemnification of certain officers and directors and former officers and directors in existing matters for which indemnification is being provided by NCB and, notwithstanding the provisions of this Section 3.1.f., such indemnification shall be on the same terms and subject to the same limitations as shall exist on the Effective Date. Any Indemnified Party wishing to claim Indemnification under this Section 3.1.f., upon learning of any such
claim, action, suit, proceeding or investigation, shall notify ARH thereof, provided that the failure to so notify shall not affect the obligations of ARH under this Section 3.1.f. except to the extent such failure to notify materially prejudices ARH. ARH's obligations under this Section 3.1.f. continue in full force and effect for a period of three (3) years from the Effective Date; provided, however, that all rights to indemnification in respect of any claim ("Claim") asserted or made within such period shall continue until the final disposition of such Claim and provided further that ARH shall have the right of setoff against any payments required to be made by ARH to an Indemnified Party pursuant to this Section 3.1.f. to the extent that such Indemnified Party shall have received the indemnification to which such Indemnified Party is entitled from an insurer under a directors' and officers' liability insurance policy maintained by NCB or ARH.
ARH, from and after the Effective Date, will directly or indirectly cause the persons who served as directors or officers of NCB on or before the Effective Date to be covered by ARH's existing directors' and officers' liability insurance policy (provided that ARH may substitute therefor policies of at least the same coverage and amounts containing terms and conditions which are not less advantageous than such policy) or so-called tail coverage obtained in connection with NCB's directors' and officers' liability insurance policies in effect as of the Effective Date; provided that ARH shall not be obligated to make annual premium payments for such insurance to the extent such premiums exceed 150% of the premiums paid as of the date hereof by NCB for such insurance. Subject to the preceding sentence, such insurance coverage, shall commence on the Effective Date and will be provided for a period of no less than three (3) years after the Effective Date. From the date hereof through the Effective Date and subject to the foregoing, NCB shall use its best efforts to arrange for tail coverage related to its then current policies of directors' and officers' liability insurance and, following the Effective Date, ARH shall exercise those rights which it may have in order to commence such coverage. In connection with any active, pending claim under an existing NCB directors' and officers' liability insurance policy, ARH will take no action that would have the effect of waiving any such claim and will not omit to take any action that is necessary to preserve such a claim.
In the event ARH or any of its successors or assigns (A) consolidates with or merges into any third person, group or entity and shall not be the continuing or surviving corporation or entity of such consolidation or merger, or (B) transfers or conveys all or substantially all of its properties and assets to any third person, group or entity, then, and in each such case, to the extent necessary, proper provision shall be made so that the successors and assigns of ARH assume the obligations set forth in this Section 3.1.f. The provisions of this Section 3.1.f. are intended to be for the benefit of, and shall be enforceable by, each Indemnified Party and his or her heirs and representatives.
g. BUSINESS COMBINATION. ARH shall not solicit or accept any
offer from any third party regarding a Business Combination (as defined in
Section 3.2.i. below) of ARH or ARB with any other third person, group or entity
unless such offer is expressly conditioned upon the performance by ARH or the
successor in interest of ARH's obligations under this Merger Agreement.
3.2 COVENANTS OF NCB. During the period from the date of this Merger Agreement and continuing until the Effective Time of the Merger, except as expressly contemplated or permitted by this Merger Agreement or to the extent that ARH shall otherwise consent in writing, which consent will not be unreasonably withheld or delayed more than three (3) business days after the request for consent is delivered:
a. TERMINATION OF NCB STOCK OPTION PLAN. NCB shall take all necessary action to cause the termination of the NCB Stock Option Plan effective at the Effective Time of the Merger and the exercise or surrender (in exchange for Substitute Options) of NCB Options outstanding thereunder.
b. TERMINATION OR MERGER OF NCB BENEFIT PLANS. If requested by ARH, NCB shall take all necessary action to cause the termination, amendment, or merger of NCB Benefit Plans (as defined in Section 4.n. hereof) at the Effective Time of the Merger.
c. CAPITAL COMMITMENTS AND EXPENDITURES. After the execution of this Merger Agreement, no new capital commitments shall be entered into, and no capital expenditures shall be made by NCB in excess of Twenty-Five Thousand Dollars ($25,000) in the aggregate, including but not limited to, creation of any new branches and acquisitions or leases of real property, except commitments or expenditures within existing operating and capital budgets including, without limitation, the "Forecast 2000" budget model heretofore furnished to and approved in writing by ARH.
d. COMPENSATION. NCB shall not make or approve any increase in the compensation payable or to become payable by it to any of its directors or agents, or to its officers or employees with annual salaries in excess of Seventy-Five Thousand Dollars ($75,000) including, but not limited to, compensation through any profit sharing, pension, retirement, severance, incentive or other employee benefit program or arrangement, nor shall any bonus payment or any agreement or commitment to make a bonus payment be made, nor shall any stock option, warrant or other right to acquire capital stock be granted (except as provided in Section 2.6), or employment agreement (other than any such employment agreement that may arise by operation of law upon the hiring of any new employee) or consulting agreement be entered into by NCB with any such directors, officers, employees or agents unless ARH has given its prior written consent. Nothing herein shall prevent the payment to officers and employees of NCB with salaries below Seventy-Five Thousand Dollars ($75,000) of salary increases in connection with regular salary reviews consistent with past practices, or bonuses consistent with past practices, provided, that such salary increases and bonuses have been disclosed by NCB to ARH and listed in the NCB Disclosure Schedule (defined in Section 4 of this Merger Agreement).
e. LOANS. NCB shall not, without first having obtained the written consent of ARH (which shall be deemed to have been given if no response is provided following written request therefor within three (3) business days of receipt of such request), cause, allow, or suffer its officers or agents to
commit to any loan, loan renewal or amendment, loan participation or other extension of credit in any form whatsoever, which does not comply in all material respects with its credit policies in effect and as disclosed and provided to ARH prior to the date of this Merger Agreement. All loan participations, real estate construction or development loans and loans to NCB directors and officers regardless of amount and all other extensions of credit over Six Hundred Fifty Thousand Dollars ($650,000), except for conforming FHLMC and FNMA loans, shall be subject to the prior written consent of ARH; provided, however, that the prior written consent of ARH shall be deemed waived for any new standalone extension of credit (other than loan participations, real estate construction or development loans and loans to NCB directors and officers) which is below Six Hundred Fifty Thousand Dollars ($650,000) and where such new standalone extension of credit is in compliance with NCB credit policy and either has been approved by the approving officer with the requisite lending authority or has been approved by the NCB loan committee or equivalent committee of the NCB Board of Directors performing such function. NCB shall promptly provide to ARH for its review and comment relevant information concerning any proposed new standalone extension of credit or the renewal or amendment of an existing extension of credit in excess of Two Hundred Thousand Dollars ($200,000).
f. CERTAIN NOTICES. NCB shall notify ARH promptly (but not less often than weekly) in writing upon the occurrence of any of the following:
(i) the classification of any loan as "Non-Accrual," "Watch," "Other Assets Specially Mentioned," "Substandard," "Doubtful" or "Loss"; or
(ii) the filing or commencement of any legal action or other proceeding or investigation by or against NCB, its directors, officers or employees.
g. LOAN REVIEW. Until the Effective Date, NCB will submit to
ARH upon request (but not less often than monthly) a list of loans that may
reasonably be described as or are included in any of the following categories or
specifications: (i) any new standalone extension of credit over One Hundred
Thousand Dollars ($100,000), (ii) any restructured loan as defined under SFAS
15, regardless of amount, (iii) any renewal or upgrade or other change in status
of an existing loan over Fifty Thousand Dollars ($50,000), (iv) any renewal of
an existing loan previously classified by management or internal policy or
procedure of NCB, or by any outside review examiner, accountant or any bank
regulatory authority as "Non-Accrual," "Watch," "Other Assets Specially
Mentioned," "Substandard," "Doubtful," or "Loss," or classified using categories
or words with similar import, in a commitment amount over Twenty-Five Thousand
Dollars ($25,000) or where the aggregate debt of the borrower and its affiliates
and/or related interests will exceed Twenty-Five Thousand Dollars ($25,000) and
(v) any loan to an NCB director or officer. NCB will provide to ARH a copy of
the loan approval/credit write-up and supporting information on any loan
described in subsections (i), (ii), (iii), (iv) or (v) above at the time of
delivery of such list of loans. Copies of such supporting information shall be
returned to NCB within seven (7) days of receipt.
h. LOAN PROVISION. NCB shall maintain adequate reserves for loan losses. Without limiting the generality of the foregoing, each month following the date of this Merger Agreement through the Effective Date, NCB shall expense as a provision to its allowance for loan losses, (i) such amount as may be required by the written loan loss policy and procedures adopted by the Board of Directors of NCB and (ii) not less than the amount specified in the NCB "Forecast 2000" budget model, in each case of (i) and (ii) above as provided to ARH prior to the date of this Merger Agreement.
i. NO MERGER OR SOLICITATION.
(i) Subject to the continuing fiduciary duty of the Board of Directors of NCB to its shareholders, prior to the Effective Time of the Merger, NCB shall not effect or agree to effect or enter into a transaction or series of transactions with one or more third persons, groups or entities providing for the acquisition of all or a substantial part of NCB or its subsidiaries, whether by way of merger, exchange of stock, sale of assets, or otherwise ("Business Combination"), acquire or agree to acquire any of its own capital stock or the capital stock or asset (except in a fiduciary capacity or in the Ordinary Course of Business and consistent with past practices) of any other entity, or commence any proceedings for winding up and dissolution affecting either of them.
(ii) Subject to the continuing fiduciary duty of the Board of Directors of NCB to its shareholders, prior to the Effective Time of the Merger, neither NCB nor any of its officers, directors or affiliates, nor any investment banker, attorney, accountant or other agent, advisor or representative retained by NCB shall (a) solicit or encourage, directly or indirectly, any inquiries, discussions or proposals for, continue, propose or enter into discussions or negotiations looking toward, or enter into any agreement or understanding providing for, any Business Combination with any third party; or (b) disclose, directly or indirectly, any nonpublic information to any corporation, partnership, person or other entity or group concerning NCB's business and properties or afford any such other party access to its properties, books or records or otherwise assist or encourage any such other party in connection with the foregoing, or (c) furnish or cause to be furnished any information concerning its business, financial condition, operations, properties or prospects to another person, having any actual or prospective role with respect to any such Business Combination.
(iii) NCB shall notify ARH immediately of the details of any indication of interest of any person, corporation, firm, association or group to acquire by any means a controlling interest in NCB or engage in any Business Combination with NCB.
(iv) Notwithstanding anything to the contrary contained in this Merger Agreement, in the event the Board of Directors of NCB receives a bona fide unsolicited offer for a Business Combination of NCB with another entity, and reasonably determines, upon advice of counsel, that as a result of such offer, any duty to act or to refrain from doing any act pursuant to this Merger Agreement is inconsistent with the continuing fiduciary duties of the Board of Directors to its shareholders, subject to the provisions of this Merger Agreement including, without limitation, Section 12.e.(ii) and the rights accorded ARH thereunder which shall remain in effect, such duty to act or to refrain from doing any act shall be excused and such failure to act or refrain from doing any act shall not (a) constitute the failure of any condition, breach of any covenant or otherwise constitute any breach of this Merger Agreement, or (b) create any claim or cause of action asserting any liability against any member of the Board of Directors of NCB.
3.3 MUTUAL COVENANTS OF ARH AND NCB.
a. APPOINTMENT OF EXECUTIVE OFFICERS. At the Effective Time of
the Merger, the following persons shall become executive officers of the
Resulting Association and shall be appointed to the positions indicated: Kathy
A. Pinkard, President and Chief Executive Officer, David A. Wattell, Senior Vice
President and Chief Credit Officer, and Debbie K. Fakalata, Senior Vice
President and Chief Financial Officer.
b. APPOINTMENT OF BANK DIRECTORS. At the Effective Time of the
Merger, all of the nine (9) existing directors of NCB, as named below, shall
become members of the Board of Directors of the Resulting Association, to serve
until their successors are duly elected and qualified: Leo J. Becnel, M. Edgar
Deas, Michael P. Merrill, Kathy A. Pinkard, William A. Robotham, Herbert C.
Steiner, Larry L. Wasem, Philip A. Wright, and Robert A. Young. In addition, two
(2) of the existing directors of ARH (to be designated by the ARH Board of
Directors) shall also become members of the Board of Directors of the Resulting
Association at the Effective Time of the Merger.
c. EXECUTIVE MANAGEMENT COMMITTEE. From and after the Effective Time of the Merger, Kathy A. Pinkard, President and Chief Executive Officer of NCB, shall become a member of the Executive Management Committee of ARH.
d. CUMULATIVE VOTING; CLASSIFIED BOARD OF DIRECTORS. After
execution hereof, the ARH Board of Directors will adopt amendments
("Amendments") to ARH's Articles of Incorporation and Bylaws, as applicable, to
(i) eliminate cumulative voting in the election of directors and (ii) provide
that the ARH Board of Directors shall be divided into three classes of
directors, each consisting of a number of directors equal as nearly as
practicable to one-third of the total number of directors, for so long as such
Board consists of at least nine (9) authorized directors and, in the event that
the total number of authorized directors on such Board is at least six (6) but
less than nine (9), for classification of the Board of Directors into two
classes, each consisting of a number of directors equal as nearly as practicable
to one-half the total number of directors. Each class of directors would be
subject to election every third year and would serve for a three-year term for
so long as the Board remained classified into three classes, or would be subject
to election every second year and would serve for a two-year term in the event
the Board were classified into two classes. Currently, all of the directors of
ARH are elected each year to serve a one-year term. ARH shall cause the
Amendments to be submitted for the approval of its shareholders, together with
the other principal terms of the Merger, as provided in Section 3.3.e. below. In
connection with the approval of the Merger as provided in Section 3.3.e., NCB
shall advise its shareholders of the proposed Amendments and their approval of
the Merger will constitute their consent to the Amendments. If the Merger,
including the Amendments, is approved by the shareholders of ARH and NCB, and
subject to the listing of ARH Shares on the Nasdaq Stock Market as provided in
Section 3.1.e. of this Merger Agreement, the ARH Board of Directors will, for
purposes of initial implementation, designate three classes of directors for
election at the 2000 Annual Meeting of Shareholders of ARH, as follows: Class I
will be elected initially for a one-year term expiring at the 2001 ARH Annual
Meeting of Shareholders; Class II will be elected initially for a two-year term
expiring at the 2002 ARH Annual Meeting of Shareholders; and Class III will be
elected for a three-year term expiring at the ARH Annual Meeting of Shareholders
to be held in the year 2003; and, in each case, until their successors are duly
elected and qualified. At each ARH Annual Meeting after the 2000 Annual Meeting,
only directors of the class whose term is expiring would be voted upon, and upon
election each such director would serve a three-year term. Commencing with the
ARH Annual Meeting of Shareholders scheduled to occur in 2001, directors elected
to Class I would serve for a three-year term and until their successors are duly
elected and qualified, subject to any decrease in the total number of authorized
directors, as described above. Subsequently, in the years 2002 and 2003,
directors elected to Class II and Class III, respectively, would also be elected
for a three-year term and until their successors are duly elected and qualified.
e. APPROVAL BY SHAREHOLDERS. ARH and NCB shall each cause the principal terms of the Merger and in the case of ARH, separate proposals regarding the Amendments, to be submitted promptly for the approval of their respective shareholders at meetings to be called and held in accordance with applicable laws. Subject to continuing fiduciary duties to their shareholders, the Board of Directors of ARH and the Board of Directors of NCB, in authorizing the execution and delivery of this Merger Agreement, unanimously recommend that the principal terms of the Merger be approved by their respective shareholders. In connection with the call of such meetings, ARH and NCB shall cause the Joint Proxy Statement/Prospectus described in Section 6 of this Merger Agreement to be mailed to their respective shareholders. Subject to its continuing fiduciary duty to the shareholders of ARH or NCB, as the case may be, the Board of Directors of ARH and the Board of Directors of NCB shall at all times prior to and during such meetings of their respective shareholders recommend that the principal terms of the Merger be approved and, subject to such duty, use its best efforts to cause such approvals.
f. SHAREHOLDER LISTS AND OTHER INFORMATION. After execution hereof, each of ARH and NCB shall from time to time make available to the other party, upon request, a list of its shareholders and their addresses and such other information as the other party shall reasonably request regarding the ownership of the common stock of ARH and NCB, respectively.
g. GOVERNMENT APPROVALS. Each party will use its best efforts in good faith to take or cause to be taken as promptly as practicable all such steps as shall be necessary to obtain (i) the prior approval of the Merger and the transactions contemplated pursuant to this Merger Agreement and the Agreement of Merger by applicable government agencies and regulatory authorities including, without limitation, the Federal Deposit Insurance Corporation (the "FDIC"), the Board of Governors of the Federal Reserve System (the "FRB"), the OCC, and (ii) all other such consents or approvals of government agencies and regulatory authorities as shall be required by law or otherwise desirable, and shall do any and all acts and things necessary or appropriate in order to cause the Merger to be consummated on the terms provided in the Agreement of Merger and this Merger Agreement as promptly as practicable. All such approvals described in this Section 3.3.g. are referred to in this Merger Agreement as the "Government Approvals."
h. NOTIFICATION OF BREACH OF REPRESENTATIONS, WARRANTIES AND COVENANTS. Each party shall promptly give written notice to the each other party upon becoming aware of the occurrence or impending or threatened occurrence of any event which would cause or constitute a breach of any of the representations, warranties or covenants of that party contained or referred to in the Agreement of Merger or this Merger Agreement and shall use its best efforts to prevent the same or to remedy the same promptly.
i. FINANCIAL STATEMENTS.
(i) ARH and NCB have delivered to each other prior to the date hereof or shall deliver as soon as available, true and correct copies of (consolidated, as applicable) statements of income, changes in shareholders' equity and, as applicable, statements of cash flows, for the fiscal years ended December 31, 1999, 1998, 1997, 1996 and 1995, and balance sheets as of December 31, 1999, 1998, 1997, 1996 and 1995. Such financial statements at December 31, 1999, 1998, 1997, 1996, and 1995 and for the fiscal years ended December 31, 1999, 1998, 1997, 1996, and 1995 have been or shall be audited by Perry-Smith LLP, as independent public accountants for ARH during the relevant periods, and Perry-Smith LLP and its predecessors, as independent public accountants for NCB during the relevant periods, and include or shall include an opinion of such accounting firms to the effect that such financial statements have been prepared in accordance with generally accepted accounting principles consistently applied throughout the periods covered by such financial statements and present fairly, in all material respects, the (consolidated, as applicable) financial position, results of operations and cash
flows of each party at the dates indicated and for the periods then ending. The opinions of such accounting firms do not and shall not contain any qualifications.
(ii) ARH and NCB shall provide to each other, at or prior to the Effective Date, copies of all financial statements and proxy statements issued or to be issued to its shareholders between the date of this Merger Agreement and the Effective Date.
(iii) ARH and NCB have delivered or shall deliver, to each other true and complete copies of its Annual Reports to Shareholders for the years ended December 31, 1999, 1998, 1997, 1996, and 1995, all periodic reports required to be filed by it pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the "1934 Act") or Section 12(i) of the 1934 Act since December 31, 1994, all proxy statements and other written material furnished to its shareholders since December 31, 1994, and all other material reports, including call reports, relating to ARH, ARB, FSC and NCB filed by ARH, ARB, FSC and NCB with the California Department of Financial Institutions ("CDFI"), FDIC, FRB, OCC or other government agency or regulatory authority during 1995 through the Effective Date. As of their respective filing dates, each of the documents described in the preceding sentence complied or shall comply in all material respects with all legal and regulatory requirements applicable thereto.
j. CONDUCT OF BUSINESS IN THE ORDINARY COURSE. Prior to the Effective Time of the Merger, ARH and NCB shall conduct their businesses (including the businesses of their subsidiaries) in the ordinary course as heretofore conducted. For purposes of this Merger Agreement, the "Ordinary Course of Business" of each party shall consist of the banking and related businesses as presently conducted by it and its subsidiaries in compliance with customary safe and sound banking practices and applicable laws and regulations. Unless a party has given its previous written consent (which shall not be unreasonably withheld and shall be deemed to have been given if no response is provided following written request therefor within three (3) business days of receipt of such request) to any act or omission to the contrary, each party shall, and shall cause its subsidiaries to, until the Effective Date:
(i) preserve its business and business organizations intact;
(ii) preserve the good will of customers and others having business relations with it and take no action that would impair the benefit to each party of the goodwill of it or the other benefits of the Merger;
(iii) consult with each party as to the making of any decisions or the taking of any actions in matters other than in the Ordinary Course of Business;
(iv) maintain its properties in customary repair, working order and condition (reasonable wear and tear excepted);
(v) comply with all laws, regulations and decrees applicable to the conduct of its business;
(vi) use its best efforts to keep in force at not less than its present limits all policies of insurance (including deposit insurance of the FDIC) to the extent reasonably practicable in light of the prevailing market conditions in the insurance industry;
(vii) use its reasonable best commercial efforts to keep available the services of its present officers and employees (it being understood that each party shall have the right to terminate the employment of any of its officers or employees in accordance with its established employment procedures);
(viii) comply with all orders of and agreements or memoranda of understanding with respect to it or its subsidiaries made by or with the CDFI, FDIC, FRB, OCC, or any other government agency or regulatory authority of competent jurisdiction, and promptly forward to each party all communications received from any such agency or authority that are not prohibited by such agency or authority from being so disclosed and inform each party of any material restrictions imposed by any government agency or regulatory authority on its business;
(ix) file in a timely manner (taking into account any extensions duly obtained) all reports, tax returns and other documents required to be filed with federal, state, local and other authorities;
(x) conduct an environmental audit prior to foreclosure on any property concerning which it has knowledge, or should have knowledge, that asbestos or asbestos containing material, PCB's or PCB-contaminated materials, any petroleum product, or hazardous substance or waste (as defined under any applicable environmental laws) was or is present, manufactured, recycled, reclaimed, released, stored, treated, or disposed of, and provide the results of such audit to and consult with each party regarding the significance of the audit prior to the foreclosure on any such property;
(xi) not sell, lease, pledge, assign, encumber or otherwise dispose of any of its assets except in the Ordinary Course of Business, for adequate value, without recourse and consistent with its customary practice;
(xii) not take any action with respect to its investments or risk management arrangements which are inconsistent with the policies established by its Board of Directors;
(xiii) not take any action to create, relocate or terminate the operations of any banking office or branch, or to form any new subsidiary or affiliated entity; and
(xiv) not settle or otherwise take any action to release or reduce any of its rights with respect to any litigation involving a claim of more than Twenty-Five Thousand Dollars ($25,000) in which it is a party.
k. PRESS RELEASES. No party shall issue any press release or written statement for general circulation relating to the Merger, this Merger Agreement or the Agreement of Merger unless previously provided to each party for review and approval (which approval will not be unreasonably withheld or delayed) and each party shall cooperate with each other party in the development and distribution of all news releases and other public information disclosures with respect to the Merger, this Merger Agreement or the Agreement of Merger; provided that a party may, without the consent of each other party, make any disclosure with regard to the Merger, this Merger Agreement or the Agreement of Merger that it determines with advice of counsel is required under any applicable law or regulation.
l. EMPLOYEE BENEFIT PLANS. The parties agree that the employee benefit plans of NCB shall be terminated, frozen, amended, modified or merged into the employee benefit plans of ARH on or after the Effective Date in accordance with applicable laws and regulations and the provisions of the IRC, as determined by mutual agreement of the parties or by ARH. On the Effective Date, NCB employees that become employees of ARH or ARB will commence participation in ARH's employee benefit plans in accordance with the terms and conditions provided under such plans; provided, however, that each employee of NCB who becomes an employee of ARH or ARB or the national bank resulting from the merger of NCB with and into the Interim Bank ("Transferred Employee") shall receive credit for his or her years of service with NCB for purposes of eligibility and vesting under ARH's employee benefit plans; provided, further, that each Transferred Employee who elects coverage under ARH's health plan within thirty (30) days after coverage is extended to him or her shall not be subject to any preexisting condition limitation under such health plan.
m. CERTAIN CHANGES; DIVIDENDS. On or after the date of this Merger Agreement hereof and at or prior to the Effective Time of the Merger, except with the prior written consent of each other party or as otherwise provided in this Merger Agreement and the Agreement of Merger:
(i) Neither ARH nor NCB shall amend its Articles of Incorporation or Association or Bylaws or the Articles of Incorporation or Bylaws of its subsidiaries except as may be
required to comply with the terms of this Merger Agreement and to perform its obligations thereunder; make any change in their respective authorized, issued or outstanding capital stock or any other equity security; issue, grant, sell, pledge, assign or otherwise encumber or dispose of, or purchase, redeem, retire or otherwise acquire (other than in a fiduciary capacity), shares of or securities convertible into, capital stock or other equity securities of their respective companies, or enter into any agreement, call or commitment of any character so to do; grant or issue any stock option relating to or right to acquire shares of their capital stock or other equity security; or agree to do any of the foregoing, except as expressly provided herein. Nothing herein shall prohibit the issuance of shares upon exercise of options granted under the ARH Stock Option Plan or the NCB Stock Option Plan and outstanding at the time this Merger Agreement is executed;
(ii) Neither ARH nor NCB shall declare, set aside or pay any dividend or other distribution in respect of its common stock (including, without limitation, any stock dividend or distribution) other than regular quarterly or semiannual cash dividends on its common stock in amounts substantially equivalent to cash dividends paid in the two (2) years prior to the date hereof (it being understood that declaration of a quarterly or semiannual cash dividend equal to the most recent previous quarterly or semiannual cash dividend will be deemed to meet this standard), which shall include percentage increases in such amount as may be consistent with the increases in cash dividends paid during such two (2) year period;
(iii) Neither ARH nor NCB shall change its lending, investment, liability management and other material policies and procedures except as required by law or by regulations promulgated by applicable government agencies or regulatory authorities having jurisdiction over the business conducted by ARH and its subsidiaries or NCB; and
(iv) Neither ARH nor NCB shall change the methods of accounting applicable to their respective businesses except as required by changes in generally accepted accounting principles as concurred in by the independent accountants for ARH and NCB.
n. ACCESS TO PROPERTIES, BOOKS AND RECORDS; CONFIDENTIALITY. Prior to the Effective Time of the Merger, each party shall give each other party and its counsel, independent accountants and agents, full access during normal business hours and upon reasonable request, to all of its properties, books, contracts, commitments and records including, but not limited to, the corporate, financial and operational records, papers, reports, instructions, procedures, tax returns and filings, tax settlement letters, material contracts or commitments, regulatory examinations and correspondences (but excluding any documents or materials subject to the attorney-client privilege or related to
consideration of the Merger), and shall allow each other party to make copies of such materials (excluding regulatory examinations and correspondence to the extent prohibited by applicable law or regulation) and shall furnish each other party with all such information concerning its affairs as each other party may reasonably request. Each party shall also use its best efforts to cause its independent accountants to make available to each other party, its accountants, counsel and other agents, to the extent reasonably requested in connection with such review, such independent accountants' work papers and documentation relating to its work papers and its audits of the books and records of each party. The availability or actual delivery of such information about a party shall not affect the covenants, representations and warranties of any party contained in this Merger Agreement and in the Agreement of Merger. Each party shall use its best efforts to cause its officers, directors, employees, auditors, independent accountants and attorneys to cooperate with each other party in its reasonable requests for information. Each party shall treat as confidential all such information in the same manner as each party treats similar confidential information of its own, and if this Merger Agreement is terminated, each party shall continue to treat all such information as confidential and to cause its employees to keep all such information confidential and shall return such documents theretofore delivered by each other party as each other party shall request, and shall use such information, or cause it to be used, solely for the purposes of evaluating and completing the transactions contemplated hereby; provided that each party may disclose any such information to the extent required by federal or state securities laws or otherwise required by any government agency or regulatory authority, or by generally accepted accounting principles. The foregoing confidentiality obligations shall not apply in respect of any information publicly available or to any information previously known to the party in question, the use of which is not otherwise restricted. Notwithstanding the foregoing, the parties agree to comply with the terms and provisions of that certain Confidentiality Agreement entered into between the parties dated January 10, 2000, and any inconsistency between the terms and provisions of that Confidentiality Agreement and the foregoing provisions shall be resolved in favor of the terms and provisions contained in the Confidentiality Agreement.
o. LOAN PERFORMANCE. From and after the date of this Merger Agreement until the Effective Date, each party will provide to the other the following reports for each such month concurrent with the distribution of the monthly board report materials for the respective Boards of Directors of ARH, ARB and NCB:
(i) a status report on all loans classified as watch, other assets specially mentioned, special mention, substandard, doubtful or loss;
(ii) past due reports by loan;
(iii) nonaccrual reports by loan;
(iv) loss reports by loan;
(v) restructured loans reports; and
(vi) quarterly call reports submitted to regulators during such month, if any.
p. PREPARATION OF JOINT PROXY STATEMENT/PROSPECTUS. NCB shall cooperate with ARH in the preparation pursuant to Section 6 hereof of a joint proxy statement and prospectus of ARH and NCB to be sent to the shareholders of ARH and NCB (the proxy materials and prospectus, together with any amendments or supplements thereto, being herein referred to as the "Joint Proxy Statement/Prospectus").
q. POOLING ACCOUNTING. ARH and NCB shall cooperate and use their respective best efforts to cause the Merger to qualify for the pooling of interests method of accounting in accordance with generally accepted accounting principles.
4. REPRESENTATIONS AND WARRANTIES OF NCB
NCB represents and warrants to ARH that, except as set forth on a schedule dated the date of this Merger Agreement (the "NCB Disclosure Schedule"), a copy of which shall be delivered to ARH for review no less than one (1) day prior to execution and delivery of this Merger Agreement, corresponding in number with the applicable section of this Merger Agreement:
a. CORPORATE STATUS AND POWER TO ENTER INTO AGREEMENTS. (i) NCB is a national banking association, organized and existing under the laws of the United States of America, (ii) subject to obtaining the Government Approvals and approval of the principal terms of the Merger by the NCB shareholders, NCB has all necessary corporate power to enter into this Merger Agreement and the Agreement of Merger and to carry out all of the terms and provisions hereof and thereof to be carried out by it, (iii) NCB holds a currently valid national bank charter, issued by the OCC to engage in the commercial banking business with offices in the State of California at the locations at which it is licensed and currently conducts business, and (iv) NCB is not subject to any directive, resolution, memorandum of understanding or order of the FDIC, OCC or any other regulatory authority having jurisdiction over its business or any of its assets or properties. Neither the scope of the business of NCB nor the location of its properties requires it to be licensed to do business in any jurisdiction other than the State of California. NCB's deposits are insured by the FDIC to the maximum extent permitted by applicable law and regulation.
b. ARTICLES, BYLAWS, BOOKS AND RECORDS. The copies of the Articles of Association and Bylaws of NCB heretofore delivered to ARH are complete and accurate copies thereof as in effect on the date hereof. The minute books of NCB made available to ARH contain a complete and accurate record of all meetings of NCB's Board of Directors (and committees thereof) and shareholders. The corporate books and records (including financial statements) of NCB fairly
reflect the material transactions to which NCB is a party or by which its properties are subject or bound, and such books and records have been properly kept and maintained.
c. COMPLIANCE WITH LAWS, REGULATIONS AND DECREES. NCB (i) has the corporate power to own or lease its properties and to conduct its business as currently conducted, (ii) to its knowledge, has complied in all material respects with, and is not in material default of any laws, regulations, ordinances, orders or decrees applicable to the conduct of its business and the ownership of its properties, including but not limited to all federal and state laws (including but not limited to the Bank Secrecy Act), rules and regulations relating to the offer, sale or issuance of securities, and the operation of a commercial bank, other than where such noncompliance or default is not likely to result in a material limitation on the conduct of the business of NCB or is not likely to otherwise have a material adverse effect on NCB, (iii) has not failed to file with the proper federal, state, local or other authorities any material report or other document required to be filed, and (iv) has all approvals, authorizations, consents, licenses, clearances and orders of, and has currently effective all registrations with, all government and regulatory authorities which are necessary to the business and operations of NCB as now being conducted.
d. CAPITALIZATION. As of the date of this Merger Agreement,
the authorized capital stock of NCB consists of 5,000,000 shares of NCB common
stock, par value $4.00 per share, of which 472,354 shares are duly authorized,
validly issued, fully paid and nonassessable and currently outstanding. Said
capital stock has been offered, sold and issued in compliance with all
applicable securities laws. As of the date of this Merger Agreement, there are
outstanding options to purchase 192,415 shares of NCB common stock, at a
weighted average exercise price of $7.80 per share, issued pursuant to the NCB
Stock Option Plan and directly from NCB outside of the NCB Stock Option Plan.
Said options were issued and, upon issuance in accordance with the terms of the
outstanding options said shares shall be issued, in compliance with all
applicable securities laws. Otherwise, there are no outstanding (i) options,
agreements, calls or commitments of any character which would obligate NCB to
issue, sell, pledge, assign or otherwise encumber or dispose of, or to purchase,
redeem or otherwise acquire, any NCB common stock or any other equity security
of NCB, or (ii) warrants or options relating to, rights to acquire, or debt or
equity securities convertible into, shares of NCB common stock or any other
equity security of NCB. The outstanding common stock of NCB is not registered
with the Securities and Exchange Commission (the "Commission") pursuant to
Section 12(g) of the 1934 Act and NCB has not heretofore filed periodic reports
under Section 12(i), 13(a) or 15(d) of the 1934 Act. Except as collateral for
outstanding loans held in its loan portfolio, NCB does not own, directly or
indirectly, any equity interest in any bank, corporation or other entity.
e. TRADEMARKS AND TRADE NAMES. To the best of its knowledge, NCB (i) owns and has the exclusive right to use all trademarks, trade names, patents, copyrights, service marks, trade secrets, or other intellectual property rights (collectively, "Intellectual Property Rights") used in or necessary for the conduct of its business as now or heretofore conducted; and
(ii) its not infringing upon the Intellectual Property Rights of any other person or entity. No claim is pending or threatened by any person or entity against or otherwise affecting the use by NCB of any Intellectual Property Rights and, to the best of its knowledge, there is no valid basis for any such claim.
f. FINANCIAL STATEMENTS, REGULATORY REPORTS. No financial
statement or other document provided or to be provided to ARH as required by
Section 3.3(i) hereof, as of the date of such document, contained, or as to
documents to be delivered after the date hereof, will contain, any untrue
statement of a material fact, or, at the date thereof, omitted or will omit to
state a material fact necessary in order to make the statements contained
therein, in light of the circumstances under which such statements were or will
be made, not misleading; provided, however, that information as of a later date
shall be deemed to modify contrary information as of any earlier date. NCB has
filed all material documents and reports required to be filed by it with any
government agency or regulatory authority having jurisdiction over its business,
assets or properties. All such reports conform in all material respects with the
requirements promulgated by such government agencies and regulatory authorities.
All compliance or corrective action relating to NCB required by government
agencies and regulatory authorities having jurisdiction over NCB has been taken.
Except as disclosed in such statements, reports or documents, NCB has not
received any notification, formally or informally, from any agency or department
of any federal, state or local government or any regulatory authority or the
staff thereof (i) asserting that it is not in compliance with any of the
statutes, regulations or ordinances which such government or regulatory
authority enforces, or (ii) threatening to revoke any license, franchise, permit
or government authorization. NCB has paid all assessments made or imposed by any
government agency. NCB has delivered to ARH copies of all annual management
letters and opinions, and has made available to ARH for inspection all reviews,
correspondence and other documents in the files of NCB prepared by certified
public accountants engaged by NCB and delivered to NCB since December 31, 1995.
The financial records of NCB have been, and are being and shall be, maintained
in all material respects in accordance with all applicable legal and accounting
requirements sufficient to insure that all transactions reflected therein are,
in all material respects, executed in accordance with management's general or
specific authorization and recorded in conformity with generally accepted
accounting principles or as applicable, regulatory accounting principles, at the
time in effect. The data processing equipment, data transmission equipment,
related peripheral equipment and software used by NCB in the operation of its
business to generate and retrieve its financial records are adequate for the
current needs of NCB.
g. TAX RETURNS.
(i) NCB has timely filed all federal, state, county, local and foreign tax returns required to be filed by it, including, without limitation, estimated tax, use tax, excise tax, real property and personal property tax reports and returns, employer's withholding tax returns, other withholding tax returns and Federal Unemployment Tax Returns, and all other reports or other information required or requested to be
filed by NCB, and each such return, report or other information was, when filed, complete and accurate in all material respects. NCB has paid all taxes, fees and other government charges, including any interest and penalties thereon, when they have become due, except those that are being contested in good faith, which contested matters have been disclosed to ARH. NCB has not been requested to give nor has it given any currently effective waivers extending the statutory period of limitation applicable to any tax return required to be filed by it for any period. There are no claims pending against NCB for any alleged deficiency in the payment of any taxes, and NCB does not know of any pending or threatened audits, investigations or claims for unpaid taxes or relating to any liability in respect of any taxes. There have been no events, including a change in ownership, that would result in a reappraisal and establishment of a new base-year full value for purposes of applicable provisions of the California Constitution, of any real property owned in whole or in part by NCB or to the best of NCB's knowledge, of any real property leased by NCB.
(ii) NCB has heretofore delivered to ARH or will deliver to ARH prior to or concurrent with filing, copies of all its tax returns with respect to taxes payable to the United States of America and the State of California for the fiscal years ended December 31, 1999, 1998, 1997, 1996, and 1995.
(iii) No consent has been filed relating to NCB pursuant to Section 341(f) of the IRC.
h. MATERIAL ADVERSE CHANGE. Since December 31, 1999, there has
been (i) no material adverse change in the business, assets, licenses, permits,
franchises, results of operations or financial condition of NCB (whether or not
in the Ordinary Course of Business), (ii) no change in any of the assets,
licenses, permits or franchises of NCB that has had or can reasonably be
expected to have a material adverse effect on any of the items listed in clause
(h)(i) above, (iii) no damage, destruction, or other casualty loss (whether or
not covered by insurance) that has had or can reasonably be expected to have a
material adverse effect on any of the items listed in clause (h)(i) above, (iv)
no amendment, modification, or termination of any existing, or entering into of
any new, contract, agreement, plan, lease, license, permit or franchise that is
material to the business, financial condition, assets, liabilities or operations
of NCB, except in the Ordinary Course of Business; and (v) no disposition by NCB
of one or more assets that, individually or in the aggregate, are material to
NCB, except sales of assets in the Ordinary Course of Business.
i. NO UNDISCLOSED LIABILITIES. Except for items for which reserves have been established in the unaudited balance sheet (and will also be established in the audited balance sheet) of NCB as of December 31, 1999, NCB has not incurred or discharged, and is not legally obligated with respect to, any indebtedness, liability (including, without limitation, a liability arising out of an indemnification, guarantee, hold harmless or similar arrangement) or
obligation (accrued or contingent, whether due or to become due, and whether or not subordinated to the claims of its general creditors), other than as a result of operations in the Ordinary Course of Business after such date. No agreement pursuant to which any loans or other assets have been or will be sold by NCB entitles the buyer of such loans or other assets, unless there is a material breach of a representation or covenant by NCB, to cause NCB to repurchase such loan or other asset or to pursue any other form of recourse against NCB. NCB has not knowingly made or shall make any representation or covenant in any such agreement that contained or shall contain any untrue statement of a material fact or omitted or shall omit to state a material fact necessary in order to make the statements contained therein, in light of the circumstances under which such representations and/or covenants were made or shall be made, not misleading. No cash, stock or other dividend or any other distribution with respect to the NCB Shares has been declared, set aside or paid, nor have any of the NCB Shares been purchased, redeemed or otherwise acquired, directly or indirectly, by NCB since December 31, 1997.
j. PROPERTIES AND LEASES.
(i) NCB has good and marketable title, free and clear of all liens and encumbrances and the right of possession, subject to existing leaseholds, to all real properties and good title, free and clear of all liens and encumbrances, to all other property and assets, tangible and intangible, reflected in the NCB balance sheet as of December 31, 1999 (except property held as lessee under leases disclosed in writing prior to the date hereof and except personal property sold or otherwise disposed of since December 31, 1999, in the Ordinary Course of Business), except for (a) liens for taxes or assessments not delinquent, (b) such other liens and encumbrances and imperfections of title as do not materially affect the value of such property as reflected in the NCB balance sheet as of December 31, 1999, or as currently shown on the books and records of NCB and which do not interfere with or impair its present and continued use, or (c) exceptions disclosed in title reports and preliminary title reports, copies of which have been provided to ARH. To the knowledge of NCB, all tangible properties of NCB conform in all material respects with all applicable ordinances, regulations and zoning laws. All tangible properties of NCB are in a good state of maintenance and repair and are adequate for the current business of NCB. No properties of NCB, and, to the best of NCB's knowledge, no properties in which NCB holds a collateral or contingent interest or purchase option, are the subject of any pending or threatened investigation, claim or proceeding relating to the use, storage or disposal on such property of or contamination of such property by any toxic or hazardous waste material or substance. To the best of its knowledge, NCB does not own, possess or have a collateral or contingent interest or purchase option in any properties or other assets which contain or have located within or thereon any hazardous or toxic waste material or substance unless the location of such hazardous or toxic waste material or other
substance or its use thereon conforms in all material respects with all federal, state and local laws, rules, regulations or other provisions regulating the discharge of materials into the environment. As to any real property not owned or leased by NCB and held as security for a loan or in which NCB otherwise has an interest, NCB has not controlled, directed or participated in the operation or management of any such real property or any facilities or enterprise conducted thereon, such that it has become an owner or operator of such real property under applicable environmental laws.
(ii) All properties held by NCB under leases are held under valid, binding and enforceable leases (subject to applicable bankruptcy, insolvency and similar laws affecting creditors' rights generally and subject, as to enforceability, to equitable principles of general applicability), with such exceptions as are not material and do not interfere with the conduct of the business of NCB, and NCB enjoys quiet and peaceful possession of such leased property. NCB is not in material default in any respect under any material lease, agreement or obligation regarding its properties to which it is a party or by which it is bound.
(iii) All of NCB's rights and obligations under the leases referred to in Section 4(j)(ii) above do not require the consent of any other party to the transactions contemplated by this Merger Agreement and the Agreement of Merger. Where required, NCB shall obtain, prior to the Effective Date, the consent of such parties to such transactions.
k. MATERIAL CONTRACTS. Excluding loans, lines of credit, loan commitments or letters of credit to which NCB is a party, NCB is not a party to or bound by any contract or other agreement made in the Ordinary Course of Business which involves aggregate future payments by or to NCB of more than Twenty-Five Thousand Dollars ($25,000) and which is made for a fixed period expiring more than one year from the date hereof, and NCB is not a party to or bound by any agreement not made in the Ordinary Course of Business which is to be performed at or after the date hereof. Each of the contracts and agreements disclosed to ARH pursuant to this Section 4(k) is a legal and binding obligation (subject to applicable bankruptcy, insolvency and similar laws affecting creditors' rights generally and subject, as to enforceability, to equitable principles of general applicability), and no breach or default (and no condition which, with notice or passage of time, or both, could become a breach or default) exists with respect thereto.
l. CLASSIFIED LOANS. There are no loans presently owned by NCB that have been classified by NCB management or NCB internal policy or procedure, any outside review examiner, accountant or any bank regulatory authority as "Non-Accrual," "Watch," "Other Assets Specially Mentioned," "Substandard," "Doubtful," or "Loss" or classified using categories or words with similar import and all loans or portions thereof so classified have been reserved to the extent required. NCB regularly reviews and appropriately classifies its loans in accordance with all applicable legal and regulatory requirements and generally accepted banking practices. All loans and investments of NCB are legal, valid
and binding obligations enforceable in accordance with their respective terms and are not subject to any setoffs, counterclaims or disputes (subject to applicable bankruptcy, insolvency and similar laws affecting creditors' rights generally and subject, as to enforceability, to equitable principles of general applicability), except as disclosed in the NCB Disclosure Schedule or reserved for in the audited balance sheet of NCB as of December 31, 1999, and were duly authorized under and made in compliance with applicable federal and state laws and regulations. NCB does not have any extensions of credit, investments, guarantees, indemnification agreements or commitments for the same (including without limitation commitments to issue letters of credit, to create acceptances, or to repurchase securities, federal funds or other assets) other than those documented on the books and records of NCB.
m. NO RESTRICTIONS ON INVESTMENTS. Except for pledges to secure public and trust deposits, repurchase agreements in the Ordinary Course of Business and securities classified as "held to maturity" as defined under SFAS No. 115, none of the investments reflected in the NCB balance sheet as of December 31, 1999, and none of the investments made by NCB since December 31, 1999, is subject to any restriction, whether contractual or statutory, which materially impairs the ability of NCB to freely dispose of such investment at any time.
n. NCB BENEFIT PLANS/ERISA.
(i) NCB has provided to ARH an accurate list setting forth all bonus, incentive compensation, profit sharing, pension, retirement including, without limitation, salary continuation and supplemental retirement plans, stock purchase, stock option, deferred compensation, severance, hospitalization, medical, dental, vision, group insurance, death benefit, disability and other fringe benefit plans, trust agreements, arrangements and commitments of NCB (including but not limited to any such plans, agreements, arrangements and commitments applicable to current and former employees or retired employees, and current and former directors or retired directors, or for which such persons are eligible) (individually, a "NCB Benefit Plan" and collectively, "NCB Benefit Plans"), if any, together with copies of all such Benefit Plans that are documented and any and all contracts of employment, and has made available to ARH any Board of Directors' minutes (or committee minutes) authorizing, approving or guaranteeing such NCB Benefit Plans and contracts; and
(ii) All contributions, premiums or other payments due from NCB to (or under) any NCB Benefit Plans have been fully paid or adequately provided for on NCB's audited financial statements for the year ended December 31, 1999. All accruals thereon (including, where appropriate, proportional accruals for partial periods) have been made in accordance with generally accepted accounting principles consistently applied on a reasonable basis; and
(iii) NCB has disclosed in writing to ARH the names of each director, officer and employee of NCB; and
(iv) The NCB Benefit Plans have, to the best of NCB's knowledge, been administered where required in substantial compliance with ERISA, the IRC and the terms of such NCB Benefit Plans. There is no pending or to the best of NCB's knowledge any threatened litigation relating to any such NCB Benefit Plan; and
(v) NCB has not offered in the past health benefits for retired employees or directors and has no intention to offer any additional health or other benefits for retired employees or directors; and
(vi) Each NCB Benefit Plan is in full force and effect, and neither NCB nor any other party thereto is in material default under any of them, and there have been no claims of default and there are no facts or conditions which if continued, or on notice, will result in a material default under any NCB Benefit Plans; and
(vii) NCB has provided to ARH a list of all agreements or other understandings pursuant to which the consummation of the transactions contemplated hereby will (a) entitle any current or former employee, officer or director of NCB to severance pay, retirement benefits or payments, unemployment compensation or any other payment, or (b) accelerate the time of payment or vesting or increase the amount of compensation due any such employee, officer or director, and the aggregate amount of such payments under all such agreements or other understandings. None of such payments will constitute an "excess parachute" payment within the meaning of Section 280G of the IRC.
o. COLLECTIVE BARGAINING AND EMPLOYMENT AGREEMENTS. NCB has no union or collective bargaining or written employment agreements, contracts or other agreements with any labor organization or with any member of management, or any management or consultation agreement not terminable at will by NCB without liability and no such contract or agreement has been requested by, or is under discussion by management with, any group of employees, any member of management or any other person. There are no material controversies pending between NCB and any current or former employees, and to the best of NCB's knowledge, there are no efforts presently being made by any labor union seeking to organize any of such employees.
p. COMPENSATION OF OFFICERS AND EMPLOYEES.
(i) no officer or employee of NCB is receiving aggregate direct remuneration at a rate exceeding Seventy-Five Thousand Dollars ($75,000) per annum.
(ii) the consummation of the transactions contemplated by this Agreement and the Agreement of Merger will not (either alone or upon the occurrence of any additional or further acts or events) result in any payment (whether of severance pay or otherwise) becoming due from NCB or ARH to any employee of NCB.
q. LEGAL ACTIONS AND PROCEEDINGS. NCB is not a party to, or so far as known to it, threatened with, and to NCB's knowledge, there is no reasonable basis for, any legal action or other proceeding or investigation before any court, any arbitrator of any kind or any government agency, and NCB is not subject to any potential adverse claim, the outcome of which could involve the payment or receipt by NCB of any amount in excess of Twenty-Five Thousand Dollars ($25,000), unless an insurer has agreed to defend against and pay the amount of any resulting liability without reservation, or, if any such legal action, proceeding, investigation or claim will not involve the payment by NCB of a monetary amount, which could have a material adverse effect on NCB or its business or property or the transactions contemplated hereby. NCB has no knowledge of any pending or threatened claims or charges under the Community Reinvestment Act, before the Equal Employment Opportunity Commission, the California Department of Fair Housing & Economic Development, the California Unemployment Appeals Board, or any federal or state human relations commission or agency. There is no labor dispute, strike, slowdown or stoppage pending or, to the best of the knowledge of NCB, threatened against NCB.
r. EXECUTION AND DELIVERY OF THE AGREEMENTS.
(i) The execution and delivery of this Merger Agreement and the Agreement of Merger have been duly authorized by the Board of Directors of NCB and, when the principal terms of the Merger, this Merger Agreement and the Agreement of Merger have been duly approved by the affirmative vote of the holders of two-thirds of the outstanding NCB Shares at a meeting of shareholders duly called and held, the Merger, this Merger Agreement and the Agreement of Merger will be duly and validly authorized by all necessary corporate action on the part of NCB.
(ii) This Merger Agreement has been duly executed and delivered by NCB and (assuming due execution and delivery by ARH) constitutes, and the Agreement of Merger, upon its execution and delivery by NCB (and assuming due execution and delivery by ARH) will constitute, a legal and binding obligation of NCB in accordance with its terms.
(iii) The execution and delivery by NCB of this Merger
Agreement and the Agreement of Merger and the consummation of
the transactions herein and therein contemplated (a) do not
violate any provision of the Articles of Association or Bylaws
of NCB, or violate in any material respect any provision of
federal or state law or any government rule or regulation
(assuming (1) receipt of the Government Approvals, (2) receipt
of the requisite NCB shareholder approval referred to in
Section 4(r)(i) hereof, (3) due registration of the ARH Shares
under the 1933 Act, and (4) receipt of appropriate permits or
approvals under state securities or "blue sky" laws), and (b)
do not require any consent of any person under, conflict in
any material respect with or result in a material breach of,
or accelerate the performance required by any of the terms of,
any material debt instrument, lease, license, covenant,
agreement or understanding to which NCB is a party or by which
it is bound or any order, ruling, decree, judgment,
arbitration award or stipulation to which NCB is subject, or
constitute a material default thereunder or result in the
creation of any lien, claim, security interest, encumbrance,
charge, restriction or right of any third party of any kind
whatsoever upon any of the properties or assets of NCB.
s. RETENTION OF BROKER OR CONSULTANT. No broker, agent, finder, consultant or other party (other than legal, compliance, loan reviewers and accounting advisors) has been retained by NCB or is entitled to be paid based upon any agreements, arrangements or understandings made by NCB in connection with any of the transactions contemplated by this Merger Agreement or the Agreement of Merger, except that NCB has engaged the firm of Carpenter & Company, to provide consulting services to NCB, including an opinion regarding the fairness of the consideration to be received by NCB shareholders in the Merger. NCB has provided ARH with a true and accurate copy of its agreement(s) with Carpenter & Company.
t. INSURANCE. NCB is and continuously since its inception has been, insured with reputable insurers against all risks normally insured against by banks, and all of the insurance policies and bonds maintained by NCB are in full force and effect, NCB is not in default thereunder and all material claims thereunder have been filed in due and timely fashion. In the best judgment of the management of NCB, such insurance coverage is adequate for NCB. Since December 31, 1999, there has not been any damage to, destruction of, or loss of any assets of NCB not covered by insurance that could have a material adverse effect on the business, financial condition, properties, assets or results of operations of NCB.
u. LOAN LOSS RESERVES. The allowance for loan losses in the NCB balance sheet dated December 31, 1999 is, and as of the third business day prior to the Closing Date ("Determination Date") will be, adequate in all material respects under the requirements of all applicable state and federal laws and regulations to provide for possible loan losses on outstanding loans, net of recoveries and in compliance in all material respects with the credit policies of NCB in effect and as disclosed and provided to ARH prior to the date of this Merger Agreement. NCB has disclosed to ARH in writing prior to the date
hereof, and will promptly inform ARH of the amounts of all loans, leases, other extensions of credit or commitments, or other interest-bearing assets of NCB, that have been classified as of the date hereof or hereafter by NCB management or NCB internal policy or procedure, any outside review examiner, accountant or any bank regulatory authority as "Other Loans Specially Mentioned," "Special Mention," "Substandard," "Doubtful," or "Loss" or classified using categories or words with similar import in the case of loans (or that would have been so classified, in the case of other interest-bearing assets, had they been loans). Notwithstanding the above, NCB shall be under no obligation to disclose to ARH any such classification by any bank regulatory authority where such disclosure would violate any obligation of confidentiality of NCB imposed by such bank regulatory authority. NCB has furnished and will continue to furnish to ARH true and accurate information concerning the loan portfolio of NCB, and no material information with respect to the loan portfolio has been or will be withheld from ARH.
v. TRANSACTIONS WITH AFFILIATES. Except in the Ordinary Course of Business, NCB has not extended credit, committed itself to extend credit, or transferred any asset to or assumed or guaranteed any liability of the employees or directors of NCB, or to any spouse or child of any of them, or to any of their "affiliates" or "associates" as such terms are defined in Rule 405 under the 1933 Act. NCB has not entered into any other transactions with the employees or directors of NCB or any spouse or child of any of them, or any of their affiliates or associates, except as disclosed in writing to ARH. Any such transactions have been on terms no less favorable to NCB than those which would prevail in an arms-length transaction with an independent third party. NCB has not violated any applicable regulation of any government agency or regulatory authority having jurisdiction over NCB in connection with any such transactions described in this subsection.
w. RISK MANAGEMENT INSTRUMENTS. All interest rate swaps, caps, floors, option agreements, futures and forward contracts and other similar risk management arrangements, whether entered into for NCB's own account (all of which are listed on the NCB Disclosure Schedule), if any, were entered into in accordance with prudent business practices and all applicable laws, rules, regulations and regulatory policies and with counterparties believed to be financially responsible at the time; and each of them constitutes the valid and legally binding obligation of NCB, enforceable in accordance with its terms (except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and similar laws of general applicability relating to or affecting creditors' rights or by general equity principles), and are in full force and effect. Neither NCB, nor to NCB's knowledge, any other party thereto, is in breach of any of its obligations under any such agreement or arrangement.
x. YEAR 2000. NCB has not experienced any Year 2000 problems of any kind or nature whatsoever which have had or might reasonably be expected to have a material adverse effect upon NCB. To the knowledge of NCB, the mission critical computer software operated by NCB is currently capable of providing, or is being adapted to provide, uninterrupted millennium functionality to record, store, process and present calendar dates falling on or after January 1, 2000 in
substantially the same manner and with substantially the same functionality as such mission critical software recorded, stored, processed and presented such calendar dates falling on or before December 31, 1999. To the knowledge of NCB, the costs of adaptations referred to in this clause will not have a material adverse effect with respect to the business and operations of NCB. NCB has not received, and does not reasonably expect to receive, any deficiency notice from any federal banking authority. NCB has previously disclosed to ARH a complete and accurate copy of its plan, including an estimate of anticipated associated costs, for addressing the issues set forth in all Federal Financial Institutions Examination Council Interagency Statements as such issues affect NCB. Between the date of this Merger Agreement and the Effective Time of the Merger, NCB shall use commercially reasonable and practicable efforts to implement such plan.
y. COMMUNITY REINVESTMENT ACT COMPLIANCE. NCB is in substantial compliance with the applicable provisions of the Community Reinvestment Act of 1977 and the regulations promulgated thereunder (collectively, the "CRA") and has received a CRA rating of "satisfactory" in its most recent examination, and NCB has no knowledge of the existence of any fact or circumstance or set of facts or circumstances which could be reasonably expected to result in NCB failing to be in substantial compliance with such provisions or having its current rating lowered.
z. INFORMATION IN ARH REGISTRATION STATEMENT. The information pertaining to NCB which has been or will be furnished to ARH for or on behalf of NCB for inclusion in the ARH Registration Statement and the Joint Proxy Statement/Prospectus, or in the applications to be filed to obtain the Government Approvals (the "Applications"), does not and will not contain any untrue statement of any material fact or omit or will omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they are made, not misleading; provided, however, that information of a later date shall be deemed to modify contrary information as of an earlier date. All financial statements of NCB included in the ARH Registration Statement and the Joint Proxy Statement/Prospectus, or the Applications, will present fairly the financial condition and results of operations of NCB at the dates and for the periods covered by such statements in accordance with generally accepted accounting principles consistently applied throughout the periods covered by such statements. NCB shall promptly advise ARH in writing if prior to the Effective Time of the Merger NCB shall obtain knowledge of any facts that would make it necessary to amend or supplement the ARH Registration Statement, the Joint Proxy Statement/Prospectus or any Application, in order to make the statements therein not misleading or to comply with applicable law or regulation.
aa. ACCURACY AND EFFECTIVE DATE OF REPRESENTATIONS AND WARRANTIES, COVENANTS AND AGREEMENTS. Each representation, warranty, covenant and agreement of NCB set forth in this Merger Agreement shall be deemed to be made on and as of the date hereof (except to the extent that a representation or warranty is qualified as set forth in the NCB Disclosure Schedule in a section corresponding in number with the applicable section of such representation or warranty), the Closing Date and the Effective Time of the Merger. No
representation or warranty by NCB, and no statement by NCB in any certificate, agreement, NCB Disclosure Schedule or other document furnished or to be furnished in connection with the transactions contemplated by this Merger Agreement or the Agreement of Merger, was or will be inaccurate, incomplete or incorrect in any material respect as of the date furnished or contains or will contain any untrue statement of a material fact or omits or will omit to state any material fact necessary to make such representation, warranty or statement not misleading to ARH.
bb. BROKERED DEPOSITS. NCB has no "brokered deposits" as that term is defined in applicable FDIC regulations.
5. REPRESENTATIONS AND WARRANTIES OF ARH.
In the following representations and warranties, all references to assets, liabilities, properties, rights, obligations, financial condition, operations, knowledge, information and other characteristics of ARH shall be deemed to include reference to those characteristics of ARH on a consolidated basis, except as the context otherwise indicates or requires. ARH represents and warrants to NCB that, except as set forth on a schedule dated the date of this Merger Agreement (the "ARH Disclosure Schedule"), a copy of which shall be delivered to NCB for review no less than one (1) day prior to execution and delivery of this Merger Agreement, corresponding in number with the applicable section of this Merger Agreement:
a. CORPORATE STATUS AND POWER TO ENTER INTO AGREEMENTS. (i) ARH is a corporation duly incorporated, validly existing and in good standing under California law and is a registered bank holding company under the Bank Holding Company Act of 1956, as amended ("BHC Act"), (ii) subject to obtaining the Government Approvals and approval of the principal terms of the Merger by the ARH shareholders, ARH has all necessary corporate power to enter into this Merger Agreement and the Agreement of Merger and to carry out all of the terms and provisions hereof and thereof to be carried out by it, (iii) ARB holds a currently valid license issued by the California Commissioner of Financial Institutions to engage in the commercial banking business in the State of California at the locations at which it is licensed and currently conducts business, (iv) FSC is authorized under Regulation Y of the BHC Act and applicable FRB regulations to engage in equipment lease brokerage as a permitted non-banking activity in the State of California at the locations at which it currently conducts business, and (v) neither ARH, ARB, nor FSC is subject to any directive, resolution, memorandum of understanding or order of the California Commissioner of Financial Institutions, FDIC, FRB, or any other regulatory authority having jurisdiction over its business or any of its assets or properties. Neither the scope of the business of ARH nor the location of its properties requires ARH or ARB to be licensed to do business in any jurisdiction other than the State of California. ARB's deposits are insured by the FDIC to the maximum extent permitted by applicable law and regulation. ARBCO Investments, Inc. and American River Mortgage are inactive California corporations and wholly-owned subsidiaries of ARB.
b. ARTICLES, BYLAWS, BOOKS AND RECORDS. The copies of the Articles of Incorporation and Bylaws of ARH heretofore delivered to NCB are complete and accurate copies thereof as in effect on the date hereof. The minute books of ARH made available to NCB contain a complete and accurate record of all meetings of ARH's Board of Directors (and committees thereof) and shareholders. The corporate books and records (including financial statements) of ARH fairly reflect the material transactions to which ARH is a party or by which its properties are subject or bound, and such books and records have been properly kept and maintained.
c. COMPLIANCE WITH LAWS, REGULATIONS AND DECREES. ARH (i) has the corporate power to own or lease its properties and to conduct its business as currently conducted, (ii) to its knowledge, has complied in all material respects with, and is not in material default of any laws, regulations, ordinances, orders or decrees applicable to the conduct of its business and the ownership of its properties, including but not limited to all federal and state laws (including but not limited to the Bank Secrecy Act), rules and regulations relating to the offer, sale or issuance of securities, and the operation of a commercial bank, other than where such noncompliance or default is not likely to result in a material limitation on the conduct of the business of ARH or is not likely to otherwise have a material adverse effect on ARH, ARB and FSC, taken as a whole, (iii) have not failed to file with the proper federal, state, local or other authorities any material report or other document required to be filed, and (iv) have all approvals, authorizations, consents, licenses, clearances and orders of, and have currently effective all registrations with, all government agencies and regulatory authorities which are necessary to the business and operations of ARH, ARB and FSC as now being conducted.
d. CAPITALIZATION. As of the date of this Merger Agreement, the authorized capital stock of ARH consists of 20,000,000 shares of ARH common stock, no par value, of which 1,793,274 shares are duly authorized, validly issued, fully paid and nonassessable and currently outstanding. Said capital stock has been offered, sold and issued in compliance with all applicable securities laws. As of the date of this Merger Agreement, there are currently outstanding options to purchase 283,358 shares of ARH common stock, at a weighted average exercise price of $9.4358 per share, issued pursuant to the ARH Stock Option Plan. Said options were issued and, upon issuance in accordance with the terms of the outstanding options said shares shall be issued, in compliance with all applicable securities laws. Otherwise, there are no outstanding (i) options, agreements, calls or commitments of any character which would obligate ARH to issue, sell, pledge, assign or otherwise encumber or dispose of, or to purchase, redeem or otherwise acquire, any ARH common stock or any other equity security of ARH, or (ii) warrants or options relating to, rights to acquire, or debt or equity securities convertible into, shares of ARH common stock or any other equity security of ARH. ARH owns all of the outstanding equity securities of ARB and FSC. The outstanding common stock of ARH is not registered with the Commission pursuant to Section 12(g) of the 1934 Act and ARH has not heretofore filed periodic reports under Section 12(i), 13(a) or 15(d) of the 1934 Act. ARB owns all of the outstanding equity securities of ARBCO Investments, Inc. and American River Mortgage. Except for such equity
securities owned by ARH and ARB, and financial institution equity securities owned by ARB, and except as collateral for outstanding loans held in their loan portfolios, neither ARH, ARB nor FSC owns, directly or indirectly, any equity interest in any bank, corporation or other entity.
e. TRADEMARKS AND TRADE NAMES. To the best of ARH's knowledge, ARH, ARB and FSC (i) own and have the exclusive right to use all Intellectual Property Rights used in or necessary for the conduct of their businesses as now or heretofore conducted; and (ii) are not infringing upon the Intellectual Property Rights of any other person or entity. No claim is pending or threatened by any person or entity against or otherwise affecting the use by ARH, ARB or FSC of any Intellectual Property Rights and, to the best of its knowledge, there is no valid basis for any such claim.
f. FINANCIAL STATEMENTS, REGULATORY REPORTS. No financial
statement or other document provided or to be provided to NCB as required by
Section 3.3(i) hereof, as of the date of such document, contained, or as to
documents to be delivered after the date hereof, will contain, any untrue
statement of a material fact, or, at the date thereof, omitted or will omit to
state a material fact necessary in order to make the statements contained
therein, in light of the circumstances under which such statements were or will
be made, not misleading; provided, however, that information as of a later date
shall be deemed to modify contrary information as of any earlier date. ARH, ARB
and FSC have filed all material documents and reports required to be filed by
each of them with any government agency or regulatory authority having
jurisdiction over their business, assets or properties. All such reports conform
in all material respects with the requirements promulgated by such government
agencies and regulatory authorities. All compliance or corrective action
relating to ARH and its subsidiaries required by government agencies and
regulatory authorities having jurisdiction over ARH and its subsidiaries has
been taken. Except as disclosed in such statements, reports or documents,
neither ARH nor its subsidiaries has received any notification, formally or
informally, from any agency or department of any federal, state or local
government or any regulatory authority or the staff thereof (a) asserting that
it is not in compliance with any of the statutes, regulations or ordinances
which such government or regulatory authority enforces, or (b) threatening to
revoke any license, franchise, permit or government authorization. ARH and its
subsidiaries have paid all assessments made or imposed by any government agency.
ARH has delivered to NCB copies of all annual management letters and opinions,
and has made available to NCB for inspection all reviews, correspondence and
other documents in the files of ARH prepared by certified public accountants
engaged by ARH and delivered to ARH since December 31, 1995. The financial
records of ARH have been, and are being and shall be, maintained in all material
respects in accordance with all applicable legal and accounting requirements
sufficient to insure that all transactions reflected therein are, in all
material respects, executed in accordance with management's general or specific
authorization and recorded in conformity with generally accepted accounting
principles or as applicable, regulatory accounting principles, at the time in
effect. The data processing equipment, data transmission equipment, related
peripheral equipment and software used by ARH in the operation of its business to generate and retrieve its financial records are adequate for the current needs of ARH.
g. TAX RETURNS.
(i) ARH has timely filed all federal, state, county, local and foreign tax returns required to be filed by it, including, without limitation, estimated tax, use tax, excise tax, real property and personal property tax reports and returns, employer's withholding tax returns, other withholding tax returns and Federal Unemployment Tax Returns, and all other reports or other information required or requested to be filed by ARH, and each such return, report or other information was, when filed, complete and accurate in all material respects. ARH has paid all taxes, fees and other government charges, including any interest and penalties thereon, when they have become due, except those that are being contested in good faith, which contested matters have been disclosed to NCB. ARH has not been requested to give nor has it given any currently effective waivers extending the statutory period of limitation applicable to any tax return required to be filed by it for any period. There are no claims pending against ARH for any alleged deficiency in the payment of any taxes, and ARH does not know of any pending or threatened audits, investigations or claims for unpaid taxes or relating to any liability in respect of any taxes. There have been no events, including a change in ownership, that would result in a reappraisal and establishment of a new base-year full value for purposes of applicable provisions of the California Constitution, of any real property owned in whole or in part by ARH or to the best of ARH's knowledge, of any real property leased by ARH.
(ii) ARH has heretofore delivered to NCB or will deliver to NCB prior to or concurrent with filing, copies of all its tax returns with respect to taxes payable to the United States of America and the State of California for the fiscal years ended December 31, 1999, 1998, 1997, 1996, and 1995.
(iii) No consent has been filed relating to ARH pursuant to Section 341(f) of the IRC.
h. MATERIAL ADVERSE CHANGE. Since December 31, 1999, there has been (i) no material adverse change in the business, assets, licenses, permits, franchises, results of operations or financial condition of ARH and ARB taken as a whole (whether or not in the Ordinary Course of Business), (ii) no change in any of the assets, licenses, permits or franchises of ARH and ARB taken as a whole that has had or can reasonably be expected to have a material adverse effect on any of the items listed in clause (h)(i) above, (iii) no damage, destruction, or other casualty loss (whether or not covered by insurance) that has had or can reasonably be expected to have a material adverse effect on any of the items listed in clause (h)(i) above, (iv) no amendment, modification, or termination of any existing, or entering into of any new, contract, agreement,
plan, lease, license, permit or franchise that is material to the business, financial condition, assets, liabilities or operations of ARH and ARB taken as a whole, except in the Ordinary Course of Business, and (v) no disposition by ARH or ARB of one or more assets that, individually or in the aggregate, are material to ARH and ARB taken as a whole, except sales of assets in the Ordinary Course of Business.
i. NO UNDISCLOSED LIABILITIES. Except for items for which reserves have been established in the unaudited balance sheet (and will also be established in the audited balance sheet) of ARH as of December 31, 1999, ARH has not incurred or discharged, and is not legally obligated with respect to, any indebtedness, liability (including, without limitation, a liability arising out of an indemnification, guarantee, hold harmless or similar arrangement) or obligation (accrued or contingent, whether due or to become due, and whether or not subordinated to the claims of its general creditors), other than as a result of operations in the Ordinary Course of Business after such date. No agreement pursuant to which any loans or other assets have been or will be sold by ARH entitles the buyer of such loans or other assets, unless there is a material breach of a representation or covenant by ARH, to cause ARH to repurchase such loan or other asset or to pursue any other form of recourse against ARH. ARH has not knowingly made or shall make any representation or covenant in any such agreement that contained or shall contain any untrue statement of a material fact or omitted or shall omit to state a material fact necessary in order to make the statements contained therein, in light of the circumstances under which such representations and/or covenants were made or shall be made, not misleading. No cash, stock or other dividend or any other distribution with respect to the ARH Shares has been declared, set aside or paid, nor have any of the ARH Shares been purchased, redeemed or otherwise acquired, directly or indirectly, by ARH since December 31, 1999.
j. PROPERTIES AND LEASES.
(i) ARH has good and marketable title, free and clear of all liens and encumbrances and the right of possession, subject to existing leaseholds, to all real properties and good title, free and clear of all liens and encumbrances, to all other property and assets, tangible and intangible, reflected in the ARH balance sheet as of December 31, 1999 (except property held as lessee under leases disclosed in writing prior to the date hereof and except personal property sold or otherwise disposed of since December 31, 1999, in the Ordinary Course of Business), except for (a) liens for taxes or assessments not delinquent, (b) such other liens and encumbrances and imperfections of title as do not materially affect the value of such property as reflected in the ARH balance sheet as of December 31, 1999, or as currently shown on the books and records of ARH and which do not interfere with or impair its present and continued use, or (c) exceptions disclosed in title reports and preliminary title reports, copies of which have been provided to NCB. To the knowledge ARH, all tangible properties of ARH conform in all material respects with all applicable ordinances, regulations and zoning laws. All tangible properties of ARH are in a good
state of maintenance and repair and are adequate for the current business of ARH. No properties of ARH, and, to the best of ARH's knowledge, no properties in which ARH holds a collateral or contingent interest or purchase option, are the subject of any pending or threatened investigation, claim or proceeding relating to the use, storage or disposal on such property of or contamination of such property by any toxic or hazardous waste material or substance. To the best of ARH's knowledge, ARH does not own, possess or have a collateral or contingent interest or purchase option in any properties or other assets which contain or have located within or thereon any hazardous or toxic waste material or substance unless the location of such hazardous or toxic waste material or other substance or its use thereon conforms in all material respects with all federal, state and local laws, rules, regulations or other provisions regulating the discharge of materials into the environment. As to any real property not owned or leased by ARH and held as security for a loan or in which ARH otherwise has an interest, ARH has not controlled, directed or participated in the operation or management of any such real property or any facilities or enterprise conducted thereon, such that it has become an owner or operator of such real property under applicable environmental laws.
(ii) All properties held by ARH under leases are held under valid, binding and enforceable leases (subject to applicable bankruptcy, insolvency and similar laws affecting creditors' rights generally and subject, as to enforceability, to equitable principles of general applicability), with such exceptions as are not material and do not interfere with the conduct of the business of ARH, and ARH enjoys quiet and peaceful possession of such leased property. ARH is not in material default in any respect under any material lease, agreement or obligation regarding its properties to which it is a party or by which it is bound.
(iii) All of ARH's rights and obligations under the leases referred to in Section 5(j)(ii) above do not require the consent of any other party to the transactions contemplated by this Merger Agreement and the Agreement of Merger. Where required, ARH shall obtain, prior to the Effective Date, the consent of such parties to such transactions.
k. MATERIAL CONTRACTS. Excluding loans, lines of credit, loan commitments or letters of credit to which ARH is a party, ARH is not a party to or bound by any contract or other agreement made in the Ordinary Course of Business which involves aggregate future payments by or to ARH of more than Seventy-Five Thousand Dollars ($75,000) and which is made for a fixed period expiring more than one year from the date hereof, and ARH is not a party to or bound by any agreement not made in the Ordinary Course of Business which is to be performed at or after the date hereof. Each of the contracts and agreements disclosed to NCB pursuant to this Section 5(k) is a legal and binding obligation (subject to applicable bankruptcy, insolvency and similar laws affecting creditors' rights generally and subject, as to enforceability, to equitable
principles of general applicability), and no breach or default (and no condition which, with notice or passage of time, or both, could become a breach or default) exists with respect thereto.
l. CLASSIFIED LOANS. There are no loans presently owned by ARH that have been classified by ARH management or ARH internal policy or procedure, any outside review examiner, accountant or any bank regulatory authority as "Non-Accrual," "Watch," "Other Assets Specially Mentioned," "Substandard," "Doubtful," or "Loss" or classified using categories or words with similar import and all loans or portions thereof so classified have been reserved to the extent required. ARH regularly reviews and appropriately classifies its loans in accordance with all applicable legal and regulatory requirements and generally accepted banking practices. All loans and investments of ARH are legal, valid and binding obligations enforceable in accordance with their respective terms and are not subject to any setoffs, counterclaims or disputes (subject to applicable bankruptcy, insolvency and similar laws affecting creditors' rights generally and subject, as to enforceability, to equitable principles of general applicability), except as disclosed to NCB in writing or reserved for in the audited balance sheet of ARH as of December 31, 1999, and were duly authorized under and made in compliance with applicable federal and state laws and regulations. ARH has no extensions of credit, investments, guarantees, indemnification agreements or commitments for the same (including without limitation commitments to issue letters of credit, to create acceptances, or to repurchase securities, federal funds or other assets) other than those documented on the books and records of ARH.
m. NO RESTRICTIONS ON INVESTMENTS. Except for pledges to secure public and trust deposits and repurchase agreements in the Ordinary Course of Business and securities classified as "held to maturity" as defined under SFAS No. 115, none of the investments reflected in the ARH balance sheet as of December 31, 1999, and none of the investments made by ARH since December 31, 1999, is subject to any restriction, whether contractual or statutory, which materially impairs the ability of ARH to freely dispose of such investment at any time.
n. ARH BENEFIT PLANS/ERISA.
(i) ARH has provided to NCB an accurate list setting forth all bonus, incentive compensation, profit sharing, pension, retirement including, without limitation, salary continuation and supplemental retirement plans, stock purchase, stock option, deferred compensation, severance, hospitalization, medical, dental, vision, group insurance, death benefit, disability and other fringe benefit plans, trust agreements, arrangements and commitments of ARH and its subsidiaries (including but not limited to any such plans, agreements, arrangements and commitments applicable to current and former employees or retired employees, and current and former directors or retired directors, or for which such persons are eligible) (individually an "ARH Benefit Plan" and collectively, "ARH Benefit Plans"), if any, together with copies of all such ARH Benefit Plans that are documented and any and all contracts of employment, and has made available to
NCB any Board of Directors' minutes (or committee minutes) authorizing, approving or guaranteeing such ARH Benefit Plans and contracts; and
(ii) All contributions, premiums or other payments due from ARH or its subsidiaries to (or under) any ARH Benefit Plans have been fully paid or adequately provided for on ARH's audited financial statements for the year ended December 31, 1999. All accruals thereon (including, where appropriate, proportional accruals for partial periods) have been made in accordance with generally accepted accounting principles consistently applied on a reasonable basis; and
(iii) ARH has disclosed in writing to NCB the names of each director, officer and employee of ARH and its subsidiaries; and
(iv) The ARH Benefit Plans have, to the best of ARH's knowledge, been administered where required in substantial compliance with ERISA, the IRC and the terms of such ARH Benefit Plans. There is no pending or to the best of ARH's knowledge any threatened litigation relating to any such ARH Benefit Plan; and
(v) ARH and its subsidiaries have not offered in the past health benefits for retired employees or directors and have no intention to offer any additional health or other benefits for retired employees or directors; and
(vi) Each ARH Benefit Plan is in full force and effect, and neither ARH and its subsidiaries, nor any other party thereto is in material default under any of them, and there have been no claims of default and there are no facts or conditions which if continued, or on notice, will result in a material default under any ARH Benefit Plans; and
(vii) ARH has provided to NCB a list of all agreements or other understandings pursuant to which the consummation of the transactions contemplated hereby will (a) entitle any current or former employee or officer of ARH or its subsidiaries to severance pay, unemployment compensation or any other payment, or (b) accelerate the time of payment or vesting or increase the amount of compensation due any such employee, officer or director, and the aggregate amount of such payments under all such agreements or other understandings. None of such payments will constitute an "excess parachute" payment within the meaning of Section 280G of the IRC.
o. COLLECTIVE BARGAINING AND EMPLOYMENT AGREEMENTS. ARH has no union or collective bargaining or written employment agreements, contracts or other agreements with any labor organization or with any member of management, or any management or consultation agreement not terminable at will by ARH
without liability and no such contract or agreement has been requested by, or is under discussion by management with, any group of employees, any member of management or any other person. There are no material controversies pending between ARH and any current or former employees, and to the best of ARH's knowledge, there are no efforts presently being made by any labor union seeking to organize any of such employees.
p. COMPENSATION OF OFFICERS AND EMPLOYEES.
(i) No officer or employee of ARH or its subsidiaries is receiving aggregate direct remuneration at a rate exceeding Seventy-Five Thousand Dollars ($75,000) per annum.
(ii) The consummation of the transactions contemplated by this Merger Agreement and the Agreement of Merger will not (either alone or upon the occurrence of any additional or further acts or events) result in any payment (whether of severance pay or otherwise) becoming due from ARH to any employee of ARH.
q. LEGAL ACTIONS AND PROCEEDINGS. ARH is not a party to, or so far as known to it, threatened with, and to ARH's knowledge, there is no reasonable basis for, any legal action or other proceeding or investigation before any court, any arbitrator of any kind or any government agency, and ARH is not subject to any potential adverse claim, the outcome of which could involve the payment or receipt by ARH of any amount in excess of Fifty Thousand Dollars ($50,000), unless an insurer has agreed to defend against and pay the amount of any resulting liability without reservation, or, if any such legal action, proceeding, investigation or claim will not involve the payment by ARH of a monetary amount, which could reasonably be expected to have a material adverse effect on ARH or its business or property or the transactions contemplated hereby. ARH has no knowledge of any pending or threatened claims or charges under the Community Reinvestment Act, before the Equal Employment Opportunity Commission, the California Department of Fair Housing and Economic Development, the California Unemployment Appeals Board, or any federal or state human relations commission or agency. There is no labor dispute, strike, slowdown or stoppage pending or, to the best of the knowledge of ARH, threatened against ARH.
r. EXECUTION AND DELIVERY OF THE AGREEMENTS.
(i) The execution and delivery of this Merger Agreement and the Agreement of Merger have been duly authorized by the Boards of Directors of ARH and, when the principal terms of the Merger, this Merger Agreement and the Agreement of Merger have been duly approved by the affirmative vote of the holders of a majority of the outstanding ARH Shares at a meeting of shareholders duly called and held, the Merger, this Merger Agreement and the Agreement of Merger will be duly and validly
authorized by all necessary corporate action on the part of
ARH.
(ii) This Merger Agreement has been duly executed and delivered by ARH and (assuming due execution and delivery by NCB) constitutes, and the Agreement of Merger, upon its execution and delivery by ARH and the Interim Bank (and assuming due execution and delivery by the Interim Bank and NCB) will constitute, a legal and binding obligation of ARH in accordance with its terms.
(iii) The execution and delivery by ARH of this Merger
Agreement and the Agreement of Merger and the consummation of
the transactions herein and therein contemplated (a) do not
violate any provision of the Articles of Incorporation or
Bylaws of ARH, respectively, or violate in any material
respect any provision of federal or state law or any
government rule or regulation (assuming (1) receipt of the
Government Approvals, (2) receipt of the requisite ARH
shareholder approval referred to in Section 5(r)(i) hereof,
(3) due registration of the ARH Shares under the 1933 Act, and
(4) receipt of appropriate permits or approvals under state
securities or "blue sky" laws, and (b) do not require any
consent of any person under, conflict in any material respect
with or result in a material breach of, or accelerate the
performance required by any of the terms of, any material debt
instrument, lease, license, covenant, agreement or
understanding to which ARH is a party or by which it is bound
or any order, ruling, decree, judgment, arbitration award or
stipulation to which ARH is subject, or constitute a material
default thereunder or result in the creation of any lien,
claim, security interest, encumbrance, charge, restriction or
right of any third party of any kind whatsoever upon any of
the properties or assets of ARH.
s. RETENTION OF BROKER OR CONSULTANT. No broker, agent, finder, consultant or other party (other than legal, compliance, loan reviewers and accounting advisors) has been retained by ARH or is entitled to be paid based upon any agreements, arrangements or understandings made by ARH in connection with any of the transactions contemplated by this Merger Agreement or the Agreement of Merger, except that ARH has engaged the firm of Hoefer & Arnett, Incorporated to act as its financial advisor and to render an opinion regarding the fairness of the Conversion Ratio in the Merger, from a financial point of view, to ARH shareholders. ARH has provided NCB with a true and accurate copy of its agreement(s) with Hoefer & Arnett Incorporated.
t. INSURANCE. ARH is and continuously since its inception has been, insured with reputable insurers against all risks normally insured against by bank holding companies and banks, and all of the insurance policies and bonds maintained by ARH are in full force and effect, ARH is not in default thereunder and all material claims thereunder have been filed in due and timely fashion. In the best judgment of the management of ARH, such insurance coverage is adequate
for ARH. Since December 31, 1999, there has not been any damage to, destruction of, or loss of any assets of ARH not covered by insurance that could reasonably be expected to have a material adverse effect on the business, financial condition, properties, assets or results of operations of ARH.
u. LOAN LOSS RESERVES. The allowance for loan losses in the ARH consolidated balance sheet dated December 31, 1999 is, and as of the Determination Date will be, adequate in all material respects under the requirements of all applicable state and federal laws and regulations to provide for possible loan losses on outstanding loans, net of recoveries and in compliance in all material respects with the credit policies of ARH in effect and as disclosed and provided to NCB prior to the date of this Merger Agreement. ARH has disclosed to NCB in writing prior to the date hereof, and will promptly inform NCB of the amounts of all loans, leases, other extensions of credit or commitments, or other interest-bearing assets of ARH, that have been classified as of the date hereof or hereafter by ARH management or ARH internal policy or procedure, any outside review examiner, accountant or any bank regulatory authority as "Non-Accrual," "Watch," "Other Assets Specially Mentioned," "Substandard," "Doubtful," or "Loss" or classified using categories or words with similar import in the case of loans (or that would have been so classified, in the case of other interest-bearing assets, had they been loans). Notwithstanding the above, ARH shall be under no obligation to disclose to NCB any such classification by any bank regulatory authority, where such disclosure would violate any obligation of confidentiality of ARH or ARB imposed by such bank regulatory authority. ARH has furnished and will continue to furnish to NCB true and accurate information concerning the loan portfolio of ARH and ARB, and no material information with respect to the loan portfolio has been or will be withheld from NCB.
v. TRANSACTIONS WITH AFFILIATES. Except in the Ordinary Course of Business, ARH has not extended credit, committed itself to extend credit, or transferred any asset to or assumed or guaranteed any liability of the employees or directors of ARH, or to any spouse or child of any of them, or to any of their "affiliates" or "associates" as such terms are defined in Rule 405 under the 1933 Act. ARH has not entered into any other transactions with the employees or directors of ARH or any spouse or child of any of them, or any of their affiliates or associates, except as disclosed in writing to NCB. Any such transactions have been on terms no less favorable to ARH than those which would prevail in an arms-length transaction with an independent third party. ARH has not violated any applicable regulation of any government agency or regulatory authority having jurisdiction over ARH in connection with any such transactions described in this subsection.
w. RISK MANAGEMENT INSTRUMENTS. All interest rate swaps, caps, floors, option agreements, futures and forward contracts and other similar risk management arrangements, whether entered into for ARH's own account, or for the account of one or more of ARH's subsidiaries or their customers (all of which are listed on the ARH Disclosure Schedule), if any, were entered into in accordance with prudent business practices and all applicable laws, rules, regulations and regulatory policies and with counterparties believed to be
financially responsible at the time; and each of them constitutes the valid and legally binding obligation of ARH or one of its subsidiaries, enforceable in accordance with its terms (except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and similar laws of general applicability relating to or affecting creditors' rights or by general equity principles), and are in full force and effect. Neither ARH nor its subsidiaries, nor to ARH's knowledge, any other party thereto, is in breach of any of its obligations under any such agreement or arrangement.
x. YEAR 2000. ARH has not experienced any Year 2000 problems of any kind or nature whatsoever which have had or might reasonably be expected to have a material adverse effect on ARH. To the knowledge of ARH, the mission critical computer software operated by ARH and/or any of its subsidiaries is currently capable of providing, or is being adapted to provide, uninterrupted millennium functionality to record, store, process and present calendar dates falling on or after January 1, 2000 in substantially the same manner and with substantially the same functionality as such mission critical software recorded, stored, processed and presented such calendar dates falling on or before December 31, 1999. To the knowledge of ARH, the costs of adaptations referred to in this clause will not have a material adverse effect with respect to the business and operations of ARH. Neither ARH nor any of its subsidiaries has received, and does not reasonably expect to receive, any deficiency notice from any federal or California banking authority. ARH has previously disclosed to NCB a complete and accurate copy of its and its subsidiaries' plan, including an estimate of anticipated associated costs, for addressing the issues set forth in all Federal Financial Institutions Examination Council Interagency Statements as such issues affect ARH and/or its subsidiaries. Between the date of this Merger Agreement and the Effective Time of the Merger, ARH, shall use commercially reasonable and practicable efforts to implement such plan.
y. COMMUNITY REINVESTMENT ACT COMPLIANCE. ARH and ARB are in substantial compliance with the applicable provisions of the Community Reinvestment Act of 1977 and the regulations promulgated thereunder (collectively, the "CRA") and ARB has received a CRA rating of "satisfactory" in its most recent examination, and neither ARH nor ARB has any knowledge of the existence of any fact or circumstance or set of facts or circumstances which could be reasonably expected to result in ARH failing to be in substantial compliance with such provisions or having its current rating lowered.
z. INFORMATION IN ARH REGISTRATION STATEMENT. The information pertaining to ARH which has been or will be included in the ARH Registration Statement and the Joint Proxy Statement/Prospectus, or in the Applications to be filed to obtain the Government Approvals, does not and will not contain any untrue statement of any material fact or omit or will omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they are made, not misleading; provided, however, that information of a later date shall be deemed to modify contrary information as of an earlier date. All financial statements of ARH included in the ARH Registration Statement and the Joint Proxy Statement/Prospectus, or the Applications, will present fairly the financial
condition and results of operations of ARH at the dates and for the periods covered by such statements in accordance with generally accepted accounting principles consistently applied throughout the periods covered by such statements. ARH shall promptly advise NCB in writing if prior to the Effective Time of the Merger ARH shall obtain knowledge of any facts that would make it necessary to amend or supplement the ARH Registration Statement, the Joint Proxy Statement/Prospectus or any Application, in order to make the statements therein not misleading or to comply with applicable law or regulation.
aa. ACCURACY AND EFFECTIVE DATE OF REPRESENTATIONS AND WARRANTIES, COVENANTS AND AGREEMENTS. Each representation, warranty, covenant and agreement of ARH set forth in this Merger Agreement shall be deemed to be made on and as of the date hereof (except to the extent that a representation or warranty is qualified as set forth in the ARH Disclosure Schedule in a section corresponding in number with the applicable section of such representation or warranty), the Closing Date and the Effective Time of the Merger. No representation or warranty by ARH, and no statement by ARH in any certificate, agreement, ARH Disclosure Schedule or other document furnished or to be furnished in connection with the transactions contemplated by this Merger Agreement or the Agreement of Merger, was or will be inaccurate, incomplete or incorrect in any material respect as of the date furnished or contains or will contain any untrue statement of a material fact or omits or will omit to state any material fact necessary to make such representation, warranty or statement not misleading to NCB.
bb. BROKERED DEPOSITS. ARH and ARB have no "brokered deposits" as that term is defined in applicable FDIC regulations.
6. SECURITIES ACT OF 1933; SECURITIES EXCHANGE ACT OF 1934.
a. PREPARATION AND FILING OF REGISTRATION STATEMENT. ARH shall
promptly prepare and file with the Commission (i) a registration statement on
the appropriate form (the "ARH Registration Statement") under and pursuant to
the provisions of the 1933 Act for the purpose of registering a sufficient
number of ARH Shares to complete the exchange of ARH Shares for the outstanding
NCB Shares pursuant to the Conversion Ratio and the provisions of Section 2.1
above, and (ii) in sufficient time to be effective on or before the Effective
Time of the Merger, one or more registration statements or amendments to
existing registration statements under the 1933 Act for the purpose of
registering the maximum number of ARH Shares to which the holders of Substitute
Options may be entitled pursuant to Section 2.6 above at or after the Effective
Time of the Merger. ARH shall promptly prepare a Joint Proxy
Statement/Prospectus for the purpose of submitting the principal terms of the
Merger (including separate proposals to approve the Amendments, as described in
Section 3.3.d. hereof), this Merger Agreement and the Agreement of Merger to the
shareholders of ARH for approval. NCB shall cooperate in all reasonable respects
with regard to the preparation of the Joint Proxy Statement/Prospectus and will
promptly prepare and file with the OCC its proxy materials, incorporating the
Joint Proxy Statement/Prospectus, for the purpose of submitting the principal
terms of the Merger (including the Amendments, as described in Section 3.3.d.
hereof), this Merger Agreement and the Agreement of Merger to the shareholders of NCB for approval. The Joint Proxy Statement/Prospectus in definitive form is expected to serve as the prospectus to be included in the ARH Registration Statement. ARH and NCB shall each provide promptly to the other such information concerning its business and financial condition and affairs as may be required or appropriate for inclusion in the ARH Registration Statement, or the Joint Proxy Statement/Prospectus and the NCB proxy materials, and shall cause its counsel and auditors to cooperate with the other's counsel and auditors in the preparation of the ARH Registration Statement, the Joint Proxy Statement/Prospectus and the NCB proxy materials.
b. EFFECTIVENESS OF REGISTRATION STATEMENT. ARH and NCB shall use their best efforts to have the ARH Registration Statement and any amendments or supplements thereto declared effective under the 1933 Act as soon as practicable, and thereafter ARH and NCB shall distribute the Joint Proxy Statement/Prospectus to holders of their respective common stock in accordance with applicable laws and the Articles of Incorporation or Association, as applicable, and Bylaws of each.
c. SALES AND RESALES OF COMMON STOCK. ARH shall not be required to maintain the effectiveness of the ARH Registration Statement for the purpose of sale or resale of the ARH Shares by any person.
d. RULE 145. Securities representing ARH Shares issued to affiliates of NCB (as determined by counsel to ARH and NCB) under Rule 145 of the 1933 Act pursuant to the Merger Agreement may be subject to stop transfer orders and a restrictive legend which confirm and state that such securities representing ARH Shares have been issued or transferred to the registered holder as the result of a transaction to which Rule 145 under the 1933 Act applies, and that such securities may not be sold, hypothecated, transferred or assigned, and the issuer or its transfer agent shall not be required to give effect to any attempted sale, hypothecation, transfer or assignment, except (i) pursuant to a then current effective registration statement under the 1933 Act, (ii) in a transaction permitted by Rule 145 as to which the issuer has, in the opinion of its counsel, received reasonably satisfactory evidence of compliance with the provisions of Rule 145, or (iii) in a transaction which, in the opinion of counsel satisfactory to the issuer or as described in a "no action" or interpretive letter from the staff of the Securities and Exchange Commission, is not required to be registered under the 1933 Act.
7. CONDITIONS TO THE OBLIGATIONS OF ARH.
The obligations of ARH under this Merger Agreement are, at its option, subject to fulfillment at or prior to the Effective Time of the Merger of each of the following conditions; provided, however, that any one or more of such conditions may be waived by the Board of Directors of ARH, except where contrary to applicable law, at any time at or prior to the Effective Time of the Merger:
a. REPRESENTATIONS AND WARRANTIES. The representations and warranties of NCB in Section 4 hereof shall be true and correct in all material respects on and as of the date of this Merger Agreement (except to the extent that a representation or warranty is qualified as set forth in the NCB Disclosure Schedule corresponding in number with the applicable section of such representation or warranty), the Closing Date and the Effective Time of the Merger, with the same effect as though such representations and warranties had been made on and as of each such date or time except as to any representation or warranty which specifically relates to an earlier date or time.
b. COMPLIANCE AND PERFORMANCE UNDER AGREEMENTS. NCB shall have performed and complied in all material respects with all terms, agreements, covenants and conditions of this Merger Agreement and the Agreement of Merger required to be performed or complied with by NCB at or prior to the Effective Time of the Merger.
c. MATERIAL ADVERSE CHANGE. No material adverse change shall have occurred since December 31, 1999, in the business, financial condition, results of operations or assets of NCB. Other than as set forth in the NCB Disclosure Schedule, NCB shall not be a party to or threatened with, and to the best of NCB's knowledge there is no reasonable basis for, any legal action or other proceeding before any court, any arbitrator of any kind or any government agency. No material adverse change shall have occurred as a result of any subsequent legal action or proceeding, or any subsequent developments in the legal actions or proceedings as set forth in the NCB Disclosure Schedule, which in the reasonable judgment of ARH, could have a material adverse effect on the business, financial condition, results of operations or assets of NCB.
d. APPROVAL OF AGREEMENTS. The principal terms of the Merger, this Merger Agreement and the Agreement of Merger shall have been duly approved by (i) the affirmative vote or consent of the holders of a two-thirds majority of the outstanding NCB Shares and (ii) the affirmative vote or consent of the holders of a majority of the outstanding ARH Shares.
e. OFFICER'S CERTIFICATE. ARH shall have received a certificate, dated the Effective Date, signed on behalf of NCB by its President and Chief Financial Officer in form and substance acceptable to ARH and its counsel to the effect that the conditions set forth in Section 7, have been satisfied.
f. OPINION OF COUNSEL. Lillick & Charles LLP, counsel to NCB, shall have delivered to ARH its opinion dated the Effective Date in form and substance acceptable to ARH and its counsel.
g. ABSENCE OF PROCEEDINGS. No legal, administrative, arbitration, investigatory or other proceeding by any government agency or regulatory authority shall have been instituted or threatened to restrain or prohibit the Merger or the transactions contemplated by this Merger Agreement.
h. EFFECTIVENESS OF REGISTRATION STATEMENT. The ARH Registration Statement and any amendments or supplements thereto shall have become effective under the 1933 Act, no stop order suspending the effectiveness of such Registration Statement shall be in effect and no proceedings for such purpose shall have been initiated or threatened by or before the Commission. The ARH Shares registered thereby shall have received all state securities and "blue sky" permits or approvals required to consummate the transactions contemplated by this Merger Agreement and the Agreement of Merger.
i. GOVERNMENT APPROVALS. All Government Approvals shall be in effect, and all conditions or requirements prescribed by law or by any such Approvals shall have been satisfied; provided, however, that no Government Approval shall be deemed to have been received if it shall require the divestiture or cessation of any of the present businesses or operations conducted by any of the parties hereto or shall impose any other condition or requirement, which condition or requirement ARH in its reasonable judgment shall deem to be materially burdensome (in which case ARH shall promptly notify NCB). For purposes of this Merger Agreement, no condition or requirement shall be deemed to be "materially burdensome" if such condition or requirement does not materially differ from conditions or requirements regularly imposed in orders approving transactions of the type contemplated by this Merger Agreement and compliance with such condition or requirement would not:
(i) require the taking of any action materially inconsistent with the manner in which ARH, ARB, FSC or NCB has conducted its business previously;
(ii) have a material adverse effect on the business, financial condition or results of operations of ARH, ARB, and FSC, taken as a whole, or NCB; or
(iii) preclude satisfaction of any of the conditions to consummation of the transactions contemplated by this Merger Agreement.
j. TAX OPINION. Perry-Smith LLP shall have delivered to ARH and NCB a tax opinion subject to customary assumptions and exceptions included in such opinions and the prior delivery of certificates or representation letters from NCB and ARH, substantially to the effect that under federal income tax law and California income and franchise tax law:
(i) the Merger will not result in any recognized gain or loss to ARH or NCB;
(ii) except for any cash received in lieu of any fractional share, no gain or loss will be recognized by holders of NCB Shares who receive ARH Shares in exchange for the NCB Shares which they hold;
(iii) the holding period of ARH Shares exchanged for NCB Shares will include the holding period of the NCB Shares for which they are exchanged, assuming the NCB Shares are capital assets in the hands of the holder thereof at the Effective Date;
(iv) the basis of the ARH Shares received in the exchange will be the same as the basis of the NCB Shares for which they are exchanged, less any basis attributable to fractional shares for which cash is received; and
(v) an NCB shareholder who dissents to the Merger and receives cash for his or her NCB Shares will be treated as having received a distribution in redemption of his or her NCB Shares, subject to the provisions and limitations of Section 302 of the IRC. Those NCB shareholders who receive solely cash, who immediately after the Merger hold no ARH Shares directly or through the application of Section 318 of the IRC, and thus whose interests are completely terminated within the meaning of Section 302(b)(3) of the IRC, will be treated as receiving a cash distribution in full payment for the NCB Shares as provided in Section 302(a) of the IRC. Gain or loss will be recognized to such NCB shareholders measured by the difference between the redemption price and the adjusted basis of the NCB Shares. If the NCB shareholder holds such NCB Shares as a capital asset, such gain or loss will be a capital gain or loss.
(vi) No gain or loss will be recognized by the holders of nonqualified options to buy NCB Shares upon the conversion of those options into nonqualified options to buy ARH Shares under the same terms and conditions as in effect immediately prior to the Merger.
(vii) The substitution of incentive stock options to acquire ARH Shares for incentive stock options to acquire NCB Shares will not be a modification as defined in Section 424(h)(3) of the IRC, and will not result in the recognition of income, gain, or loss to the holders of the incentive stock options to acquire NCB Shares. Such options to acquire ARH Shares will be incentive stock options as defined in Section 422(b) of the IRC.
k. ACCOUNTANT'S COMFORT LETTERS. On or prior to the date of effectiveness of the ARH Registration Statement, ARH shall have received a letter addressed to ARH from Perry-Smith LLP, independent public accountants for NCB, in form and substance acceptable to ARH and its counsel and customary for "comfort" letters prepared in accordance with the provisions of Statement of Accounting Standards No. 71, Interim Financial Information. ARH shall also have received from Perry-Smith LLP, a "comfort" letter dated the Effective Date, in form and substance acceptable to ARH and its counsel, as to such matters, as of a specified date not more than five (5) business days prior to the Effective Date, as ARH may reasonably request.
l. DISSENTING SHARES. Holders of not more than nine percent (9%) of the outstanding NCB Shares and ARH Shares shall have perfected dissenter's rights (i) in the case of NCB Shares, pursuant to 12 U.S.C. Section 215a(b), (c) and (d) (by voting against the Merger at the NCB meeting of shareholders or by giving notice in writing at or prior to such meeting that he or she dissents from the Merger and thereafter submitting a timely request for the value of his or her NCB Shares in the manner required by the National Bank Act and the rules and regulations of the OCC) and (ii) in the case of the ARH Shares, pursuant to Chapter 13 of the California General Corporation Law.
m. UNAUDITED FINANCIALS. Not later than five (5) business days prior to the Effective Date, NCB shall have furnished ARH a copy of its most recently prepared unaudited month-end consolidated financial statements, including a balance sheet and statement of income of NCB, for the month ending at least ten (10) business days prior to the Effective Date.
n. AFFILIATE AGREEMENTS. ARH shall have received signed affiliate agreements on or before the date of this Merger Agreement, from each person who, in the opinion of NCB's and ARH's counsel, might be deemed to be an affiliate of NCB or ARH under Rule 144 or 145 of the 1933 Act. Said agreements will include provisions restricting certain actions by an affiliate related to NCB Shares or ARH Shares, including the sale, purchase, acquisition or transfer of NCB Shares or ARH Shares in a manner which may render pooling of interests accounting treatment unavailable in the Merger, and shall be substantially in the form attached hereto as Exhibits B and D.
o. CLOSING DOCUMENTS. ARH shall have received such certificates and other closing documents as counsel for ARH shall reasonably request.
p. CONSENTS. NCB shall have received, or ARH shall have satisfied itself that NCB will receive, all consents of third parties as may be required including consents of other parties to and required by material mortgages, notes, leases, franchises, agreements, licenses and permits applicable to NCB, in each case in form and substance reasonably acceptable to ARH and its counsel, and no such consent or license or permit shall have been withdrawn or suspended.
q. FAIRNESS OPINION. The Board of Directors of ARH shall have received an opinion of Hoefer & Arnett Incorporated, dated the date of this Merger Agreement and the date of mailing or a date within three (3) days prior to the date of mailing the Joint Proxy Statement/Prospectus, to the effect that the Conversion Ratio in the Merger is fair, from a financial point of view, to ARH and its shareholders.
r. ACCOUNTING TREATMENT. ARH shall have received a letter from Perry-Smith LLP, subject to customary qualifications and receipt of such certificates as may be reasonable and customary in connection with such letters, acceptable in form and substance to ARH and its counsel, to the effect that the Merger shall qualify for the pooling of interests method of accounting in
accordance with generally accepted accounting principles, and all applicable rules, regulations and policies of the Commission. There shall have been no determination by any court, tribunal, regulatory authority or other government agency, that the Merger fails or will fail to qualify for pooling of interests accounting treatment.
s. SHAREHOLDER AGREEMENTS. ARH and NCB shall have received signed shareholder agreements from members of the Boards of Directors and the executive officers of ARH and NCB on or before the date of this Merger Agreement, pursuant to which each such person in their capacity as a shareholder commits to vote their ARH Shares or NCB Shares in favor of the Merger and the transactions contemplated thereby and pursuant to this Merger Agreement and the Agreement of Merger, and to recommend to shareholders, subject to the exercise of fiduciary duties, that they vote in favor of the Merger and the transactions contemplated thereby and pursuant to this Merger Agreement and the Agreement of Merger. Said agreements shall be substantially in the form attached hereto as Exhibits C and E.
t. PERFORMANCE TESTS. As of the Determination Date, the Closing Date and the Effective Date, NCB shall have (i) total shareholders' equity and leverage, tier 1 and total risk-based capital ratios, respectively, in amounts required to comply with the "well capitalized" category of applicable federal banking regulations, (ii) total reserves for losses on outstanding loans in compliance with the NCB loan loss policy and procedures described in Section 3.2.h. hereof and at a level which, in the reasonable determination of ARH, are adequate for regulatory purposes and for purposes of generally accepted accounting principles, (iii) total shareholders' equity of Four Million Thirty Thousand Dollars ($4,030,000) and (iv) assets classified as "Substandard", "Doubtful", and "Loss" shall not exceed fifteen percent (15%) of total shareholders' equity.
8. CONDITIONS TO THE OBLIGATIONS OF NCB.
The obligations of NCB under this Merger Agreement are, at its option, subject to the fulfillment at or prior to the Effective Time of the Merger of each of the following conditions; provided, however, that any one or more of such conditions may be waived by the Board of Directors of NCB, except where contrary to applicable law, at any time at or prior to the Effective Time of the Merger:
a. REPRESENTATIONS AND WARRANTIES. The representations and warranties of ARH in Section 5 hereof shall be true and correct in all material respects on and as of the date of this Merger Agreement (except to the extent that a representation or warranty is qualified as set forth in the ARH Disclosure Schedule corresponding in number with the applicable section of such representation or warranty), the Closing Date and the Effective Time of the Merger, with the same effect as though such representations and warranties had been made on and as of each such date or time except as to any representation or warranty which specifically relates to an earlier date or time.
b. COMPLIANCE AND PERFORMANCE UNDER AGREEMENTS. ARH shall have performed and complied in all material respects with all terms, agreements, covenants and conditions of this Merger Agreement and the Agreement of Merger required to be performed or complied with by ARH at or prior to the Effective Time of the Merger.
c. MATERIAL ADVERSE CHANGE. No material adverse change shall have occurred since December 31, 1999, in the business, financial condition, results of operations or assets of ARH, ARB and FSC, taken as a whole, other than as set forth in the ARH Disclosure Schedule, and ARH shall not be a party to or threatened with, and to the best of ARH's knowledge there is no reasonable basis for, any legal action or other proceeding before any court, any arbitrator of any kind or any government agency. No material adverse change shall have occurred as a result of any subsequent legal action or proceeding, or any subsequent developments in the legal actions or proceedings as set forth in the NCB Disclosure Schedule, which in the reasonable judgment of NCB, could have a material adverse effect on the business, financial condition, results of operations or assets of ARH, ARB and FSC, taken as a whole.
d. APPROVAL OF AGREEMENTS. The principal terms of the Merger, this Merger Agreement and the Agreement of Merger shall have been duly approved by (i) the affirmative vote or consent of the holders of a majority of the outstanding ARH Shares and (ii) the affirmative vote or consent of the holders of a two-thirds majority of the outstanding NCB Shares.
e. OFFICER'S CERTIFICATE. NCB shall have received a certificate, dated the Effective Date, signed on behalf of ARH by its President and its Chief Financial Officer, in form and substance acceptable to NCB and its counsel to the effect that the conditions set forth in Section 8, have been satisfied.
f. OPINION OF COUNSEL. Coudert Brothers, ARH's counsel, shall have delivered to NCB its opinion dated the Effective Date in form and substance acceptable to NCB and its counsel.
g. ABSENCE OF PROCEEDINGS. No legal, administrative, arbitration, investigatory or other proceeding by any government agency or regulatory authority shall have been instituted or threatened to restrain or prohibit the Merger or the transactions contemplated by this Merger Agreement.
h. EFFECTIVENESS OF REGISTRATION STATEMENT. The ARH Registration Statement and any amendments or supplements thereto shall have become effective under the 1933 Act, no stop order suspending the effectiveness of such Registration Statement shall be in effect and no proceedings for such purpose shall have been initiated or threatened by or before the Commission. The ARH Shares registered thereby shall have received all state securities and "blue sky" permits or approvals required to consummate the transactions contemplated by this Merger Agreement and the Agreement of Merger.
i. GOVERNMENT APPROVALS. All Government Approvals shall be in effect, and all conditions or requirements prescribed by law or by any such Approvals shall have been satisfied; provided, however, that no Government Approval shall be deemed to have been received if it shall require the divestiture or cessation of any of the present businesses or operations conducted by any of the parties hereto or shall impose any other condition or requirement, which condition or requirement NCB in its reasonable judgment shall deem to be materially burdensome (in which case NCB shall promptly notify ARH). For purposes of this agreement no condition or requirement shall be deemed to be "materially burdensome" if such condition or requirement does not materially differ from conditions or requirements regularly imposed in orders approving transactions of the type contemplated by this Merger Agreement and compliance with such condition or requirement would not:
(i) require the taking of any action materially inconsistent with the manner in which NCB, ARH, ARB or FSC has conducted its business previously;
(ii) result in a material adverse change on the business, financial condition or results of operations of NCB or ARH, ARB and FSC, taken as a whole; or
(iii) preclude satisfaction of any of the conditions to consummation of the transactions contemplated by this Merger Agreement.
j. TAX OPINION. Perry-Smith LLP shall have delivered to ARH and NCB a tax opinion subject to customary assumptions and exceptions included in such opinions and the prior delivery of certificates or representation letters from NCB and ARH, substantially to the effect that under federal income tax law and California income and franchise tax law:
(i) the Merger will not result in any recognized gain or loss to NCB or ARH;
(ii) except for any cash received in lieu of any fractional share, no gain or loss will be recognized by holders of NCB Shares who receive ARH Shares in exchange for the NCB Shares which they hold;
(iii) the holding period of ARH Shares exchanged for NCB Shares will include the holding period of the NCB Shares for which they are exchanged, assuming the NCB Shares are capital assets in the hands of the holder thereof at the Effective Date;
(iv) the basis of the ARH Shares received in the exchange will be the same as the basis of the NCB Shares for which they are exchanged, less any basis attributable to fractional shares for which cash is received; and
(v) an NCB shareholder who dissents to the Merger and receives cash for his or her NCB Shares will be treated as having received a distribution in redemption of his or her NCB Shares, subject to the provisions and limitations of Section 302 of the IRC. Those NCB shareholders who receive solely cash, who immediately after the Merger hold no ARH Shares directly or through the application of Section 318 of the IRC, and thus whose interests are completely terminated within the meaning of Section 302(b)(3) of the IRC, will be treated as receiving a cash distribution in full payment for the NCB Shares as provided in Section 302(a) of the IRC. Gain or loss will be recognized to such NCB shareholders measured by the difference between the redemption price and the adjusted basis of the NCB Shares. If the NCB shareholder holds such NCB Shares as a capital asset, such gain or loss will be a capital gain or loss.
(vi) No gain or loss will be recognized by the holders of nonqualified options to buy NCB Shares upon the conversion of those options into nonqualified options to buy ARH Shares under the same terms and conditions as in effect immediately prior to the Merger.
(vii) The substitution of incentive stock options to acquire ARH Shares for incentive stock options to acquire NCB Shares will not be a modification as defined in Section 424(h)(3) of the IRC, and will not result in the recognition of income, gain, or loss to the holders of the incentive stock options to acquire NCB Shares. Such options to acquire ARH Shares will be incentive stock options as defined in Section 422(b) of the IRC.
k. ACCOUNTANT'S COMFORT LETTERS. On or prior to the date of effectiveness of the ARH Registration Statement, NCB shall have received a letter addressed to NCB from Perry-Smith LLP, independent public accountants for ARH, in form and substance acceptable to NCB and its counsel and customary for "comfort" letters prepared in accordance with the provisions of Statement of Accounting Standards No. 71, Interim Financial Information. NCB shall also have received from Perry-Smith LLP a "comfort" letter dated the Effective Date, in form and substance acceptable to NCB and its counsel, as to such matters, as of a specified date not more than five (5) business days prior to the Effective Date, as NCB may reasonably request.
l. DISSENTING SHARES. Holders of not more than nine percent (9%) of the outstanding NCB Shares and ARH Shares shall have perfected dissenter's rights (i) in the case of NCB Shares, pursuant to 12 U.S.C. Section 215a(b), (c) and (d) (by voting against the Merger at the NCB meeting of shareholders or by giving notice in writing at or prior to such meeting that he or she dissents from the Merger and thereafter submitting a timely request for the value of his or her NCB Shares in the manner required by the National Bank Act and the rules and regulations of the OCC) and (ii) in the case of ARH Shares, pursuant to Chapter 13 of the California General Corporation Law.
m. UNAUDITED FINANCIALS. Not later than five (5) business days prior to the Effective Date, ARH shall have furnished NCB a copy of its most recently prepared unaudited month-end consolidated financial statements, including a balance sheet and statement of income of ARH, for the month ending at least ten (10) business days prior to the Effective Date.
n. AFFILIATE AGREEMENTS. NCB shall have received signed affiliate agreements on or before the date of this Merger Agreement, from each person who, in the opinion of NCB's and ARH's counsel, might be deemed to be an affiliate of NCB or ARH under Rule 144 or 145 of the 1933 Act. Said agreements will include provisions restricting certain actions by an affiliate related to NCB Shares or ARH Shares, including the sale, purchase, acquisition or transfer of NCB Shares or ARH Shares in a manner which may render pooling of interests accounting treatment unavailable in the Merger, and shall be substantially in the form attached hereto as Exhibits B and D.
o. CLOSING DOCUMENTS. NCB shall have received such certificates and other closing documents as counsel for NCB shall reasonably request.
p. CONSENTS. ARH shall have received, or NCB shall have satisfied itself that ARH will receive, all consents of third parties as may be required including consents of other parties to and required by material mortgages, notes, leases, franchises, agreements, licenses and permits applicable to ARH, in each case in form and substance reasonably acceptable to NCB, and no such consent or license or permit shall have been withdrawn or suspended.
q. FAIRNESS OPINION. The Board of Directors of NCB shall have received an opinion of Carpenter & Company, dated the date of this Merger Agreement and the date of mailing or a date within three (3) days prior to the date of mailing the Joint Proxy Statement/Prospectus, to the effect that the Conversion Ratio in the Merger is fair, from a financial point of view, to NCB and its shareholders.
r. ACCOUNTING TREATMENT. NCB shall have received a letter from Perry-Smith LLP, subject to customary qualifications and receipt of such certificates as may be reasonable and customary in connection with such letters, acceptable in form and substance to NCB and its counsel, to the effect that the Merger shall qualify for the pooling of interests method of accounting in accordance with generally accepted accounting principles and all applicable rules, regulations and policies of the Commission. There shall have been no determination by any court, tribunal, regulatory authority or other government agency, that the Merger fails or will fail to qualify for pooling of interests accounting treatment.
s. SHAREHOLDER AGREEMENTS. NCB and ARH shall have received signed shareholder agreements from members of the Boards of Directors and the executive officers of NCB and ARH on or before the date of this Merger Agreement, pursuant to which each such person in their capacity as a shareholder commits to vote their NCB Shares or ARH Shares in favor of the Merger and the transactions contemplated thereby and pursuant to this Merger Agreement and the
Agreement of Merger, and to recommend to shareholders, subject to the exercise of fiduciary duties, that they vote in favor of the Merger and the transactions contemplated thereby and pursuant to this Merger Agreement and the Agreement of Merger. Said agreements shall be substantially in the form attached hereto as Exhibits C and E.
t. PERFORMANCE TESTS. As of the Determination Date, the Closing Date and the Effective Date, ARH shall have (i) total shareholders' equity and leverage, tier 1 and total risk-based capital ratios, respectively, in amounts required to comply with the "well capitalized" category of applicable federal banking regulations, (ii) total reserves for losses on outstanding loans in compliance with the ARH loan loss policy and procedures and at a level which, in the reasonable determination of NCB, are adequate for regulatory purposes and for purposes of generally accepted accounting principles, and (iii) total shareholders' equity of Sixteen Million Seven Hundred Thousand Dollars ($16,700,000).
9. CLOSING.
a. CLOSING DATE. The closing (the "Closing") shall, unless another date, time or place is agreed to in writing by ARH and NCB, be held at the offices of Coudert Brothers, 303 Almaden Boulevard, Fifth Floor, San Jose, California 95110, at a time mutually agreed upon between the parties and on a date as soon as practicable, but not less than five (5) business days following the Determination Date and the last to occur of (i) the expiration of any waiting periods under applicable law or regulation, and (ii) the date on which all conditions to the obligations of the parties to consummate the Merger have been satisfied (the "Closing Date").
b. DELIVERY OF DOCUMENTS. At the Closing, the parties shall use their respective best efforts to deliver or cause to be delivered the opinions, certificates and other documents required to be delivered by this Merger Agreement.
c. FILINGS. At the Closing, ARH and NCB shall instruct their respective representatives to make or confirm such filings as shall be required in the opinion of counsel to ARH and NCB to give effect to the Merger.
10. POST-CLOSING MATTERS.
ARH will prepare and file with the Commission on the appropriate form as soon as practicable the results of combined operations of ARH, ARB and the Resulting Association for the first full calendar quarter after the Effective Date.
11. EXPENSES.
Each party hereto agrees to pay as incurred without capitalizing its expenses incident to the Merger and transactions contemplated pursuant to this Merger Agreement in compliance with generally accepted accounting principles, without right of reimbursement from the other party and whether or not the transactions contemplated by this Merger Agreement or the Agreement of Merger shall be consummated, relating to the payment of costs and expenses incurred by such party incident to the performance of its obligations under this Merger Agreement and the Agreement of Merger, including without limitation, costs incident to the preparation of the Agreement of Merger, this Merger Agreement, the ARH Registration Statement and Joint Proxy Statement/Prospectus (including the audited financial statements of the parties contained therein) and incident to the consummation of the Merger and of the other transactions contemplated herein and in the Agreement of Merger, including the fees and disbursements of counsel, accountants, consultants and financial advisers employed by such party in connection therewith. Notwithstanding the foregoing, each party shall pay one-half of (i) the printing costs of the Registration Statement and the Joint Proxy Statement/Prospectus, (ii) all fees and costs payable pursuant to state "blue-sky" securities laws, (iii) fees and costs related to obtaining a tax opinion, (iv) fees and costs related to obtaining a letter from Perry-Smith LLP, regarding pooling-of-interests accounting treatment, (v) the fee required to be paid to the Commission to register the ARH Shares, (vi) the fees and costs related to any amendments to the ARH Stock Option Plan or for the preparation of a new ARH Stock Option Plan including the cost of obtaining any permits or approvals of government agencies and regulatory authorities and applicable filing fees, and (vii) the fees related to preparation and filing of applications with government agencies or regulatory authorities for approval of the transactions contemplated by the Merger, this Merger Agreement and the Agreement of Merger. Each party shall bear the costs of distributing the Joint Proxy Statement/Prospectus and other information relating to these transactions to its shareholders and of conducting a meeting of its shareholders.
12. AMENDMENT; TERMINATION.
a. AMENDMENT. This Merger Agreement and the Agreement of Merger may be amended by ARH and NCB at any time prior to the Effective Time of the Merger without the approval of the shareholders of ARH and shareholders of NCB with respect to any of their terms except the terms relating to the Conversion Ratio or the form or amount of consideration to be delivered to the NCB shareholders in the Merger or otherwise as required by applicable law.
b. TERMINATION. This Merger Agreement and the Agreement of Merger may be terminated as follows:
(i) By the mutual consent of the Boards of Directors of ARH and NCB at any time prior to the Effective Time of the Merger.
(ii) By the Boards of Directors of ARH or NCB upon the failure of the shareholders of ARH or NCB to give the requisite approval of this Merger Agreement and the transactions contemplated hereby.
(iii) By the Boards of Directors of ARH or NCB upon the expiration of thirty (30) days after any government agency or regulatory authority denies or refuses to grant any approval, consent or qualification required to be obtained in order to consummate the transactions contemplated by this Merger Agreement unless, within said thirty (30) day period after such denial or refusal, ARH and NCB agree to appeal such denial or refusal or agree to amend and resubmit the application to the government agency or regulatory authority that has denied or refused to grant the approval, consent or qualification requested.
(iv) By the Board of Directors of ARH within three (3) business days after receipt by ARH of the NCB Disclosure Schedule.
(v) By the Board of Directors of ARH on or after the Termination Date, if any of the conditions in Section 7 to which the obligations of ARH are subject have not been fulfilled.
(vi) By the Board of Directors of ARH if a material adverse change shall have occurred since December 31, 1999, in the business, financial condition, results of operations or assets of NCB.
(vii) By the Board of Directors of ARH in the event that NCB or its affiliates enter into a Business Combination.
(viii) By the Board of Directors of ARH upon the expiration of forty-five (45) days from delivery of written notice by ARH to NCB of NCB's breach of or failure to satisfy any covenant or agreement contained in this Merger Agreement resulting in a material impairment of the benefit reasonably expected to be derived by ARH and its subsidiaries from the performance or satisfaction of such covenant or agreement (provided that such breach has not been waived by ARH or cured by NCB prior to expiration of such forty-five (45) day period).
(ix) By the Board of Directors of NCB within three (3) business days after receipt by NCB of the ARH Disclosure Schedule.
(x) By the Board of Directors of NCB if ARH fails to comply with the provisions of Section 3.1.g.
(xi) By the Board of Directors of NCB on or after the
Termination Date, if any of the conditions contained in
Section 8 to which the obligations of NCB are subject have not
been fulfilled.
(xii) By the Board of Directors of NCB if a material adverse change shall have occurred since December 31, 1999 in the business, financial condition, results of operations or assets of ARH and its subsidiaries, taken as a whole.
(xiii) By the Board of Directors of NCB upon the expiration of forty-five (45) days from delivery of written notice by NCB to ARH of ARH's breach of or failure to satisfy any covenant or agreement contained in this Merger Agreement resulting in a material impairment of the benefit reasonably expected to be derived by NCB from the performance or satisfaction of such covenant or agreement (provided that such breach has not been waived by NCB or cured by ARH prior to expiration of such forty-five (45) day period).
(xiv) By the Board of Directors of ARH in the event that
NCB shall fail to deliver or cause to be delivered to ARH the
following signed documents, in form and substance reasonably
acceptable to ARH and its counsel: (a) the NCB affiliate
agreements to be delivered pursuant to Section 7(n) hereof;
(b) the NCB shareholder agreements to be delivered pursuant to
Section 7(s) hereof; (c) the NCB officer's certificate to be
delivered pursuant to Section 7(e) hereof; and (d) the opinion
of counsel to NCB to be delivered pursuant to Section 7(f)
hereof.
(xv) By the Board of Directors of NCB in the event that
ARH shall fail to deliver or cause to be delivered to NCB the
following signed documents, in form and substance reasonably
acceptable to NCB and its counsel: (a) the affiliate
agreements to be delivered pursuant to Section 8(n) hereof;
(b) the ARH shareholder agreements to be delivered pursuant to
Section 8(s) hereof; (c) the ARH officer's certificate to be
delivered pursuant to Section 8(e) hereof; and (d) the opinion
of counsel to ARH to be delivered pursuant to Section 8(f)
hereof.
c. TERMINATION DATE. This Merger Agreement shall be terminated if the Closing shall not have occurred on or before September 30, 2000 or such other date approved by the Boards of Directors of ARH, NCB and the Interim Bank; provided, however, that if the only conditions to the Closing which remain unsatisfied at September 30, 2000 are the receipt of the Government Approvals or the expiration of any waiting periods under applicable law or regulation, the Closing Date shall be automatically extended to November 30, 2000, or such other date as the parties may mutually agree upon (the "Termination Date"), for the purpose of obtaining such Government Approvals or the expiration of such waiting periods.
d. NOTICE. The power of termination hereunder may be exercised by ARH or NCB, as the case may be, only by giving written notice of termination to ARH or NCB, as applicable, signed on behalf of each such party by its Chairman of the Board or President.
e. EFFECT OF TERMINATION; LIQUIDATED DAMAGES.
(i) If this Merger Agreement is terminated for any
reason, the Agreement of Merger shall automatically terminate.
Termination of this Merger Agreement shall not terminate or
affect the obligations of the parties to pay expenses as
provided in Section 11, to maintain the confidentiality of the
each party's information obtained pursuant to this Merger
Agreement and the Confidentiality Agreement between the
parties dated January 10, 1999, or the provisions of this
Section 12(e) or the applicable provisions of Section 14.
(ii) If ARH terminates this Merger Agreement pursuant to
Section 12.b.(vii), NCB shall pay to ARH, on demand, the sum
of One Million Dollars ($1,000,000). If ARH terminates this
Merger Agreement pursuant to Section 12.b.(viii) or Section
12.b.(xiv) as a result of NCB's willful or deliberate failure
to comply with Section 12.b.(viii) or Section 12.b.(xiv),
which compliance was not beyond the reasonable control of NCB,
NCB shall pay to ARH, on demand, the sum of Five Hundred
Thousand Dollars ($500,000). In each such case, the amount
indicated shall be deemed liquidated damages for expenses
incurred and the lost opportunity cost for time devoted to the
transactions contemplated by this Merger Agreement.
(iii) If NCB terminates this Merger Agreement pursuant to
Section 12.b.(x), ARH shall pay to NCB, on demand, the sum of
One Million Dollars ($1,000,000). If NCB terminates this
Merger Agreement pursuant to Section 12.b.(xiii) or Section
12.b.(xv) as a result of ARH's willful or deliberate failure
to comply with Section 12.b.(xiii) or Section 12.b.(xv), which
compliance was not beyond the reasonable control of ARH, ARH
shall pay to NCB, on demand, the sum of Five Hundred Thousand
Dollars ($500,000). In each such case, the amount indicated
shall be deemed liquidated damages for expenses incurred and
the lost opportunity cost for time devoted to the transactions
contemplated by this Merger Agreement.
13. INDEMNIFICATION.
a. BY ARH. ARH agrees to defend, indemnify and hold harmless NCB, its respective officers and directors, attorneys, accountants, and each person who controls NCB within the meaning of the 1933 Act from and against any costs, damages, liabilities and expenses of any nature, insofar as such costs, damages, liabilities and expenses arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the ARH
Registration Statement and Joint Proxy Statement/Prospectus or any amendments or supplements thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, however, that ARH shall be liable in any such case only to the extent that any such cost, damage, liability or expense arises out of or is based upon any untrue statement or alleged untrue statement or omission or alleged omission made in said Registration Statement and Joint Proxy Statement/Prospectus or amendments or supplements thereto, in reliance upon and in conformity with information provided by and with respect to ARH used in preparing the Registration Statement and the Joint Proxy Statement/Prospectus. If and to the extent such agreement to indemnify may be unenforceable for any reason, ARH shall make the maximum contribution to the payment and satisfaction of each of the indemnified liabilities which may be permitted under applicable law.
b. BY NCB. NCB agrees to defend, indemnify and hold harmless ARH, its officers and directors, attorneys, accountants, and each person who controls ARH within the meaning of the 1933 Act from and against any costs, damages, liabilities and expenses of any nature, insofar as such costs, damages, liabilities and expenses arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the ARH Registration Statement and Joint Proxy Statement/Prospectus or any amendments or supplements thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, however, that NCB shall be liable in any such case only to the extent that any such cost, damage, liability or expense arises out of or is based upon any untrue statement or alleged untrue statement or omission or alleged omission made in said Registration Statement and Joint Proxy Statement/Prospectus or amendments or supplements thereto, in reliance upon and in conformity with information provided by and with respect to NCB used in preparing the Registration Statement and Joint Proxy Statement/Prospectus. If and to the extent such agreement to indemnify may be unenforceable for any reason, NCB shall make the maximum contribution to the payment and satisfaction of each of the indemnified liabilities which may be permitted under applicable law.
c. NOTIFICATION. Promptly after receipt by any party to be
indemnified pursuant to this subarticle (the "Indemnified Party") of notice of
(i) any claim or (ii) the commencement of any action or proceeding, the
Indemnified Party will give the other party (the "Indemnifying Party") written
notice of such claim or the commencement of such action or proceeding. The
Indemnifying Party shall have the right, at its option, to compromise or defend,
by its own counsel, any such matter involving the Indemnified Party's asserted
liability. In the event that the Indemnifying Party shall undertake to
compromise or defend any such asserted liability, it shall promptly notify the
Indemnified Party of its intention to do so, and the Indemnified Party agrees to
cooperate fully with the Indemnifying Party and its counsel in the compromise
of, or defense against, any such asserted liability. In any event, the
Indemnifying Party shall have the right to participate in the defense of such
asserted liability.
14. MISCELLANEOUS.
a. NOTICES. Any notice or other communication required or permitted under this Merger Agreement shall be effective only if it is in writing and delivered personally, or by Federal Express or similar overnight courier, or by facsimile or sent by first class United States mail, postage prepaid, registered or certified mail, addressed as follows:
To ARH: To NCB: American River Holdings North Coast Bank, National Association 1545 River Park Drive, #107 50 Santa Rosa Avenue Sacramento, CA 95815 Santa Rosa, CA 95404 Attn: President Attn: President Telephone: (916) 565-6114 Telephone: (707) 528-9930 Facsimile: (916) 565-4758 Facsimile: (707) 528-6399 With a copy to: With a copy to: Glenn T. Dodd, Esq. R. Brent Faye, Esq. Coudert Brothers Lillick & Charles, LLP 303 Almaden Blvd., Fifth Floor Two Embarcadero Center San Jose, California 95110-2721 San Francisco, California 94111-3996 Telephone: (408) 297-9982 Telephone: (415) 984-8200 Facsimile: (408) 297-3191 Facsimile: (415) 984-8300 |
or to such other address as either party may designate by notice to the other, and shall be deemed to have been given upon receipt.
b. KNOWLEDGE. Whenever the term "knowledge" or "to the best knowledge" or words of similar import are used in this Merger Agreement in connection with a party's representations and warranties, it shall mean the actual knowledge of a party after due inquiry of a party's directors and executive officers including, without limitation, officers holding titles or positions as President and Chief Executive Officer, Chief Financial Officer and Senior or Chief Credit or Loan Officer, or positions with the substantially equivalent responsibilities.
c. BINDING AGREEMENT. This Merger Agreement is binding upon and is for the benefit of ARH, the Interim Bank and NCB and their respective successors and permitted assigns. This Merger Agreement is not made for the benefit of any person, firm, corporation or association not a party hereto, and no other person, firm, corporation or association shall acquire or have any right under or by virtue of this Merger Agreement. No party may assign this Merger Agreement or any of its rights, privileges, duties or obligations hereunder without the prior written consent of the other party to this Merger Agreement.
d. MATERIAL ADVERSE EFFECT. As used in this Merger Agreement, any reference to any event, change or effect being "material" with respect to any entity means an event, change or effect which is material in relation to the condition (financial or otherwise), properties, assets, liabilities, businesses, results of operations of such entity and its subsidiaries taken as a whole, and the term "material adverse effect" means, with respect to any entity, a material adverse effect (whether or not required to be accrued or disclosed under Statement of Financial Accounting Standards No. 5 ("SFAS No. 5")) (i) on the condition (financial or otherwise), properties, assets, liabilities, businesses, results of operations of such entity and its subsidiaries taken as a whole (but does not include any such effect resulting from or attributable to any action or omission by ARH or NCB or any subsidiary of either of them taken with the prior written consent of the other parties hereto, in contemplation of the transactions contemplated hereby), or (ii) on the ability of such entity to perform its obligations hereunder on a timely basis.
e. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. No investigation by ARH or NCB made before or after the date of this Merger Agreement shall affect the representations and warranties which are contained in this Merger Agreement and such representations and warranties shall survive such investigation, provided that, except with respect to covenants, agreements and indemnification to be performed in whole or in part subsequent to the Effective Time of the Merger (as to which the related representations and warranties shall survive until their performance) which covenants, agreements and indemnification shall survive the Effective Time of the Merger, the representations, warranties, covenants and agreements of ARH and NCB contained in this Merger Agreement shall terminate upon the Effective Time of the Merger.
f. GOVERNING LAW. This Merger Agreement shall be governed by and construed in accordance with the laws of the State of California.
g. ATTORNEYS' FEES. In any action at law or suit in equity in relation to this Merger Agreement, the prevailing party in such action or suit shall be entitled to receive a reasonable sum for its attorneys' fees and all other reasonable costs and expenses incurred in such action or suit.
h. ENTIRE AGREEMENT; SEVERABILITY. This Merger Agreement and the documents, certificates, agreements, letters, schedules and exhibits attached or required to be delivered pursuant hereto set forth the entire agreement and understandings of the parties in respect of the transactions contemplated hereby, and supersede all prior agreements, arrangements and understanding relating to the subject matter hereof, excluding that certain Confidentiality Agreement between the parties dated January 10, 2000. Each provision of this Merger Agreement shall be interpreted in a manner to be effective and valid under applicable law, but if any provision hereof shall be prohibited or ruled invalid under applicable law, the validity, legality and enforceability of the remaining provisions shall not, except as otherwise required by law, be affected or impaired as a result of such prohibition or ruling.
i. COUNTERPARTS. This Merger Agreement may be executed in several counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, ARH and NCB have caused this Agreement and Plan of Reorganization and Merger to be signed by their duly authorized officers as of the day and year first above written.
AMERICAN RIVER HOLDINGS NORTH COAST BANK, NATIONAL
ASSOCIATION
By: /s/ DAVID T. TABER By: /s/ KATHY A. PINKARD
-------------------------------- -----------------------------
David T. Taber Kathy A. Pinkard
President and Chief President and Chief
Executive Officer Executive Officer
By: /s/ MITCHELL A. DERENZO By: /s/ DEBBIE K. FAKALATA
--------------------------------- -----------------------------
Mitchell A. Derenzo Debbie K. Fakalata
Chief Financial Officer Chief Financial Officer
|
EXHIBIT A
AGREEMENT OF MERGER
THIS AGREEMENT OF MERGER (the "Agreement of Merger ") is dated as of _____________________, 2000, by and between North Coast Bank, National Association, a national banking association chartered under the laws of the United States, with its head office in Windsor, California ("NCB") and ARH Interim National Bank ("New Bank"), an interim national banking association formed as a wholly-owned subsidiary of American River Holdings, a California corporation and bank holding company registered under the Bank Holding Company Act of 1956, as amended ("ARH"), solely to facilitate the transactions contemplated by this Agreement of Merger as provided below.
A. This Agreement of Merger is being entered into pursuant to the Agreement and Plan of Reorganization and Merger dated as of March 1, 2000 (the "Merger Agreement") by and among ARH, NCB and New Bank.
B. NCB and New Bank are hereinafter sometimes collectively referred to as the "Merging Institutions."
In consideration of the premises, and the mutual covenants and agreements herein contained, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
Except as otherwise provided herein, the capitalized terms set forth below shall have the following meanings:
Section 1.1. "Effective Date" means the date at which the transactions contemplated by this Agreement of Merger become effective as determined by the certificate approving the Merger to be issued by the Office of the Comptroller of the Currency (the "OCC").
Section 1.2. "New Bank Common Stock" means the common stock, par value $4.00 per share, of New Bank owned by ARH.
Section 1.3. "NCB Common Stock" means the common stock, par value $4.00 per share, of NCB.
Section 1.4. "The Merger" means the merger of NCB with and into New Bank, as provided in Section 2.1 of this Agreement of Merger.
Section 1.5. "Resulting Association" means New Bank as the institution surviving the Merger.
ARTICLE 2
TERMS OF THE MERGER
Section 2.1. THE MERGER. Subject to the terms and conditions set forth in the , on the Effective Date, NCB shall be merged with and into New Bank, with New Bank as the Resulting Association, under the national bank charter number and name of "North Coast Bank, National Association" as determined by the OCC, and each of the outstanding shares of NCB Common Stock shall and without any action on the part of NCB be canceled and be converted into shares of common stock of the Resulting Association, all of which shall be owned by ARH.
Section 2.2. ARTICLES OF ASSOCIATION, BYLAWS AND FACILITIES OF RESULTING ASSOCIATION. On the Effective Date and until thereafter amended in accordance with law, the Articles of Association of the Resulting Association shall be the same as the Articles of Association of NCB as in effect on the Effective Date. A copy of the Articles of Association of the Resulting Association is attached hereto as Annex A. Until altered, amended or repealed as provided herein and in the Articles of Association of the Resulting Association, the Bylaws of the Resulting Association shall be the same as the Bylaws of NCB as in effect on the Effective Date. The main office of the Resulting Association shall be the main office of NCB as of the Effective Date, and all corporate acts, plans, policies, contracts, approvals and authorizations of NCB and New Bank and their respective shareholders, boards of directors, committees elected or appointed thereby, officers and agents, which were valid and effective immediately prior to the Effective Date, shall be taken for all purposes as the acts, plans, policies, contracts, approvals and authorizations of the Resulting Association and shall be as effective and binding as of the Effective Date as the same had been with respect to NCB and New Bank, respectively.
Section 2.3. EFFECT OF MERGER. On the Effective Date of the Merger, the corporate existence of NCB and New Bank shall be consolidated into and continued in the Resulting Association, and the Resulting Association shall be deemed to be a continuation in entity and identity of NCB and New Bank. All rights, franchises and interests of NCB and New Bank, respectively, in and to any type of property and chooses in action shall be transferred to and vested in the Resulting Association by virtue of the Merger without any deed or other transfer. Resulting Association, without any order or other action on the part of any court or otherwise, shall hold and enjoy all rights of property, franchises and interest, including appointments, designations and nominations, and all other rights and interests as trustee, executor, administrator, transfer agent or registrar of stocks and bonds, guardian of estates, assignee, receiver and committee of estates and lunatics, and in every other fiduciary capacity, in
the same manner and to the same extent as such rights, franchises and interests were held or enjoyed by NCB and New Bank, respectively, as of the Effective Date.
Section 2.4. LIABILITIES OF THE RESULTING ASSOCIATION. On the Effective Date, the Resulting Association shall be liable for all liabilities of NCB and New Bank. All deposits, debts, liabilities and obligations of NCB and of New Bank, respectively, accrued, absolute, contingent or otherwise, and whether or not reflected or reserved against on balance sheets, books of account or records of NCB or New Bank, as the case may be, shall be those of the Resulting Association and shall not be released or impaired by the Merger. All rights of creditors and other obligees and all liens on property of either NCB or New Bank shall be preserved unimpaired.
ARTICLE 3
CONVERSION OF SHARES
Section 3.1. CONVERSION OF NCB COMMON STOCK. On the Effective Date, each share of NCB Common Stock, issued and outstanding immediately prior to the Effective Date (other than Dissenting Shares as hereinafter defined) shall, by virtue of the Merger and without any action on the part of the holder thereof, be converted into the right to receive shares of Common Stock of American River Holdings ("ARH Common Stock") in accordance with the .
Section 3.2. EXCHANGE OF SHARES. On or immediately prior to the Effective Date, in accordance with the , ARH shall make available shares of its Common Stock in sufficient amount to effect the Merger. As soon as practicable after the Closing Date (as defined in Section 9 of the ), the Exchange Agent (as defined in the ) will send to each shareholder of NCB a letter of transmittal for use in exchanging such holder's stock certificate(s) for shares of ARH Common Stock. Each shareholder of NCB shall be entitled to receive ARH Common Stock and cash in lieu of fractional shares for such holder's shares only upon surrender of the certificates representing such holder's shares of NCB Common Stock or after providing an appropriate Affidavit of Lost Certificate and Indemnity Agreement and/or a bond as may be required in each case by the Exchange Agent. Until so surrendered, each NCB Common Stock certificate will be deemed for all corporate purposes to represent and evidence solely the right to receive the amount of ARH Common Stock to be exchanged therefor pursuant to the . Section 3.3. DISSENTING SHARES. Each share of NCB Common Stock issued and outstanding immediately prior to the Effective Date, the holder of which has not voted in favor of the Merger and who has properly perfected his dissenters' rights of appraisal by following the procedures set forth in the National Bank Act is referred to herein as a "Dissenting Share." Dissenting Shares owned by each holder thereof who has not exchanged his certificates representing shares of NCB Common Stock for the ARH Common Stock and otherwise has not effectively withdrawn or lost his dissenter's rights, shall not be converted into or represent the right to receive the ARH Common Stock pursuant to Section 3.1 hereof and shall be entitled only to such rights as are available to such holder pursuant to the applicable provisions of the National Bank Act. Each holder of Dissenting Shares shall be entitled to receive the value of such
Dissenting Shares held by him or her in accordance with the applicable provisions of the National Bank Act, provided such holder complies with the procedures contemplated by and set forth in the applicable provisions of the National Bank Act. If any holder of Dissenting Shares shall effectively withdraw or lose his dissenter's rights under the applicable provisions of the National Bank Act, such Dissenting Shares shall be converted into the right to receive the ARH Common Stock in accordance with the provisions of Section 3.1.
Section 3.4. NEW BANK COMMON STOCK. On the Effective Date, the shares of New Bank Common Stock issued and outstanding immediately prior to the Effective Date shall be converted automatically and without any action on the part of the holders thereof into ______ shares of common stock of the Resulting Association. The shares of common stock of the Resulting Association into which such New Bank Common Stock are converted shall represent ownership of 100% of the issued and outstanding capital stock of the Resulting Association, all of which shall be owned by ARH.
ARTICLE 4
MISCELLANEOUS
Section 4.1. CONDITIONS PRECEDENT. The respective obligations of each party under this Agreement of Merger shall be subject to the satisfaction, or waiver by the party permitted to do so, of the conditions set forth in Articles 7 and 8 of the .
Section 4.2. TERMINATION. This Agreement of Merger shall be terminated upon the termination of the in accordance with Article 12 thereof; provided, that any such termination of this Agreement of Merger shall not relieve any party hereto from liability on account of a breach by such party of any of the terms hereof or thereof.
Section 4.3. AMENDMENTS. To the extent permitted by law, this Agreement of Merger may be amended by a subsequent writing signed by all of the parties hereto upon the approval of the Board of Directors of each of the parties hereto.
Section 4.4. SUCCESSORS. This Agreement of Merger shall be binding on the successors of New Bank and NCB.
IN WITNESS WHEREOF, New Bank and NCB have caused this Agreement of Merger to be executed by their duly authorized officers and their corporate seals to be hereunto affixed as of the date first above written.
Attest: ARH INTERIM NATIONAL BANK
By:
------------------------ -------------------------------------
------------------------ -------------------------------------
Secretary President and Chief Executive Officer
NORTH COAST BANK, NATIONAL
Attest: ASSOCIATION
By:
------------------------ -------------------------------------
------------------------ -------------------------------------
Secretary President and Chief Executive Officer
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EXHIBIT B
NCB AFFILIATE AGREEMENT
I, the undersigned, have been advised that as of the date hereof I may be deemed to be (but I do not hereby admit to being) an affiliate of North Coast Bank, National Association ("NCB") for purposes of Rule 145 promulgated by the Securities and Exchange Commission under the Securities Act of 1933, as amended ("Rule 145"). The following undertaking is given pursuant to and in compliance with that certain Agreement and Plan of Reorganization and Merger among American River Holdings ("ARH"), ARH Interim National Bank ("Interim Bank") and NCB dated as of March 1, 2000 (the "Merger Agreement"), which provides that NCB shall merge with and into Interim Bank (the "Merger"), and the surviving national banking association will continue as a wholly-owned subsidiary of ARH under the national bank charter number and name of "North Coast Bank, National Association." Capitalized terms used herein and not defined herein shall have the meanings given to them in the Agreement.
I understand that ARH is relying on the performance of the covenants contained herein to insure that they obtain the desired pooling-of-interests accounting treatment as a result of the Merger and to avoid any appearance of improper manipulation of ARH's stock price or insider trading in the period prior to the Merger.
I hereby agree that I will not offer to sell or purchase, sell, transfer, purchase or acquire, publicly or privately, any shares of ARH common stock ("ARH Share" or "ARH Shares") or NCB common stock ("NCB Share" or "NCB Shares"), or cause any other person to do any of the above, except as a result of the conversion in the Merger of any NCB Shares or options to purchase NCB Shares held by me, or my exercise by cash payment of the exercise price of any stock option pursuant to NCB's stock option plan.
I hereby also agree that during the period beginning on the date on which
the Effective Time of the Merger occurs and ending on the date of release and
publication to the general public of financial results covering at least thirty
(30) days of post-merger combined operations of ARH and NCB, I will not offer,
sell or transfer, publicly or privately, any ARH Shares, and that I will not
during such period commit or agree to sell or transfer any of such ARH Shares
after such period.
I hereby also agree that at no time will I offer, sell or transfer, publicly or privately, any ARH Shares acquired by me in the Merger, whether in exchange for NCB Shares or for or upon exercise of options to purchase such NCB Shares, except:
Pursuant to a then current effective registration under the Securities Act of 1933, as amended (the "1933 Act"); or
Pursuant to the provisions of Rule 145(d) under the 1933 Act; or
If counsel representing me, satisfactory to ARH, shall have advised ARH in a written opinion letter in form and substance satisfactory to ARH and its counsel and upon which ARH and its counsel may rely, that no registration under the 1933 Act would be required in connection with the proposed sale, transfer or other disposition.
I agree and confirm that:
(i) the ARH Shares to be acquired by me upon consummation of the Merger (such ARH Shares being sometimes referred to for purposes of this Affiliate Agreement as "Acquired Shares") will not be acquired with a view to the sale or distribution thereof except as permitted by Rule 145;
(ii) the certificate representing the Acquired Shares or any
substitutions therefor, may be subject to stop transfer instructions
and/or a legend which confirm that such securities representing ARH Shares
have been issued or transferred to the registered holder as a result of a
transaction to which Rule 145 under the 1933 Act applies and that such
securities may not be sold, hypothecated, transferred or assigned, and the
issuer or its transfer agent shall not be required to give effect to any
attempted sale, hypothecation, transfer or assignment, except (i) pursuant
to a then current effective registration statement under the 1933 Act,
(ii) in a transaction permitted by Rule 145 as to which the issuer has, in
the opinion of its counsel, received reasonably satisfactory evidence of
compliance with the provisions of Rule 145, or (iii) in a transaction
which, in the opinion of counsel satisfactory to the issuer or as
described in a "no action" or interpretive letter from the staff of the
Securities and Exchange Commission is not required to be registered under
the 1933 Act.
It is understood and agreed that any stop transfer instructions shall be removed if the undersigned shall have delivered to ARH a written opinion letter in form and substance satisfactory to ARH and its counsel and upon which ARH and its counsel may rely, from counsel satisfactory to ARH, that no registration under the 1933 Act would be required in connection with the proposed sale, transfer or other disposition.
EXHIBIT C
NCB SHAREHOLDER AGREEMENT
This Shareholder Agreement (the "Shareholder Agreement") is made and entered into on March 1, 2000, by and between American River Holdings ("ARH"), and each of the other persons executing this Shareholder Agreement (each such person is referred to individually as a "NCB Shareholder" and collectively referred to as the "NCB Shareholders"), with reference to the following facts:
A. ARH, ARH Interim National Bank ("Interim Bank") and North Coast Bank, National Association ("NCB") have entered into that certain Agreement and Plan of Reorganization and Merger (the "Merger Agreement") dated as of March 1, 2000, pursuant to which NCB shall merge with and into Interim Bank (the "Merger"), and the surviving national banking association will continue as a wholly-owned subsidiary of ARH under the national bank charter number and name of "North Coast Bank, National Association," and ARH will pay consideration to NCB Shareholders in the form of ARH common stock.
B. Each of the NCB Shareholders is also a director or executive officer of NCB.
C. In order to induce ARH to enter into the Merger Agreement, the NCB Shareholders desire to enter into this Shareholder Agreement solely in their capacity as NCB Shareholders.
NOW, THEREFORE, in consideration of the promises and of the respective representations, warranties and covenants, agreements and conditions contained herein and in the Merger Agreement, the parties hereto agree as follows:
1. AGREEMENTS OF NCB SHAREHOLDERS.
1.1 AGREEMENT TO VOTE. At any meeting of shareholders of NCB or in connection with any solicitation of the written consent of the NCB Shareholders to approve the Merger Agreement and the transactions contemplated thereby, each of the NCB Shareholders shall vote or cause to be voted all shares of common stock of NCB ("NCB Share" or "NCB Shares") owned by each such NCB Shareholder, and any other NCB Shares hereafter acquired by each such NCB Shareholder, in favor of, and to approve, the principal terms of the Merger and any other matter contemplated by the Merger Agreement which requires the approval of the NCB Shareholders.
1.2 AGREEMENT TO RECOMMEND. Unless the Board of Directors of NCB shall have determined that they have a fiduciary duty to the NCB Shareholders to recommend that the NCB Shareholders not vote in favor of approval of the transactions contemplated by the Merger Agreement, each NCB Shareholder shall recommend to the NCB Shareholders to vote in favor of, and to approve, the principal terms of the Merger and any other matter contemplated by the Merger Agreement.
1.3 AGREEMENT AND PLAN OF REORGANIZATION AND MERGER. Each NCB Shareholder hereby acknowledges receipt of a copy of the Merger Agreement and agrees to abide by its terms and to refrain from taking any action that would be contrary to, or inconsistent with, any of the obligations of NCB as set forth in the Merger Agreement.
2. REPRESENTATIONS AND WARRANTIES OF NCB SHAREHOLDERS.
Each of the NCB Shareholders severally and not jointly, represents and warrants to and agrees with ARH, solely with respect to himself or herself, as follows:
2.1 CAPACITY. Each such NCB Shareholder has all the requisite capacity and authority to enter into and perform such NCB Shareholder's obligations under this Shareholder Agreement.
2.2 BINDING AGREEMENT. This Shareholder Agreement constitutes the valid and legally binding obligation of each such NCB Shareholder.
2.3 NON-CONTRAVENTION. The execution and delivery of this Shareholder Agreement by each such NCB Shareholder does not, and the performance by each such NCB Shareholder of his or her obligations hereunder and the consummation by each such NCB Shareholder of the transactions contemplated hereby will not, violate or conflict with or constitute a default under any agreement, instrument, contract or other obligation or any order, arbitration award, judgment or decree to which such NCB Shareholder is a party or by which such NCB Shareholder is bound, or any statute, rule or regulation to which such NCB Shareholder or any of such NCB Shareholder's property is subject.
2.4 OWNERSHIP OF SHARES. Schedule 1 hereto correctly sets forth the number of NCB Shares owned by each NCB Shareholder, or with respect to which each NCB Shareholder has good title to all of the NCB Shares indicated as owned by such NCB Shareholder in the capacity set forth on Schedule 1 as of the date indicated on such Schedule 1, and such NCB Shares are so owned free and clear of any liens, security interest, charges or other encumbrances, except as set forth in such Schedule 1.
3. TERMINATION.
3.1 TERMINATION DATE. This Shareholder Agreement shall terminate and be of no further force and effect immediately upon the earlier of: (a) consummation of the Merger; or (b) termination of the Merger Agreement in accordance with the terms thereof.
3.2 EFFECT OF TERMINATION. Upon the termination of this Shareholder Agreement in accordance with Section 3.1 hereof, the respective obligations of the parties hereto shall immediately become void and have no further force or effect.
4. SPECIFIC PERFORMANCE.
The parties hereto recognize and agree that monetary damages will not compensate adequately the parties hereto for nonperformance. Accordingly, each party agrees that its or his or her obligations shall be enforceable by court order requiring specific performance.
5. MISCELLANEOUS.
5.1 EXPENSES. Each party hereto shall pay its or his or her own costs and expenses, including, but not limited to, those of its or his or her attorneys and accountants, in connection with this Shareholder Agreement and transactions covered and contemplated hereby.
5.2 NOTICES. All notices, demands or other communications hereunder shall be in writing and shall be deemed to have been duly given if delivered in person, by telex, telecopy, facsimile transmission, or by United States mail, certified or registered, with return receipt requested, or otherwise actually delivered as follows:
(a) If to an NCB Shareholder:
c/o North Coast Bank, National Association 50 Santa Rosa Avenue Santa Rosa, CA 95404
Attn: President and
Chief Executive Officer
Telephone: (707) 528-9930
Facsimile: (707) 528-6399
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With a copy to:
Lillick & Charles LLP Two Embarcadero Center, Suite 2700 San Francisco, CA 94111-3996
Attn: R. Brent Faye, Esq. Telephone: (415) 984-8200 Facsimile: (415) 984-8300 |
(b) If to ARH:
American River Holdings 1545 River Park Drive, Suite 107 Sacramento, CA 95815
Attn: President and
Chief Executive Officer
Telephone: (916) 565-6114
Facsimile: (916) 565-4758
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With a copy to:
Coudert Brothers 303 Almaden Boulevard, Fifth Floor San Jose, California 95110-2721
Attn: Glenn T. Dodd, Esq. Telephone: (408) 297-9982 Facsimile: (408) 297-3191 |
The persons or address to which mailings or deliveries shall be made may change
from time to time by notice given pursuant to the provisions of this Section
5.2. Any notice, demand or other communication given pursuant to the provisions
of this Section 5.2 shall be deemed to have been given on the date delivered or
three days following the date mailed, as the case may be.
5.3 SUCCESSORS AND ASSIGNS. All terms and provisions of this Shareholder Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective transferees, successors and assigns; provided, however, that, except as otherwise contemplated herein, this Shareholder Agreement and all rights, privileges, duties and obligations of the parties hereto may not be assigned or delegated by any party hereto without the prior written consent of the other parties to this Shareholder Agreement and any purported assignment in violation of this Section 5.3 shall be null and void.
5.4 THIRD PARTY BENEFICIARIES. Each party hereto intends that this Shareholder Agreement shall not benefit, or create any right or cause of action in or on behalf of, any person other than the parties hereto. As used in this Shareholder Agreement, the term party or parties shall refer only to ARH and the NCB Shareholders, or any of them.
5.5 COUNTERPARTS. This Shareholder Agreement may be executed in one or more counterparts, all of which taken together shall constitute one instrument.
5.6 GOVERNING LAW. This Shareholder Agreement is made and entered into in the State of California and the laws of the State of California shall govern the validity and interpretation hereof and the performance of the parties hereto of their respective duties and obligations hereunder.
5.7 CAPTIONS. The captions contained in this Shareholder Agreement are for convenience of reference only and do not form a part of this Shareholder Agreement.
5.8 WAIVER AND MODIFICATION. No waiver of any term, provision or condition of this Shareholder Agreement, whether by conduct or otherwise, in any one or more instances, shall be deemed to be or construed as a further or continuing waiver of any such term, provision or condition of this Shareholder Agreement. This Shareholder Agreement may be modified or amended only by an instrument of equal formality signed by the parties or their duly authorized agents.
5.9 ATTORNEYS' FEES. In the event any of the parties to this Shareholder Agreement brings an action or suit against any other party by reason of any breach of any covenant, agreement, representation, warranty or other provision hereof, or any breach of any duty or obligation created hereunder by such other party, the prevailing party in whose favor final judgment is entered shall be entitled to have and recover of and from the losing party all reasonable costs and expenses incurred or sustained by such prevailing party in connection with such suit or action, including without limitation, legal fees and court costs (whether or not taxable as such).
5.10 ENTIRE AGREEMENT. The making, execution and delivery of this Shareholder Agreement by the parties hereto have been encouraged by no representations, statements, warranties or agreements other than those herein expressed. This Shareholder Agreement embodies the entire understanding of the parties and there are no further or other agreements or understandings, written or oral, in effect between the parties relating to the subject matter hereof, unless expressly referred to by reference herein.
5.11 SEVERABILITY. Whenever possible, each provision of this Shareholder Agreement and every related document shall be interpreted in such manner as to be valid under applicable law. However, if any provision of any of the foregoing shall be invalid or prohibited under said applicable law, it shall be construed, interpreted and limited to effectuate its purposes to the maximum legally permissible extent. If it cannot be so construed and interpreted so as to be valid under such law, such provision shall be ineffective to the extent of such invalidity or prohibition without invalidating the remainder of such provision or the remaining provisions of this Shareholder Agreement, and this Shareholder Agreement shall be construed to the maximum extent possible to carry out its terms without such invalid or unenforceable provision or portion thereof.
5.12 SEVERAL OBLIGATIONS. All duties and obligations of each party to this Shareholder Agreement shall be several and not joint.
IN WITNESS WHEREOF, the parties hereto have caused this Shareholder Agreement to be duly executed as of the date first above written.
AMERICAN RIVER HOLDINGS
By: /S/ DAVID T. TABER
------------------
David T. Taber, President and
Chief Executive Officer
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NORTH COAST BANK, NATIONAL ASSOCIATION SHAREHOLDERS:
----------------------------- ----------------------------- ----------------------------- ----------------------------- ----------------------------- ----------------------------- ----------------------------- ----------------------------- ----------------------------- ----------------------------- ----------------------------- ----------------------------- ----------------------------- ----------------------------- ----------------------------- ----------------------------- ----------------------------- ----------------------------- ----------------------------- ----------------------------- ----------------------------- ----------------------------- ----------------------------- ----------------------------- ----------------------------- ----------------------------- |
SCHEDULE 1
NORTH COAST BANK,
NATIONAL ASSOCIATION NUMBER
SHAREHOLDERS OF SHARES ENCUMBRANCES
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EXHIBIT D
ARH AFFILIATE AGREEMENT
I, the undersigned, have been advised that as of the date hereof I may be deemed to be (but I do not hereby admit to being) an affiliate of American River Holdings ("ARH") for purposes of Rule 145 promulgated by the Securities and Exchange Commission under the Securities Act of 1933, as amended ("Rule 145"). The following undertaking is given pursuant to and in compliance with that certain Agreement and Plan of Reorganization and Merger among ARH Interim National Bank ("Interim Bank") and North Coast Bank, National Association ("NCB") dated as of March 1, 2000 (the "Merger Agreement"), which provides that NCB shall merge with and into Interim Bank (the "Merger"), and the surviving national banking association will continue as a wholly-owned subsidiary of ARH under the national bank charter number and name of "North Coast Bank, National Association." Capitalized terms used herein and not defined herein shall have the meanings given to them in the Agreement.
I understand that ARH is relying on the performance of the covenants contained herein to insure that they obtain the desired pooling-of-interests accounting treatment as a result of the Merger and to avoid any appearance of improper manipulation of ARH's stock price or insider trading in the period prior to the Merger.
I hereby agree that I will not offer to sell or purchase, sell, transfer, purchase or acquire, publicly or privately, any ARH common stock ("ARH Share" or "ARH Shares") or NCB common stock ("NCB Share" or "NCB Shares"), or cause any other person to do any of the above, except my exercise by cash payment of the exercise price of any stock option pursuant to ARH's stock option plan.
I hereby also agree that during the period beginning on the date on which
the Effective Time of the Merger occurs and ending on the date of release and
publication to the general public of financial results covering at least thirty
(30) days of post-merger combined operations of ARH and NCB, I will not offer,
sell or transfer, publicly or privately, any ARH Shares, and that I will not
during such period commit or agree to sell any of such ARH Shares after such
period.
EXHIBIT E
ARH SHAREHOLDER AGREEMENT
This Shareholder Agreement (the "Shareholder Agreement") is made and entered into on March 1, 2000, by and between North Coast Bank, National Association ("NCB"), and each of the other persons executing this Shareholder Agreement (each such person is referred to individually as an "ARH Shareholder" and collectively referred to as the "ARH Shareholders"), with reference to the following facts:
A. American River Holdings ("ARH"), ARH Interim National Bank ("Interim Bank") and NCB have entered into that certain Agreement and Plan of Reorganization and Merger (the "Merger Agreement") dated as of March 1, 2000, pursuant to which NCB shall merge with and into Interim Bank (the "Merger"), and the surviving national banking association will continue as a wholly-owned subsidiary of ARH under the national bank charter number and name of "North Coast Bank, National Association," and ARH will pay consideration to NCB Shareholders in the form of ARH common stock.
B. Each of the ARH Shareholders is also a director or executive officer of ARH.
C. In order to induce NCB to enter into the Merger Agreement, the ARH Shareholders desire to enter into this Shareholder Agreement solely in their capacity as ARH Shareholders.
NOW, THEREFORE, in consideration of the promises and of the respective representations, warranties and covenants, agreements and conditions contained herein and in the Merger Agreement, the parties hereto agree as follows:
1. AGREEMENTS OF ARH SHAREHOLDERS.
1.1 AGREEMENT TO VOTE. At any meeting of shareholders of ARH or in connection with any solicitation of the written consent of ARH Shareholders to approve the Merger Agreement and the transactions contemplated thereby, each of the ARH Shareholders shall vote or cause to be voted all shares of ARH common stock ("ARH Share" or "ARH Shares") owned by each such ARH Shareholder, and any other ARH Shares hereafter acquired by each such ARH Shareholder, in favor of, and to approve, the principal terms of the Merger and any other matter contemplated by the Merger Agreement which requires the approval of the ARH Shareholders.
1.2 AGREEMENT TO RECOMMEND. Unless the Board of Directors of ARH shall have determined that they have a fiduciary duty to the ARH Shareholders to recommend that the ARH Shareholders not vote in favor of approval of the transactions contemplated by the Merger Agreement, each ARH Shareholder shall recommend to the ARH Shareholders to vote in favor of, and to approve, the principal terms of the Merger and any other matter contemplated by the Merger Agreement.
1.3 AGREEMENT AND PLAN OF REORGANIZATION AND MERGER. Each ARH Shareholder hereby acknowledges receipt of a copy of the Merger Agreement and agrees to abide by its terms and to refrain from taking any action that would be contrary to, or inconsistent with, any of the obligations of ARH as set forth in the Merger Agreement.
2. REPRESENTATIONS AND WARRANTIES OF ARH SHAREHOLDERS.
2.1 Each of the ARH Shareholders severally and not jointly, represents and warrants to and agrees with NCB, solely with respect to himself or herself, as follows:
2.2 CAPACITY. Each such ARH Shareholder has all the requisite capacity and authority to enter into and perform such ARH Shareholder's obligations under this Shareholder Agreement.
2.3 BINDING AGREEMENT. This Shareholder Agreement constitutes the valid and legally binding obligation of each such ARH Shareholder.
2.4 NON-CONTRAVENTION. The execution and delivery of this Shareholder Agreement by each such ARH Shareholder does not, and the performance by each such ARH Shareholder of his or her obligations hereunder and the consummation by each such ARH Shareholder of the transactions contemplated hereby will not, violate or conflict with or constitute a default under any agreement, instrument, contract or other obligation or any order, arbitration award, judgment or decree to which such ARH Shareholder is a party or by which such ARH Shareholder is bound, or any statute, rule or regulation to which such ARH Shareholder or any of such ARH Shareholder's property is subject.
2.5 OWNERSHIP OF SHARES. Schedule 1 hereto correctly sets forth the number of ARH Shares owned by each ARH Shareholder, or with respect to which each ARH Shareholder has good title to all of the ARH Shares indicated as owned by such ARH Shareholder in the capacity set forth on Schedule 1 as of the date indicated on such Schedule 1, and such ARH Shares are so owned free and clear of any liens, security interest, charges or other encumbrances, except as set forth in such Schedule 1.
3. TERMINATION.
3.1 TERMINATION DATE. This Shareholder Agreement shall terminate and be of no further force and effect immediately upon the earlier of: (a) consummation of the Merger; or (b) termination of the Agreement in accordance with the terms thereof.
3.2 EFFECT OF TERMINATION. Upon the termination of this Shareholder Agreement in accordance with Section 3.1 hereof, the respective obligations of the parties hereto shall immediately become void and have no further force or effect.
4. SPECIFIC PERFORMANCE.
The parties hereto recognize and agree that monetary damages will not compensate adequately the parties hereto for nonperformance. Accordingly, each party agrees that its or his or her obligations shall be enforceable by court order requiring specific performance.
5. MISCELLANEOUS.
5.1 EXPENSES. Each party hereto shall pay its or his or her own costs and expenses, including, but not limited to, those of its or his or her attorneys and accountants, in connection with this Shareholder Agreement and transactions covered and contemplated hereby.
5.2 NOTICES. All notices, demands or other communications hereunder shall be in writing and shall be deemed to have been duly given if delivered in person, by telex, telecopy, facsimile transmission, or by United States mail, certified or registered, with return receipt requested, or otherwise actually delivered as follows:
(a) If to an ARH Shareholder:
c/o American River Holdings 1545 River Park Drive, Suite 107 Sacramento, CA 95815
Attn: President and
Chief Executive Officer
Telephone: (916) 565-6114
Facsimile: (916) 565-4758
|
With a copy to:
Coudert Brothers
303 Almaden Boulevard, Fifth Floor
San Jose, California 95110-2721
Attn: Glenn T. Dodd, Esq. Telephone: (408) 297-9982 Facsimile: (408) 297-3191 |
(b) If to NCB:
North Coast Bank, National Association 50 Santa Rosa Avenue Santa Rosa, CA 95404
Attn: President and
Chief Executive Officer
Telephone: (707) 528-9930
Facsimile: (707) 528-6399
|
With a copy to:
Lillick & Charles, LLP Two Embarcadero Center, Suite 2700 San Francisco, CA 94111-3996
Attn: R. Brent Faye, Esq. Telephone: (415) 984-8200 Facsimile: (415) 984-8300 |
The persons or address to which mailings or deliveries shall be made may change
from time to time by notice given pursuant to the provisions of this Section
5.2. Any notice, demand or other communication given pursuant to the provisions
of this Section 5.2 shall be deemed to have been given on the date delivered or
three days following the date mailed, as the case may be.
5.3 SUCCESSORS AND ASSIGNS. All terms and provisions of this Shareholder Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective transferees, successors and assigns; provided, however, that, except as otherwise contemplated herein, this Shareholder Agreement and all rights, privileges, duties and obligations of the parties hereto may not be assigned or delegated by any party hereto without the prior written consent of the other parties to this Shareholder Agreement and any purported assignment in violation of this Section 5.3 shall be null and void.
5.4 THIRD PARTY BENEFICIARIES. Each party hereto intends that this Shareholder Agreement shall not benefit, or create any right or cause of action in or on behalf of, any person other than the parties hereto. As used in this Shareholder Agreement, the term party or parties shall refer only to NCB and the ARH Shareholders, or any of them.
5.5 COUNTERPARTS. This Shareholder Agreement may be executed in one or more counterparts, all of which taken together shall constitute one instrument.
5.6 GOVERNING LAW. This Shareholder Agreement is made and entered into in the State of California and the laws of the State of California shall govern the validity and interpretation hereof and the performance of the parties hereto of their respective duties and obligations hereunder.
5.7 CAPTIONS. The captions contained in this Shareholder Agreement are for convenience of reference only and do not form a part of this Shareholder Agreement.
5.8 WAIVER AND MODIFICATION. No waiver of any term, provision or condition of this Shareholder Agreement, whether by conduct or otherwise, in any one or more instances, shall be deemed to be or construed as a further or continuing waiver of any such term, provision or condition of this Shareholder Agreement. This Shareholder Agreement may be modified or amended only by an instrument of equal formality signed by the parties or their duly authorized agents.
5.9 ATTORNEYS' FEES. In the event any of the parties to this Shareholder Agreement brings an action or suit against any other party by reason of any breach of any covenant, agreement, representation, warranty or other provision hereof, or any breach of any duty or obligation created hereunder by such other party, the prevailing party in whose favor final judgment is entered shall be entitled to have and recover of and from the losing party all reasonable costs and expenses incurred or sustained by such prevailing party in connection with such suit or action, including without limitation, legal fees and court costs (whether or not taxable as such).
5.10 ENTIRE AGREEMENT. The making, execution and delivery of this Shareholder Agreement by the parties hereto have been encouraged by no representations, statements, warranties or agreements other than those herein expressed. This Shareholder Agreement embodies the entire understanding of the parties and there are no further or other agreements or understandings, written or oral, in effect between the parties relating to the subject matter hereof, unless expressly referred to by reference herein.
5.11 SEVERABILITY. Whenever possible, each provision of this Shareholder Agreement and every related document shall be interpreted in such manner as to be valid under applicable law. However, if any provision of any of the foregoing shall be invalid or prohibited under said applicable law, it shall be construed, interpreted and limited to effectuate its purposes to the maximum legally permissible extent. If it cannot be so construed and interpreted so as to be valid under such law, such provision shall be ineffective to the extent of such invalidity or prohibition without invalidating the remainder of such provision or the remaining provisions of this Shareholder Agreement, and this Shareholder Agreement shall be construed to the maximum extent possible to carry out its terms without such invalid or unenforceable provision or portion thereof.
5.12 SEVERAL OBLIGATIONS. All duties and obligations of each party to this Shareholder Agreement shall be several and not joint.
IN WITNESS WHEREOF, the parties hereto have caused this Shareholder Agreement to be duly executed as of the date first above written.
NORTH COAST BANK, NATIONAL ASSOCIATION
ARH SHAREHOLDERS:
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SCHEDULE 1
NUMBER
ARH SHAREHOLDERS OF SHARES ENCUMBRANCES
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ANNEX B
______________, 2000
Board of Directors
North Coast Bank, National Association
50 Santa Rosa Avenue
Santa Rosa, California 95404
Members of the Board:
With respect to the Agreement and Plan of Reorganization and Merger signed and
entered into on March 1, 2000 (the "Merger Agreement"), between North Coast
Bank, National Association (the "Company") and American River Holdings
("American"), pursuant to which the Company will merge with ARH Interim National
Bank, a national banking association to be formed as a wholly owned subsidiary
of American (the "Merger"), resulting in the Company being a wholly-owned
subsidiary of American, and the current shareholders of the Company to receive
American common stock, in a transaction in which the conversion ratio is .9644
of an American share for each Company share of common stock, you have asked our
opinion as to the fairness from a financial point of view to the shareholders of
the Company of the consideration to be paid in the Merger (the "Merger
Consideration").
In connection with our opinion, we have among other activities: (a) reviewed certain publicly available financial and other data with respect to the Company, and American, including the consolidated financial statements for recent years through December 31, 1999, and certain other relevant financial and operating data relating to the Company made available to us from published sources and from the internal records of the Company; (b) reviewed the terms of the Merger Agreement; (c) reviewed certain historical market prices and trading volume of common stock of California banking companies; (d) compared the Company and American from a financial point of view with certain other companies in the industry which we deemed to be relevant; (e) considered the financial terms, to the extent publicly available, of selected recent transactions which we deem to be comparable, in whole or in part, to the Merger; (f) reviewed and discussed with representatives of the management of the Company certain information of a business and financial nature regarding the Company and American, including financial forecasts and related assumptions of the Company and of American; (g) made inquiries and held discussions on the Merger and the Merger Agreement and other matters relating thereto with American River Holdings' counsel; and (h) performed such other analyses and examinations and considered such other information, financial analyses, and financial, economic and market criteria as we have deemed appropriate and relevant.
In connection with our review, we have not independently verified any of the foregoing information with respect to the Company, or American. We have relied on all such information provided by the Company and have assumed that all such information is complete and accurate in all material respects. We have assumed that there have been no material changes in American River Holdings' or American's assets, financial condition, results of operations, business or prospects since the respective dates of their last financial statements made available to us. We have relied on advice of counsel to the Company as to all legal matters with respect to the Company, the Merger, and the Merger Agreement. In addition, we have not made an independent evaluation, appraisal or physical inspection of the assets or individual properties
of the Company or American, nor have we been furnished with any such appraisals. We are not expressing any opinion as to the actual value of American's common stock when issued to the Company shareholders pursuant to the Merger, or the prices at which American common stock will trade subsequent to the Merger. Further, our opinion is necessarily based upon economic, monetary, and market conditions existing as of the date hereof.
This opinion is furnished pursuant to our engagement letter dated January 26, 2000, and is solely for the benefit of the Board of Directors and stockholders of the Company. In furnishing this opinion, we do not admit that we are experts with respect to any registration statement or other securities filing within the meaning of the term "experts" as used in the Securities Act and the rules and regulations promulgated thereunder. Nor do we admit that this opinion constitutes a report or valuation within the meaning of Section 11 of the Securities Act. Our opinion is directed to the Board of the Company, covers only the fairness of the Merger Consideration from a financial point of view as of the date hereof and does not constitute a recommendation to any holder of Company common stock as to how such shareholder should vote concerning the Merger. Except as provided in the engagement letter, this opinion may not be used or referred to by the Company or quoted or disclosed to any person in any manner without our prior written consent.
Based upon and subject to the foregoing, and in reliance thereon, it is our opinion that, as of the date of this opinion, the Merger Consideration is fair to the shareholders of the Company from a financial point of view.
Very truly yours,
SEAPOWER CARPENTER CAPITAL, INC.,
dba CARPENTER AND COMPANY
ANNEX C
_________________________, 2000
Members of the Board of Directors
American River Holdings
1545 River Park Drive
Suite 107
Sacramento, CA 95815
Members of the Board:
You have requested our opinion as investment bankers as to the fairness, from a financial point of view, to the holders of the outstanding shares of American River Holdings ("ARH") Common Stock, no par value, of the Conversion Ratio, as defined in Section 2.1 of the Agreement and Plan of Reorganization and Merger dated as of March 1, 2000 (the "Merger Agreement"), that provides, among other things, for the exchange of all the Common Stock of North Coast Bank, National Association ("NCB") for the Common Stock of ARH by means of a merger of NCB with and into ARH Interim National Bank, a subsidiary of ARH.
Hoefer & Arnett Incorporated, as part of its investment banking business, is continually engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, negotiated underwritings, competitive biddings, secondary distributions of listed and unlisted securities, private placements and valuations for estate, corporate and other purposes. Hoefer & Arnett Incorporated provides a full range of financial advisory and securities services and, in the course of its normal trading activities, may from time to time effect transactions and hold securities, of ARH or NCB for its own account and for the accounts of customers. We are familiar with ARH having acted as its financial advisor in connection with the Merger.
In connection with this opinion, we have reviewed, among other things, the Merger Agreement; the Annual Report to Shareholders of ARH and NCB for the years ended December 31, 1997 and 1998; certain interim reports to shareholders of ARH and NCB; certain other communications from ARH and NCB to the their respective shareholders; and certain internal financial analyses and forecasts for ARH and NCB prepared by their respective managements including forecasts for certain costs savings and revenue opportunities (the "Synergies") expected to be achieved as a result of the Merger. We also have held discussions with members of the senior management of ARH and NCB regarding the strategic rationale for, and the potential benefits of, the Merger and the past and current business operations, regulatory relationships, financial condition and future prospects of their respective companies. In addition, we have reviewed the reported price and trading activity for the shares of ARH and NCB, compared certain financial and stock market information for ARH and NCB with similar information for certain other companies the securities of which are publicly traded, reviewed the financial terms of certain recent business combinations in the commercial banking industry and performed such other studies and analyses as we considered appropriate.
We have relied upon the accuracy and completeness of all of the financial and other information reviewed by us and have assumed such accuracy and completeness for purposes of rendering this opinion. In that
regard, we have assumed, with your consent, that the financial forecasts, including, without limitation, the Synergies and projections regarding under-performing and non-performing assets and net charge-offs have been reasonably prepared on a basis reflecting the best currently available judgments and estimates of ARH and NCB and that such forecasts will be realized in the amounts and at the times contemplated thereby. We are not experts in the evaluation of loan and lease portfolios for purposes of assessing the adequacy of the allowances for losses with respect thereto and have assumed, with your consent, that such allowances for each of ARH and NCB are in the aggregate adequate to cover all such losses. In addition, we have not reviewed individual credit files nor have we made an independent evaluation or appraisal of the assets and liabilities of ARH, NCB or any of their subsidiaries and we have not been furnished with any such evaluation or appraisal. We also have assumed, with your consent, that the Merger will be accounted for as a pooling of interests under generally accepted accounting principles and that obtaining any necessary regulatory approvals and third party consents for the Merger or otherwise will not have a material adverse effect on ARH, NCB or the combined company pursuant to the Merger. In addition, our opinion does not address the relative merits of the Merger as compared to any alternative business transaction that might be available to ARH.
Our advisory services and the opinion expressed herein are provided for the information and assistance of the Board of Directors of ARH in connection with its consideration of the Merger and such opinion does not constitute a recommendation as to how any holder of shares of ARH should vote with respect to such transaction.
Based upon and subject to the foregoing and based upon such other matters as we consider relevant, it is our opinion that as of the date hereof the Conversion Ratio pursuant to the Merger Agreement is fair from a financial point of view to the holders of the outstanding shares of Common Stock of American River Holdings.
Very truly yours,
HOEFER & ARNETT INCORPORATED
ANNEX D
CHAPTER 13. DISSENTERS' RIGHTS.
SS. 1300. REORGANIZATION OR SHORT-FORM MERGER; DISSENTING SHARES; CORPORATE PURCHASE AT FAIR MARKET VALUE; DEFINITIONS--
(a) If the approval of the outstanding shares (Section 152) of a corporation is required for a reorganization under subdivisions (a) and (b) or subdivision (e) or (f) of Section 1201, each shareholder of the corporation entitled to vote on the transaction and each shareholder of a subsidiary corporation in a short-form merger may, by complying with this chapter, require the corporation in which the shareholder holds shares to purchase for cash at their fair market value the shares owned by the shareholder which are dissenting shares as defined in subdivision (b). The fair market value shall be determined as of the day before the first announcement of the terms of the proposed reorganization or short-form merger, excluding any appreciation or depreciation in consequence of the proposed action, but adjusted for any stock split, reverse stock split, or share dividend which becomes effective thereafter.
(b) As used in this chapter, "dissenting shares" means shares which come within all of the following descriptions:
(1) Which were not immediately prior to the reorganization or short-form merger either (A) listed on any national securities exchange certified by the Commissioner of Corporations under subdivision (o) of Section 25100 or (B) listed on the National Market System of the Nasdaq Stock Market, and the notice of meeting of shareholders to act upon the reorganization summarizes this section and Sections 1301, 1302, 1303 and 1304; provided, however, that this provision does not apply to any shares with respect to which there exists any restriction on transfer imposed by the corporation or by any law or regulation; and provided, further, that this provision does not apply to any class of shares described in subparagraph (A) or (B) if demands for payment are filed with respect to 5 percent or more of the outstanding shares of that class.
(2) Which were outstanding on the date for the determination of shareholders entitled to vote on their organization and (A) were not voted in favor of the reorganization or, (B) if described in subparagraph (A) or (B) of paragraph (1) (without regard to the provisos in that paragraph), were voted against the reorganization, or which were held of record on the effective date of a short-form merger; provided, however, that subparagraph (A) rather than subparagraph (B) of this paragraph applies in any case where the approval required by Section 1201 is sought by written consent rather than at a meeting.
(3) Which the dissenting shareholder has demanded that the corporation purchase at their fair market value, in accordance with Section 1301.
(4) Which the dissenting shareholder has submitted for endorsement, in accordance with Section 1302.
(c) As used in this chapter, "dissenting shareholder" means the recordholder of dissenting shares and includes a transferee of record.
SS. 1301. NOTICE TO HOLDERS OF DISSENTING SHARES IN REORGANIZATIONS; DEMAND FOR PURCHASE; TIME; CONTENTS--
(a) If, in the case of a reorganization, any shareholders of a corporation
have a right under Section 1300, subject to compliance with paragraphs (3) and
(4) of subdivision (b) thereof, to require the corporation to purchase their
shares for cash, such corporation shall mail to each such shareholder a notice
of the approval of the reorganization by its outstanding shares (Section 152)
within 10 days after the date of such approval, accompanied by a copy of
Sections 1300, 1302, 1303, 1304 and this section, a statement of the price
determined by the corporation to represent the fair market value of the
dissenting shares, and a brief description of the procedure to be followed if
the shareholder desires to exercise the shareholder's right under such sections.
The statement of price constitutes an offer by the corporation to purchase at
the price stated any dissenting shares as defined in subdivision (b) of Section
1300, unless they lose their status as dissenting shares under Section 1309.
(b) Any shareholder who has a right to require the corporation to purchase the shareholder's shares for cash under Section 1300, subject to compliance with paragraphs (3) and (4) of subdivision (b) thereof, and who desires the corporation to purchase such shares shall make written demand upon the corporation for the purchase of such shares and payment to the shareholder in cash of their fair market value. The demand is not effective for any purpose unless it is received by the corporation or any transfer agent thereof (1) in the case of shares described in clause (i) or (ii) of paragraph (1) of subdivision (b) of Section 1300 (without regard to the provisos in that paragraph), not later than the date of the shareholders' meeting to vote upon the reorganization, or (2) in any other case within 30 days after the date on which the notice of the approval by the outstanding shares pursuant to subdivision (a) or the notice pursuant to subdivision (i) of Section 1110 was mailed to the shareholder.
(c) The demand shall state the number and class of the shares held of record by the shareholder which the shareholder demands that the corporation purchase and shall contain a statement of what such shareholder claims to be the fair market value of those shares as of the day before the announcement of the proposed reorganization or short-form merger. The statement of fair market value constitutes an offer by the shareholder to sell the shares at such price.
SS. 1302. SUBMISSION OF SHARE CERTIFICATES FOR ENDORSEMENT; UNCERTIFICATED SECURITIES--
Within 30 days after the date on which notice of the approval by the outstanding shares or the notice pursuant to subdivision (i) of Section 1110 was mailed to the shareholder, the shareholder shall submit to the corporation at its principal office or at the office of any transfer agent thereof, (a) if the shares are certificated securities, the shareholder's certificates representing any shares which the shareholder demands that the corporation purchase, to be stamped or endorsed with a statement that the shares are dissenting shares or to be exchanged for certificates of appropriate denomination so stamped or endorsed or (b) if the shares are uncertificated securities, written notice of the number of shares which the shareholder demands that the corporation purchase. Upon subsequent transfers of the dissenting shares on the books of the corporation, the new certificates, initial transaction statement, and other written statements issued therefor shall bear a like statement, together with the name of the original dissenting holder of the shares.
SS. 1303. PAYMENT OF AGREED PRICE WITH INTEREST; AGREEMENT FIXING FAIR MARKET VALUE; FILING; TIME OF PAYMENT--
(a) If the corporation and the shareholder agree that the shares are dissenting shares and agree upon the price of the shares, the dissenting shareholder is entitled to the agreed price with interest thereon at the legal rate on judgments from the date of the agreement. Any agreements fixing the fair market value of any dissenting shares as between the corporation and the holders thereof shall be filed with the secretary of the corporation.
(b) Subject to the provisions of Section 1306, payment of the fair market value of dissenting shares shall be made within 30 days after the amount thereof has been agreed or within 30 days after any statutory or contractual conditions to the reorganization are satisfied, whichever is later, and in the case of certificated securities, subject to surrender of the certificates therefor, unless provided otherwise by agreement.
SS. 1304. ACTION TO DETERMINE WHETHER SHARES ARE DISSENTING SHARES OR FAIR MARKET VALUE; LIMITATION; JOINDER; CONSOLIDATION; DETERMINATION OF ISSUES; APPOINTMENT OF APPRAISERS--
(a) If the corporation denies that the shares are dissenting shares, or the corporation and the shareholder fail to agree upon the fair market values of the shares, then the shareholder demanding purchase of such shares as dissenting shares or any interested corporation, within six months after the date on which notice of the approval by the outstanding shares (Section 152) or notice pursuant to subdivision (i) of Section 1110 was mailed to the shareholder, but not thereafter, may file a complaint in the superior court of the proper county praying the court to determine whether the shares are dissenting shares or the fair market value of the dissenting shares or both or may intervene in any action pending on such a complaint.
(b) Two or more dissenting shareholders may join as plaintiffs or be joined as defendants in any such action and two or more such actions may be consolidated.
(c) On the trial of the action, the court shall determine the issues. If the status of the shares as dissenting shares is in issue, the court shall first determine that issue. If the fair market value of the dissenting shares is in issue, the court shall determine, or shall appoint one or more impartial appraisers to determine, the fair market value of the shares.
SS. 1305. REPORT OF APPRAISERS; CONFIRMATION; DETERMINATION BY COURT; JUDGMENT; PAYMENT; APPEAL; COSTS--
(a) If the court appoints an appraiser or appraisers, they shall proceed forthwith to determine the fair market value per share. Within the time fixed by the court, the appraisers, or a majority of them, shall make and file a report in the office of the clerk of the court. Thereupon, on the motion of any party, the report shall be submitted to the court and considered on such evidence as the court considers relevant. If the court finds the report reasonable, the court may confirm it.
(b) If a majority of the appraisers appointed fail to make and file a report within 10 days from the date of their appointment or within such further time as may be allowed by the court or the report is not confirmed by the court, the court shall determine the fair market value of the dissenting shares.
(c) Subject to the provisions of Section 1306, judgment shall be rendered against the corporation for payment of an amount equal to the fair market value of each dissenting share multiplied by the number of dissenting shares which any dissenting shareholder who is a party, or who has intervened, is entitled to require the corporation to purchase, with interest thereon at the legal rate from the date on which judgment was entered.
(d) Any such judgment shall be payable forthwith with respect to uncertificated securities and, with respect to certificated securities, only upon the endorsement and delivery to the corporation of the certificates for the shares described in the judgment. Any party may appeal from the judgment.
(e) The costs of the action, including reasonable compensation to the appraisers to be fixed by the court, shall be assessed or apportioned as the court considers equitable, but, if the appraisal exceeds the price offered by the corporation, the corporation shall pay the costs (including in the discretion of the court attorneys' fees, fees of expert witnesses and interest at the legal rate on judgments from the date of compliance with Sections 1300, 1301 and 1302 if the value awarded by the court for the shares is more than 125 percent of the price offered by the corporation under subdivision (a) of Section 1301).
SS. 1306. PREVENTION OF IMMEDIATE PAYMENT; STATUS AS CREDITORS; INTEREST--
To the extent that the provisions of Chapter 5 prevent the payment to any holders of dissenting shares of their fair market value, they shall become creditors of the corporation for the amount thereof together with interest at the legal rate on judgments until the date of payment, but subordinate to all other creditors in any liquidation proceeding, such debt to be payable when permissible under the provisions of Chapter 5.
SS. 1307. DIVIDENDS ON DISSENTING SHARES--
Cash dividends declared and paid by the corporation upon the dissenting shares after the date of approval of the reorganization by the outstanding shares (Section 152) and prior to payment for the shares by the corporation shall be credited against the total amount to be paid by the corporation therefor.
SS. 1308. RIGHTS OF DISSENTING SHAREHOLDERS PENDING VALUATION; WITHDRAWAL OF DEMAND FOR PAYMENT--
Except as expressly limited in this chapter, holders of dissenting shares continue to have all the rights and privileges incident to their shares, until the fair market value of their shares is agreed upon or determined. A dissenting shareholder may not withdraw a demand for payment unless the corporation consents thereto.
SS. 1309. TERMINATION OF DISSENTING SHARE AND SHAREHOLDER STATUS--
Dissenting shares lose their status as dissenting shares and the holders thereof cease to be dissenting shareholders and cease to be entitled to require the corporation to purchase their shares upon the happening of any of the following:
(a) The corporation abandons the reorganization. Upon abandonment of the reorganization, the corporation shall pay on demand to any dissenting shareholder who has initiated proceedings in good faith under this chapter all necessary expenses incurred in such proceedings and reasonable attorneys' fees.
(b) The shares are transferred prior to their submission for endorsement in accordance with Section 1302 or are surrendered for conversion into shares of another class in accordance with the articles of incorporation.
(c) The dissenting shareholder and the corporation do not agree upon the
status of the shares as dissenting shares or upon the purchase price of the
shares, and neither files a complaint or intervenes in a pending action as
provided in Section 1304, within six months after the date on which notice of
the approval by the outstanding shares or notice pursuant to subdivision (i) of
Section 1110 was mailed to the shareholder.
(d) The dissenting shareholder, with the consent of the corporation, withdraws the shareholder's demand for purchase of the dissenting shares.
SS. 1310. SUSPENSION OF RIGHT TO COMPENSATION OR VALUATION PROCEEDINGS; LITIGATION OF SHAREHOLDERS' APPROVAL--
If litigation is instituted to test the sufficiency or regularity of the votes of the shareholders in authorizing a reorganization, any proceedings under Sections 1304 and 1305 shall be suspended until final determination of such litigation.
SS. 1311. EXEMPT SHARES--
This chapter, except Section 1312, does not apply to classes of shares whose terms and provisions specifically set forth the amount to be paid in respect to such shares in the event of a reorganization or merger.
SS. 1312. RIGHT OF DISSENTING SHAREHOLDER TO ATTACK, SET ASIDE OR RESCIND MERGER OR REORGANIZATION; RESTRAINING ORDER OR iNJUNCTION; CONDITIONS--
(a) No shareholder of a corporation who has a right under this chapter to demand payment of cash for the shares held by the shareholder shall have any right at law or in equity to attack the validity of the reorganization or short-form merger, or to have the reorganization or short-form merger set aside or rescinded, except in an action to test whether the number of shares required to authorize or approve the reorganization have been legally voted in favor thereof; but any holder of shares of a class whose terms and provisions specifically set forth the amount to be paid in respect to them in the event of a reorganization or short-form merger is entitled to payment in accordance with those terms and provisions or, if the principal terms of the reorganization are approved pursuant to subdivision (b) of Section 1202, is entitled to payment in accordance with the terms and provisions of the approved reorganization.
(b) If one of the parties to a reorganization or short-form merger is directly or indirectly controlled by, or under common control with, another party to the reorganization or short-form merger, subdivision (a) shall not apply to any shareholder of such party who has not demanded payment of cash for such shareholder's shares pursuant to this chapter; but if the shareholder institutes any action to attack the validity of the reorganization or short-form merger or to have the reorganization or short-form merger set aside or rescinded, the shareholder shall not thereafter have any right to demand payment of cash for the shareholder's shares pursuant to this chapter. The court in any action attacking the validity of the reorganization or short-form merger or to have the reorganization or short-form merger set aside or rescinded shall not restrain or enjoin the consummation of the transaction except upon 10 days' prior notice to the corporation and upon a determination by the court that clearly no other remedy will adequately protect the complaining shareholder or the class of shareholders of which such shareholder is a member.
(c) If one of the parties to a reorganization or short-form merger is directly or indirectly controlled by, or under common control with, another party to the reorganization or short-form merger, in any action to attack the validity of the reorganization or short-form merger or to have the reorganization or short-form merger set aside or rescinded, (1) a party to a reorganization or short-form merger which controls another party to the reorganization or short-form merger shall have the burden of proving that the transaction is just and reasonable as to the shareholders of the controlled party, and (2) a person who controls two or more parties to a reorganization shall have the burden of proving that the transaction is just and reasonable as to the shareholders of any party so controlled.
ANNEX E
TITLE 12, UNITED STATES CODE, SECTION 215a (b),(c) AND (d):
DISSENTING SHAREHOLDERS
(b) If a merger shall be voted for at the called meetings by the necessary majorities of the shareholders of each association or State bank participating in the plan of merger, and thereafter the merger shall be approved by the Comptroller, any shareholder of any association or State bank to be merged into the receiving association who has voted against such merger at the meeting of the association or bank of which he is a stockholder, or has given notice in writing at or prior to such meeting to the presiding officer that he dissents from the plan of merger, shall be entitled to receive the value of the shares so held by him when such merger shall be approved by the Comptroller upon written request made to the receiving association at any time before thirty days after the date of consummation of the merger, accompanied by the surrender of his stock certificates.
VALUATION OF SHARES
(c) The value of the shares of any dissenting shareholder shall be ascertained, as of the effective date of the merger, by an appraisal made by a committee of three persons, composed of (1) one selected by the vote of the holders of the majority of the stock, the owners of which are entitled to payment in cash; (2) one selected by the directors of the receiving association; and (3) one selected by the two so selected. The valuation agreed upon by any two of the three appraisers shall govern. If the value so fixed shall not be satisfactory to any dissenting shareholder who has requested payment, that shareholder may, within five days after being notified of the appraised value of his shares, appeal to the Comptroller, who shall cause a reappraisal to be made which shall be final and binding as to the value of the shares of the appellant.
APPLICATION TO SHAREHOLDERS OF MERGING ASSOCIATIONS; APPRAISAL BY COMPTROLLER; EXPENSES OF RECEIVING ASSOCIATION; SALE AND RESALE OF SHARES; STATE APPRAISAL AND MERGER LAW
(d) If, within ninety days from the date of consummation of the merger, for any reason one or more of the appraisers is not selected as herein provided, or the appraisers fail to determine the value of such shares, the Comptroller shall upon written request of any interested party cause an appraisal to be made which shall be final and binding on all parties. The expenses of the Comptroller in making the reappraisal or the appraisal, as the case may be, shall be paid by the receiving association. The value of the shares ascertained shall be promptly paid to the dissenting shareholders by the receiving association. The shares of stock of the receiving association which would have been delivered to such dissenting shareholders had they not requested payment shall be sold by the receiving association at an advertised public auction, and the receiving association shall have the right to purchase any of such shares at such public auction, if it is the highest bidder therefor, for the purpose of reselling such shares within thirty days thereafter to such person or persons and at such price not less than par as its board of directors by resolution may determine. If the shares are sold at public auction at a price greater than the amount paid to the dissenting shareholders, the excess in such sale price shall be paid to such dissenting shareholders. The appraisal of such shares of stock in any State bank shall be determined in the manner prescribed by the law of the State in such cases, rather than as provided in this section, if such provision is made in the State law; and no such merger shall be in contravention of the law of the State under which such bank is incorporated. The provisions of this subsection shall apply only to shareholders of (and stock owned by them in) a bank or association being merged into the receiving association.
BC-259
Type: Banking Circular
Subject: Stock Appraisals
To: Chief Executive Officers of National Banks, Deputy Comptrollers (District), Department and Division Heads, and Examining Personnel
PURPOSE
This banking circular informs all national banks of the valuation methods used by the Office of the Comptroller of the Currency (OCC) to estimate the value of a bank's shares when requested to do so by a shareholder dissenting to the conversion, merger, or consolidation of its bank. The results of appraisals performed by the OCC between January 1, 1985 and September 30, 1991 are summarized.
References: 12 U.S.C. 214a, 215 and 215a; 12 CFR 11.590 (Item 2)
BACKGROUND
Under 12 U.S.C. Section 214a, a shareholder dissenting from a conversion,
consolidation, or merger involving a national bank is entitled to receive the
value of his or her shares from the resulting bank. A valuation of the shares
shall be made by a committee of three appraisers (a representative of the
dissenting shareholder, a representative of the resulting bank, and a third
appraiser selected by the other two). If the committee is formed and renders an
appraisal that is acceptable to the dissenting shareholder, the process is
complete and the appraised value of the shares is paid to the dissenting
shareholder by the resulting bank. If, for any reason, the committee is not
formed or if it renders an appraisal that is not acceptable to the dissenting
shareholder, an interested party may request an appraisal by the OCC. 12 U.S.C.
Section 215 provides these appraisal rights to any shareholder dissenting to a
consolidation. Any dissenting shareholder of a target bank in a merger is also
entitled to these appraisal rights pursuant to 12 U.S.C. Section 215a.
BC-259
BANKING ISSUANCE
--------------------------------------------------------------------------------
Comptroller of the Currency
Administrator of National Banks
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Type: Banking Circular
Subject: Stock Appraisals
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The above provides only a general overview of the appraisal process. The specific requirements of the process are set forth in the statutes themselves.
METHODS OF VALUATION USED
Through its appraisal process, the OCC attempts to arrive at a fair estimate of the value of a bank's shares. After reviewing the particular facts in each case and the available information on a bank's shares, the OCC selects an appropriate valuation method, or combination of methods, to determine a reasonable estimate of the shares' value.
MARKET VALUE
The OCC uses various methods to establish the market value of shares being appraised. If sufficient trading in the shares exists and the prices are available from direct quotes from the WALL STREET JOURNAL or a market-maker, those quotes are considered in determining the market value. If no market value is readily available, or if the market value available is not well established, the OCC may use other methods of estimating market value, such as the investment value and adjusted book value methods.
INVESTMENT VALUE
Investment value requires an assessment of the value to investors of a share in the future earnings of the target bank. Investment value is estimated by applying an average price/earnings ratio of banks with similar earnings potential to the earnings capacity of the target bank.
The peer group selection is based on location, size, and earnings patterns. If the state in which the subject bank is located provides a sufficient number of comparable banks using location, size and earnings patterns as the criteria for selection, the price/earnings ratios assigned to the banks are applied to the
BC-259
BANKING ISSUANCE
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Comptroller of the Currency
Administrator of National Banks
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Type: Banking Circular
Subject: Stock Appraisals
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earnings per share estimated for the subject bank. In order to select a reasonable peer group when there are too few comparable independent banks in a location that is comparable to that of the subject bank, the pool of banks from which a peer group is selected is broadened by including one-bank holding company banks in a comparable location, and/or by selecting banks in less comparable locations, including adjacent states, that have earnings patterns similar to the subject bank.
ADJUSTED BOOK VALUE
The OCC also uses an "adjusted book value" method for estimating value. Historically, the OCC has not placed any weight on the bank's "unadjusted book value", since that value is based on historical acquisition costs of the bank's assets, and does not reflect investors' perceptions of the value of the bank as an ongoing concern. Adjusted book value is calculated by multiplying the book value of the target bank's assets per share times the average market price to book value ratio of comparable banking organizations. The average market price to book value ratio measures the premium or discount to book value, which investors attribute to shares of similarly situated banking organizations.
Both the investment value method and the adjusted book value method present appraised values which are based on the target bank's value as a going concern. These techniques provide estimates of the market value of the shares of the subject bank.
OVERALL VALUATION
The OCC may use more than one of the above-described methods in deriving the value of shares of stock. If more than one method is used, varying weights may be applied in reaching an overall valuation. The weight given to the value by a particular valuation method is based on how accurately the given method is believed to represent market value. For example, the OCC may give more weight to
BC-259
BANKING ISSUANCE
--------------------------------------------------------------------------------
Comptroller of the Currency
Administrator of National Banks
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Type: Banking Circular
Subject: Stock Appraisals
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a market value representing infrequent trading by shareholders than to the value derived from the investment value method when the subject bank's earnings trend is so irregular that it is considered to be a poor predictor of future earnings.
PURCHASE PREMIUMS
For mergers and consolidations, the OCC recognizes that purchase premiums do exist and may, in some instances, be paid in the purchase of small blocks of shares. However, the payment of purchase premiums depends entirely on the acquisition or control plans of the purchasers, and such payments are not regular or predictable elements of market value. Consequently, the OCC's valuation methods do not include consideration of purchase premiums in arriving at the value of shares.
STATISTICAL DATA
The chart below lists the results of appraisals the OCC performed between January 1, 1985 and September 30, 1991. The OCC provides statistical data on book value and price/earnings ratios for comparative purposes, but does not necessarily rely on such data in determining the value of the banks' shares. Dissenting shareholders should not view these statistics as determinative for future appraisals.
In connection with disclosures given to shareholders under 12 CFR 11.590 (Item
2), banks may provide shareholders a copy of this banking circular or disclose
the information in the banking circular, including the past results of OCC
appraisals. If the bank discloses the past results of the OCC appraisals, it
should advise shareholders that: (1) the OCC did not rely on all the information
set forth in the chart in performing each appraisal; and, (2) the OCC's past
appraisals are not necessarily determinative of its future appraisals of a
particular bank's shares.
BC-259
BANKING ISSUANCE
--------------------------------------------------------------------------------
Comptroller of the Currency
Administrator of National Banks
--------------------------------------------------------------------------------
Type: Banking Circular
Subject: Stock Appraisals
|
OCC Average Price/
Appraisal Appraisal Price Book Earnings Ratio
Date * Value Offered Value of Peer Group
--------- ----- ------- ----- -------------
1/1/85 107.05 110.00 178.29 5.3
1/2/85 73.16 NA 66.35 6.8
1/15/85 53.41 60.00 83.95 4.8
1/31/85 22.72 20.00 38.49 5.4
2/1/85 30.63 24.00 34.08 5.7
2/25/85 27.74 27.55 41.62 5.9
4/30/85 25.98 35.00 42.21 4.5
7/30/85 3,153.10 2,640.00 6,063.66 NC
9/1/85 17.23 21.00 21.84 4.7
11/22/85 316.74 338.75 519.89 5.0
11/22/85 30.28 NA 34.42 5.9
12/16/85 66.29 77.00 89.64 5.6
12/27/85 60.85 57.00 119.36 5.3
12/31/85 61.77 NA 73.56 5.9
12/31/85 75.79 40.00 58.74 12.1
1/12/86 19.93 NA 26.37 7.0
3/14/86 59.02 200.00 132.20 3.1
4/21/86 40.44 35.00 43.54 6.4
5/2/86 15.50 16.50 23.69 5.0
7/3/86 405.74 NA 612.82 3.9
7/31/86 297.34 600.00 650.63 4.4
--------------------------------------------------------------------------------
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* - The "Appraisal Date" is the consummation date for the conversion, consolidation, or merger.
NA - Not Available
NC - Not Computed
BC-259
BANKING ISSUANCE
--------------------------------------------------------------------------------
Comptroller of the Currency
Administrator of National Banks
--------------------------------------------------------------------------------
Type: Banking Circular
Subject: Stock Appraisals
APPRAISAL RESULTS
--------------------------------------------------------------------------------
OCC Average Price/
Appraisal Appraisal Price Book Earnings Ratio
Date * Value Offered Value of Peer Group
--------- ----- ------- ----- -------------
8/22/86 103.53 106.67 136.23 NC
12/26/86 16.66 NA 43.57 4.0
12/31/86 53.39 95.58 69.66 7.1
5/1/87 186.42 NA 360.05 5.1
6/11/87 50.46 70.00 92.35 4.5
6/11/87 38.53 55.00 77.75 4.5
7/31/87 13.10 NA 20.04 6.7
8/26/87 55.92 57.52 70.88 NC
8/31/87 19.55 23.75 30.64 5.0
8/31/87 10.98 NA 17.01 4.2
10/6/87 56.48 60.00 73.11 5.6
3/15/88 297.63 NA 414.95 6.1
6/2/88 27.26 NA 28.45 5.4
6/30/88 137.78 NA 215.36 6.0
8/30/88 768.62 677.00 1,090.55 10.7
3/31/89 773.62 NA 557.30 7.9
5/26/89 136.47 180.00 250.42 4.5
5/29/90 9.87 NA 11.04 9.9
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* - The "Appraisal Date" is the consummation date for the conversion, consolidation, or merger.
NA - Not Available
NC - Not Computed
BC-259
BANKING ISSUANCE
--------------------------------------------------------------------------------
Comptroller of the Currency
Administrator of National Banks
--------------------------------------------------------------------------------
Type: Banking Circular
|
Subject: Stock Appraisals
For more information regarding the OCC's stock appraisal process, contact the Office of the Comptroller of the Currency, Bank Organization and Structure.
/s/ Frank Maguire -------------------------------------- Frank Maguire Acting Senior Deputy Comptroller Corporate Policy and Economic Analysis |
ANNEX F
AMERICAN RIVER HOLDINGS 2000 STOCK OPTION PLAN
ANNEX F
TABLE OF CONTENTS
PAGE
PURPOSE....................................................................3
ADMINISTRATION.............................................................3
ELIGIBILITY................................................................4
THE SHARES.................................................................4
OPTION GRANTS..............................................................4
Grant of Options.....................................................4
Option Price.........................................................5
Duration of Options..................................................5
Termination of Director, Employment or Consultant Status.............5
TERMS AND CONDITIONS APPLICABLE TO ALL OPTIONS.............................6
Exercise of Options..................................................6
Transferability of Option and Shares.................................7
Withholding..........................................................7
Other Terms and Conditions...........................................7
ADJUSTMENT OF, AND CHANGES IN, THE SHARES..................................8
Changes in Capitalization............................................8
Dissolution, Liquidation, Sale or Merger.............................8
Notice of Adjustments; Fractional Shares.............................8
AMENDMENT, EFFECTIVENESS AND TERMINATION OF THE PLAN.......................9
INFORMATION TO OPTIONEES...................................................9
PRIVILEGES OF STOCK OWNERSHIP; SECURITIES LAW COMPLIANCE...................9
NOTICE OF SALE............................................................10
INDEMNIFICATION...........................................................10
|
AMERICAN RIVER HOLDINGS 2000 STOCK OPTION PLAN
PURPOSE
The purpose of this American River Holdings 2000 Stock Option Plan (the "2000 Plan") is to provide a method whereby those key employees, directors and consultants of American River Holdings and its affiliates (collectively referred to as the "Company"), who are primarily responsible for the management and growth of the Company's business and who are presently making and are expected to make substantial contributions to the Company's future management and growth, may be offered incentives in addition to those presently available, and may be stimulated by increased personal involvement in the fortunes and success of the Company to continue in its service, thereby advancing the interests of the Company and its shareholders.
The word "affiliate," as used in the 2000 Plan, means any bank or corporation in any unbroken chain of banks or corporations beginning or ending with the Company, if at the time of the granting of an option, each such bank or corporation other than the last in that chain owns stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other banks or corporations in the chain.
ADMINISTRATION
The following provisions shall govern the administration of the 2000 Plan:
(a) Subject to paragraphs (b),(c) and (d) below, the 2000 Plan shall be administered by the Board of Directors (the "Board").
(b) Acts of the Board (i) at a meeting, held at a time and place and in accordance with rules adopted by the Board, at which a quorum of the Board is present and acting, or (ii) reduced to and approved in writing by all members of the Board, shall be the valid acts of the Board.
(c) Options granted to employees or directors of the Company subject to
Section 16(b) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") shall be approved by the Board or shall be approved or ratified, in
compliance with Section 14 of the Exchange Act, by the affirmative votes of the
holders of a majority of the voting securities of the Company present or
represented and entitled to vote at a meeting of shareholders duly called and
held pursuant to law, provided that any such ratification shall occur not later
than the date of the next annual meeting of shareholders following the grant.
(d) The grant of options under the 2000 Plan shall be affected by execution of instruments in writing in a form approved by the Board. Subject to the express terms and conditions of the 2000 Plan, the Board shall have full power to construe the 2000 Plan and the terms of any option granted under the 2000 Plan, to prescribe, amend and rescind rules and regulations relating to the 2000 Plan or such options and to make all other determinations necessary or advisable for the 2000 Plan's administration, including, without limitation, the power to (i) determine which persons meet the requirements of Section 3 hereof for selection as participants in the 2000 Plan; (ii) determine to whom of the eligible persons, if any, options shall be granted under the 2000 Plan; (iii) establish the terms and conditions required or permitted to be included in every option agreement or any amendments thereto, including whether options to be granted shall be "incentive stock options," as defined in Section 422 of the Internal
Revenue Code of 1986, as amended (the "IRC") or nonstatutory stock options not described in Section 422; (iv) specify the number of shares to be covered by each option; (v) determine the fair market value of shares of the Company's common stock for any purpose under the 2000 Plan; (vi) grant options in exchange for cancellation of options granted earlier under the 2000 Plan or the Company's 1995 Stock Option Plan (the "1995 Plan") at different exercise prices; (vii) take appropriate action to amend any option under the 2000 Plan, provided that no such action may be taken without the written consent of the affected optionee; and (viii) make all other determinations deemed necessary or advisable for administering the 2000 Plan. The Board's determination on the foregoing matters shall be conclusive.
ELIGIBILITY
The persons who shall be eligible to receive the grant of options under this 2000 Plan shall be those key employees and officers of the Company (including officers who may also be directors of the Company), persons who became employees of the Company within thirty days of the date of grant of an option, independent contractor consultants of the Company who render bona fide services to the Company other than in connection with the offer or sale of securities in a capital raising transaction ("Consultants"), and directors. Notwithstanding any other provision of this 2000 Plan, no person shall be granted options to purchase more than an aggregate of 100,000 shares under this 2000 Plan.
THE SHARES
The shares of stock subject to options authorized to be granted under the 2000 Plan shall consist of __________ shares of the Company's no par value common stock, less such number of shares (not to exceed _______ shares) which are subject to options outstanding under the 1995 Plan and which are acquired by exercise of such options (the "Shares"), or the number and kind of shares of stock or other securities which shall be substituted for such Shares or to which such Shares shall be adjusted as provided in Section 7 hereof.
Upon the expiration or termination for any reason of an outstanding
option under the 2000 Plan (or under the 1995 Plan) which has not been exercised
in full, all unissued Shares thereunder shall again become available for the
grant of options under the 2000 Plan. Shares of the Company's common stock which
are (i) delivered by an optionee in payment of the exercise price of an option
pursuant to Section 7(a), or (ii) delivered by an optionee, or withheld by the
Company from the shares otherwise due upon exercise of a nonstatutory stock
option, in satisfaction of applicable withholding taxes as permitted by Section
7(c), shall again become available for the grant of options under the 2000 Plan
only to those eligible participants who are not subject to Section 16 of the
Exchange Act.
OPTION GRANTS
Options, in the discretion of the Board, may be granted at any time prior to the termination of the 2000 Plan to persons included among the eligible classes of persons specified in Section 3. Options granted by the Board shall be subject to the following terms and conditions:
GRANT OF OPTIONS
Options granted to employees pursuant to the 2000 Plan may be either incentive stock options or nonstatutory stock options. If the aggregate fair market value of the shares issuable upon exercise of incentive stock options which are exercisable for the first time during any one calendar year under all
incentive stock options held by an optionee exceeds $100,000 (determined at the time of the grant of the options), such options shall be treated as nonstatutory stock options to the extent of such excess. Options granted to Directors who are "non-employee directors" within the meaning of Rule 16b-3 as promulgated by the Securities and Exchange Commission ("SEC") under Section 16(b) of the Exchange Act, as such rule may be amended from time to time and as interpreted by the SEC ("Rule 16b-3"), and to Consultants, shall be nonstatutory stock options.
OPTION PRICE
The purchase price under each option shall not be less than one hundred percent of the fair market value of the Shares subject thereto on the date the option is granted; provided, however, that the purchase price of an option granted to an individual who owns stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company shall not be less than one hundred ten percent (110%) of the fair market value of the Shares subject thereto on the date the option is granted. For any purposes under this 2000 Plan, fair market value per share shall mean, where there is a public market for the Company's common stock, the mean of the bid and asked prices (or the closing price if listed on a stock exchange or the Nasdaq National Market) of the Company's common stock for the date of grant, as reported in the Wall Street Journal (or, if not so reported, as otherwise reported by the Nasdaq Stock Market or the National Quotation Bureau). If such information is not available for the date of grant, then such information for the last preceding date for which such information is available shall be considered as the fair market value.
DURATION OF OPTIONS
Each option shall be for a term determined by the Board; provided, however, that the term of any option may not exceed ten (10) years and, provided further, that the term of any incentive stock option granted to an individual who owns stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company shall not exceed five (5) years. Each option shall vest in such manner and at such time as the Board shall determine and the Board may accelerate the time of exercise of any option; provided, however, that no option shall vest for exercise at a rate of less than twenty percent (20%) per year during the five (5) year period following the date of grant of an option.
TERMINATION OF DIRECTOR, EMPLOYMENT OR CONSULTANT STATUS
Upon the termination of an optionee's status as an employee or Consultant or member of the Board, his or her rights to exercise an option then held shall be only as follows:
DEATH OR DISABILITY: If an optionee's employment or consulting relationship or tenure on the Board of Directors is terminated by death or disability, such optionee or such optionee's qualified representative (in the event of the optionee's mental disability) or the optionee's estate (in the event of optionee's death) shall have the right for a period of twelve (12) months (or such longer period as the Board may determine at the date of grant or during the term of the option) following the date of such death or disability to exercise the option to the extent the optionee was entitled to exercise such option on the date of the optionee's death or disability; provided the actual date of exercise is in no event after the expiration of the term of the option. To the extent the option is not exercised within such period the option will terminate. An optionee's "estate" shall mean the optionee's legal representative or any person who acquires the right to exercise an option by reason of the optionee's death.
CAUSE: If by determination of the Board an optionee's employment or consulting relationship is terminated (1) because such optionee has committed an act of embezzlement, fraud, dishonesty, breach of fiduciary duty to the Company, or deliberately disregarded the rules of the Company which resulted in loss, damage or injury to the Company, or (2) because the optionee has made any unauthorized disclosure of any of the secrets or confidential information of the Company, induced any client or customer of the Company to break any contract with the Company or induced any principal for whom the Company acts as agent to terminate such agency relations, or engaged in any conduct which constitutes unfair competition with the Company, or (3) if an optionee (including an optionee who is a director) is removed from any office of the Company or from the Company's Board by any bank regulatory agency, the optionee shall have the right for a period of thirty (30) days to exercise the option to the extent the option was exercisable on the date of termination; provided that the date of exercise is in no event after the expiration of the term of the option. To the extent the option is not exercised within such period the option will terminate. In making any determination pursuant to this paragraph, the Board shall act fairly and shall give the optionee whose employment or Consultant status has been terminated an opportunity to appear and be heard at a hearing before the full Board and present evidence on the optionee's behalf. For the purpose of this paragraph, termination of employment or Consultant status shall be deemed to occur when the Company dispatches notice or advice to the optionee that the optionee's employment or status as a Consultant is terminated, and not at the time of optionee's receipt thereof.
OTHER REASONS: If an optionee's employment or consulting relationship or tenure on the Board of Directors is terminated for any reason other than those mentioned above under "Death or Disability" and "Cause," the optionee may, within three (3) months (or such longer period as the Board may determine at the date of grant or during the term of the option) following such termination, exercise the option to the extent such option was exercisable on the date of termination of the optionee's employment or status as a director or Consultant; provided the date of exercise is in no event after the expiration of the term of the option and provided further that any option which is exercised more than three (3) months following termination shall be treated as a nonstatutory option whether or not it was designated as such at the time it was granted. To the extent the option is not exercised within such period the option will terminate.
TERMS AND CONDITIONS APPLICABLE TO ALL OPTIONS
The following terms and conditions shall apply to all options granted pursuant to the 2000 Plan:
EXERCISE OF OPTIONS
To the extent the right to purchase Shares has vested under an optionee's stock option agreement, options may be exercised from time to time by delivering payment therefor in cash, certified check, official bank check, or the equivalent thereof acceptable to the Company, together with written notice to the Secretary of the Company, identifying the option or part thereof being exercised and specifying the number of Shares for which payment is being tendered. In addition, an option may also be exercised by (1) the delivery and surrender of shares of Company common stock which have been owned by the optionee for at least six (6) months or such other period as the Board may require and have an aggregate fair market value on the date of surrender equal to the exercise price; or (2) by delivery to the Company of an exercise notice instructing the Company to deliver the certificates for the Shares purchased to a designated brokerage firm and a copy of irrevocable instructions delivered to the brokerage firm to sell
the Shares acquired upon exercise of the option and to deliver to the Company from the sale proceeds sufficient cash to pay the exercise price and any applicable withholding taxes arising as a result of the exercise.
The Company shall deliver to the optionee, which delivery shall be not less than fifteen (15) days and not more than thirty (30) days after the giving of such notice, without transfer or issue tax to the optionee (or other person entitled to exercise the option), at the principal office of the Company, or such other place as shall be mutually acceptable, a certificate or certificates for such Shares dated the date the options were validly exercised; provided, however, that the time of such delivery may be postponed by the Company for such period as may be required for it with reasonable diligence to comply with any requirements of law.
TRANSFERABILITY OF OPTION AND SHARES
Each option shall be transferable only by will or the laws of descent and distribution or as may otherwise be permitted under Rule 16b-3 or Section 422 of the IRC and shall be exercisable during the optionee's lifetime only by the optionee, or in the event of disability, the optionee's qualified representative. In addition, in order for Shares acquired upon exercise of incentive stock options to receive the tax treatment afforded such Shares, the Shares may not be disposed of within two (2) years from the date of the option grant nor within one (1) year after the date of transfer of such Shares to the option.
WITHHOLDING
The Company shall have the right to condition the issuance of Shares in
connection with the exercise of an option upon payment by the optionee of any
applicable taxes required to be withheld under federal, state or local tax laws
or regulations in connection with such exercise. An optionee may elect to pay
any such tax by (1) requesting the Company to withhold a sufficient number of
Shares from the total number of Shares issuable upon exercise of the option, or
(2) delivering a sufficient number of shares of Company common stock which have
been held by the optionee for at least six (6) months (or such other period as
the Board may require) to the Company. The value of shares withheld or delivered
for such purpose shall be the fair market value of such shares on the date the
exercise becomes taxable as determined by the Board. Such an election is subject
to approval or disapproval by the Board, and if the optionee is subject to
Section 16 of the Exchange Act, the timing of the election must satisfy the
requirements of Rule 16b-3.
OTHER TERMS AND CONDITIONS
Options may also contain such other provisions, which shall not be inconsistent with any of the foregoing terms, as the Board shall deem appropriate. No option, however, nor anything contained in the 2000 Plan, shall confer upon any optionee any right to continue in the employ or in the status as a director or Consultant of the Company, nor limit in any way the right of the Company to terminate an optionee's employment or status as a Consultant at any time.
ADJUSTMENT OF, AND CHANGES IN, THE SHARES
CHANGES IN CAPITALIZATION
In the event the shares of common stock of the Company, as presently constituted, shall be changed into or exchanged for a different number or kind of shares of stock or other securities of the Company or of another corporation (whether by reason of reorganization, merger, consolidation, recapitalization, reclassification, stock split, reverse stock split, combination of shares, or otherwise), or if the number of shares of common stock of the Company shall be increased through the payment of a stock dividend, there shall be substituted for or added to each Share of common stock of the Company theretofore appropriated or thereafter subject or which may become subject to an option under the 2000 Plan, the number and kind of shares of stock or other securities into which each outstanding share of common stock of the Company shall be so changed, or for which each Share shall be exchanged, or to which each such Share shall be entitled, as the case may be. In addition, appropriate adjustment shall be made in the number and kind of Shares as to which outstanding options, or portions thereof then unexercised, shall be exercisable, so that any optionee's proportionate interest in the Company by reason of his or her rights under unexercised portions of such options shall be maintained as before the occurrence of such event. Such adjustment in outstanding options shall be made without change in the total price of the unexercised portion of the option, and with a corresponding adjustment in the option price per share.
DISSOLUTION, LIQUIDATION, SALE OR MERGER
In the event of a proposed (i) dissolution or liquidation of the Company; (ii) reorganization, merger, or consolidation of the Company, with the result that (A) the Company is not the surviving corporation, or (B) the Company becomes a subsidiary of another corporation, which shall be deemed to have occurred if another corporation shall own, directly or indirectly, eighty percent (80%) or more of the aggregate voting power of all outstanding equity securities of the Company; or (iii) sale of substantially all the assets of the Company to another corporation; or (iv) sale of the equity securities of the Company representing eighty percent (80%) or more of the aggregate voting power of all outstanding equity securities of the Company to any person or entity, or any group of persons and/or entities acting in concert, then in those events, the Company will deliver to each optionee no less than thirty (30) days prior to each event, written notification of the event and the optionee's right to exercise all options granted under the 2000 Plan, whether or not vested under the 2000 Plan or applicable stock option agreement, and all outstanding options granted under the 2000 Plan will completely vest and become immediately exercisable prior to the occurrence of the event. This right of exercise will be conditional upon execution of a final plan of dissolution or liquidation, or a definitive agreement of reorganization, merger or consolidation. Upon occurrence of the event, all outstanding options and the 2000 Plan will terminate; provided, however, that any outstanding options not exercised as of the occurrence of the event will not terminate if a successor corporation assumes the outstanding options or substitutes for the options, new options covering shares of the successor corporation's stock with appropriate adjustments as to the number, kind and prices of shares, and substantially on the same terms as the outstanding options.
NOTICE OF ADJUSTMENTS; FRACTIONAL SHARES
To the extent the adjustments specified in paragraphs (a) and (b) above relate to stock or securities of the Company, such adjustments shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. No right to purchase fractional shares shall result from any adjustment in options pursuant to this Section 8. In case of any such adjustment, the shares subject to the option shall be rounded down to the nearest whole share. Notice of any adjustment shall be given by the Company to each holder of an option which is so adjusted, and such adjustment (whether or not such notice is given) shall be effective and binding for all purposes of the 2000 Plan.
Any issue by the Company of shares of stock of any class, or securities convertible into shares of any class, shall not affect the number or price of shares of common stock subject to the option, and no adjustment by reason thereof shall be made. The grant of an option pursuant to the 2000 Plan shall not affect in any way the right or power of the Company to make adjustments, reclassifications, reorganizations or changes of its capital or business structure or to merge or to consolidate or to dissolve, liquidate or sell, or transfer all or any part of its business or assets.
AMENDMENT, EFFECTIVENESS AND TERMINATION OF THE PLAN
The Board shall have complete power and authority to terminate or amend
the 2000 Plan; provided, however, that the Board shall not, without the approval
of the shareholders of the Company, amend the 2000 Plan in a manner that
requires shareholder approval for continued compliance with the terms of Rule
16b-3 as promulgated or amended under the Exchange Act, Section 422 of the IRC,
any successor rules, or other regulatory authority. Except as provided in
Section 8, no termination, modification or amendment of the 2000 Plan may
adversely affect the rights of an optionee to whom an option was previously
granted under the 2000 Plan, without the consent of such optionee. Any consent
required by the preceding sentence may be obtained in any manner deemed
appropriate by the Board.
The 2000 Plan shall become effective upon adoption by the Board, and subject to the approval by the shareholders of the Company and consummation of the merger and the transactions contemplated by the Agreement and Plan of Reorganization and Merger dated March 1, 2000 by and among American River Holdings, ARH Interim National Bank and North Coast Bank, N.A.
The 2000 Plan, unless sooner terminated, shall terminate on ______________, ten (10) years from the date the 2000 Plan was originally adopted by the Board. An option may not be granted under the 2000 Plan after the 2000 Plan is terminated.
INFORMATION TO OPTIONEES
The Company shall provide to each optionee, during the period for which he or she has one or more outstanding options, copies of all annual reports and all other information which is provided to shareholders of the Company. The Company shall not be required to provide such information to key employees whose duties in connection with the Company assure their access to equivalent information.
PRIVILEGES OF STOCK OWNERSHIP; SECURITIES LAW COMPLIANCE
No optionee shall be entitled to the privileges of stock ownership as to any Shares not actually issued and delivered to the optionee. The Company shall diligently endeavor to comply with all securities laws applicable to the 2000 Plan.
NOTICE OF SALE
An optionee shall give the Company notice of any sale or other disposition of any Shares acquired upon exercise of an incentive stock option, not more than five days after such sale or disposition.
INDEMNIFICATION
To the extent permitted by applicable law in effect from time to time, no member of the Board Of Directors or the Board of Directors itself shall be liable for any action or omission of any other member of the Board of Directors or the Board of Directors itself nor for any act or omission on the member's own part, excepting only the member's own willful misconduct or gross negligence. The Company shall pay expenses incurred by, and satisfy a judgment or fine rendered or levied against, a present or former director or member of the Board of Directors in any action against such person (whether or not the Company is joined as a party defendant) to impose liability or a penalty on such person for an act alleged to have been committed by the Company or by such person while a director or member of the Board of Directors arising with respect to the 2000 Plan or administration thereof or out of membership on the Board of Directors, or all or any combination of the preceding; provided the director or member of the Board of Directors was acting in good faith, within what such director or member of the Board of Directors reasonably believed to have been the scope of his or her employment or authority and for a purpose which he or she reasonably believed to be in the best interests of the Company or its shareholders. Payments authorized hereunder include amounts paid and expenses incurred in settling any such action or threatened action. This section does not apply to any action instituted or maintained in the right of the Company by a shareholder or holder of a voting trust certificate representing shares of the Company. The provisions of this section shall apply to the estate, executor, administrator, heirs, legatees or devisees of a director or member of the Board of Directors, and the term "person" as used in this section shall include the estate, executor, administrator, heirs, legatees or devisees of such person.
AMERICAN RIVER HOLDINGS
INCENTIVE STOCK OPTION AGREEMENT
Date of Grant: ______________
American River Holdings, a California corporation (the "Company"), has granted to (the "Optionee"), an option (the "Option") to purchase a total of _______________ shares of Common Stock, at the price determined as provided herein, and in all respects subject to the terms, definitions and provisions of American River Holdings 2000 Stock Option Plan (the "2000 Plan"). The terms defined in the 2000 Plan shall have the same defined meanings herein.
1. NATURE OF THE OPTION.
This Option is intended to qualify as an Incentive Stock Option as defined in Section 422 of the IRC.
2. EXERCISE PRICE.
The exercise price is $______________ for each share of Common Stock, which price is not less than the fair market value per share of the Common Stock on the date of grant.
3. EXERCISE OF OPTION.
This Option shall be exercisable during its term in accordance with the provisions of section 5 of the 2000 Plan as follows:
(a) RIGHT TO EXERCISE.
(i) This Option shall vest cumulatively from the date of grant of the Option, exercisable during a period of _________ months after the date of grant as follows: ______% of the Shares subject to the Option shall be vested on the first anniversary of the date of grant, and an additional _______% of the Shares subject to the Option shall vest on each anniversary of the date of grant thereafter.
(ii) This Option may not be exercised for less than ten (10) shares nor for a fraction of a share.
(iii) In the event of Optionee's death, disability or other termination of employment, the exercisability of the Option is governed by Sections 5, 6, 7 and 8 below.
(b) METHOD OF EXERCISE. This Option shall be exercisable by written notice which shall state the election to exercise the Option, the number of shares in respect of which the Option is being exercised, and such other representations and agreements as may be required by the Company pursuant to the provisions of the 2000 Plan. Such written notice shall be signed by the Optionee and shall be delivered in person or by certified mail to the Secretary of the Company accompanied by payment of the exercise price, as applicable.
No Shares will be issued pursuant to the exercise of an Option unless such issuance and such exercise shall comply with all relevant provisions of law and the requirements of any stock exchange or inter-dealer quotation system upon which the Shares may then be listed or quoted. Assuming such compliance, the Shares shall be considered transferred to the Optionee on the date on which the Option is exercised with respect to such Shares. An Optionee shall have no rights as a shareholder of the Company with respect to any Shares until the issuance of a stock certificate to the Optionee for such Shares.
4. METHOD OF PAYMENT.
Payment of the exercise price shall be by cash, certified check, official bank check, or by the delivery of previously owned shares of the Company's Common Stock held for the requisite period to avoid a charge to the Company's reported earnings and with a fair market value on the date of surrender equal to the exercise price. In addition, the Option may be exercised by delivery to the Company of (i) a copy of irrevocable written instructions provided by the Optionee to a designated brokerage firm to effect the immediate sale of the purchased Shares and remit to the Company, out of the sale proceeds available on the settlement date, sufficient funds to cover the aggregate exercise price payable for the purchased Shares plus all applicable federal, state and local income and employment taxes required to be withheld by the Company by reason of such purchase and (ii) written instructions to the Company to deliver the certificates for the purchased Shares directly to such brokerage firm in order to complete the sale transaction.
5. TERMINATION OF STATUS AS AN EMPLOYEE FOR ANY REASON OTHER THAN CAUSE.
If Optionee ceases to serve as an Employee, he may, but only within three (3) months after the date he ceases to be an Employee of the Company, exercise this Option to the extent that the Option was vested as of the date of such termination; provided that in no event is the date of exercise beyond expiration of the Option. To the extent that the Option was not vested as of the date of such termination, or if Optionee does not exercise this Option within the time specified herein, the Option shall terminate.
6. TERMINATION OF STATUS AS AN EMPLOYEE FOR CAUSE.
If Optionee's status as an Employee is terminated for Cause, as provided in Section 5(d) of the 2000 Plan, this Option shall terminate on the thirtieth (30th) day after the date of termination of employment. "Cause" may consist of an act of embezzlement; fraud; dishonesty; breach of fiduciary duty to the Company; deliberate disregard of the rules of the Company which results in loss, damage or injury to the Company; the unauthorized disclosure of any of the secrets or confidential information of the Company; the inducement of any client or customer of the Company to break any contract with
the Company or the inducement of any principal for whom the Company acts as agent to terminate such agency relations; engagement in any conduct which constitutes unfair competition with the Company; or the removal of Optionee from any office of the Company by any bank regulatory agency.
7. DISABILITY OF OPTIONEE.
Notwithstanding the provisions of Section 5 above, if Optionee is unable to continue his or her employment with the Company as a result of his or her disability (as defined below), he or she may, within twelve (12) months from the date of termination of employment, exercise his or her Option to the extent the Option was vested as of the date of such termination; provided that in no event is the date of exercise beyond expiration of the Option; and, provided further, that, in certain situations, an exercise after three (3) months following such termination may preclude favorable tax treatment normally accorded incentive stock options (i.e., the Option will be taxed as a nonstatutory stock option). To the extent that the Option was not vested as of the date of termination, or if Optionee does not exercise such Option within the time specified herein, the Option shall terminate. For purposes of this provision, "disability" shall mean the inability of Optionee to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment and shall be determined by the Board of Directors or the Committee on the basis of such medical evidence as the Board of Directors or Committee deems warranted under the circumstances.
8. DEATH OF OPTIONEE.
In the event of the death of Optionee while Optionee is an Employee of the Company or during the three (3) month period referred to in Section 5 above, the Option may be exercised, at any time within twelve (12) months following the date of death, by Optionee's estate or by a person who acquired the right to exercise the Option by bequest or inheritance, but only to the extent the Option was vested as of the date of death; provided that in no event is the date of exercise beyond expiration of the Option.
9. NON-TRANSFERABILITY OF OPTION.
This Option may not be transferred in any manner otherwise than by will or by the laws of descent or distribution or as permitted under the 2000 Plan, and may be exercised during the Optionee's lifetime only by the Optionee. The terms of this Option shall be binding upon the executors, administrators, heirs, successors and assigns of the Optionee.
10. TERM OF OPTION.
Subject to earlier termination as provided in the 2000 Plan, this Option shall terminate years from the date of grant of this Option, and may be exercised during such term only in accordance with the 2000 Plan and the terms of this Option.
11. EARLY DISPOSITION OF STOCK.
Optionee understands that if he or she disposes of any shares received under this Option within two (2) years after the date of this Agreement or within one (1) year after such shares were transferred to him, he will be treated for federal income tax purposes as having received ordinary income at the
time of such disposition in an amount generally measured by the difference between the exercise price and the lower of the fair market value of the shares at the date of the exercise or the fair market value of the shares at the date of disposition. Optionee agrees to notify the Company in writing within 5 days after the date of any disposition of the Shares acquired by exercise of this Option. Optionee understands that if he or she disposes of such shares at any time after the expiration of such two (2) year and one (1) year holding periods, any gain on such sale will be taxed as long-term capital gain.
12. QUALIFICATION AS AN INCENTIVE STOCK OPTION.
Optionee understands that the Option is intended to qualify as an "incentive stock option" within the meaning of Section 422 of the IRC. Optionee understands, further, that the exercise price for the shares subject to this Option has been determined in accordance with the 2000 Plan at a price not less than 100% (or, if Optionee owned at the time of grant more than 10% of the voting securities of the Company, 110%) of the fair market value of the shares at the time of grant. The Company believes that the methodology by which the fair market value was determined at such time represented a good faith attempt, as defined in the IRC and the regulations thereunder, at reaching an accurate appraisal of the fair market value of the shares. Optionee understands and acknowledges, however, that the Company shall not be responsible for any additional tax liability incurred by Optionee in the event that the Internal Revenue Service were to determine that the Option does not qualify as an incentive stock option, for any reason, including a determination that the valuation did not represent a good faith attempt to value the shares.
AMERICAN RIVER HOLDINGS
By: /s/
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Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Board of Directors or the Committee upon any questions arising under the 2000 Plan.
OPTIONEE
AMERICAN RIVER HOLDINGS
NONSTATUTORY STOCK OPTION AGREEMENT
Date of Grant: ___________________
American River Holdings, a California corporation (the "Company"), has granted to (the "Optionee"), an option (the "Option") to purchase a total of ____________ shares of Common Stock, at the price determined as provided herein, and in all respects subject to the terms, definitions and provisions of American River Holdings 2000 Stock Option Plan (the "2000 Plan"). The terms defined in the 2000 Plan shall have the same defined meanings herein.
1. NATURE OF THE OPTION.
This Option is intended by the Company and the Optionee to be a
nonstatutory stock option and does not qualify for any special tax benefits to
the Optionee. This Option is not an Incentive Stock Option within the meaning of
Section 422 of the IRC.
2. EXERCISE PRICE.
The exercise price is $_________________ for each share of Common Stock, which price is not less than the fair market value per share of the Common Stock on the date of grant.
3. EXERCISE OF OPTION.
This Option shall be exercisable during its term in accordance with the provisions of Section 5 of the 2000 Plan as follows:
(a) RIGHT TO EXERCISE.
(i) This Option shall vest cumulatively from the date of grant of the Option, exercisable during a period of _____ months after the date of grant as follows: _______% of the Shares subject to the Option shall be vested on the first anniversary of the date of grant, and an additional __________% of the Shares subject to the Option shall vest on each anniversary of the date of grant thereafter.
(ii) This Option may not be exercised for less than ten (10) shares nor for a fraction of a share.
(iii) In the event of Optionee's death, disability or other termination of employment, the exercisability of the Option is governed by Sections 5, 6, 7 and 8 below.
(b) METHOD OF EXERCISE. This Option shall be exercisable by written notice which shall state the election to exercise the Option, the number of shares in respect of which the Option is being exercised, and such other representations and agreements as may be required by the Company pursuant to the provisions of the 2000 Plan. Such written notice shall be signed by the Optionee and shall be delivered in person or by certified mail to the Secretary of the Company accompanied by payment of the exercise price, as applicable.
No Shares will be issued pursuant to the exercise of an Option unless such issuance and such exercise shall comply with all relevant provisions of law and the requirements of any stock exchange or inter-dealer quotation system upon which the Shares may then be listed or quoted. Assuming such compliance, the Shares shall be considered transferred to the Optionee on the date on which the Option is exercised with respect to such Shares. An Optionee shall have no rights as a shareholder of the Company with respect to any Shares until the issuance of a stock certificate to the Optionee for such Shares.
4. METHOD OF PAYMENT.
Payment of the exercise price shall be by cash, certified check, official bank check, or by the delivery of previously owned shares of the Company's Common Stock held for the requisite period to avoid a charge to the Company's reported earnings and with a fair market value on the date of surrender equal to the exercise price. In addition, the Option may be exercised by delivery to the Company of (i) a copy of irrevocable written instructions provided by the Optionee to a designated brokerage firm to effect the immediate sale of the purchased Shares and remit to the Company, out of the sale proceeds available on the settlement date, sufficient funds to cover the aggregate exercise price payable for the purchased Shares plus all applicable federal, state and local income and employment taxes required to be withheld by the Company by reason of such purchase and (ii) written instructions to the Company to deliver the certificates for the purchased Shares directly to such brokerage firm in order to complete the sale transaction.
5. TERMINATION OF STATUS AS AN EMPLOYEE OR DIRECTOR FOR ANY REASON OTHER THAN CAUSE.
If an Optionee ceases to serve as an Employee or Director, he may, but only within three (3) months [or such longer period as the committee determines] after the date he ceases to be an Employee or Director of the Company, exercise this Option to the extent that the Option was vested as of the date of such termination; provided that in no event is the date of exercise beyond expiration of the Option. To the extent that the Option was not vested as of the date of such termination, or if Optionee does not exercise this Option within the time specified herein, the Option shall terminate.
6. TERMINATION OF STATUS AS AN EMPLOYEE FOR CAUSE; REMOVAL FROM BOARD OF DIRECTORS.
If an Optionee's status as an Employee is terminated for Cause, as provided in Section 5(d) of the 2000 Plan, this Option shall terminate on the thirtieth (30th) day after the date of termination of employment. "Cause" may consist of an act of embezzlement; fraud; dishonesty; breach of fiduciary duty to the Company; deliberate disregard of the rules of the Company which result in loss, damage or injury to the Company; the unauthorized disclosure of any of the secrets or confidential information of the Company; the inducement of any client or customer of the Company to break any contract with the Company or the inducement of any principal for whom the Company acts as agent to terminate such agency relations; engagement in any conduct which constitutes unfair competition with the Company; or the removal of Optionee from any office of the Company by any bank regulatory agency.
If an Optionee's status as a director of the Company is terminated because the Optionee is removed from the Board of Directors by any bank regulatory agency, this Option shall terminate on the thirtieth (30th) day after such removal.
7. DISABILITY OF OPTIONEE.
Notwithstanding the provisions of Section 5 above, if Optionee is unable to continue his or her employment with or status as a director of the Company as a result of his or her disability (as defined below), he or she may, within twelve (12) months from the date of termination of employment or membership on the Board of Directors (or such longer period as the Board of Directors or Committee determines), exercise his or her Option to the extent the Option was vested as of the date of such termination; provided that in no event is the date of exercise beyond expiration of the Option. To the extent that the Option was not vested as of the date of termination, or if Optionee does not exercise such Option within the time specified herein, the Option shall terminate. For purposes of this provision, "disability" shall mean the inability of Optionee to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment and shall be determined by the Board of Directors or the Committee on the basis of such medical evidence as the Board of Directors or Committee deems warranted under the circumstances.
8. DEATH OF OPTIONEE.
In the event of the death of Optionee while Optionee is an Employee or Director or during the period referred to in Section 5 above, the Option may be exercised, at any time within twelve (12) months following the date of death (or such longer period as the Committee determines), by Optionee's estate or by a person who acquired the right to exercise the Option by bequest or inheritance, but only to the extent the Option was vested as of the date of death; provided that in no event is the date of exercise beyond the date of expiration of the Option.
9. NON-TRANSFERABILITY OF OPTION.
This Option may not be transferred in any manner otherwise than by will or by the laws of descent or distribution or as permitted under the 2000 Plan, and may be exercised during the Optionee's lifetime only be the Optionee. The terms of this Option shall be binding upon the executors, administrators, heirs, successors and assigns of the Optionee.
10. TERM OF OPTION.
Subject to earlier termination as provided in the 2000 Plan, this Option shall terminate ____________ years from the date of grant of this Option, and may be exercised during such term only in accordance with the plan and the terms of this Option.
11. TAXATION UPON EXERCISE OF OPTION.
Optionee understands that upon exercise of this Option, he or she will generally recognize income for tax purposes in an amount equal to the excess of the then fair market value of the Shares over the exercise price. The Company will be required to withhold tax from Optionee's current compensation with respect to such income; to the extent that Optionee's current compensation is insufficient to satisfy the withholding tax liability, the Company may require the Optionee to make a cash payment to cover such liability as a condition of exercise of this Option. (The Optionee may elect to pay such tax by (i) requesting the Company to withhold a sufficient number of shares from the shares otherwise due upon exercise or (ii) by delivering a sufficient number of shares of the Company's Common Stock which have been previously held by the Optionee for such period of time as the Board of Directors or Committee may require. The aggregate value of the shares withheld or delivered, as determined by the Board of Directors or Committee, must be sufficient to satisfy all such applicable taxes, except as otherwise permitted by the Board of Directors or Committee. If the Optionee is subject to Section 16 of the
Securities Exchange Act of 1934, as amended, the Optionee's election must be made in compliance with rules and procedures established by the Committee.)
AMERICAN RIVER HOLDINGS
By: /s/
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Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Board of Directors or the Committee upon any questions arising under the 2000 Plan.
OPTIONEE
ANNEX G
TEXT OF PROPOSED AMENDMENTS TO THE AMERICAN RIVER HOLDINGS ARTICLES OF INCORPORATION AND BYLAWS TO PROVIDE FOR THE CLASSIFICATION OF THE BOARD OF DIRECTORS
The articles of incorporation of American River Holdings shall be
amended by adding thereto a new Article Seven which shall read as set forth
below:
Seven: CLASSIFIED BOARD OF DIRECTORS.
(a) The number of directors which shall constitute the whole board
of directors of this corporation shall be specified in the
bylaws of the corporation.
(b) In the event that the authorized number of directors shall be
fixed at nine (9) or more, the board of directors shall be
divided into three classes: Class I, Class II and Class III,
each consisting of a number of directors equal as nearly as
practicable to one-third the total number of directors.
Directors in Class I shall initially serve for a term expiring
at the 2001 annual meeting of shareholders, directors in Class
II shall initially serve for a term expiring at the 2002
annual meeting of shareholders, and directors in Class III
shall initially serve for a term expiring at the 2003 annual
meeting of shareholders. Thereafter, each director shall serve
for a term ending at the third annual shareholders meeting
following the annual meeting at which such director was
elected. In the event that the authorized number of directors
shall be fixed with at least six (6) but less than nine (9),
the board of directors shall be divided into two classes,
designated Class I and Class II, each consisting of one-half
of the directors or as close an approximation as possible. At
each annual meeting, each of the successors to the directors
of the class whose term shall have expired at such annual
meeting shall be elected for a term running until the second
annual meeting next succeeding his or her election and until
his or her successor shall have been duly elected and
qualified. The foregoing notwithstanding, each director shall
serve until his or her successor shall have been duly elected
and qualified, unless he or she shall resign, die, become
disqualified or disabled, or shall otherwise be removed.
(c) At each annual election, the directors chosen to succeed those
whose terms then expire shall be identified as being of the
same class as the directors they succeed, unless, by reason of
any intervening changes in the authorized number of directors,
the board of directors shall designate one or more
directorships whose term then expires as directorships of
another class in order more nearly to achieve equality in the
number of directors among the classes. When the board of
directors fills a vacancy resulting from the resignation,
death, disqualification or removal of a director, the director
chosen to fill that vacancy shall be of the same class as the
director he or she succeeds, unless, by reason of any previous
changes in the authorized number of directors, the board of
directors shall designate the vacant directorship as a
directorship of another class in order more nearly to achieve
equality in the number of directors among the classes.
(d) Notwithstanding the rule that the classes shall be as nearly
equal in number of directors as possible, in the event of any
change in the authorized number of directors, each director
then continuing to serve as such will nevertheless continue as
a director of the class of which he or she is a member, until
the expiration of his current term or his or her earlier
resignation, death, disqualification or removal. If any newly
created directorship or vacancy on the board of directors,
consistent with the rule that the three classes shall be as
nearly equal in number of directors as possible, may be
allocated to one or two or
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more classes, the board of directors shall allocate it to that
of the available class whose term of office is due to expire
at the earliest date following such allocation.
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Section 3.4 of Article III of the American River Holdings bylaws shall be amended in its entirety to read as follows:
SECTION 3.4. ELECTION AND TERM OF OFFICE. The directors shall be elected annually by the shareholders at the annual meeting of the shareholders; provided, that if for any reason, the annual meeting or an adjournment thereof is not held or the directors are not elected thereat, then the directors may be elected at any special meeting of the shareholders called and held for that purpose. The term of office of the directors shall, except as provided in Section 3.5, begin immediately after their election and shall continue until their respective successors are elected and qualified. In the event that the authorized number of directors shall be fixed at nine (9) or more, the board of directors shall be divided into three classes, designated Class I, Class II and Class III. Each class shall consist of one-third of the directors or as close an approximation as possible. The initial term of office of the directors of Class I shall expire at the annual meeting to be held during fiscal year 2001, the initial term of office of the directors of Class II shall expire at the annual meeting to be held during fiscal year 2002 and the initial term of office of the directors of Class III shall expire at the annual meeting to be held during fiscal year 2003. At each annual meeting, commencing with the annual meeting to be held during fiscal year 2001, each of the successors to the directors of the class whose term shall have expired at such annual meeting shall be elected for a term running until the third annual meeting next succeeding his or her election until his or her successor shall have been duly elected and qualified. In the event that the authorized number of directors shall be fixed with at least six (6) but less than nine (9), the board of directors shall be divided into two classes, designated Class I and Class II. Each class shall consist of one-half of the directors or as close an approximation as possible. At each annual meeting, each of the successors to the directors of the class whose term shall have expired at such annual meeting shall be elected for a term running until the second annual meeting next succeeding his or her election and until his or her successor shall have been duly elected and qualified. Notwithstanding the rule that the classes shall be as nearly equal in number of directors as possible, in the event of any change in the authorized number of directors, each director then continuing to serve as such shall nevertheless continue as a director of the class of which he or she is a member until the expiration of his or her current term, or his or her prior death, resignation or removal. At such annual election, the directors chosen to succeed those whose terms then expire shall be of the same class as the directors they succeed, unless, by reason of any intervening changes in the authorized number of directors, the board of directors shall designate one or more directorships whose term then expires as directorships of another class in order more nearly to achieve equality of number of directors among the classes.
This Section 3.4 may be amended or repealed only by approval of the board of directors and the outstanding shares (as defined in Section 152 of the California General Corporation Law) voting as a single class, notwithstanding Section 903 of the California General Corporation Law.
ANNEX H
TEXT OF PROPOSED AMENDMENTS TO AMERICAN RIVER HOLDINGS ARTICLES OF INCORPORATION AND BYLAWS TO ELIMINATE CUMULATIVE VOTING IN THE ELECTION OF DIRECTORS
The articles of incorporation of American River Holdings shall be amended by adding thereto a new Article Eight which shall read as set forth below:
EIGHT: CUMULATIVE VOTING.
No holder of any class of stock of the corporation shall be entitled to cumulative votes in connection with any election of directors of the corporation.
Section 2.8 of Article II of the American River Holdings bylaws shall be amended in its entirety to read as follows:
SECTION 2.8. VOTING. The shareholders entitled to notice of any meeting or to vote at any such meeting shall be only persons in whose name shares stand on the stock records of the corporation on the record date determined in accordance with Section 2.9 of this Article II.
Voting of shares of the corporation shall in all cases be subject to the provisions of Sections 700 through 711, inclusive, of the Code.
The shareholders' vote may be by voice or ballot; provided, however, that any election for directors must be by ballot if demanded by any shareholder before the voting has begun. On any matter other than election of directors, any shareholder may vote part of the shares in favor of the proposal and refrain from voting the remaining shares or vote them against the proposal (other than the election of directors), but, if the shareholder fails to specify the number of shares which the shareholder is voting affirmatively, it will be conclusively presumed that the shareholder's approving vote is with respect to all shares that the shareholder is entitled to vote. If a quorum is present, the affirmative vote of the majority of the shares represented at the meeting and entitled to vote on any matter (other than the election of directors) shall be the act of the shareholders, unless the vote of a greater number or voting by classes is required by the Code or by the articles of incorporation.
No holder of any class of stock of the corporation shall be entitled to cumulate votes in connection with any election of directors of the corporation.
In any election of directors, the candidates receiving the highest number of affirmative votes of the shares entitled to be voted for them, up to the number of directors to be elected, shall be elected. Votes against the director and votes withheld shall have no legal effect.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 317 of the California Corporations Code authorizes a court to award, or a corporation's board of directors to grant, indemnity to directors, officers, employees and other agents of the corporation ("Agents") in terms sufficiently broad to permit indemnification under certain circumstances for liabilities (including reimbursement for expenses incurred) arising under the Securities Act of 1933, as amended.
Article Five of the Registrant's articles of incorporation, as amended,
authorizes the Registrant to indemnify its Agents, through bylaw provisions,
agreements, votes of shareholders or disinterested directors or otherwise, in
excess of the indemnification otherwise permitted by Section 317 of the
California Corporations Code, subject to the applicable limits set forth in
Section 204 of the California Corporations Code with respect to actions for
breach of duty to the Registrant and its shareholders. Section 5.1 through 5.11
of Article V of the Registrant's bylaws provides for mandatory indemnification
of each director of the Registrant except as prohibited by law.
The Registrant maintains a directors' and officers' liability insurance
policy that indemnifies the Registrant's directors and officers against certain
losses in connection with claims made against them for certain wrongful acts. In
addition, the Registrant has entered into separate indemnification agreements
with its directors and officers that require the Registrant, among other things,
(i) to maintain directors' and officers' insurance in reasonable amounts in
favor of those individuals, and (ii) to indemnify them against certain
liabilities that may arise by reason of their status or service as Agents of the
Registrant to the fullest extent permitted by California law.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) Exhibits.
Exhibit
Number Document Description
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2.1 Agreement and Plan of Reorganization and Merger by and among the
Registrant, ARH Interim National Bank and North Coast Bank, N.A.,
dated as of March 1, 2000 (included as Annex A to the joint proxy
statement/prospectus).
3.1 Articles of Incorporation, as amended.
3.2 Bylaws, as amended.
4.1 Specimen of the Registrant's common stock certificate.
5.1 Opinion of Coudert Brothers.
8.1 Form of Tax Opinion of Perry-Smith LLP.
10.1 Lease agreement between American River Bank and Spieker
Properties, L.P., a California limited partnership, dated April
1, 2000, related to 1545 River Park Drive, Suite 107, Sacramento,
California.
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10.2 Lease agreement and addendum between American River Bank and
Bradshaw Plaza Group each dated January 31, 2000, related to 9750
Business Park Drive, Sacramento, California.
10.3 Lease agreement between American River Bank and Marjorie G.
Taylor dated April 5, 1984, and addendum dated July 16, 1997,
related to 10123 Fair Oaks Boulevard, Fair Oaks, California.
10.4 Lease agreement between American River Bank and Sandalwood Land
Company dated August 28, 1996, related to 2240 Douglas Boulevard,
Suite 100, Roseville, California.
10.5 Lease agreement between American River Holdings and Union Bank of
California dated June 29, 1999, related to 1540 River Park Drive,
Suite 108, Sacramento, California.
*10.6 American River Holdings 1995 Stock Option Plan.
*10.7 Form of Nonqualified Stock Option Agreement under the 1995 Stock
Option Plan.
*10.8 Form of Incentive Stock Option Agreement under the 1995 Stock
Option Plan.
*10.9 American River Bank 401(k) Plan and amendment no. 1 dated April
1, 1998.
*10.10 American River Holdings Stock Option Gross-Up Plan and Agreement,
as amended, dated May 20, 1998.
*10.11 American River Bank Deferred Compensation Plan dated May 1, 1998.
*10.12 American River Bank Deferred Fee Plan dated April 1, 1998.
*10.13 Employment agreement with David T. Taber dated May 29, 1996, and
amendment dated July 18, 1996.
*10.14 Employment agreement with William L. Young dated May 29, 1996,
and amendment dated July 18, 1996.
*10.15 American River Bank Incentive Compensation Plan for Executive
Management dated July 17, 1996.
*10.16 American River Bank Employee Severance Policy dated March 18,
1998.
*10.17 American River Bank Employee Stock Purchase Plan.
21.1 The Registrant's only subsidiaries are American River Bank and
First Source Capital.
23.1 Consent of Perry-Smith LLP (American River Holdings).
23.2 Consent of Perry-Smith LLP (North Coast Bank, N.A.).
23.3 Consent of Richardson & Company (North Coast Bank, N.A.)
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23.4 Consent of Coudert Brothers (included in Exhibit 5.1).
23.5 Consent of Seapower Carpenter Capital, Inc., dba Carpenter and
Company
23.6 Consent of Hoefer & Arnett Incorporated.
23.7 Consent of Perry-Smith LLP.
24.1 Power of Attorney (see Page II-5).
99.1 Form of proxy to be used in soliciting shareholders of American
River Holdings for the annual meeting.
99.2 Form of proxy to be used in soliciting shareholders of North
Coast Bank, N.A. for the special meeting.
*99.3 Employment agreement with Kathy A. Pinkard dated December 16,
1999.
*99.4 Change of control employment agreement with Debbie K. Fakalata
dated December 16, 1999.
*99.5 Change of control employment agreement with David A. Wattell
dated December 16, 1999.
99.6 Lease agreement and addenda between Windsor Oaks National Bank
(predecessor to North Coast Bank, N.A.) and Hotel St. Paul
Partnership, each dated April 30, 1992, related to 8733 Lakewood
Drive, Windsor, California.
99.7 Lease agreement and addendum between North Coast Bank, N.A. and
Rosario LLC, each dated September 1, 1998, related to 50 Santa
Rosa Avenue, Santa Rosa, California.
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* Denotes management contracts, compensatory plans or arrangements.
(B) Financial Statement Schedules: Not applicable.
ITEM 22. UNDERTAKINGS
(1) The undersigned registrant hereby undertakes: (a) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) To include any prospectus required by section 10(a)(3) of the Securities Act of 1933, as amended; (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in the volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Securities and Exchange Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; (b) That, for the
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purpose of determining any liability under the Securities Act of 1933, as amended, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof; (c) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
(2) The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, as amended, each filing of the registrant's annual report pursuant to section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(3) The undersigned registrant hereby undertakes as follows: that prior to any public re-offering of the securities registered hereunder through use of a prospectus which is a part of this registration statement, by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c), the issuer undertakes that such re-offering prospectus will the contain information called for by the applicable registration form with respect to re-offerings by persons who may be deemed underwriters, in addition to the information called for by the other Items of the applicable form.
(4) The registrant undertakes that every prospectus (i) that is filed pursuant to paragraph (3) immediately preceding, or (ii) that purports to meet the requirements of section 10(a)(3) of the Securities Act of 1933, as amended, and is used in connection with an offering of securities subject to Rule 415, will be filed as a part of an amendment to the registration statement and will not be used until such amendment is effective, and that, for purposes of determining any liability under the Securities Act of 1933, as amended, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(5) Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended, may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933, as amended, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933, as amended, and will be governed by the final adjudication of such issue.
(6) The undersigned registrant hereby undertakes to respond to requests for information that is incorporated by reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of Form S-4, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request.
(7) The undersigned registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective.
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Sacramento, State of California, on the 4th day of May 2000.
AMERICAN RIVER HOLDINGS
By /s/ DAVID T. TABER
---------------------------------------
David T. Taber
President and
Chief Executive Officer
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POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the person whose signature appears below constitutes and appoints David T. Taber and Mitchell A. Derenzo, and each of them, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments, including post-effective amendments, to this Registration Statement, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent or his substitute or substitutes may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirement of the Securities Act of 1933, as amended, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ DAVID T. TABER Director, President and Chief May 4, 2000
------------------------------- Executive Officer (Principal
David T. Taber Executive Officer) and Director
/s/ MITCHELL A. DERENZO Chief Financial Officer (Principal May 4, 2000
------------------------------- Financial Officer and Principal
Mitchell A. Derenzo Accounting Officer)
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II-5
Signature Title Date
--------- ----- ----
/s/ SAM J. GALLINA Chairman and Director May 4, 2000
-------------------------------
Sam J. Gallina
/s/ JAMES O. BURPO Director May 4, 2000
-------------------------------
James O. Burpo
/s/ CHARLES D. FITE Director May 4, 2000
-------------------------------
Charles D. Fite
/s/ WAYNE C. MATTHEWS Director May 4, 2000
-------------------------------
Wayne C. Matthews, M.D.
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/s/ ROGER J. TAYLOR Director May 4, 2000
-------------------------------
Roger J. Taylor, D.D.S.
/s/ STEPHEN H. WAKS Director May 4, 2000
-------------------------------
Stephen H. Waks
/s/ WILLIAM L. YOUNG Director May 4, 2000
-------------------------------
William L. Young
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II-6
EXHIBIT INDEX
Exhibit
Number Document Description
------ --------------------
2.1 Agreement and Plan of Reorganization and Merger by and
among the Registrant, ARH Interim National Bank and
North Coast Bank, N.A., dated as of March 1, 2000
(included as Annex A to the joint proxy
statement/prospectus).
3.1 Articles of Incorporation, as amended.
3.2 Bylaws, as amended.
4.1 Specimen of the Registrant's common stock certificate.
5.1 Opinion of Coudert Brothers.
8.1 Form of Tax Opinion of Perry-Smith LLP.
10.1 Lease agreement between American River Bank and Spieker
Properties, L.P., a California limited partnership,
dated April 1, 2000, related to 1545 River Park Drive,
Suite 107, Sacramento, California.
10.2 Lease agreement and addendum between American River
Bank and Bradshaw Plaza Group each dated January 31,
2000, related to 9750 Business Park Drive, Sacramento,
California.
10.3 Lease agreement between American River Bank and
Marjorie G. Taylor dated April 5, 1984, and addendum
dated July 16, 1997, related to 10123 Fair Oaks
Boulevard, Fair Oaks, California.
10.4 Lease agreement between American River Bank and
Sandalwood Land Company dated August 28, 1996, related
to 2240 Douglas Boulevard, Suite 100, Roseville,
California.
10.5 Lease agreement between American River Holdings and
Union Bank of California dated June 29, 1999, related
to 1540 River Park Drive, Suite 108, Sacramento,
California.
*10.6 American River Holdings 1995 Stock Option Plan.
*10.7 Form of Nonqualified Stock Option Agreement under the
1995 Stock Option Plan.
*10.8 Form of Incentive Stock Option Agreement under the 1995
Stock Option Plan.
*10.9 American River Bank 401(k) Plan and amendment no. 1
dated April 1, 1998.
*10.10 American River Holdings Stock Option Gross-Up Plan and
Agreement, as amended, dated May 20, 1998.
*10.11 American River Bank Deferred Compensation Plan dated
May 1, 1998.
II-7
|
*10.12 American River Bank Deferred Fee Plan dated April 1,
1998.
*10.13 Employment agreement with David T. Taber dated May 29,
1996, and amendment dated July 18, 1996.
*10.14 Employment agreement with William L. Young dated May
29, 1996, and amendment dated July 18, 1996.
*10.15 American River Bank Incentive Compensation Plan for
Executive Management dated July 17, 1996.
*10.16 American River Bank Employee Severance Policy dated
March 18, 1998.
*10.17 American River Bank Employee Stock Purchase Plan.
21.1 The Registrant's only subsidiaries are American River
Bank and First Source Capital.
23.1 Consent of Perry-Smith LLP (American River Holdings).
23.2 Consent of Perry-Smith LLP (North Coast Bank, N.A.).
23.3 Consent of Richardson & Company (North Coast Bank,
N.A.)
23.4 Consent of Coudert Brothers (included in Exhibit 5.1).
23.5 Consent of Seapower Carpenter Capital, Inc., dba
Carpenter and Company
23.6 Consent of Hoefer & Arnett Incorporated.
23.7 Consent of Perry-Smith LLP.
24.1 Power of Attorney (see Page II-5).
99.1 Form of proxy to be used in soliciting shareholders of
American River Holdings for the annual meeting.
99.2 Form of proxy to be used in soliciting shareholders of
North Coast Bank, N.A. for the special meeting.
*99.3 Employment agreement with Kathy A. Pinkard dated
December 16, 1999.
*99.4 Change of control employment agreement with Debbie K.
Fakalata dated December 16, 1999.
*99.5 Change of control employment agreement with David A.
Wattell dated December 16, 1999.
99.6 Lease agreement and addenda between Windsor Oaks
National Bank (predecessor to North Coast Bank, N.A.)
and Hotel St. Paul Partnership, each dated April 30,
1992, related to 8733 Lakewood Drive, Windsor,
California.
II-8
|
99.7 Lease agreement and addendum between North Coast Bank,
N.A. and Rosario LLC, each dated September 1, 1998,
related to 50 Santa Rosa Avenue, Santa Rosa,
California.
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* Denotes management contracts, compensatory plans or arrangements.
II-9
ARTICLES OF INCORPORATION
OF
AMERICAN RIVER HOLDINGS
ONE: NAME
The name of the corporation is:
American River Holdings
TWO: PURPOSE
The purpose of this corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporations Law of California other than the banking business, the trust company business or the practice of a profession permitted to be incorporated by the California Corporations Code.
THREE: AUTHORIZED STOCK
The corporation is authorized to issue only one class of shares of stock, designated "Common Stock," and the total number of shares which the corporation is authorized to issue is 20,000,000.
FOUR: DIRECTOR LIABILITY
The liability of the directors of the corporation for monetary damages shall be eliminated to the fullest extent permissible under California law.
FIVE: INDEMNIFICATION
The corporation is authorized to indemnify its agents (as defined from time to time in Section 317 of the California Corporations Code) to the fullest extent permissible under California law. Any amendment, repeal or modification of the provisions of this Article shall not adversely affect any right or protection of an agent of the corporation existing at the time of such amendment, repeal or modification.
SIX: AGENT FOR SERVICE OF PROCESS
The name and address in this State of this corporation's initial agent for service of process is:
Gary Steven Findley 1470 North Hundley Street Anaheim, California 92806
IN WITNESS WHEREOF, for the purpose of forming this corporation under the laws of the State of California, the undersigned, constituting the incorporator of this corporation, has executed these Articles of Incorporation.
Dated: January 23, 1995
/s/ GARY STEVEN FINDLEY
--------------------------
Gary Steven Findley
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I hereby declare that I am the person who executed the foregoing Articles of Incorporation, which execution is my act and deed.
/s/ GARY STEVEN FINDLEY
--------------------------
Gary Steven Findley
|
AMERICAN RIVER HOLDINGS
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
The undersigned, David T. Taber and Patricia Thaxter, certify that:
1. They are the president and the assistant corporate secretary, respectively, of American River Holdings, a California corporation.
2. Article 3 (three) of the Articles of Incorporation of this corporation is amended to read as follows:
The corporation is authorized to issue only one class of shares of stock, "Common Stock," and the total number of shares which the corporation is authorized to issue is 20,000,000. Upon the amendment of this article, each outstanding share of Common Stock is split into 1.50 shares.
3. The foregoing amendment of the Articles of Incorporation has been duly approved by the Board of Directors at their regular meeting held April 21, 1999.
4. The corporation has only one class of shares outstanding and the amendment affects only a stock split.
/s/ David T. Taber /s/ Patricia Thaxter ------------------------ ----------------------------- David T. Taber Patricia Thaxter President Assistant Corporate Secretary Chief Executive Officer Dated: May 7, 1999 |
David T. Taber and Patricia Thaxter further declare under penalty of perjury under the laws of the State of California that they have read the foregoing certificate, and know the contents thereof and that the same is true of their own knowledge.
/s/ David T. Taber /s/ Patricia Thaxter ------------------------ ----------------------------- David T. Taber Patricia Thaxter |
Dated May 7, 1999
BYLAWS
OF
AMERICAN RIVER HOLDINGS
ARTICLE I
OFFICES
SECTION 1.1. PRINCIPAL OFFICE. The principal executive office of the corporation is hereby located at such place as the board of directors (the "board") shall determine. The board is hereby granted full power and authority to change said principal executive office from one location to another.
SECTION 1.2. OTHER OFFICES. Other business offices may, at any time, be established by the board at such other places as it deems appropriate.
ARTICLE II
MEETINGS OF SHAREHOLDERS
SECTION 2.1. PLACE OF MEETINGS. Meetings of shareholders may be held at such place within or outside the state of California designated by the board. In the absence of any such designation, shareholders' meetings shall be held at the principal executive office of the corporation.
SECTION 2.2. ANNUAL MEETING. The annual meeting of shareholders shall be held for the election of directors on a date and at a time designated by the board. The date so designated shall be within fifteen (15) months after the last annual meeting. At such meeting, directors shall be elected, and any other proper business within the power of the shareholders may be transacted.
SECTION 2.3. SPECIAL MEETINGS. Special meetings of the shareholders may be called at any time by the board, the chairperson of the board, the president, or by the holders of shares entitled to cast not less than ten percent (10%) of the votes at such meeting. If a special meeting is called by any person or persons other than the board, the request shall be in writing, specifying the time of such meeting and the general nature of the business proposed to be transacted, and shall be delivered personally or by registered mail to the chairperson of the board, the president, any vice president or the secretary of the corporation. The officer receiving the request shall cause notice to be promptly given to the shareholders entitled to vote that a meeting will be held at a time requested by the person or persons calling the meeting, not less than 35 nor more than 60 days after receipt of the request. If the notice is not given
within 20 days after receipt of the request, the person or persons requesting the meeting may give the notice. Nothing in this paragraph shall be construed as limiting, fixing or affecting the time when a meeting of shareholders called by action of the board may be held.
SECTION 2.4. NOTICE OF MEETINGS. Written notice, in accordance with Section 2.5 of this Article II, of each annual or special meeting of shareholders shall be given not less than 10 nor more than 60 days before the date of the meeting to each shareholder entitled to vote thereat. Such notice shall state the place, date and hour of the meeting and (a) in the case of a special meeting, the general nature of the business to be transacted, and no other business may be transacted, or (b) in the case of the annual meeting, those matters which the board, at the time of the mailing of the notice, intends to present for action by the shareholders, but, subject to the provisions of applicable law, any proper matter may be presented at the meeting for such action. The notice of any meeting at which directors are to be elected shall include the names of nominees intended at the time of the notice to be presented by the board for election.
If action is proposed to be taken at any meeting for approval of (a) a contract
or transaction in which a director has a direct or indirect financial interest,
pursuant to Section 310 of the California Corporations Code, as amended (the
"Code"), (b) an amendment of the articles of incorporation, pursuant to Section
902 of the Code, (c) a reorganization of the corporation, pursuant to Section
1201 of the Code, (d) a voluntary dissolution of the corporation, pursuant to
Section 1900 of the Code, or (e) a distribution in dissolution other than in
accordance with the rights of outstanding preferred shares, pursuant to Section
2007 of the Code, the notice shall also state the general nature of that
proposal.
SECTION 2.5. MANNER OF GIVING NOTICE. Notice of a shareholders' meeting shall be given either personally or by first-class mail or telegraphic or other written communication, charges prepaid, addressed to the shareholder at the address of that shareholder appearing on the books of the corporation or given by the shareholder to the corporation for the purpose of notice. If no such address appears on the corporation's books or is given, notice shall be deemed to have been given if sent to that shareholder by first-class mail or telegraphic or other written communication to the corporation's principal executive office or if published at least once in a newspaper of general circulation in the county in which the principal executive office is located. Notice shall be deemed to have been given at the time when delivered personally or deposited in the mail or sent by telegram or other means of written communication. An affidavit of mailing or other means of giving any notice in accordance with the above provisions, executed by the secretary, assistant secretary or any transfer agent, shall be prima facie evidence of the giving of the notice.
If any notice addressed to the shareholder at the address of such shareholder appearing on the books of the corporation is returned to the corporation by the United States Postal Service marked to indicate that the United States Postal Service is unable to deliver the notice to the shareholder at such address, all future notices shall be deemed to have been duly given without further mailing if the same shall be available for the shareholder upon written demand of the shareholder at the principal executive office of the corporation for a period of one year from the date of the giving of the notice to all other shareholders.
SECTION 2.6. QUORUM. A majority of the shares entitled to vote, represented in person or by proxy, shall constitute a quorum at any meeting of shareholders. The shareholders present at a duly called or held meeting at which a quorum is present may continue to transact business until adjournment notwithstanding the withdrawal of enough shareholders to leave less than a quorum, if any action taken (other than adjournment) is approved by at least a majority of the shares required to constitute a quorum.
SECTION 2.7. ADJOURNED MEETING AND NOTICE THEREOF. Any shareholders' meeting, whether or not a quorum is present, may be adjourned from time to time by the vote of a majority of the shares represented either in person or by proxy at the meeting, but in the absence of a quorum (except as provided in Section 2.6 of this Article II) no other business may be transacted at such meeting.
When any meeting of shareholders, either annual or special, is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place are announced at the meeting at which the adjournment is taken. However, when any shareholders' meeting is adjourned for more than 45 days from the date set for the original meeting, or, if after adjournment a new record date is fixed for the adjourned meeting, notice of the adjourned meeting shall be given to each shareholder of record entitled to vote at the meeting. At any adjourned meeting the corporation may transact any business which might have been transacted at the original meeting.
SECTION 2.8. VOTING. The shareholders entitled to notice of any meeting or to vote at any such meeting shall be only persons in whose name shares stand on the stock records of the corporation on the record date determined in accordance with Section 2.9 of this Article II.
Voting of shares of the corporation shall in all cases be subject to the provisions of Sections 700 through 711, inclusive, of the Code.
The shareholders' vote may be by voice or ballot; provided, however, that any election for directors must be by ballot if demanded by any shareholder before the voting has begun. On any matter other than election of directors, any shareholder may vote part of the shares in favor of the proposal and refrain from
voting the remaining shares or vote them against the proposal (other than the election of directors), but, if the shareholder fails to specify the number of shares which the shareholder is voting affirmatively, it will be conclusively presumed that the shareholder's approving vote is with respect to all shares that the shareholder is entitled to vote. If a quorum is present, the affirmative vote of the majority of the shares represented at the meeting and entitled to vote on any matter (other than the election of directors) shall be the act of the shareholders, unless the vote of a greater number or voting by classes is required by the Code or by the articles of incorporation.
Subject to the following sentence and the provisions of Section 708 of the Code, every shareholder entitled to vote at any election of directors may cumulate such shareholder's votes and give one candidate a number of votes equal to the number of directors to be elected multiplied by the number of votes to which the shareholder's shares are entitled, or distribute the shareholder's votes on the same principle among as many candidates as the shareholder thinks fit. No shareholder shall be entitled to cumulate votes for any candidate or candidates pursuant to the preceding sentence unless such candidate's or candidates' names have been placed in nomination prior to the voting and the shareholder has given notice at the meeting and prior to the voting of the shareholder's intention to cumulate the shareholder's votes. If any one shareholder has given such notice, all shareholders may cumulate their votes for candidates in nomination.
In any election of directors, the candidates receiving the highest number of affirmative votes of the shares entitled to be voted for them, up to the number of directors to be elected, shall be elected. Votes against the director and votes withheld shall have no legal effect.
SECTION 2.9. RECORD DATE. The board may fix, in advance, a record date for the determination of the shareholders entitled to notice of any meeting or to vote or to receive payment of any dividend or other distribution, or allotment of any rights, or to exercise any rights in respect of any other lawful action. The record date so fixed shall be not more than 60 days nor less than 10 days prior to the date of the meeting nor more than 60 days prior to any other action. When a record date is so fixed, only shareholders of record on that date are entitled to notice of and to vote at the meeting or to receive the dividend, distribution, or allotment of rights, or to exercise rights, as the case may be, notwithstanding any transfer of shares on the books of the corporation after the record date. A record date for a meeting of shareholders shall apply to any adjournment of the meeting unless the board fixes a new record date for the adjourned meeting. The board shall fix a new record date if the meeting is adjourned for more than 45 days.
If no record date is fixed by the board, the record date for determining shareholders entitled to notice of or to vote at a
meeting of shareholders shall be at the close of business on the business day next preceding the day on which notice of the meeting is given or, if notice is waived, the close of business on the business day next preceding the day on which the meeting is held. The record date for determining shareholders for any purpose other than as set forth in this Section 2.9 or Section 2.11 of this Article II shall be at the close of business on the day on which the board adopts the resolution relating thereto, or the sixtieth day prior to the date of such other action, whichever is later.
SECTION 2.10. CONSENT OF ABSENTEES. The transactions of any meeting of shareholders, however called and noticed, and wherever held, are as valid as though had at a meeting duly held after regular call and notice, if a quorum is present either in person or by proxy, and if, either before or after the meeting, each of the persons entitled to vote, who was not present in person or by proxy, signs a written waiver of notice, or a consent to the holding of the meeting or an approval of the minutes thereof. All such waivers, consents or approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Attendance of a person at a meeting shall constitute a waiver of notice of and presence at such meeting, except when the person objects, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened and except that attendance at a meeting is not a waiver of any right to object to the consideration of matters required by the Code to be included in the notice but not so included, if such objection is expressly made at the meeting. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of shareholders need be specified in any written waiver of notice, consent to the holding of the meeting or approval of the minutes of the meeting, except that if action is taken or proposed to be taken for approval of any of those matters specified in the second paragraph of Section 2.4 of this Article II, the waiver of notice, consent or approval shall state the general nature of the proposal.
SECTION 2.11. ACTION BY WRITTEN CONSENT WITHOUT A MEETING. Subject to Section 603 of the Code, any action which may be taken at any annual or special meeting of shareholders may be taken without a meeting and without prior notice if a consent in writing, setting forth the action so taken, is signed by the holders of the outstanding shares, or their proxies, having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. All such consents shall be filed with the secretary of the corporation and shall be maintained in the corporate records; provided, however, that (1) unless the consents of all shareholders entitled to vote have been solicited in writing, notice of any shareholder approval without a meeting by less than unanimous consent shall be given, as provided by Section 603(b) of the Code, and (2) in the case of election of directors, such a consent shall be effective only if signed by the holders of all outstanding shares entitled to vote
for the election of directors; provided, however, that subject to applicable law, a director may be elected at any time to fill a vacancy on the board that has not been filled by the directors, by the written consent of the holders of a majority of the outstanding shares entitled to vote for the election of directors. Any written consent may be revoked by a writing received by the secretary of the corporation prior to the time that written consents of the number of shares required to authorize the proposed action have been filed with the secretary.
Unless a record date for voting purposes be fixed as provided in Section 2.9 of this Article II, the record date for determining shareholders entitled to give consent pursuant to this Section 2.11, when no prior action by the board has been taken, shall be the day on which the first written consent is given.
SECTION 2.12. PROXIES. Every person entitled to vote shares or execute written consents has the right to do so either in person or by one or more persons authorized by a written proxy executed and dated by such shareholder and filed with the secretary of the corporation prior to the convening of any meeting of the shareholders at which any such proxy is to be used or prior to the use of such written consent. A validly executed proxy which does not state that it is irrevocable continues in full force and effect unless: (1) revoked by the person executing it prior to the vote pursuant thereto, by a writing delivered to the corporation stating that the proxy is revoked or by a subsequent proxy executed by the person executing the prior proxy and presented to the meeting, or as to any meeting of shareholders, by attendance at such meeting and voting in person by the person executing the proxy; or (2) written notice of the death or incapacity of the maker of the proxy is received by the corporation before the vote pursuant thereto is counted; provided, however, that no proxy shall be valid after the expiration of 11 months from the date of its execution unless otherwise provided in the proxy.
SECTION 2.13. INSPECTORS OF ELECTION. In advance of any meeting of shareholders, the board may appoint any persons other than nominees for office as inspectors of election to act at such meeting and any adjournment thereof. If no inspectors of election are so appointed, or if any persons so appointed fail to appear or refuse to act, the chairperson of any such meeting may, and on the request of any shareholder or shareholder's proxy shall, appoint inspectors of election at the meeting. The number of inspectors shall be either one (1) or three (3). If inspectors are appointed at a meeting on the request of one or more shareholders or proxies, the holders of a majority of shares or their proxies present shall determine whether one (1) or three (3) inspectors are to be appointed.
The duties of such inspectors shall be as prescribed by Section 707(b) of the Code and shall include: determining the number of shares outstanding and the voting power of each; determining the shares represented at the meeting; determining the existence of a quorum; determining the authenticity, validity and the effect of
proxies; receiving votes, ballots or consents; hearing and determining all challenges and questions in any way arising in connection with the right to vote; counting and tabulating all votes or consents; determining when the polls shall close; determining the result; and doing such acts as may be proper to conduct the election or vote with fairness to all shareholders. If there are three inspectors of election, the decision, act or certificate of a majority is effective in all respects as the decision, act or certificate of all.
SECTION 2.14. CONDUCT OF MEETINGS. The president shall preside at all meetings of the shareholders and shall conduct each such meeting in a businesslike and fair manner, but shall not be obligated to follow any technical, formal or parliamentary rules or principles of procedure. The presiding officer's rulings on procedural matters shall be conclusive and binding on all shareholders, unless at the time of ruling a request for a vote is made to the shareholders entitled to vote and represented in person or by proxy at the meeting, in which case the decision of a majority of such shares shall be conclusive and binding on all shareholders. Without limiting the generality of the foregoing, the presiding officer shall have all the powers usually vested in the presiding officer of a meeting of shareholders.
ARTICLE III
DIRECTORS
SECTION 3.1. POWERS. Subject to the provisions of the Code and any limitations in the articles of incorporation and these bylaws relating to actions required to be approved by the shareholders or by the outstanding shares, the business and affairs of the corporation shall be managed and all corporate powers shall be exercised by or under the direction of the board. The board may delegate the management of the day-to-day operations of the business of the corporation to a management company or other person provided that the business and affairs of the corporation shall be managed and all corporate powers shall be exercised under the ultimate direction of the board. Without prejudice to such general powers, but subject to the same limitations, it is hereby expressly declared that the board shall have the following powers in addition to the other powers enumerated in these bylaws:
(a) to select and remove all the other officers, agents and employees of the corporation, prescribe any qualifications, powers and duties for them that are consistent with law, the articles of incorporation or these bylaws, fix their compensation, and require from them security for faithful service;
(b) to conduct, manage and control the affairs and business of the corporation and to make such rules and regulations therefor not inconsistent with law, the articles of incorporation or these bylaws, as they may deem best;
(c) to adopt, make and use a corporate seal, to prescribe the forms of certificates of stock, and to alter the form of such seal and of such certificates from time to time as in their judgment they may deem best;
(d) to authorize the issuance of shares of stock of the corporation from time to time, upon such terms and for such consideration as may be lawful;
(e) to borrow money and incur indebtedness for the purposes of the corporation, and to cause to be executed and delivered therefor, in the corporate name, promissory and capital notes, bonds, debentures, deeds of trust, mortgages, pledges, hypothecations or other evidences of debt and securities therefor and any agreements pertaining thereto;
(f) to prescribe the manner in which and the person or persons by whom any or all of the checks, drafts, notes, contracts and other corporate instruments shall be executed;
(g) to appoint and designate, by resolution adopted by a majority of the authorized number of directors, one or more committees, each consisting of two or more directors, including the appointment of alternate members of any committee who may replace any absent member at any meeting of the committee; and
(h) generally, to do and perform every act or thing whatever that may pertain to or be authorized by the board of directors of a corporation incorporated under the laws of this state.
SECTION 3.2. NUMBER AND QUALIFICATION OF DIRECTORS. The authorized number of directors of the corporation shall not be less than eight (8) nor more than fifteen (15) until changed by an amendment of the articles of incorporation or by a bylaw amending this Section 3.2 duly adopted by the vote or written consent of holders of a majority of the outstanding shares entitled to vote. The exact number of directors shall be fixed from time to time, within the range specified in the articles of incorporation or in this Section 3.2: (i) by a resolution duly adopted by the board; (ii) by a bylaw or amendment thereof duly adopted by the vote of a majority of the shares entitled to vote represented at a duly held meeting at which a quorum is present, or by the written consent of the holders of a majority of the outstanding shares entitled to vote; or (iii) by approval of the shareholders (as defined in Section 153 of the Code.
SECTION 3.3. NOMINATIONS OF DIRECTORS. Nominations for election of members of the board may be made by the board or by any holder of any outstanding class of capital stock of the corporation entitled to vote for the election of directors. Notice of intention to make any nominations (other than for persons named in the notice of the meeting called for the election of directors) shall be made in writing and shall be delivered or mailed to the
president of the corporation by the later of: (i) the close of business twenty-one (21) days prior to any meeting of shareholders called for the election of directors; or (ii) ten (10) days after the date of mailing of notice of the meeting to shareholders. Such notification shall contain the following information to the extent known to the notifying shareholder: (a) the name and address of each proposed nominee; (b) the principal occupation of each proposed nominee; (c) the number of shares of capital stock of the corporation owned by each proposed nominee; (d) the name and residence address of the notifying shareholder; (e) the number of shares of capital stock of the corporation owned by the notifying shareholder; (f) the number of shares of capital stock of any bank, bank holding company, savings and loan association or other depository institution owned beneficially by the nominee or by the notifying shareholder and the identities and locations of any such institutions; and (g) whether the proposed nominee has ever been convicted of or pleaded nolo contendere to any criminal offense involving dishonesty or breach of trust, filed a petition in bankruptcy or been adjudged bankrupt. The notification shall be signed by the nominating shareholder and by each nominee, and shall be accompanied by a written consent to be named as a nominee for election as a director from each proposed nominee. Nominations not made in accordance with these procedures shall be disregarded by the chairperson of the meeting, and upon his or her instructions, the inspectors of election shall disregard all votes cast for each such nominee. The foregoing requirements do not apply to the nomination of a person to replace a proposed nominee who has become unable to serve as a director between the last day for giving notice in accordance with this paragraph and the date of election of directors if the procedure called for in this paragraph was followed with respect to the nomination of the proposed nominee.
A copy of the preceding paragraph shall be set forth in the notice to shareholders of any meeting at which directors are to be elected.
SECTION 3.4. ELECTION AND TERM OF OFFICE. The directors shall be elected at each annual meeting of shareholders, but if any annual meeting is not held or the directors are not elected thereat, the directors may be elected at any special meeting of shareholders held for that purpose. Each director shall hold office until the next annual meeting and until a successor has been elected and qualified.
SECTION 3.5. VACANCIES. Vacancies on the board, except for a vacancy created by the removal of a director, may be filled by a majority of the remaining directors, though less than a quorum, or by a sole remaining director, and each director so elected shall hold office until the next annual meeting and until such director's successor has been elected and qualified. A vacancy on the board created by the removal of a director may only be filled by the vote of a majority of the shares entitled to vote represented at a duly held meeting at which a quorum is present, or by the written consent of the holders of all of the outstanding shares.
The shareholders may elect a director or directors at any time to fill any vacancy or vacancies not filled by the directors. Any such election by written consent other than to fill a vacancy created by removal requires the consent of a majority of the outstanding shares entitled to vote.
Any director may resign effective upon giving written notice to the chairperson of the board, the president, secretary, or the board, unless the notice specifies a later time for the effectiveness of such resignation. If the board accepts the resignation of a director tendered to take effect at a future time, the board or the shareholders shall have power to elect a successor to take office when the resignation is to become effective.
A vacancy or vacancies on the board shall be deemed to exist in case of the death, resignation or removal of any director, or if the authorized number of directors is increased, or if the shareholders fail, at any annual or special meeting of shareholders at which any director or directors are elected, to elect the full authorized number of directors to be voted for at that meeting.
The board may declare vacant the office of a director who has been declared of unsound mind by an order of court or convicted of a felony.
No reduction of the authorized number of directors shall have the effect of removing any director prior to the expiration of the director's term of office.
SECTION 3.6. PLACE OF MEETINGS. Regular or special meetings of the board shall be held at any place within or outside the state of California which has been designated in the notice of meeting or if there is no notice, at the principal executive office of the corporation, or at a place designated by resolution of the board or by the written consent of the board. Any regular or special meeting is valid wherever held if held upon written consent of all members of the board given either before or after the meeting and filed with the secretary of the corporation.
SECTION 3.7. REGULAR MEETINGS. Immediately following each annual meeting of shareholders, the board shall hold a regular meeting for the purpose of organization, any desired election of officers and the transaction of other business. Notice of this meeting shall not be required.
Other regular meetings of the board shall be held without notice either on the third Wednesday of each month at the hour of 7:00 p.m., or at such different date and time as the board may from time to time fix by resolution; provided, however, should said day fall upon a legal holiday observed by the corporation at its principal executive office, then said meeting shall be held at
the same time and place on the next succeeding full business day of the corporation. Call and notice of all regular meetings of the board are hereby dispensed with.
SECTION 3.8. SPECIAL MEETINGS. Special meetings of the board for any purpose or purposes may be called at any time by the chairperson of the board, the president, any vice president, the secretary or by any two directors.
Special meetings of the board shall be held upon four days' written notice by mail or 48 hours' notice delivered personally or by telephone, telegraph, telex or other similar means of communication. Any such notice shall be addressed or delivered to each director at the director's address as shown upon the records of the corporation or as given to the corporation by the director for purposes of notice or, if such address is not shown on such records or is not readily ascertainable, at the place in which the meetings of the directors are regularly held. Such notice may, but need not, specify the purpose of the meeting, or the place if the meeting is to be held at the principal executive office of the corporation.
Notice by mail shall be deemed to have been given at the time a written notice is deposited in the United States mails, postage prepaid. Any other written notice shall be deemed to have been given at the time it is personally delivered to the recipient or is delivered to a common carrier for transmission, or actually transmitted by the person giving the notice by electronic means or by facsimile transmission, to the recipient. Oral notice shall be deemed to have been given at the time it is communicated, in person or by telephone or wireless, to the recipient or to a person at the office of the recipient whom the person giving the notice has reason to believe will promptly communicate it to the recipient.
SECTION 3.9. QUORUM. A majority of the authorized number of directors
constitutes a quorum of the board for the transaction of business, except to
adjourn as hereinafter provided. Every act or decision done or made by a
majority of the directors present at a meeting duly held at which a quorum is
present shall be regarded as the act of the board, unless a greater number be
required by the articles of incorporation and subject to the provisions of
Section 310 of the Code (as to approval of contracts or transactions in which a
director has a direct or indirect material financial interest) and Section
317(e) of the Code (as to indemnification of directors). A meeting at which a
quorum is initially present may continue to transact business notwithstanding
the withdrawal of directors, if any action taken is approved by at least a
majority of the required quorum for such meeting.
SECTION 3.10. PARTICIPATION IN MEETINGS BY CONFERENCE TELEPHONE. Members of the board may participate in a meeting through use of a conference telephone or similar communications equipment, so long as all members participating in such meeting can hear one
another. Participation in a meeting pursuant to this Section 3.10 constitutes presence in person at such meeting.
SECTION 3.11. WAIVER OF NOTICE. Notice of a meeting need not be given to any director who signs a waiver of notice or a consent to holding the meeting or an approval of the minutes of the meeting, whether before or after the meeting, or who attends the meeting without protesting, before the meeting or at its commencement, the lack of notice to such director. All such waivers, consents or approvals shall be filed with the corporate records or made a part of the minutes of the meeting.
SECTION 3.12. ADJOURNMENT. A majority of the directors present, whether or not a quorum is present, may adjourn any directors' meeting to another time and place. Notice of the time and place of holding an adjourned meeting need not be given, unless the meeting is adjourned for more than twenty-four hours, in which case notice of the time and place shall be given before the time of the adjourned meeting to the directors who were not present at the time of the adjournment.
SECTION 3.13. ACTION WITHOUT MEETING. Any action required or permitted to be taken by the board may be taken without a meeting if all members of the board shall individually or collectively consent in writing to such action. Such written consent or consents shall be filed with the minutes of the proceedings of the board. Such action by written consent shall have the same effect as a unanimous vote of the board.
SECTION 3.14. FEES AND COMPENSATION. Directors and members of committees may receive such compensation, if any, for their services, and such reimbursement for expenses, as may be fixed or determined by the board. This Section 3.14 shall not be construed to preclude any director from serving the corporation in any other capacity as an officer, agent, employee or otherwise, and receiving compensation for those services.
SECTION 3.15. RIGHTS OF INSPECTION. Every director of the corporation shall have the absolute right at any reasonable time to inspect and copy all books, records and documents of every kind and to inspect the physical properties of the corporation and also of its subsidiary corporations, domestic or foreign. Such inspection by a director may be made in person or by agent or attorney, and the right of inspection includes the right to copy and make extracts.
SECTION 3.16. REMOVAL OF DIRECTOR WITHOUT CAUSE. Any or all of the directors of the corporation may be removed without cause if the removal is approved by the outstanding shares, subject to the following:
(a) Except if the corporation has a classified board, no director may be removed (unless the entire board is removed) when the votes cast against removal, or not consenting in writing to the removal, would be sufficient to elect the director if
voted cumulatively at an election at which the same total number of votes were cast (or, if the action is taken by written consent, all shares entitled to vote were voted) and the entire number of directors authorized at the time of the director's most recent election were then being elected.
(b) When by the provisions of the articles the holders of the shares of any class or series, voting as a class or series, are entitled to elect one or more directors, any director so elected may be removed only by the applicable vote of the holders of the shares of that class or series.
(c) When the corporation has a classified board, a director may not be removed if the votes cast against removal of the director, or not consenting in writing to the removal, would be sufficient to elect the director if voted cumulatively (without regard to whether shares may otherwise be voted cumulatively) at an election at which the same total number of votes were cast (or, if the action is taken by written consent, all shares entitled to vote were voted) and either the number of directors elected at the most recent annual meeting of shareholders, or if greater, the number of directors for whom removal is being sought, were then being elected.
SECTION 3.17. REMOVAL OF DIRECTORS BY SHAREHOLDER'S SUIT. The superior court of the proper county may, at the suit of the shareholders holding at least 10 percent of the number of outstanding shares of any class, remove from office any director in case of fraudulent or dishonest acts or gross abuse of authority or discretion with reference to the corporation and may bar from reelection any director so removed for a period prescribed by the court. The corporation shall be made a party to such action.
ARTICLE IV
OFFICERS
SECTION 4.1. OFFICERS. The officers of the corporation shall be a president, a secretary and a chief financial officer. The corporation may also have, at the discretion of the board, a chairperson of the board, a vice chairperson of the board, one or more vice presidents, one or more assistant secretaries, one or more assistant financial officers and such other officers as may be elected or appointed in accordance with the provisions of Section 4.3 of this Article IV. One person may hold two or more offices, except those of president and secretary.
SECTION 4.2. APPOINTMENT. The officers of the corporation, except such officers as may be appointed in accordance with the provisions of Section 4.3 or Section 4.5 of this Article IV, shall be chosen by, and shall serve at the pleasure of, the board, and shall hold their respective offices until their resignation,
removal or other disqualification from service, or until their respective successors shall be appointed, subject to the rights, if any, of an officer under any contract of employment.
SECTION 4.3. SUBORDINATE OFFICERS. The board may appoint, or may empower the president to appoint, such other officers as the business of the corporation may require, each to hold office for such period, have such authority and perform such duties as are provided in these bylaws or as the board may from time to time determine.
SECTION 4.4. REMOVAL AND RESIGNATION. Subject to the rights, if any, of an officer under any contract of employment, any officer may be removed, either with or without cause, by the board at any time, or, except in the case of an officer chosen by the board, by any officer upon whom such power of removal may be conferred by the board.
Any officer may resign at any time by giving written notice to the corporation without prejudice to the rights, if any, of the corporation under any contract to which the officer is a party. Any such resignation shall take effect at the date of the receipt of such notice or at any later time specified therein; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.
SECTION 4.5. VACANCIES. A vacancy in any office because of death, resignation, removal, disqualification or any other cause shall be filled in the manner prescribed in these bylaws for regular appointment to such office.
SECTION 4.6. CHAIRPERSON. The chairperson of the board, if there shall be such an officer, shall, if present, preside at all meetings of the board and exercise and perform such other powers and duties as may be assigned from time to time by the board.
SECTION 4.7. VICE CHAIRPERSON. The vice chairperson of the board, if there shall be such an officer, shall, in the absence of the chairperson of the board, preside at all meetings of the board and exercise and perform such other powers and duties as may be assigned from time to time by the board.
SECTION 4.8. PRESIDENT. Subject to such powers, if any, as may be given by the board to the chairperson of the board, if there shall be such an officer, the president is the general manager and chief executive officer of the corporation and has, subject to the control of the board, general supervision, direction and control of the business and affairs of the corporation. The president shall preside at all meetings of the shareholders and in the absence of both the chairperson of the board and the vice chairperson, or if there be none, at all meetings of the board. The president has the general powers and duties of management usually vested in the office of president and chief executive officer of a corporation and such other powers and duties as may be prescribed by the board.
SECTION 4.9. VICE PRESIDENT. In the absence or disability of the president, the vice presidents in order of their rank as fixed by the board or, if not ranked, the vice president designated by the board, shall perform all the duties of the president and, when so acting, shall have all the powers of, and be subject to all the restrictions upon, the president. The vice presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the bylaws, the board, the president or the chairperson of the board.
SECTION 4.10. SECRETARY. The secretary shall keep or cause to be kept, at the principal executive office or such other place as the board may order, a book of minutes of all meetings of shareholders, the board and its committees, with the time and place of holding, whether regular or special, and, if special, how authorized, the notice or waivers of notice thereof given, the names of those present at the board and committee meetings, the number of shares present or represented at shareholders' meetings, and the proceedings thereof.
The secretary shall keep, or cause to be kept, a copy of the bylaws of the corporation at the principal executive office or business office in accordance with Section 213 of the Code. The secretary shall keep, or cause to be kept, at the principal executive office or at the office of the corporation's transfer agent or registrar, if one is appointed, a record of its shareholders, or a duplicate record of its shareholders, giving the names and addresses of all shareholders and the number and class of shares held by each.
The secretary shall give, or cause to be given, notice of all the meetings of the shareholders, of the board and of any committees thereof required by these bylaws or by law to be given, shall keep the seal of the corporation in safe custody, and shall have such other powers and perform such other duties as may be prescribed by the board.
SECTION 4.11. ASSISTANT SECRETARY. The assistant secretary or the assistant secretaries, in the order of their seniority, shall, in the absence or disability of the secretary, or in the event of such officer's refusal to act, perform the duties and exercise the powers of the secretary and shall have such additional powers and discharge such duties as may be assigned from time to time by the president or by the board.
SECTION 4.12. CHIEF FINANCIAL OFFICER. The chief financial officer shall keep and maintain, or cause to be kept and maintained, adequate and correct books and records of the properties and financial and business transactions of the corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, retained earnings and shares, and shall send or cause to be sent to the shareholders of the corporation such financial statements and reports that by law or these bylaws are required to be sent to them. The books of
account shall at all times be open to inspection by any director of the corporation.
The chief financial officer shall deposit all monies and other valuables in the name and to the credit of the corporation with such depositories as may be designated by the board. The chief financial officer shall disburse the funds of the corporation as may be ordered by the board, shall render to the president and directors, whenever they request it, an account of all transactions engaged in as chief financial officer and of the financial condition of the corporation, and shall have such other powers and perform such other duties as may be prescribed by the board.
SECTION 4.13. ASSISTANT FINANCIAL OFFICER. The assistant financial officer or the assistant financial officers, in the order of their seniority, shall, in the absence or disability of the chief financial officer, or in the event of such officer's refusal to act, perform the duties and exercise the powers of the chief financial officer, and shall have such additional powers and discharge such duties as may be assigned from time to time by the president or by the board.
SECTION 4.14. SALARIES. The salaries of the officers shall be fixed from time to time by the board and no officer shall be prevented from receiving such salary by reason of the fact that such officer is also a director of the corporation.
SECTION 4.15. OFFICERS HOLDING MORE THAN ONE OFFICE. Any two or more offices, except those of president and secretary, may be held by the same person, but no officer shall execute, acknowledge or verify any instrument in more than one capacity.
SECTION 4.16. INABILITY TO ACT. In the case of absence or inability to act of any officer of the corporation and of any person herein authorized to act in his or her place, the board may from time to time delegate the powers or duties of such officer to any other officer, or any director or other person whom it may select.
ARTICLE V
INDEMNIFICATION
SECTION 5.1. DEFINITIONS. For use in this Article V, certain terms are defined as follows:
(a) "Agent": A director, officer, employee or agent of the corporation or a person who is or was serving at the request of the corporation as a director, officer, employee or agent of another foreign or domestic corporation, partnership, joint venture, trust, or other enterprise (including service with respect to employee benefit plans and service on creditors' committees with respect to any proceeding under
the Bankruptcy Code, assignment for the benefit of creditors or other liquidation of assets of a debtor of the corporation), or a person who was a director, officer, employee or agent of a foreign or domestic corporation which was a predecessor corporation of the corporation or of another enterprise at the request of the predecessor corporation.
(b) "Loss": All expenses, liabilities, and losses including attorneys' fees, judgments, fines, ERISA excise taxes and penalties, amounts paid or to be paid in settlement, any interest, assessments, or other charges imposed thereon, and any federal, state, local, or foreign taxes imposed on any Agent as a result of the actual or deemed receipt of any payments under this Article.
(c) "Proceeding": Any threatened, pending or completed action, suit or proceeding including any and all appeals, whether civil, criminal, administrative or investigative.
SECTION 5.2. RIGHT TO INDEMNIFICATION. Each person who was or is a party or is threatened to be made a party to or is involved (as a party, witness or otherwise) in any Proceeding, by reason of the fact that he or she, or a person of whom he or she is the legal representative, is or was an Agent, is entitled to indemnification. Agent shall be indemnified and held harmless by the corporation to the fullest extent authorized by law. The right to indemnification conferred in this Article V shall be a contract right. It is the corporation's intention that these bylaws provide indemnification in excess of that expressly permitted by Section 317 of the Code, as authorized by the corporation's articles of incorporation.
SECTION 5.3. AUTHORITY TO ADVANCE EXPENSES. The right to indemnification provided in Section 5.2 of these bylaws shall include the right to be paid, in advance of a Proceeding's final disposition, expenses incurred in defending that Proceeding, PROVIDED, HOWEVER, that if required by the California General Corporation Law, as amended, the payment of expenses in advance of the final disposition of the Proceeding shall be made only upon delivery to the corporation of an undertaking by or on behalf of the Agent to repay such amount if it shall ultimately be determined that he or she is not entitled to be indemnified by the corporation as authorized under this Article V or otherwise. The Agent's obligation to reimburse the corporation for advances shall be unsecured and no interest shall be charged thereon.
SECTION 5.4. RIGHT OF CLAIMANT TO BRING SUIT. If a claim under Section 5.2 or 5.3 of these bylaws is not paid in full by the corporation within thirty (30) days after a written claim has been received by the corporation, the claimant may at any time there-after bring suit against the corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall be entitled to be paid also the expenses (including attorneys' fees) of prosecuting such claim. It shall be a defense
to any such action (other than an action brought to enforce a claim for expenses incurred in defending a Proceeding in advance of its final disposition) that the claimant has not met the standards of conduct that make it permissible under the California General Corporation Law for the corporation to indemnify the claimant for the amount claimed. The burden of proving such a defense shall be on the corporation. Neither the failure of the corporation (including its board of directors, independent legal counsel, or its shareholders) to have made a determination prior to the commencement of such action that the indemnification of the claimant is proper under the circumstances because he or she has met the applicable standard of conduct set forth in the California General Corporation Law, nor an actual determination by the corporation (including its board of directors, independent legal counsel, or its shareholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that claimant has not already met the applicable standard of conduct.
SECTION 5.5. PROVISIONS NONEXCLUSIVE. The rights conferred on any person by this Article V shall not be exclusive of any other rights that such person may have or hereafter acquire under any statute, provision of the articles of incorporation, agreement, vote of shareholders or disinterested directors, or otherwise, both as to action in an official capacity and as to action in another capacity while holding such office. To the extent that any provision of the articles of incorporation, agreement, or vote of the shareholders or disinterested directors is inconsistent with these bylaws, the provision, agreement, or vote shall take precedence.
SECTION 5.6. AUTHORITY TO INSURE. The corporation may purchase and maintain insurance to protect itself and any Agent against any Loss asserted against or incurred by such person, whether or not the corporation would have the power to indemnify the Agent against such Loss under applicable law or the provisions of this Article V. If the corporation owns all or a portion of the shares of the company issuing the insurance policy, the company and/or the policy must meet one of the two sets of conditions set forth in Section 317 of the Code.
SECTION 5.7. SURVIVAL OF RIGHTS. The rights provided by this Article V shall continue as to a person who has ceased to be an Agent and shall inure to the benefit of the heirs, executors, and administrators of such person.
SECTION 5.8. SETTLEMENT OF CLAIMS. The corporation shall not be liable to indemnify any Agent under this Article V: (a) for any amounts paid in settlement of any action or claim effected without the corporation's written consent, which consent shall not be unreasonably withheld; or (b) for any judicial award, if the corporation was not given a reasonable and timely opportunity, at its expense, to participate in the defense of such action.
SECTION 5.9. EFFECT OF AMENDMENT. Any amendment, repeal or modification of
this Article V shall not adversely affect any right or protection of any Agent existing at the time of such amendment, repeal or modification.
SECTION 5.10. SUBROGATION. Upon payment under this Article V, the corporation shall be subrogated to the extent of such payment to all of the rights of recovery of the Agent, who shall execute all papers required and shall do everything that may be necessary to secure such rights, including the execution of such documents necessary to enable the corporation effectively to bring suit to enforce such rights.
SECTION 5.11. NO DUPLICATION OF PAYMENTS. The corporation shall not be liable under this Article V to make any payment in connection with any claim made against the Agent to the extent the Agent has otherwise actually received payment (under any insurance policy, agreement, vote or otherwise) of the amounts otherwise indemnifiable hereunder.
ARTICLE VI
OTHER PROVISIONS
SECTION 6.1. INSPECTION OF CORPORATE RECORDS.
(a) A shareholder or shareholders of the corporation holding at least five percent (5%) in the aggregate of the outstanding voting shares of the corporation or who hold at least one percent (1%) of the outstanding voting shares and have filed a Schedule 14B with the United States Securities and Exchange Commission relating to the election of directors of the corporation shall have an absolute right to do either or both of the following:
(i) inspect and copy the record of shareholders' names and addresses and shareholdings during usual business hours upon five business days' prior written demand upon the corporation; or
(ii) obtain from the transfer agent, if any, for the corporation, upon written demand and upon the tender of its usual charges for such a list (the amount of which charges shall be stated to the shareholder by the transfer agent upon request), a list of the shareholders' names and addresses who are entitled to vote for the election of directors and their shareholdings, as of the most recent record date for which it has been compiled, or as of a date specified by the shareholder subsequent to the date of demand. The corporation shall have a responsibility to cause the transfer agent to comply with this Section 6.1;
(b) The record of shareholders shall also be open to inspection and copying by any shareholder or holder of a voting trust
certificate at any time during usual business hours upon written demand on the corporation, for a purpose reasonably related to such holder's interest as a shareholder or holder of a voting trust certificate. A written demand for such inspection shall be accompanied by a statement in reasonable detail of the purpose of the inspection.
(c) The accounting books and records and minutes of proceedings of the shareholders and the board and committees of the board shall be open to inspection upon written demand on the corporation by any shareholder or holder of a voting trust certificate at any reasonable time during usual business hours, for a purpose reasonably related to such holder's interest as a shareholder or as a holder of such voting trust certificate. The right of inspection created by this Section 6.1(c) shall extend to the records of each subsidiary of the corporation. A written demand for such inspection shall be accompanied by a statement in reasonable detail of the purpose of the inspection.
(d) Any inspection and copying under this Section 6.1 may be made in person or by agent or attorney.
SECTION 6.2. INSPECTION OF BYLAWS. The corporation shall keep at its principal executive office in California the original or a copy of these bylaws as amended to date, which shall be open to inspection by shareholders at all reasonable times during office hours.
SECTION 6.3. EXECUTION OF DOCUMENTS, CONTRACTS. Subject to the provisions of applicable law, any note, mortgage, evidence of indebtedness, contract, share certificate, initial transaction statement or written statement, conveyance or other instrument in writing and any assignment or endorsement thereof executed or entered into between the corporation and any other person, when signed by the chairperson of the board, the president or any vice president and the secretary, any assistant secretary, the chief financial officer or any assistant financial officer of the corporation, or when stamped with a facsimile signature of such appropriate officers in the case of share certificates, shall be valid and binding upon the corporation in the absence of actual knowledge on the part of the other person that the signing officers did not have authority to execute the same. Any such instruments may be signed by any other person or persons and in such manner as from time to time shall be determined by the board, and unless so authorized by the board, no officer, agent or employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or amount.
SECTION 6.4. CERTIFICATES OF STOCK. Every holder of shares of the corporation shall be entitled to have a certificate signed in the name of the corporation by the chairperson or the vice chairperson of the board or the president or a vice president and by the secretary or an assistant secretary or the chief financial
officer or an assistant financial officer, certifying the number of shares and the class or series of shares owned by the shareholder. The signatures on the certificates may be facsimile signatures. If any officer, transfer agent or registrar who has signed a certificate or whose facsimile signature has been placed upon the certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if such person were an officer, transfer agent or registrar at the date of issue.
Except as provided in this Section 6.4, no new certificate for shares shall be issued in lieu of an old certificate unless the latter is surrendered and cancelled at the same time. The board may, however, in case any certificate for shares is alleged to have been lost, stolen or destroyed, authorize the issuance of a new certificate in lieu thereof, and the corporation may require that the corporation be given a bond or other adequate security sufficient to indemnify it against any claim that may be made against it (including any expense or liability) on account of the alleged loss, theft or destruction of such certificate or the issuance of such new certificate.
Prior to the due presentment for registration of transfer in the stock transfer book of the corporation, the registered owner shall be treated as the person exclusively entitled to vote, to receive notifications and otherwise to exercise all the rights and powers of an owner, except as expressly provided otherwise by the laws of the state of California.
SECTION 6.5. REPRESENTATION OF SHARES OF OTHER CORPORATIONS. The president or any other officer or officers authorized by the board or the president are each authorized to vote, represent and exercise on behalf of the corporation all rights incident to any and all shares or other securities of any other corporation or corporations standing in the name of the corporation. The authority herein granted may be exercised either by any such officer in person or by any other person authorized to do so by proxy or power of attorney duly executed by said officer.
SECTION 6.6. SEAL. The corporate seal of the corporation shall consist of two concentric circles, between which shall be the name of the corporation, and in the center shall be inscribed the word "Incorporated" and the date of its incorporation.
SECTION 6.7. FISCAL YEAR. The fiscal year of the corporation shall begin on the first day of January and end on the 31st day of December of each year.
SECTION 6.8. CONSTRUCTION AND DEFINITIONS. Unless the context otherwise requires, the general provisions, rules of construction and definitions contained in the Code and the California General Corporation Law shall govern the construction of these bylaws. Without limiting the generality of this provision, the singular number includes the plural, the plural number includes the singular, and the term "person" includes both a corporation and a natural person.
SECTION 6.9. BYLAW PROVISIONS CONTRARY TO OR INCONSISTENT WITH PROVISIONS OF
LAW. Any article, section, subsection, subdivision, sentence, clause or phrase
of these bylaws which, upon being construed in the manner provided in this
Section 6.9, shall be contrary to or inconsistent with any applicable provision
of the Code or other applicable laws of the state of California or of the United
States shall not apply so long as said provisions of law shall remain in effect,
but such result shall not affect the validity or applicability of any other
portions of these bylaws, it being hereby declared that these bylaws would have
been adopted and each article, section, subsection, subdivision, sentence,
clause or phrase thereof, irrespective of the fact that any one or more
articles, sections, subsections, subdivisions, sentences, clauses or phrases is
or are illegal.
ARTICLE VII
AMENDMENTS
SECTION 7.1. AMENDMENT BY SHAREHOLDERS. New bylaws may be adopted or these bylaws may be amended or repealed by the vote or written consent of holders of a majority of the outstanding shares entitled to vote; provided, however, that if the articles of incorporation of the corporation set forth the number of authorized directors of the corporation, the authorized number of directors may be changed only by an amendment of the articles of incorporation and provided also that a bylaw reducing the fixed number or the minimum number of directors to a number less than five cannot be adopted if the votes cast against adoption at a meeting, or the shares not consenting in the case of action by written consent, are equal to more than 16 2/3 percent of the outstanding shares entitled to vote.
SECTION 7.2. AMENDMENT BY DIRECTORS. Subject to the rights of the shareholders as provided in Section 7.1 of this Article VII, bylaws, other than a bylaw specifying or changing a fixed number of directors or the maximum or minimum number or changing from a fixed to a variable board or vice versa, may be adopted, amended or repealed by the board.
CERTIFICATE OF SECRETARY
I, the undersigned, do hereby certify:
1. That I am the duly elected and acting secretary of American River Holdings, a California corporation; and
2. That the foregoing Bylaws, comprising 22 pages, constitute the Bylaws of American River Holdings as duly adopted by action of the board of directors of American River Holdings duly taken on, February 15, 1995.
AMERICAN RIVER HOLDINGS
RESOLUTION
AMENDMENT TO BYLAWS
WHEREAS Article III, Section 3.2. provides that the exact number of directors can be fixed from time to time within the range specified in this section, the Board of Directors of American River Holdings hereby adopts this resolution to fix the number of directors to 10 (ten) until changed by an amendment of the articles of incorporation or by a resolution duly adopted by the board, as specified in Article III, Section 3.2.
In witness thereof, the undersigned, Marjorie G. Taylor, Corporate Secretary of American River Holdings, has executed this resolution.
Marjorie G. Taylor
Corporate Secretary
January 21, 1998
AMERICAN RIVER HOLDINGS
RESOLUTION
AMENDMENT TO BYLAWS
WHEREAS Article III, Section 3.2. provides that the exact number of directors can be fixed from time to time within the range specified in this section, the Board of Directors of American River Holdings hereby adops this resolution to fix the number of directors to nine (9) until changed by an amendment of the articles of incorporation or by a resolution duly adopted by the board, as specified in Article III, Section 3.2.
In witness thereof, the undersigned, Marjorie G. Taylor, Corporate Secretary of American River Holdings, has executed this resolution.
Marjorie G. Taylor
Corporate Secretary
January 20, 1999
COMMON STOCK COMMON STOCK
[GRAPHIC LOGO AMERICAN
OMITTED] RIVER
HOLDINGS
[ 10 ] [ ]
INCORPORATED UNDER THE LAWS SEE REVERSE FOR CERTAIN
OF THE STATE OF CALIFORNIA DEFINITIONS AND A
STATEMENT AS TO THE
RIGHTS, PREFERENCES,
PRIVILEGES AND
RESTRICTIONS OF SHARES
CUSIP 029326 10 5
|
THIS CERTIFIES THAT
IS THE RECORD HOLDER OF
FULLY PAID AND NONASSESSABLE SHARES OF THE COMMON STOCK OF
AMERICAN RIVER HOLDINGS
transferable on the books of the Corporation by the holder hereof, in person or by duly authorized attorney upon surrender of this Certificate properly endorsed. This Certificate is not valid unless countersigned by the Transfer Agent and registered by the Registrar.
Witness the facsimile seal of the Corporation and the facsimile signatures of its dually authorized officers.
CERTIFICATE STOCK
Dated
AMERICAN RIVER HOLDINGS
INCORPORATED
JAN.
24,
1995
CALIFORNIA
*
/s/ M. TAYLOR /s/ DAVID T. TABER
SECRETARY PRESIDENT AND CHIEF EXECUTIVE
OFFICER
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COUNTERSIGNED AND REGISTERED:
U.S. STOCK TRANSFER CORPORATION
(GLENDALE, CA)
TRANSFER AGENT AND REGISTRAR
[REVERSE SIDE OF STOCK CERTIFICATE]
A statement of the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preference and/or rights as established, from time to time, by the Certificate of Incorporation of the Corporation and by any certificate of determination, the number of shares constituting each class and series, and the designations therefore, may be obtained by the holder hereof upon request and without charge at the principal office of the Corporation.
The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out if full according to applicable laws or regulations:
TEN COM -- as tenants in common UNIF GIFT MIN ACT Custodian
TEN ENT -- as tenants by the entireties ---------------------------------
JT TEN -- as joint tenants with right (Cust) (Minor)
of survivorship and not as Under Uniform Gifts to Minors
tenants in common Act
------------------------------
(State)
UNIF TRF MIN ACT Custodian (Until age......)
---------------------------------
(Cust)
Under Uniform Transfer
---------------------------------
(Minor)
To Minors Act
--------------------
(State)
|
ADDITIONAL ABBREVIATIONS MAY ALSO BE USED THOUGH NOT IN THE ABOVE LIST.
FOR VALUE RECEIVED_________________________hereby sell, assign and transfer unto
--------------------------------------------------------------------------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 will full power of substitution in the premises.
SIGNATURE(S) GUARANTEED:
PURSUANT TO S.E.C. RULE 17Ad 15.
EXHIBIT 5.1
[LETTERHEAD OF COUDERT BROTHERS]
_______________, 2000
American River Holdings
1545 River Park Drive, Suite 107
Sacramento, California 95815
Re: American River Holdings-- Registration Statement on Form S-4
Ladies and Gentlemen:
With reference to the Registration Statement on Form S-4 filed by American River Holdings, a California corporation, with the Securities and Exchange Commission in connection with the registration under the Securities Act of 1933, as amended, of ____________ shares of American River Holdings Common Stock, no par value per share (the "ARH Shares"), to be issued in connection with the merger contemplated by the Agreement and Plan of Reorganization and Merger, dated as of March 1, 2000 (the "Merger Agreement"), among North Coast Bank, N.A., a national banking association organized under the laws of the United States, and ARH Interim National Bank, a national banking association to be formed at the direction of American River Holdings, which Agreement is described therein and filed as an exhibit thereto:
We are of the opinion that the ARH Shares have been duly authorized and, when issued in accordance with the Merger Agreement, will be legally issued, fully paid and nonassessable. We hereby consent to the filing of this opinion as Exhibit 5.1 to the Registration Statement and the use of our name under the caption "Legal Matters" in the Registration Statement and in the Joint Proxy Statement/Prospectus included therein.
Very truly yours,
/s/ COUDERT BROTHERS |
EXHIBIT 8.1
[LETTERHEAD OF PERRY-SMITH LLP]
__________________, 2000 FORM OF OPINION TO BE RENDERED AT CLOSING
American River Holdings
1545 River Park Drive, Suite 107
Sacramento, California 95815
North Coast Bank, National Association
50 Santa Rosa Avenue
Santa Rosa, California 95404
MERGER OF ARH INTERIM NATIONAL BANK
INTO NORTH COAST BANK, NATIONAL ASSOCIATION
Ladies and Gentlemen:
You have asked for our opinion as to certain federal and California income tax consequences of the proposed reorganization transaction that will result in the merger of North Coast Bank, N.A., a national banking association ("NCB") with and into ARB Interim National Bank, an interim national banking association ("Interim Bank") and a wholly-owned subsidiary of American River Holdings, a California corporation ("ARH"), pursuant to the Agreement and Plan of Reorganization and Merger dated as of March 1, 2000 (the "Merger Agreement"). This opinion is delivered to you pursuant to Sections 7.j and 8.j of the Merger Agreement. Capitalized terms used in this letter without definition have the respective meanings given them in the Merger Agreement.
The Merger Agreement provides that at the Effective Time of the Merger, NCB will be merged with and into Interim Bank, with Interim Bank as the surviving national banking association. In the Merger, each share of NCB common stock will be exchanged for the right to receive .9644 of a share of ARH common stock. No fractional shares of ARH common stock will be issued in the Merger, but NCB shareholders who would otherwise be entitled to receive fractional shares will receive cash in lieu thereof. NCB has only common stock outstanding.
In rendering the opinions expressed in this letter, we have assumed that the transactions described in the Merger Agreement will be carried out in all respects as provided therein. In addition, we have examined and are relying upon (without any independent investigation or review) the truth, correctness and completeness at all relevant times of the statements, covenants, representations and warranties contained in the Merger Agreement, letters dated 2000 delivered to us by ARH and NCB (the "Tax Representation Letters"), the Proxy Statement/Prospectus dated 2000 delivered to NCB shareholders in connection with the solicitation of proxies for the NCB vote on the Merger (the "Proxy Statement/Prospectus"), and such other instruments and documents as we have deemed necessary.
Based upon our understanding of the transaction as described above and the above information, representations and assumptions, and upon existing statutes, regulations, court decisions and published rulings of the Internal Revenue Service, it is our opinion that, for purposes of federal income tax law and California income and franchise tax law:
1. The merger of NCB with and into Interim Bank and the issuance of ARH common stock in the transaction as described in the Agreement will qualify as a reorganization under Sections 368(a)(1)(A) and 368(a)(2)(D) of the Internal Revenue Code of 1986, as amended (the "IRC").
2. The Merger will not result in the recognition of gain or loss by ARH or NCB.
3. No gain or loss will be recognized by holders of NCB stock on the exchange of NCB stock for ARH common stock, except to the extent gain is recognized with respect to cash received in lieu of fractional shares.
4. The holding period of ARH stock received in exchange for NCB stock (including any fractional share prior to its conversion into cash) will include the holding period of the NCB stock for which it is exchanged, assuming that the shares of NCB stock are capital assets in the hands of the holder at the Effective Time of the Merger.
5. The aggregate adjusted tax basis of the shares of ARH stock received by an NCB shareholder in the Merger (including any fractional share prior to its conversion into cash) will be the same as the aggregate adjusted tax basis of the NCB shares surrendered in exchange therefor.
6. An NCB shareholder who dissents to the Merger and receives cash for his or her NCB stock will be treated as having received a distribution in redemption of his or her NCB shares, subject to the provisions and limitations of Section 302 of the IRC.
Those NCB shareholders who receive solely cash, who immediately after the Merger hold no ARH shares directly or through the application of Section 318 of the IRC, and thus whose interests are completely terminated within the meaning of Section 302(b)(3) of the IRC, will be treated as receiving a cash distribution in full payment for the NCB shares as provided in Section 302(a) of the IRC. Gain or loss will be recognized to such NCB shareholders measured by the difference between the redemption price and the adjusted basis of the NCB shares. If the NCB shareholder holds such NCB shares as a capital asset, such gain or loss will be a capital gain or loss.
7. No gain or loss will be recognized by the holders of nonqualified options to buy NCB shares upon the conversion of those options into nonqualified options to buy ARH shares under the same terms and conditions as in effect immediately prior to the Merger.
8. The substitution of incentive stock options to acquire ARH shares for incentive stock options to acquire NCB shares will not be a modification as defined in Section 424(h)(3) of the IRC, and will not result in the recognition of income, gain, or loss to the holders of the incentive stock options to acquire NCB shares. Such options to acquire ARH shares will be incentive stock options as defined in Section 422(b) of the IRC.
We hereby consent to the filing of this opinion as an exhibit to the Proxy Statement/Prospectus and the reference to the name of our firm therein and under the caption "Certain Federal Income Tax Consequences."
Very truly yours,
PERRY-SMITH LLP
BASIC LEASE INFORMATION
OFFICE GROSS
LEASE DATE: March 22, 2000
TENANT: American River Bank
TENANT'S NOTICE ADDRESS: 1545 River Park Drive, Suite 107
Sacramento, CA 95815
TENANT'S BILLING ADDRESS: 1545 River Park Drive, Suite 107
Sacramento, CA 95815
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TENANT CONTACT: Richard Borst PHONE NUMBER: (916) 565-6100
FAX NUMBER: (916) 641-1262
LANDLORD: Spieker Properties, L.P., a California
limited partnership
LANDLORD'S NOTICE ADDRESS: 1610 Arden Way, Suite 298
Sacramento, CA 95815
LANDLORD'S REMITTANCE ADDRESS: P.O. BOX 45587- DEPARTMENT 10751
SAN FRANCISCO, CA 94145
PROJECT DESCRIPTION: 1545 River Park Drive, commonly known as
Point West Commercentre
BUILDING DESCRIPTION: A five story office building commonly known
as the Point West Commercentre.
PREMISES: Approximately 9,241
rentable square feet;
consisting of 8,735
rentable square feet of
suite 107, and a portion
of suite 200, consisting
of approximately 506
rentable square feet.
PERMITTED USE: General office, retail bank branch,
financial services and related services
thereto.
OCCUPANCY DENSITY: At levels that are customary and usual for
office space in the Sacramento Area.
PARKING DENSITY: Four-(4) spaces per 1,000 rentable square
feet of the Project.
PARKING AND PARKING CHARGE: N/A
SCHEDULED TERM COMMENCEMENT DATE: April 1, 2000
SCHEDULED LENGTH OF TERM: One hundred and twenty-(120) months
SCHEDULED TERM EXPIRATION DATE: March 31, 2010
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RENT:
BASE RENT: 04/01/00 - 03/31/01 $16,634.00 per month
04/01/01 - 03/31/02 $17,003.00 per month
04/01/02 - 03/31/03 $17,373.00 per month
04/01/03 - 03/31/04 $17,743.00 per month
04/01/04 - 03/31/05 $18,112.00 per month
04/01/05 - 03/31/06 $18,482.00 per month
04/01/06 - 03/31/07 $18,852.00 per month
04/01/07 - 03/31/08 $19,221.00 per month
04/01/08 - 03/31/09 $19,591.00 per month
04/01/09 - 03/31/10 $19,961.00 per month
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(subject to adjustment as provided in Paragraph 39 hereof)
BASE YEAR FOR OPERATING EXPENSES: 2000
SECURITY DEPOSIT: None
TENANT'S NAICS CODE: 52212
TENANT'S PROPORTIONATE SHARE:
OF BUILDING: 8.00%
OF PROJECT: 8.00%
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The foregoing Basic Lease Information is incorporated into and made a part of this Lease. Each reference in this Lease to any of the Basic Lease Information shall mean the respective information above and shall be construed to incorporate all of the terms provided under the particular Lease paragraph pertaining to such information. In the event of any conflict between the Basic Lease Information and the Lease, the latter shall control.
LANDLORD TENANT
Spieker Properties, L.P., American River Bank,
a California limited partnership a commercial bank organized under
the laws of the State of California
By: Spieker Properties, Inc.,
a Maryland corporation,
its general partner
By: /s/ PETER C. THOMPSON By: /s/ WILLIAM L. YOUNG
--------------------------- --------------------------------
Peter C. Thompson William L. Young
Its: Senior Vice President Its: Chief Executive Officer
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TABLE OF CONTENTS
PAGE
Basic Lease Information.................................................1
Table of Contents.......................................................3
1. Premises................................................................4
2. Possession and Lease Commencement.......................................4
3. Term....................................................................4
4. Use.....................................................................4
5. Rules and Regulations...................................................5
6. Rent....................................................................5
7. Operating Expenses......................................................5
8. Insurance and Indemnification...........................................8
9. Waiver of Subrogation...................................................8
10. Landlord's Repairs and Maintenance......................................8
11. Tenant's Repairs and Maintenance........................................8
12. Alterations.............................................................8
13. Signs..................................................................10
14. Inspection/Posting Notices.............................................10
15. Services and Utilities.................................................10
16. Subordination..........................................................11
17. Financial Statements...................................................11
18. Estoppel Certificate...................................................12
19. .......................................................................12
19. Limitation of Tenant's Remedies........................................12
20. Assignment and Subletting..............................................12
21. Authority of Tenant....................................................13
22. Condemnation...........................................................13
23. Casualty Damage........................................................13
24. Holding Over...........................................................14
25. Default................................................................14
26. Liens..................................................................15
27. Substitution...........................................................16
28. Transfers by Landlord..................................................16
29. Right of Landlord to Perform Tenant's Covenants........................16
30. Waiver.................................................................16
31. Notices................................................................16
32. Attorney's Fees........................................................16
33. Successors and Assigns.................................................17
34. Force Majeure..........................................................17
35. Surrender of Premises..................................................17
36. Parking................................................................17
37. Miscellaneous..........................................................17
38. Flood Zone.............................................................18
39. After Hours Heating and Air Conditioning...............................18
40. Temporary Space........................................................19
41. Satellite Dish.........................................................19
42. Option to Renew........................................................19
43. Expansion Option.......................................................20
44. Jury Trial Waiver......................................................21
Signatures.............................................................21
Exhibits:
Exhibit A.............................................Rules and Regulations
Exhibit B...................................Site Plan, Property Description
Exhibit C.......................................Lease Improvement Agreement
Additional Exhibits as Required
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LEASE
THIS LEASE is made as of the twenty second day of March, 2000, by and between Spieker Properties, L.P., a California limited partnership (hereinafter called "LANDLORD"), and American River Bank, a commercial bank organized under the laws of the State of California (hereinafter called "TENANT").
1. PREMISES
Landlord leases to Tenant and Tenant leases from Landlord, upon the terms and conditions hereinafter set forth, those premises (the "PREMISES") outlined in red on EXHIBIT B and described in the Basic Lease Information. The Premises shall be all or part of a building (the "BUILDING") and of a project (the "PROJECT"), which may consist of more than one building and additional facilities, as described in the Basic Lease Information. The Building is outlined in blue on EXHIBIT B.
2. POSSESSION AND LEASE COMMENCEMENT
A. CONSTRUCTION OF IMPROVEMENTS. If this Lease pertains to a Building to be constructed or improvements to be constructed within a Building, the provisions of this Paragraph 2. A shall apply in lieu of the provisions of Paragraph 2.A above and the term commencement date ("TERM COMMENCEMENT DATE") shall be the earlier of the date on which: (1) Tenant takes possession of some or all of the Premises; or (2) the improvements to be constructed or performed in the Premises by Landlord (if any) shall have been substantially completed in accordance with the plans and specifications, if any, described on EXHIBIT C. Tenant's taking of possession of the Premises or any part thereof shall constitute Tenant's confirmation of substantial completion for all purposes hereof, whether or not substantial completion of the Building or Project shall have occurred. If for any reason Landlord cannot deliver possession of the Premises to Tenant on the scheduled Term Commencement Date, Landlord shall not be subject to any liability therefor, nor shall Landlord be in default hereunder nor shall such failure affect the validity of this Lease, and Tenant agrees to accept possession of the Premises at such time as such improvements have been substantially completed, which date shall then be deemed the Term Commencement Date. Tenant shall not be liable for any Rent for any period prior to the Term Commencement Date (but without affecting any obligations of Tenant under any improvement agreement appended to this Lease). In the event of any dispute as to substantial completion of work performed or required to be performed by Landlord, the certificate of Landlord's architect or general contractor shall be conclusive. Substantial completion shall have occurred notwithstanding Tenant's submission of a punchlist to Landlord, which Tenant shall submit, if at all, within three (3) business days after the Term Commencement Date or otherwise in accordance with any improvement agreement appended to this Lease. Upon Landlord's request, Tenant shall promptly execute and return to Landlord a "Start-Up Letter" in which Tenant shall agree, among other things, to acceptance of the Premises and to the determination of the Term Commencement Date, in accordance with the terms of this Lease, but Tenant's failure or refusal to do so shall not negate Tenant's acceptance of the Premises or affect determination of the Term Commencement Date.
3. TERM
The term of this Lease (the "TERM") shall commence on the Term Commencement Date and continue in full force and effect for the number of months specified as the Length of Term in the Basic Lease Information or until this Lease is terminated as otherwise provided herein. If the Term Commencement Date is a date other than the first day of the calendar month, the Term shall be the number of months of the Length of Term in addition to the remainder of the calendar month in which the Term Commencement Date occurs.
4. USE
A. GENERAL. Tenant shall use the Premises for the permitted use specified in the Basic Lease Information ("PERMITTED USE") and for no other use or purpose. Tenant shall control Tenant's employees, agents, customers, visitors, invitees, licensees, contractors, assignees and subtenants (collectively, "TENANT'S PARTIES") in such a manner that Tenant and Tenant's Parties cumulatively do not exceed the occupant density (the "OCCUPANCY DENSITY") or the parking density (the "PARKING DENSITY") specified in the Basic Lease Information at any time. So long as Tenant is occupying the Premises, Tenant and Tenant's Parties shall have the nonexclusive right to use, in common with other parties occupying the Building or Project, the parking areas, driveways and other common areas of the Building and Project, subject to the terms of this Lease and such rules and regulations as Landlord may from time to time prescribe. Landlord reserves the right, without notice or liability to Tenant, and without the same constituting an actual or constructive eviction, to alter or modify the common areas from time to time, including the location and configuration thereof, and the amenities and facilities which Landlord may determine to provide from time to time.
B. LIMITATIONS. Tenant shall not permit any odors, smoke, dust, gas, substances, noise or vibrations to emanate from the Premises or from any portion of the common areas as a result of Tenant's or any Tenant's Party's use thereof, nor take any action which would constitute a nuisance or would disturb, obstruct or endanger any other tenants or occupants of the Building or Project or elsewhere, or interfere with their use of their respective premises or common areas. Storage outside the Premises of materials, vehicles or any other items is prohibited. Tenant shall not use or allow the Premises to be used for any immoral, improper or unlawful purpose, nor shall Tenant cause or maintain or permit any nuisance in, on or about the Premises. Tenant shall not commit or suffer the commission of any waste in, on or about the Premises. Tenant shall not allow any sale by auction upon the Premises, or place any loads upon the floors, walls or ceilings which could endanger the structure, or place any harmful substances in the drainage system of the Building or Project. No waste, materials or refuse shall be dumped upon or permitted to remain outside the Premises. Landlord shall not be responsible to Tenant for the non-compliance by any other tenant or occupant of the Building or Project with any of the above-referenced rules or any other terms or provisions of such tenant's or occupant's lease or other contract. Landlord shall, however, use commercially reasonable efforts to require Tenants and occupants of the Building or Project to comply with the above-referenced rules and regulations of such Tenant's Lease.
C. COMPLIANCE WITH REGULATIONS. By entering the Premises, Tenant accepts the Premises in the condition existing as of the date of such entry. Tenant shall at its sole cost and expense strictly comply with all existing or future applicable municipal, state and federal and other governmental statutes, rules, requirements, regulations, laws and ordinances, including zoning ordinances and regulations, and covenants, easements and restrictions of record governing and relating to the use, occupancy or possession of the Premises, to Tenant's use of the common areas, or to the use, storage, generation or disposal of Hazardous Materials (hereinafter defined) (collectively "REGULATIONS"). Tenant shall at its sole cost and expense obtain any and all licenses or permits necessary for Tenant's use of the Premises. Tenant shall at its sole cost and expense promptly comply with the requirements of any board of fire underwriters or other similar body now or hereafter constituted. Tenant shall not do or permit anything to be done in, on, under or about the Project or bring or keep anything which will in any way increase the rate of any insurance upon the Premises, Building or Project or upon any contents therein or cause a cancellation of said insurance or otherwise affect said insurance in any manner. Tenant shall indemnify, defend (by counsel reasonably acceptable to Landlord), protect and hold Landlord harmless from and against any loss, cost, expense, damage, attorneys' fees
or liability arising out of the failure of Tenant to comply with any Regulation. Tenant's obligations pursuant to the foregoing indemnity shall survive the expiration or earlier termination of this Lease.
D. HAZARDOUS MATERIALS. As used in this Lease, "HAZARDOUS MATERIALS" shall include, but not be limited to, hazardous, toxic and radioactive materials and those substances defined as "hazardous substances," "hazardous materials," "hazardous wastes," "toxic substances," or other similar designations in any Regulation. Tenant shall not cause, or allow any of Tenant's Parties to cause, any Hazardous Materials to be handled, used, generated, stored, released or disposed of in, on, under or about the Premises, the Building or the Project or surrounding land or environment in violation of any Regulations. Tenant must obtain Landlord's written consent prior to the introduction of any Hazardous Materials onto the Project. Notwithstanding the foregoing, Tenant may handle, store, use and dispose of products containing small quantities of Hazardous Materials for "general office purposes" (such as toner for copiers) to the extent customary and necessary for the Permitted Use of the Premises; provided that Tenant shall always handle, store, use, and dispose of any such Hazardous Materials in a safe and lawful manner and never allow such Hazardous Materials to contaminate the Premises, Building, or Project or surrounding land or environment. Tenant shall immediately notify Landlord in writing of any Hazardous Materials' contamination of any portion of the Project of which Tenant becomes aware, whether or not caused by Tenant. Landlord shall have the right at all reasonable times and if Landlord determines in good faith that Tenant may not be in compliance with this Paragraph 4.D to inspect the Premises and to conduct tests and investigations to determine whether Tenant is in compliance with the foregoing provisions, the costs of all such inspections, tests and investigations to be borne by Tenant. Tenant shall indemnify, defend), protect and hold Landlord harmless from and against any and all claims, liabilities, losses, costs, loss of rents, liens, damages, injuries or expenses (including attorneys' and consultants' fees and court costs), demands, causes of action, or judgments directly or indirectly arising out of or related to the use, generation, storage, release, or disposal of Hazardous Materials by Tenant or any of Tenant's Parties in, on, under or about the Premises, the Building or the Project or surrounding land or environment, which indemnity shall include, without limitation, damages for personal or bodily injury, property damage, damage to the environment or natural resources occurring on or off the Premises, losses attributable to diminution in value or adverse effects on marketability, the cost of any investigation, monitoring, government oversight, repair, removal, remediation, restoration, abatement, and disposal, and the preparation of any closure or other required plans, whether such action is required or necessary prior to or following the expiration or earlier termination of this Lease. Neither the consent by Landlord to the use, generation, storage, release or disposal of Hazardous Materials nor the strict compliance by Tenant with all laws pertaining to Hazardous Materials shall excuse Tenant from Tenant's obligation of indemnification pursuant to this Paragraph 4.D. Tenant's obligations pursuant to the foregoing indemnity shall survive the expiration or earlier termination of this Lease.
5. RULES AND REGULATIONS
Tenant shall faithfully observe and comply with the building rules and regulations attached hereto as EXHIBIT A and any other rules and regulations and any modifications or additions thereto which Landlord may from time to time prescribe in writing for the purpose of maintaining the proper care, cleanliness, safety, traffic flow and general order of the Premises or the Building or Project. Tenant shall cause Tenant's Parties to comply with such rules and regulations. Landlord shall not be responsible to Tenant for the non-compliance by any other tenant or occupant of the Building or Project with any of such rules and regulations, any other tenant's or occupant's lease or any Regulations. Landlord shall, however, use commercially reasonable efforts to require Tenants and occupants of the Building or Project to comply with the rules and regulations of such Tenant's Lease.
6. RENT
A. BASE RENT. Tenant shall pay to Landlord and Landlord shall receive, without notice or demand throughout the Term, Base Rent as specified in the Basic Lease Information, payable in monthly installments in advance on or before the first day of each calendar month, in lawful money of the United States, without deduction or offset whatsoever, at the Remittance Address specified in the Basic Lease Information or to such other place as Landlord may from time to time designate in writing. Base Rent for the first full month of the Term shall be paid by Tenant upon Tenant's execution of this Lease. Nothwithstanding the foregoing, Landlord shall apply Tenant's Security Deposit in the amount of $14,210.00 to the first month's rent and Landlord shall be paid $2,433.00 for the remaining balance of the first month's rent upon Tenant's execution of this Lease. If the obligation for payment of Base Rent commences on a day other than the first day of a month, then Base Rent shall be prorated and the prorated installment shall be paid on the first day of the calendar month next succeeding the Term Commencement Date. The Base Rent payable by Tenant hereunder is subject to adjustment as provided elsewhere in this Lease, as applicable. As used herein, the term "Base Rent" shall mean the Base Rent specified in the Basic Lease Information as it may be so adjusted from time to time.
B. ADDITIONAL RENT. All monies other than Base Rent required to be paid by Tenant hereunder, including, but not limited to, Tenant's Proportionate Share of Operating Expenses, as specified in Paragraph 7 of this Lease, charges to be paid by Tenant under Paragraph 15, the interest and late charge described in Paragraphs 26.D and E, and any monies spent by Landlord pursuant to Paragraph 30, shall be considered additional rent ("ADDITIONAL RENT"). "RENT" shall mean Base Rent and Additional Rent.
7. OPERATING EXPENSES
A. OPERATING EXPENSES. In addition to the Base Rent required to be paid hereunder, beginning with the expiration of the Base Year specified in the Basic Lease Information (the "BASE YEAR"), Tenant shall pay as Additional Rent, Tenant's Proportionate Share of the Building and/or Project (as applicable), as defined in the Basic Lease Information, of increases in Operating Expenses (defined below) over the Operating Expenses incurred by Landlord during the Base Year (the "BASE YEAR OPERATING EXPENSES"), in the manner set forth below. Tenant shall pay the applicable Tenant's Proportionate Share of each such Operating Expenses. Landlord and Tenant acknowledge that if the number of buildings which constitute the Project increases or decreases, or if physical changes are made to the Premises, Building or Project or the configuration of any thereof, Landlord may at its reasonable discretion adjust Tenant's Proportionate Share of the Building or Project to reflect the change. Landlord's determination of Tenant's Proportionate Share of the Building shall be conclusive so long as it is reasonably and consistently applied. "OPERATING EXPENSES" shall mean all expenses and costs of every kind and nature which Landlord shall pay or become obligated to pay, because of or in connection with the ownership, management, maintenance, repair, preservation, replacement and operation of the Building and its supporting facilities and such additional facilities now and in subsequent years as may be determined by Landlord to be necessary or desirable to the Building (as determined in a reasonable manner) other than those expenses and costs which are specifically attributable to Tenant or which are expressly made the financial responsibility of Landlord or specific tenants of the Building pursuant to this Lease. Operating Expenses shall include, but are not limited to, the following:
(1) TAXES. All real property taxes and assessments, possessory interest taxes, sales taxes, personal property taxes, business or license taxes or fees, gross receipts taxes, service payments in lieu of such taxes or fees, annual or periodic license or use fees, excises, transit charges, and other impositions, general and special, ordinary and extraordinary, unforeseen as well as foreseen, of any kind (including fees "in-lieu" of any such tax or assessment) which are now or hereafter assessed, levied, charged, confirmed, or imposed by any public authority upon the Building or Project, its operations or the Rent (or any portion or component thereof), or any tax, assessment or fee imposed in substitution, partially or totally, of any of the above. Operating Expenses shall also include any taxes, assessments, reassessments, or other fees or impositions with respect to the development, leasing, management, maintenance, alteration, repair, use or occupancy of the Premises, Building or Project or any portion
thereof, including, without limitation, by or for Tenant, and all increases therein or reassessments thereof whether the increases or reassessments result from increased rate and/or valuation (whether upon a transfer of the Building or Project or any portion thereof or any interest therein or for any other reason). Operating Expenses shall not include inheritance or estate taxes imposed upon or assessed against the interest of any person in the Project, or taxes computed upon the basis of the net income of any owners of any interest in the Project. If it shall not be lawful for Tenant to reimburse Landlord for all or any part of such taxes, the monthly rental payable to Landlord under this Lease shall be revised to net Landlord the same net rental after imposition of any such taxes by Landlord as would have been payable to Landlord prior to the payment of any such taxes.
(2) INSURANCE. All insurance premiums and costs, including, but not limited to, any deductible amounts, premiums and other costs of insurance incurred by Landlord, including for the insurance coverage set forth in Paragraph 8.A herein.
(3) COMMON AREA MAINTENANCE.
(A) Repairs, replacements, and general maintenance of and for the
Building and Project and public and common areas and facilities of
and comprising the Building and Project, including, but not limited
to, the roof and roof membrane, windows, elevators, restrooms,
conference rooms, health club facilities, lobbies, mezzanines,
balconies, mechanical rooms, building exteriors, alarm systems,
pest extermination, landscaped areas, parking and service areas,
driveways, sidewalks, loading areas, fire sprinkler systems,
sanitary and storm sewer lines, utility services,
heating/ventilation/air conditioning systems, electrical,
mechanical or other systems, telephone equipment and wiring
servicing, plumbing, lighting, and any other items or areas which
affect the operation or appearance of the Building or Project,
which determination shall be at Landlord's discretion, except for:
those items to the extent paid for by the proceeds of insurance;
and those items attributable solely or jointly to specific tenants
of the Building or Project.
(B) Repairs, replacements, and general maintenance shall include the cost of any improvements made to or assets acquired for the Project or Building that in Landlord's discretion may reduce any other Operating Expenses, including present or future repair work, are reasonably necessary for the health and safety of the occupants of the Building or Project, or for the operation of the Building systems, services and equipment, or are required to comply with any Regulation, such costs or allocable portions thereof to be amortized over such reasonable period as determined by GAAP , together with interest on the unamortized balance at the publicly announced "prime rate" charged by Wells Fargo Bank, N.A. (San Francisco) or its successor at the time such improvements or capital assets are constructed or acquired, plus two (2) percentage points, or in the absence of such prime rate, then at the U.S. Treasury six-month market note (or bond, if so designated) rate as published by any national financial publication selected by Landlord, plus four (4) percentage points, but in no event more than the maximum rate permitted by law, plus reasonable financing charges.
(C) Payment under or for any easement, license, permit, operating agreement, declaration, restrictive covenant or instrument relating to the Building or Project.
(D) All expenses and rental related to services and costs of supplies, materials and equipment used in operating, managing and maintaining the Premises, Building and Project, the equipment therein and the adjacent sidewalks, driveways, parking and service areas, including, without limitation, expenses related to service agreements regarding security, fire and other alarm systems, janitorial services, window cleaning, elevator maintenance, Building exterior maintenance, landscaping and expenses related to the administration, management and operation of the Project, including without limitation salaries, wages and benefits and management office rent.
(E) The cost of supplying any services and utilities which benefit all or a portion of the Premises, Building or Project, including without limitation services and utilities provided pursuant to Paragraph 15 hereof.
.
(G) A management and accounting cost recovery fee equal to five percent (5%) of the sum of the Project's revenues.
If the occupied rentable area of the Building falls below ninety-five percent (95%) during the Base Year, an adjustment shall be made in computing the Operating Expenses for such year so that Tenant pays its prorata share of all variable items (e.g., utilities, janitorial services and other component expenses that are affected by variations in occupancy levels) of Operating Expenses, as reasonably determined by Landlord; provided, however, that in no event shall Landlord be entitled to collect in excess of one hundred percent (100%) of the total Operating Expenses from all of the tenants in the Building or Project, as the case may be.
Operating Expenses shall not include the cost of providing tenant improvements or other specific costs incurred for the account of, separately billed to and paid by specific tenants of the Building or Project, the initial construction cost of the Building, or debt service on any mortgage or deed of trust recorded with respect to the Project other than pursuant to Paragraph 7.A(3)(b) above. Notwithstanding anything herein to the contrary, in any instance wherein Landlord, in Landlord's reasonable determination, deems Tenant to be responsible for any amounts greater than Tenant's Proportionate Share, Landlord shall have the right to allocate costs in any manner Landlord deems appropriate.
The above enumeration of services and facilities shall not be deemed to impose an obligation on Landlord to make available or provide such services or facilities except to the extent if any that Landlord has specifically agreed elsewhere in this Lease to make the same available or provide the same. Without limiting the generality of the foregoing, Tenant acknowledges and agrees that it shall be responsible for providing adequate security for its use of the Premises, the Building and the Project and that Landlord shall have no obligation or liability with respect thereto, except to the extent if any that Landlord has specifically agreed elsewhere in this Lease to provide the same.
B. PAYMENT OF ESTIMATED OPERATING EXPENSES. "ESTIMATED OPERATING EXPENSES" for any particular year shall mean Landlord's estimate of the Operating Expenses for such fiscal year made with respect to such fiscal year as hereinafter provided. Landlord shall have the right from time to time to revise its fiscal year and interim accounting periods so long as the periods as so revised are reconciled with prior periods in a reasonable manner. During the last month of each fiscal year during the Term, or as soon thereafter as practicable, Landlord shall give Tenant written notice of the Estimated Operating Expenses for the ensuing fiscal year. Tenant shall pay Tenant's Proportionate Share of the difference between Estimated Operating Expenses and Base Year Operating Expenses with installments of Base Rent for the fiscal year to which the Estimated Operating Expenses applies in monthly installments on the first day of each calendar month during such year, in advance. Such payment shall be construed to be Additional Rent for all purposes hereunder. If at any time during the course of the fiscal year, Landlord determines that Operating Expenses are projected to vary from the then Estimated Operating Expenses by more than five percent (5%), Landlord may, by written notice to Tenant, revise the Estimated Operating Expenses for the balance of such fiscal year, and Tenant's monthly installments for the remainder of such year shall be adjusted so that by the end of such fiscal year
Tenant has paid to Landlord Tenant's Proportionate Share of the revised difference between Estimated Operating Expenses and Base Year Operating Expenses for such year, such revised installment amounts to be Additional Rent for all purposes hereunder.
C. COMPUTATION OF OPERATING EXPENSE ADJUSTMENT. "OPERATING EXPENSE ADJUSTMENT" shall mean the difference between Estimated Operating Expenses and actual Operating Expenses for any fiscal year, over Base Year Operating Expenses, determined as hereinafter provided. Within one hundred twenty (120) days after the end of each fiscal year, or as soon thereafter as practicable, Landlord shall deliver to Tenant a statement of actual Operating Expenses for the fiscal year just ended, accompanied by a computation of Operating Expense Adjustment. If such statement shows that Tenant's payment based upon Estimated Operating Expenses is less than Tenant's Proportionate Share of actual increases in Operating Expenses over the Base Year Operating Expenses, then Tenant shall pay to Landlord the difference within thirty (30) days after receipt of such statement, such payment to constitute Additional Rent for all purposes hereunder. If such statement shows that Tenant's payments of Estimated Operating Expenses exceed Tenant's Proportionate Share of actual increases in Operating Expenses over the Base Year Operating Expenses, then (provided that Tenant is not in default under this Lease) Landlord shall pay to Tenant the difference within thirty (30) days after delivery of such statement to Tenant. If this Lease has been terminated or the Term hereof has expired prior to the date of such statement, then the Operating Expense Adjustment shall be paid by the appropriate party within thirty (30) days after the date of delivery of the statement. Tenant's obligation to pay increases in Operating Expenses over the Base Year Operating Expenses shall commence on January 1 of the year succeeding the Base Year. Should this Lease terminate at any time other than the last day of the fiscal year, Tenant's Proportionate Share of the Operating Expense Adjustment shall be prorated based on a month of 30 days and the number of calendar months during such fiscal year that this Lease is in effect. Tenant shall in no event be entitled to any credit if Operating Expenses in any year are less than Base Year Operating Expenses. Notwithstanding anything to the contrary contained in Paragraph 7.A or 7.B, Landlord's failure to provide any notices or statements within the time periods specified in those paragraphs shall in no way excuse Tenant from its obligation to pay Tenant's Proportionate Share of increases in Operating Expenses.
D. GROSS LEASE. The provisions for payment of increases in Operating Expenses and the Operating Expense Adjustment are intended to pass on to Tenant and reimburse Landlord for all costs and expenses of the nature described in Paragraph 7.A incurred in connection with the ownership, management, maintenance, repair, preservation, replacement and operation of the Building and/or Project and its supporting facilities and such additional facilities, in excess of the Base Year Operating Expenses, now and in subsequent years as may be determined by Landlord to be necessary or desirable to the Building and/or Project.
E. TENANT AUDIT. If Tenant shall dispute the amount set forth in any statement provided by Landlord under Paragraph 7.B or 7.C above, Tenant shall have the right, not later than ninety (90) days following receipt of such statement and upon the condition that Tenant shall first deposit with Landlord the full amount in dispute, to cause Landlord's books and records with respect to Operating Expenses for such fiscal year to be audited by certified public accountants selected by Tenant and subject to Landlord's reasonable right of approval. The Operating Expense Adjustment shall be appropriately adjusted on the basis of such audit. If such audit discloses a liability for a refund in excess of ten percent (10%) of Tenant's Proportionate Share of the Operating Expenses previously reported, the cost of such audit shall be borne by Landlord; otherwise the cost of such audit shall be paid by Tenant. If Tenant shall not request an audit in accordance with the provisions of this Paragraph 7.E within ninety (90) days after receipt of Landlord's statement provided pursuant to Paragraph 7.B or 7.C, such statement shall be final and binding for all purposes hereof. Tenant shall not in any manner disclose, provide or make available any information revealed by the audit to any person or entity without Landlord's prior written consent, which consent may be withheld by Landlord in its sole and absolute discretion. The information disclosed by the audit will be used by Tenant solely for the purpose of evaluating Landlord's books and records in connection with this Paragraph 7.E.
F. OPERATING EXPENSE EXCLUSIONS. In addition, notwithstanding anything in the definition of Operating Expenses in this Lease to the contrary, Operating Expenses shall not include the following.
(i) Any ground lease rental;
(ii) Costs of capital improvements, replacements or equipment and any depreciation or amortization expenses thereon, except to the extent included in Operating Expenses in Paragraph 7A 3.b of this Lease;
(iii) Rentals for items (except when needed in connection with normal repairs and maintenance of permanent systems) which if purchased, rather than rented, would constitute a capital improvement which is specifically excluded in clause (ii) above (excluding, however, equipment not affixed to the Building or Project which is used in providing janitorial or similar services);
(iv) Costs incurred by Landlord for the repair of damage to the Building or Project, to the extent that Landlord is reimbursed by insurance proceeds or from any other source;
(v) Costs, including permit, license and inspection costs, incurred with respect to the installation of tenant or other occupant improvements made for tenants or other occupants in the Building or the Project or incurred in renovating or otherwise improving, decorating, painting or redecorating vacant space for or the premises of other tenants or other occupants of the Building;
(vi) Marketing costs, including leasing commissions, attorneys' fees in connection with the negotiation and preparation or enforcement of letters, deal memos, letters of intent, leases, subleases and/or assignments, space planning costs, and other costs and expenses incurred in connection with lease, sublease and/or assignment negotiations and transactions with present or prospective tenants or other occupants of the Building or the Project;
(vii) Costs incurred by Landlord due to the violation by Landlord of the terms and conditions of any lease of space in the Building or the Project;
(viii) Except to the extent included in Operating Expenses in Paragraph 7.A(3) above, interest, principal, points and fees on debt or amortization payments on any mortgage or deed of trust or any other debt instrument encumbering the Building or Project or the land on which the Building or Project is situated;
(ix) Except for making repairs or keeping permanent systems in operation while repairs are being made, rentals and other related expenses incurred in leasing air conditioning systems, elevators or other equipment ordinarily considered to be of a capital nature, except equipment not affixed to the Building or Project which is used in providing janitorial or similar services;
(x) Advertising and promotional expenditures (except for retail property promotions);
(xi) Costs incurred in connection with upgrading the Building or Project to comply with disability, life, fire and safety codes in effect prior to the issuance of the temporary certificate of occupancy for the Building;
(xii) Interest, fines or penalties incurred as a result of Landlord's failure to make payments when due unless such failure is commercially reasonable under the circumstances;
(xiii) Costs arising from Landlord's charitable or political contributions;
(xiv) Costs for acquisition of sculpture, paintings or other objects of art in common areas;
(xv) The depreciation of the Building and other real property structures in the Project;
(xvi) Landlord's general corporate overhead and general administrative expenses which are not related to the operation of the Building or the Project, except as specifically set forth in Paragraph 7.A of this Lease;
(xvii) Any bad debt loss, rent loss or reserves for bad debts or rent loss, or reserves for equipment or capital replacement.
8. INSURANCE AND INDEMNIFICATION
A. LANDLORD'S INSURANCE. All insurance maintained by Landlord shall be for the sole benefit of Landlord and under Landlord's sole control.
(1) PROPERTY INSURANCE. Landlord agrees to maintain property insurance insuring the Building against damage or destruction due to risk including fire, vandalism, and malicious mischief in an amount not less than the replacement cost thereof, in the form and with deductibles and endorsements as selected by Landlord. At its election, Landlord may instead (but shall have no obligation to) obtain "All Risk" coverage, and may also obtain earthquake, pollution, and/or flood insurance in amounts selected by Landlord.
(2) OPTIONAL INSURANCE. Landlord, at Landlord's option, may also (but shall have no obligation to) carry (i) insurance against loss of rent, in an amount equal to the amount of Base Rent and Additional Rent that Landlord could be required to abate to all Building tenants in the event of condemnation or casualty damage for a period of twelve (12) months; and (ii) liability insurance and such other insurance as Landlord may deem prudent or advisable, in such amounts and on such terms as Landlord shall determine. Landlord shall not be obligated to insure, and shall have no responsibility whatsoever for any damage to, any furniture, machinery, goods, inventory or supplies, or other personal property or fixtures which Tenant may keep or maintain in the Premises, or any leasehold improvements, additions or alterations within the Premises.
B. TENANT'S INSURANCE. Tenant shall procure at Tenant's sole cost and expense and keep in effect from the date of this Lease and at all times until the end of the Term the following:
(1) PROPERTY INSURANCE. Insurance on all personal property and fixtures of Tenant and all improvements, additions or alterations made by or for Tenant to the Premises on an "All Risk" basis, insuring such property for the full replacement value of such property.
(2) LIABILITY INSURANCE. Commercial General Liability insurance covering bodily injury and property damage liability occurring in or about the Premises or arising out of the use and occupancy of the Premises and the Project, and any part of either, and any areas adjacent thereto, and the business operated by Tenant or by any other occupant of the Premises. Such insurance shall include contractual liability insurance coverage insuring all of Tenant's indemnity obligations under this Lease. Such coverage shall have a minimum combined single limit of liability of at least Two Million Dollars ($2,000,000.00), and a minimum general aggregate limit of Three Million Dollars ($3,000,000.00), with an "Additional Insured - Managers or Lessors of Premises Endorsement." All such policies shall be written to apply to all bodily injury (including death), property damage or loss, personal and advertising injury and other covered loss, however occasioned, occurring during the policy term, shall be endorsed to add Landlord and any party holding an interest to which this Lease may be subordinated as an additional insured, and shall provide that such coverage shall be "PRIMARY" and non-contributing with any insurance maintained by Landlord, which shall be excess insurance only. Such coverage shall also contain endorsements including employees as additional insureds if not covered by Tenant's Commercial General Liability Insurance. All such insurance shall provide for the severability of interests of insureds; and shall be written on an "OCCURRENCE" basis, which shall afford coverage for all claims based on acts, omissions, injury and damage, which occurred or arose (or the onset of which occurred or arose) in whole or in part during the policy period.
(3) WORKERS' COMPENSATION AND EMPLOYERS' LIABILITY INSURANCE. Workers' Compensation Insurance as required by any Regulation, and Employers' Liability Insurance in amounts not less than One Million Dollars ($1,000,000) each accident for bodily injury by accident; One Million Dollars ($1,000,000) policy limit for bodily injury by disease; and One Million Dollars ($1,000,000) each employee for bodily injury by disease.
(4) COMMERCIAL AUTO LIABILITY INSURANCE. Commercial auto liability insurance with a combined limit of not less than One Million Dollars ($1,000,000) for bodily injury and property damage for each accident. Such insurance shall cover liability relating to any auto (including owned, hired and non-owned autos).
(5) ALTERATIONS REQUIREMENTS. In the event Tenant shall desire to perform any Alterations, Tenant shall deliver to Landlord, prior to commencing such Alterations (i) evidence satisfactory to Landlord that Tenant carries "Builder's Risk" insurance covering construction of such Alterations in an amount and form approved by Landlord, (ii) such other insurance as Landlord shall nondiscriminatorily require, and (iii) a lien and completion bond or other security in form and amount satisfactory to Landlord.
(6) GENERAL INSURANCE REQUIREMENTS. All coverages described in this
Paragraph 8.B shall be endorsed to (i) provide Landlord with thirty
(30) days' notice of cancellation or change in terms; and (ii) waive
all rights of subrogation by the insurance carrier against Landlord. If
at any time during the Term the amount or coverage of insurance which
Tenant is required to carry under this Paragraph 8.B is, in Landlord's
reasonable judgment, materially less than the amount or type of
insurance coverage typically carried by owners or tenants of properties
located in the general area in which the Premises are located which are
similar to and operated for similar purposes as the Premises or if
Tenant's use of the Premises should change with or without Landlord's
consent, Landlord shall have the right to require Tenant to increase
the amount or change the types of insurance
coverage required under this Paragraph 8.B. All insurance policies required to be carried by Tenant under this Lease shall be written by companies rated A X or better in "Best's Insurance Guide" and authorized to do business in the State of California. In any event deductible amounts under all insurance policies required to be carried by Tenant under this Lease shall not exceed Five Thousand Dollars ($5,000.00) per occurrence. Tenant shall deliver to Landlord on or before the Term Commencement Date, and thereafter at least thirty (30) days before the expiration dates of the expired policies, certified copies of Tenant's insurance policies, or a certificate evidencing the same issued by the insurer thereunder; and, if Tenant shall fail to procure such insurance, or to deliver such policies or certificates, Landlord may, at Landlord's option and in addition to Landlord's other remedies in the event of a default by Tenant hereunder, procure the same for the account of Tenant, and the cost thereof shall be paid to Landlord as Additional Rent.
C. INDEMNIFICATION. Tenant shall indemnify, defend by counsel reasonably acceptable to Landlord, protect and hold Landlord, Spieker Properties, Inc., and each of their respective directors, shareholders, partners, lenders, members, managers, contractors, affiliates and employees (collectively, "LANDLORD INDEMNITEES") harmless from and against any and all claims, liabilities, losses, costs, loss of rents, liens, damages, injuries or expenses, including reasonable attorneys' and consultants' fees and court costs, demands, causes of action, or judgments, directly or indirectly arising out of or related to: (1) claims of injury to or death of persons or damage to property or business loss occurring or resulting directly or indirectly from the use or occupancy of the Premises, Building or Project by Tenant or Tenant's Parties, or from activities or failures to act of Tenant or Tenant's Parties; (2) claims arising from work or labor performed, or for materials or supplies furnished to or at the request or for the account of Tenant in connection with performance of any work done for the account of Tenant within the Premises or Project; (3) claims arising from any breach or default on the part of Tenant in the performance of any covenant contained in this Lease; and (4) claims arising from the negligence or intentional acts or omissions of Tenant or Tenant's Parties. The foregoing indemnity by Tenant shall not be applicable to claims to the extent arising from the gross negligence or willful misconduct of Landlord or from any other breach or default on the part of Landlord of any covenant contained in this Lease. Landlord shall not be liable to Tenant and Tenant hereby waives all claims against Landlord for any injury to or death of, or damage to any person or property or business loss in or about the Premises, Building or Project by or from any cause whatsoever (other than Landlord's gross negligence or willful misconduct) and, without limiting the generality of the foregoing, whether caused by water leakage of any character from the roof, walls, basement or other portion of the Premises, Building or Project, or caused by gas, fire, oil or electricity in, on or about the Premises, Building or Project, acts of God or of third parties, or any matter outside of the reasonable control of Landlord. The provisions of this Paragraph shall survive the expiration or earlier termination of this Lease.
9. WAIVER OF SUBROGATION
Landlord and Tenant each waives any claim, loss or cost it might have against the other for any injury to or death of any person or persons, or damage to or theft, destruction, loss, or loss of use of any property (a "LOSS"), to the extent the same is insured against (or is required to be insured against under the terms hereof) under any property damage insurance policy covering the Building, the Premises, Landlord's or Tenant's fixtures, personal property, leasehold improvements, or business, regardless of whether the negligence of the other party caused such Loss.
10. LANDLORD'S REPAIRS AND MAINTENANCE
Landlord shall maintain in a first class, good, clean and secure condition, reasonable wear and tear excepted, the structural soundness of the roof, foundations, and exterior walls of the Building. The term "exterior walls" as used herein shall not include windows, glass or plate glass, doors, special store fronts or office entries. Any damage caused by or repairs necessitated by any negligence or act of Tenant or Tenant's Parties may be repaired by Landlord at Landlord's option and Tenant's expense. Tenant shall immediately give Landlord written notice of any defect or need of repairs in such components of the Building for which Landlord is responsible, after which Landlord shall have a reasonable opportunity and the right to enter the Premises at all reasonable times to repair same. Landlord's liability with respect to any defects, repairs, or maintenance for which Landlord is responsible under any of the provisions of this Lease shall be limited to the cost of such repairs or maintenance, and there shall be no abatement of rent and no liability of Landlord by reason of any injury to or interference with Tenant's business arising from the making of repairs, alterations or improvements in or to any portion of the Premises, the Building or the Project or to fixtures, appurtenances or equipment in the Building, except as provided in Paragraph 23. By taking possession of the Premises, Tenant accepts them "as is," as being in good order, condition and repair and the condition in which Landlord is obligated to deliver them and suitable for the Permitted Use and Tenant's intended operations in the Premises, whether or not any notice of acceptance is given.
11. TENANT'S REPAIRS AND MAINTENANCE
Tenant shall at all times during the Term at Tenant's expense maintain all parts of the Premises and such portions of the Building as are within the exclusive control of Tenant in a first-class, good, clean and secure condition and promptly make all necessary repairs and replacements, as determined by Landlord, with materials and workmanship of the same character, kind and quality as the original. Notwithstanding anything to the contrary contained herein, Tenant shall, at its expense, promptly repair any damage to the Premises or the Building or Project resulting from or caused by any negligence or act of Tenant or Tenant's Parties.
12. ALTERATIONS
A. Tenant shall not make, or allow to be made, any alterations, physical additions, improvements or partitions, including without limitation the attachment of any fixtures or equipment, in, about or to the Premises ("ALTERATIONS") without obtaining the prior written consent of Landlord, which consent shall not be unreasonably withheld with respect to proposed Alterations which: (a) comply with all applicable Regulations; (b) are, in Landlord's opinion, compatible with the Building or the Project and its mechanical, plumbing, electrical, heating/ventilation/air conditioning systems, and will not cause the Building or Project or such systems to be required to be modified to comply with any Regulations (including, without limitation, the Americans With Disabilities Act); and (c) will not interfere with the use and occupancy of any other portion of the Building or Project by any other tenant or its invitees. Specifically, but without limiting the generality of the foregoing, Landlord shall have the right of written consent for all plans and specifications for the proposed Alterations, construction means and methods, all appropriate permits and licenses, any contractor or subcontractor to be employed on the work of Alterations, and the time for performance of such work, and may impose rules and regulations for contractors and subcontractors performing such work. Tenant shall also supply to Landlord any documents and information reasonably requested by Landlord in connection with Landlord's consideration of a request for approval hereunder. Tenant shall cause all Alterations to be accomplished in a first-class, good and workmanlike manner, and to comply with all applicable Regulations and Paragraph 26 hereof. Tenant shall at Tenant's sole expense, perform any additional work required under applicable Regulations due to the Alterations hereunder. No review or consent by Landlord of or to any proposed Alteration or additional work shall constitute a waiver of Tenant's obligations under this Paragraph 12, nor constitute any warranty or representation that the same complies with all applicable Regulations, for which Tenant shall at all times be solely responsible. Tenant shall reimburse Landlord for all costs which Landlord may incur in connection with granting approval to Tenant for any such Alterations, including any costs or expenses which Landlord may incur in electing to have outside architects and engineers review said plans and specifications, and shall pay Landlord an administration fee of fifteen percent (15%) of the cost of the Alterations as Additional Rent hereunder. All such Alterations shall remain the property of Tenant until the expiration or earlier termination of this Lease, at which time they shall be and become the property of Landlord. If Tenant fails to remove such
Alterations or Tenant's trade fixtures or furniture or other personal property, Landlord may keep and use them or remove any of them and cause them to be stored or sold in accordance with applicable law, at Tenant's sole expense. In addition to and wholly apart from Tenant's obligation to pay Tenant's Proportionate Share of Operating Expenses, Tenant shall be responsible for and shall pay prior to delinquency any taxes or governmental service fees, possessory interest taxes, fees or charges in lieu of any such taxes, capital levies, or other charges imposed upon, levied with respect to or assessed against its fixtures or personal property, on the value of Alterations within the Premises, and on Tenant's interest pursuant to this Lease, or any increase in any of the foregoing based on such Alterations. To the extent that any such taxes are not separately assessed or billed to Tenant, Tenant shall pay the amount thereof as invoiced to Tenant by Landlord.
Notwithstanding the foregoing, at Landlord's option (but without obligation), all or any portion of the Alterations shall be performed by Landlord for Tenant's account and Tenant shall pay Landlord's estimate of the cost thereof (including a reasonable charge for Landlord's overhead and profit) prior to commencement of the work. In addition, at Landlord's election and notwithstanding the foregoing, however, Tenant shall pay to Landlord the cost of removing any such Alterations and restoring the Premises to their original condition such cost to include a reasonable charge for Landlord's overhead and profit as provided above, and such amount may be deducted from the Security Deposit or any other sums or amounts held by Landlord under this Lease.
B. In compliance with Paragraph 26hereof, at least ten (10) business days before beginning construction of any Alteration, Tenant shall give Landlord written notice of the expected commencement date of that construction to permit Landlord to post and record a notice of non-responsibility. Upon substantial completion of construction, if the law so provides, Tenant shall cause a timely notice of completion to be recorded in the office of the recorder of the county in which the Building is located. Within thirty (30) days following substantial completion of any Alteration, Tenant shall deliver two (2) complete sets of as-built drawings certified by Tenant and Tenant's contractor as being true and correct, which certification shall survive the expiration or termination of this Lease.
13. SIGNS
Tenant shall not place, install, affix, paint or maintain any signs, notices, graphics or banners whatsoever or any window decor which is visible in or from public view or corridors, the common areas or the exterior of the Premises or the Building, in or on any exterior window or window fronting upon any common areas or service area without Landlord's prior written approval which Landlord shall have the right to withhold in its absolute and sole discretion; provided that Tenant's name shall be included in any Building-standard door and directory signage, if any, in accordance with Landlord's Building signage program, including without limitation, , which fee shall constitute Additional Rent hereunder. Any installation of signs, notices, graphics or banners on or about the Premises or Project approved by Landlord shall be subject to any Regulations and to any other requirements imposed by Landlord. Tenant shall remove all such signs or graphics by the expiration or any earlier termination of this Lease. Such installations and removals shall be made in such manner as to avoid injury to or defacement of the Premises, Building or Project and any other improvements contained therein, and Tenant shall repair any injury or defacement including without limitation discoloration caused by such installation or removal.
Tenant shall maintain the right to display its existing "eye brow" and lobby sign at no additional charge. Additionally, Tenant shall be entitled to install one sign on the north west corner of the fifth (5th) floor parapet of the building throughout the term of the Lease and any option period. The attached sign shall be subject to Landlord's approval, which shall not be unreasonably withheld or delayed and approval of any public authorities having jurisdiction. Tenant shall be responsible for electrical energy used in connection with its signs, repairs and maintenance necessary to maintain the signs in their original condition. Additionally, Tenant shall be responsible for all costs associated with the installation, removal and maintenance of building signage which shall be maintained and repaired to standards acceptable to Landlord. All of Tenant's signs shall at all times remain the property of Tenant and Tenant must remove its signs at the expiration or earlier termination of this Lease. Landlord, at Landlord's sole discretion, reserves the right to determine the exact size of the sign. Tenant shall repair any damage caused in the removal of its sign.
14. INSPECTION/POSTING NOTICES
After reasonable notice, except in emergencies where no such notice shall be required, Landlord and Landlord's agents and representatives, shall have the right to enter the Premises to inspect the same, to clean, to perform such work as may be permitted or required hereunder, to make repairs, improvements or alterations to the Premises, Building or Project or to other tenant spaces therein, to deal with emergencies, to post such notices as may be permitted or required by law to prevent the perfection of liens against Landlord's interest in the Project or to exhibit the Premises to prospective tenants, purchasers, encumbrancers or to others, or for any other purpose as Landlord may deem necessary or desirable; provided, however, that Landlord shall use reasonable efforts not to unreasonably interfere with Tenant's business operations. Tenant shall not be entitled to any abatement of Rent by reason of the exercise of any such right of entry. Tenant waives any claim for damages for any injury or inconvenience to or interference with Tenant's business, any loss of occupancy or quiet enjoyment of the Premises, and any other loss occasioned thereby. Landlord shall at all times have and retain a key with which to unlock all of the doors in, upon and about the Premises, excluding Tenant's vaults and safes or special security areas (designated in advance), and Landlord shall have the right to use any and all means which Landlord may deem necessary or proper to open said doors in an emergency, in order to obtain entry to any portion of the Premises, and any entry to the Premises or portions thereof obtained by Landlord by any of said means, or otherwise, shall not be construed to be a forcible or unlawful entry into, or a detainer of, the Premises, or an eviction, actual or constructive, of Tenant from the Premises or any portions thereof. At any time within six (6) months prior to the expiration of the Term or following any earlier termination of this Lease or agreement to terminate this Lease, Landlord shall have the right to erect on the Premises, Building and/or Project a suitable sign indicating that the Premises are available for lease.
15. SERVICES AND UTILITIES
A. Provided Tenant shall not be in default hereunder, and subject to the provisions elsewhere herein contained and to the rules and regulations of the Building, Landlord shall furnish to the Premises during ordinary business hours of generally recognized business days, to be determined by Landlord (but exclusive, in any event, of Saturdays, Sundays and legal holidays), water for lavatory and drinking purposes and electricity, heat and air conditioning as usually furnished or supplied for use of the Premises for reasonable and normal office use as of the date Tenant takes possession of the Premises as determined by Landlord (but not including above-standard or continuous cooling for excessive heat-generating machines, excess lighting or equipment), janitorial services during the times and in the manner that such services are, in Landlord's judgment, customarily furnished in comparable office buildings in the immediate market area, and elevator service, which shall mean service either by nonattended automatic elevators or elevators with attendants, or both, at the option of Landlord. Tenant acknowledges that Tenant has inspected and accepts the water, electricity, heat and air conditioning and other utilities and services being supplied or furnished to the Premises as of the date Tenant takes possession of the Premises, as being sufficient for use of the Premises for reasonable and normal office use in their present condition, "as is," and suitable for the Permitted Use, and for Tenant's intended operations in the Premises. Landlord shall have no obligation to provide additional or after-hours electricity, heating or air conditioning, but if Landlord elects to provide such services at Tenant's request, Tenant shall pay upon demand to Landlord a reasonable charge for such services as determined by Landlord. Tenant also agrees at all times to cooperate fully with Landlord and to abide by all of the regulations and requirements which Landlord may prescribe for the proper functioning and protection of electrical, heating, ventilating and air conditioning systems. Wherever heat-generating machines, excess lighting or equipment are used in the Premises which affect the temperature otherwise maintained by the air conditioning system, Landlord reserves the right to install supplementary air conditioning
units in the Premises and the cost thereof, including the cost of installation and the cost of operation and maintenance thereof, shall be paid by Tenant to Landlord upon demand by Landlord.
B. Tenant shall not without written consent of Landlord use any apparatus,
equipment or device in the Premises, including without limitation, computers,
electronic data processing machines, copying machines, and other machines, using
excess lighting or using electric current, water, or any other resource in
excess of or which will in any way increase the amount of electricity, water, or
any other resource being furnished or supplied for the use of the Premises for
reasonable and normal office use, in each case as of the date Tenant takes
possession of the Premises and as determined by Landlord, or which will require
additions or alterations to or interfere with the Building power distribution
systems; nor connect with electric current, except through existing electrical
outlets in the Premises or water pipes, any apparatus, equipment or device for
the purpose of using electrical current, water, or any other resource. If Tenant
shall require water or electric current or any other resource in excess of that
being furnished or supplied for the use of the Premises as of the date Tenant
takes possession of the Premises as determined by Landlord, Tenant shall first
procure the written consent of Landlord which Landlord may refuse, to the use
thereof, and Landlord may cause a special meter to be installed in the Premises
so as to measure the amount of water, electric current or other resource
consumed for any such other use. Tenant shall pay directly to Landlord upon
demand as an addition to and separate from payment of Operating Expenses the
cost of all such additional resources, energy, utility service and meters (and
of installation, maintenance and repair thereof and of any additional circuits
or other equipment necessary to furnish such additional resources, energy,
utility or service). Landlord may add to the separate or metered charge a
recovery of additional expense incurred in keeping account of the excess water,
electric current or other resource so consumed. Following receipt of Tenant's
request to do so, Landlord shall use good faith efforts to restore any service
specifically to be provided under Paragraph 15 that becomes unavailable and
which is in Landlord's reasonable control to restore; provided, however, that
Landlord shall in no case be liable for any damages directly or indirectly
resulting from nor shall the Rent or any monies owed Landlord under this Lease
herein reserved be abated by reason of: (a) the installation, use or
interruption of use of any equipment used in connection with the furnishing of
any such utilities or services, or any change in the character or means of
supplying or providing any such utilities or services or any supplier thereof;
(b) the failure to furnish or delay in furnishing any such utilities or services
when such failure or delay is caused by acts of God or the elements, labor
disturbances of any character, or otherwise or because of any interruption of
service due to Tenant's use of water, electric current or other resource in
excess of that being supplied or furnished for the use of the Premises as of the
date Tenant takes possession of the Premises; (c) the inadequacy, limitation,
curtailment, rationing or restriction on use of water, electricity, gas or any
other form of energy or any other service or utility whatsoever serving the
Premises or Project, whether by Regulation or otherwise; or (d) the partial or
total unavailability of any such utilities or services to the Premises or the
Building or the diminution in the quality or quantity thereof, whether by
Regulation or otherwise; or (e) any interruption in Tenant's business operations
as a result of any such occurrence; nor shall any such occurrence constitute an
actual or constructive eviction of Tenant or a breach of an implied warranty by
Landlord. Landlord shall further have no obligation to protect or preserve any
apparatus, equipment or device installed by Tenant in the Premises, including
without limitation by providing additional or after-hours heating or air
conditioning. Landlord shall be entitled to cooperate voluntarily and in a
reasonable manner with the efforts of national, state or local governmental
agencies or utility suppliers in reducing energy or other resource consumption.
The obligation to make services available hereunder shall be subject to the
limitations of any such voluntary, reasonable program. In addition, Landlord
reserves the right to change the supplier or provider of any such utility or
service from time to time. Tenant shall have no right to contract with or
otherwise obtain any electrical or other such service for or with respect to the
Premises or Tenant's operations therein from any supplier or provider of any
such service. Tenant shall cooperate with Landlord and any supplier or provider
of such services designated by Landlord from time to time to facilitate the
delivery of such services to Tenant at the Premises and to the Building and
Project, including without limitation allowing Landlord and Landlord's suppliers
or providers, and their respective agents and contractors, reasonable access to
the Premises for the purpose of installing, maintaining, repairing, replacing or
upgrading such service or any equipment or machinery associated therewith.
C. Tenant shall pay, upon demand, for all utilities furnished to the Premises, or if not separately billed to or metered to Tenant, Tenant's Proportionate Share of all charges jointly serving the Project in accordance with Paragraph 7. All sums payable under this Paragraph 15 shall constitute Additional Rent hereunder.
D. Tenant may contract separately with providers of telecommunications or cellular products, systems or services for the Premises. Even though such products, systems or services may be installed or provided by such providers in the Building, in consideration for Landlord's permitting such providers to provide such services to Tenant, Tenant agrees that Landlord and the Landlord Indemnitees shall in no event be liable to Tenant or any Tenant Party for any damages of any nature whatsoever arising out of or relating to the products, systems or services provided by such providers (or any failure, interruption, defect in or loss of the same) or any acts or omissions of such providers in connection with the same or any interference in Tenant's business caused thereby. Tenant waives and releases all rights and remedies against Landlord and the Landlord Indemnitees that are inconsistent with the foregoing.
16. SUBORDINATION
Without the necessity of any additional document being executed by Tenant for the purpose of effecting a subordination, this Lease shall be and is hereby declared to be subject and subordinate at all times to: (a) all ground leases or underlying leases which may now exist or hereafter be executed affecting the Premises and/or the land upon which the Premises and Project are situated, or both; and (b) any mortgage or deed of trust which may now exist or be placed upon the Building, the Project and/or the land upon which the Premises or the Project are situated, or said ground leases or underlying leases, or Landlord's interest or estate in any of said items which is specified as security, which shall be subject to nondisturbance as to future liens and interests. Notwithstanding the foregoing, Landlord shall have the right to subordinate or cause to be subordinated any such ground leases or underlying leases or any such liens to this Lease. If any ground lease or underlying lease terminates for any reason or any mortgage or deed of trust is foreclosed or a conveyance in lieu of foreclosure is made for any reason, Tenant shall, notwithstanding any subordination, attorn to and become the Tenant of the successor in interest to Landlord provided that Tenant shall not be disturbed in its possession under this Lease by such successor in interest so long as Tenant is not in default under this Lease. Within fifteen (15) business days after request by Landlord, Tenant shall execute and deliver any additional documents evidencing Tenant's attornment or the subordination of this Lease with respect to any such ground leases or underlying leases or any such mortgage or deed of trust, in the form requested by Landlord or by any ground landlord, mortgagee, or beneficiary under a deed of trust, subject to such nondisturbance requirement. If requested in writing by Tenant, Landlord shall use commercially reasonable efforts to obtain a subordination, nondisturbance and attornment agreement for the benefit of Tenant reflecting the foregoing from any ground landlord, mortgagee or beneficiary, at Tenant's expense, subject to such other terms and conditions as the ground landlord, mortgagee or beneficiary may require.
17. FINANCIAL STATEMENTS
At the request of Landlord from time to time, Tenant shall provide to Landlord Tenant's and any guarantor's current financial statements or other information discussing financial worth of Tenant and any guarantor, which Landlord shall use solely for purposes of this Lease and in connection with the ownership, management, financing and disposition of the Project.
18. ESTOPPEL CERTIFICATE
Tenant agrees from time to time, within fifteen (15) business days after request of Landlord, to deliver to Landlord, or Landlord's designee, an estoppel certificate stating that this Lease is in full force and effect, that this Lease has not been modified (or stating all modifications, written or oral, to this Lease), the date to which Rent has been paid, the unexpired portion of this Lease, that there are no current defaults by Landlord or Tenant under this Lease (or specifying any such defaults), that the leasehold estate granted by this Lease is the sole interest of Tenant in the Premises and/or the land at which the Premises are situated, and such other matters pertaining to this Lease as may be reasonably requested by Landlord or any mortgagee, beneficiary, purchaser or prospective purchaser of the Building or Project or any interest therein. Failure by Tenant to execute and deliver such certificate shall constitute an acceptance of the Premises and acknowledgment by Tenant that the statements included are true and correct without exception. Tenant agrees that if Tenant fails to execute and deliver such certificate within such fifteen (15) business days Landlord may execute and deliver such certificate on Tenant's behalf and that such certificate shall be binding on Tenant. Landlord and Tenant intend that any statement delivered pursuant to this Paragraph may be relied upon by any mortgagee, beneficiary, purchaser or prospective purchaser of the Building or Project or any interest therein. The parties agree that Tenant's obligation to furnish such estoppel certificates in a timely fashion is a material inducement for Landlord's execution of this Lease.
19. LIMITATION OF TENANT'S REMEDIES
The obligations and liability of Landlord to Tenant for any default by Landlord under the terms of this Lease are not personal obligations of Landlord or of the individual or other partners of Landlord or its or their partners, directors, officers, or shareholders, and Tenant agrees to look solely to Landlord's interest in the Project for the recovery of any amount from Landlord, and shall not look to other assets of Landlord nor seek recourse against the assets of the individual or other partners of Landlord or its or their partners, directors, officers or shareholders. Any lien obtained to enforce any such judgment and any levy of execution thereon shall be subject and subordinate to any lien, mortgage or deed of trust on the Project. Under no circumstances shall Tenant have the right to offset against or recoup Rent or other payments due and to become due to Landlord hereunder except as expressly provided in this Lease, which Rent and other payments shall be absolutely due and payable hereunder in accordance with the terms hereof. In no case shall Landlord be liable to Tenant for any lost profits, damage to business, or any form of special, indirect or consequential damage on account of any breach of this Lease or otherwise, notwithstanding anything to the contrary contained in this Lease.
20. ASSIGNMENT AND SUBLETTING
A. (1) GENERAL. This Lease has been negotiated to be and is granted as an accommodation to Tenant. Accordingly, this Lease is personal to Tenant, and Tenant's rights granted hereunder do not include the right to assign this Lease or sublease the Premises, or to receive any excess, either in installments or lump sum, over the Rent which is expressly reserved by Landlord as hereinafter provided, except as otherwise expressly hereinafter provided. Tenant shall not assign or pledge this Lease or sublet the Premises or any part thereof, whether voluntarily or by operation of law, or permit the use or occupancy of the Premises or any part thereof by anyone other than Tenant, or suffer or permit any such assignment, pledge, subleasing or occupancy, without Landlord's prior written consent except as provided herein which consent shall not be unreasonably withheld. If Tenant desires to assign this Lease or sublet any or all of the Premises, Tenant shall give Landlord written notice (the "TRANSFER NOTICE") at least sixty (60) days prior to the anticipated effective date of the proposed assignment or sublease, which shall contain all of the information reasonably requested by Landlord to address Landlord's decision criteria specified hereinafter. Landlord shall then have a period of thirty (30) days following receipt of the Transfer Notice to notify Tenant in writing that Landlord consents to the proposed assignment or sublease, subject, however, to Landlord's prior written consent of the proposed assignee or subtenant and of any related documents or agreements associated with the assignment or sublease. If Landlord should fail to notify Tenant in writing of such election within said period, Landlord shall be deemed to have waived option (i) above, but written consent by Landlord of the proposed assignee or subtenant shall still be required. Consent to any assignment or subletting shall not constitute consent to any subsequent transaction to which this Paragraph 20 applies.
(2) CONDITIONS OF LANDLORD'S CONSENT. Without limiting the other instances in which it may be reasonable for Landlord to withhold Landlord's consent to an assignment or subletting, Landlord and Tenant acknowledge that it shall be reasonable for Landlord to withhold Landlord's consent in the following instances: if the proposed assignee does not agree to be bound by and assume the obligations of Tenant under this Lease in form and substance satisfactory to Landlord; the use of the Premises by such proposed assignee or subtenant would not be a Permitted Use or would violate any exclusivity or other arrangement which Landlord has with any other tenant or occupant or any Regulation or would increase the Occupancy Density or Parking Density of the Building or Project, or would otherwise result in an undesirable tenant mix for the Project as determined by Landlord; the proposed assignee or subtenant is not of sound financial condition as determined by Landlord in Landlord's sole discretion; the proposed assignee or subtenant is a governmental agency; the proposed assignee or subtenant does not have a good reputation as a tenant of property or a good business reputation; the proposed assignee or subtenant is a person with whom Landlord is negotiating to lease space in the Project or is a present tenant of the Project; the assignment or subletting would entail any Alterations which would lessen the value of the leasehold improvements in the Premises or use of any Hazardous Materials or other noxious use or use which may disturb other tenants of the Project; or Tenant is in default of any obligation of Tenant under this Lease, or Tenant has defaulted under this Lease on three (3) or more occasions during any twelve (12) months preceding the date that Tenant shall request consent. Failure by or refusal of Landlord to consent to a proposed assignee or subtenant shall not cause a termination of this Lease. At the option of Landlord, a surrender and termination of this Lease shall operate as an assignment to Landlord of some or all subleases or subtenancies. Landlord shall exercise this option by giving notice of that assignment to such subtenants on or before the effective date of the surrender and termination. In connection with each request for assignment or subletting, Tenant shall pay to Landlord Landlord's standard fee for approving such requests, as well as all costs incurred by Landlord or any mortgagee or ground lessor in approving each such request and effecting any such transfer, including, without limitation, reasonable attorneys' fees.
(3) PERMITTED TRANSFERS. An "Affiliate" means any entity that (i) controls, is controlled by, or is under common control with Tenant, (ii) results from the transfer of all or substantially all of Tenant's assets or stock, or (iii) results from the merger or consolidation of Tenant with another entity. "Control" means the direct or indirect ownership of more than fifty percent (50%) of the voting securities of an entity or possession of the right to vote more than fifty percent (50%) of the voting interest in the ordinary direction of the entity's affairs. Notwithstanding anything to the contrary contained in this Lease, Landlord's consent is not required for and Landlord's recapture rights shall not apply to any assignment of this Lease or sublease of all or a portion of the Premises to an Affiliate so long as the following conditions are met: (a) at least ten (10) business days before any such assignment or sublease, Landlord receives written notice of such assignment or sublease (as well as any documents or information reasonably requested by Landlord regarding the proposed intended transfer and the transferee); (b) Tenant has not been in default under this Lease more than two times in a one year period of the Lease; (c) if the transfer is an assignment or any other transfer to an Affiliate other than a sublease, the intended assignee assumes in writing all of Tenant's obligations under this Lease relating to the Premises in form satisfactory to Landlord or, if the transfer is a sublease, the intended sublessee accepts the sublease in form satisfactory to Landlord; (d) the intended transferee has a tangible net worth, as evidenced by financial
statements delivered to Landlord and certified by an independent certified public accountant in accordance with generally accepted accounting principles that are consistently applied; (e) the Premises shall continue to be operated solely for the use specified in the Basic Lease Information; and (f) Tenant shall pay to Landlord Landlord's standard fee for approving assignments and subleases and all costs reasonably incurred by Landlord or any mortgagee or ground lessor for such assignment or subletting, including, without limitation, reasonable attorneys' fees. No transfer to an Affiliate in accordance with this subparagraph shall relieve Tenant named herein of any obligation under this Lease or alter the primary liability of Tenant named herein for the payment of Rent or for the performance of any other obligation to be performed by Tenant, including the obligations contained in Paragraph 25 with respect to any Affiliate.
B. BONUS RENT. Any Rent or other consideration realized by Tenant under any such sublease or assignment in excess of the Rent payable hereunder, after amortization of a reasonable brokerage commission incurred by Tenant, shall be divided and paid, fifty percent (50%) to Tenant, fifty percent (50%) to Landlord. In any subletting or assignment undertaken by Tenant, Tenant shall diligently seek to obtain the maximum rental amount available in the marketplace for comparable space available for primary leasing.
C. CORPORATION. If Tenant is a corporation, a transfer of corporate shares by sale, assignment, bequest, inheritance, operation of law or other disposition (including such a transfer to or by a receiver or trustee in federal or state bankruptcy, insolvency or other proceedings) resulting in a change in the present control of such corporation or any of its parent corporations by the person or persons owning a majority of said corporate shares, shall constitute an assignment for purposes of this Lease. Notwithstanding anything to the contrary in this Lease, the transfer of outstanding capital stock or other listed equity interests, or the purchase of outstanding capital stock or other listed equity interests, or the purchase of equity interests issued in an initial public offering of stock, by persons or parties other than "insiders" within the meaning of the Securities Exchange Act of 1934, as amended, through the "over-the-counter" market or any recognized national or international securities exchange shall not be included in determining whether control has been transferred.
D. UNINCORPORATED ENTITY. If Tenant is a partnership, joint venture, unincorporated limited liability company or other unincorporated business form, a transfer of the interest of persons, firms or entities responsible for managerial control of Tenant by sale, assignment, bequest, inheritance, operation of law or other disposition, so as to result in a change in the present control of said entity and/or of the underlying beneficial interests of said entity and/or a change in the identity of the persons responsible for the general credit obligations of said entity shall constitute an assignment for all purposes of this Lease.
E. LIABILITY. No assignment or subletting by Tenant, permitted or otherwise, shall relieve Tenant of any obligation under this Lease or any guarantor of this Lease of any liability under its guaranty or alter the primary liability of the Tenant named herein for the payment of Rent or for the performance of any other obligations to be performed by Tenant, including obligations contained in Paragraph 25 with respect to any assignee or subtenant. Landlord may collect rent or other amounts or any portion thereof from any assignee, subtenant, or other occupant of the Premises, permitted or otherwise, and apply the net rent collected to the Rent payable hereunder, but no such collection shall be deemed to be a waiver of this Paragraph 21, or the acceptance of the assignee, subtenant or occupant as tenant, or a release of Tenant from the further performance by Tenant of the obligations of Tenant under this Lease or any guarantor of this Lease of any liability under its guaranty. Any assignment or subletting which conflicts with the provisions hereof shall be void.
21. AUTHORITY
Landlord represents and warrants that it has full right and authority to enter into this Lease and to perform all of Landlord's obligations hereunder and that all persons signing this Lease on its behalf are authorized to do. Tenant and the person or persons, if any, signing on behalf of Tenant, jointly and severally represent and warrant that Tenant has full right and authority to enter into this Lease, and to perform all of Tenant's obligations hereunder, and that all persons signing this Lease on its behalf are authorized to do so.
22. CONDEMNATION
A. CONDEMNATION RESULTING IN TERMINATION. If the whole or any substantial part of the Premises should be taken or condemned for any public use under any Regulation, or by right of eminent domain, or by private purchase in lieu thereof, and the taking would prevent or materially interfere with the Permitted Use of the Premises, either party shall have the right to terminate this Lease at its option. If any material portion of the Building or Project is taken or condemned for any public use under any Regulation, or by right of eminent domain, or by private purchase in lieu thereof, either party may terminate this Lease at its option. In either of such events, the Rent shall be abated during the unexpired portion of this Lease, effective when the physical taking of said Premises shall have occurred.
B. CONDEMNATION NOT RESULTING IN TERMINATION. If a portion of the Project of which the Premises are a part should be taken or condemned for any public use under any Regulation, or by right of eminent domain, or by private purchase in lieu thereof, and the taking prevents or materially interferes with the Permitted Use of the Premises, and this Lease is not terminated as provided in Paragraph 22.A above, the Rent payable hereunder during the unexpired portion of this Lease shall be reduced, beginning on the date when the physical taking shall have occurred, to such amount as may be fair and reasonable under all of the circumstances, but only after giving Landlord credit for all sums received or to be received by Tenant by the condemning authority. Notwithstanding anything to the contrary contained in this Paragraph, if the temporary use or occupancy of any part of the Premises shall be taken or appropriated under power of eminent domain during the Term, this Lease shall be and remain unaffected by such taking or appropriation and Tenant shall continue to pay in full all Rent payable hereunder by Tenant during the Term; in the event of any such temporary appropriation or taking, Tenant shall be entitled to receive that portion of any award which represents compensation for the use of or occupancy of the Premises during the Term.
C. AWARD. Landlord shall be entitled to (and Tenant shall assign to Landlord) any and all payment, income, rent, award or any interest therein whatsoever which may be paid or made in connection with such taking or conveyance and Tenant shall have no claim against Landlord or otherwise for any sums paid by virtue of such proceedings, whether or not attributable to the value of any unexpired portion of this Lease, except as expressly provided in this Lease. Notwithstanding the foregoing, any compensation specifically and separately awarded Tenant for Tenant's personal property and moving costs, shall be and remain the property of Tenant.
D. WAIVER OF CCP SS. 1265.130. Each party waives the provisions of California Civil Code Procedure Section 1265.130 allowing either party to petition the superior court to terminate this Lease as a result of a partial taking.
23. CASUALTY DAMAGE
A. GENERAL. If the Premises or Building should be damaged or destroyed by fire, tornado, or other casualty (collectively, "CASUALTY"), Tenant shall give immediate written notice thereof to Landlord. Within thirty (30) days after Landlord's receipt of such notice, Landlord shall notify Tenant whether in Landlord's estimation material restoration of the Premises can reasonably be made within one hundred eighty (180) days from the date of such notice and receipt of required permits for such restoration. Landlord's determination shall be binding on Tenant.
B. WITHIN 180 DAYS. If the Premises or Building should be damaged by Casualty to such extent that material restoration can in Landlord's estimation be reasonably completed within one hundred eighty (180) days after the date of such notice and receipt of required
permits for such restoration, this Lease shall not terminate. Provided that insurance proceeds are received by Landlord to fully repair the damage, Landlord shall proceed to rebuild and repair the Premises diligently and in the manner determined by Landlord, except that Landlord shall not be required to rebuild, repair or replace any part of any Alterations which may have been placed on or about the Premises or paid for by Tenant. If the Premises are untenantable in whole or in part following such damage, the Rent payable hereunder during the period in which they are untenantable shall be abated proportionately, but only to the extent Premises are unfit for occupancy.
C. GREATER THAN 270 DAYS. If the Premises or Building should be damaged by Casualty to such extent that rebuilding or repairs cannot in Landlord's estimation be reasonably completed within two hundred seventy (270) days after receipt of required permits for rebuilding or repair, and such damage materially and adversely interferes with the conduct of Tenant's business in the Premises, then either party shall have the right to cancel this Lease by giving the other party written notice within ten (10) days from the date of Landlord's notice that material restoration of the Premises cannot be made within such two hundred seventy (270) day period or notice that Landlord has elected not to rebuild or repair the Premises. Said cancellation shall be effective [thirty (30)] days from the first day that either party gives its notice to cancel. If neither party elects to so cancel this Lease, Landlord shall proceed to rebuild and repair the Premises diligently and in the manner determined by Landlord, except that Landlord shall not be required to rebuild, repair or replace any part of any Alterations which may have been placed on or about the Premises by Tenant. If the Premises are untenantable in whole or in part following such damage, the Rent payable hereunder during the period in which they are untenantable shall be abated proportionately, but only to the extent the Premises are unfit for occupancy.
D. TENANT'S FAULT. Notwithstanding anything herein to the contrary, if the Premises or any other portion of the Building are damaged by Casualty resulting from the fault, negligence, or breach of this Lease by Tenant or any of Tenant's Parties, Base Rent and Additional Rent shall not be diminished during the repair of such damage and Tenant shall be liable to Landlord for the cost and expense of the repair and restoration of the Building caused thereby to the extent such cost and expense is not covered by insurance proceeds.
E. INSURANCE PROCEEDS. Notwithstanding anything herein to the contrary, if the Premises or Building are damaged or destroyed and are not fully covered by the insurance proceeds received by Landlord or if the holder of any indebtedness secured by a mortgage or deed of trust covering the Premises requires that the insurance proceeds be applied to such indebtedness, then in either case Landlord shall have the right to terminate this Lease by delivering written notice of termination to Tenant within thirty (30) days after the date of notice to Landlord that said damage or destruction is not fully covered by insurance or such requirement is made by any such holder, as the case may be, whereupon this Lease shall terminate.
F. WAIVER. This Paragraph 24 shall be Tenant's sole and exclusive remedy in the event of damage or destruction to the Premises or the Building. As a material inducement to Landlord entering into this Lease, Tenant hereby waives any rights it may have under Sections 1932, 1933(4), or 1942 of the Civil Code of California with respect to any destruction of the Premises, Landlord's obligation for tenantability of the Premises and Tenant's right to make repairs and deduct the expenses of such repairs, or under any similar law, statute or ordinance now or hereafter in effect.
G. TENANT'S PERSONAL PROPERTY. In the event of any damage or destruction of the Premises or the Building, under no circumstances shall Landlord be required to repair any injury or damage to, or make any repairs to or replacements of, Tenant's personal property, excepting Landlord's gross negligence or willful misconduct.
24. HOLDING OVER
Unless Landlord expressly consents in writing to Tenant's holding over, Tenant shall be unlawfully and illegally in possession of the Premises, whether or not Landlord accepts any rent from Tenant or any other person while Tenant remains in possession of the Premises without Landlord's written consent. If Tenant shall retain possession of the Premises or any portion thereof without Landlord's consent following the expiration of this Lease or sooner termination for any reason, then Tenant shall pay to Landlord for each day of such retention one hundred and fifty percent (150%) the amount of daily rental as of the last month prior to the date of expiration or earlier termination. Tenant shall also indemnify, defend, protect and hold Landlord harmless from any loss, liability or cost, including consequential and incidental damages and reasonable attorneys' fees, incurred by Landlord resulting from delay by Tenant in surrendering the Premises, including, without limitation, any claims made by the succeeding tenant founded on such delay. Acceptance of Rent by Landlord following expiration or earlier termination of this Lease, or following demand by Landlord for possession of the Premises, shall not constitute a renewal of this Lease, and nothing contained in this Paragraph 25 shall waive Landlord's right of reentry or any other right. Additionally, if upon expiration or earlier termination of this Lease, or following demand by Landlord for possession of the Premises, Tenant has not fulfilled its obligation with respect to repairs and cleanup of the Premises or any other Tenant obligations as set forth in this Lease, then Landlord shall have the right to perform any such obligations as it deems necessary at Tenant's sole cost and expense, and any time required by Landlord to complete such obligations shall be considered a period of holding over and the terms of this Paragraph 24 shall apply. The provisions of this Paragraph 24 shall survive any expiration or earlier termination of this Lease.
25. DEFAULT
A. EVENTS OF DEFAULT. The occurrence of any of the following shall constitute an event of default on the part of Tenant:
(1) ABANDONMENT. Abandonment or vacation of the Premises and non
payment of rent for a continuous period in excess of five (5) days.
Tenant waives any right to notice Tenant may have under Section 1951.3
of the Civil Code of the State of California, the terms of this
Paragraph 26.A being deemed such notice to Tenant as required by said
Section 1951.3.
(2) NONPAYMENT OF RENT. Failure to pay any installment of Rent or any other amount due and payable hereunder within 5 business days of the date when said payment is due, as to which time is of the essence.
(3) OTHER OBLIGATIONS. Failure to perform any obligation, agreement or covenant under this Lease other than those matters specified in subparagraphs (1) and (2) of this Paragraph 25.A, and in Paragraphs 8, 16, 18 and 24, such failure continuing for thirty (30) business days after written notice of such failure, as to which time is of the essence.
(4) GENERAL ASSIGNMENT. A general assignment by Tenant for the benefit of creditors.
(5) BANKRUPTCY. The filing of any voluntary petition in bankruptcy by
Tenant, or the filing of an involuntary petition by Tenant's creditors,
which involuntary petition remains undischarged for a period of thirty
(30) days. If under applicable law, the trustee in bankruptcy or Tenant
has the right to affirm this Lease and continue to perform the
obligations of Tenant hereunder, such trustee or Tenant shall, in such
time period as may be permitted by the bankruptcy court having
jurisdiction, cure all
defaults of Tenant hereunder outstanding as of the date of the affirmance of this Lease and provide to Landlord such adequate assurances as may be necessary to ensure Landlord of the continued performance of Tenant's obligations under this Lease.
(6) RECEIVERSHIP. The employment of a receiver to take possession of substantially all of Tenant's assets or Tenant's leasehold of the Premises, if such appointment remains undismissed or undischarged for a period of fifteen (15) days after the order therefor.
(7) ATTACHMENT. The attachment, execution or other judicial seizure of all or substantially all of Tenant's assets or Tenant's leasehold of the Premises, if such attachment or other seizure remains undismissed or undischarged for a period of fifteen (15) days after the levy thereof.
(8) INSOLVENCY. The admission by Tenant in writing of its inability to pay its debts as they become due.
B. REMEDIES UPON DEFAULT.
(1) TERMINATION. In the event of the occurrence of any event of default, Landlord shall have the right to give a written termination notice to Tenant, and on the date specified in such notice, Tenant's right to possession shall terminate, and this Lease shall terminate unless on or before such date all Rent in arrears and all costs and expenses incurred by or on behalf of Landlord hereunder shall have been paid by Tenant and all other events of default of this Lease by Tenant at the time existing shall have been fully remedied to the satisfaction of Landlord. At any time after such termination, Landlord may recover possession of the Premises or any part thereof and expel and remove therefrom Tenant and any other person occupying the same, including any subtenant or subtenants notwithstanding Landlord's consent to any sublease, by any lawful means, and again repossess and enjoy the Premises without prejudice to any of the remedies that Landlord may have under this Lease, or at law or equity by any reason of Tenant's default or of such termination. Landlord hereby reserves the right, but shall not have the obligation, to recognize the continued possession of any subtenant. The delivery or surrender to Landlord by or on behalf of Tenant of keys, entry codes, or other means to bypass security at the Premises shall not terminate this Lease.
(2) CONTINUATION AFTER DEFAULT. Even though an event of default may have occurred, this Lease shall continue in effect for so long as Landlord does not terminate Tenant's right to possession under Paragraph 26.B(1) hereof. Landlord shall have the remedy described in California Civil Code Section 1951.4 ("Landlord may continue this Lease in effect after Tenant's breach and abandonment and recover Rent as it becomes due, if Tenant has the right to sublet or assign, subject only to reasonable limitations"), or any successor code section. Accordingly, if Landlord does not elect to terminate this Lease on account of any event of default by Tenant, Landlord may enforce all of Landlord's rights and remedies under this Lease, including the right to recover Rent as it becomes due. Acts of maintenance, preservation or efforts to lease the Premises or the appointment of a receiver under application of Landlord to protect Landlord's interest under this Lease or other entry by Landlord upon the Premises shall not constitute an election to terminate Tenant's right to possession.
(3) INCREASED SECURITY DEPOSIT. If Tenant is in default under Paragraph 26.A(2) hereof and such default remains uncured for ten (10) days after such occurrence or such default occurs more than three times in any twelve (12) month period, Landlord may require that Tenant provide a Security Deposit to the amount of the current month's Rent at the time of the most recent default.
C. DAMAGES AFTER DEFAULT. Should Landlord terminate this Lease pursuant to
the provisions of Paragraph 26.B(1) hereof, Landlord shall have the rights and
remedies of a Landlord provided by Section 1951.2 of the Civil Code of the State
of California, or any successor code sections. Upon such termination, in
addition to any other rights and remedies to which Landlord may be entitled
under applicable law or at equity, Landlord shall be entitled to recover from
Tenant: (1) the worth at the time of award of the unpaid Rent and other amounts
which had been earned at the time of termination, (2) the worth at the time of
award of the amount by which the unpaid Rent and other amounts that would have
been earned after the date of termination until the time of award exceeds the
amount of such Rent loss that Tenant proves could have been reasonably avoided;
(3) the worth at the time of award of the amount by which the unpaid Rent and
other amounts for the balance of the Term after the time of award exceeds the
amount of such Rent loss that the Tenant proves could be reasonably avoided; and
(4) any other amount and court costs necessary to compensate Landlord for all
detriment proximately caused by Tenant's failure to perform Tenant's obligations
under this Lease or which, in the ordinary course of things, would be likely to
result therefrom. The "worth at the time of award" as used in (1) and (2) above
shall be computed at the Applicable Interest Rate (defined below). The "worth at
the time of award" as used in (3) above shall be computed by discounting such
amount at the Federal Discount Rate of the Federal Reserve Bank of San Francisco
at the time of award plus one percent (1%). If this Lease provides for any
periods during the Term during which Tenant is not required to pay Base Rent or
if Tenant otherwise receives a Rent concession, then upon the occurrence of an
event of default, Tenant shall owe to Landlord the full amount of such Base Rent
or value of such Rent concession, plus interest at the Applicable Interest Rate,
calculated from the date that such Base Rent or Rent concession would have been
payable.
D. LATE CHARGE. In addition to its other remedies, Landlord shall have the right without notice or demand to add to the amount of any payment required to be made by Tenant hereunder, and which is not paid and received by Landlord on or before the third business day of each calendar month, an amount equal to an amount equal to five percent (5%) of the delinquent amount, , for each month or portion thereof that the delinquency remains outstanding to compensate Landlord for the loss of the use of the amount not paid and the administrative costs caused by the delinquency, the parties agreeing that Landlord's damage by virtue of such delinquencies would be extremely difficult and impracticable to compute and the amount stated herein represents a reasonable estimate thereof. Any waiver by Landlord of any late charges or failure to claim the same shall not constitute a waiver of other late charges or any other remedies available to Landlord.
E. INTEREST. Interest shall accrue on all sums not paid when due hereunder at the lesser of eighteen percent (18%) per annum or the maximum interest rate allowed by law ("APPLICABLE INTEREST RATE") from the due date until paid.
F. REMEDIES CUMULATIVE. All rights, privileges and elections or remedies of the parties are cumulative and not alternative, to the extent permitted by law and except as otherwise provided herein.
G. REPLACEMENT OF STATUTORY NOTICE REQUIREMENTS. When this Lease requires service of a notice, that notice shall replace rather than supplement any equivalent or similar statutory notice, including any notice required by California Code of Civil Procedure Section 1161 or any similar or successor statute. When a statute requires service of a notice in a particular manner, service of that notice (or a similar notice required by this Lease) in the manner required by this Paragraph 26 shall replace and satisfy the statutory service-of-notice procedures, including those required by California Code of Civil Procedure Section 1162 or any similar or successor statute.
26. LIENS
Tenant shall at all times keep the Premises and the Project free from liens arising out of or related to work or services performed, materials or supplies furnished or obligations incurred by or on behalf
of Tenant or in connection with work made, suffered or done by or on behalf of Tenant in or on the Premises or Project. If Tenant shall not, within ten (10) days following the imposition of any such lien, cause the same to be released of record by payment or posting of a proper bond, Landlord shall have, in addition to all other remedies provided herein and by law, the right, but not the obligation, to cause the same to be released by such means as Landlord shall deem proper, including payment of the claim giving rise to such lien. All sums paid by Landlord on behalf of Tenant and all expenses incurred by Landlord in connection therefor shall be payable to Landlord by Tenant on demand with interest at the Applicable Interest Rate as Additional Rent. Landlord shall have the right at all times to post and keep posted on the Premises any notices permitted or required by law, or which Landlord shall deem proper, for the protection of Landlord, the Premises, the Project and any other party having an interest therein, from mechanics' and materialmen's liens, and Tenant shall give Landlord not less than ten (10) business days prior written notice of the commencement of any work in the Premises or Project which could lawfully give rise to a claim for mechanics' or materialmen's liens to permit Landlord to post and record a timely notice of non-responsibility, as Landlord may elect to proceed or as the law may from time to time provide, for which purpose, if Landlord shall so determine, Landlord may enter the Premises. Tenant shall not remove any such notice posted by Landlord without Landlord's consent, and in any event not before completion of the work which could lawfully give rise to a claim for mechanics' or materialmen's liens.
27. SUBSTITUTION
28. TRANSFERS BY LANDLORD
In the event of a sale or conveyance by Landlord of the Building or a foreclosure by any creditor of Landlord, the same shall operate to release Landlord from any liability upon any of the covenants or conditions, express or implied, herein contained in favor of Tenant, to the extent required to be performed after the passing of title to Landlord's successor-in-interest. In such event, Tenant agrees to look solely to the responsibility of the successor-in-interest of Landlord under this Lease with respect to the performance of the covenants and duties of "Landlord" to be performed after the passing of title to Landlord's successor-in-interest. This Lease shall not be affected by any such sale and Tenant agrees to attorn to the purchaser or assignee. Landlord's successor(s)-in-interest shall not have liability to Tenant with respect to the failure to perform any of the obligations of "Landlord," to the extent required to be performed prior to the date such successor(s)-in-interest became the owner of the Building.
29. RIGHT OF LANDLORD TO PERFORM TENANT'S COVENANTS
All covenants and agreements to be performed by Tenant under any of the terms of this Lease shall be performed by Tenant at Tenant's sole cost and expense and without any abatement of Rent. If Tenant shall fail to pay any sum of money, other than Base Rent, required to be paid by Tenant hereunder or shall fail to perform any other act on Tenant's part to be performed hereunder, including Tenant's obligations under Paragraph 11 hereof, and such failure shall continue for fifteen (15) days after notice thereof by Landlord, in addition to the other rights and remedies of Landlord, Landlord may make any such payment and perform any such act on Tenant's part. In the case of an emergency, no prior notification by Landlord shall be required. Landlord may take such actions without any obligation and without releasing Tenant from any of Tenant's obligations. All sums so paid by Landlord and all incidental costs incurred by Landlord and interest thereon at the Applicable Interest Rate, from the date of payment by Landlord, shall be paid to Landlord on demand as Additional Rent.
30. WAIVER
If either Landlord or Tenant waives the performance of any term, covenant or condition contained in this Lease, such waiver shall not be deemed to be a waiver of any subsequent breach of the same or any other term, covenant or condition contained herein, or constitute a course of dealing contrary to the expressed terms of this Lease. The acceptance of Rent by Landlord (including, without limitation, through any "lockbox") shall not constitute a waiver of any preceding breach by Tenant of any term, covenant or condition of this Lease, regardless of Landlord's knowledge of such preceding breach at the time Landlord accepted such Rent. Failure by Landlord to enforce any of the terms, covenants or conditions of this Lease for any length of time shall not be deemed to waive or decrease the right of Landlord to insist thereafter upon strict performance by Tenant. Waiver by Landlord of any term, covenant or condition contained in this Lease may only be made by a written document signed by Landlord, based upon full knowledge of the circumstances.
31. NOTICES
Each provision of this Lease or of any applicable governmental laws, ordinances, regulations and other requirements with reference to sending, mailing, or delivery of any notice or the making of any payment by Landlord or Tenant to the other shall be deemed to be complied with when and if the following steps are taken:
A. RENT. All Rent and other payments required to be made by Tenant to Landlord hereunder shall be payable to Landlord at Landlord's Remittance Address set forth in the Basic Lease Information, or at such other address as Landlord may specify from time to time by written notice delivered in accordance herewith. Tenant's obligation to pay Rent and any other amounts to Landlord under the terms of this Lease shall not be deemed satisfied until such Rent and other amounts have been actually received by Landlord.
B. OTHER. All notices, demands, consents and approvals which may or are required to be given by either party to the other hereunder shall be in writing and either personally delivered, sent by commercial overnight courier, mailed, certified or registered, postage prepaid or sent by facsimile with confirmed receipt (and with an original sent by commercial overnight courier), and in each case addressed to the party to be notified at the Notice Address for such party as specified in the Basic Lease Information or to such other place as the party to be notified may from time to time designate by at least fifteen (15) days notice to the notifying party. Notices shall be deemed served upon receipt or refusal to accept delivery. Tenant appoints as its agent to receive the service of all default notices and notice of commencement of unlawful detainer proceedings the person in charge of or apparently in charge of occupying the Premises at the time, and, if there is no such person, then such service may be made by attaching the same on the main entrance of the Premises.
C. REQUIRED NOTICES. Tenant shall immediately notify Landlord in writing of any notice of a violation or a potential or alleged violation of any Regulation that relates to the Premises or the Project, or of any inquiry, investigation, enforcement or other action that is instituted or threatened by any governmental or regulatory agency against Tenant or any other occupant of the Premises, or any claim that is instituted or threatened by any third party that relates to the Premises or the Project.
32. ATTORNEYS' FEES
If Landlord places the enforcement of this Lease, or any part thereof, or the collection of any Rent due, or to become due hereunder, or recovery of possession of the Premises in the hands of an attorney, Tenant shall pay to Landlord, upon demand, Landlord's reasonable attorneys' fees and court costs, whether incurred without trial, at trial, appeal or review. In any action which Landlord or Tenant brings to enforce its respective rights hereunder, the unsuccessful party shall pay all costs incurred by the prevailing party including reasonable attorneys' fees, to be fixed by the court, and said costs and attorneys' fees shall be a part of the judgment in said action.
33. SUCCESSORS AND ASSIGNS
This Lease shall be binding upon and inure to the benefit of Landlord, its successors and assigns, and shall be binding upon and inure to the benefit of Tenant, its successors, and to the extent assignment is approved by Landlord as provided hereunder, Tenant's assigns.
34. FORCE MAJEURE
If performance by a party of any portion of this Lease is made impossible by any prevention, delay, or stoppage caused by strikes, lockouts, labor disputes, acts of God, inability to obtain services, labor, or materials or reasonable substitutes for those items, government actions, civil commotions, fire or other casualty, or other causes beyond the reasonable control of the party obligated to perform, performance by that party for a period equal to the period of that prevention, delay, or stoppage is excused. Tenant's obligation to pay Rent, however, is not excused by this Paragraph 34.
35. SURRENDER OF PREMISES
Tenant shall, upon expiration or sooner termination of this Lease, surrender the Premises to Landlord in the same condition as existed on the commencement date Tenant originally took possession thereof reasonable wear and tear expected. Tenant shall remove all of its debris from the Project. At or before the time of surrender, Tenant shall comply with the terms of Paragraph 12.A hereof with respect to Alterations to the Premises and all other matters addressed in such Paragraph. If the Premises are not so surrendered at the expiration or sooner termination of this Lease, the provisions of Paragraph 25 hereof shall apply. All keys to the Premises or any part thereof shall be surrendered to Landlord upon expiration or sooner termination of the Term. Tenant shall give written notice to Landlord at least thirty (30) days prior to vacating the Premises and shall meet with Landlord for a joint inspection of the Premises at the time of vacating, but nothing contained herein shall be construed as an extension of the Term or as a consent by Landlord to any holding over by Tenant. In the event of Tenant's failure to give such notice or participate in such joint inspection, Landlord's inspection at or after Tenant's vacating the Premises shall conclusively be deemed correct for purposes of determining Tenant's responsibility for repairs and restoration. Any delay caused by Tenant's failure to carry out its obligations under this Paragraph 35 beyond the term hereof, shall constitute unlawful and illegal possession of Premises under Paragraph 25 hereof. Notwithstanding the foregoing provisions, Tenant shall remove all trade fixtures and vacate the premises in broom clean condition.
36. PARKING
So long as Tenant is occupying the Premises, Tenant and Tenant's Parties shall have the right to use up to the number of parking spaces, if any, specified in the Basic Lease Information on an unreserved, nonexclusive, first come, first served basis, for passenger-size automobiles, in the parking areas in the Project designated from time to time by Landlord for use in common by tenants of the Building. The parking rights granted under this Paragraph 36 are personal to Tenant and are not transferable except upon the express written consent of Landlord.
Tenant may request additional parking spaces from time to time and if Landlord in its sole discretion agrees to make such additional spaces available for use by Tenant, such spaces shall be provided on a month-to-month unreserved and nonexclusive basis (unless otherwise agreed in writing by Landlord), and subject to such parking charges as Landlord shall determine, and shall otherwise be subject to such terms and conditions as Landlord may require.
Tenant shall at all times comply and shall cause all Tenant's Parties and visitors to comply with all Regulations and any rules and regulations established from time to time by Landlord relating to parking at the Project, including any keycard, sticker or other identification or entrance system, and hours of operation, as applicable.
Landlord shall have no liability for any damage to property or other items located in the parking areas of the Project, nor for any personal injuries or death arising out of the use of parking areas in the Project by Tenant or any Tenant's Parties. Without limiting the foregoing, if Landlord arranges for the parking areas to be operated by an independent contractor not affiliated with Landlord, Tenant acknowledges that Landlord shall have no liability for claims arising through acts or omissions of such independent contractor. In all events, Tenant agrees to look first to its insurance carrier and to require that Tenant's Parties look first to their respective insurance carriers for payment of any losses sustained in connection with any use of the parking areas.
Landlord reserves the right to assign specific spaces, and to reserve spaces for visitors, small cars, disabled persons or for other tenants or guests, and Tenant shall not park and shall not allow Tenant's Parties to park in any such assigned or reserved spaces. Tenant may validate visitor parking by such method as Landlord may approve, at the validation rate from time to time generally applicable to visitor parking. Landlord also reserves the right to alter, modify, relocate or close all or any portion of the parking areas in order to make repairs or perform maintenance service, or to restripe or renovate the parking areas, or if required by casualty, condemnation, act of God, Regulations or for any other reason deemed reasonable by Landlord.
37. MISCELLANEOUS
A. GENERAL. The term "Tenant" or any pronoun used in place thereof shall indicate and include the masculine or feminine, the singular or plural number, individuals, firms or corporations, and their respective successors, executors, administrators and permitted assigns, according to the context hereof.
B. TIME. Time is of the essence regarding this Lease and all of its provisions.
C. CHOICE OF LAW. This Lease shall in all respects be governed by the laws of the State of California.
D. ENTIRE AGREEMENT. This Lease, together with its Exhibits, addenda and attachments and the Basic Lease Information, contains all the agreements of the parties hereto and supersedes any previous negotiations. There have been no representations made by the Landlord or understandings made between the parties other than those set forth in this Lease and its Exhibits, addenda and attachments and the Basic Lease Information.
E. MODIFICATION. This Lease may not be modified except by a written instrument signed by the parties hereto. Tenant accepts the area of the Premises as specified in the Basic Lease Information as the approximate area of the Premises for all purposes under this Lease, and acknowledges and agrees that no other definition of the area (rentable, usable or otherwise) of the Premises shall apply. Tenant shall in no event be entitled to a recalculation of the square footage of the Premises, rentable, usable or otherwise, and no recalculation, if made, irrespective of its purpose, shall reduce Tenant's obligations under this Lease in any manner, including without limitation the amount of Base Rent payable by Tenant or Tenant's Proportionate Share of the Building and of the Project.
F. SEVERABILITY. If, for any reason whatsoever, any of the provisions hereof shall be unenforceable or ineffective, all of the other provisions shall be and remain in full force and effect.
G. RECORDATION. Tenant shall not record this Lease or a short form memorandum hereof.
H. EXAMINATION OF LEASE. Submission of this Lease to Tenant does not constitute an option or offer to lease and this Lease is not effective otherwise until execution and delivery by both Landlord and Tenant.
I. ACCORD AND SATISFACTION. No payment by Tenant of a lesser amount than the total Rent due nor any endorsement on any check or letter accompanying any check or payment of Rent shall be deemed an accord and satisfaction of full payment of Rent, and Landlord may accept such payment without prejudice to Landlord's right to recover the balance of such Rent or to pursue other remedies. All offers by or on behalf of Tenant of accord and satisfaction are hereby rejected in advance.
J. EASEMENTS. Landlord may grant easements on the Project and dedicate for public use portions of the Project without Tenant's consent; provided that no such grant or dedication shall materially interfere with Tenant's Permitted Use of the Premises. Upon Landlord's request, Tenant shall execute, acknowledge and deliver to Landlord documents, instruments, maps and plats necessary to effectuate Tenant's covenants hereunder.
K. DRAFTING AND DETERMINATION PRESUMPTION. The parties acknowledge that this Lease has been agreed to by both the parties, that both Landlord and Tenant have consulted with attorneys with respect to the terms of this Lease and that no presumption shall be created against Landlord because Landlord drafted this Lease. Except as otherwise specifically set forth in this Lease, with respect to any consent, determination or estimation of Landlord required or allowed in this Lease or requested of Landlord, Landlord's consent, determination or estimation shall be given or made solely by Landlord in Landlord's good faith opinion. If Landlord fails to respond to any request for its consent within the time period, if any, specified in this Lease, Landlord shall be deemed to have disapproved such request.
L. EXHIBITS. The Basic Lease Information, and the Exhibits, addenda and attachments attached hereto are hereby incorporated herein by this reference and made a part of this Lease as though fully set forth herein.
M. NO LIGHT, AIR OR VIEW EASEMENT. Any diminution or shutting off of light, air or view by any structure which may be erected on lands adjacent to or in the vicinity of the Building shall in no way affect this Lease or impose any liability on Landlord.
N. NO THIRD PARTY BENEFIT. This Lease is a contract between Landlord and Tenant and nothing herein is intended to create any third party benefit.
O. QUIET ENJOYMENT. Upon payment by Tenant of the Rent, and upon the observance and performance of all of the other covenants, terms and conditions on Tenant's part to be observed and performed, Tenant shall peaceably and quietly hold and enjoy the Premises for the term hereby demised without hindrance or interruption by Landlord or any other person or persons lawfully or equitably claiming by, through or under Landlord, subject, nevertheless, to all of the other terms and conditions of this Lease. Landlord shall not be liable for any hindrance, interruption, interference or disturbance by other tenants or third persons, nor shall Tenant be released from any obligations under this Lease because of such hindrance, interruption, interference or disturbance.
P. COUNTERPARTS. This Lease may be executed in any number of counterparts, each of which shall be deemed an original.
Q. MULTIPLE PARTIES. If more than one person or entity is named herein as Tenant, such multiple parties shall have joint and several responsibility to comply with the terms of this Lease.
R. PRORATIONS. Any Rent or other amounts payable to Landlord by Tenant hereunder for any fractional month shall be prorated based on a month of 30 days. As used herein, the term "fiscal year" shall mean the calendar year or such other fiscal year as Landlord may deem appropriate.
38. FLOOD ZONE
Tenant acknowledges that the Premises may be subject to flooding hazards due to the location of the building within a one hundred year flood plain. The boundaries of the flood plain are described in the Preliminary Flood Insurance Rate Map dated May 1, 1989 prepared b the Federal Emergency Management Agency ("FEMA") and the Preliminary Working Map dated January, 1989 prepared by the U.S. Army Corps of Engineers (collectively, "Flood Maps"). The Flood Maps indicate that the majority of the City and parts of the County of Sacramento lie within a one hundred year flood plain. Property located in the flood plain may be inundated in the event flooding occurs at a level reached on the average once every one hundred years (a one percent chance of occurring in any given year). Under the provisions of the National Flood Insurance Program, such property is deemed subject to special flood hazards. Tenant expressly acknowledges and assumes the risk that the Premises may be subject to flooding due to their location in a one hundred year flood plain. Tenant unconditionally waives any flood-related property damage claim asserting liability on the part of the County of Sacramento or its officers, agents, or employees premised on the issuance of a permit for the construction of tenant improvements within the Premises, whether or not the issuance of such a permit is due to the negligence of the County or its officers, agents or employees. Further, Tenant unconditionally waives any flood related property damage claim against Landlord. The term "claim" as used in this paragraph shall include all direct or class actions or subrogation or inverse condemnation lawsuits brought by any person, entity or governmental agency.
39. AFTER HOURS HEATING AND AIR CONDITIONING
Landlord, at Landlord's expense, shall furnish normal heating, ventilating and air conditioning, (HVAC), electrical power and use of all other building services and amenities Monday through Friday, from 7:00 a.m. to 6:00 p.m. during generally recognized business days, as determined by Landlord.
Tenant acknowledges and agrees that Tenant's use of Premises outside of generally recognized business days and hours imposes additional burden on the project's janitorial services, fluorescent light tubes, HVAC and electrical services, and other common area amenities. Accordingly, after hours use of services will be made available and will be billed as an after hours rent assessment. Such costs plus an administrative fee will be payable by Tenant to Landlord upon demand. The hourly cost of after hours utilities is $20.00 per hour during the initial year of the lease term and shall not increase at rates greater than those charged by local utility companies serving the project.
40. TEMPORARY SPACE
During the construction period, which Landlord anticipates to be no more than ninety (90) days from issuance of a building permit from the City of Sacramento, Landlord shall provide space within the building to Tenant free of charge. Should Tenant delay cause the tenant improvement work to exceed the initial construction schedule, which shall be determined upon completion of the construction drawings, Tenant shall be responsible for the rental obligation of the then occupied space plus the rental obligation for Suite 107 at a rate equal to $1.80 per square foot of the then occupied space.
41. SATELLITE DISH
1. During the Term, Tenant shall have the nonexclusive right to install on the roof of the Building one (1) satellite dish(s) which is no more than thirty six (36) inches in diameter and does exceed fifty (50) pounds installed, which shall be enclosed by a screen and the nonexclusive right to run connecting lines or cables thereto from the Premises (such satellite dish/antennae and such connecting lines and related equipment herein referred to collectively as the "Equipment"). Tenant shall not penetrate the roof in connection with any installation or reinstallation of the Equipment without Landlord's prior written consent, which may be withheld in Landlord's sole discretion. The plans and specifications for all the Equipment shall be delivered by Tenant to Landlord for Landlord's review and approval. Such plans and specifications, including, without limitation, the location of the Equipment, shall be approved by Landlord in writing prior to any installation. In no event shall the Equipment or any portion thereof be visible from street level. Prior to the commencement of any installation or other work performed on or about the Building, Landlord shall approve all contractors and subcontractors which shall perform such work. Tenant shall be responsible for any damage to the roof, conduit systems or other portions of the Building or Building systems as a result of Tenant's installation, maintenance and/or removal of the Equipment.
2. Tenant, at Tenant's sole cost and expense, shall comply with all Regulations regarding the installation, construction, operation, maintenance and removal of the Equipment and shall be solely responsible for obtaining and maintaining in force all permits, licenses and approvals necessary for such operations.
3. Tenant shall be responsible for and promptly shall pay all taxes, assessments, charges, fees and other governmental impositions levied or assessed on the Equipment or based on the operation thereof.
4. Landlord may require Tenant, at Tenant's sole cost and expense, to relocate the Equipment during the Term to a location approved by Tenant, which approval shall not be unreasonably withheld, conditioned or delayed. Tenant shall not change the location of, or alter or install additional Equipment or paint any of the other Equipment without Landlord's prior written consent.
5. Operation of the Equipment shall not interfere in any manner with equipment systems or utility systems of other tenants of the Project, including without limitation, telephones, dictation equipment, lighting, heat and air conditioning, computers, electrical systems and elevators. If operation of the Equipment causes such interference, as determined by Landlord in Landlord's reasonable discretion, Tenant immediately shall suspend operation of the Equipment until Tenant eliminates such interference.
6. Tenant shall maintain the Equipment in good condition and repair, at Tenant's sole cost and expense. Landlord may from time to time require that Tenant repaint the satellite dishes at Tenant's expense to keep the same in an attractive condition. In the event that Tenant fails to repair and maintain the Equipment in accordance with this Lease, Landlord may, but shall not be obligated to, make any such repairs or perform any maintenance to the Equipment and Tenant shall reimburse Landlord upon demand for all costs and expenses incurred by Landlord in connection therewith, plus a reasonable administrative fee.
7. Tenant may access the roof for repair and maintenance of the Equipment, only during normal business hours, on not less than 24 hours prior written notice to Landlord. Tenant shall designate in writing to Landlord all persons whom Tenant authorizes to have access to the roof for such purposes. Upon such designation and prior identification to Landlords' building security personnel, such authorized persons shall be granted access to the roof by Landlord's building engineer. Tenant shall be responsible for all costs and expenses incurred by Landlord in connection with Tenant's access to the roof pursuant to this Paragraph. Landlord or Landlord's agent may accompany Tenant during such access.
8. Tenant shall indemnify, defend, protect and hold harmless Landlord from and against any and all claims related to the Equipment or operation of the same as if the Equipment were located wholly within the Premises. Tenant shall provide evidence satisfactory to Landlord that Tenant's property and liability insurance policies required under this Lease include coverage for the Equipment and any claim, loss, damage, or liability relating to the Equipment.
9. Landlord shall have no responsibility or liability whatsoever relating to (i) maintenance or repair of the Equipment, (ii) damage to the Equipment; (iii) damage to persons or property relating to the Equipment or the operation thereof; or (iv) interference with use of the Equipment arising out of utility interruption or any other cause, except for injury to persons or damage to property caused solely by the active negligence or intentional misconduct of Landlord, its agents or any other parties related to Landlord. In no event shall Landlord be responsible for consequential damages. Upon installation of the Equipment, Tenant shall accept the area where the Equipment is located in its "as is" condition. Tenant acknowledges that the roof location of the Equipment is suitable for Tenant's needs, and acknowledges that Landlord shall have no obligation whatsoever to improve, maintain or repair the area in which the Equipment will be installed.
10. Tenant shall use the Equipment solely for Tenant's operations associated with the Permitted Use and within Tenant's Premises and shall not use or allow use of the Equipment, for consideration or otherwise, for the benefit of other tenants in the Building or any other person or entity.
11. Tenant shall, at Tenant's sole cost and expense, remove such portions of the Equipment as Landlord may designate upon the expiration or earlier termination of this Lease, and restore the affected areas to their condition prior to installation of the Equipment. If Tenant fails to so remove the Equipment, Landlord reserves the right to do so, and the expense of the same shall be immediately due and payable from Tenant to Landlord as additional rent, together with interest and late charges as provided in this Lease, plus a reasonable administrative fee.
42. OPTION TO RENEW
Tenant shall, provided this Lease is in full force and effect and Tenant is not and has not been in default more than two times during any twelve month period under any of the terms and conditions of this Lease, have one successive option to renew this Lease for a term of five
(5) years each, for the Premises in "as is" condition and on the same terms and conditions set forth in this Lease, except as modified by the terms, covenants and conditions set forth below:
(1) If Tenant elects to exercise such option, then Tenant shall provide Landlord with written notice no earlier than the date which is 270 days prior to the expiration of the then current term of this Lease, but no later than 5:00 p.m. (Pacific Standard Time) on the date which is 180 days prior to the expiration of the then current term of this Lease. If Tenant fails to provide such notice, Tenant shall have no further or additional right to extend or renew the term of this Lease.
(2) The Base Rent in effect at the expiration of the then current term of this Lease shall be increased to reflect the current fair market rental for comparable space in the Building or Project and in other similar buildings in the same rental market as of the date the renewal term is to commence, taking into account the specific provisions of this Lease which will remain constant, and the Building amenities, location, identity, quality, age, condition, term of lease, tenant improvements, services provided, and other pertinent items.
(3) Landlord shall advise Tenant of the new Base Rent for the Premises for the applicable renewal term based on Landlord's determination of fair market rental value, as well as the terms and conditions for the renewal term, no later than fifteen (15) days after receipt of notice of Tenant's exercise of its option to renew.
(4) Landlord and Tenant shall negotiate in good faith to agree on the fair market rental value of the Premises and terms and conditions for each renewal term. If Tenant and Landlord are unable to agree on a mutually acceptable rental rate for any renewal term within thirty (30) days after notification by Landlord to Tenant of Landlord's determination of the new Base Rent for the applicable renewal term, but in any event no later than the date which is ninety (90) days prior to the expiration of the then current term, then on or before such date Landlord and Tenant shall each appoint a licensed real estate broker with at least ten (10) year's experience in leasing office space in the area in which the Building is located to act as arbitrators. The two (2) arbitrators so appointed shall determine the fair market rental value for the Premises for the applicable renewal term based on the above criteria and each shall submit his or her determination of such fair market rental value to Landlord and Tenant in writing, within sixty (60) days after their appointment.
If the two (2) arbitrators so appointed cannot agree on the fair market rental value for the applicable renewal term within such 60-day period, the two (2) arbitrators shall within five (5) days thereafter appoint a third arbitrator who shall be a licensed real estate broker with at least ten (10) year's experience in leasing office space in the area in which the Building is located. The third arbitrator so appointed shall independently determine the fair market rental value for the Premises for the renewal term within thirty (30) days after appointment, by selecting from the proposals submitted by each of the first two arbitrators the one that most closely approximates the third arbitrator's determination of such fair market rental value. The third arbitrator shall have no right to adopt a compromise or middle ground or any modification of either of the proposals submitted by the first two arbitrators. The proposal chosen by the third arbitrator as most closely approximating the third arbitrator's determination of the fair market rental value shall constitute the decision and award of the arbitrators and shall be final and binding on the parties.
Each party shall pay the fees and expenses of the arbitrator appointed by such party and one-half (1/2) of the fees and expenses of the third arbitrator. Notwithstanding the foregoing, in the event the Base Rent is found to be within five percent (5%) of the original rate quoted by Landlord, then Tenant shall bear the full cost of the arbitration process.
If either party fails to appoint an arbitrator, or if either of the first two arbitrators fails to submit his or her proposal of fair market rental value to the other party, in each case within the time periods set forth above, then the decision of the other party's arbitrator shall be considered final and binding.
In the event the third arbitrator fails to present a fair market rental value within such 30-day period, then by mutual consent of the Landlord and Tenant:
(a) the time period will be extended, or
(b) If either Landlord or Tenant do not wish to extend the time period, a fourth arbitrator shall be selected by the first two arbitrators and a new thirty (30) day period shall begin.
(5) Notwithstanding anything to the contrary contained in this Paragraph, in no event shall the Base Rent for any renewal term be less than the Base Rent in effect at the expiration of the previous term plus expense escalations over the previous years. In addition, Landlord shall have no obligation to provide or pay for any tenant improvements or brokerage commissions during any renewal term.
(6) Tenant's right to exercise any option(s) to renew under this Paragraph shall be conditioned upon Tenant occupying the entire Premises and the same not being occupied by any assignee, subtenant or licensee other than Tenant or its Affiliate as defined in Paragraph 20 A.3 at the time of exercise of any option and commencement of the renewal term. Tenant's exercise of the option to renew shall constitute a representation by Tenant to Landlord that as of the date of exercise of the option and the commencement of the renewal term, Tenant does not intend to seek to assign this Lease in whole or in part, or sublet all or any portion of the Premises.
(7) Any exercise by Tenant of any option to renew under this Paragraph shall be irrevocable. If requested by Landlord, Tenant agrees to execute a lease amendment or, at Landlord's option, a new lease agreement on Landlord's then standard lease form for the Building, reflecting the foregoing terms and conditions, prior to the commencement of the renewal term. The option(s) to renew granted under this Paragraph is/are not transferable; the parties hereto acknowledge and agree that they intend that each option to renew this Lease under this Paragraph shall be "personal" to the specific Tenant named in this Lease and that in no event will any assignee or sublessee have any rights to exercise such option(s) to renew. Except an Affiliate as defined in 20.A.3.
43. EXPANSION OPTION
Provided Tenant is not, and has not been, in default if its obligations under this Lease, if Landlord receives an offer to lease any portion of suite 200, which consists of approximately 10,096 rentable square feet for a lease term (including renewal option) greater than three [3] years, Tenant shall have a one time first right of refusal to lease such premises, or any part thereof, notwithstanding provisions to the contrary in this Paragraph.
In the event Landlord receives a bona fide offer to lease from an initial third party for a lease term exceeding 3 years from receipt of such notice, Landlord will notify Tenant and Tenant shall have 48 hours to notify Landlord of Tenant's desire to exercise its first right of refusal, on the same terms and conditions as the offer to lease that Landlord has received. In the event Tenant fails to give Landlord notice of Tenant's election to lease the adjacent space within such time period, Landlord shall be free to lease the premises to a third party and Tenant shall have no further right, title or interest in such additional space and this first right of refusal shall terminate. If, on the other hand, Tenant exercises its first right of refusal in the manner provided above, Tenant shall immediately deliver to Landlord payment for the first month's rent and security deposit for the expansion premises (in the same manner as provided for in this Lease), and the lease of such expansion premises shall be consummated without delay in accordance with the terms set forth in the lease offer. Such expansion premises shall be leased to Tenant in "as is" condition and Landlord shall have no obligation to improve such expansion premises or grant Tenant any improvement allowance thereon.
Notwithstanding anything to the contrary herein contained, Tenant's right to the expansion premises shall be conditioned upon the following: (i) at the time Tenant agrees to accept the expansion premises and at the time of the commencement of the term for the expansion premises, Tenant shall be in possession of and occupying the primary premises for the conduct of its business therein and the same shall not be occupied by any assignee, subtenant or licensee and, provided further, that the option for additional space shall be applicable hereunder only if the expansion premises will actually be occupied by Tenant and (ii) the agreement of acceptance shall constitute a representation by Tenant to Landlord, effective as of the date of the agreement of acceptance and as of the date of commencement of the lease for the expansion premises, that Tenant does not intend to assign the lease for the expansion premises, in whole or in part or sublet all or any portion of the Premises, the election to expand being for the purpose of utilizing the expansion premises for Tenant's purposes in the conduct of Tenant's business therein.
44. JURY TRIAL WAIVER
EACH PARTY HERETO (WHICH INCLUDES ANY ASSIGNEE, SUCCESSOR HEIR OR PERSONAL REPRESENTATIVE OF A PARTY) SHALL NOT SEEK A JURY TRIAL, HEREBY WAIVES TRIAL BY JURY, AND HEREBY FURTHER WAIVES ANY OBJECTION TO VENUE IN THE COUNTY IN WHICH THE BUILDING IS LOCATED, AND AGREES AND CONSENTS TO PERSONAL JURISDICTION OF THE COURTS OF THE STATE IN WHICH THE PROPERTY IS LOCATED, IN ANY ACTION OR PROCEEDING OR COUNTERCLAIM BROUGHT BY ANY PARTY HERETO AGAINST THE OTHER ON ANY MATTER WHATSOEVER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS LEASE, THE RELATIONSHIP OF LANDLORD AND TENANT, TENANT'S USE OR OCCUPANCY OF THE PREMISES, OR ANY CLAIM OF INJURY OR DAMAGE, OR THE ENFORCEMENT OF ANY REMEDY UNDER ANY STATUTE, EMERGENCY OR OTHERWISE, WHETHER ANY OF THE FOREGOING IS BASED ON THIS LEASE OR ON TORT LAW. EACH PARTY REPRESENTS THAT IT HAS HAD THE OPPORTUNITY TO CONSULT WITH LEGAL COUNSEL CONCERNING THE EFFECT OF THIS PARAGRAPH 44. THE PROVISIONS OF THIS PARAGRAPH 44 SHALL SURVIVE THE EXPIRATION OR EARLIER TERMINATION OF THIS LEASE.
IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the day and the year first above written.
LANDLORD
Spieker Properties, L.P.,
a California limited partnership
By: Spieker Properties, Inc.,
a Maryland corporation,
its general partner
By: /s/ PETER C. THOMPSON
-------------------------------
Peter C. Thompson
Its: Senior Vice President
Date: 4/27/2000
-------------------------------
|
TENANT
American River Bank,
a commercial bank organized under the laws
of the State of California
By: /s/ WILLIAM L. YOUNG
--------------------------------
William L. Young
Its: Chief Executive Officer
Date: --------------------------------
|
STANDARD OFFICE LEASE-GROSS
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
1. BASIC LEASE PROVISIONS ("Basic Lease Provisions")
1.1 PARTIES: This Lease, dated, for reference purposes only,____ January 31, 2000_______ is made by and between Bradshaw Plaza Group (herein called "Lessor") and American River Bank doing business under the name of American River Bank herein called "Lessee").
1.2 PREMISES: Suite Number(s)___100___ (floors, consisting of approximately 4,590 feet more or less as defined in paragraph 2 and as shown on Exhibit "A" hereto (the "Premises").
1.3 BUILDING: Commonly described as being located at 9750 BUSINESS PARK
DRIVE
In the City of Sacramento
County of Sacramento
State of California as more particularly described in Exhibit A-1 hereto, and
as defined in paragraph 2.
1.4 USE: General Office and Commercial Banking Operations subject to paragraph 6.
1.5 TERM: 84 months commencing December 1, 1999 ("Commencement Date")and ending November 30, 2006, as defined in Paragraph 3.
1.6 BASE RENT; See Addendum per month, payable on the 1st day of each month per paragraph 4.1
1.7 BASE RENT INCREASE: On see Addendum the monthly Base Rent payable under paragraph 1.6 above shall be adjusted as provided in paragraph 4.3 below.
1.8 RENT PAID UPON EXECUTION; N/A for _________________________________
1.9 SECURITY DEPOSIT - N/A
1.10 Lessee's Share of Operating Expense increase: 6.63% as defined in paragraph 4.2.
2. PREMISES, PARKING AND COMMON AREAS.
2.1 PREMISES: The Premises are a portion of a building, herein sometimes referred to as the "Building" identified in paragraph 1.3 of the Basic Lease Provisions. "Building" shall include adjacent parking structures used in connection therewith. The Premises, the Building, the Common Areas, the land upon which the same are located, along with all other buildings and Improvements thereon or thereunder, are herein collectively referred to a as the "Office Building Project" Lessor hereby leases to Lessee and Lessee leases from Lessor for the term, at the rental, and upon all of the conditions t forth herein, the real property referred to in the Basic Lease Provisions, paragraph 1.2, as the "Premises:' Including rights to the Common Areas as hereinafter specified.
2.2 DELETED BY MUTUAL AGREEMENT.
2. 2.1 If Lessee commits, permits or allows any of the prohibited activities described in the Lease or the rules then In effect, then Lessor shall have the right, without notice, in addition to such other rights and remedies that it may have, to remove or tow away the vehicle involved and charge the cost to Lessee, which cost shall be immediately payable upon demand by lessor.
2.2.2 DELETED BY MUTUAL AGREEMENT.
2.3 COMMON AREAS-DEFINITION. The term "Common Areas" is defined as all areas and facilities outside the Premises and within the exterior boundary line of the Office Building Project that are provided and designated by the Lessor from time to time for the general non-exclusive use of Lessor, Lessee and of other lessees of the Office Building Project and their respective employees, suppliers, shippers, customers and invitees, Including but not limited to common entrances, lobbies, corridors,
stairways and stairwells. public restrooms, elevators, escalators, parking areas to the extent not otherwise prohibited by this Lease, loading and unloading areas, trash areas, roadways, sidewalks, walkways, parkways, ramps, driveways, landscaped areas and decorative walls.
2.4 COMMON AREAS-RULES AND REGULATIONS. Lessee agrees to abide by and conform to the rules and regulations attached hereto as Exhibit 8 with respect to the Office Building Project and Common Areas, and to cause its employees, suppliers, shippers, customers, and Invitees to so abide and conform. Lessor or such other person(s) as Lessor may appoint shall have the exclusive control and management of the Common Areas and shall have the right, from time to time, to modify amend and enforce said rules and regulations. Lessor shall not be responsible to Lessee for the noncompliance with said rules and regulations by other lessees, their agents, employees and Invitees of the Office Building Project.
2.5 COMMON AREAS-CHANGES. Lessor shall have the right, in Lessor's sole discretion, from time to time:
(a) To make changes to the Building Interior and exterior and Common
Areas, including, without limitation, changes in the location, size, shape,
number, and appearance thereof, including but not limited to the lobbies,
windows, stairways, air shafts, elevators, escalators, restrooms, driveways.
entrances, parking spaces, parking areas, loading and unloading areas, Ingress,
egress, direction of traffic, decorative walls, landscaped areas and walkways;
provided, however, Lessor shall at all times provide the parking facilities
required by applicable law;
(b) To close temporarily any of the Common Areas for maintenance
purposes so long as reasonable access to the Premises remains available;
(c) To designate other land and improvements outside the boundaries of
the Office Building Project to be a part of the Common Areas, provided that such
other land and Improvements have a reasonable and functional relationship to the
Office Building Project;
(d) To add additional buildings and Improvements to the Common Areas;
(e) To use the Common Areas while engaged in making additional
improvements. repairs or alterations to the office Building Project, or any
portion thereof;
(f) To do and perform such other acts and make such other changes In,
to or with respect to the Common Areas and Office Building Project as Lessor
may, In the exercise of sound business judgment deem to be appropriate.
3. TERM.
3.1 TERM. The term and Commencement Date of this Lease shall be as specified In paragraph 1.5 of the Basic Lease Provisions.
3.2 DELAY IN POSSESSION. Notwithstanding said Commencement Date, if for any reason Lessor cannot deliver possession of the Premises to Lessee on said date and subject to paragraph 3.2.2, Lessor shall not be subject to any liability therefor, nor shall such failure affect the validity of this Lease or the obligations of Lessee hereunder or extend the term hereof; but, In such case, Lessee shall not be obligated to pay rent or perform any other obligation of Lessee under the terms of this Lease, except as may be otherwise provided in this Lease, until possession of the Premises is tendered to Lessee, as hereinafter defined; provided, however. that if Lessor shall not have delivered possession of the Premises within sixty (60) days following said Commencement Date, as the same may be extended under the terms of a Work Letter executed by Lessor and Lessee, Lessee may, at Lessee's option by notice in writing to Lessor within ten (10 days thereafter, cancel this Lease, in which event the parties shall be discharged from all obligations hereunder, provided, however, that, as to Lessee's obligation, Lessee first reimburses Lessor for all costs incurred for Non-Standard improvements and, as to Lessor's obligation, Lessor shall return any money previously deposited by lessee (less any offsets due Lessor for Non-Standard improvements); and provided further, that if such written notice by Lessee is not received by lessor within said ten (10) day period, lessee's right to cancel this Lease hereunder shall terminate and be of no further force or effect.
3.2.1 POSSESSION TENDERED - DEFINED. Possession of the Premises shall be
deemed tendered to Lessee ("Tender of Possession") when (1) the improvements to
be provided by Lessor under this Lease are substantially completed, (2) the
Building utilities are ready for use in the Premises, (3) lessee has reasonable
access to the Premises, and (4) ten (10) days shall have expired following
advance written notice to Lessee of the occurrence of the matters described in
(1), (2) and (3), above of this paragraph 3.2.1.
3.2.2 DELAYS CAUSED BY LESSEE. There shall be no abatement of rent, and the sixty (60) day period following the Commencement Date before which Lessee's right to cancel this Lease accrues under paragraph 3.2, shall be deemed extended to the extent of any delays caused by acts or omissions of Lessee, Lessee's agents, employees and contractors.
3.3 EARLY POSSESSION. If Lessee occupies the Premises prior to said Commencement Date, such occupancy shall be subject to all provisions of this Lease, such occupancy shall not change the termination date, and lessee shall pay rent for such occupancy.
3.4 UNCERTAIN COMMENCEMENT. In the event commencement of the Lease term is defined as the completion of the improvements, Lessee and Lessor shall execute an amendment to this Lease establishing the date of Tender of Possession (as defined in paragraph 3.2.1) or the actual taking of possession by Lessee, whichever first occurs, as the Commencement Date.
4. RENT
4.1 BASE RENT. Subject to adjustment as hereinafter provided in paragraph 4.3 and except as may be otherwise expressly provided in this Lease, Lessee shall pay to Lessor the Base Rent for the Premises set forth in paragraph 1.6 of the Basic Lease Provisions, without offset or deduction. Lessee shall pay Lessor up[on execution hereof the advance Base Rent described in paragraph 1.8 of the Basic Lease Provisions. Rent for any period during the term hereof which is for less than one month shall be prorated based upon the actual number of days of the calendar month involved. Rent shall be payable in lawful money of the United States to Lessor at the address stated herein or to such other persons or at such other places as Lessor may designate in writing.
4.2 OPERATING EXPENSE INCREASE. Lessee shall pay to Lessor during the term hereof, in addition to the Base Rent, lessee's Share, as hereinafter defined, of the amount by which all Operating Expenses, as hereinafter defined, for each Comparison Year exceeds the amount of all Operating Expenses for the Base Year, such excess being hereinafter referred to as the "Operating Expense Increase," in accordance with the following provisions:
(a) "Lessee's Share" is defined for purposes of this Lease, as the
percentage set forth in paragraph 1.10 of the Basic Lease Provisions, which
percentage has been determined by dividing the approximate square footage of the
Premises by the total approximate square footage of the rentable space contained
in the Office Building Project. It is understood and agreed that the square
footage of the rentable space contained in the Office Building project. It is
understood and agreed that the square footage figures set forth in the Basic
lease Provisions are approximations which lessor and Lessee agree are reasonable
and shall not be subject to revision except in connection with an actual change
in the size of the premises or a change in the space available for lease in the
Office Building Project.
(b) "Base Year" is defined as the calendar year 2000.
(c) "Comparison Year" is defined as each calendar year during the term
of this Lease subsequent to the Base Year; provided, however, Lessee shall have
no obligation to pay a share of the Operating Expense Increase applicable to the
first twelve (12) months of the Lease Term (other than such as are mandated by a
governmental authority, as to which government mandated expenses lessee shall
pay Lessee's Share, notwithstanding they occur during the first twelve (12)
months). Lessee's Share of the Operating Expense increase for the first and last
Comparison Years of the Lease Term shall be prorated according to that portion
of such Comparison Year as to which lessee is responsible for a share of such
increase.
(d) "Operating Expenses" is defined, for purposes of this Lease, to
include all costs, if any, incurred by lessor in the exercise of its reasonable
discretion, for:
(i) The operation, repair, maintenance, and replacement, in neat,
clean, safe, good order and condition, of the Office Building project, including
but not limited to the following:
(aa) The Common Areas, including their surfaces, coverings,
decorative items, carpets, drapes and window coverings, and including parking
areas, loading and unloading areas, trash areas, roadways, sidewalks, walkways,
stairways, parkways, driveways, landscaped areas, striping, bumpers, irrigation
systems, Common Area lighting facilities, building exteriors and roofs, fences
and gates;
(bb) All heating, air conditioning, plumbing, electrical
systems, life safety equipment, telecommunication and other equipment used in
common by, or for the benefit of, lessees or occupants of the Office Building
Project, including elevators and escalators, tenant directories, fire detection
systems including sprinkler system maintenance and repair.
(ii) Trash disposal, common area janitorial and security
services;
(iii)Any other service to be provided by Lessor that is elsewhere
in this Lease stated to be an "Operating Expense";
(iv) The cost of the premiums for the liability and property
insurance policies to be maintained by Lessor under paragraph 8 hereof;
(v) The amount of the real property taxes to be paid by Lessor
under paragraph 10.1 hereof;
(vi) The cost of water, sewer, gas, electricity, and other publicly
mandated services to the Office Building Project;
(vii)Labor, salaries and applicable fringe benefits and costs,
materials, supplies and tools, used in maintaining and/or cleaning the Office
Building Project and accounting and a management fee attributable to the
operation of the Office Building Project;
(viii)Replacing and/or adding improvements mandated by any repairs
or removals necessitated thereby amortized over its useful life according to
Federal income tax regulations or guidelines for depreciation thereof (including
interest on the unamoritized balance as is then reasonable in the judgment of
Lessor's accountants);
(ix) Replacements of equipment or improvements that have a useful
life for depreciation purposes according to Federal income tax guidelines of
five (5) years or less, as amortized over such life.
(e) Operating Expenses shall not include the costs of replacements of
equipment or improvements that have a useful life for Federal income tax
purposes in excess of five (5) years unless it is of the type described in
paragraph 4.2(d)(viii), in which case their cost shall be included as above
provided.
(f) Operating Expenses shall not include any expenses paid by any
lessee directly to third parties, or as to which Lessor is otherwise reimbursed
by any third party, other tenant or by insurance proceeds.
(g) Lessee's Share of Operating Expense Increase shall be payable by
Lessee within ten (10) days after reasonably detailed statement of actual
expenses is presented to lessee by Lessor At Lessor's operation, however, an
amount may be estimated by Lessor from time to time in advance of Lessee's Share
of the Operating Expense increase for any Comparison Year, and the same shall be
payable monthly or quarterly, as Lessor shall designate, during each Comparison
Year of the Lease term, on the same day as the Base Rent is due hereunder. In
the event that Lessee pays Lessor's estimate of Lessee's Share of Operating
Expense Increase as aforesaid, Lessor shall deliver to Lessee within sixty (60)
days after the expiration of each Comparison Year a reasonably detailed
statement showing Lessee's Share of the actual Operating Expense increase
incurred during such year. If Lessee's payments under this paragraph 4.2(g)
during said comparison Year exceed Lessee's Share as indicated on said
statement, lessee shall be entitled to credit the amount of such overpayment
against Lessee's Share of Operating Expense Increase next falling due. If
Lessee's payments under this paragraph during said comparison Year were less
than Lessee's Share as indicated on said statement, Lessee shall pay to Lessor
the amount of the deficiency within ten (10) days after delivery by Lessor to
Lessee of said statement. Lessor and Lessee shall forthwith adjust between them
by cash payment any balance determined to exist with respect to that portion of
the last Comparison Year for which Lessee is responsible as to Operating Expense
increases, notwithstanding that the Lease term may have terminated before the
end of such Comparison Year.
4.3 RENT INCREASE.
4.3.1 - 4.3.3 DELETED BY MUTUAL AGREEMENT.
4.3.4 Lessee shall continue to pay the rent at the rate previously In effect until the Increase, if any, is determined. Within five (5) days following the date on which the increase is determined, Lessee shall make such payment to Lessor as will bring the increased rental current, commencing wing the effective dale of such increase through the date of any rental installments then due. Thereafter the rental shall be paid at the increased rate.
4.3.5 At such time as the amount of any change in rental required by this Lease is known or determined, Lessor and Lessee shall execute an amendment to this Lease setting forth such change.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof the security deposit set forth in paragraph 1.9 of the Basic Lease Provisions as security for Lessee's faithful performance of Lessee's obligations hereunder. If Lessee falls to pay rent or other charges due hereunder, or otherwise defaults with respect to any provision of this Lease, Lessor may use, apply or retain all or any portion of said deposit for the payment of any rent or other charge In default for the payment of any other sum to which Lessor may become obligated by reason of Lessee's default, or to compensate Lessor for any loss or damage which Lessor may suffer thereby. If Lessor so uses or applies all or any portion of said deposit, Lessee shall within ten (10) days after written demand therefor deposit cash with Lessor In an amount sufficient to restore said deposit to the full amount then required of Lessee. If the monthly Base Rent shall, from time to time, increase during the term of this Lease, Lessee shall, at the time of such increase, deposit with Lessor additional money as a security deposit so that the total amount of the security deposit held by Lessor shall at all times bear the same proportion to the then current Base Rent as the initial security deposit bears to the initial Base Rent set forth In paragraph 1.6 of the Basic Lease Provisions. Lessor shall not be required to keep said security deposit separate from its general accounts. If Lessee performs all of Lessee's obligations hereunder, said deposit, or so much thereof as has not heretofore been applied by Lessor, shall be returned, without payment of interest or other increment for its use, to Lessee (or, at Lessor's option, to the last assignee, it any, of Lessee's interest hereunder) at the expiration of the term hereof, and after Lessee has vacated the Premises. No trust relationship is created herein between Lessor and Lessee with respect to said Security Deposit.
6. USE.
6.1 USE. The Premises shall be used and occupied only for the purpose set forth in paragraph 1.4 of the Basic Lease Provisions or any other use which Is reasonably comparable to that use and for no other purpose.
6.2 COMPLIANCE WITH LAW
(a) Lessor warrants to Lessee that the Premises, in the state existing on the date that the Lease term commences, but without regard to alterations or improvements made by Lessee or the use for which Lessee will occupy the Premises, does not violate any covenants or restrictions of record, or any applicable building code, regulation or ordinance in effect on such Lease
term Commencement Date In the event it Is determined that this warranty has been
violated, then it shall be the obligation of the Lessor, after written notice
from Lessee, to promptly, at Lessor's sole cost and expense, rectify any such
violation.
(b) Except as provided in paragraph 6.2(a) Lessee shall, at Lessee's
expense, promptly comply with all applicable statutes, ordinances, rules,
regulations, orders, covenants and restrictions of record, and requirements of
any fire insurance underwriters or rating bureaus, now in effect or which may
hereafter come into effect, whether or not they reflect a change in policy from
that now existing, during the term or any part of the term hereof, relating in
any manner to the Premises and the occupation and use by Lessee of the Premises.
Lessee shall conduct its business in a lawful manner and shall not use or permit
the use of the Premises or the Common Areas In any manner that will tend to
create waste or a nuisance or shall tend to disturb other occupants of the
Office Building Project.
6.3 CONDITION OF PREMISES.
(a) Lessor shall deliver the Premises to Lessee in clean condition on
the Lease Commencement Date (unless Lessee is already in possession) and Lessor
warrants to Lessee that the plumbing, lighting, air conditioning, and heating
system in the Premises shall be in good operating condition. In the event that
It is determined that this warranty has been violated, then it shall be the
obligation of Lessor, after receipt of written notice from Lessee setting forth
with specificity the nature of the violation, to promptly, at Lessor's sole
cost, rectify such violation.
(b) Except as otherwise provided in this Lease, Lessee hereby accepts
the Premises and the Office Building Project in their condition EXISTING AS of
the Lease Commencement Date or the date that Lessee takes possession of the
Premises, whichever is earlier, subject to all applicable ZONING, municipal,
county and state laws, ordinances and regulations governing and regulating the
use of the Premises, and any easements, covenants or restrictions of record, and
accepts this Lease subject thereto and to all matters disclosed thereby and by
any exhibits attached hereto. Lessee acknowledges that it has satisfied itself
by its own independent investigation that the Premises are suitable for its
intended use, and that neither Lessor nor Lessor's agent or agents has made any
representation or warranty as to the present or future suitability of the
Premises, Common Areas, or Office Building Project for the conduct of Lessee's
business.
7. MAINTENANCE, REPAIRS, ALTERATIONS AND COMMON AREA SERVICES.
7.1 LESSOR'S OBLIGATIONS. Lessor shall keep the Office Building Project, including the Premises. Interior and exterior windows, walls, roof, and common area and the equipment whether used exclusively for the Premises or in common with other premises, in good condition and repair; provided, however, Lessor shall not be obligated to paint, repair or replace wall coverings, or to repair or replace any improvements that are not ordinarily a part of the Building or are above then Building standards. Except as provided in paragraph 9.5, there shall be no abatement of rent or liability of Lessee on account of any injury or interference with Lessee's business with respect to any improvements, alterations or repairs made by Lessor to the Office Building Project or any part thereof. Lessee expressly waives the benefits of any statute now or hereafter in effect which would otherwise afford Lessee the right to make repairs at Lessor's expense.
7.2. LESSEE'S OBLIGATIONS.
(a) Notwithstanding Lessor's obligation to keep the Premises in good
condition and repair, Lessee shall be responsible for payment of the cost
thereof to Lessor as additional rent for that portion of the cost of any
maintenance and repair of the Premises, or any equipment (wherever located) that
serves only Lessee or the Premises, to the extent such cost is attributable to
causes beyond normal wear and tear. Lessee shall be responsible for the cost of
painting, repairing or replacing wall coverings, and to repair or replace any
Premises improvements that are not ordinarily a part of the Building or that are
above then Building standards. Lessor may, at its option, upon reasonable
notice, elect to have Lessee perform any particular such maintenance or repairs
the cost of which is otherwise Lessee's responsibility hereunder.
(b) On the last day of the term hereof, or on any sooner termination,
Lessee shall surrender the Premises to Lessor in the same condition as received,
ordinary wear and tear excepted, clean and free of debris. Any damage or
deterioration of the Premises shall not be deemed ordinary WEAR and tear if the
same could have been prevented by good maintenance practices by Lessee. Lessee
shall repair any damage to the Premises occasioned by the installation or
removal of Lessee's trade fixtures, alterations, furnishings and equipment.
Except as otherwise stated in this Lease, Lessee shall leave the air lines,
power panels, electrical distribution systems, lighting fixtures, air
conditioning, window coverings, wall coverings, carpets, wall ling, ceilings and
plumbing on the Premises and in good operating condition. (Note: Lessor, at its
sole discretion, reserves the right to have Lessee remove the bank vault at
Lessee's cost and expense, without the requirement of restoring walls enclosing
vault.)
7.3 ALTERATIONS AND ADDITIONS.
(a) Lessee shall not, without Lessor's prior written consent make any alterations, improvements, additions, Utility Installations or repairs In, on or about the Premises, or the Office Building Project. As used in this paragraph 7.3 the term
"Utility Installation" shall mean carpeting, window and wall coverings, power
panels, electrical distribution systems, lighting fixtures, air conditioning,
plumbing, and telephone and telecommunication wiring and equipment. At the
expiration of the term, Lessor may require the removal of any or all of said
alterations, improvements, additions or Utility Installations, and the
restoration of the Premises and the Office Building Project to their prior
condition, at Lessee's expense. (Note: With the initial improvements
substantially in place, Tenant shall not be required under any circumstances to
return space to shell condition.) Should Lessor permit Lessee to make its own
alterations, improvements. additions or Utility Installations, Lessee shall use
only such contractor as has been expressly approved by Lessor, and Lessor may
require Lessee to provide Lessor, at Lessee's sole cost and expense, a lien and
completion bond in an amount equal to one and one-half times the estimated cost
of such improvements, to Insure Lessor against any liability for mechanic's and
materialmen's liens and to insure completion of the work. Should Lessee make any
alterations, improvements, additions or Utility Installations without the prior
approval of Lessor, or use a contractor not expressly approved by Lessor, Lessor
may, at any time during the term of this Lease, require that Lessee remove any
part or all of the same.
(b) Any alterations, improvements, additions or Utility Installations
in or about the Premises or the Office Building Project that Lessee shall desire
to make shall be presented to Lessor in written form, with proposed detailed
plans. If Lessor shall give its consent to Lessee's making such alteration,
improvement, addition or Utility Installation, the consent shall be deemed
conditioned upon Lessee acquiring a permit to do so from the applicable
governmental agencies, furnishing a copy thereof to Lessor prior to the
commencement of the work, and compliance by Lessee with all conditions of said
permit in a prompt and expeditious manner.
(c) Lessee shall pay, when due, all claims for labor or materials
furnished or alleged to have been furnished to or for Lessee at or for use in
the Premises, which claims are or may be secured by any mechanic's or
materialmen's lien against the Premises, the Building or the Office Building
Project. or any interest therein.
(d) Lessee shall give Lessor not less than ten (10) days' notice prior
to the commencement of any work in the Premises by Lessee, and Lessor shall have
the right to post notices of non- responsibility in or on the Premises or the
Building as provided by law. If Lessee shall,. in good faith, contest the
validity of any such lien, claim or demand, then Lessee shall, at its sole
expense defend itself and Lessor against the same and shall pay and satisfy any
such adverse judgment that may be rendered thereon before the enforcement
thereof against the Lessor or the Premises. the Building or the Office Building
Project, upon the condition that it Lessor shall require, Lessee shall furnish
to Lessor a surety bond satisfactory to Lessor in an amount equal to such
contested lien claim or demand indemnifying Lessor against liability for the
same and holding the Premises, the Building and the Office Building Project free
from the effect of such lien or claim. In addition , Lessor may require Lessee
to pay Lessor's reasonable attorneys' fees and costs in participating in such
action it Lessor shall decide it is to Lessor's best interest so to do.
(e) All alterations, improvements, additions and Utility Installations
(whether or not such Utility Installations constitute trade fixtures of Lessee),
which may be made to the Premises by Lessee, including but not limited to, floor
coverings, panelings, doors, drapes, built-ins, moldings, sound attenuation,
and lighting and telephone or communication systems, conduit, wiring and
outlets, shall be made and done in a good and workmanlike manner and of good and
sufficient quality and materials and shall be the properly of Lessor and remain
upon and be surrendered with the Premises at the expiration of the Lease term.
unless Lessor requires their removal pursuant to paragraph 7.3(a). Provided
Lessee is not in default, notwithstanding the provisions of this paragraph
7.3(e), Lessee's personal property and equipment, other than that which is
affixed to the Premises so that it cannot be removed without material damage to
the Premises or the Building, and other than Utility Installations, shall remain
the property of Lessee and may be removed by Lessee subject to the provisions of
paragraph 7.2.
(f) Lessee shall provide Lessor with as-built plans and specifications
for any alterations, Improvements, additions or Utility Installations.
7.4 UTILITY ADDITIONS. Lessor reserves the right to install new or additional utility facilities throughout the Office Building Project for the benefit of Lessor or Lessee, or any other lessee of the Office Building Project, including, but not by way of limitation, such utilities as plumbing. electrical systems, communication systems, and fire protection and detection systems, so long as such installations do not unreasonably interfere with Lessee's use of the Premises.
8. INSURANCE; INDEMNITY.
8.1 LIABILITY INSURANCE-LESSEE. Lessee shall, at Lessee's expense, obtain and keep in force during the term of this Lease a policy of Comprehensive General Liability insurance utilizing an Insurance Services Office standard form with Broad Form General Liability Endorsement (GL0404), or equivalent, in an amount of not less than $1,000,000 per occurrence of bodily Injury and property damage combined or in a greater amount as reasonably determined by Lessor and shall insure Lessee with Lessor as an additional insured against liability arising out of the use, occupancy or maintenance of the Premises. Compliance with the above requirement shall not, however, limit the liability of Lessee hereunder.
8.2 LIABILITY INSURANCE-LESSOR. Lessor shall obtain and keep in force during the term of this Lease a policy of Combined Single Limit Bodily Injury and Broad Form Property Damage Insurance, plus coverage against such other risks Lessor deems
advisable from time to time, insuring Lessor, but not Lessee, against liability arising out of the ownership, use, occupancy or maintenance of the Office Building Project in an amount not less than $5,000,000-00 per occurrence.
8.3 PROPERTY INSURANCE-LESSEE. Lessee shall, at Lessee's expense, obtain and keep in force during the term of this Lease for the benefit of Lessee, replacement cost fire and extended coverage Insurance, with vandalism and malicious mischief, sprinkler leakage and earthquake sprinkler leakage endorsements, in an amount sufficient to cover not less than 100% of the full replacement cost, as the same may exist from time to time, of all of Lessee's personal property, fixtures, equipment and tenant improvements.
8.4 PROPERTY INSURANCE-LESSOR. Lessor shall obtain and keep In force during the term of this Lease a policy or policies of insurance covering loss or damage to the Office Building Project improvements, but not Lessee's personal property, fixtures, equipment or tenant improvements, in the amount of the full replacement cost thereof, as the same may exist from time to time, utilizing Insurance Services Office standard form, or equivalent. providing protection against all perils Included within the classification of fire, extended coverage, vandalism, malicious mischief, plate glass, and such other perils as Lessor deems advisable or may be required by a lender having a lien on the Office Building Project. In addition, Lessor shall obtain and keep In force, during the term of this Lease, a policy of rental value insurance covering a period of one year, with loss payable to Lessor, which insurance shall also cover all Operating Expenses for said period. Lessee will not be named in any such policies carried by Lessor and she" have no right to any proceeds therefrom. The policies required by these paragraphs 8.2 and 8.4 shall contain such deductibles as Lessor or the aforesaid lender may determine. In the event that the Premises shall suffer an insured loss as defined In paragraph 9.1(f) hereof, the deductible amounts under the applicable insurance policies shall be deemed an Operating Expense. Lessee shall not do or permit to be done anything which shall Invalidate the insurance policies carried by Lessor. Lessee shall pay the entirety of any increase in the property Insurance premium for the Office Building Project over what It was immediately prior to the commencement of the term of this Lease It the increase Is specified by Lessor's insurance carrier as being Caused by the nature of Lessee's occupancy or any act or omission of Lessee.
8.5 INSURANCE POLICIES. Lessee shall deliver to Lessor copies of liability insurance policies required under paragraph 8.1 or certificates evidencing the existence and amounts of such insurance within seven (7) days after the Commencement Date of this Lease. No such policy shall be cancelable or subject to reduction of coverage or other modification except after thirty (30) days prior written notice to Lessor. Lessee shall, at least thirty (30) days prior to the expiration of such policies, furnish Lessor with renewals thereof.
8.6 WAIVER OF SUBROGATION. Lessee and Lessor each hereby release and relieve the other, and waive their entire right of recovery against the other for direct or consequential loss or damage arising out of or Incident to the perils covered by properly insurance carried by such party, whether due to the negligence of Lessor or Lessee or their agents, employees, contractors and/or invitees. If necessary all property insurance policies required under this Lease shall be endorsed to so provide.
8.7 INDEMNITY. Lessee shall indemnify and hold harmless Lessor and its agents, Lessor's master or ground lessor, partners and lenders, from and against any and all claims for damage to the person or property of anyone or any entity arising from Lessee's use of the Office Building Project, or from the conduct of Lessee's business or from any activity, work or things done. permitted or suffered by Lessee In or about the Premises or elsewhere and shall further Indemnify and hold harmless Lessor from and against any and all claims, costs and expenses 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 omission of Lessee, or any of Lessee's agents, contractors, employees, or invitees, and from and against all costs, attorney's fees, expenses and liabilities incurred by Lessor as the result of any such use, conduct, activity, work, things done, permitted or suffered, breach, default or negligence, and in dealing reasonably therewith, including but not limited to the defense or pursuit of any claim or any action or proceeding involved therein; and In case any action or proceeding be brought against Lessor by reason of any such matter, Lessee upon notice from Lessor shall defend the same at Lessee's expense by counsel reasonably satisfactory to Lessor and Lessor shall cooperate with Lessee in such defense. Lessor need not have first paid any such claim in order to be so Indemnified. Lessee, as a material part of the consideration to Lessor, hereby assumes all risk of damage to property of Lessee or injury to persons in, upon or about the Office Building Project arising from any cause and Lessee hereby waives all claims in respect thereof against Lessor. (Note: Except claims arising from the gross negligence or willful misconduct of Lessor or its agents and employees.)
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessee hereby agrees that Lessor shall not be liable for injury to Lessee's business or any loss of Income therefrom or for loss of or damage to the goods, wares, merchandise or other property of Lessee, Lessee's employees, invitees, customers, or any other person In or about the Premises or the Office Building Project, nor shall Lessor be liable for injury to the person of Lessee, Lessee's employees. agents or contractors, whether such damage or injury is caused by or results from theft, fire, steam, electricity, gas, water or rain, or from the breakage, leakage, obstruction or other defects of pipes, sprinklers, wires, appliances, plumbing, air conditioning or lighting fixtures. or from any other cause, whether said damage or injury results from conditions arising upon the Premises or upon other portions of the Office Building Project, or from other sources or places, or from new construction or the repair, alteration or improvement of any part of the Office Building Project. or of the equipment, fixtures or appurtenances applicable thereto, and regardless of whether the cause of such
damage or injury or the means of repairing the same is Inaccessible, Lessor shall not be liable for any damages arising from any act or neglect of any other lessee, occupant or user of the Office Building Project, nor from the failure of Lessor to enforce the provisions of any other lease of any other lessee of the Office Building Project. (Note: The foregoing exemption of Lessor from liability shall not apply to any loss, injury or damage arising from the gross negligence or willful misconduct of Lessor or its agents and employees.)
8.9 NO REPRESENTATION OF ADEQUATE COVERAGE. Lessor makes no representation that the limits or forms of coverage of insurance specified in this paragraph 8 are adequate to cover Lessee's property or obligations under this Lease.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "Premises Damage" shall mean If the Premises are damaged or
destroyed to an
(b) "Premises Building Partial Damage" shall mean if the Building of
which the Premises are a part Is damaged or destroyed to the extent that the
cost to repair is less than fifty percent (50%) of the then Replacement Cost of
the building.
(c) "Premises Building Total Destruction" shall mean if the Building of
which the Premises are a part is damaged or destroyed to the extent that the
cost to repair is fifty percent (50%) or more of the then Replacement Cost of
the Building.
(d) "Office Building Project Buildings" shall mean all of the buildings
on the Office Building Project site.
(e) "Office Building Project Buildings Total Destruction" shall mean if
the Office Building Project Buildings are damaged or destroyed to the extent
that the cost of repair Is fifty percent (50%) or more of the then Replacement
Cost of the Office Building Project Buildings.
(f) "Insured Loss" shall mean damage or destruction which was caused by
an event required to be covered by the insurance described in Paragraph 8. The
fact that an Insured Loss has a deductible amount shall not make the loss an
uninsured loss.
(g) "Replacement Cost" shall mean the amount of money necessary to be
spent in order to repair or rebuild the damaged area to the condition that
existed immediately prior to the damage occurring, excluding all improvements
made by lessees, other than those installed by Lessor at Lessee's expense.
9.2 PREMISES DAMAGE; PREMISES BUILDING PARTIAL DAMAGE
(a) Insured Loss: Subject to the provisions of paragraphs 9.4 and 9.5.
if at any time during the term of this Lease there is damage which is an Insured
Loss and which falls into the classification of either Premises Damage or
Premises Building Partial Damage, then Lessor shall, as soon as reasonably
possible and to the extent the required materials and labor are readily
available through usual commercial channels, at LESSOR'S EXPENSE, repair such
damage (but not Lessee's fixtures, equipment or tenant improvements originally
paid for by Lessee) to its condition existing at the time of the damage, and
this Lease shall continue in full force and effect.
(b) Uninsured Loss: Subject to the provisions of paragraphs 9.4 and
9.5, if at any time during the term of this Lease there is damage which is not
an Insured Loss and which falls within the classification of Premises Damage or
Premises Building Partial Damage, unless caused by a negligent or willful act of
Lessee in which event Lessee shall make the repairs at Lessee's expense). which
damage prevents Lessee from making any substantial use of the Premises, Lessor
may at Lessor's option either (i) repair such damage as soon as reasonably
possible at Lessor's expense, in which event this Lease shall continue in full
force and effect, or (ii) give written notice to Lessee within thirty (30) days
after the date of the occurrence of such damage of Lessor's intention to cancel
and terminate this Lease as of the date of the occurrence of such damage, in
which event this Lease shall terminate as of the date of the occurrence of such
damage,
9.3 PREMISES BUILDING TOTAL DESTRUCTION; OFFICE BUILDING PROJECT TOTAL
DESTRUCTION. Subject to the provisions of paragraphs 9 4 and 9.5, it at any time
during the term of this Lease there is damage, whether or not it Is an Insured
Loss, which falls into the classifications of either (i) Premises Building Total
Destruction, or (ii) Office Building Project Total Destruction, then Lessor may
at Lessor's option either (i) repair such damage or destruction as soon as
reasonably possible at Lessor's expense (to the extent the required materials
are readily available through usual commercial channels) to its condition
existing at the time of the damage, but not Lessee's fixtures equipment or
tenant improvements, and this Lease shall continue in full force and effect, or
(ii) give written notice to Lessee within thirty (30) days after the date of
occurrence of such damage of Lessor's intention to cancel and terminate this
Lease, in which case this Lease shall terminate as of the date of the occurrence
of such damage.
9.4 DAMAGE NEAR END OF TERM
(a) Subject to paragraph 9.4(b), if at any time during the last twelve
(12) months of the term of this Lease there is substantial damage to the
Premises, Lessor or Lessee may at their respective option cancel and terminate
this Lease as of the
date of occurrence of such damage by giving written notice to Lessor or Lessee
its election to do so within 30 days after the date of occurrence of such
damage.
(b) Notwithstanding paragraph 9.4(a), in the event that Lessee has an
option to extend or renew this Lease, and the time within which said option may
be exercised has not yet expired, Lessee shall exercise such option, If It Is to
be exercised at all, no later than twenty (20) days after the occurrence of an
Insured Loss failing within the classification of Premises Damage during the
last twelve (12) months of the term of this Lease. If Lessee duly exercises such
option during said twenty (20) day period, Lessor shall, at Lessor's expense,
repair such damage, but not Lessee's fixtures, equipment or tenant improvements,
as soon as reasonably possible and this Lease shall continue in full force and
effect. If Lessee fails to exercise such option during said twenty (20) day
period. then Lessor may at Lessor's option terminate and cancel this Lease as of
the expiration of said twenty (20) day period by giving written notice to Lessee
of Lessor's election to do so within ten (10) days after the expiration of said
twenty (20) day period, notwithstanding any term or provision in the grant of
option to the contrary.
9.5 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event Lessor repairs or restores the Building or Premises
pursuant to the provisions of this paragraph 9, and any part of the Premises are
not usable (including loss of use due to loss of access or essential services),
the rent payable hereunder (including Lessee's Share of Operating Expense
increase) for the period during which such damage repair or restoration
continues shall be abated, provided (1) the damage was not the result of the
negligence of Lessee and (2) such abatement shall only be to the extent the
operation and profitability of Lessee's business as operated from the Premises
is adversely affected. Except for said 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. (Note: Except claims arising from
the gross negligence or willful misconduct of Lessor or its agents and
employees.)
(b) If Lessor shall be obligated to repair or restore the premises of
the Building under the provisions of this Paragraph 9 and shall not commence
such repair or restoration within ninety (90) days of such occurrence, or if
Lessor shall not complete the restoration and repair within six (6) months after
such occurrence, Lessee may at Lessee's option cancel and terminate this Lease
by giving Lessor written notice of Lessee's election to do so at any time prior
the commencement or completion, respectively of such repair or restoration. In
such event this Lease shall terminate as of the date of such notice.
(c) Lessee agrees to cooperate with Lessor in connection with any such
restoration and repair, including but not limited to the approval and/or
execution of plans and specifications required.
9.6 TERMINATION-ADVANCE PAYMENTS. Upon termination of this Lease pursuant to this paragraph 9, an equitable adjustment shall be made concerning advance rent and any advance payments made by Lessee to Lessor. Lessor shall, in addition, return to Lessee so much of Lessee's security deposit as has not theretofore been applied by Lessor.
9.7 WAIVER. Lessor and Lessee waive the provisions of any statute which relate to termination of leases when leased property Is destroyed and agree that such event shall be governed by the terms of this Lease.
10. REAL PROPERTY TAXES.
10.1 PAYMENT OF TAXES. Lessor shall pay the real property tax, as defined in paragraph 10.3, applicable to the Office Building Project subject to reimbursement by Lessee of Lessee's Share of such taxes in accordance with the provisions of paragraph 4.2, except as otherwise provided in paragraph 10.2.
10.2 ADDITIONAL IMPROVEMENTS. Lessee shall not be responsible for paying any increase in real property tax specified in the tax assessor's records and work sheets as being caused by additional Improvements placed upon the Office Building Project by other lessees or by Lessor for the exclusive enjoyment of any other lessee. Lessee shall, however, pay to Lessor at the time that Operating Expenses are payable under paragraph 4.2(c) the entirety of any Increase in real property tax if assessed solely by reason of additional improvements placed upon the Premises by Lessee or at Lessee's request.
10.3 DEFINITION OF "REAL PROPERTY TAX." As used herein, the term "real property tax" shall include any form of real estate tax or assessment, general, special, ordinary or extraordinary, and any license fee, commercial rental lax, Improvement bond or bonds, levy or tax (other than inheritance, personal income or estate taxes) imposed on the Office Building Project or any portion thereof by any authority having the direct or indirect power to is)(. Including any city, county, state or federal government, or any school, agricultural, sanitary, fire, street, drainage or other improvement district thereof, as against any legal or equitable interest of Lessor in the Office Building Project or in any portion thereof, as against Lessor's right to rent or other income therefrom, and as against Lessor's business of leasing the Office Building Project. The term "real property tax" shall also include any tax, fee, levy assessment or charge (1) in substitution of, partially or totally, any tax, fee, levy. assessment or charge hereinabove included within the definition of "real property tax:* or (it) the nature of which was hereinbefore included within the definition of "real property tax:' or (III) which is imposed for a service or right not charged prior to June 1, 1978, or,
if previously charged, has been increased since June 1, 1978, or (iv) which Is imposed as a result of a change in ownership, as defined by applicable local statutes for property tax purposes, of the Office Building Project or which Is added to a tax or charge hereinbefore Included within the definition of real property tax by reason of such change of ownership, or (v) which is imposed by reason of this transaction, any modifications or changes hereto, or any transfers hereof.
10.4 JOINT ASSESSMENT. If the improvements or property, the taxes for which are to be paid separately by Lessee under paragraph 10.2 or 10.5 are not separately assessed, Lessee's portion of that tax shall be equitably determined by Lessor from the respective valuations assigned in the assessor's work sheets or such other information (which may include the cost of construction) as may be reasonably available. Lessor's reasonable determination thereof, in good faith, shall be conclusive.
10.5 PERSONAL PROPERTY TAXES.
(a) Lessee shall pay prior to delinquency all taxes assessed against
and levied upon trade fixtures, furnishings, equipment and all other personal
property of Lessee contained in the Premises or elsewhere.
(b) It any of Lessee's said personal property shall be assessed with
Lessor's real property, Lessee shall pay to Lessor the taxes attributable to
Lessee within ten (10) days after receipt of a written statement setting forth
the taxes applicable to Lessee's property.
11. UTILITIES.
11.1 SERVICES PROVIDED BY LESSOR. Lessor shall provide heating, ventilation, air conditioning, and janitorial service as reasonably required, reasonable amounts of electricity for normal lighting and office machines, water for reasonable and normal drinking and lavatory use, and replacement light bulbs and/or fluorescent tubes and ballasts for standard overhead fixtures.
11.2 SERVICES EXCLUSIVE TO LESSEE. Lessee shall pay for all water, gas, heat. light, power, telephone and other utilities and services specially or exclusively supplied and/or metered exclusively to the Premises or to Lessee, together with any taxes thereon- It any such services are not separately metered to the Premises, Lessee shall pay at Lessor's option, either Lessee's Share or a reasonable proportion to be determined by Lessor of all charges jointly metered with other premises In the Building.
11.3 HOURS OF SERVICE. Said services and utilities shall be provided during generally accepted business days and hours or such other days or hours as may hereafter be set forth. Utilities and services required at other times shall be subject to advance request and reimbursement by Lessee to Lessor of the cost thereof.
11.4 Excess Usage by Lessee. Lessee shall not make connection to the utilities except by or through existing outlets and shall not Install or use machinery or equipment in or about the Promises that uses excess water, lighting or power, or suffer or permit any act that causes extra burden upon the utilities or services. including but not limited to security services. over standard office usage for the Office Building Project. Lessor shall require Lessee to reimburse Lessor for any excess expenses or costs that may arise out of a breach of this subparagraph by Lessee. Lessor may, in its sole discretion, install at Lessee's expense supplemental equipment and/or separate metering applicable to Lessee's excess usage or loading.
11.5 INTERRUPTIONS. There shall be no abatement of rent and Lessor shall not be liable in any respect whatsoever for the inadequacy, stoppage, interruption or discontinuance of any utility or service due to riot, strike, labor dispute, breakdown, accident, repair or other cause beyond Lessor's reasonable control or in cooperation with governmental request or directions.
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED. Lessee shall not voluntarily or by operation of law assign, transfer, mortgage, sublet, or otherwise transfer or encumber all or any part of Lessee's interest in the Lease or in the Premises, without Lessor's prior written consent, which Lessor shall not unreasonably withhold. Lessor shall respond to Lessee's request for consent hereunder in a timely manner and any attempted assignment, transfer, mortgage, encumbrance or subletting without such consent shall be void, and shall constitute a material default and breach of this Lease without the need for notice to Lessee under paragraph 13.1 "Transfer" within the meaning of this paragraph 12 shall include the transfer or transfers aggregating: (a) If Lessee is a corporation, more than twenty- live percent (25%) of the voting stock of such corporation, or (b) it Lessee is a partnership, more than twenty-five percent (25%) of the profit and loss participation in such partnership.
12.2 LESSEE AFFILIATE. Notwithstanding the provisions of paragraph 12.1 hereof, Lessee may assign or sublet the Premises, or any portion thereof, without Lessor's consent, to any corporation which controls, is controlled by or is under common control with Lessee, or to any corporation resulting from the merger or consolidation with Lessee, or to any person or entity which acquires all the assets of Lessee as a going concern of the business that is being conducted on the Premises, all of which are referred to as "Lessee Affiliate"; provided that before such assignment shall be effective, (a) said assignee shall assume. in full, the obligations of Lessee under this Lease and (b) Lessor shall be given written notice of such assignment and assumption. Any
such assignment shall not, in any way, affect or limit the liability of Lessee under the terms of this Lease even If after such assignment or subletting the terms of this Lease are materially changed or altered without the consent of Lessee, the consent of whom shall not be necessary.
12.3 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.
(a) Regardless of Lessor's consent, no assignment or subletting shall
release Lessee of Lessee's obligations hereunder or alter the primary liability
of Lessee to pay the rent and other sums due Lessor hereunder including Lessee's
Share of Operating Expense Increase, and to perform all other obligations to be
performed by Lessee hereunder.
(b) Lessor may accept rent from any person other than Lessee pending
approval or disapproval of such assignment.
(c) Neither a delay in the approval or disapproval of such assignment
or subletting, nor the acceptance of rent, shall constitute a waiver or estoppel
of Lessor's right to exercise its remedies for the breach of any of the terms or
conditions of this paragraph 12 or this Lease.
(d) If Lessee's obligations under this Lease have been guaranteed by
third parties, then an assignment or sublease, and Lessor's consent thereto,
shall not be effective unless said guarantors give their written consent to such
sublease and the terms thereof.
(e) The consent by Lessor to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting by Lessee or to
any subsequent or successive assignment or subletting by the sublessee. However,
Lessor may consent to subsequent sublettings and assignments of the sublease or
any amendments or modifications thereto without notifying Lessee or anyone else
liable on the Lease or sublease and without obtaining their consent and such
action shall not relieve such persons from liability under this Lease or said
sublease; however, such persons shall not be responsible to the extent any such
amendment or modification enlarges or increases the obligations of the Lessee or
sublessee under this Lease at such sublease.
(f) In the event of any default under this Lease, Lessor may proceed
directly against Lessee, any guarantors or any one else responsible for the
performance of this Lease, Including the sublessee, without first exhausting
Lessor's remedies against any other person or entity responsible therefor to
Lessor, or any security held by Lessor or Lessee.
(g) Lessor's written consent to any assignment or subletting of the
Premises by Lessee shall not constitute an acknowledgement that no default then
exists under this Lease of the obligations to be performed by Lessee nor shall
such consent be deemed a waiver of any then existing default, except as may be
otherwise stated by Lessor at the time.
(h) The discovery of the fact that any financial statement relied upon
by Lessor in giving its consent to an assignment or subletting was materially
false shall, at Lessor's election, render Lessor's said consent null and void.
12.4 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. Regardless of Lessor's consent, the following terms arid conditions shall apply to any subletting by Lessee of all or any part of the Premises and shall be deemed included in all subleases under this Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all rentals and income at arising from any sublease heretofore of
hereafter made by Lessee, and Lessor may collect such rent and income and apply
same toward Lessee's obligations under this Lease; provided, however. that until
a default shall occur in the performance of Lessee's obligations under this
Lease, Lessee may receive, collect and enjoy the rents accruing under such
sublease. Lessor shall not, by reason of this or any other assignment of such
sublease to Lessor nor by reason of the collection of the rents from a
sublessee, be deemed liable to the sublessee for any failure of Lessee to
perform and comply with any of Lessee's obligations to such sublessee under such
sublease Lessee hereby irrevocably authorizes and directs any such sublessee.
upon receipt of a written notice from Lessor stating that a default exists in
the performance of Lessee's obligations under this Lease, to pay to Lessor the
rents due and to become due under the sublease. Lessee agrees that Such
sublessee shall have the right to rely upon any such statement and request from
Lessor, and that such sublessee shall pay such rents to Lessor without any
obligation or right to inquire as to whether such default exists and
notwithstanding any notice from or claim from Lessee to the contrary Lessee
shall have no right or claim against said sublessee or Lessor for any such rents
so paid by said sublessee to Lessor.
(b) No sublease entered into by Lessee shall be effective unless and
until it has been approved in writing by Lessor. In entering into any sublease,
Lessee shall use only such form of sublessee as is satisfactory to Lessor, and
once approved by Lessor, such sublease shall not be changed or modified without
Lessor's prior written consent. Any sublease shall, by reason of entering into a
sublease under this Lease, be deemed, for the benefit of Lessor, to have assumed
and agreed to conform and comply With each and every obligation herein to be
performed by Lessee other than such obligations as are contrary to or
inconsistent with provisions contained In a sublease to which Lessor has
expressly consented In writing.
(c) In the event Lessee shall default in the performance of its
obligations under this Lease. Lessor at its option and without any obligation to
do so, may require any sublessee to attorn to Lessor, in which event Lessor
shall undertake the obligations of Lessee tinder such sublease from the time of
the exercise of said option to the termination of such sublease; provided,
however, Lessor shall not be liable for any prepaid rents or security deposit
paid by such subleases to Lessee or for any other prior defaults of Lessee under
such sublease.
(d) No sublessee shall further assign or sublet all or any part of the
Premises without Lessor's prior written consent.
(e) With respect to any subletting to which Lessor has consented. Lessor agrees to deliver a copy of any notice of default by Lessee to the sublessee. Such sublessee shall have the right to cure a default of Lessee within three (3) days after service of said notice of default upon such sublessee, and the sublessee shall have a right of reimbursement and offset from and against Lessee for any such defaults cured by the sublessee.
12.5 LESSOR'S EXPENSES. In the event Lessee shall assign or sublet the Premises or request the consent of Lessor to any assignment or subletting or if Lessee shall request the consent of Lessor for any act Lessee proposes to do then Lessee shall pay Lessor's reasonable costs and expenses incurred in connection therewith, including attorneys: architects: engineers' or other consultants' fees.
12.6 CONDITIONS TO CONSENT. Lessor reserves the right to condition any approval to assign or sublet upon Lessor's determination that (a) the proposed assignee OF sublessee shall conduct a business on the Premises of a quality substantially equal to that of Lessee and consistent with the general character of the other occupants of the Office Building Project and not in violation of any exclusives or rights then held by other tenants, and (b) the proposed assignee or sublessee be at least as financially responsible as Lessee was expected to be at the time of the execution of this Lease or of such assignment or subletting, whichever is greater.
13. DEFAULT; REMEDIES.
13.1. DEFAULT. The occurrence of any one or more of the following events shall constitute a material default of this lease by Lessee:
(a) The vacation or abandonment of the premises by Lessee. Vacation of
the Premises shall include the failure to occupy the Premises for a coetaneous
period of sixty (60) days o more, whether or not the rent is paid.
(b) The breach by Lessee of any of the covenants, conditions or
provisions of paragraphs 13.1(e) (insolvency), 13.1(f) (false statement), 33
(auctions), all of which are hereby deemed to be material, non-curable defaults
without the necessity of any notice by Lessor to lessee thereof.
(c) The failure by Lessee to make any payment of rent or any other
payment required to be made by Lessee hereunder, as and when due, where such
failure shall continue for a period of three (3) days after written notice
thereof from Lessor to Lessee. In the event that Lessor serves Lessee with a
Notice to Pay Rent or Quit pursuant to applicable Unlawful Detainer statutes
such Notice to Pay Rent or Quit shall also constitute the notice required by
this subparagraph.
(d) The failure by Lessee to observe or perform any of the covenants,
conditions or provisions of this Lease to be observed or performed by Lessee
other than those referenced in subparagraphs (b) and (c), above, where such
failure shall continue for a period of thirty (30) days after written notice
thereof from Lessor to Lessee provided, however, that If the nature of Lessee's
noncompliance Is such that more than thirty (30) days ARE reasonably required
for its cure. then Lessee shall not be deemed to be in default If Lessee
commenced such cure within said thirty (30) day period and thereafter diligently
pursues such cure to completion. To the extent permitted by law. such thirty
(30) day notice shall constitute the sole and exclusive notice required to be
given to Lessee under applicable Unlawful Detainer statutes.
(e) (1) The making by Lessee of any general arrangement or general
assignment for the benefit of creditors; (ii) Lessee becoming a "debtor" as
defined in 11 U.S.C~ ss.101 or any successor statute thereto (unless, in the
case of a petition filed against Lessee, the same is dismissed within sixty (60)
days; (iii) 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 (iv) 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. In the event that any provision of this paragraph 13.1(e) is contrary to
any applicable law, such provision shall be of no force or effect.
(f) The discovery by Lessor that any financial statement given to
Lessor by Lessee, or Its successor In Interest or by any guarantor of Lessee's
obligation hereunder, was materially false,
13.2 REMEDIES. In the event of any material default or breach of this Lease by Lessee, Lessor may at any time thereafter, with or without notice or demand and without limiting Lessor in the exercise of any right or remedy which Lessor may have by reason of such default:
(a) Terminate Lessee's right to possession of the Premises by any lawful means, in which case this Lease and the term hereof 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, but not limited to, the cost of recovering possession of the Premises; expenses of reletting, Including necessary renovation and alteration of the Premises, reasonable attorneys' fees, and any real estate commission actually paid; the worth at the time of award by the court having jurisdiction thereof of the amount by which the unpaid rent for the balance of the term after the time of such award
exceeds the amount of such rental loss for the same period that Lessee proves
could be reasonably avoided; that portion of the leasing commission paid by
Lessor pursuant to paragraph 15 applicable to the unexpired term of this Lease.
(b) Maintain Lessee's right to possession in which case this Lease
shall continue in effect whether or not Lessee shall have vacated or abandoned
the Premises. In such event Lessor shall be entitled to enforce all of Lessor's
rights and remedies under this Lease, Including the right to recover the rent as
it becomes due hereunder.
(c) Pursue any other remedy now or hereafter available to Lessor under
the laws or judicial decisions of the state wherein the Premises are located.
Unpaid Installments of rent and other unpaid monetary obligations of Lessee
under the terms of this Lease shall bear Interest from the date due at the
maximum rate then allowable by law.
13.3 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 obligation; provided, however, that if 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 30-day period and thereafter diligently pursues the same to completion.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by Lessee to Lessor of Base Rent, Lessee's Share of Operating Expense Increase or 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 Office Building Project. Accordingly, if any installment of Base Rent, Operating Expense Increase, 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, then, without any requirement for notice to Lessee, Lessee shall pay to Lessor a late charge equal to 6% 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 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.
14. CONDEMNATION. If the Premises or any portion thereof or the Office Building Project are taken under the power of eminent domain, or sold under the threat of the exercise of said power (all of which are herein called "condemnation"), this Lease shall terminate as to the part so taken as of the date the condemning authority takes title or possession, whichever first occurs; provided that if so much of the Premises or the Office Building Project are taken by such condemnation as would substantially and adversely affect the operation and profitability of Lessee's business conducted from the Premises, Lessee shall have the option, to be exercised only in writing within thirty (30) days after Lessor shall have given Lessee written notice of such taking (or In the absence of such notice, within thirty (30) days after the condemning authority shall have taken possession), to terminate this Lease as of the date the condemning authority takes such possession. It Lessee does not terminate this Lease in accordance with the foregoing, this Lease shall remain in full force and effect as to the portion of the Premises remaining, except that the rent and Lessee's Share of Operating Expense Increase shall be reduced in the proportion that the floor area of the Premises taken bears to the total floor area of the Premises. Common Areas taken shall be excluded from the Common Areas usable by Lessee and no reduction of rent shall occur with respect thereto or by reason thereof. Lessor shall have the option In its sole discretion to terminate this Lease as of the taking of possession by the condemning authority, by giving written notice to Lessee of such election within thirty (30) days after receipt of notice of a taking by condemnation of any part of the Premises or the Office Building Project. Any award for the taking of all or any part of the Premises or the Office Building Project under the power of eminent domain or any payment made under threat of the exercise of such power shall be the property of Lessor, whether such award shall be made as compensation for diminution in value of the leasehold or for the taking of the fee, or as severance damages; provided, however, that Lessee shall be entitled to any separate award for loss of or damage to Lessee's trade fixtures, removable personal property and unamortized tenant Improvements that have been paid for by Lessee. For that purpose the cost of such improvements shall be amortized over the original term of this Lease excluding any options. In the event that this Lease is not terminated by reason of such condemnation, Lessor shall to the extent of severance damages received by Lessor in connection with such condemnation, repair any damage to the Premises caused by such condemnation except to the extent that Lessee has been reimbursed therefor by the condemning authority. Lessee shall pay any amount in excess of such severance damages required to complete such repair.
15. BROKER'S FEE.
(a) The brokers Involved in this transaction are
_____N/A______________________________________ as "listing broker"
and______N/A_______________________________________________ as "cooperating
broker," licensed real estate broker(s). A "cooperating broker" is defined as
any broker other than the listing broker entitled to a share of any commission
arising under this Lease. Upon execution of this Lease by both parties, Lessor
shall pay to said brokers jointly, or In such separate shares as they may
mutually designate in writing, a fee as set forth In a separate agreement
between Lessor and said broker(s), or in the event there Is no separate
agreement between Lessor and said broker(s), the sum of
$______N/A______________________________for brokerage services rendered by said
broker(s) to Lessor in this transaction.
(b) Lessor further agrees that (i) if Lessee exercises any Option, as
defined in paragraph 39.1 of this Lease, which Is granted to Lessee under this
Lease, or any subsequently granted option which is substantially similar to an
Option granted to Lessee under this Lease, or (ii) If Lessee acquires any rights
to the Premises or other premises described in this Lease which are
substantially similar to what Lessee would have acquired had an Option herein
granted to Lessee been exercised, or (iii) if Lessee remains in possession of
the Premises after the expiration of the term of this Lease after having failed
to exercise an Option, or (iv) If said broker(s) are the procuring cause of any
other lease or sale entered into between the parties pertaining to the Premises
and/or any adjacent property in which Lessor has an Interest, or (v) if the Base
Rent is Increased, whether by agreement or operation of an escalation clause
contained herein, then as to any of said transactions or rent Increases, Lessor
shall pay said broker(s) a fee In accordance with the schedule of said broker(s)
in effect at the time of execution of this Lease. Said fee shall be paid at the
time such increased rental Is determined.
(c) Lessor agrees to pay said fee not only on behalf of Lessor but also
on behalf of any person, corporation, association, or other entity having an
ownership interest in said real property or any part thereof, when such fee Is
due hereunder. Any transferee of Lessor's interest in this Lease, whether such
transfer is by agreement or by operation of law, shall be deemed to have assumed
Lessor's obligation under this paragraph 15. Each listing and cooperating broker
shall be a third party beneficiary of the provisions of this paragraph 15 to the
extent of their interest in any commission arising under this Lease and may
enforce that right directly against Lessor; provided, however, that all brokers
having a right to any part of such total commission shall be a necessary party
to any suit with respect thereto.
(d) Lessee and Lessor each represent and warrant to the other that
neither has had any dealings with any person, firm, broker or finder (other than
the person(s), If any, whose names are set forth in paragraph 15(a), above) in
connection with the negotiation of this Lease and/or the consummation of the
transaction contemplated hereby, and no other broker or other person, firm or
entity is entitled to any commission or finder's fee In connection with said
transaction and Lessee and Lessor do each hereby Indemnity and hold the other
harmless from and against any costs, expenses, attorneys' fees or liability for
compensation or charges which may be claimed by any such unnamed broker, finder
or other similar party by reason of any dealings or actions of the indemnifying
party.
16. ESTOPPEL CERTIFICATE.
(a) Each party (as "responding party") shall at any time upon not less
than ten (10) days' prior written notice from the other party ("requesting
party") execute, acknowledge and deliver to the requesting party a statement In
writing (1) certifying that this Lease is unmodified and in full force and
effect (or, It 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 the responding party's knowledge, any
uncured defaults on the part of the requesting party, or specifying such
defaults if any are claimed. Any such statement may be conclusively relied upon
by any prospective purchaser or encumbrancer of the Office Building Project or
of the business of Lessee.
(b) At the requesting party's option, the failure to deliver such
statement within such time shall be a material default of this Lease by the
party who is to respond, without any further notice to such party, or it shall
be conclusive upon such party that (I) this Lease is in full force and effect,
without modification except as may be represented by the requesting party, (ii)
there are no uncured defaults in the requesting party's performance, and (III)
if Lessor is the requesting party, not more than one month's rent has been paid
in advance.
(c) If Lessor desires to finance, refinance, or sell the Office
Building Project, or any part thereof, Lessee hereby agrees to deliver to any
tender or purchaser designated by Lessor Such financial statements of Lessee as
may be reasonably required by such lender or purchaser. Such statements shall
include the past three (3) years' financial statements of Lessee. All such
financial statements shall be received by Lessor and such tender or purchaser in
confidence and shall be used only for the purposes herein set forth.
17. LESSOR'S LIABILITY. The term "Lessor" as used herein shall mean only the owner or owners, at the time in question. of the fee title or a lessee's interest in a ground lease of the Office Building Project, and except as expressly provided in paragraph 15, in the event of any transfer of such title or interest, Lessor herein named (and in case of any subsequent transfers then the grantor) shall be relieved from and after the date of such transfer of all liability as respects Lessor's obligations thereafter to be performed, provided that any funds in the hands of Lessor or the then grantor at the time of such transfer, in which Lessee has an interest, shall be delivered to the grantee. The obligations contained in this Lease to be performed by Lessor shall, subject as aforesaid, be binding on Lessor's successors and assigns, only during their respective periods of ownership.
18. SEVERABILITY. The invalidity of any provision of this Lease as determined by a court of competent jurisdiction shall in no way affect the validity of any other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Except as expressly herein provided, any amount due to Lessor not paid when due shall bear interest at the maximum rate then allowable by law or judgments from the date due. Payment of such interest shall not excuse
or cure any default by Lessee under this Lease; provided, however, that interest shall not be payable on late charges incurred by Lessee nor on any amounts upon which late charges are paid by Lessee.
20. TIME OF ESSENCE. Time is of the essence with respect to the obligations to be performed under this Lease.
21. ADDITIONAL RENT. All monetary obligations of Lessee to Lessor under the terms of this Lease, Including but not limited to Lessee's Share of Operating Expense Increase and any other expenses payable by Lessee hereunder shall be deemed to be rent.
22. INCORPORATION OF PRIOR AGREEMENTS; AMENDMENTS. This Lease contains all agreements of the parties with respect to any matter mentioned herein. No prior or contemporaneous agreement or understanding pertaining to any such matter shall be effective. This Lease may be modified In writing only, signed by the parties In interest at the time of the modification. Except as otherwise stated in this Lease, Lessee hereby acknowledges that neither the real estate broker listed. in paragraph 15 hereof nor any cooperating broker on this transaction nor the Lessor or any employee or agents of any of said persons has made any oral or written warranties or representations to Lessee relative to the condition or use by Lessee of the Premises or the Office Building Project and Lessee acknowledges that Lessee assumes all responsibility regarding the Occupational Safety Health Act, the legal use and adaptability of the Premises and the compliance thereof with all applicable laws and regulations in effect during the term of this Lease.
23. NOTICES. Any notice required or permitted to be given hereunder shall be in writing and may be given by personal delivery or by certified or registered mail, and shall be deemed sufficiently given if delivered or addressed to Lessee or to Lessor at the address noted below or adjacent to the signature of the respective parties, as the case may be. Mailed notices shall be deemed given upon actual receipt at the address required, or forty-eight hours following deposit In the mail, postage prepaid, whichever first occurs. Either party may by notice to the other specify a different address for notice purposes except that upon Lessee's taking possession of the Premises, the Premises shall constitute Lessee's address for notice purposes. A copy of all notices required or permitted to be given to Lessor hereunder shall be concurrently transmitted to such party or parties at such addresses as Lessor may from time to time hereafter designate by notice to Lessee.
24. WAIVERS. No waiver by Lessor of any provision hereof shall be deemed a waiver of any other provision hereof or of any subsequent breach by Lessee of the same or any other provision. Lessor's consent to, or approval of, any act shall not be deemed to render unnecessary the obtaining of Lessor's consent to or approval of any subsequent act by Lessee. The acceptance of rent hereunder by Lessor shall not be a waiver of any preceding breach by Lessee of any provision hereof, other than the failure of Lessee to pay the particular rent so accepted, regardless of Lessor's knowledge OF such preceding breach at the time of acceptance of such rent.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other, execute, acknowledge and deliver to the other a "short form" memorandum of this Lease for recording purposes.
26. HOLDING OVER. If Lessee, with Lessor's consent, remains in possession of the Premises or any part thereof after the expiration of the term hereof, such occupancy shall be a tenancy from month to month upon all the provisions of this Lease pertaining to the obligations of Lessee, except that the rent payable shall be one hundred twenty-five percent (125%) of the rent payable immediately preceding the termination date of this Lease, and all Options, if any, granted under the terms of this lease shall be deemed terminated and be of no further effect during said month to month tenancy.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed exclusive but shall, wherever possible, be cumulative with all other remedies at law or in equity.
28. COVENANTS AND CONDITIONS. Each provision of this Lease performable by Lessee shall be deemed both a covenant and a condition.
29. BINDING EFFECT; CHOICE OF LAW. Subject to any provisions hereof restricting assignment or subletting by Lessee and subject to the provisions of paragraph 17, this Lease shall bind the parties, their personal representatives, successors and assigns. This Lease shall be governed by the laws of the State where the Office Building Project is located and any litigation concerning this Lease between the parties hereto shall be initiated in the county in which the Office Building Project is located.
30. SUBORDINATION.
(a) This Lease, and any Option or right of first refusal granted hereby, at Lessor's option, shall be subordinate to any ground lease, mortgage, deed of trust, or any other hypothecation or security now or hereafter placed upon the Office Building Project and to any and all advances made on the security thereof and to all renewals, modifications, consolidations. replacements and extensions thereof, Notwithstanding such subordination, Lessee's right to quiet possession of the Premises shall not be disturbed if Lessee Is not in default and so long as Lessee shall pay the rent and observe and perform all of the
provisions of this Lease, unless this Lease is otherwise terminated pursuant to
its terms. If any mortgagee, trustee or ground lessor shall elect to have this
Lease and any Options granted hereby prior to the lien of its mortgage, deed of
trust or ground lease, and shall give written notice thereof to Lessee, this
Lease and such Options shall be deemed prior to such mortgage, deed of trust or
ground lease, whether this Lease or such Options are dated prior or subsequent
to the date of said mortgage, deed of trust or ground lease or the date of
recording thereof.
(b) Lessee agrees to execute any documents required to effectuate an
attornment, a subordination, or to make this Lease or any Option granted herein
prior to the lien of any mortgage, deed of trust or ground lease, as the case
may be. Lessee's failure to execute such documents within ten (10) days after
written demand shall constitute a material default by Lessee hereunder without
further notice to Lessee or, at Lessor's option, Lessor shall execute such
documents on behalf of Lessee as Lessee's attorney-in-fact. Lessee does hereby
make, constitute and irrevocably appoint Lessor as Lessee's attorney-in-fact and
in Lessee's name, place and stead, to execute such documents in accordance with
this paragraph 30(b).
31. ATTORNEYS' FEES.
31.1 It either party or the broker(s) named herein bring an action to enforce the terms hereof or declare rights hereunder, the prevailing party In any such action, trial or appeal thereon, shall be entitled to his reasonable attorneys' fees to be paid by the losing party as fixed by the court in the same or a separate suit, and whether or not such action Is pursued to decision or judgment. The provisions of this paragraph shall inure to the benefit of the broker named herein who seeks to enforce a right hereunder.
31.2 The attorneys' fee award shall not be computed in accordance with any court fee schedule, but shall be such as to fully reimburse all attorneys' fees reasonably Incurred In good faith.
31.3 Lessor shall be entitled to reasonable attorneys' fees and all other costs and expenses incurred in the preparation and service of notice of default and consultations in connection therewith, whether or not a legal transaction is subsequently commenced In connection with such default.
32. LESSOR'S ACCESS.
32.1 Lessor and Lessor's agents shall have the right to enter the Premises at reasonable times for the purpose of inspecting the same, performing any services required of Lessor, showing the same to prospective purchasers, lenders, or lessees, taking such safety measures, erecting such scaffolding or other necessary structures, making such alterations, repairs, improvements or additions to the Premises or to the Office Building Project as Lessor may reasonably deem necessary or desirable and the erecting, using and maintaining of utilities, services, pipes and conduits through the Premises and/or other Premises as long as there is no material adverse effect to Lessee's use of the Premises. Lessor may at any time place on or about the Premises or the Building any ordinary "For Sale" signs and Lessor may at any time during the last 120 days of the term hereof place on or about the Premises any ordinary "For Lease" signs.
32.2 All activities of Lessor pursuant to this paragraph shall be without abatement of rent, nor shall Lessor have any liability to Lessee for the same.
32.3 Lessor shall have the right to retain keys to the Premises and to unlock all doors in or upon the Premises other than to files, vaults and sales, and in the case of emergency to enter the Premises by any reasonably appropriate means, and any such entry shall not be deemed a forcible or unlawful entry or detainer of the Premises or an eviction. Lessee waives any charges for damages or injuries or interference with Lessee's property or business in connection therewith.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either voluntarily or involuntarily. any auction upon the Premises of the Common Areas without first having obtained Lessor's prior written consent. Notwithstanding anything to the contrary in this Lease. Lessor shall not be obligated to exercise any standard of reasonableness in determining whether to grant such consent. The holding of any auction on the Premises or Common Areas in violation of this paragraph shall constitute a material default of this Lease.
34. SIGNS. Lessee shall not place any sign upon the Premises or the Office Building Project without Lessor's prior written consent. Under no circumstances shall Lessee place a sign on any roof of the Office Building Project.
35. MERGER. The voluntary or other surrender of this Lease by Lessee, or a mutual cancellation thereof, or a termination by Lessor, shall not work a merger, and shall, at the option of Lessor, terminate all or any existing subtenancies or may, at the option of Lessor, operate as an assignment to Lessor of any or all of such subtenancies.
36. CONSENTS. Except for paragraphs 33 (auctions) and 34 (signs) hereof, wherever in this Lease the consent of one party is required to an act of the other party such consent shall not be unreasonably withheld or delayed.
37. GUARANTOR. In the event that there is a guarantor of this Lease, said guarantor shall have the same obligations as Lessee under this Lease.
38. QUIET POSSESSION. Upon Lessee paying the rent for the Premises and observing and performing all of the covenants, conditions and provisions on Lessee's part to be observed and performed hereunder, Lessee shall have quiet possession of the Premises for the entire term hereof subject to all of the provisions of this Lease. The individuals executing this Lease on behalf of Lessor represent and warrant to Lessee that they are fully authorized and legally capable of executing this Lease on behalf of Lessor and that such execution is binding upon all parties holding an ownership interest in the Office Building Project.
39. OPTIONS.
39.1 DEFINITION. As used in this paragraph the word "Option" has the following meaning: (1) the right or option to extend the term of this Lease or to renew this Lease or to extend or renew any lease that Lessee has on other property of Lessor; (2) the option of I ht of first refusal to lease the Premises or the right of first offer to lease the Premises or the right of first refusal to lease other space within the Office Building Project or other property of Lessor or the right of first offer to lease other space within the Office Building Project or other property of Lessor; (3) the right or option to purchase the Premises or the Office Building Project, or the right of first refusal to purchase the Premises or the Office Building Project or the right of first offer to purchase the Premises or the Office Building Project, or the right or option to purchase other property of Lessor, or the right of first refusal to purchase other property of Lessor or the right of first offer to purchase other property of Lessor.
39.2 OPTIONS PERSONAL. Each Option granted to Lessee in this Lease is personal to the original Lessee and may be exercised only by the original Lessee while occupying the Premises who does so without the intent of thereafter assigning this Lease or subletting the Premises or any portion thereof, and may not be exercised or be assigned, voluntarily or involuntarily, by or to any person or entity other than Lessee; provided, however, that an Option may be exercised by or assigned to any Lessee Affiliate as defined In paragraph 12.2 of this Lease. The Options, if any, herein granted to Lessee are not assignable separate and apart from this Lease. nor may any Option be separated from this Lease in any manner, either by reservation or otherwise.
39.3 MULTIPLE OPTIONS. In the event that Lessee has any multiple options to extend or renew this Lease a later option cannot be exercised unless the prior option to extend or renew this Lease has been so exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option, notwithstanding
any provision in the grant of Option to the contrary, (I) during the Wile
commencing from the date Lessor gives to Lessee a notice of default pursuant to
paragraph 13.1(c) or 13.1(d) and continuing until the noncompliance alleged in
said notice of default is cured, or (it) during the period of time commencing on
the day after a monetary obligation to Lessor Is due from Lessee and unpaid
(without any necessity for notice thereof to Lessee) and continuing until the
obligation is paid, or (III) in the event that Lessor has given to Lessee three
or more notices of default tinder paragraph 13.1(c), or paragraph 13.1 (d),
whether or not the defaults are cured, during the 12 month period of time
immediately prior to the time that Lessee attempts to exercise the subject
Option, (iv) if Lessee has committed any non-curable breach, including without
limitation those described in paragraph 13.1(b), or is otherwise in default of
any of the terms, covenants or conditions of this Lease.
(b) The period of time within which an Option may be exercised shall
not be extended or enlarged by reason of Lessee's Inability to exercise an
Option because of the provisions of paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due and
timely exercise of the Option, it, after such exercise and during the term of
this Lease, (1) Lessee fails to pay to Lessor a monetary obligation of Lessee
for a period of thirty (30) days after such obligation becomes due (without any
necessity of Lessor to give notice thereof to Lessee), or (ii) Lessee falls to
commence to cure a default specified in paragraph 13.1(d) within thirty (30)
days after the date that Lessor gives notice to Lessee of such default and/or
Lessee fails thereafter to diligently prosecute said cure to completion, or
(111) Lessor gives to Lessee three or more notices of default under paragraph
13.1 (c), or paragraph 13.1 (d), whether or not the defaults are cured, or (iv)
It Lessee has committed any non-curable breach, including without limitation
those described in paragraph 13.1 (b), or is otherwise in default of any of the
terms, covenants and conditions of this Lease.
40. SECURITY MEASURES-LESSOR'S RESERVATIONS.
40.1 Lessee hereby acknowledges that Lessor shall have no obligation whatsoever to provide guard service or other security measures for the benefit of the Premises or the Office Building Project. Lessee assumes all responsibility for the protection of
Lessee, its agents, and invitees and the property of Lessee and of Lessee's agents and invitees from acts of third parties. Nothing herein contained shall prevent Lessor, at Lessor's sole option, from providing security protection for the Office Building Project or any part thereof, in which event the cost thereof shall be included within the definition of Operating Expenses, as set forth in paragraph 4.2(b).
40.2 Lessor shall have the following rights:
(a) To change the name, address or title of the Office Building Project
or building In which the Premises are located upon not less than 90 days prior
written notice. The current owner, Bradshaw Plaza Group, will not change the
name or address of the building;
(b) To, at Lessee's expense, provide and install Building standard
graphics on the door of the Premises and such portions of the Common Areas as
Lessor shall reasonably deem appropriate;
(c) To permit any lessee the exclusive right to conduct any business as
long as such exclusive does not conflict with any rights expressly given herein;
(d) To place such signs, notices or displays as Lessor reasonably deems
necessary or advisable upon the root, exterior of the buildings or the Office
Building Project or on pole signs in the Common Areas;
40.3 Lessee shall not:
(a) Use a representation (photographic or otherwise) of the Building or
the Office Building Project or their name(s) in connection with Lessee's
business;
(b) Suffer or permit anyone, except in emergency, to go upon the roof
of the Building.
41. EASEMENTS.
41.1 Lessor reserves to itself the right, from time to time, to grant such easements, rights and dedications that Lessor deems necessary or desirable. and to cause the recordation of Parcel Maps and restrictions, so long as such easements, rights, dedications, Maps and restrictions do not unreasonably interfere with the use of the Premises by Lessee. Lessee shall sign any of the aforementioned documents upon request of Lessor and failure to do so shall constitute a material default of this Lease by Lessee without the need for further notice to Lessee.
41.2 The obstruction of Lessee's view, air, or light by any structure erected in the vicinity of the Building, whether by Lessor or third parties, shall in no way affect this Lease or impose any liability upon Lessor.
42. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any amount or sum of money to be paid by one party to the other under the provisions hereof, the party against whom the obligation to pay the money Is asserted shall have the right to make payment "under protest" and such payment shall not be regarded as a voluntary payment, and there shall survive the right on the part of said party to institute suit for recovery of such sum. If it shall be adjudged that there was no legal obligation on the part of said party to pay such sum or any part thereof, said party shall be entitled to recover such sum or so much thereof as it was not legally required to pay under the provisions of this Lease.
43. AUTHORITY. If Lessee Is a corporation. trust, or general or limited partnership, Lessee, and each individual executing this Lease on behalf of such entity represent and warrant that such individual is duly authorized to execute and deliver this Lease on behalf of said entity. If Lessee is a corporation, trust or partnership. Lessee shall, within thirty (30) days after execution of this Lease, deliver to Lessor evidence of such authority satisfactory to Lessor.
44. CONFLICT. Any conflict between the printed provisions, Exhibits or Addenda of this Lease and the typewritten or handwritten provisions, it any, shall be controlled by the typewritten or handwritten provisions.
45. NO OFFER. Preparation of this Lease by Lessor or Lessor's agent and submission of same to Lessee shall not be deemed an offer to Lessee to lease. This Lease shall become binding upon Lessor and Lessee only when fully executed by both parties.
46. LENDER MODIFICATION. Lessee agrees to make such reasonable modifications to this Lease as may be reasonably required by an institutional lender in connection with the obtaining of normal financing or refinancing of the Office Building Project.
47. MULTIPLE PARTIES. If more than one person or entity Is named as either Lessor or Lessee herein, except as otherwise expressly provided herein, the obligations of the Lessor or Lessee herein shall be the joint and several responsibility of all persons or entities named herein as such Lessor or Lessee, respectively
48. WORK LETTER. This Lease is supplemented by that certain Work Letter of even date executed by Lessor and Lessee, attached hereto as Exhibit C, and incorporated herein by this reference.
49. ATTACHMENTS. Attached hereto are the following documents which constitute a part of this Lease:
Addendum
Exhibit A - Site Plan
Exhibit A-1 Floor Plan
Exhibit B Rules and Regulations
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS LEASE, SHOW THEIR INFORMED
AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT AT THE TIME THIS
LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND
EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN IT HAS BEEN PREPARED FOR SUBMISSION TO YOUR
ATTORNEY FOR HIS APPROVAL. NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE BROKER OR ITS
AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX
CONSEQUENCES OF THIS LEASE OR THE TRANSACTION RELATING THERETO; THE PARTIES
SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN LEGAL COUNSEL AS TO THE LEGAL AND
TAX CONSEQUENCES OF THIS LEASE.
LESSOR LESSEE
Bradshaw Plaza Group American River Bank
by /s/ CHARLES D. FITE By /s/ DAVID TABER
-------------------------------- ------------------------------
Charles D. Fite David Taber
its Agent its Executive Vice President
and Chief Operation Officer
Executed at Sacramento, California Executed at Sacramento, California
on 2/11/2000 on 2/10/2000
-------------------------------- -------------------------------
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Address: 9857 Horn Road, Sacramento, CA 95827 Address: 1545 River Park Drive, Suite 107 Sacramento, California 95815
ADDENDUM
This Lease Addendum ("Addendum") is dated this 3 1st day of January, 2000, to that CERTAIN LEASE dated January 31, 2000, by and between BRADSHAW PLAZA GROUP as "Lessor," herein, and AMERICAN RIVER BANK as "Lessee", regarding Suite 100 at 9750 Business Park Dive, Sacramento, CA 95827.
1. RELEASE FROM OTHER LEASE OBLIGATIONS. This lease is intended to replace the original Lease dated October 22, 1984 and therefore, concurrent with the commencement of this new lease agreement, Lessee will be released from the remainder of its obligations under the original lease dated October 22, 1984, subsequently amended on April 20, 1988, April 11, 1990, and May 1, 1995.
For and in consideration of Lessee's recent remodel of the leased premises, at Lessee's sole cost and expense, Lessor and Lessee have negotiated this new 7-year term lease to commence upon Lessee's completion of those improvements. Said commencement date is hereby mutually agreed to be December 1, 1999.
2. BASE MONTHLY RENT:
Lessee shall pay to Lessor as rent for the premises, monthly payments as follows:
Months Base Monthly Rent 1- 12 $ 7,100.00 per month ($1.547 per sf) 13-24 $ 7,100.00 per month ($1.547 per sf) 25-36 $ 7,100.00 per month ($1.547 per sf) 37-48 $ 7,300.00 per month ($1.59 per sf) 49-60 $ 7,500.00 per month ($1.63 per sf) 61 72 $ 7,700.00 per month ($1.68 per sf) 73-84 $ 7,900.00 per mouth ($1.72 per sf) |
3. OPERATING EXPENSES. Lessor shall be responsible for all Base Year ("2000") operating expenses associated with the operation of the office park (excepting Lessee's janitorial which Lessee contracts directly for). Lessee will pay its proportionate share of increases in the operating expenses for subsequent years. "Base Year" is defined as the calendar year 2000.
4. SERVICES AND UTILITIES . Lessor shall pay the appropriate Supplier directly for utilities (i.e. electricity and gas.) Lessee shall provide its own janitorial services for its leased premises at its own cost and expense.
5. SIGNAGE: Lessee does hereby agree to conform to the sign criteria which has been established for the office park. Any modifications or deviations thereto must be approved in writing by Lessor, prior to fabrication or installation. Lessee shall be responsible for all costs associated with its signage, including the removal and repairs upon Tenant's vacating the premises.
6. CONDITION OF PREMISES. Lessee ACCEPTS THE PREMISES IN "as is" condition and no improvements are required or being installed by Lessor at (his time. Any future improvements, cosmetic or otherwise, will be at the Lessee's sole cost and expense and must be approved in writing prior to any work being done.
7. OPTION TO RENEW. Lessor hereby grants to Lessee the option to renew this lease for one (1) additional five (5) year term under the same terms and conditions of this primary lease, except for the monthly rent which shall be negotiated to then current market rates. Said option shall be subject to the following conditions:
a) This lease shall be in full force and effect at the time of notice of exercise of option is given and on die last day of the term;
b) Lessee shall not be in default under any provision of this Lease at the time notice of exercise is given, or any time during the term of the Lease for a cumulative period of more than sixty (60) days; and
c) Lessee shall give Lessor written notice, six (6) months prior to the last day of the term, irrevocably exercising die option to extend.
8. OCCUPANCY: Should any governmental authority require any additional improvements, modifications,
licenses and/or permits of any kind, including but not limited to a conditional use permit due to Lessee's use and/or occupancy of the premises, it shall be provided by Lessee, at Lessee's sole expense.
9. LESSEE ACCESS AND PARKING RIGHTS:
a) Lessee shall have full and unimpaired access to the premises;
b) Lessee shall have the non-exclusive right to use, in common with others
entitled therewith, the common areas and car parking areas of the lot on
which the premises are located subject to all the rules and regulations for
use thereof as prescribed from time to time by Lessor.
10. IDENTIFICATION OF LESSEE: If more than one person executes this Lease and Lessee, (a) each of them is jointly and severally liable for the keeping, observing and performing of all of the terms, covenants, conditions, provisions and agreements of this Lease to be kept, observed and performed by Lessee, and (b) the term "Lessee" as used in THIS Lease shall mean and include each of them jointly and severally. The act of or notice from, or notice or refund to, or the signature of, any one or more of them, with respect to the tenancy of this Lease, including, but not limited to, any renewal, extension, expiration, termination or modification of this Lease, shall be binding upon each and all of the persons executing this Lease as Lessee with the same force and effect as if each and all of them had so acted or so given or received such notice or refund or so signed.
11. TERMS AND HEADINGS: The words "Lessor" and "Lessee", and "Landlord" and "Tenant" as used herein shall include the plural as well as the singular. Words used in any gender include other genders. The Paragraph headings of this lease are not a part of this Lease and shall have no effect upon the construction or interpretation of any part hereof.
12. ACCORD AND SATISFACTION: No payment by Lessee or receipt by Lessor of a lesser amount than the rent payment herein stipulated shall be deemed to be other than on account of the rent, nor shall nay endorsement or statement on any check or any letter accompanying any check or payment as rent be deemed an accord and satisfaction, and Lessor may accept such check or payment without prejudice to Lessor's right to recover the balance of such rent or pursue any other remedy provided in this Lease.
13. RENEWAL REPRESENTATION: It shall be Lessee's sole obligation to pay any brokers commissions should Lessee retain a broker to represent Lessee in negotiating the renewal of this Lease.
14. EXCLUSIVE USE: During the term, Lessor shall not, without Lessee's written consent, rent any part of the building or office park in which premises are located, to another commercial bank.
LESSEE: AMERICAN RIVERBANK
By: /s/ DAVID TABER
-----------------------------
David Taber, Executive Vice President and
Chief Operation Officer
Date: 2-10-00
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LESSOR: BRADSHAW PLAZA GROUP
By: /s/ CHARLES D. FITE
------------------------------
Charles D. Fite, Agent
Date:
----------------------------
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RULES AND REGULATIONS FOR
STANDARD OFFICE LEASE
Dated:__________________________________
By and Between___________________________________________________
GENERAL RULES
1. Lessee shall not suffer or permit the obstruction of any Common Areas, Including DRIVEWAYS, WALKWAYS AND STAIRWAYS.
2. Lessor reserves the right to refuse access to any persons Lessor in good faith judges to be a threat to the safety, reputation, or property of the Office Building Project and Its occupants.
3. Lessee shall not make or permit any noise or odors that annoy or Interfere with other lessees or persons having business within the Office Building Project.
4. Lessee shall not keep animals or birds within the Office Building Project, and shall not bring bicycles, motorcycles or other vehicles into areas not designated as authorized for same.
5. Lessee shall not make, suffer or permit litter except In appropriate receptacles for that purpose.
6. Lessee shall not alter any lock or Install new or additional locks or bolts.
7. Lessee shall be responsible for the inappropriate use of any toilet rooms, plumbing or other utilities. No foreign substances of any kind are to be inserted therein.
8. Lessee shall not deface the walls, partitions or other surfaces of the premises or Office Building Project.
9. Lessee shall not puffer or permit any thing in or around the Premises or Building that causes excessive vibration or floor loading In any part of the Office Building Project.
10. Furniture, significant freight and equipment shall be moved into or out of the building only with the Lessor's knowledge and consent, and subject to such reasonable limitations, techniques and timing, as may be designated by Lessor. Lessee shall be responsible for any damage to the Office Building Project arising from any such activity.
11. Lessee shall not employ any service or contractor for services or work to be performed in the Building, except as approved by Lessor.
12. Lessor reserves the right to close and lock the Building on Saturdays, Sundays and legal holidays, and ON OTHER DAYS BETWEEN THE HOURS of ________P.M. and ________ A.M. of the following day. If Lessee uses the Premises during such periods, Lessee shall be responsible for securely locking any doors it may have opened for entry.
13. Lessee shall return all keys at the termination of its tenancy and shall be responsible for the cost of replacing any keys that are lost.
14. No window coverings, shades or awnings shall be installed or used by Lessee.
15. NO LESSEE, EMPLOYEE or invitee shall go upon the roof of the Building.
16. Lessee shall not suffer or permit smoking or carrying of lighted cigars or cigarettes In areas reasonably designated by Lessor or by applicable governmental agencies as non-smoking areas.
17. Lessee shall not use any method of heating or air conditioning other than as provided by Lessor.
18. Lessee shall not Install, maintain or operate any vending machines upon the Premises without Lessor's written consent.
19. The Premises shall not be used for lodging or manufacturing, cooking or food preparation.
20. Lessee shall comply with all safety, fire protection and evacuation regulations established by Lessor or any applicable governmental agency.
21. Lessor reserves the right to waive any one of these rules or regulations, and/or as to any particular Lessee, and any such waiver shall not constitute a waiver of any other rule or regulation or any subsequent application thereof to such Lessee.
22. Lessee assumes all risks from theft or vandalism and agrees to keep Its Premises locked as may be required.
23. Lessor reserves the right to make such other reasonable rules and regulations as it may from time to time deem necessary for the appropriate operation and safety of the Office Building Project and its occupants. Lessee agrees to abide by these and such rules and regulations.
PARKING RULES
1. Parking areas shall be used only for parking by vehicles no longer than full size, passenger automobiles herein called "Permitted Size Vehicles" Vehicles other than Permitted Size Vehicles are herein referred to as "Oversized Vehicles".
2. Lessee shall not permit or allow any vehicles that belong to or are controlled by Lessee or Lessee's employees, suppliers, shippers, customers, or invitees to be loaded, unloaded, or parked In areas other than those designated by Lessor for such activities.
3. Parking stickers or Identification devices shall be the property of Lessor and be returned to Lessor by the holder thereof upon termination of the holder's parking privileges. Lessee will pay such replacement charge as Is reasonably established by Lessor for the loss of such devices.
4. Lessor reserves the right to refuse the sale of monthly identification devices to any person or entity that willfully refuses to comply with the applicable rules, regulations, laws and/or agreements.
5. Lessor reserves the right to relocate all or a part of parking spaces from floor to floor, within one floor, and/or to reasonably adjacent offsite location(s), and to reasonably allocate them between compact and standard size spaces, as long as the same complies with applicable laws, ordinances and regulations.
6. Users of the parking area will obey all posted signs and park only in the areas designated for vehicle parking.
7. Unless otherwise instructed, every person using the parking area Is required to park and lock his own vehicle.Lessor will not be responsible for any damage to vehicles, injury to persons or loss of property, all of which risks are assumed by the party using the parking area.
8. Validation, if established, will be permissible only by such method or methods as Lessor and/or its licensee may establish at rates generally applicable to visitor parking.
9. The maintenance, washing, waxing or cleaning of vehicles In the parking structure or Common Areas Is prohibited.
10. Lessee shall be responsible for seeing that all of its employees, agents and invitees comply with the applicable parking rules, regulations, laws and agreements.
11. Lessor reserves the right to modify these rules and/or adopt such other reasonable and non-discriminatory rules and regulations as it may deem necessary for the proper operation of the parking area.
12. Such parking use as Is herein provided Is Intended merely as a license only and no bailment Is Intended or shall be created hereby
INITIALS________________
FULL SERVICE-GROSS
EXHIBIT B
PAGE 1 OF I PAGES
LEASE EXTENSION AGREEMENT
This document is intended to be an addendum to the lease agreement executed April 5, 1984 between Majorie G. Wood, a.k.a. Marjorie G. Taylor, (lessor), and American River Bank, (lessee).
This document, entered into on July 16, 1997 outlines the terms of the lease extension. All other terms of the above-referenced lease agreement remain intact except for those outlined below.
TERM
Lessor and Lessee agree to extend the aforementioned lease to 12:01 a.m. on
March 1, 2009 unless sooner terminated as provided by existing lease or the
exercise of the early cancellation clause outlined below.
BASIC RENT
Lessee agrees to pay lessor a basic monthly rent to be set annually on March 1st
as follows: the rental rate will be increased by a fixed percentage of 2.5%
above the rate in effect in February 1999. This increased rent will be effective
March 1, 1999 and thereafter on each March 1st through the year 2008, the rate
in effect in the month of February will be increased by 2.5% and be effective
from March 1st of that year through February of the following year.
EARLY CANCELLATION CLAUSE
Beginning March 1st, 2005 lessee has unilateral right to cancel the lease at any
time by providing lessor with a 90-day written notice. Within 15 days of lessee
vacating the premises, lessee is responsible for a cash payment equal to 6
months rent at the thencurrent rental rate. This early cancellation payment is
acknowledged by both parties as the entire amount due and, upon payment, lessee
is absolved from the obligations outlined in this document and by reference, in
the lease agreement dated April 5, 1984.
Agreed upon and executed this 16th day of July 1997 in Sacramento, California.
Lessor: Lessee:
/s/ MARJORIE G. TAYLOR /s/ WILLIAM L. YOUNG
---------------------------------- --------------------------------
Marjorie G. Taylor, William L.Young
a.k.a. Marjorie G. Wood President & CEO
American River Bank
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LEASE AGREEMENT
EXTINGUISHMENT OF THE OLD AGREEMENT
Marjorie G. Wood, and American River Bank, a California corporation, having entered into a certain Lease Agreement, on March 1, 1983, and on Addendum thereto on April 20, 1983, a copy of which is attached and incorporated by reference, do hereby extinguish this agreement and addendum and replace it with the following contract.
NEW CONTRACT AND CLARIFICATION OF AGREEMENT
PREAMBLE - PARTIES AND PREMISES
Marjorie G. Wood, herein called "Lessor," hereby leases to American River Bank, a California corporation, herein called "Lessee," those certain premises, herein called "said premises," specified in Description of Property attached hereto and made a part hereof as "Exhibit A" on the following terms and conditions:
TERM
1. The term of this lease shall be for the period of sixteen (16) years commencing at 12:01 a.m. on March 1, 1983, and ending at 12:01 a.m. on March 1, 1999, unless sooner terminated as herein provided.
BASIC RENT
2. Lessee agrees to pay to Lessor as the basic rent for the use and occupancy of said premises the sum of $.40 per square foot for 2380 square feet being $952.00 per month payable on the first day of each and every month commencing March 1, 1983. Commencing March 1, 1988, the rental payment provided by paragraph 2 of this Lease may be adjusted by the change in "Consumer Price Index, Urban Consumer Component, San Francisco/Oakland Bay Area" by cumulating changes occurring each year since the inception of this lease. A calculation shall be done for each of the first five (5) years and an adjustment may be made reflecting this calculation in the sixth (6th) year and every year thereafter, provided however, that the monthly rental payment for said premises shall not be less than $.40 per square foot or $952.00 per month. Said rent includes the right to additional parking space as set forth in Exhibit A.
TAXES AND ASSESSMENTS
3. This Lease shall be what is called a triple net lease. All taxes, assessments, fees, permits, licenses and costs associated with said premises shall be paid by Lessee.
USE OF PREMISES
4. Said premises shall be used for banking operations by Lessee and for such other and further uses permissible under state and local zoning laws.
PROHIBITED USES
5. Lessee shall not commit or permit the commission of any acts on said premises nor use or permit the use of said premises in any way that:
(a) Will increase the existing rates for or cause cancellation of any fire, casualty, liability, or other insurance policy insuring the premises or its contents;
(b) Violates or conflicts with any law, statute, ordinance, or governmental rule or regulation, whether now in force or hereinafter enacted, governing said premises;
(c) Constitutes the commission of waste on said premises or the commission or maintenance of a nuisance as defined by the laws of the State of California.
ALTERATIONS
6. Lessee shall make or cause to be made alterations to said premises sufficient to render the premises suitable for banking operations. The alterations shall be made at the sole cost and expense of Lessee by a contractor or other person selected by Lessee. Any and all alterations, additions, or improvements made to said premises shall on expiration or sooner termination of this lease become the property of Lessor and remain on said premises; provided, however, that on expiration or sooner termination of this lease and written demand being given him by Lessor, if commercially reasonable, Lessee shall at Lessee's sole cost and expense remove all alterations, additions, and improvements made to said premises by Lessee and pay all costs of repairing any damages to said premises caused by their removal.
ALTERATIONS BY SUBLESSEE
7. In the event the Lessee subleases said premises, all plans and specifications for any alterations by any sublessee must be approved in writing prior to commencement of any alterations by sublessee. The alterations shall be made at the sole cost and expense of sublessee by a contractor or other person selected by sublessee. Any and all alterations additions, or improvements made to said premises shall on the expiration or sooner termination of this lease become the property of Lessor and remain on said premises; provided, however, that an expiration or sooner termination of this lease and written demand being given him be Lessor, if commercially reasonable, sublessee shall at Sublessee's sole cost and expense remove all alterations, additions, and improvements made to said premises
by sublessee and pay all costs of repairing any damages to said premises caused by their removal.
MAINTENANCE AND REPAIRS
8. Lessee admits, by entering into possession under this lease, that said premises are suitable for rehabilitating into a bank. Lessee shall, at all times during the term of this lease and any renewal or extension thereof, maintain, at Lessee's sole cost and expense, said premises, and every part of said premises, in a good, clean and safe condition, and shall on expiration or sooner termination of this lease surrender said premises to lessor in good condition and repair, reasonable wear and tear and damage by the elements excepted. Lessee hereby waives any right to make repairs to said premises at the expense of Lessor as provided by any law or statute now or hereafter enacted.
IMPROVEMENTS
9. In the event the County of Sacramento requires additional improvements to Parcel 2, Lessee will be responsible for said improvements. Lessee agrees that they will accomplish said future requirements by the County of Sacramento only if the Lessee is in use of the parking area and in occupancy of the leased building. Any other development program that the owner contemplates that requires additional County Improvements shall be the responsibility of the owner/developer, that being the Lessor or her assignee.
INSPECTION BY LESSOR
10. Lessee shall permit Lessor or Lessor's agents, representatives or employees to enter said premises at all reasonable times for the purpose of inspecting said premises to determine whether Lessee is complying with the terms of this lease and for the purpose of doing other lawful acts that may be necessary to protect Lessor's interest in said premises under this lease.
SERVICES FURNISHED BY LESSEE
11. Lessee shall, at Lessee's own cost and expense, maintain the exterior walls, exterior windows, roof and structural supports of the building of which said premises are a part in good order and repair, excepting any repairs caused by the negligent or willful act of Lessor, or Lessor's agents or servants, and shall furnish to said premises during reasonable hours on regular business days, to be determined by Lessee, at Lessee's sole cost and expense:
(a) Water and electricity suitable for the intended use of said premises;
(b) Heating and air conditioning suitable, in Lessee's judgment, for the comfortable use and occupancy of said premises for the uses for which they are hereby leased;
DESTRUCTION OF PREMISES
12. Should said premises or the building of which they are a part be damaged or destroyed by any cause not the fault of Lessee, Lessee shall at Lessee's sole cost and expense promptly repair the same and the rent payable under this lease shall be abated for the time and to the extent Lessee is prevented from occupying said premises in their entirety; provided, however, that should the cost of repairing the damage or destruction exceed thirty (30) percent of the full replacement cost of said premises or the building of which said premises are a part, Lessee may, in lieu of making the repairs required by this paragraph, terminate this lease by giving Lessee thirty (30) days' written notice of such termination.
CONDEMNATION OF PREMISES
13. (a) If more than thirty percent (30%) of the area of said premises is taken for any public or quasi-public use under any governmental law, ordinance or regulation or by right of eminent domain or by private purchase in lieu thereof, or if any such action renders said premises unsuitable for the operation of Lessee's business thereon, this Lease shall terminate and the rent shall be abated during the unexpired portion of this Lease, effective on the date the Lessee ceases his operation of business.
(b) If less than thirty percent (30%) of the area of said premises should be taken as aforesaid, and if said premises are not rendered unsuitable for the continuation of Lessee's business operations, the Lease shall not terminate; however, the rent payable hereunder during the unexpired portion of this lease shall be reduced in proportion to the area taken, effective on the date the Lessee ceases to use that portion of the premises taken.
(c) Lessor and Lessee agree to request that any compensation award for any taking (or the proceeds of private sale in lieu thereof) of the said premises be made in separate awards to Lessor and Lessee.
ASSIGNMENT OR SUBLEASING
14. Lessee may encumber, assign or otherwise transfer this lease, any right or interest in this lease, or any right or interest in said premises without the express written consent of Lessor. In addition, Lessee may sublet said premises or any part thereof without the prior written consent of Lessor.
INDEMNITY
15. Lessee shall indemnify and hold Lessor and the property of Lessor, including said premises and the Building of which said premises are a part, free and harmless from any and all liability, claims, loss, damages or expenses, including counsel fees and costs, arising by reason of the death or injury of any person, including Lessee or any person who is an employee or agent of Lessee, or by reason of damage to or destruction or any property, including property
owned by Lessee or any person who is an employee or agent of Lessee, caused or allegedly caused by:
(a) Any cause whatsoever while such person or property is in or on said premises or in any way connected with said premises or with any personal property on said premises;
(b) Dangerous condition created on said premises by Lessee;
(c) Some act or omission on said premises of Lessee or any person in, on, or about said premises with the permission of Lessee; or
(d) Any matter connected with Lessee's occupation and use of said premises.
ACTS CONSTITUTING BREACHES BY LESSEE
16. Lessee shall be in material default and breach of this lease should:
(a) Any rent be unpaid when due and remain unpaid for thirty (30) days after written notice to pay such rent or surrender possession of said premises has been given to Lessee by Lessor;
(b) Lessee default in the performance or breach any provision, covenant, or condition of this lease other than one for the payment of rent and such default or breach is not cured within thirty (30) days after written notice thereof is given by Lessor to Lessee;
(c) Lessee breach this lease and abandon said premises before expiration of the term of this lease;
(d) A receiver be appointed to take possession of all or substantially all of Lessee's property and not be discharged within sixty (60) days after his appointment;
(e) Lessee make a general assignment for the benefit of creditors; or
(f) Execution or attachment be levied on all or substantially all of Lessee's property and assets and not be discharged with sixty (60) days.
LESSOR'S REMEDIES FOR LESSEE'S DEFAULT
17. Should Lessee be in material default and breach of this lease as defined in Paragraph 15 of this lease, Lessor, in addition to any other remedies given Lessor by law or equity; may:
(a) Continue this lease in effect by not terminating Lessee's right to possession of said premises and thereby be entitled to enforce all Lessor's rights and remedies under this lease including the right to recover the rent specified in this lease as it becomes due under this lease; or
(b) Terminate Lessee's right to possession of said premises, thereby terminating this lease, and recover from Lessee:
(1) The worth at the time of award of the unpaid rent which had been earned at the time of termination of the lease;
(2) The worth at the time of award of the amount by which the unpaid rent which would have been earned after termination of the lease until the time of award exceeds the amount of rental loss that Lessee proves could have been reasonably avoided;
(3) 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 rental loss that Lessee proves could be reasonably avoided; and
(4) Any other amount necessary to compensate Lessor for all detriment proximity caused by Lessee's failure to perform Lessee's obligations under this lease; or
(b) In lieu of, or in addition to, bringing an action for any or all of the remedies described in subparagraph (b) of this paragraph, bring an action to recover and regain possession of said premises in the manner provided by the laws of unlawful detainer of the State of California then in effect.
RIGHT OF FIRST REFUSAL TO PURCHASE LEASED PREMISES
18. Should Lessor, during the lease term elect to sell all or any portion of the leased premises, Lessee shall have the right of first refusal to meet any bona fide offer of sale on the same terms and conditions of such offer, and a failure to meet such bona fide offer within sixty (60) days after written notice thereof from Lessor, Lessor shall be free to sell the premises or portion thereof to such third person in accordance with the terms and conditions of his offer.
PARKING
19. For so long as Lessee occupies said premises, Lessor shall provide an additional seven parking spaces as indicated in Exhibit A. However, if Lessee sublets said premises and discontinues to occupy said premises, Lessee may substitute the existing parking spaces with others located on site and sufficient to meet state and local ordinances pertaining to the minimum number of parking spaces per square footage of said premises.
NOTICES
20. Except as otherwise expressly provided by law, any and all notices or other communications required or permitted by this lease or by law to be served on or given to either party hereto by the other party hereto shall be in writing and shall be deemed duly served and given when personally delivered to the party. Lessor or Lessee, to whom it is directed or any managing employee of such party, in lieu of such personal service, when deposited in the United States mail, first-class postage prepaid, addressed to Lessor at 2133 Danbury Way, Rancho Cordova, California 95670, or to Lessee at 10120 Fair Oaks Blvd., Fair Oaks, California 95628. Either party, Lessor or Lessee, may change his address for purposes of this paragraph by giving written notice of the change to the other party in the manner provided in this paragraph.
ATTORNEY'S FEES
21. Should any litigation be commenced between the parties to this lease concerning said premises, this lease, or the rights and duties of either in relation thereto, the party, Lessor or Lessee, prevailing in such litigation shall be entitled, in addition to such other relief as may be granted, to a reasonable sum as and for attorney's fees in the litigation which shall be determined by the court in such litigation or in a separate action brought for that purpose.
BINDING ON HEIRS AND SUCCESSORS
22. This lease shall be binding on and shall inure to the benefit of the heirs, executors, administrators, successors, and assigns of the parties, Lessor and Lessee, hereto, but nothing in this paragraph shall be construed as a consent by Lessor to any assignment of this lease or any interest therein by Lessee except as provided in Paragraph 12 of this lease.
TIME OF ESSENCE
23. Time is expressly declared to be the essence of this lease.
WAIVER
24. The waiver of any breach of any of the provisions of this lease by Lessor shall not constitute a continuing waiver or a waiver of any subsequent breach by Lessee either of the same or of another provision of this lease.
SOLE AND ONLY AGREEMENT
25. It is understood by both parties that the former contract is completely at an end, and that all contract rights will henceforth flow from the new agreement alone. The new agreement is not merely a supplement or alteration of the old, but is a complete replacement for it and constitutes the sole and only agreement between Lessor and Lessee respecting said premises or the leasing of said premises to Lessee and correctly sets forth the obligations of Lessor and Lessee to each other. Any agreements or representation respecting said premises or their leasing by Lessor to Lessee not expressly set forth in this instrument are null and void.
EXECUTED on April 5, 1984 at Rancho Cordova, California
LESSOR LESSEE
American River Bank
/s/ MARJORIE G. WOOD By: /s/ ROBERT H. DANEKE
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Marjorie G. Wood Robert H. Daneke, President
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EXHIBIT A
DESCRIPTION OF PROPERTY
Parcel 2 (two), of that certain parcel map entitled "Lots 6 and 7, Block 23 Fair Oaks City" filed in the office of the County Recorder of Sacramento County, on September 30, 1982, in Book 73 of Parcel Maps, at page 3.
Property address 10123 Fair Oaks Blvd.
Including seven parking spaces located on Parcel 1 (one) of that certain parcel map entitled "Lots 6 and 7, Block 23 Fair Oaks City" filed in the office of the County Recorder of Sacramento County, on September 30, 1982, in Book 73 of Parcel Maps, at page 3.
Property address 10119 Fair Oaks Blvd.
OFFICE LEASE
THIS LEASE is made as of the 28th day of August, 1996, by and between Landlord
and Tenant.
WITNESSETH:
1. TERMS AND DEFINITIONS. For the purposes of this Lease, the following terms shall have the following definitions and meanings:
Landlord: LUM KIP KEE, LIMITED, a Hawaii Corporation, and SAN TEI COMPANY,
a Hawaii limited partnership, doing business as Sandalwod Land
Company
Landlord's Address: C/O KCS Properties, Inc.
7919 Folsom Boulevard, Suite 300
Sacramento, California 95826
Tenant: AMERICAN RIVER BANK, a California corporation
Building Address: 2240 Douglas Boulevard
Roseville, California
Suite Number: 100
Premises: Those certain premises defined in Subparagraph 2(a)
hereinbelow
Rentable Area of Premises: Agreed to be 3790 square feet
Floor upon which the
Premises are located: First
Term: Ten (10) years
Allowance Work: All the work to be done at Landlord's expense in the
Premises pursuant to the provisions of the Work
Letter Agreement described in Paragraph 2 below.
Above-Allowance Work: All the work to be done in the Premises by Landlord
pursuant to the provisions of the Work Letter
Agreement other than Allowance Work
Leasehold Improvements: The aggregate of Allowance Work and Above-Allowance
Work
Commencement Date: See Paragraph 3
Annual Basic Rent:
Months 1-30 $6253.50 (Annual = $75,042.00)
Months 31-60 6897.80 (Annual = 82,773.60)
Months 61-90 7428.40 (Annual = 89,140.80)
Months 91-120 8034.80 (Annual = 96,417.60)
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Direct Expenses Base: Actual expenses for 1997 (subject to the provisions
of Paragraph 6)
Tenant's Percentage: 8.89% (subject to provisions of Paragraph 6)
Security Deposit: No security deposit has been paid.
Landlord's Broker. Aguer Pipgras Associates
Tenant's Broker: Colliers Iliff Thorn
Applicable Transportation Placer County and City of Roseville
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Management Agreement(s) Ordinance(s):
2. PREMISES AND COMMON AREAS LEASED.
(a) Landlord hereby leases to Tenant and Tenant hereby leases from Landlord, the Premises contained within the suite designated in Paragraph 1, outlined on the Floor Plan attached hereto and marked EXHIBITS "A" and "A-1" and incorporated herein by this reference, and improved by Landlord with the Leasehold Improvements described in the Work Letter Agreement, a copy of which is attached hereto and marked EXHIBIT "B" and incorporated herein by this reference, said Premises being agreed, for the purposes of this Lease, to have an area approximately the number of square feet designated in Paragraph 1 and being situated on the Floor(s) designated in Paragraph 1, of that certain office building located at the address designated in Paragraph 1 (hereinafter called "Building"). The definition of the Premises specifically includes the automatic teller machine and night depository (collectively, "ATM") to be installed by Tenant outside the Suite designated on page 1 of this Lease in the location shown on EXHIBIT "A". The Premises exclude the common stairways, stairwells, hallways, accessways, elevator shafts, flues, pipe shafts, vertical ducts, conduits, wires and appurtenant fixtures serving exclusively for or in common with other parts of the Building. By taking possession of the Premises, Tenant accepts the Leasehold Improvements as completed or as substantially completed, and in the latter case, any incomplete or corrective items will be completed by Landlord in accordance with the procedure for "punchlist" items set forth in the Work Letter Agreement.
The parties hereto agree that said letting and hiring is upon and subject to the terms, covenants and conditions herein set forth and Tenant covenants as a material part of the consideration for this Lease to keep and perform each and all of said terms, covenants and conditions by it to be kept and performed and that this Lease is made upon on the condition of such performance.
Tenant acknowledges and agrees that this Lease shall be subject and subordinate to the terms and conditions of any and all covenants, conditions or restrictions now or hereafter affecting the Building (the "COVENANTS, CONDITIONS & RESTRICTIONS").
(b) Tenant shall have the nonexclusive right to use in common with other tenants in the Building and subject to the Rules and Regulations referred to in Paragraph 30 below, the following areas appurtenant to the Premises:
(1) The common entrances, lobbies, restrooms, elevators, stairways, and accessways, loading docks, ramps, drives and platforms and any passageways and serviceways thereto, and the common pipes, conduits, wires and appurtenant equipment serving the Premises (except to the extent exclusively leased by Landlord to other tenants);
(2) Common walkways and sidewalks Pals necessary for access to the Building maintained by Landlord.
(c) Landlord reserves the right from time to time without unreasonable interference with Tenant's use:
(1) To install, use, maintain, repair and replace pipes, ducts, conduits, wires and appurtenant meters and equipment for service to other parts of the Building above the ceiling surfaces, below the floor surfaces, within the walls and in the central core areas, and to relocate any pipes, ducts, conduits, wires and appurtenant meters and equipment included in the Premises which are located in the Premises or located elsewhere outside the Premises, and to expand the Building;
(2) To alter or relocate any other common facility.
(d) The "USABLE AREA" of the Premises, measured in accordance with the American National Standard Method of Measuring Floor Area in Office Buildings, ANSI Z65.1-1980, published by the Building Owners and Managers Association International, is agreed to be 3,445 square feet. The term "RENTABLE AREA" as used in this Lease is agreed to be as provided in Section 1, above, determined by multiplying the Usable Area by 10%.
(e) Tenant agrees to cooperate with any private or governmental efforts to reduce the traffic generated by the Building as required by any applicable Ridesharing Ordinance, Transportation Management Agreement, or Building Transportation Management Plan (collectively the "TRANSPORTATION PLAN") and any similar or successor ordinances, laws or agreements. Before signing this Lease, Tenant shall have reviewed the applicable Transportation Plan documents referenced in Paragraph 1 above and agrees to comply with the provisions thereof which are relevant to Tenant and its employees. Tenant further agrees that upon Landlord's request it will designate one of its employees to act as a liaison with Landlord to facilitate and coordinate the administration of the aforementioned traffic reduction efforts.
3. TERM. The term of this Lease shall commence (the "Commencement Date") on the earlier of (a) the date possession of the Premises is delivered to Tenant with the Leasehold Improvements (but not including the ATM) substantially completed; or (b) the date Tenant commences business operations from the Premises. For purposes of this Lease, substantial completion of the Leasehold Improvements is deemed to occur on the issuance of a temporary certificate of occupancy by the City of Roseville permitting Tenant to occupy the Premises. Landlord agrees to deliver possession of the Premises to Tenant on a Thursday. The Lease shall terminate on the tenth anniversary of the Commencement Date of the Lease, unless the term hereby demised shall be sooner terminated as hereinafter provided.
4. POSSESSION. Landlord agrees that in the event of the inability of Landlord to deliver possession of the Premises to Tenant on or before December 19, 1996, Tenant shall have the right to terminate the Lease by sending written notice to Landlord, which notice shall be effective ten (10) days from receipt by Landlord unless Landlord delivers possession of the Premises to Tenant with the Leasehold Improvements substantially competed during the ten (10)-day period. The December 19, 1996 date shall be extended for each day of Tenant delay as described in paragraph 12 of the Work Letter Agreement attached hereto as Exhibit B. Landlord shall not be liable to Tenant for any loss or damage resulting from failure to deliver the Premises to Tenant.
5. ANNUAL BASIC RENT. (As used in Paragraph 5, "Annual" and "YEAR" refer to twelve (12)-month periods based on the lease term commencement date and each anniversary thereof, and not to calendar year.)
Tenant agrees to pay Landlord as Annual Basic Rent for the Premises the
Annual Basic Rent designated in Paragraph 1 (subject to adjustment as
hereinafter provided) in twelve (12) equal monthly INSTALLMENTS, each in advance
on the first (1st) day of each and every calendar month during said term, except
that the first month's rent shall be paid upon the execution hereof. In the
event the term of this Lease commences or ends on a day other than the first
(1st) day of a calendar month, then the rental for such periods shall be
prorated in the proportion that the number of days this Lease is in effect
during such periods bears to thirty (30), and such rental shall be paid at the
commencement of such periods. Tenant hereby acknowledges that Landlord shall not
send monthly statements and invoices as a condition to Tenant paying any rent
due under this lease. All amounts payable by Tenant to or on behalf of Landlord
under this Lease, whether or not expressly denominated as "rent" shall be
considered rent for purposes of this Lease and for purposes of Section 502(b)(6)
of the Bankruptcy Code (Title II U.S.C.). In addition to said Annual Basic Rent,
Tenant agrees to pay the amount of the rental adjustments as and when
hereinafter provided in this lease. Said rental shall be paid to Landlord,
without any prior demand therefor and without any deduction or offset whatsoever
in lawful money of the United States of America, which shall be legal tender at
the time of payment, at the address of Landlord designated in Paragraph 1 or to
such other person or at such other place as Landlord may from time to time
designate in writing. Tenant agrees to pay as additional rent to Landlord, upon
demand, Tenant's Percentage of any parking charges, utilities, surcharges, or
any other costs levied, assessed or imposed by, or at the direction of or
resulting from statutes or regulations, or interpretations thereof, promulgated
by any federal, state, regional, municipal or local government authority in
connection with the use or occupancy of the Building or the Premises or the
parking facilities serving the Building or the Premises. Rent for the purposes
of Section 365(d)(3) of the Bankruptcy Code (Title 11 U.S.C.) shall be prorated
for any partial month in which the Tenant is a debtor in a case under the
Bankruptcy Code and such prorated rent shall be deemed arising from and after
the order for relief and shall be due in advance on the day after the day of
filing the bankruptcy petition.
6. RENTAL ADJUSTMENT.
(a) CALCULATION OF DIRECT EXPENSES. For the purpose of this Subparagraph 6(a), the following terms are defined as follows:
LEASE YEAR: The calendar year 1996, and each calendar year thereafter.
TENANT'S PERCENTAGE: Tenant's portion of the total rentable area of the Building as set forth as a percentage in Paragraph 1 above subject to proportionate increase or decrease if the rentable area of the Building is increased or decreased, but without regard to minor deviations between the actual footage and those used to compute Tenant's Percentage. If such increase or decrease occurs during any Lease Year of the term of this Lease, then the Tenant's Percentage shall be determined on the basis of the number of days during such Lease Year at each such percentage.
DIRECT EXPENSES BASE: The amount of the annual Direct Expenses for the Building which Landlord has utilized in establishing the Tenant's Annual Basic Rent and which amount is set forth in Paragraph 1 above as the "DIRECT EXPENSES BASE."
DIRECT EXPENSES: All direct costs of operation and maintenance of the Building ("DIRECT EXPENSES"), including the following costs by way of illustration, but not limitation: Real property taxes and assessments (as hereinafter defined) and any taxes or assessments hereafter imposed in lieu thereof; the net cost and expense of insurance for which Landlord is responsible hereunder or which Landlord or any first mortgagee with a lien affecting the Premises reasonably deems necessary in connection with the operation of the Building, including rent interruption insurance; utilities; janitorial services; security; labor; costs incurred in the management of the Building, if any, including wages and salaries of employees used in the management, operation, repair and maintenance of the Building, and payroll taxes and similar governmental charges with respect thereto; air-conditioning; waste disposal; heating; ventilating; elevator maintenance; supplies; materials; equipment; tools; maintenance, costs, and upkeep of all parking and common areas; and costs of Landlord's compliance with Laws referred to in Subparagraph 8(d), below. Tenant acknowledges and agrees that Landlord pays an allocated portion of the maintenance and landscaping expenses pursuant to the Covenants, Conditions and Restrictions and that such expenses are included in the Direct Expenses.
Direct Expenses shall not include the following:
(1) Depreciation, amortization and interest payments, except with respect to items considered capital repairs, improvements and equipment ("CAPITAL ITEMS") acquired to reduce Direct Expenses, amortized over the useful life of such items; and except on materials, tools, supplies and vendor-type equipment purchased by Landlord to enable Landlord to supply services Landlord might otherwise contract for with a third party where such depreciation, amortization and interest payments would otherwise have been included in the charge for such third party's services; and except as provided below in paragraph 6(b)(5);
(2) Marketing costs including, without limitation, leasing commissions, attorneys' fees in connection with the negotiation and preparation of letters, deal memos, letters of intent, leases, subleases and/or assignments, space planning costs, and other costs and expenses incurred in connection with lease, sublease and/or assignment negotiations and transactions with present or prospective tenants or other occupants of the Building;
(3) Costs incurred by Landlord due to the violation by Landlord or any tenant of the terms and conditions of any lease of space in the Building;
(4) Interest, principal, points and' fees on debts or amortization on any mortgage or mortgages or any other debt instrument encumbering the Building (except as permitted in paragraph 6(a)(1) above).
As used herein, the "BUILDING" means the building in which Tenant's premises are located. If any item of the Building's costs is not assessed, billed or charged separately from other leasable buildings owned or controlled by Landlord, then any such "common cost" shall be reasonably apportioned by Landlord between the Building and the other buildings subject to the "common cost." The Direct Expenses that vary with occupancy and that are attributable to any Lease Year in which less than ninety-five percent (95%) of the rentable area of the Building is occupied by tenants will be adjusted by Landlord to the amount that Landlord reasonably believes they would have been
if ninety-five percent (95%) of the rentable area of the Building had been occupied. Direct Expenses shall also include: (i) administrative fees not to exceed ten percent (10%) of the annual Direct Expenses excluding therefrom such administrative fees; or (ii) actual management fees paid to a property manager unrelated to Landlord.
Provided that a given cost of operating or maintaining the Building was not actually incurred in the Lease Year used to calculate the Direct Expenses Base, the fact that such cost was not included in the Direct Expenses Base shall not preclude Landlord from including such cost in Direct Expenses for subsequent Lease Years.
For purposes of the above paragraph, real property taxes and assessments shall include, but not be limited to, any and all taxes, assessments, water and sewer charges and other similar governmental charges levied on or attributable to the Building or the land on which the Building is located (including appurtenant property) or their operation, ordinary and extraordinary, substitute and additional, unforeseen as well as foreseen, present and future, of any kind and nature whatsoever, including without limitation, (i) real property taxes or assessments levied or assessed against the Building or the land on which the Building is located (including any appurtenant property interest subject to real property tax which, for purposes of this paragraph is deemed part of "the land"), (ii) assessments or charges levied or assessed against the Building or the land on which the Building is located by any redevelopment agency, (iii) any tax measured by gross rentals received from the leasing of the Premises, Building or the land on which the Building is located, excluding any net income, franchise, capital stock, estate or inheritance taxes imposed by the state or federal government or their agencies, branches or departments; provided that if at any time during the Term any governmental entity levies, assesses or imposes on Landlord any (1) general or special, ad valorem or specific, excise, capital levy or other tax, assessment, levy or charge directly on the Rent received under this Lease or on the rent received under any other leases of space in the Building or any project wherein the Building is located, or (2) any license fee, excise or franchise tax, assessment, levy or charge measured by or based, in whole or in part upon such rent, or (3) any transfer, transaction, or similar tax, assessment, levy or charge based directly or indirectly upon the transaction represented by this Lease or such other leases, or (4) any occupancy, use, per capita or other tax, assessment, levy or charge based directly or indirectly upon the use or occupancy of the Premises or other premises within the Building or any project wherein the Building is located, then any such taxes, assessments, levies and charges shall be deemed to be included in real property taxes and assessments.
EXCESS EXPENSES. Tenant's Percentage of any increases in Direct Expenses over the Direct Expenses Base paid or incurred by Landlord during the current Lease Year in excess of the Direct Expenses Base. Tenant's Percentage of such increases is hereinafter referred to as the "EXCESS EXPENSES."
(b) Payment of Excess Expenses. Tenant's Percentage of any increases in Direct Expenses over the Direct Expenses Base shall be payable by Tenant to Landlord as follows:
(1) Beginning January 1, 1998, Tenant shall pay Landlord an
amount equal to the Excess Expenses.
(2) To provide for current payments of Excess Expenses, Tenant
shall, at Landlord's request, pay as additional rent
commencing with the first anniversary of the Commencement Date and every Lease Year thereafter an amount equal to the Excess Expenses payable during such Lease Year, as estimated by Landlord from time to time. Such payment shall be made in monthly installments, commencing on the first (1st) day of the month following the month in which Landlord notifies Tenant of the amount it is to pay hereunder and continuing until the first (1st) day of the month following the month in which Landlord gives Tenant a new notice of estimated Excess Expenses. It is the intention hereunder to estimate from time to time the amount of the Excess Expenses for each Lease Year, and then to make an adjustment in the following Lease Year based on the actual Excess Expenses paid or incurred for the prior Lease Year.
(3) On or before April 1 of each Lease Year, Landlord shall deliver to Tenant a statement setting forth the actual Excess Expenses for the preceding Lease Year; provided, however, that the failure of Landlord to supply such statement shall not constitute a waiver of Landlord's right to collect for such Excess Expenses. If the actual Excess Expenses for the previous Lease Year exceed the total of the estimated monthly payments made by Tenant for such Lease Year, Tenant shall pay Landlord the amount of the deficiency within thirty (30) days after the receipt of the statement. If such total of the estimated monthly payments made by Tenant exceeds the actual Excess Expenses for such Lease Year, then Landlord shall credit against Tenant's next ensuing monthly installment(s) of such estimated Excess Expenses for the then current Lease Year an amount equal to the difference until the credit is exhausted. If a credit is due from Landlord at the expiration or earlier termination of this Lease, Landlord shall promptly pay Tenant the amount of such credit. With respect to the Lease Year in which the Lease expires or is terminated, Tenant shall, within thirty (30) days of Landlord's demand therefor, pay to LANDLORD a reasonable estimate, as determined by Landlord of the actual Excess Expenses for any partial Lease Year in excess of Tenant's payment for such Lease Year to date. Even though the term of this Lease has expired or the Lease is sooner terminated and Tenant has vacated the Premises when the actual Excess Expenses are determined for the final Lease Year or partial Lease Year, Tenant shall immediately pay any deficiency in excess of the total estimated monthly payments and Landlord shall immediately refund to Tenant any overpayment in excess of the actual Excess Expenses. Landlord and Tenant intend that the obligations of the preceding sentence shall survive the expiration or earlier termination of this Lease. The Excess Expenses in any partial Lease Year shall be prorated on a daily basis utilizing a three hundred sixty-five (365)-day year.
(4) Notwithstanding anything to the contrary in this Paragraph 6, the rental payable by Tenant shall in no event be less than the rental specified in Paragraph 5 hereof.
(5) Notwithstanding anything to the contrary in this Paragraph 6, Landlord has agreed with Tenant that annual expenditures for capital improvements (including without limitation, capital improvements for compliance with governmental laws including Americans with Disabilities Act) shall be amortized over the life of the improvement with the amortized portion included as a Direct Expense, provided, however, the annual amortized portion shall not exceed $10,000. The $10,000 figure shall be increased annually commencing January 1, 1999 by the increase in the Consumer Price Index for All Urban Consumers, All Items (San Francisco-Oakland-San Jose Metropolitan Area, 1982-84=100) ("INDEX"), as published by the United States Department of Labor, Bureau of Labor Statistics, using September 1996 as the base month and September of the year preceding
the change as the comparison month. Should said bureau discontinue the publication of the above Index, or publish the same less frequently, or alter the same in some other manner, then Landlord shall adopt a substitute index or substitute procedure which reasonably reflects and monitors consumer prices.
(6) In the event of any dispute regarding the amount due as Tenant's Percentage of Direct Expenses, for a period of one hundred eighty (180) days following Landlord's delivery of the statement setting forth Tenant's Percentage of Direct Expenses, Tenant may, at its sole cost and expense, after reasonable notice and at reasonable times, inspect and photocopy Landlord's accounting records at Landlord's Manager's office. The results of Tenant's audit shall be delivered to Landlord. Tenant's election to conduct an audit shall not excuse or delay Tenant's obligation to timely pay the Excess Expenses. If Tenant's audit reveals a discrepancy, Landlord shall refund any overpayment to Tenant or Tenant shall pay any underpayment to Landlord, each within thirty (30) days of receipt of notice of the completion of Tenant's audit. If Tenant's audit discloses Landlord has overcharged Tenant by more than 15% for the audited period, Landlord shall reimburse Tenant for the reasonable cost of the audit. Tenant shall keep the results of the audit confidential and shall not disclose the results to any person or entity not employed by Tenant.
7. SECURITY DEPOSIT. Intentionally deleted.
8. USE OF PREMISES; COMPLIANCE WITH LAWS AND REGULATIONS.
(a) Tenant shall use the Premises for retail banking and related financial services, including retail and commercial lending, investments and securities, and shall not use or permit the Premises to be used for any other purpose. Medical or dental offices, retail facilities or sales offices (other than retail banking), and similar customer/patient related offices are specifically excluded. As long as Tenant is using the Premises for a retail banking operation, Landlord agrees not to enter into any new lease for any portion of the Building with any tenant whose primary business is retail banking. Tenant's exclusive use shall be limited to retail banking and shall not include an exclusive use for the related financial services conducted on the Premises. In addition, nothing in this Paragraph 8(a) shall limit the ability of Landlord to consent to a proposed assignment, sublease or other transfer of space under any lease, sublease or other occupancy agreement that was in effect before the date this Lease is effective, regardless of the business of the proposed transferee or its contemplated use of the space in question. This exclusive right is personal to American River Bank, a California corporation, and cannot be assigned or transferred. This exclusive right shall automatically terminate upon Tenant's default with any applicable cure period having expired or if Tenant's use of the Premises for retail banking is discontinued or if all or any portion of this Lease is assigned or sublet. As an exception to the foregoing, Landlord hereby agrees to a transfer of Tenant's exclusive right for the first two transfers of the Lease to assignees engaged in retail banking operations following a merger, consolidation, sale or other transfer of assets by Tenant provided as follows: (1) On the first assignment, the assignee has total assets equal to a minimum of $135,343,000 adjusted for inflation and total equity capital equal to 125% of Tenant's total equity capital at the time of execution of the Lease adjusted for inflation, and (2) On the second assignment, the assignee has total assets equal to a minimum of $135,343,000 adjusted for inflation and total equity capital equal to 200% of Tenant's total equity capital at the time of execution of the Lease adjusted for inflation. For purposes of the foregoing, Tenant's current total equity capital is $11,991,000. Adjustments for inflation will be based on an increase in the
Index using September 1996 as the base month and the Index last published prior to the assignment as the. comparison month.
(b) Tenant shall comply with all laws, ordinances, orders, regulations, rules, resolutions and other governmental requirements relating to the use, condition or occupancy of the Premises which may now or hereafter be in force, including, without limitation, the Americans with Disabilities Act of 1990 (collectively, the "LAWS"). The cost of compliance with any of the Laws (including, without limitation, capital expenditures) shall be borne by Tenant. Tenant shall not use or occupy the Premises in violation of any Law or of the certificate of occupancy issued for the Building of which the Premises are a part, and shall, upon five (5) days' written notice from Landlord, discontinue any use of the Premises which is declared by any governmental authority having jurisdiction to be a violation of Law or of the certificate of occupancy. Tenant shall not use or occupy the Premises in any manner which is: (i) potentially injurious to the public health, safety or welfare, the environment or the Premises; or (ii) in a manner which creates a basis for liability of Landlord to any governmental agency or third party under any applicable statute or common law theory. Tenant shall comply with any direction of any governmental authority having jurisdiction which shall, by reason of the nature of Tenant's use or occupancy of the Premises, impose any duty upon Tenant or Landlord with respect to the Premises or with respect to the use or occupation thereof. Tenant shall not do or permit to be done anything which will invalidate or increase the cost of any fire, extended coverage or any other insurance policy covering the Building and/or property located therein and shall comply with all rules, orders, regulations and requirements of the Pacific Fire Rating Bureau or any other organization performing a similar function. Tenant shall promptly upon demand reimburse Landlord as additional rent for any additional premium charged for such policy by reason of Tenant's failure to comply with the provisions of this Paragraph 8. Tenant 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 improper, immoral, unlawful or objectionable purpose, nor shall Tenant cause, maintain or permit any nuisance in, on or about the Premises. Tenant shall not commit or suffer to be committed any waste in or upon the Premises and shall keep the Premises in first class repair and appearance.
(c) Tenant shall comply with all federal, state and local laws, ordinances, rules and regulations relating to environmental protection or the use, analysis, generation, storage, disposal, release, threatened release or transportation of any Hazardous Materials (as hereinafter defined). Tenant shall not cause or permit any Hazardous Materials to be brought upon, kept, used, generated, released, stored or disposed in, on, under or about the Building or Premises by Tenant, its agents, employees, contractors or invitees, without the prior written consent of Landlord. The term "HAZARDOUS MATERIALS" as used in this Lease includes any hazardous, toxic, contaminated the United States Government, including any material or substance which is: (i) designated as a "hazardous waste," "hazardous material," "hazardous substance," "extremely hazardous waste" or "restricted hazardous waste"; (ii or polluting substance, material or waste which is regulated by any local governmental authority or special district, the State of California or) flammables or explosives; (iii) petroleum; (iv) asbestos; (v) polychlorinated biphenyls; (vi) radioactive materials; or (vii) stated to be known to cause cancer or reproductive toxicity. In addition, the term "HAZARDOUS WASTE OR SUBSTANCES" shall also include those materials and substances which are deemed to be hazardous under applicable case law and/or common law theories including, without limitation, theories of nuisance and tort liability. Notwithstanding the foregoing, Tenant may, without Landlord's prior consent, use any ordinary and customary materials
reasonably required to be used by Tenant in the normal course of Tenant's office operation on the Premises, so long as such use is in compliance with all applicable law and does not expose the Premises or any neighboring properties to any material risk of contamination or damage or expose Landlord to any liability therefor.
(d) Landlord shall be responsible for any structural alterations, nonstructural alterations in portions of the Building or the parcel on which the Building is situated which are not reserved for the exclusive use of any tenant, and any equipment changes required by any Laws. The expense of Landlord's compliance with Laws shall be a Direct Expense, all of which shall be an expense in the year when Landlord makes the alteration or equipment change; provided, however, that in the case of capital improvements, the currently amortized portion shall be a Direct Expense during the year when Landlord makes the alteration or equipment change and the balance of the amortization shall be a Direct Expense in subsequent years subject to the limitation set forth in subparagraph 6(b)(5). As an exception to the foregoing, if any alterations are required to the Building or the parcel on which the Building is located as a result of any alterations or equipment changes made to the Premises by or on behalf of Tenant, then Tenant shall be responsible for the cost of the alterations to the Building or the parcel or the equipment changes.
9. PAYMENTS AND NOTICES. All rents and other sums payable by Tenant to Landlord hereunder shall be paid to Landlord at the address designated by Landlord in Paragraph 1 above or at such other places as Landlord may hereafter designate in writing. Any notice required or permitted to be given hereunder must be in writing and may be given by personal delivery or by mail, and if given by mail shall be deemed sufficiently given if sent by registered or certified mail addressed to Tenant at the Building of which the Premises are a part, or to Landlord at its address designated in Paragraph 1. Either party may by written notice to the other specify a different address for notice purposes except that Landlord may in any event use the Premises as Tenant's address for notice purposes. If more than one tenant is named under this Lease, service of any notice upon any one of said Tenants shall be deemed as service upon all of said tenants. Notwithstanding any provisions hereof to the contrary, notices required by law regarding unlawful detainer and other legal proceedings need be given only in the manner required by law. Notices personally delivered hereunder shall be deemed given when delivered and notices mailed hereunder shall be deemed given on the third (3rd) calendar day after deposit in the United States Mail.
10. BROKERS. The parties recognize that the brokers who negotiated this Lease are the brokers whose names are stated in Paragraph 1. Landlord shall pay Landlord's broker and Tenant's broker a commission pursuant to a separate agreement between Landlord and Landlord's broker. Tenant shall indemnify, protect, defend and hold Landlord harmless from and against any claims for commissions or finder's fees from any broker or commission arising out of any agreement, act or conduct of Tenant, except any claims from the brokers whose names are stated in paragraph 1.
11. HOLDING OVER. If Tenant holds over after the expiration or earlier termination of the term hereof without the express written consent of Landlord, Tenant shall become a tenant at sufferance only at a rental rate equal to one hundred twenty-five percent (125%) of the rent in effect upon the date of such expiration (subject to adjustment as provided in Paragraph 6 hereof and prorated on a daily basis), and otherwise subject to the terms, covenants and conditions herein specified, so far as applicable. Acceptance by Landlord of rent after such expiration or earlier termination shall not constitute a holdover hereunder or result in a renewal. The foregoing provisions of this Paragraph 11 are in addition to and do not affect Landlord's
right of re-entry or any rights of Landlord hereunder or as otherwise provided by law. If Tenant fails to surrender the Premises upon the expiration of this Lease despite written demand to do so by Landlord, Tenant shall indemnify, PROTECT, defend and hold Landlord harmless from all loss or liability, including without limitation, any claim made by any succeeding tenant founded on or resulting from such failure to surrender.
12. TAXES ON TENANT'S PROPERTY. Tenant shall be liable for and shall pay before delinquency, taxes levied against any personal property or trade fixtures placed by Tenant in or about the Premises. If any such taxes on Tenant's personal property or trade fixtures are levied against Landlord or Landlord's property or if the assessed value of the Premises is increased by the inclusion therein of a value placed upon such personal property or trade fixtures of Tenant and if Landlord, after written notice to Tenant, pays the taxes based upon such increased assessments, which Landlord shall have the right to do regardless of the validity thereof, but only under proper protest if requested by Tenant, Tenant shall upon demand repay to Landlord the taxes levied against Landlord, or the proportion of such taxes resulting from such increase in the assessment; provided that in any such event at Tenant's sole cost and expense, Tenant shall have the right, in the name of Landlord and with Landlord's full cooperation, to bring suit in any court of competent jurisdiction to recover the amount of any such taxes so paid under protest, any amount so recovered to belong to Tenant.
13. CONDITION OF PREMISES. Tenant acknowledges that neither Landlord nor any agent of Landlord has made any representation or warranty with respect to the condition of the Premises or the Building or with respect to the suitability of either for the conduct of Tenant's business. The taking of possession of the Premises by Tenant subsequent to substantial completion of the Leasehold Improvements shall establish that the Premises and the Building were at such time in satisfactory condition and that Tenant has accepted the condition of the Premises, except for those items of construction identified on the punchlist described in paragraph 13 of the Work Letter attached hereto as Exhibit B, and the Building.
14. ALTERATIONS.
(a) Tenant shall make no alterations, additions or improvements in or to the Premises (collectively, "ALTERATIONS") without Landlord's prior written consent, and then only by a contractor, engineer or mechanic designated by Landlord. Landlord may withhold its consent to such Alterations in its sole discretion if the proposed Alterations would adversely affect the structure or safety of the Building or its electrical, plumbing, HVAC, mechanical or safety systems; in all other circumstances, Landlord agrees not to unreasonably withhold its consent to proposed Alterations. Tenant agrees that there shall be no construction of partitions or other obstructions which might interfere with Landlord's free access to mechanical installations or service facilities serving the Building or the moving of Landlord's equipment to or from the enclosures containing said installations or facilities or proper sprinkler coverage in the Premises. All such work shall be done at such times and in such manner as Landlord may from time to time designate. Tenant covenants and agrees that all work done by Tenant or at Tenant's request shall be performed in full compliance with all Laws, and in full compliance with the rules, orders, directions, regulations and requirements of the Pacific Fire Rating Bureau, or of any similar body. All such Alterations must conform to the Building's then-existing standards for leasehold improvements (such standards are, as of the execution hereof, set forth in Exhibit "A-3" attached hereto, but are subject to modification from time to time). Tenant shall pay Landlord all reasonable costs incurred by Landlord in connection with the proposed Alterations (including, but not limited to, costs incurred in reviewing the plans and specifications therefor and in administering or managing the construction of the Alterations); at Landlord's
option and prior to the commencement of the Alterations, Tenant shall deposit with Landlord the estimated cost of the foregoing along with the cost of making any alterations to the Building or the parcel if such costs are Tenant's expense pursuant to Subparagraph 8(d) above, it being agreed that any surplus shall be returned to Tenant following the completion of the Alterations in compliance with this Subparagraph 14(a). Neither Landlord's approval or supervision of any Alterations, nor Landlord's designation or recommendation of any contract or supplier in connection therewith, shall be deemed a warranty as to the design, workmanship, or quality of materials or the compliance of the Alterations with any governmental requirements. Before commencing any work, Tenant shall give Landlord at least five (5) days' written notice of the proposed commencement of such work and shall, if required by Landlord, secure at Tenant's own cost and expense, a completion and lien indemnity bond, satisfactory to Landlord, for said work. Tenant further covenants and agrees that any mechanic's lien filed against the Premises or against the Building for work claimed to have been done for, or materials claimed to have been furnished to Tenant, will be discharged by Tenant, by bond or otherwise, within ten (10) days after the filing thereof, at the cost and expense of Tenant. All alterations, decorations, additions or improvements upon the Premises, made by either party including (without limiting the generality of the foregoing) all wall covering, built-in cabinet work, paneling and the like, shall, unless Landlord elects otherwise (which election shall be made, if at all, at the time Landlord gives its prior written consent as required by the first sentence of this paragraph 14(a)), become the property of Landlord, and shall remain upon, and be surrendered with the Premises, as a part thereof, at the end of the term hereof. If Landlord elects to have Tenant remove all partitions, counters, railings and the like installed by Tenant, Tenant shall repair any damage to the Premises arising from such removal or, at Landlord's option, shall pay to the Landlord the reasonable costs of such removal and repair. The provisions of this paragraph 14(a) do not apply to the Leasehold Improvements to be constructed by Landlord as described in the Work Letter attached hereto as Exhibit B.
(b) All articles of personal property and all business and trade fixtures, machinery and equipment, furniture and movable partitions owned by Tenant or installed by Tenant at its expense in the Premises shall be and remain the property of Tenant and may be removed by Tenant at any time during the lease term provided Tenant is not in default hereunder, and provided further that Tenant shall repair any damage caused by such removal. If Tenant shall fail to remove all of its effects from said Premises upon termination of this Lease for any cause whatsoever, Landlord may, at its option, remove the same in a reasonable manner that Landlord shall choose, and store said effects without liability to Tenant for loss thereof, and Tenant agrees to pay Landlord upon demand any and all expenses incurred in such removal, including court costs and attorneys' fees and storage charges on such effects for any length of time that the same shall be in Landlord's possession, or Landlord may, at its option, without notice, sell said effects, or any of the same, at private sale and without legal process, for such reasonable price as Landlord may obtain and apply the proceeds of such sale upon any amounts due under this Lease from Tenant to Landlord and upon the expense incident to the removal, storage and sale of said effects. Landlord and Tenant agree that the obligations and rights set forth in this Subparagraph 14(b) shall survive the expiration or earlier termination of this Lease.
(c) Tenant shall be permitted to install the ATM in the location shown on Exhibit "A" pursuant to the terms and conditions described in the Work Letter Agreement attached hereto as Exhibit "B". Prior to expiration of the term, Tenant shall remove the ATM and shall restore, at Tenant's sole cost and expense, the exterior wall to the same condition as existed prior to such installation to Landlord's satisfaction. The removal and restoration work shall be performed by a contractor acceptable to Landlord
and is otherwise subject to the provisions of this Paragraph 14. Tenant shall be responsible for the operation, repair and maintenance of the ATM and acknowledges that Landlord shall have no liability or responsibility whatsoever with respect to the ATM,
(d) Landlord reserves the right at any time and from time to time, without the same constituting an actual or constructive eviction and without incurring any liability to Tenant therefor or otherwise affecting Tenant's obligations under this Lease, to make such changes, alterations, additions, improvements, repairs or replacements in or to the Building (including the Premises if required so to do by any Law) and the fixtures and equipment thereof, as well as in or to the street entrances, halls, passages and stairways thereof, to change the name by which the Building is commonly known, as Landlord may deem necessary or desirable. Nothing contained in this Subparagraph 14(d) shall be deemed to relieve Tenant of any duty, obligation or liability of Tenant with respect to making any repair, replacement or improvement or complying with any Law and nothing contained in this Subparagraph 14(d) shall be deemed or construed to impose upon Landlord any obligation, responsibility or liability whatsoever, for the care, supervision or repair of the Building or any part thereof other than as otherwise provided in this Lease.
15. REPAIRS.
(a) As of the Commencement Date, Tenant accepts the Premises as being in good and sanitary order, condition and repair, except for those items of construction identified on the punchlist described in paragraph 13 of the Work Letter attached hereto as Exhibit B. Tenant shall, when and if needed or whenever requested by Landlord to do so, at Tenant's sole cost and expense, make all repairs to the Premises and every part thereof, including all interior doors and the ATM, to keep, maintain and preserve the Premises in first class condition and repair. Tenant shall upon the expiration or sooner termination of the term hereof surrender the Premises to Landlord in the same condition as when received, reasonable and ordinary wear and tear thereof excepted. Except as provided in Subparagraph 15(b) hereof, Landlord shall have no obligation to alter, remodel, improve, repair, decorate or paint the Premises or any part thereof, the Building or the common areas, and the parties hereto affirm that Landlord has made no representations to Tenant respecting the condition of the Premises or the Building.
(b) Anything contained in Subparagraph 15(a) above to the contrary notwithstanding, Landlord shall repair and maintain the common areas described in Subparagraph 2(b) and the structural portions of the Building, including the windows, exterior doors of the Building, basic plumbing, heating, ventilating, air conditioning and electrical systems installed or furnished by Landlord. If the maintenance and repairs are caused in part or in whole by the act, neglect, fault of or omission of any duty by Tenant, its agents, servants, employees, customers or invitees (including, without limitation, any maintenance or repair as a result of the operation or use of the ATM by Tenant, its agents, servants, employees, customers or invitees), Tenant shall pay to Landlord, as additional rent, the reasonable cost of such maintenance and repairs. The janitorial services to be provided by Landlord shall be comparable to those provided in other first class office buildings in the Roseville area. Landlord shall not be liable for any failure to make any such repairs or to perform any maintenance unless such failure shall persist for an unreasonable time after written notice of the need of such repairs or maintenance is given to Landlord by Tenant. Except as provided in Paragraph 23 hereof there shall be no abatement of rent and no liability of Landlord by reason of any injury to or interference with Tenant's business arising from the making of any repairs, alterations or improvements in or to any portion of the Building or the Premises or in or to fixtures, appurtenances and equipment therein. Tenant hereby waives California Civil Code
Sections 1932(1), 1941 and 1942 and any other applicable existing or future law, ordinance or governmental regulation permitting Tenant to make repairs at Landlord's expense. Landlord shall have no responsibility for the repair or maintenance of the ATM even though it is located within the common area.
(c) Anything to the contrary in Subparagraphs 15(a) and (b) above notwithstanding, Tenant, at Tenant's sole cost and expense, shall make any and all improvements, changes, maintenance or repairs to the Premises, which are required for compliance with Laws.
(d) Tenant acknowledges that Landlord shall have no obligation to maintain, repair or replace any telecommunications or computer cabling or wiring which is located in the Premises or which exclusively serves the Premises (collectively, the "CABLING"). Tenant, at Tenant's expense, shall contract with Pacific Bell or another reputable contractor approved by Landlord to maintain the Cabling. Landlord shall provide Tenant access to the Building's main telephone room, and, to the extent needed, other premises in the Building in order to pull the telephone wires to the Premises.
16. LIENS. Tenant shall not permit any mechanic's, materialman's or other liens to be filed against the real property of which the Premises form a part nor against the Tenant's leasehold interest in the Premises. Landlord shall have the right at all reasonable times to post and keep posted on the Premises any notices which it deems necessary for protection from such liens. If any such liens are filed, Landlord may, without waiving its rights and remedies based on such breach of Tenant and without releasing Tenant from any of its obligations, send written notice to Tenant. Tenant shall have ten (10) days from receipt of the notice to post security for payment of the lien. If Tenant fails to timely take action, Landlord may cause such liens to be released by any means it shall deem proper, including without limitation payment in satisfaction of the claim giving rise to such lien. Tenant shall pay to Landlord, at once upon notice by Landlord, any sum paid by Landlord to remove such liens, together with interest at the maximum rate per annum permitted by law from the date of such payment by Landlord.
17. ENTRY BY LANDLORD. Landlord reserves and shall have the right to enter the Premises to inspect the same, to supply janitor service and any other service to be provided by Landlord to Tenant hereunder, to submit said Premises to prospective purchasers or tenants, to post notices of nonresponsibility, to alter, improve or repair the Premises or any other portion of the Building, and/or to perform any acts required of but not done by Tenant as provided in Paragraph 35 hereof, all without being deemed guilty of any eviction of Tenant and without abatement of rent, and may, in order to carry out such purposes, erect scaffolding and other necessary structures where reasonably required by the character of the work to be performed, provided that the business of Tenant shall be interfered with as little as is reasonably practicable. Tenant hereby waives any claim for damages for any injury or inconvenience to or interference with Tenant's business, any loss of occupancy or quiet enjoyment of the Premises, and any other loss occasioned thereby. For each of the aforesaid purposes, Landlord shall at all times have and retain a key with which to unlock all of the doors in, upon or about the Premises, excluding Tenant's vaults and safes, and Landlord shall have the right to use any and all means which Landlord 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 Landlord 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 Tenant from the Premises or any portion thereof, and any damages caused on account thereof shall be paid by Tenant. It is understood and agreed that no provision of this Lease shall be construed as obligating
Landlord to perform any repairs, alterations or decorations except as otherwise expressly agreed herein to be performed by Landlord.
18. UTILITIES AND SERVICES.
(a) Landlord agrees to furnish to the Premises during the
hours of 7:00 a.m. to 7:00 p.m., Monday through Friday and 8:00 a.m. to 1:00
p.m. on Saturdays subject to the conditions of and in accordance with the
standards set forth in writing by Landlord from time to time during the term of
this Lease and delivered to Tenant, reasonable quantities of electric current
for normal lighting and fractional horsepower office machines, water for
lavatory and drinking purposes, heat and air conditioning required to operate a
first class office building in the Douglas Boulevard corridor of Johnson Ranch,
janitorial service and elevator service by non-attended automatic elevators.
Tenant acknowledges and agrees that Landlord may impose a reasonable charge for
the use of any additional or unusual janitorial services required by Tenant's
carelessness or the nature of Tenant's business. Landlord's obligation regarding
any heating, ventilation and air conditioning ("HVAC") and electrical systems
shall be limited to the Building's standard central HVAC and electrical systems,
and Landlord shall have no obligation to maintain or repair any HVAC or
electrical system that has been installed to accommodate Tenant's specific use
of the Premises (provided, however, that any contractor retained by Tenant to
maintain or repair any such HVAC or electrical system shall be subject to
Landlord's reasonable approval). Landlord shall not be obligated to service,
maintain, repair or replace any system or improvement in the Premises that has
not been installed by Landlord at Landlord's expense, or which is a specialized
improvement requiring additional or extraordinary maintenance or repair (by way
of example only, if the standard premises in the Building contain fluorescent
light fixtures, Landlord's obligation shall be limited to the replacement of
fluorescent light tubes, irrespective of any incandescent fixtures that may have
been installed in the Premises at Tenant's expense). Landlord shall not be
liable for, and Tenant shall not be entitled to any abatement or reduction of
rent by reason of Landlord's failure to furnish any of the foregoing when such
failure is caused by accident, breakage, repairs, strikes, lockouts or other
labor disturbances or labor disputes of any character or for any other causes.
Tenant hereby waives the provisions of California Civil Code Section 1932(1) or
any other applicable existing or future law, ordinance or governmental
regulation permitting the termination of this Lease due to the interruption or
failure of any services to be provided under this Lease. If Tenant requires or
utilizes more water or electric power than is considered reasonable or normal by
Landlord, Landlord may at its option require Tenant to pay, as additional rent,
the cost, as fairly determined by Landlord, incurred by such extraordinary
usage. In addition, Landlord may install separate meter(s) for the Premises, at
Tenant's sole expense, and Tenant thereafter shall pay all charges of the
utility providing service.
(b) If the temperature otherwise maintained in any portion of the Premises by the HVAC systems of the Building is affected by reason of any lights, machines or equipment used by Tenant in the Premises, or by the occupancy of the Premises by more persons than are contemplated by the design criteria of the HVAC systems, then Landlord shall have the right to install machines or equipment that Landlord reasonably deems necessary to restore temperature balance, including modifications to the standard airconditioning equipment and electrical systems serving the Premises. The cost of any such equipment and modifications, including the cost of installation and any additional cost of operation and maintenance of the same, shall be paid by Tenant to Landlord upon demand.
(c) Tenant acknowledges and agrees that Tenant's use of the Premises outside the generally recognized business days and hours for the Building will impose an additiona burden on Building services such as
janitorial service, elevator service, fluorescent tube replacement and HVAC service, the cost of which services shall be paid to Landlord by Tenant as "after hours rent" upon demand.
19. BANKRUPTCY If Tenant shall file a petition in bankruptcy under any Chapter of the Bankruptcy Act as then in effect, or if Tenant be adjudicated a bankrupt in involuntary bankruptcy proceedings and such adjudication shall not have been vacated within sixty (60) days from the date thereof, or if a receiver or trustee be appointed of Tenant's property and the order appointing such receiver or trustee not be set aside or vacated within thirty (30) days after the entry thereof, or if the Tenant shall assign Tenant's estate or effects for the benefit of creditors, or if this Lease shall otherwise by operation of law devolve or pass to any person or persons other than Tenant, then and in any such event Landlord may, if Landlord so elects, with or without notice of such election and with or without entry or action by Landlord, forthwith terminate this Lease, and notwithstanding any other provisions of this Lease, Landlord, in addition to any and all rights and remedies allowed by law or equity, shall upon such termination be entitled to recover damages in the amount provided in Subparagraph 25(b) below and neither Tenant nor any person claiming through or under Tenant or by virtue of any statute or order of any court shall be entitled to possession of the Premises but shall forthwith quit and surrender the Premises to Landlord. Nothing herein contained shall limit or prejudice the right of Landlord to prove and obtain as damages by reason of any such termination an amount equal to the maximum allowed by any statute or rule of law in effect at the time when, and governing the proceedings in which, such damages are to be proved, whether or not such amount be greater, equal to, or less than the amount of damages recoverable under the provisions of this Paragraph 19.
20. INDEMNIFICATION. Tenant shall, during the entire term hereof and during any rent-free period of prior occupancy, indemnify, defend, protect and hold harmless Landlord against and from any and all claims arising from (i) Tenant's use of the Premises or the conduct of its business or from any activity, work, or thing done, permitted or suffered by Tenant in or about the Premises, (ii) any breach or default in the performance of any obligation on Tenant's part to be performed under the terms of this Lease, (iii) the presence of Hazardous Materials in the Premises or Building caused or permitted to be caused by Tenant, (iv) any act, neglect, fault or omission of Tenant, or of its agents or employees, and/or (v) the operation of the ATM, whether such claims arise from Tenant, its employees or its customers. Tenant shall further indemnify, defend, protect and hold harmless Landlord from and against all costs, attorneys' fees, expenses and liabilities incurred in or about any such claims or any action or proceeding brought thereon; and in case any action or proceeding be brought against Landlord by reason of any such claim, Tenant upon notice from Landlord shall defend the same at Tenant's expense by counsel approved in writing by Landlord. Landlord's approval of counsel shall be waived if the defense of such claim is insured by Tenant's insurance and the insurance carrier requires the selection of counsel be made by the insurance carrier. Tenant, as a material part of the consideration to Landlord, hereby assumes all risk of damage to property or injury to persons in, upon or about the Premises, including without limitation, the ATM or any security devices installed by or on behalf of Tenant, from any cause whatsoever except that which is caused by Landlord's willful misconduct, gross negligence or failure to observe any of the terms and conditions of this Lease and such failure has persisted for an unreasonable period of time after written notice of such failure, and Tenant hereby waives all its claims in respect thereof against Landlord.
21. DAMAGE TO TENANT'S PROPERTY. Notwithstanding the provisions of Paragraph 20 to the contrary, Landlord or its agents shall not be liable for any damage to property entrusted to employees of the Building, nor for loss of or damage to any property by theft or otherwise, nor for any injury
property resulting from fire, explosion, falling plaster, steam, contaminated air, gas, electricity, water or rain which may leak from or flow into any part of the Building or from the breakage, leakage, obstruction or other defects in any pipes, appliances, sprinklers, wires, HVAC, fixtures or plumbing works whether the damage or injury results from conditions arising upon the Premises or upon other portions of the Building or from other sources except as may be due to the gross negligence or willful misconduct by Landlord or its agents, contractors or employees. Landlord shall not be liable for any damages arising from any act or neglect of any other tenant in the Building. Tenant shall give prompt notice to Landlord in case of fire or accidents in the Premises or in the Building or of defects therein or in the fixtures or equipment.
22. INSURANCE
(a) Tenant shall, during the entire term hereof and during any rent-free period or period of prior occupancy, at its sole cost and expense, obtain, maintain and keep in full force and effect, with Tenant, Landlord, the mortgagees of Landlord, the fee owners of the property if such fee owners are not Landlord and the property manager, named as additional insureds therein as their respective interests may appear, the following insurance:
(1) Property Insurance covering loss or damage by fire and all other perils covered by "all risk" insurance as such term is used in the insurance industry and vandalism and malicious mischief endorsements, which insurance shall cover property of every description and kind owned by Tenant and located in the Building, including, without limitation, furniture, fittings, installations, fixtures and any other personal property, in an amount not less than the full replacement cost thereof. Tenant shall also insure its loss of use value in the Leasehold Improvements.
(2) Commercial General Liability insurance applying
to the use and occupancy of the Premises, and the business operated by Tenant or
any other occupant. Such insurance shall include Broad Form Contractual
liability insurance coverage insuring all of Tenant's indemnity obligations
under this Lease. Such coverage shall have a minimum combined single limit of
liability of at least ONE MILLION DOLLARS ($1,000,000), and a general aggregate
limit of at least TWO MILLION DOLLARS ($2,000,000) with a FIVE MILLION DOLLAR
($5,000,000) umbrella policy. All such policies shall be written to apply to all
bodily injury, property damage, personal injury and other covered loss, however
occasioned, occurring during the policy term, and shall be endorsed to provide
that such coverage shall be primary and that any insurance maintained by
Landlord shall be excess insurance only. Such coverage shall also contain
endorsements: (i) including employees as additional insureds; (ii) deleting any
liquor liability exclusion; (iii) providing for coverage of employer's
automobile non-ownership liability; (iv) adding fire legal liability coverage;
(v) deleting any work/product exclusion, so that coverage will exist for damage
resulting from work performed on the Premises or the Building or common areas
whether by Landlord, Tenant or contractors or subcontractors working directly or
indirectly for either; and (vi) to the extent available, a specific endorsement
insuring Tenant's indemnity obligations to Landlord pursuant to Paragraph 20.
The insurance required by the foregoing provisions of this Subparagraph 22(a)(2)
shall provide for severability of interests; shall provide that an act or
omission of one of the named or additional insureds shall not reduce or avoid
coverage to the other named or additional insureds; and shall afford coverage
for all claims based on acts, omissions, injury and damage, which claims
occurred or arose
(or the onset of which occurred or arose) in whole or in part during the policy period.
(3) Extra expense insurance in such amounts as will reimburse Tenant for the costs of relocating Tenant's business to another location following a casualty until Tenant can reoccupy the Premises.
(4) Worker's Compensation and Employer's liability insurance in the amount required by law, and in a form satisfactory to Landlord.
(5) Any other form or forms of insurance as Land&" or mortgagees of Landlord may reasonably require from time to time in form, in amounts and for insurance risks against which a prudent tenant would protect itself.
(b) All policies shall be taken out with insurers licensed to do business in California acceptable to Landlord and in form satisfactory from time to time to Landlord. Tenant agrees that certified copies of each insurance policy will be delivered to Landlord as soon as practicable after the placing of the required insurance, but in no event later than the day on which Tenant takes possession of all or any part of the Premises, including possession taken under the last sentence of Paragraph 4 hereof. All policies shall contain an undertaking by the insurers to notify Landlord and the mortgagees of Landlord in writing not less than thirty (30) days prior to any material change, reduction in coverage, cancellation, or other termination thereof. Tenant shall furnish Landlord with proof of renewal or binders for new insurance at least thirty (30) days before the expiration date of each policy.
(c) In the event of damage to or destruction of the Building entitling Landlord to terminate this Lease pursuant to Paragraph 23 hereof, Tenant will deliver the Premises to Landlord, in accordance with the provisions of this Lease.
(d) Landlord covenants and agrees that throughout the term it will insure the Building (excluding any property with respect to which Tenant is obliged to insure pursuant to the provisions of Subparagraph 22(a) above) against damage by fire and standard extended coverage perils and public liability insurance in such reasonable amounts with such reasonable deductibles as would be carried by a prudent owner of a similar building in the metropolitan area in which the Premises are located. Landlord may, but shall not be obliged to, take out and carry any other form or forms of insurance as it or the mortgagees of Landlord may reasonably determine advisable. Notwithstanding any contribution by Tenant to the cost of insurance premiums, as provided herein, Tenant acknowledges that it has no right to receive any proceeds from any such insurance policies carried by Landlord. Landlord will not be required to (but may) carry insurance of any kind on Tenant's furniture, furnishings, trade fixtures or equipment of Tenant under this Lease; and Landlord shall not be obligated to repair any damage thereto or replace the same.
(e) Tenant agrees that it will not keep, use, sell or offer for sale in or upon the Premises any article which may be prohibited by any insurance policy in force from time to time covering the Allowance Work. In the event Tenant's occupancy or conduct of business in or on the Premises, whether or not Landlord has consented to the same, results in any increase in premiums for the insurance carried from time to time by Landlord with respect to the Building, Tenant shall pay any such increase in premiums as additional rent within ten (10) days after being billed therefor by Landlord. In determining whether increased premiums are a result of Tenant's use or occupancy of the Premises, a schedule issued by the organization computing
the insurance rate on the Building or the Leasehold Improvements showing the various components of such rate, shall be conclusive evidence of the several items and charges which make up such rate. Tenant shall promptly comply with all reasonable requirements of the insurance authority or of any insurer now or hereafter in effect relating to the Premises.
(f) If any insurance policy carried by Landlord, as provided in Subparagraph 22(d) above, shall be cancelled or cancellation shall be threatened or the coverage thereunder reduced or threatened to be reduced, in any way by reason of the use of occupation of the Premises or any part thereof by Tenant or by any assignee or sub-tenant of Tenant or by anyone permitted by Tenant to be upon the Premises and, if Tenant fails to remedy the condition giving rise to cancellation, threatened cancellation or reduction of coverage within forty-eight (48) hours after notice thereof, Landlord may, at its option, either terminate this Lease or enter upon the Premises and attempt to remedy such condition and Tenant shall forthwith pay the cost thereof to Landlord as additional rent. Landlord shall not be liable for any damage or injury caused to any property of Tenant or of others located in the Premises as a result of such entry. In the event that Landlord shall be unable to remedy such condition, then Landlord shall have all of the remedies provided for in this Lease in the event of a default by Tenant. Notwithstanding the foregoing provisions of this Subparagraph 22(f), if Tenant fails to remedy as aforesaid, Tenant shall be in default of its obligation hereunder and Landlord shall have no obligation to attempt to remedy such default.
(g) Any policy or policies of fire, extended coverage or similar casualty insurance, which either party obtains in connection with the Premises shall include a clause or endorsement denying the insurer any rights of subrogation against the other party to the extent rights have been waived by the insured prior to the occurrence of injury or loss. Landlord and Tenant waive any rights of recovery against the other for injury or loss due to hazards covered by insurance containing such a waiver of subrogation clause or endorsement to the extent of the injury or loss covered thereby.
23. DAMAGE OR DESTRUCTION
(a) In the event the Building and/or the Premises is damaged by fire or other perils covered by Landlord's extended coverage insurance, Landlord shall:
(1) In the event of total destruction, at Landlord's option within a period of ninety (90) days thereafter, commence repair, reconstruction and restoration of said Building and/or Premises and prosecute the same diligently to completion in which event this Lease shall remain in full force and effect; or within said ninety (90)-day period elect not to so repair, reconstruct or restore, said Building and/or Premises, in which event this Lease shall terminate. In either event, Landlord shall give Tenant written notice of its intention within said ninety (90)-day period. In the event Landlord elects not to restore said Building and/or Premises, this Lease shall be deemed to have terminated as of the date of such total destruction.
(2) In the event of a partial destruction of the Building and/or the Premises, to an extent not exceeding twenty-five percent (25%) of the full insurable value thereof and if the damage thereto is such that the Building and/or the Premises may be repaired, reconstructed or restored within a period of ninety (90) days from the date of the happening of such casualty and Landlord will receive insurance proceeds sufficient to cover the cost of such repairs, Landlord shall commence and proceed diligently with the work of repair, reconstruction and restoration and the Lease shall continue in full force and effect. If such work of repair, reconstruction and restoration
is such as to require a period longer than ninety (90) days or exceeds twenty-five percent (25%) of the full insurable value thereof, or if said insurance proceeds will not be sufficient to cover the cost of such repairs, Landlord either may elect to so repair, reconstruct or restore and the Lease shall continue in full force and effect or Landlord may elect not to repair, reconstruct or restore and the Lease shall in such event terminate. Under any of the conditions of this Subparagraph 23(a)(2), Landlord shall give written notice to Tenant of its intention within said ninety (90)-day period. In the event Landlord elects not to restore said Building and/or Premises, this Lease shall be deemed to have terminated as of the date of such partial destruction. In the event Landlord elects to restore said Building and/or Premises, Landlord shall endeavor to complete the work within one hundred eighty (180) days after the commencement thereof.
(b) Upon any termination of this Lease under any of the provisions of this Paragraph 23, the parties shall be released thereby without further obligation to the other from the date possession of the Premises is surrendered to Landlord except for items which have theretofore accrued and are then unpaid and/or for insurance and indemnity obligations pertaining to events occurring prior to lease termination.
(c) In the event of repair, reconstruction and restoration by Landlord as herein provided, the rental provided to be paid under this Lease shall be abated proportionately with the degree of objective interference with the reasonable use of the Premises, during the period of such repair, reconstruction or restoration. Tenant shall not be entitled to any compensation or damages for loss in the use of the whole or any part of the Premises and/or any inconvenience or annoyance occasioned by such damage, repair, reconstruction or restoration.
(d) Tenant shall not be released from any of its obligations under this Lease except to the extent and upon the conditions expressly stated in this Paragraph 23. Notwithstanding anything to the contrary contained in this Paragraph 23, should Landlord be delayed or prevented from repairing or restoring the damaged Premises within one (1) year after the occurrence of such damage or destruction by reason of acts of God, war, governmental restrictions, inability to procure the necessary labor or materials, or other cause beyond the control of Landlord, Landlord shall be relieved of its obligation to make such repairs or restoration and this lease shall be deemed terminated as of the end of said one (1) year period.
(e) In the event the Premises or the Building are damaged by a risk not covered by Landlord's insurance, then Landlord 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 Tenant at any time within ninety (90) days after such damage terminating this Lease. In the event of the giving of such notice of termination, this Lease shall expire and all interest of Tenant in the Premises shall terminate 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 Tenant, shall be paid to the date of such termination. In the event Landlord elects to restore said Building and/or Allowance Work, Landlord shall endeavor to complete the work within one hundred eighty (180) days after the commencement thereof. Landlord agrees to refund the Tenant any rent theretofore paid in advance for any period of time subsequent to such date.
(f) It is hereby understood that if Landlord is obligated to or elects to repair or restore as herein provided, Landlord shall be obligated to make repairs or restoration only of those portions of the Building and the Premises which were insured by Landlord pursuant to paragraph 22(d).
(g) Notwithstanding anything to the contrary contained in this Paragraph 23, Landlord shall not have any obligation whatsoever to repair, reconstruct or restore the Premises when the damage resulting from any casualty covered under this Paragraph 23 occurs during the last twelve (12) months of the term of this Lease or any extension hereof.
(h) Landlord and Tenant each hereby waive the provisions of California Civil Code Sections 1932(2) and 1933(4), and any other applicable existing or future law, ordinance or regulation with respect to damage or destruction of leased premises or with respect to the termination of a lease AGREEMENT in the event of such damage or destruction.
24. EMINENT DOMAIN. In case the whole of the Premises, or sum part thereof as shall substantially interfere with the reasonable use of the Premises, shall be taken for any public or. quasi-public purpose by any lawful power or authority by exercise of the right of appropriation, condemnation or eminent domain, or sold to prevent such taking, either party shall have the right to terminate this Lease effective as of the date possession is required to be surrendered to said authority. In the event the amount of property or the type of estate taken shall not substantially interfere with the reasonable use of the Premises, Landlord at its option may terminate this Lease. In the event of termination of the Lease, Tenant shall not assert any claim against Landlord or the taking authority for any compensation for the taking of the Premises and Landlord shall be entitled to receive the entire amount of the award without deduction for any estate or interest of Tenant, except that Tenant shall be entitled to a proportionate share of that portion of the award allocated to the Leasehold Improvements in the Premises. Tenant's proportionate share shall be determined by multiplying the portion of the award allocated to the Leasehold Improvements by the percentage of the Above-Allowance paid by Tenant to the overall cost of the Leasehold Improvements, and then multiplying that product by a fraction, the numerator of which shall be the remaining months in the initial term and the denominator of which shall be 120. If Landlord does not elect to terminate the Lease, Landlord shall promptly proceed to restore the Premises to substantially their same condition prior to such partial taking, to the extent possible by application of the condemnation proceeds only, and a proportionate allowance shall be made to Tenant for the rent corresponding to the time during which, and to the part of the Premises of which Tenant shall be so deprived on account of such taking and restoration. Nothing contained in this Paragraph shall be deemed to give Landlord any interest in any award made to Tenant for the taking of personal property and fixtures belonging to Tenant. Each party waives the provisions of California Code of Civil Procedure Section 1265.130 allowing either party to petition the Superior Court to terminate this Lease in the event of a partial taking of the premises.
25. DEFAULTS AND REMEDIES.
(a) The occurrence of any one or more of the following events shall constitute a default hereunder by Tenant:
(1) The vacation or abandonment of the Premises by Tenant. Abandonment is herein defined to include, but is not limited to, any absence by Tenant from the Premises for five (5) days or longer while in default of any material provision of this Lease.
(2) The failure by Tenant to make any payment of rent or additional rent or any other payment required to be made by Tenant hereunder, within ten (10) days after demand.
(3) The failure by Tenant to observe or perform any of the express or implied covenants or provisions of this Lease to be observed or performed by Tenant, other than as SPECIFIED in
in Subparagraph (25(a) or (2) above where such failure shall continue for a period of ten (10) business days after the giving of written notice thereof from Landlord to Tenant, unless the default is of such a character as to require more than ten (10) business days to cure, and Tenant shall have commenced such cure within such ten (10)-day period and is pursuing such cure with reasonable diligence. Notwithstanding the foregoing, if Landlord notifies Tenant that a particular failure endangers persons or property, Tenant shall be in default unless Tenant immediately cures the failure.
(4) (i) The making by Tenant of any general
assignment for the benefit of creditors; (ii) the filing by or against Tenant of
a petition to have Tenant adjudged a bankrupt or a petition for reorganization
or arrangement under any law relating to bankruptcy (unless, in the case of a
petition filed against Tenant, the same is dismissed within sixty (60) days);
(iii) the appointment of a trustee or receiver to take possession of
substantially all of Tenant's assets located at the Premises or of Tenant's
interest in this Lease, where possession is not restored to Tenant within thirty
(30) days; or (iv) the attachment, execution or other judicial seizure of
substantially all of Tenant's assets located at the Premises or of Tenant's
interest in this Lease where such seizure is not discharged within thirty (30)
days.
(b) In the event of any such default by Tenant, in addition to any other remedies available to Landlord at law or in equity, Landlord shall have the immediate option to terminate this Lease and all rights of Tenant hereunder. In the event that Landlord shall elect to so terminate this Lease then Landlord may recover from Tenant:
(1) the worth at the time of award of any unpaid rent which had been earned at the time of such termination; plus
(2) the worth at the time of award of the amount by which the unpaid rent which would have been reasonably earned after termination until the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided; plus
(3) 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 Tenant proves could be reasonably avoided; plus
(4) any other amount necessary to compensate Landlord for all the detriment proximately caused by Tenant's failure to perform his obligations under this Lease or which in the ordinary course of things would be likely to result therefrom.
As used in Subparagraphs 25(b)(1) and (2) above, the "worth at the time of award" is computed by allowing interest at the maximum rate permitted by law per annum. As used in Subparagraph 25(b)(3) above, the `.worth at the time of award" is computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus one percent (1%).
(c) In the event of any such default by Tenant, Landlord shall also have the right, with or without terminating this Lease, to re-enter the Premises and remove 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 Tenant. No re-entry or taking possession of the Premises by Landlord pursuant to this Subparagraph 25(c) shall be construed as an election to terminate this Lease unless a written notice of
such 'intention 'be -given to Tenant or unless the termination thereof be decreed by a court of competent jurisdiction.
(d) Landlord shall also have the remedy described in California Civil Code Section 1951.4 (i.e., the right to continue the Lease in effect and recover rent as it becomes due). In such event, Landlord may continue this Lease in full force and effect, and this Lease will continue in effect as long as Landlord does not terminate Tenant's right to possession, and Landlord shall have the right to collect rent when due. During the period Tenant is in default, Landlord can enter the Premises and relet them, or any part of them, to third parties for Tenant's account. Tenant shall be liable immediately to Landlord for all costs Landlord incurs in reletting the Premises including, without limitation, brokers' commissions, expenses of remodeling the Premises required by the reletting, and like costs. Reletting can be for a period shorter or longer than the remaining term of this Lease. Tenant shall pay to Landlord the rent due under this Lease on the dates the rent is due, less the rent Landlord receives from any reletting. No act by Landlord allowed by this Subparagraph 25(d) shall terminate this Lease unless Landlord notifies Tenant that Landlord elects to terminate this Lease.
If Landlord elects to relet the Premises as provided in this Subparagraph 25(d), rent that Landlord receives from reletting shall be applied to the payment of:
(1) First, any indebtedness from Tenant to Landlord other than rent due from Tenant;
(2) Second, all costs, including for maintenance, incurred by Landlord in reletting;
(3) Third, rent due and unpaid under this Lease. After deducting the payments referred to in this Paragraph, any sum remaining from the rent Landlord receives from reletting shall be held by Landlord and applied in payment of future rent as rent becomes due under this Lease. In no event shall Tenant be entitled to any excess rent received by Landlord. If, on the date rent is due under this Lease, the rent received from the reletting is less than the rent due on that date, Tenant shall pay to Landlord, in addition to the remaining rent due, all costs, including for maintenance, Landlord incurred in reletting that remain after applying the rent received from the reletting as provided in this Subparagraph 25(d).
(e) All rights, options and remedies of Landlord contained in this Lease shall be construed and held to be cumulative, and no one of them shall be exclusive of the other, and Landlord shall have the right to pursue any one or all of such remedies or any other remedy or relief which may be provided by law or in equity, whether or not stated in this Lease. No waiver of any default of Tenant hereunder shall be implied from any acceptance by Landlord of any rent or other payments due hereunder or any omission by Landlord to take any action on account of such default if such default persists or is repeated. Any waiver must be in writing and such express waiver shall not affect defaults other than as specified in the waiver. The consent or approval of Landlord to or of any act by Tenant requiring Landlord's consent or approval shall not be deemed to waive or render unnecessary Landlord's consent or approval to or of any subsequent similar acts by Tenant.
(f) As used in this Lease, the term "rent" shall refer to Annual Basic Rent, Excess Expenses and any other sum required to be paid to Landlord under this Lease.
26. ASSIGNMENT AND SUBLETTING.
No assignment of this Lease or sublease of all or any part of the Premises shall be permitted, except as provided in this Paragraph 26.
(a) Tenant shall not without the prior written consent of Landlord, which consent shall not be unreasonably withheld, assign or hypothecate this Lease or any interest herein or sublet the Premises or any part thereof, or permit the use of the Premises by any party other than Tenant. Any of the foregoing acts without such consent shall be void and shall, at the option of Landlord, terminate this Lease. This Lease shall not, nor shall any interest of Tenant herein, be assignable by operation of law without the written consent of Landlord. If Tenant is a corporation which, under the laws of California, is not deemed a public corporation, or is an unincorporated association or partnership, the transfer, assignment or hypothecation of any stock or interest in such corporation, association or partnership in the aggregate in excess of twenty-five percent (25%) shall be deemed an assignment for the purposes of this Paragraph 26. As an exception to the foregoing, Tenant may assign the Lease twice without the Landlord's consent to an entity engaged in retail banking operations following a merger, consolidation, sale or other transfer of assets by Tenant provided as follows: (1) On the first assignment, the assignee has total assets equal to a minimum of $135,343,000 adjusted for inflation and total equity capital equal to 125% of Tenant's total equity capital at the time of execution of the Lease adjusted for inflation, and (2) On the second assignment, the assignee has total assets equal to a minimum of $135,343,000 adjusted for inflation and total equity capital equal to 200% of Tenant's total equity capital at the time of execution of the Lease adjusted for inflation. For purposes of the foregoing, Tenant's current total equity capital is $11,991,000. Adjustments for inflation will be based on an increase in the Index using September 1996 as the base month and the Index last published prior to the assignment as the comparison month.
(b) If at any time or from time to time during the Term Tenant desires to assign this Lease or sublet all or any part of the Premises, Tenant shall give notice to Landlord setting forth the terms and provisions of the proposed assignment or sublease, and the identity of the proposed assignee or subtenant. Tenant shall promptly supply Landlord with such information concerning the business background, type of office use and operation and financial condition of such proposed assignee or subtenant as Landlord may reasonably request. Landlord shall have the option, exercisable by notice given to Tenant within twenty (20) days after Tenant's notice is given, either to sublet such space from Tenant at the lower of the rental offered by Tenant to the proposed subtenant, or the rental set forth in this LEASE, FOR THE TERM set forth in Tenant's notice, or, in the case of an assignment, to terminate this Lease.
(c) Landlord shall be permitted to consider any reasonable factor in determining whether or not to withhold its consent to a proposed assignment or sublease. Without limiting the other instances in which it may be reasonable for Landlord to withhold its consent to assignment or sublease, it shall be reasonable for Landlord to withhold its consent if any of the following conditions are not satisfied.
(1) The proposed transferee shall be at least as creditworthy as is Tenant as of the date of this Lease and shall have the financial strength and stability to perform all obligations under this Lease to be performed by Tenant;
(2) The proposed use of the Premises by the transferee shall (i) comply with the provisions of Paragraph 8 hereof, (ii) be consistent with the general character of businesses carried on by tenants of a first-class office building, (iii) not increase the likelihood of damage
or destruction, (iv) not increase the density of occupancy of the Premises or increase the amount of pedestrian and other traffic through the Building, (v) not be likely to cause an increase in insurance premiums for insurance policies applicable to the Building, (vi) not require new tenant improvements incompatible with thenexisting Building systems and components, (vii) not require Landlord to make modifications to the Building, (viii) not increase the electrical or HVAC usage in the Premises, and (ix) not otherwise have or cause a material adverse impact on the Premises, the Building, the Property, or Landlord's interest therein;
(3) Tenant or such transferee shall, prior to occupancy, deliver to Landlord any increase in the Security Deposit required by Landlord's then-current standards for delivery of security deposits by tenants;
(4) The proposed transferee shall not be an existing
tenant or occupant of the Building or a person or entity with whom Landlord is
then dealing, or with whom Landlord has had any dealings within the previous six
(6) months, with respect to the leasing of space in the Building;
(5) Any ground lessor or mortgagee whose consent to such transfer is required fails to consent thereto;
(6) Any proposed subletting shall not result in more than two (2) subleases of portions of the Premises being in effect at any one time during the Term;
(7) At the time of the request, no event of default under this Lease, or under any other lease between Tenant and Landlord or any affiliate of Landlord, shall have occurred and be continuing;
(8) In the case of a sublease, the monthly rental per square foot of Rentable Area of the Premises offered to the sublessee shall be not less than the monthly base rent per square foot of Rentable Area then being offered by Landlord in connection with new leases of comparable space similarly improved for terms of similar length, and Tenant shall not grant greater amounts of "free rent" or other economic concessions in excess of the concessions then being granted by Landlord in connection with similar new leases; and
(9) No sub-subleasing shall be permitted.
Tenant shall have the burden of demonstrating that each of the foregoing conditions has been satisfied.
(d) Provided Landlord has consented to such assignment or subletting in writing, Tenant may assign or sublet the Premises to any third party subject to the following conditions:
(1) At the time of the transfer, no event of default under this Lease, or under any other lease between Tenant and Landlord or any affiliate of Landlord, shall have occurred and be continuing;
(2) The assignment or sublease shall be on the same terms set forth in the notice given to Landlord;
(3) No assignment or sublease shall be valid and no assignee or sublessee shall take possession of the Premises until an
executed counterpart of such assignment or sublease has been delivered to Landlord;
(4) No assignee or sublessee shall have a further right to assign or sublet without Landlord's consent thereto in each instance; and
(5) (i) In the event Tenant sublets the entire
Premises or any part thereof, Tenant shall deliver to Landlord fifty percent
(50%) of any "excess rent" (as such term is hereinafter defined) within thirty
(30) days of Tenant's receipt thereof pursuant to such subletting. As used
herein, "EXCESS RENT" shall mean any sums or economic consideration per square
foot of the Premises received by Tenant pursuant to such subletting in excess of
the amount of the rent per square foot of the Premises payable by Tenant under
this Lease applicable to the part or parts of the Premises so sublet; provided,
however, that no such "excess rent" shall be payable until Tenant shall have
recovered therefrom the costs incurred by Tenant for brokerage commissions or
tenant improvements in conjunction with such subletting.
(ii) In the event Tenant assigns this Lease, Tenant shall deliver to Landlord fifty percent (50%) of any "excess payment" (as such term is hereinafter defined) within thirty (30) days of Tenant's receipt thereof pursuant to such assignment. As used herein, "EXCESS PAYMENT" shall mean the amount of payment received for such assignment of this Lease in excess of the rent payable by Tenant under this Lease; provided, however, that no "excess payment" shall be payable until Tenant shall have recovered therefrom the costs incurred by Tenant for brokerage commissions or tenant improvements in conjunction with such assignment.
(c) Notwithstanding the provisions of Subparagraphs 26(a) and
(b) above, Tenant may assign this Lease or sublet the Premises or any portion
thereof, without Landlord's consent and without extending any recapture or
termination option to Landlord, to any corporation which controls, is controlled
by or is under common control with Tenant, provided that (i) the assignee or
sublessee assumes, in full, the obligations of Tenant under this Lease, (ii)
Tenant remains fully liable under this Lease, and (iii) the use of the Premises
under Paragraph 8 remains unchanged.
(d) No subletting or assignment shall release Tenant of Tenant's obligations under this Lease or alter the primary liability of Tenant to pay the Rent and to perform all other obligations to be performed by Tenant hereunder. The acceptance of Rent by Landlord from any other person shall not be deemed to be a waiver by Landlord of any provision hereof. Consent to one assignment or subletting shall not be deemed consent to any subsequent assignment or subletting. In the event of default by an assignee or subtenant of Tenant or any successor of Tenant in the performance of any of the terms hereof, Landlord may proceed directly against Tenant without the necessity of exhausting remedies against such assignee, subtenant or successor. Landlord may consent to subsequent assignments of the Lease or sublettings or amendments or modifications to the Lease with assignees of Tenant, without notifying Tenant, or any successor of Tenant, and without obtaining its or their consent thereto and any such actions shall not relieve Tenant of liability under this Lease.
(e) If Tenant assigns the Lease or sublets the Premises or requests the consent of Landlord to any assignment or subletting or if Tenant requests the consent of Landlord for any act that Tenant proposes to do, then
Tenant shall, upon demand pay Landlord an administrative fee of Five Hundred and 00/100 Dollars ($500.00) plus any attorneys' fees reasonably incurred by Landlord in connection with such act or request.
(f) Notwithstanding the requirement of Landlord's approval prior to any assignment or subletting, if this Lease is assigned to any person or entity pursuant to the provisions of the Bankruptcy Code, 75% of any excess payment (as defined in subparagraph 26(d)(5)(ii)) shall be paid or delivered to Landlord, shall be and remain the exclusive property of Landlord and shall not constitute property of Tenant or of any bankruptcy estate of Tenant. Any and all monies or other considerations constituting Landlord's property under the preceding sentence not paid or delivered to Landlord shall be held in trust for the benefit of Landlord and be promptly paid or delivered to Landlord. Any person or entity to which this Lease is assigned pursuant to the provisions of the Bankruptcy Code shall be deemed without further act or deed to have assumed all of the obligations arising under this Lease on and after the date of such assignment. Any such assignee shall upon demand execute and deliver to Landlord an instrument confirming such assumption.
27. SUBORDINATION. At the election of Landlord or any first mortgagee with a lien on the Building or any ground lessor with respect to the Building, Tenant agrees that this Lease shall be subject and subordinate at all times to: (a) all ground leases or underlying leases which may now exist or hereafter be executed affecting the Building or the land upon which the Building is situated or both; and (b) the lien of any mortgage or deed of trust which may now exist or hereafter be executed in any amount for which the Building, land, ground leases or underlying leases, or Landlord's interest or estate in any of said items is specified as security. Notwithstanding the foregoing, Landlord shall have the right to subordinate or cause to be subordinated any such ground leases or underlying leases or any such liens to this Lease. In the event that any ground lease or underlying lease terminates for any reason or any mortgage or deed of trust is foreclosed or a conveyance in lieu of foreclosure is made for any reason, Tenant shall, notwithstanding any subordination, attorn to and become the tenant of the successor-in-interest to Landlord, at the option of such successor in interest. Tenant covenants and agrees to execute and deliver, upon demand by Landlord and in the form requested by Landlord, any additional documents evidencing the priority or subordination of this Lease with respect to any such ground leases or underlying leases or the lien of any such mortgage or deed of trust. Tenant hereby irrevocably appoints Landlord as attorney-in-fact of Tenant to execute, deliver and record any such documents in the name and on behalf of Tenant.
28. ESTOPPEL CERTIFICATE
(a) Within ten (10) business days following the giving of any written request which Landlord may make from time to time, Tenant shall execute and deliver to Landlord a statement certifying: (i) the date of commencement of this Lease; (ii) the fact that this Lease is unmodified and in full force and effect (or, if there have been modifications hereto, that this Lease is in full force and effect, as modified, and stating the date and nature of such modifications); (iii) the date to which the rental and other sums payable under this Lease have been paid; (iv) the fact that there are no current defaults under this Lease by either Landlord or Tenant except as specified in Tenant's statement; and (v) such other matters requested by Landlord. Landlord and Tenant intend that any statement delivered pursuant to this Paragraph 28 may be relied upon by any mortgagee, beneficiary, purchaser or prospective purchaser of the Building or any interest therein.
(b) Tenant's failure to deliver such statement within such time shall be conclusive upon Tenant (i) that this Lease is in full force and effect, without modification except as may be represented by Landlord, (ii) that
there are no uncured defaults in Landlord's performance, and (iii) that not more than one (1) month's rental has been paid in advance.
29. INTENTIONALLY DELETED.
30. RULES AND REGULATIONS. Tenant shall faithfully observe and comply with the "Rules and Regulations," a copy of which is attached hereto and marked Exhibit "C," and all reasonable and nondiscriminatory modifications thereof and additions thereto from time to time put into effect by Landlord according to Landlord's discretion. Landlord shall not be responsible to Tenant for the violation or non-performance by any other tenant or occupant of the Building of any of said Rules and Regulations.
31. CONFLICT OF LAWS; INTERPRETATION. This Lease shall be governed by and construed pursuant to the laws of the State of California. The provisions of this Lease shall be construed in accordance with the fair meaning of the language used and shall not be strictly construed against either party.
32. SUCCESSORS AND ASSIGNS. Except as otherwise provided in this Lease, all of the covenants, conditions and provisions of this Lease shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs, personal representatives, successors and assigns.
33. SURRENDER OF PREMISES The voluntary or other surrender of this Lease by Tenant, or a mutual cancellation thereof, shall not work a merger, and shall, at the option of Landlord, operate as an assignment to it of any or all subleases or subtenancies.
34. ATTORNEYS' FEES. If Tenant or Landlord shall be in breach or default under this Lease, such party (the "DEFAULTING PARTY") shall reimburse the other party (the "NONDEFAULTING PARTY") upon demand for any costs or expenses that the Nondefaulting Party incurs in connection with any breach or default of the Defaulting Party under this Lease, including the expense of an attorney engaged in efforts to enforce the provisions of this Lease against the Defaulting Party, whether or not suit is commenced or judgment entered. Such costs shall include legal fees and costs incurred for the negotiation of a settlement, enforcement of rights or otherwise. Furthermore, if any action for breach of or to enforce the provisions of this Lease is commenced, the court in such action shall award to the party in whose favor a judgment is entered, a reasonable sum as attorneys' fees and costs. The losing party in such action shall pay such attorneys' fees and costs. Tenant shall also indemnify Landlord against and hold Landlord harmless from all costs, expenses, demands and liability Landlord may incur if Landlord becomes or is made a party to any claim or action (a) instituted by Tenant against any third party, or by any third party against Tenant, or by or against any person holding any interest under or using the Property by license of or agreement with Tenant unless Landlord is adjudicated as having been liable; (b) for foreclosure of any lien for labor or material furnished to or for Tenant or such other person; (c) otherwise arising out of or resulting from any act or transaction of Tenant or such other person; or (d) necessary to protect Landlord's interest under this Lease in a bankruptcy proceeding, or other proceeding under Title 11 of the United States Code, as amended. Tenant shall protect and defend Landlord against any such claim or action at Tenant's expense with counsel reasonably acceptable to Landlord, or at Landlord's election, Tenant shall reimburse Landlord for any legal fees or costs Landlord incurs in any such claim or action.
35. PERFORMANCE BY TENANT. All covenants and agreements to be performed by Tenant under any of the terms of this Lease shall be performed by Tenant at Tenant's sole cost and expense and without any abatement of rent. If Tenant shall fail to pay any sum of money, other than
Annual Basic Rent, required to be paid by it hereunder or shall fail to perform any other act on its part to be performed hereunder, and such failure shall continue for ten (10) days after notice thereof by Landlord, Landlord may, without waiving or releasing Tenant from obligations of Tenant, but shall not be obligated to, make any such payment or perform any such other act on Tenant's part to be made or performed as in this Lease provided. All sums so paid by Landlord and all necessary incidental costs together with interest thereon at the rate provided in Paragraph 53 below, from the date of such payment by Landlord, until paid, shall be payable to Landlord on demand. Tenant covenants to pay any such sums, and Landlord shall have (in addition to any other right or remedy of Landlord) the same rights and remedies in the event of the non-payment thereof by Tenant as in the case of default by Tenant in the payment of the Annual Basic Rent. Tenant acknowledges that late payment by Tenant to Landlord of any sums due hereunder will cause Landlord to incur costs not contemplated by this Lease, the exact amount of such costs being extremely difficult and impracticable to fix. Such costs include, without limitation, processing and accounting charges, and late charges that may be imposed on Landlord by the terms of any lease, encumbrance, note or other commitment covering the premises. Therefore, if any payment due from Tenant is not received by Landlord when due, Tenant shall pay to Landlord an additional sum of five percent (5%) of the overdue payment as a late charge. The parties agree that this late charge represents a fair and reasonable estimate of the costs that Landlord will incur by reason of late payment by Tenant. Acceptance of any late charge shall not constitute a waiver of Tenant default with respect to the overdue amount, or prevent Landlord from exercising any of the other rights and remedies available to Landlord. Further, following any second consecutive late payment of rent, Landlord shall have the option to require that beginning with the first payment of rent due following the date such late payment was due, rent shall no longer be paid in monthly installments but shall be payable three (3) months in advance.
36. MORTGAGEE PROTECTION . In the event of any default on the part of Landlord, Tenant will give notice by registered or certified mail to any beneficiary of a deed of trust or mortgagee under a mortgage covering the Premises whose address shall have been furnished to Tenant, and shall offer such beneficiary or mortgagee a reasonable opportunity to cure the default, including time to obtain possession of the Premises by power of sale or a judicial foreclosure, if such should prove necessary to effect a cure. As used in this Lease, mortgagee includes without limitation the beneficiary(ies) of any deed of trust.
37. DEFINITION OF LANDLORD. The term "LANDLORD" as used in this Lease, so far as covenants or obligations on the part of Landlord are concerned, shall be limited to mean and include only the owner or owners, at the time in question, of the fee of the Premises or if there is a ground lease or other master lease then in effect, the owner of the leasehold tenant's rights under such ground or master lease. In the event of any transfer, assignment or other conveyance or transfers of any such title or leasehold, Landlord herein named (and in case of any subsequent transfers or conveyances, the then grantor) shall be automatically freed and relieved from and after the date of such transfer, assignment or conveyance of all liability as respects the performance of any covenants or obligations on the part of Landlord contained in this Lease thereafter to be performed and, without further agreement, the transferee of such title shall be deemed to have assumed and agreed to observe and perform any and all obligations of Landlord hereunder, during its ownership of the Premises. Landlord may transfer its interest in the Premises without the consent of Tenant and such transfer or subsequent transfer shall not be deemed a violation on Landlord's part of any of the terms and conditions of this Lease.
38. WAIVER. The waiver by Landlord of any breach of any breach of any term, covenant or condition herein contained shall not be deemed to be a waiver of any subsequent breach of the same or any other term, covenant or condition herein contained, nor shall any custom or practice which may grow up between the parties in the administration of the terms hereof be deemed a waiver of, or in any way affect, the right of Landlord to insist upon the performance by Tenant in strict accordance with said terms. The subsequent acceptance of rent hereunder by Landlord shall not be deemed to be a waiver of any breach by Tenant of any term, covenant or condition of this Lease, regardless of Landlord's knowledge of such breach at the time of acceptance of such rent.
39. IDENTIFICATION OF TENANT. If more than one person executes this lease as Tenant, (a) each of them is jointly and severally liable for the keeping, observing and performing of all of the terms, covenants, conditions, provisions and agreements of this Lease to be kept, observed and performed by Tenant, and (b) the term "TENANT" as used in this Lease shall mean and include each of them jointly and severally and the act of or notice from, or notice or refund to, or the signature of, any one or more of them, with respect to the tenancy or this Lease including, but not limited to, any renewal, extension, expiration, termination or modification of this Lease, shall be binding upon each and all of the persons executing this Lease as Tenant with the same force and effect as if each and all of them had so acted or so given or received such notice or refund or so signed.
40. PARKING. TENANT shall have the right to park in the Building's parking facilities in common with other tenants of the Building upon terms and conditions as may from time to time be established by Landlord. Landlord agrees to provide parking on the basis of four (4) stalls per 1,000 square feet of leased space. There shall be no charge for parking during the term of the Lease, including any options to extend unless required by any governmental authority. Tenant shall be provided four (4) reserved parking spaces in the visitors parking area of the Building as shown on the attached Exhibit D, subject to current and future governmental requirements. At Tenant's request and at Tenant's expense, Landlord shall mark the four spaces as "Reserved for Tenant." Landlord shall not be responsible for policing the reserved parking spaces at any time during the term of the Lease, including any options to extend. Tenant agrees not to overburden the parking facilities and agrees to cooperate with Landlord and other Tenants in the use of the parking facilities. Landlord reserves the right in its absolute discretion to determine whether the parking facilities are becoming crowded and to allocate and assign parking spaces among Tenant and the other tenants, and to alter, relocate, reduce or otherwise change the parking facilities and to take measures with respect to the parking area from time to time in order to comply with the policies of any applicable Transportation Plan.
41. TERMS AND HEADINGS. The words "LANDLORD" and "TENANT' as used herein shall include the plural as well as the singular. Words used in any gender include other genders. The Paragraph headings of this Lease are not a part of this Lease and shall have no effect upon the construction and interpretation of any part hereof.
42. EXAMINATION OF LEASE. Submission of this instrument for examination or signature by Tenant does not constitute a reservation of or option for Lease, and it is not effective as a Lease or otherwise until execution ,by and delivery to both Landlord and Tenant.
43. TIME. Time is of the essence with respect to the performance of every provision of this Lease in which time or performance is a factor, except for Landlord's obligation to deliver the Premises.
44. PRIOR AGREEMENTS; AMENDMENTS. This Lease contains all of the agreements of the parties hereto with respect to any matter covered or mentioned in this Lease, and no prior agreement or understanding pertaining to any such matter shall be effective for any purpose. No provisions of this Lease may be amended or added to except by an agreement in writing signed by the parties hereto or their respective successors-in-interest.
45. SEPARABILITY. Any provision of this Lease which shall prove to be invalid, void or illegal in no way affects, impairs or invalidates any other provision hereof, and such other provisions shall remain in full force and effect.
46. RECORDING. Neither Landlord or Tenant shall record this Lease nor a short form memorandum thereof without the consent of the OTHER.
47. LIMITATION ON LIABILITY. In consideration of the benefits accruing hereunder, Tenant and all successors and assigns covenant and agree that, in the event of any actual or alleged failure, breach or default hereunder by Landlord:
(a) Tenant's sole and exclusive recourse shall be against Landlord's interest in the Premises and the Building. Tenant shall not have any right to satisfy any judgment which it may have against Landlord from any other assets of Landlord.
(b) No partner, stockholder, director, officer, employee or beneficiary or trustee (collectively, "PARTNER") of Landlord shall be sued or named as a party in any suit or action (except as may be necessary to secure jurisdiction over Landlord).
(c) No service of process shall be made against any Partner of Landlord (except as may be necessary to secure jurisdiction over Landlord).
(d) No Partner of Landlord shall be required to answer or otherwise plead to any service of process.
(e) No judgment will be taken against any Partner of Landlord.
(f) Any judgment taken against any Partner of Landlord may be vacated and set aside at any time nunc pro tunc.
(g) No writ of execution will ever be levied against the assets of any Partner of Landlord.
(h) These covenants and agreements are enforceable both by Landlord and also by any Partner of Landlord.
48. RIDERS Clauses, plats and riders, if any, signed by Landlord and Tenant and affixed to this Lease are a part hereof.
49. SIGNS AND AUCTIONS. Tenant shall have the right to have its name listed in the Building directory and Tenant shall also have the right to place its name on the exterior upper fascia of the northwest side of the Building facing Douglas Boulevard where the North American Title Insurance sign is currently located. Tenant shall not be responsible for the removal of the existing sign or for any costs associated with restoring the Building following removal of the existing sign. The size of Tenant's listing in the Building directory will be commensurate with the Tenant's Percentage. Tenant's sign on the Building must be approved by Landlord, the City of Roseville Project Review Committee and all other governmental agencies
having jurisdiction over the sign. In addition to complying with applicable law, Tenant's sign must comply with all governmental rules, regulations and ordinances governing Tenant's sign and with the Johnson Ranch Signage Criteria for 2220, 2240, 2250, 2260 and 2270 Douglas Boulevard, Roseville, California. Landlord will not deny Tenant's sign if Tenant's sign is in compliance with all governmental rules, regulations and ordinances governing Tenant's sign and with the Johnson Ranch Signage Criteria.
With respect to any sign installed by Tenant or on behalf of
Tenant, Tenant shall promptly perform and pay the cost of all of the following:
(i) design and fabrication; (ii) installation; (iii) maintenance of Tenant's
sign in good order and condition; (iv) repairs to Tenant's sign; (v) removal not
later than the last day of the Term whether by expiration OR EARLIER termination
of the Lease; and (vi) repairs of any damage to the Building or the monument
caused by Tenant's sign or the removal thereof; and to Landlord's reasonable
satisfaction, returning the Building or the monument to the condition which
existed prior to installation of Tenant's sign, including, without limitation,
patching holes and painting so that no visible evidence of the sign can be seen.
Any additional charge for the electricity for Tenant's sign shall be paid by
Tenant concurrently with the monthly rent payment. Tenant shall remove the sign
and make repairs required by this Paragraph 49 within five (5) days after
receipt of notice from LANDLORD terminating Tenant's right, and prior to
expiration of the Lease.
Tenant acknowledges and agrees that any sign rights granted by Landlord are not exclusive. Landlord may allow other tenants to place signs on the Building or on the monument; provided, however, no other sign shall be permitted on the northwest side of the Building. Any right to have a sign on the Building or the monument shall cease and terminate if this Lease is assigned or otherwise transferred, or the Premises or any part thereof are sublet, or if an event of default occurs. As an exception to the foregoing, Landlord will allow Tenant to transfer the right to the Building sign twice in connection with an assignment of the Lease to an entity engaged in retail banking operations following a merger, consolidation, sale or other transfer of assets by Tenant provided as follows: (1) On the first assignment, the assignee has total assets equal to a minimum of $135,343,000 adjusted for inflation and total equity capital equal to 125% of Tenant's total equity capital at the time of execution of the Lease adjusted for inflation, and (2) On the second assignment, the assignee has total assets equal to a minimum of $135,343,000 adjusted for inflation and total equity capital equal to 200% of Tenant's total equity capital at the time of execution of the Lease adjusted for inflation. For purposes of the foregoing, Tenant's current total equity capital is $11,991,000. Adjustments for inflation will be based on an increase in the Index using September 1996 as the base month and the Index last published prior to the assignment as the comparison month
Tenant shall not conduct any auction on the Premises or in the Building.
50. MODIFICATION FOR LENDER. If, in connection with obtaining construction, interim or permanent financing for the Building, the lender shall request reasonable modifications in this Lease as a condition to such financing, Tenant will not unreasonably withhold, delay or defer its consent thereto, provided that such modifications do not increase the obligations of Tenant hereunder or materially adversely affect the leasehold interest hereby created or Tenant's rights hereunder.
51. ACCORD AND SATISFACTION. No payment by Tenant or receipt by Landlord of a lesser amount than the rent payment herein stipulated shall be deemed to be other than on account of the rent, nor shall any endorsement or statement on any check or any letter accompanying any check or payment as rent be deemed an accord and satisfaction, and Landlord
may accept such check or payment without prejudice to Landlord's right to recover the balance of such rent or pursue any other remedy provided in this Lease.
52. AUTHORITY. Each of the persons executing this Lease on behalf of Tenant warrants and represents that Tenant is a duly organized and validly existing entity, that Tenant has full right and authority to enter into this Lease and that the persons signing on behalf of Tenant are authorized to do so and have the power to bind Tenant to this Lease. Tenant shall provide Landlord upon request with evidence reasonably satisfactory to Landlord confirming the foregoing representations.
53. INTEREST ON UNPAID RENT. Rent not paid when due shall bear interest from the date due until paid at the rate of fifteen percent (15%) per annum or the maximum lawful rate that Landlord may charge to Tenant under applicable laws, whichever is less.
54. DISPUTED SUMS. If Tenant disputes any amount due Landlord under the terms of this Lease, including, without limitation, Direct Expenses or sums advanced by Landlord to cure Tenant's default, Tenant shall pay the amount demanded by Landlord. Upon resolution of the dispute, whether by agreement, settlement or judgment entered following litigation, any amount to be refunded by Landlord shall be paid within thirty (30) days of resolution of the dispute. Failure by Tenant to pay any disputed sum until resolution shall constitute a default under this Lease.
55. OPTION TO EXTEND. Landlord hereby grants to Tenant the right and option to extend the term of this Lease for one (1) additional period of five (5) years (the "Option Term"). Provided Tenant is not in default under the Lease with any applicable cure period having expired, Tenant may exercise the option by sending written notice to Landlord at least one hundred eighty (180) days prior to the expiration of the term. Annual Basic Rent for the Option Term shall be the Annual Basic Rent (adjusted for any allowances for tenant improvements or other tenant concessions) being entered into for comparable space in buildings located at 2220, 2240 and 2260 Douglas Boulevard, Roseville, California, for the period of four (4) months prior to the date the Option Term is to commence. In no event shall the Annual Basic Rent be less than the Annual Basic Rent in effect at the time of exercise of the option. The Direct Expense Base shall be the actual expenses for the calendar year in which the Option Term commences. If Tenant is in default on the date the Option Term is to commence with any applicable cure period having expired, at Landlord's option, the Option Term shall not commence and this Lease shall expire at the end of the term as described in Paragraph 3 above. This option to extend is personal to Tenant and may not be exercised by any assignee or subtenant. If and only if Tenant is represented by a broker during the discussions concerning Tenant's exercise of its option to extend and a commission for the extension is actually paid by Landlord to Landlord's broker, Tenant's broker shall receive one-half of the commission paid to Landlord's broker.
56. EXPANSION RIGHTS. Suite 110 (comprised of 2,203 rentable square feet) is currently leased to Countrywide Funding Corporation with a term ending June 24, 1998. Countrywide has the option to extend the term for an additional period of two (2) years. The Landlord is willing to give Tenant the right to expand into Suite 110 upon the expiration of the Countrywide lease term, either on June 24, 1998 or at the expiration of the two-year extended term. Landlord shall send written notice to Tenant that Countrywide is not exercising its option to extend its term, or, if applicable, prior to the expiration of the two-year extended term. The lease terms for Suite 110 shall be the same as the lease terms for Suite 100, other than the annual rental rate and the provisions regarding the tenant improvement allowance. The annual rental rate shall be the same rent (adjusted for any
allowances for tenant improvements or other tenant concessions) being entered into for comparable space in buildings at 2220, 2240 and 2260 Douglas Boulevard for the period of four (4) months prior to the date the expansion area is to be occupied by Tenant. Tenant and Landlord shall have ninety (90) days from the date of Landlord's notice to agree in good faith upon the rental rate and the tenant improvement allowance to be granted by the Landlord with respect to the expansion space, if any. If agreement is not reached before the end of the ninety 90 days, Tenant's rights to expand into Suite 110 shall terminate. If and only if Tenant is represented by a broker during the discussions concerning Tenant's expansion and a commission for the expansion is actually paid by Landlord to Landlord's broker, Tenant's broker shall received one-half of the commission paid to Landlord's broker.
Tenant agrees that each of the foregoing covenants and agreements shall be applicable to any covenant or agreement either expressly contained in this Lease or imposed by any statute or at common law.
EXHIBITS "A," "A-1," "A-2," "A-3," "B" and "C" attached hereto are incorporated herein by reference.
IN WITNESS WHEREOF, the parties have executed this Lease the day and year first above written.
LANDLORD. TENANT:
LUM YIP KEE, LIMITED, AMERICAN RIVER BANK, a
a Hawaii corporation California corporation
By: /s/ By: /s/ WILLIAM L. YOUNG
----------------------------- -----------------------------
Its: Name: William L. Young
Date: Its: President /CEO
Date: 8/29/96
SAN TEI COMPANY, By: /s/ DAVID T. TABER
a Hawaii limited partnership -------------------------
Name: David Taber
Its: EVP
By: TUNG TE CORPORATION, Date: 8/29/96
General Partner
By: /s/
----------------------------
Its:
Date:
|
Doing business as Sandalwood Land Company
EXHIBIT A-2
PRELIMINARY
TENANT IMPROVEMENT COST ITEMIZATION
TENANT: American River Bank
BUILDING: 2240 Douglas Boulevard
SUITE NUMBER: 100
SQUARE FEET: U-3,445; R-3,790
SPACE PLANNER: Stafford Space Planning
PLAN NUMBER: PSP - A.1
DATE OF PLANS: March 14, 1996
March 26, 1996
ESTIMATED BY: HMH
CHECKED BY: TR
DATE: March 27, 1996
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ITEM AMOUNT
---------------------------------------------- ---------------------------------
General Conditions $14,092
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Demolition 5,550
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Casework Storage Room 1,960
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Safety Deposit Viewing Room 260
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Employee Lounge 1,930
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ATM Storage 1,585
---------------------------------------------- ---------------------------------
Angle Back Counter 3,655
---------------------------------------------- ---------------------------------
Merchant Teller 840
---------------------------------------------- ---------------------------------
Front Angle Counter 16,650
---------------------------------------------- ---------------------------------
3 Pass-through Gates 4,950
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Partitions 525
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Acoustical Ceiling - Repairs 3,240
---------------------------------------------- ---------------------------------
Doors, Frames & Hardware 6,020
---------------------------------------------- ---------------------------------
Carpentry 3,750
---------------------------------------------- ---------------------------------
Metal Studs/DrywalI/I nstallation 8,415
---------------------------------------------- ---------------------------------
Final Clean 425
---------------------------------------------- ---------------------------------
Interior Windows 4,423
---------------------------------------------- ---------------------------------
Paint/Stain/Lacquer 7,450
---------------------------------------------- ---------------------------------
Ceramic Tile 970
---------------------------------------------- ---------------------------------
Floor Covering 10,130
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Mechanical 2,510
---------------------------------------------- ---------------------------------
Electrical 17,176
---------------------------------------------- ---------------------------------
Plumbing 4,480
---------------------------------------------- ---------------------------------
Fire Protection 2,160
---------------------------------------------- ---------------------------------
Vertical Blinds 645
---------------------------------------------- ---------------------------------
Wall Covering - Allowance 2,160
---------------------------------------------- ---------------------------------
Appliances 700
---------------------------------------------- ---------------------------------
Corridor Wallcover Remove and Re-Paint 1,680
-----
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Sub-total 128,331
---------------------------------------------- ---------------------------------
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Contractor's Fee @ 8% 10,266
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Contingency 2,500
---------------------------------------------- ---------------------------------
Space Planning, Construction Drawings, 5,903
Blueprint Allowance
---------------------------------------------- ---------------------------------
Permit Allowance 1,500
---------------------------------------------- ---------------------------------
Construction Administration - SF 1,722
---------------------------------------------- ---------------------------------
TOTAL $150,222
---------------------------------------------- ---------------------------------
43.61 per usable square foot
---------------------------------------------- ---------------------------------
Total to be furnished and installed by $103,350
Landlord's contractor
---------------------------------------------- ---------------------------------
$30.00 per usable square foot
---------------------------------------------- ---------------------------------
|
NOTES:
1 All costs are based on the building standard specifications.
2. Prices shown are based on allowances only, these costs are for budget
purposes only.
3. Prices shown are preliminary and are subject to adjustments due to final
City approved drawings and final Contractor's estimates.
4. Telephone and computer cabling furnished and Installed by Tenant.
5. Wall cover Is an allowance only for fabric.
6. Add for Bristol Point Carpet = $3,059.00.
7. Add for Milano Carpet = $12,851.00.
8. Add for upgraded site lights (ATM) = $3,223.00.
9. Add for sheet metal backing at safe deposit = $900.00.
10. Add for Face Frame construction at casework = $2,405.00.
11. Add for HVAC unit for ATM Room = $6,900.00.
LANDLORD: TENANT:
LUM YIP KEE, LIMITED, AMERICAN RIVER BANK,
a Hawaii corporation a California corporation
By: /s/ By: /s/ WILLIAM L. YOUNG
------------------------------ ----------------------------
Its Name: William L. Young
Date: Its: President/CEO
Date: 8/29/96
SAN TEI COMPANY, By: /s/ DAVID T. TABER
a Hawaii limited partnership ----------------------------
Name: David Taber
By: TUNG TE CORPORATION, Its: EVP
General Partner Date: 8/29/96
Date:
Doing business as Sandalwood Land Company
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EXHIBIT A-3
TENANT IMPROVEMENT SPECIFICATIONS
FOR ALLOWANCE WORK
ITEM SPECIFICATIONS
-------------------------- -----------------------------------------------------
Partitioning: 3-5/8" metal studs at 24" on center with 5/8"
drywall 9'2" high. Corridors to be fire rated
drywall. Walls to be painted to be taped and
textured. Walls to receive wallcovering to be
taped and sanded smooth. Walls to be sealed with
foam tape where wall partition joins window
sections.
-------------------------- -----------------------------------------------------
Doors: Calwood or equal prefinished solid core plain sliced
red oak doors with hardwood edges sized 3'0" x 8'10"
x 1-3/4". Corridor doors to be 20 minute labeled.
Door frames to be 9'0" high metal, 20 minute labeled
as approved by project architect.
-------------------------- -----------------------------------------------------
Door Hardware: ENTRY DOORS: Hardware to be two (2) pair ball bearing
hinges with closer, floor stops and Schlage Oly "D"
series or equal mortise lock, all with polished
chromium finish.
PASSAGE DOORS: Hardware to be two (2) pair hinges
with floor or wall stop as required and Schlage Oly
"D" series or equal passage or locking lock, all with
polished chromium finish.
DOOR CLOSERS: 4041 CUSH or equal.
-------------------------- -----------------------------------------------------
Ceiling: T-BAR GRID: Donn DXL fire rated T-bar Grid suspension
system.
CEILING TILE: 2' x 4' Armstrong "Minaboard" flat
lay-in, nondirectional, fissured acoustical tile.
-------------------------- -----------------------------------------------------
Floor Covering: Carpet: Carpet: Designweave "Westbridge IT" DuPont
Antron, dense tufted cut pile, continuous filament
nylon with 30 ounce per square yard pile weight, .218
inch pile height, 11.0 stitches per inch, direct glue
down installation.
-------------------------- -----------------------------------------------------
Exterior Window Covering: Graber 3-1/2" PVC "Suntura" white vertical louvre
drapes suspended from a Graber G-71 2" x 1-3/4"
headrail.
-------------------------- -----------------------------------------------------
Electrical Duplex ouytlets: OUTLETS: Specification grade Hubbell CR series,
or equal.
WIRING: T.H.H.N. No. 12.
-------------------------- -----------------------------------------------------
Elecgtrical Wall Switches: Specification grde Hubbell CS series, or equal
-------------------------- -----------------------------------------------------
Light Fixtures: FLUORESCENT FIXTURES: 2' x 4' Lithonia Model No.
2PM3GB340-186-ES-SLP, 18 cell, parabolic, 3 lamp
fixture, or equal.
FIXTURE LENS LIGHT BULBS: Lithonia 1.10 lens with
cool white fluorescent tubes.
-------------------------- -----------------------------------------------------
Wall Paint: All walls to be painted with one finish coat.
-------------------------- -----------------------------------------------------
Fire Sprinklers: Semi-recessed chrome heads with chrome ceiling
-------------------------- -----------------------------------------------------
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EXHIBIT B
WORK LETTER AGREEMENT
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Gentlemen:
You (hereinafter called "Tenant") and we (hereinafter called "Landlord") are executing simultaneously with this Work Letter Agreement ("Agreement"), a written Standard Form Office Lease (the "Lease") covering those certain premises more particularly described in Exhibits "A" and "A-I" to the Lease (the "Premises") in the building addressed at 2240 Douglas Boulevard, Roseville, California.
To induce Tenant to enter into the Lease (which is hereby incorporated by reference to the extent that the provisions of this agreement may apply thereto) and in consideration of the mutual covenants hereinafter contained, Landlord and Tenant mutually agree as follows:
1. DEFINITIONS. Unless otherwise defined in this Agreement, the capitalized terms used herein shall have the meaning assigned to them in the Lease.
2. REPRESENTATIVES. Landlord hereby appoints Todd Rudd as Landlord's representative to act for Landlord in all matters covered by this Agreement. Tenant hereby appoints David Taber as Tenant's representative to act for Tenant in all matters covered by this Agreement. All inquiries, requests, instructions, authorizations and other communications with respect to the matters covered by this Agreement shall be related to Landlord's representative or Tenant's representative, as the case may be. Tenant will not make any inquiries of or request to, and will not give any instructions or authorizations to, any other employee or agent of Landlord, including Landlord's architects, engineers, and contractors or any of their agents or employees, with regard to matters covered by this Agreement. Either Landlord or Tenant may change its representative at any time by written notice to the other.
3. TENANT SPACE PLAN AND PRELIMINARY TENANT IMPROVEMENT COST ITEMIZATION. Landlord and Tenant hereby approve the preliminary space layout and improvement plan for the premises (the "Tenant Space Plan") attached to the Lease as Exhibit "A-1" and Landlord's itemization of the cost of constructing the improvements to the Premises desired by Tenant ("Tenant Improvement Cost Itemization") attached to the Lease as Exhibit "A-2". The Tenant Improvement Cost Itemization does not include the cost of the installation of the ATM, which is discussed below in paragraph 7. Landlord agrees to cause the improvements to be constructed for an amount not exceeding the Tenant Improvement Cost Itemization, subject to increase caused by (i) any changes in the Tenant Working Drawings required by the governmental authority issuing the building permits for the leasehold improvements; or (ii) any changes, modifications, or change orders requested by Tenant; or (iii) any delay by Tenant enumerated in Paragraph 12 below that increases the cost of construction.
4. TENANT WORKING DRAWINGS. Based upon the approved Tenant Space Plan, Landlord will, through Landlord's architect or space planner, cause working drawings for the improvements to the Premises ("Tenant Working Drawings") to be
prepared and delivered to Tenant within a reasonable period of time after execution of the Lease. The Tenant Working Drawings will include all architectural, mechanical and electrical engineering plans required for the issuance of permits and the completion of the leasehold improvements including complete detailed plans and specifications for Tenant's partition layout, reflected ceiling, heating and air conditioning, electrical outlets and switches, telephone outlets, plumbing, fire sprinklers and finish specifications. It is further agreed that all plans and specifications referred to in this Paragraph 4 above are subject to Landlord's approval, which Landlord agrees shall not be unreasonably withheld. The Tenant Working Drawings shall not include the plans for the installation of the ATM. Landlord's preparation or approval of the Tenant Working Drawings, the Tenant Space Plan and any other plans or specifications shall not constitute any representation as to the adequacy, efficiency, performance or desirability of any space plan or improvements. Tenant shall furnish Landlord, within five (5) business days after Landlord's request, all information necessary to enable Landlord to complete the Tenant Working Drawings. Any interior design services, such as selection of paint colors, wall coverings, fixtures, furnishings, carpeting or design of millwork or other special items shall be provided by Tenant at its expense, but shall be subject to the reasonable approval of Landlord. Tenant shall furnish Landlord, within five (5) business days after Landlord's request, all interior design information necessary to enable Landlord to complete the Tenant Working Drawings.
5. NO SUBSTITUTIONS OR CREDITS. Notwithstanding any other provision of this Agreement, Tenant acknowledges that Landlord requires that the Premises and the Leasehold Improvements meet the specifications set forth on Exhibit "A-3" attached to the Lease and by this reference made a part hereof. In order to preserve uniformity and the construction standards of the Building, Tenant shall be entitled to make no substitutions, or alterations to the specifications set forth in Exhibit "A-3" to the Lease.
6. COST OF CONSTRUCTION AND PLANS. In connection with the Leasehold Improvements to be constructed by Landlord, Landlord shall contribute the following allowances (collectively, the "Allowance"): (i) $3445 for demolition of the existing improvements; (ii) $3445 for preparation of the Tenant Space Plan and Tenant Working Drawings; and (iii) $96,460 for construction of the Leasehold Improvements. If the cost of any or all of the foregoing three categories exceeds the specific amount designated as the Allowance for that category, Tenant shall pay such excess (the "Above-Allowance"). If the actual cost of any or all of the foregoing categories is less than the amount of the Allowance, Landlord shall retain the excess. The cost to install the ATM by Tenant's contractor and the cost to supervise the installation by Landlord's contractor shall be at Tenant's sole expense and shall be included as part of the Above-Allowance for purposes of paragraph 11.
7. INSTALLATION OF ATM. Tenant desires to install an ATM in connection with the operation of its business in the Premises. Tenant shall be responsible for all costs for the design, working drawings and installation of the ATM. Tenant shall have Tenant's architect prepare working drawings for the installation of the ATM. The ATM working drawings shall be subject to Landlord's prior written approval. Landlord agrees to review the ATM working drawings promptly upon receipt from Tenant. For the installation of the ATM, Tenant shall have two options: (1) the ATM shall be installed by Landlord's general contractor pursuant to a separate contract between Tenant and the general contractor, or (2) if Tenant
chooses to use another contractor to install the ATM, that contractor shall be
considered a subcontractor of Landlord's general contractor and Tenant shall
provide Landlord a written change order for the work which shall include the
cost of Landlord's contractor's overhead and profit (not to exceed 10%) and
supervision. Once the cost of the installation of the ATM is determined by
execution of a contract with Landlord's contractor if option (1) is selected, or
by delivery of a change order if option (2) is selected, Tenant shall deposit
with the Escrow Holder (defined below in paragraph 11), (a) 50% of the cost of
the ATM installation no later than five (5) days prior to the commencement of
the ATM installation, (b) 25% of the cost of the ATM installation within five
(5) days of notice from Landlord's general contractor that 50% of the ATM
installation is completed, and (c) 25% of the cost of the ATM installation
within five (5) days of notice from Landlord's general contractor that the ATM
installation is completed. The monies deposited for the ATM installation shall
be disbursed by Escrow Holder to pay the contractor upon receipt of the items
(a) through (i) identified in paragraph 11 below.
8. APPROVAL OF TENANT WORKING DRAWINGS. Tenant will deliver to Landlord written approval of the Tenant Working Drawings within five (5) business days after Tenant receives such items.
9. MODIFICATIONS TO TENANT WORKING DRAWINGS. Tenant may reject the
Tenant Working Drawings if there is a variance in design from the Tenant Space
Plan. In such event, Landlord will promptly revise the Tenant Working Drawings.
Landlord will act in a reasonably diligent manner in approving or rejecting
modifications to the Tenant Working Drawings requested by Tenant and in causing
revised Tenant Working Drawings (reflecting approved modifications) and a
revised Tenant Improvement Cost to be prepared. Tenant shall approve or reject
(subject to the limitation set forth in the first sentence in this paragraph)
such revised Tenant Working Drawings and revised Tenant Improvement Cost within
a period of five (5) days after receipt. Each day after such five (5)-day period
until Tenant approves or rejects the revised Tenant Working Drawings and
executes and returns to Landlord a revised Tenant Itemization will constitute
delay chargeable to Tenant. Landlord shall resubmit the revised Tenant Working
Drawings until they are approved by the Tenant. The parties agree to act
diligently and in good faith in their dealings to approve the Tenant Working
Drawings as expeditiously as possible. If the Tenant Working Drawings are not
finally approved by September 27, 1996, either party may terminate the Lease or
the parties may mutually agree to extend the date set forth in paragraph 4 of
the Lease.
10. EFFECT OF APPROVAL. Tenant's approval of Tenant Working Drawings (initial or revised) will constitute Tenant's acknowledgment that such drawings correctly depict the proper layout and design for any and all improvements to the Premises desired by Tenant and will constitute authorization to Landlord to proceed with and complete construction of Leasehold Improvements in the Premises. All of the work called for by the Tenant Working Drawings will be performed by one or more contractors engaged by Landlord. Following approval of the Tenant Working Drawings, Landlord will submit the Tenant Working Drawings to the appropriate governmental authorities for necessary approvals and building permits.
11. PAYMENT FOR ABOVE-ALLOWANCE WORK . The Above-Allowance shall be paid in three installments. Upon Tenant's
approval of the Tenant Working Drawings, Tenant shall deposit fifty percent (50%) of the actual cost of the Above-Allowance Work into an interest bearing escrow account with North American Title Insurance Company, 2240 Douglas Boulevard, Roseville, California (the "Escrow Holder") to be held in escrow during the construction of the Leasehold Improvements. Twenty-five percent (25%) of the Above-Allowance shall be deposited by Tenant with Escrow Holder within five (5) days from notice by Landlord to Tenant that fifty percent (50%) of the Leasehold Improvements have been completed. The balance of the Above-Allowance shall be deposited by Tenant with Escrow Holder within five (5) days from notice by Landlord to Tenant that the Leasehold Improvements are completed as evidenced by the issuance of a temporary certificate of occupancy and the completion of all punchlist items. The Above-Allowance shall be disbursed by Escrow Holder to pay the contractor(s) upon receipt of the following by Escrow Holder:
a) A draw request signed by the contractor(s) accompanied by invoices, receipts or other evidence documenting the draw request.
(b) An executed Conditional Waiver and Release Upon Progress Payment from the contractor(s) and subcontractor for the amount of work completed for which payment is sought.
(c) Written certification from the Landlord's space planner, and the contractor(s) that the Leasehold Improvements as constructed to date conform to the Working Drawings (as such term is defined in the Lease).
(d) Written approval from Landlord and Tenant to disburse the requested amounts. A ten percent (10%) retention will be shown on each draw request and will be disbursed following completion of the Leasehold Improvements.
The ten percent (10%) retention amount shall be disbursed to the contractor(s) when all of the following have occurred:
(e) At least sixty-five (65) days have elapsed following recordation of a notice of completion of the Leasehold Improvements or, if contractor(s) provides an Unconditional Waiver and Release upon Final Payment, at least thirty-five (35) days have elapsed following recordation of the notice of completion of the Leasehold Improvements.
(f) Written notice from Landlord and Tenant that contractor(s) has completed the items of construction set forth in the punchlist and Tenant has accepted possession of the Premises.
(g) Verification that no claim of lien has been recorded against the Premises, the Building or the land on which the Building is situated.
(h) The final certificate of occupancy for the Premises has been received.
(i) Written instructions from the Landlord and Tenant confirming that the funds deposited with Escrow Holder may be released in accordance with these provisions.
Upon request, Tenant shall execute escrow instructions incorporating the disbursement procedures detailed in this paragraph 11.
Interest earned on the Above-Allowance shall be paid to Tenant.
Should Landlord waive any of the standard Building criteria set forth in Exhibit "A-3" to the Lease, Tenant shall not be entitled to any credit therefor. Landlord shall not be obligated to commence any construction (including any ordering or purchasing of materials) of Tenant's improvements until Tenant has approved the Tenant Working Drawings, and has paid Landlord fifty percent (50%) of the cost of the Above-Allowance Work. All amounts payable by Tenant under this Agreement shall constitute additional rent under the Lease, and Landlord shall have the same remedies against Tenant for default in the payment thereof as in the case of Tenant's failure to pay any other sum due under the Lease.
12. COMPLETION AND RENTAL COMMENCEMENT DATE. Tenant's obligation for the payment of rent pursuant to the Lease will commence on the Commencement Date as set forth in the Lease; however, such payment of rent may be delayed in the event the substantial completion of the leasehold improvements is delayed by Landlord's actions. If, however, Tenant's occupancy and use of the Premises are delayed as a result of:
(a) Tenant's failure to timely supply information necessary to complete the Tenant Working Drawings (or revisions to such drawings), or to timely review the Tenant Working Drawings (or revisions to such drawings); or
(b) Tenant's request for new work involving Above- Allowance Work; or
(c) modifications, revisions and changes to the Tenant Space Plan or Tenant Working Drawings requested by or on behalf of Tenant; or
(d) changes in the work requested by or on behalf of Tenant or orders to halt or delay the work given by or on behalf of Tenant; or
(e) Any other delay of any kind or nature caused by Tenant or its contractors, architects, space planners or other agents or employees,
then the Commencement Date of the Lease shall be shortened for each calendar day of delay caused by Tenant and the Commencement Date shall be the date the Leasehold Improvements would have been substantially completed (as defined in paragraph 3 of the Lease) had a Tenant delay not occurred. Completion of the ATM installation shall not be a condition to the commencement of the term of this Lease.
13. PUNCHLIST PROCEDURE. Following Landlord's substantial completion of the Leasehold Improvements, Landlord and Tenant shall inspect the Premises and jointly prepare a punchlist of agreed upon items of construction remaining to be completed by Landlord. Landlord shall complete the items (except any long-lead items) set forth in the punchlist within thirty (30) days after the preparation of the punchlist.
14. CHANGE ORDERS. Tenant may authorize changes in the work during construction only by written instructions to Landlord's
representative on a form approved by Landlord. Also, such changes will be
subject to Landlord's prior written approval. Before commencing any change,
Landlord will prepare and deliver to Tenant, for Tenant's approval, the change
order setting forth the cost of such change, which will include associated
architectural, engineering and construction fees, if any, costs due to any delay
in construction and ten percent (10%) of the cost of such change for Landlord's
contractor's overhead. If Tenant fails to approve such change order within three
(3) days, Tenant will be deemed to have withdrawn the proposed change and
Landlord will not proceed to perform that change. If Tenant timely approves such
change order, Tenant will within one (1) day of approval of the change order
deposit with Escrow Holder any amounts payable by Tenant in connection with the
change orders provided in this Paragraph.
15. ACCESS TO PREMISES PRIOR TO DELIVERY. Landlord shall allow Tenant and its contractors to enter the Premises to permit Tenant to install its cabling for telephone and computers at the point of construction that Landlord's contractor would install such items if it were Landlord's responsibility; provided, however, that prior to such entry into the Premises, Tenant shall provide evidence reasonably satisfactory to Landlord that the insurance required to be carried by Tenant under Paragraph 22 ("Insurance") of the Lease shall be in full force and effect at the time of such entry. Tenant and its representatives shall not interfere with Landlord or Landlord's contractor in completing the work required of Landlord under this Agreement and Tenant and its representatives shall be subject to all directives of Landlord and Landlord's contractors in connection with such entry as well as the use of the Building's common areas, restrooms, elevators, truck loading areas and other facilities. Tenant expressly agrees that its contractors shall not play radios, smoke cigarettes, leave trash in the Premises or park their motor vehicles in any portion of the Building's parking lot, except in the area designated by Landlord for such vehicles. Prior to the commencement of any construction in the Premises, Tenant shall provide Landlord's representative a proposed work schedule for Tenant's contractors and other representation, which schedule shall be subject to Landlord's reasonable approval.
Tenant agrees that Landlord shall not be liable in any way for any injury, loss or damage which may occur to any of Tenant's property placed upon or installed in the Premises prior to the Commencement Date, the same being at Tenant's sole risk, and Tenant shall be liable for all injury, loss or damage to persons or property arising as a result of such entry of the Premises by Tenant or its representatives.
16. NO ROOF ACCESS. Tenant agrees that neither this Agreement nor the Lease grants Tenant any right of access to the roof of the Building. Should Landlord, in connection with this Agreement or the Lease, agree to mount equipment of any nature on the Building roof, such equipment shall, at Landlord's option, either be maintained and installed by Landlord, or maintained and installed under Landlord's direction, unless this Agreement expressly provides otherwise, all at Tenant's expense. Should this Agreement or the Lease permit Tenant to install any equipment on the roof, any modifications to the roof or the roof's structure to accommodate that equipment shall be made at Tenant's sole cost and expense.
17. EXCESSIVE LOADS. Tenant agrees that should the nature of its layout or any of its equipment, fixtures or furnishings to be placed in the Premises place a burden in excess of the Building's designed
load, Tenant agrees to pay Landlord the cost of any modifications to the Building necessary to accommodate Tenant's furniture, furnishings or layout.
18. ALTERATIONS. Any alterations or improvements desired by Tenant after Landlord's delivery of the Premises shall be subject to the provisions of Paragraph 14 ("Alterations") of the Lease.
If the foregoing correctly sets forth our understanding, please sign this Agreement where indicated below.
LANDLORD: TENANT:
LUM YIP KEE, LIMITED, AMERICAN RIVER BANK,
a Hawaii corporation a California Corporation
By: /s/ By: /s/ WILLIAM L. YOUNG
--------------------------- -----------------------------
Name: William L. Young
Its: President/CEO
Date: 8/29/96
SAN TEI COMPANY, By: /s/ DAVID T. TABER
a Hawaii limited partnership -----------------------------
Name: David Taber
By: TUNG TE CORPORATION, Its: EVP
General Partner Date: 8/29/96
Date:
By:
Its:
Doing business as Sandalwood Land Company
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EXHIBIT C
RULES AND REGULATIONS
1. No sign, placard, picture, advertisement, name or notice shall be installed or displayed on any part of the outside or inside of the Building or the Premises, including without limitation, the windows and doors of the Premises, without the prior written consent of Landlord. Landlord shall have the right to remove, at Tenant's expense and without notice, any sign installed or displayed in violation of this rule. All approved signs or lettering on doors and walls shall be professionally printed, painted, affixed or inscribed at the expense of Tenant by a person chosen by Landlord.
2. If Landlord objects in writing to any curtains, blinds, shades, screens or hanging plants or other similar objects attached to or used in connection with any window or door of the Premises, Tenant shall immediately discontinue such use. No awning shall be permitted on any part of the Premises. Tenant shall not place anything against or near glass partitions or doors or windows which may appear unsightly from outside the Premises.
3. Tenant shall not obstruct any sidewalks, halls, passages, exits, entrances, elevators, escalators or stairways of the Building. The halls, passages, exits, entrances, shopping malls, elevators, escalators and stairways are not for the general public, and Landlord shall in all cases retain the right to control and prevent access thereto of all persons whose presence in the judgment of Landlord would 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 any tenant normally deals in the ordinary course of its business, unless such persons are engaged in illegal activities. No tenant and no employee or invitee of any tenant shall go upon the roof of the Building.
4. Landlord will provide a central directory for the Building, and ninety percent (90%) of such directory shall be available for the tenants occupying the Building. The tenants' space on such directory shall be allocated based upon the ratio between the Rentable Area occupied by each tenant and the total Rentable Area within the Building. The directory of the Building will be provided exclusively for the display of the name and location of tenants only, and Landlord reserves the right to exclude any other names therefrom.
5. All cleaning and janitorial services for the Building and the Premises shall be provided exclusively through Landlord, except with the written consent of Landlord, no person or persons other than those approved by Landlord shall be employed by Tenant or permitted to enter the Building for the purpose of cleaning the same. Tenant shall not cause any unnecessary labor by carelessness or indifference to the good order and cleanliness of the Premises. Landlord shall not in any way be responsible to any Tenant for any loss of property on the Premises, however occurring, or ft makor any damage to any Tenant's property by the janitor or any other employee or any other person.
6. Landlord will furnish Tenant, free of charge, with two keys to each door lock in the Premises. Landlord may make a reasonable charge for any additional keys. Tenant shall noe or have made additional keys, and Tenant shall not alter any lock or install a new additional lock or bolt on any door of its Premises. Tenant, upon the termination of its tenancy, shall deliver to Landlord the keys of all doors which have been furnished to
Tenant, and in the event of loss of any keys so furnished, shall pay Landlord therefor.
7. If Tenant requires telegraphic, telephonic, burglar alarm, antenna, satellite dish or similar services, it shall first obtain, and comply with, Landlord's instructions in their installation.
8. Any freight elevator shall be available for use by all tenants in the Building, subject to such reasonable scheduling as Landlord in its discretion shall deem appropriate. No equipment, materials, furniture, packages, supplies, merchandise or other property will be received in the Building or carried in the elevators except between such hours and in such elevators as may be designated by Landlord.
9. Tenant shall not place a load upon any floor of the Premises which exceeds the load per square foot which such floor was designed to carry and which is allowed by law. Landlord shall have the right to prescribe the weight, size and position of all equipment, materials, furniture or other property brought into the Building. Heavy objects shall, if considered necessary by Landlord, stand on such platforms as determined by Landlord to be necessary to properly distribute the weight. Business machines and mechanical equipment belonging to Tenant, which cause noise or vibration that may be transmitted to the structure of the Building or to any space therein to such a degree as to be objectionable to Landlord or to any tenants in the Building, shall be placed and maintained by Tenant, at Tenant's expense, on vibration eliminators or other devices sufficient to eliminate noise or vibration. The persons employed to move such equipment in or out of the Building must be acceptable to Landlord. Landlord will not be responsible for loss of, or damage to, any such equipment or other property from any cause, and all damage done to the Building by maintaining or moving such equipment or other property shall be repaired at the expense of Tenant.
10. Tenant shall not use or keep in the Premises any kerosene, gasoline or inflammable or combustible fluid or material other than those limited quantities necessary for the operation or maintenance of office equipment. Tenant shall not use or permit to be used in the Premises any foul or noxious gas or substance, or permit or allow the Premises to be occupied or used in a manner offensive or objectionable to Landlord or other occupants of the Building by reason of noise, odors or vibrations, nor shall Tenant bring into or keep in or about the Premises any birds or animals.
11. Tenant shall not use any method of heating or air-conditioning other than supplied by Landlord.
12. Tenant shall not waste electricity, water or air-conditioning and agrees to cooperate fully with Landlord to assure the most effective operation of the Building's heating and air-conditioning and to comply with any governmental energy-saving rules, laws or regulations of which Tenant has actual notice, and shall refrain from attempting to adjust controls other than room thermostats installed for Tenant's use. Tenant shall keep corridor doors closed, and shall close window coverings at the end of each business day. Because the Premises shall be used for retail banking and related financial services, Landlord shall waive the requirement that the window coverings be closed at the end of each business day.
13. Landlord reserves the right, exercisable without notice and without liability to Tenant, to change the name and street address of the Building.
14. Landlord reserves the right to exclude from the Building between the hours of 6 p.m. and 7 a.m. the following day, or such other hours as may be established from time to time by Landlord, and on Sundays and
legal holidays, any person unless that person is known to the person or employee in charge of the Building and has a pass or is properly identified. Tenant shall be responsible for all persons for whom it requests passes and shall be liable to Landlord for all acts of such persons. Landlord shall not be liable for damages for any error with regard to the admission to or exclusion from the Building of any person. Landlord reserves the right to prevent access to the Building in case of invasion, mob, riot, public excitement or other commotion by closing the doors or by other appropriate action.
15. Tenant shall close and lock the doors of its Premises and entirely shut off all water faucets or other water apparatus before Tenant and its employees leave the Premises. Tenant shall be responsible for any damage or injuries sustained by other tenants or occupants of the Building or by Landlord for noncompliance with this rule.
16. Tenant shall not obtain for use on the Premises ice, drinking water, food, beverage, towel or other similar services or accept barbering or bootblacking services upon the Premises, except at such hours and under such regulations as may be fixed by Landlord.
17. The toilet rooms, toilets, 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. The expense of any breakage, stoppage or damage resulting from the violation of this rule shall be borne by the tenant who, or whose employees or invitees, shall have caused it.
18. Tenant shall not sell, or permit the sale at retail, of newspapers, magazines, periodicals, theater tickets or any other goods or merchandise to the general public in or on the Premises. Tenant shall not make any room-to-room solicitation of business from other tenants in the Building. Tenant shall not use the Premises for any business or activity other than that specifically provided for in Tenant's Lease.
19. Tenant shall not install any radio or television antenna, loudspeaker or other devise on the roof or exterior walls of the Building. Tenant shall not interfere with radio or television broadcasting or reception from or in the Building or elsewhere.
20. Tenant shall not mark, drive nails, screw or drill into the partitions, woodwork or plaster or in any way deface the Premises or any part thereof. Landlord reserves the right to direct electricians as to where and how telephone and telegraph wires are to be introduced to the Premises. Tenant shall not cut or bore holes for wires. Tenant shall not affix any floor covering to the floor of the Premises in any manner except as approved by Landlord. Tenant shall repair any damage resulting from noncompliance with this rule.
21. Tenant shall not install, maintain or operate upon the Premises any vending machine without written consent of Landlord.
22. Canvassing, soliciting and distribution of handbills or any other written material, and peddling in the Building are prohibited, and each tenant shall cooperate to prevent same.
23. Landlord reserves the right to exclude or expel from the Building any person who, in Landlord's judgment, is intoxicated or under the influence of liquor or drugs or who is in violation of any of the Rules and Regulations of the Building.
24. Tenant shall store all its trash and garbage within its Premises. Tenant shall not place in any trash box or receptacle any material which cannot be disposed of in the ordinary and customary manner of trash and
garbage disposal. All garbage and refuse disposal shall be made in accordance with directions issued from time to time by Landlord.
25. The Premises shall not be used for the storage of merchandise held for sale to the general public, or for lodging or for manufacturing of any kind, nor shall the Premises be used for any improper, immoral or objectionable purpose. No cooking shall be done or permitted by any tenant on the Premises, except that use by Tenant of Underwriters' Laboratory approved microwave ovens and equipment for brewing coffee, tea, hot chocolate and similar beverages shall be permitted, provided that such equipment and use is in accordance with all applicable federal, state, county and city laws, codes, ordinances, rules and regulations..
26. Tenant shall not use in any space or in the public halls of the Building any hand trucks except those equipped with rubber tires and side guards or such other material-handling equipment as Landlord may approve. Tenant shall not bring any other vehicles of any kind into the Building.
27. Without the written consent of Landlord, Tenant shall not use the name of the Building in connection with or in promoting or advertising the business of Tenant except as Tenant's address.
28. Tenant shall comply with all safety, fire protection and evacuation procedures and regulations established by Landlord or any governmental agency.
29. Tenant assumes any and all responsibility for protecting its Premises from theft, robbery and pilferage, which includes keeping doors locked and other means of entry to the Premises closed.
30. The requirements of Tenant will be attended to only upon appropriate application to the office of the Building by an authorized individual. Employees of Landlord shall not perform any work or do anything outside of their regular duties unless under special instructions from Landlord, and no employee of Landlord will admit any person (Tenant or otherwise) to any office without specific instructions from Landlord.
31. Tenant shall not park its vehicles in any parking areas designated by Landlord as areas for parking by visitors to the Building. Tenant shall not leave vehicles in the Building parking areas overnight nor park any vehicles in the Building parking areas other than automobiles, motorcycles, motor driven or non-motor driven bicycles or four-wheeled trucks.
32. Landlord may waive any one or more of these Rules and Regulations for the benefit of Tenant or any other tenant, but no such waiver by Landlord shall be construed as a waiver of such Rules and Regulations in favor of Tenant or any other tenant, nor prevent Landlord from thereafter enforcing any such Rules and Regulations against any or all of the tenants of the Building.
33. These Rules and Regulations are in addition to, and shall not be construed to in any way modify or amend, in whole or in part, the terms, covenants, agreements and conditions of any lease of premises in the Building.
34. Landlord reserves the right to make such other and reasonable Rules and Regulations as, in its judgment, may from time to time be needed for safety and security, for care and cleanliness of the Building and for the preservation of good order therein. Tenant agrees to abide by all such Rules and Regulations hereinabove stated and any additional rules and regulations which are adopted.
35. Tenant shall be responsible for the observance of all of the foregoing rules by Tenant's employees, agents, clients, customers, invitees and guests.
LANDLORD: TENANT:
LUM YIP KEE, LIMITED, AMERICAN RIVER BANK,
a Hawaii corporation a California corporation
By: /s/ By: /s/ WILLAIM L. YOUNG
------------------------------ -----------------------------
Its: Name: William L. Young
Date: Its: President /CEO
Date: 8/29/96
SAN TEI COMPANY, By: /s/
a Hawaii limited partnership ------------------------------
Name:
Its:
By: TUNG TE CORPORATION, Date:
General Partner
By: /s/
----------------------------
Its:
----------------------------
Date:
---------------------------
Doing business as Sandalwood Land Company
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Office Building Lease
CB Commercial Real Estate Group, Inc.
Is now known as CB Richard Ellis, Inc.
CB RICHARD ELLIS CB COMMERCIAL Real Estate Group Inc.
BROKERAGE AND MANAGEMENT
LICENSED REAL ESTATE BROKER
TABLE OF CONTENTS
PAGE
Article 1 LEASE OF PREMISES ...........................................I
Article 2 DEFINITIONS .................................................1
Article 3 EXHIBITS AND ADDENDA ........................................2
Article 4 DELIVERY OF POSSESSION ......................................2
Article 5 RENT ........................................................2
Article 6 INTEREST AND LATE CHARGES ...................................4
Article 7 SECURITY DEPOSIT ............................................4
Article 8 TENANT'S USE OF THE PREMISES ................................4
Article 9 SERVICES AND UTILITIES ......................................5
Article 10 CONDITION OF THE PREMISES ...................................5
Article 11 CONSTRUCTION, REPAIRS AND MAINTENANCE .......................5
Article 12 ALTERATIONS AND ADDITIONS ...................................6
Article 13 LEASEHOLD IMPROVEMENTS; TENANT'S PROPERTY ...................6
Article 14 RULES AND REGULATIONS .......................................7
Article 15 CERTAIN RIGHTS RESERVED BY LANDLORD .........................7
Article 16 ASSIGNMENT AND SUBLETTING ...................................7
Article 17 HOLDING OVER ................................................8
Article 18 SURRENDER OF PREMISES .......................................8
Article 19 DESTRUCTION OR DAMAGE .......................................8
Article 20 EMINENT DOMAIN ..............................................8
Article 21 INDEMNIFICATION .............................................9
Article 22 TENANT'S INSURANCE ..........................................9
Article 23 WAIVER OF SUBROGATION ......................................10
Article 24 SUBORDINATION AND ATTORNMENT ...............................10
Article 25 TENANT ESTOPPEL CERTIFICATES ...............................10
Article 26 TRANSFER OF LANDLORD'S INTEREST ............................10
Article 27 DEFAULT ....................................................10
Article 28 BROKERAGE FEES .............................................11
Article 29 NOTICES ....................................................11
Article 30 GOVERNMENT ENERGY OR UTILITY CONTROLS ......................11
Article 31 RELOCATION OF PREMISES .....................................11
Article 32 QUIET ENJOYMENT ............................................12
Article 33 OBSERVANCE OF LAW ..........................................12
Article 34 FORCE MAJEURE...............................................12
Article 35 CURING TENANT'S DEFAULTS ...................................12
Article 36 SIGN CONTROL................................................12
Article 37 MISCELLANEOUS...............................................12
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OFFICE BUILDING LEASE CB COMMERCIAL REAL ESTATE GROUP, INC.
IS NOW KNOWN AS CB RICHARD ELLIS, INC.
CB RICHARD ELLIS CB COMMERCIAL REAL ESTATE GROUP, INC
BROKERAGE AND MANAGEMENT
LICENSED REAL ESTATE BROKER
This Lease between UNION BANK OF CALIFORNIA, TRUSTEE FOR AGNES M. BOURN AND
-------------------------------------------------------------
WILLIAM S.
----------
Bourn Trusts a ("Landlord"),and First Source Capital, a
wholly owned subsidiary of
American River Holdings ("Tenant"),
is dated June 29, '1999
1. LEASE OF PREMISES
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In consideration of the Rent (as defined at Section 5.4) and the provisions of this Lease, Landlord leases to Tenant and Tenant leases from Landlord the Premises shown by diagonal lines on the floor plan attached hereto as Exhibit "A," and further described at Section 21. The Premises are located within the Building and Project described in Section 2m. Tenant shall have the non-exclusive right (unless otherwise provided herein) in common with Landlord, other tenants, subtenants and invitees, to use of the Common Areas (as defined at Section 2e).
2. DEFINITIONS
As used in this Lease, the following terms shall have the following meanings:
a. Base Rent (initial): $ N/A per year
b. Base Year The calendar year of N/A
c. Broker(s)
Landlord's:- CB RICHARD ELLIS, INC. Tenants:- CB RICHARD ELLIS. Inc.
In the event that CB Commercial Real Estate Group Inc. represents both Landlord and Tenant, Landlord and Tenant hereby confirm that they were timely advised of the dual presentation and that they consent to the same, and that they do not expect said broker to disclose to either of them the confidential information of the other party.
d. Commencement Date: July 8, 1999
e. Common Areas: the building lobbies, common corridors and hallways, restrooms, garage and parking areas, stairways, elevators and other generally understood public or common areas. Landlord shall have the right to regulate or restrict the use of the Common Areas.
f. Expense Stop: (fill in if applicable): $ N/A
g. Expiration Date:- June 30, 2000 unless otherwise sooner terminated in accordance with the provisions of this Lease.
h. Index (Section 5.2): United States Department of Labor, Bureau of Labor Statistics Consumer Price Index for All Urban Consumers, N/A Average, Subgroup "All Items" (1967=100).
i - Landlord's Mailing Address: RIVER PARK OFFICES C/O CB RICHARD ELLIS, INC.
REMS
555 CAPITOL MALL, SUITE 215, SACRAMENTO, CA
95814
Tenant's Mailing Address: First Source Capital Attn: David T. Taber
1545 RIVER PARK DRIVE, #107, SACRAMENTO, CA
95815
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Monthly Installments of Base Rent (initial): $ 533.40 per month.
k. Parking: Tenant shall be permitted, to park 2 cars on a non-exclusive basis in the area(s) designated by Landlord for parking. Tenant shall abide by any and all parking regulations and rules established from time to time by Landlord or Landlord`s parking operator.
l. Premises: that portion of the Building containing approximately 381 square feet of Rentable Area, shown by diagonal lines on Exhibit "A" located on the FIRST floor of the Building and known as Suite 108.
m. Project: the building of which the Premises are a part (the "Building") and any other buildings or improvements on the real property (the "Property") located at 1540 River Park Drive.
Project is known as RIVER PARK PROFESSIONAL OFFICES.
n. Rentable Area: as to both the Premises and the Project, the respective measurements of floor area as may from time to time be subject to lease by Tenant and all tenants of the Project, respectively, as determined by Landlord and applies on a consistent basis throughout the Project. o. Security Deposit (Section 7): $ 533.40
p. State: the State of CALIFORNIA
q. Tenant's First Adjustment Date (Section 5.2): the first day of the calendar month following the Commencement Date plus N/A months.
r. Tenant's Proportionate Share: 1 / 2 %. Such share is a fraction, the numerator of which is the Rentable Area of the Premises, and the denominator of which is the Rentable Area of the Project, as determined by Landlord from time to time. The Project consists of ________ building(s) containing a total Rentable Area of 74,779 square feet.
s. Tenant's Use Clause (Article 8): GENERAL OFFICE PURPOSES
t. Term: the period commencing on the Commencement Date and expiring at midnight on the Expiration Date.
3. EXHIBITS AND ADDENDA. The exhibits and addenda listed below (unless lined out) are incorporated by reference in this Lease:
a. Exhibit "A"-Floor Plan showing the Premises.
b. Deleted.
c. Deleted.
d. Exhibit "D"-Rules and regulations.
e. Deleted.
f. Addenda:
ADDENDUM
4. DELIVERY OF POSSESSION. If for any reason Landlord does not deliver possession of the Premises to Tenant on the Commencement Date, Landlord shall not be subject to any liability for such failure, the Expiration Date shall not change and the validity of this Lease shall not be impaired, but Rent shall be abated until delivery of possession. "Delivery of possession" shall be deemed to occur on the date of commencement. 'If Landlord permits Tenant to enter into possession of the Premises before the Commencement Date, such possession shall be subject to the provisions of this Lease, including, without limitation, the payment of Rent..
5. RENT.
5.1. Payment of Base Rent. Tenant agrees to pay the Base Rent for the Premises. Monthly Installments of Base Rent shall be payable in advance on the first day of each calendar month of the Term. If the Term begins (or ends) on other than the first (or last) day of a calendar month, the Base Rent for the partial month shall be prorated on a per diem basis. Tenant shall pay Landlord the first Monthly Installment of Base Rent when Tenant executes the Lease.
5.4 Definition of Rent. All costs and expenses which Tenant assumes or agrees to pay to Landlord under this Lease shall be deemed additional rent (which, together with the Base Rent is sometimes referred to as the "Rent"). The Rent shall be paid to the Building manager (or other person) and at such place, as Landlord may from time to time designate in writing, without any prior demand therefor and without deduction or offset, in lawful money of the United States of America.
5.5 Rent Control. If the amount of Rent or any other payment due under this Lease violates the terms of any governmental restrictions on such Rent or payment, then the Rent or payment due during the period of such restrictions shall be the maximum amount allowable under those restrictions. Upon termination of the restrictions, Landlord shall, to the extent it is legally permitted, recover from Tenant the difference between the amounts received during the period of the restrictions and the amounts Landlord would have received had there been no restrictions.
5.6 Taxes Payable by Tenant. In addition to the Rent and any other charges to be paid by Tenant hereunder, Tenant shall reimburse Landlord upon demand for any and all taxes payable by Landlord (other than net income taxes) which are not otherwise reimbursable under this Lease, whether or not now customary or within the contemplation of the parties, where such taxes are upon, measured by or reasonably attributable to (a) the cost or value of Tenant's equipment, furniture, fixtures and other personal property located in the Premises, or the cost or value of any leasehold improvements made in or to the Premises by or for Tenant, other than Building Standard Work made by Landlord, regardless of whether title to such improvements is held by Tenant or Landlord; (b) the gross or net Rent payable under this Lease, including, without limitation, any rental or gross receipts tax levied by any taxing authority with respect to the receipt of the Rent hereunder; (c) the possession, leasing, operation, management, maintenance, alteration, repair, use or occupancy by Tenant of the Premises or any portion thereof; or (d) this transaction or any document to which Tenant is a party creating or transferring an interest or an estate in the Premises; If it becomes unlawful for Tenant to reimburse Landlord for any costs as required under this Lease, the Base Rent shall be revised to net Landlord the same net Rent after imposition of any tax or other charge upon Landlord as would have been payable to Landlord but for the reimbursement being unlawful.
6. INTEREST AND LATE CHARGES.
If Tenant fails to pay when due any Rent or other amounts or charges which Tenant is obligated to pay under the terms of this Lease, the unpaid amounts shall bear interest at the maximum rate then allowed by law. Tenant acknowledges that the late payment of any Monthly Installment of Base Rent will cause Landlord to lose the use of that money and incur costs and expenses not contemplated under this Lease, including without limitation, administrative and collection costs and processing and accounting expenses, the exact amount of which is extremely difficult to ascertain. Therefore, in addition to interest, if any such installment is not received by Landlord within ten (10) days from the date it is due, Tenant shall pay Landlord a Late charge equal to ten percent (10%) of such installment. Landlord and Tenant agree that this late charge represents a reasonable estimate of such costs and expenses and is fair compensation to Landlord for the loss suffered from such nonpayment by Tenant. Acceptance of any interest or late charge shall not constitute a waiver of Tenant's default with respect to such nonpayment by Tenant nor prevent Landlord from exercising any other rights or remedies available to Landlord under this Lease.
7. SECURITY DEPOSIT.
Tenant agrees to deposit with Landlord the Security Deposit set forth at Section 2.0 upon execution of this Lease, as security for Tenant's faithful performance of its obligations under this Lease. Landlord and Tenant agree that the Security Deposit may be commingled with funds of Landlord and Landlord shall have no obligation or liability for payment of interest on such deposit. Tenant shall not mortgage, assign, transfer or encumber the Security Deposit without the prior written consent of Landlord and any attempt by Tenant to do so shall be void, without force or effect and shall not be binding upon Landlord.
If Tenant fails to pay any Rent or other amount when due and payable under this Lease, or fails to perform any of the terms hereof, Landlord may appropriate and apply or use all or any portion of the Security Deposit for Rent payments or any other amount then due and unpaid, for payment of any amount for which Landlord has become obligated as a result of Tenant's default or breach, and for any loss or damage sustained by Landlord as a result of Tenant's default or breach, and Landlord may so apply or use this deposit without prejudice to any other remedy Landlord may have by reason of Tenant's default or
breach. If Landlord so uses any of the Security Deposit, Tenant shall, within ten (10) days after written demand therefor, restore the Security Deposit to the full amount originally deposited; Tenant's failure to do so shall constitute an act of default hereunder and Landlord shall have the right to exercise any remedy provided for at Article 27 hereof. Within fifteen (15) days after the Term (or any extension thereof) has expired or Tenant has vacated the Premises, whichever shall last occur, and provided Tenant is not then in default on any of its obligations hereunder, Landlord shall return the Security Deposit to Tenant, or, if Tenant has assigned its interest under this Lease, to the last assignee of Tenant. If Landlord sells its interest in the Premises, Landlord may deliver this deposit to the purchaser of Landlord's interest and thereupon be relieved of any further liability or obligation with respect to the Security Deposit.
8. TENANT'S USE OF THE PREMISES.
Tenant shall use the Premises solely for the purposes set forth in Tenant's Use Clause. Tenant shall not use or occupy the Premises in violation of law or any covenant, condition or restriction affecting the building or Project of the certificate of occupancy issued for the Building or project, and shall, upon notice from Landlord, immediately discontinue any use of the Premises which is declared by any government authority having jurisdiction to be a violation of law or the certificate of occupancy. Tenant, at Tenant's own cost and expense, shall comply with al laws, ordinances, regulations, rules and/or any or occupancy of the Premises, impose any duty upon Tenant or Landlord with respect to the premises or its use or occupation. A judgment of any court of competent jurisdiction or the admission by Tenant in any action or proceeding against Tenant that Tenant has violated any such laws, ordinances, regulations, rules and/or directions in the use of the Premises shall be deemed to be a conclusive determination of that fact as between Landlord and Tenant. Tenants hall not do or permit to be done anything which will invalidate or increase the cost of any fire, extended coverage or other insurance policy covering the Building or Project and/or property located therein, and shall comply with all rules, orders, regulations, requirements and recommendation of the insurance services Office or any other organization performing a similar function. Tenant shall promptly upon DEMAND REIMBURSE LANDLORD FOR ANY ADDITIONAL PREMIUM CHARGED for such policy by reason of Tenant's failure to comply with the provisions of this Article. Tenant 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 Project, or injure or annoy them, or use or allow the Premises to be used for any improper, immoral, unlawful or objectionable purpose, nor shall Tenant cause, maintain or permit any nuisance in, on or about the Premises. Tenant shall not commit or suffer to be committed any waste in or upon the Premises.
9. SERVICES AND UTILITIES.
Provided that Tenant is not in default hereunder, Landlord agrees to furnish to
the Premises during generally recognized business days, and during hours
determined by Landlord in its sole discretion, and subject to the Rules and
Regulations of the Building or Project, electricity for normal desk top office
equipment and normal copying equipment, and heating, ventilation and air
conditioning ("HVAC") as required in Landlord's judgment for the comfortable use
and occupancy of the Premises. If Tenant desires HVAC at any other time,
Landlord shall use reasonable efforts to furnish such service upon reasonable
notice from Tenant and Tenant shall pay Landlord's charges therefor on demand.
Landlord shall also maintain and keep lighted the common stairs, common entries
and restrooms in the Building. Landlord shall not be in default hereunder or be
liable for any damages directly or indirectly resulting from, nor shall the Rent
be abated by reason of (i) the installation, use or interruption of use of any
equipment in connection with the furnishing of any of the foregoing services,
(ii) failure to furnish or delay in furnishing any such services where such
failure or delay is caused by accident or any condition or event beyond the
reasonable control of Landlord, or by the making of necessary repairs or
improvements to the Premises, Building or Project, or (iii) the limitation,
curtailment or rationing of, or restrictions on, use of water, electricity, gas
or any other form of energy serving the Premises, Building or Project. Landlord
shall not be liable under any circumstances for a loss of or injury to property
or business, however occurring, through or in connection with or incidental to
failure to furnish any such services. If Tenant uses heat generating machines or
equipment in the Premises which affect the temperature otherwise maintained by
the HVAC system, Landlord reserves the right to install supplementary air
conditioning units in the Premises and the cost thereof, including the cost of
installation, operation and maintenance thereof, shall be paid by Tenant to
Landlord upon demand by Landlord.
Tenant shall not, without the written consent of Landlord, use any apparatus or device in the Premises, including without limitation, electronic data processing machines, punch card machines or machines using in excess of 120 volts, which consumes more electricity than is usually furnished or supplied for the use of premises as general office space, as determined by Landlord. Tenant shall not connect any apparatus with electric current except through existing electrical outlets in the Premises. Tenant shall not consume water or electric current in excess of that usually furnished or supplied for the use of premises as general office space (as determined by Landlord), without first procuring the written consent of Landlord, which Landlord may refuse, and in the event of consent, Landlord may have installed a water meter or electrical current meter in the Premises to measure the amount of water or electric current consumed. The cost of any such meter and of its installation, maintenance and repair shall be paid for by the Tenant and Tenant agrees to pay to Landlord promptly upon demand for all such water and electric current consumed as shown by said meters, at the rates charged for such services by the local public utility plus any additional expense incurred in keeping account of the water and electric current so consumed. If a separate meter is not installed, the excess cost for such water and electric current shall be established by an estimate made by a utility company or electrical engineer hired by Landlord at Tenant's expense.
Nothing contained in this Article shall restrict Landlord's right to require at any time separate metering of utilities furnished to the Premises. In the event utilities are separately metered, Tenant shall pay promptly upon demand for all utilities consumed at utility rates charged by the local public utility plus any additional expense incurred by Landlord in keeping account of the utilities so consumed. Tenant shall be responsible for the maintenance and repair of any such meters at its sole cost.
Landlord shall furnish elevator service, lighting replacement for building standard lights, restroom supplies, window washing and janitor services in a manner that such services are customarily furnished to comparable office buildings in the area.
10. CONDITION OF THE PREMISES.
Tenant's taking possession of the Premises shall be deemed conclusive evidence that as of the date of taking possession the Premises are in good order and satisfactory condition, except for such matters as to which Tenant gave Landlord notice on or before the Commencement Date. No promise of Landlord to after, remodel, repair or improve the Premises, the Building or the Project and no representation, express or implied, respecting any matter or thing relating to the Premises, Building, Project or this Lease (including, without limitation, the condition of the Premises, the Building or the Project) have been made to Tenant by Landlord or its Broker or Sales Agent, other than as may be contained herein or in a separate exhibit or addendum signed by Landlord and Tenant.
11. CONSTRUCTION, REPAIRS AND MAINTENANCE.
a. Landlord's Obligations: Landlord shall maintain in good order, condition and repair the Building and all other portions of the Premises not the obligation of Tenant or of any other tenant in the Building.
b. Tenant's Obligations.
(1) Deleted.
(2) Tenant at Tenant's sole expense shall except for services furnished by Landlord pursuant to Article 9 hereof, maintain the Premises in good order, condition and repair, including the interior surfaces of the ceilings, walls and floors, all doors, all interior windows, all plumbing, pipes and fixtures, electrical wiring, switches and fixtures, Building Standard furnishings and special items and equipment installed by or at the expense of Tenant.
(3) Tenant shall be responsible for all repairs and alterations in and to the
Premises, Building and Project and the facilities and systems thereof, the
need for which arises out of (I) Tenant's use or occupancy of the premises,
(ii) the installation, removal, use or operation of Tenant's Property (as
defined in Article 13) in the Premises , (iii) the moving of Tenant's
Property into or out of the Building, or (iv) the act, omission, misuse or
negligence of Tenant, its agents, contractors, employees or invitees.
(4) If Tenant fails to maintain the Premises in good order, condition and repair, Landlord shall give Tenant notice to do such acts as are REASONABLY REQUIRED TO SO MAINTAIN THE PREMISES. If Tenant fails to promptly commence such work and diligently prosecute it to completion, then Landlord shall have the right to do such acts and expend such funds at the expense of Tenant as are reasonably required to perform such work. Any amount so expended by Landlord shall be paid by Tenant promptly after demand with interest at the prime commercial rate then being charged by Bank of America NT & SA plus two percent (2%) per annum, from the date of such work, but not to exceed the maximum rate then allowed by law. Landlord shall have no liability to Tenant for any damage, inconvenience, or interference with the use of the Premises by Tenant as a result of performing any such work.
c. Compliance with Law Landlord and Tenant shall each do all acts required to comply with all applicable laws, ordinances, and rules of any public authority relating to their respective maintenance obligations as set forth herein.
d. Waiver by Tenant. Tenant expressly waives the benefits of any statute now or hereafter in effect which would otherwise afford the Tenant the right to make repairs at Landlord's expense or to terminate this Lease because of Landlord's failure to keep the Premises in good order, condition and repair.
e. Load and Equipment Limits. Tenant shall not place a load upon any floor of the Premises which exceeds the load per square foot which such floor was designed to carry, as determined by Landlord or Landlord's structural engineer. The cost of any such determination made by Landlord's structural engineer shall be paid for by Tenant upon demand. Tenant shall not install business machines or mechanical equipment which cause noise or vibration to such a degree as to be objectionable to Landlord or other Building tenants.
f. Except as otherwise expressly provided in this Lease, Landlord shall have no liability to Tenant nor shall Tenant's obligations under this Lease be reduced or abated in any manner whatsoever by reason of any inconvenience, annoyance, interruption or injury to business arising from Landlord's making any repairs or changes which Landlord is required or permitted by this Lease or by any other tenant's lease or required by law to make in or to any portion of the Project, Building or the Premises. Landlord shall nevertheless use reasonable efforts to minimize any interference with Tenant's business in the Premises.
g. Tenant shall give Landlord prompt notice of any damage to or defective condition in any part or appurtenance of the Building's mechanical, electrical, plumbing, HVAC or other systems serving, located in, or passing through the Premises.
h. Upon the expiration or earlier termination of this Lease, Tenant shall return the Premises to Landlord clean and in the same condition as on the date Tenant took possession, except for normal wear and tear. Any damage to the Premises, including any structural damage, resulting from Tenant's use or from the removal of Tenant's fixtures, furnishings and equipment pursuant to Section 13b shall be repaired by Tenant at Tenant's expense.
12. ALTERATIONS AND ADDITIONS.
a. Tenant shall not make any additions, alterations or improvements to the Premises without obtaining the prior written consent of Landlord. Landlord's consent may be conditioned on Tenant's removing any such additions, alterations or improvements upon the expiration of the Term and restoring the Premises to the same condition as on the date Tenant took possession. All work with respect to any addition, alteration or improvement shall be done in a good and workmanlike manner by properly qualified and licensed personnel approved by Landlord, and such work shall be diligently prosecuted to completion. Landlord may, at Landlord's option, require that any such work be performed by Landlord's contractor, in which case the cost of such work shall be paid for before commencement of the work. Tenant shall pay to Landlord upon completion of any such work by Landlord's contractor, an administrative fee of fifteen percent (15%) of the cost of the work.
b. Tenant shall pay the costs of any work done on the Premises pursuant to
Section 12a, and shall keep the Premises, Building and Project free and clear of
liens of any kind. Tenant shall indemnity, defend against and keep Landlord free
and harmless from all liability, loss, damage, costs, attorneys' fees and any
other expense incurred on account of claims by any person performing work or
furnishing materials or supplies for Tenant or any person claiming under Tenant.
Tenant shall keep Tenant's leasehold interest, and any additions or improvements which are or become the property of Landlord under this Lease, free and clear of all attachment or judgment liens. Before the actual commencement of any work for which a claim or lien may be filed, Tenant shall give Landlord notice of the intended commencement date a sufficient time before that date to enable Landlord to post notices of non-responsibility or any other notices which Landlord deems necessary for the proper protection of Landlord's interest in the Premises, Building or the Project, and Landlord shall have the right to enter the Premises and post such notices at any reasonable time.
c. Landlord may require, at Landlord's sole option, that Tenant provide to Landlord, at Tenant's expense, a lien and completion bond in an amount equal to at least one and one-half (1-1/2) times the total estimated cost of any additions, alternations or improvements to be made in or to the Premises, to protect Landlord against any liability for mechanic's and materialmen's liens and to insure timely completion of the work. Nothing contained in this Section 12c shall relieve Tenant of its obligation under Section 12b to keep the Premises, Building and Project free of all liens.
d. Unless their removal is required by Landlord as provided in Section 12a, all additions, alterations and improvements made to the premises shall become the property of landlord and be surrendered with the Premises upon the expiration of the Term; provided, however, Tenants equipment, machinery and trade fixtures which can be removed without damage to the premises shall remain the property of Tenant and may be removed, subject to the provisions, of Section 13b.
13. LEASEHOLD IMPROVEMENTS; TENANT'S PROPERTY.
a. All fixtures, equipment improvements and appurtenances attached to or built into the Premises at the commencement of or during the Term, whether or not by or at the expense of Tenant ("leasehold Improvements"), shall be and remain a par t of the premises, shall be the property of landlord and shall not be removed by Tenant, except as expressly provided in Section 13b.
b. All movable partitions, business and trade fixtures, machinery and equipment, communications equipment and office equipment located in the Premises and acquired by or for the account of Tenant, without expense to Landlord, which can be removed without structural damage to the Building, and all furniture, furnishings and other articles of movable personal property owned by Tenant and located in the Premises (collectively "Tenant's Property") shall be and shall remain the property of Tenant and may be removed by Tenant at any time during the Term; provided that if any of Tenant's Property is removed, Tenant shall promptly repair any damage to the Premises or to the Building resulting from such removal.
14. RULES AND REGULATIONS.
Tenant agrees to comply with (and cause its agents, contractors, employees and invitees to comply with) the rules and regulations attached hereto as Exhibit "D" and with such reasonable modifications thereof and additions thereto as Landlord may from time to time make. Landlord shall not be responsible for any violation of said rules and regulations by other tenants or occupants of the Building or Project.
15. CERTAIN RIGHTS RESERVED BY LANDLORD.
Landlord reserves the following rights, exercisable without liability to Tenant for (a) damage or injury to property, person or business, (b) causing an actual or constructive eviction from the Premises, or (c) disturbing Tenant's use or possession of the Premises:
a. To name the Building and Project and to change the name or street address of the Building or Project;
b. To install and maintain all signs on the exterior and interior of the Building and Project;
c. To have pass keys to the Premises and all doors within the Premises, excluding Tenant's vaults and safes;
d. At any time during the Term, and on reasonable prior notice to Tenant, to inspect the Premises, and to show the Premises to any prospective purchaser or mortgagee of the Project, or to any assignee of any mortgage on the Project, or to others having an interest in the Project or Landlord, and during the last six months of the Term, to show the Premises to prospective tenants thereof; and
e. To enter the Premises for the purpose of making inspections, repairs, alterations, additions or improvements to the Premises or the Building (including, without limitation, checking, calibrating, adjusting or balancing controls and other parts of the HVAC system), and to take all steps as may be necessary or desirable for the safety, protection, maintenance or preservation of the Premises or the Building or Landlord's interest therein, or as may be necessary or desirable for the operation or improvement of the Building or in order to comply with laws, orders or requirements of governmental or other authority. Landlord agrees to use its best efforts (except in an emergency) to minimize interference with Tenant's business in the Premises in the course of any such entry.
16. ASSIGNMENT AND SUBLETTING.
No assignment of this Lease or sublease of all or any part of the Premises shall be permitted, except as provided in this Article 16.
a. Tenant shall not, without the prior written consent of Landlord, assign or hypothecate this Lease or any interest herein or sublet the Premises or any part thereof, or permit the use of the Premises by any party other than Tenant. Any of the foregoing acts without such consent shall be void and shall, at the option of Landlord, terminate this Lease. This Lease shall not, nor shall any interest of Tenant herein, be assignable by operation of law without the written consent of Landlord.
b. If at any time or from time to time during the Term Tenant desires to assign this Lease or sublet all or any part of the Premises, Tenant shall give notice to Landlord setting forth the terms and provisions of the proposed assignment or sublease, and the identity of the proposed assignee or subtenant. Tenant shall promptly supply Landlord with such information concerning the business background and financial condition of such proposed assignee or subtenant as Landlord may reasonably request. Landlord shall have the option, exercisable by notice given to Tenant within ten (10) days after Tenant's
notice is given, either to sublet such space from Tenant at the rental and on the other terms set forth in this Lease for the term set forth in Tenant's notice, or, in the case of an assignment, to terminate this Lease. If Landlord does not exercise such option, Tenant may assign the Lease or sublet such space to such proposed assignee or sub tenant on the following further conditions:
(1) Landlord shall have the right to approve such proposed assignee or subtenant, which approval shall not be unreasonably withheld;
(2) The assignment or sublease shall be on the same terms set forth in the notice given to Landlord;
(2) No assignment or sublease shall be valid and no assignee or sublessee shall take possession of the Premises until an executed counterpart of such assignment or sublease has been delivered to Landlord;
(4) No assignee or sublessee shall have a further right to assign or sublet except on the terms herein contained; and
(5) Any sums or other economic consideration received by Tenant as a result of such assignment or subletting, however denominated under the assignment or sublease, which exceed, in the aggregate (I) the total sums which Tenant is obligated to pay Landlord under this lease (prorated to reflect obligations allocable to any portion of the Premises subleased), plus (ii) any real estate brokerage commissions or fees payable in connection with such assignment or subletting, shall be paid to Landlord as additional rent under this Lease without affecting or reducing any other obligations of Tenant hereunder.
c.. Notwithstanding the provisions of paragraph a and b above, Tenant may assign this Lease or sublet the Premises or any portion thereof, without Landlord's consent and without extending any recapture or termination option to Landlord, to any corporation which controls, is controlled by or is under common control with Tenant, or to any corporation resulting from a merger or consolidation with Tenant, or to any person or entity which acquires all the assets of Tenant's business as a going concern, provided that (I) the assignee or sublessee assumes, in full, the obligations of Tenant under this lease, (ii) Tenant remains fully liable under this lease, and (iii) the use of the Premises under Article 8 remains unchanged.
d. No subletting or assignment shall release Tenant of Tenant's obligations under this Lease or alter the primary liability of Tenant to pay the Rent and to perform all other obligations to be performed by Tenant hereunder. The acceptance of Rent by Landlord from any other person shall not be deemed to be a waiver by Landlord of any provision hereof. Consent to one assignment or subletting shall not be deemed consent to any subsequent assignment or subletting. In the event of default by an assignee or subtenant of Tenant or any successor of Tenant in the performance of any of the terms hereof, Landlord may proceed directly against Tenant without the necessity of exhausting remedies against such assignee, subtenant or successor. Landlord may consent to subsequent assignments of the Lease or sublettings or amendments or modifications to the Lease with assignees of Tenant, without notifying Tenant, or any successor of Tenant, and without obtaining its or their consent thereto and any such actions shall not relieve Tenant of liability under this Lease.
e. Tenant assigns the Lease or sublets the Premises or requests the consent of Landlord to any assignment or subletting or if Tenant requests the consent of Landlord for any act that Tenant proposes to do, then Tenant shall. upon demand, pay Landlord an administrative fee of ZERO DOLLARS plus any attorneys' fees reasonably incurred by Landlord in connection with such act or request.
17. HOLDING OVER.
If after expiration of the Term, Tenant remains in possession of the Premises with Landlord's permission (express or implied), Tenant shall become a tenant from month to month only, upon all the provisions of this Lease (except as to term and Base Rent), but the "Monthly Installments of Base Rent" payable by Tenant shall be increased to one hundred fifty percent (150%) of the Monthly Installments of Base Rent payable by Tenant at the expiration of the Term. Such monthly rent shall be payable in advance on or before the first day of each month. If either party desires to terminate such month to month tenancy, it shall give the other party not less than thirty (30) days advance written notice of the date of termination.
18. SURRENDER OF PREMISES.
a. Tenant shall peaceably surrender the Premises to Landlord on the Expiration Date, in broom-clean condition and in as good condition as when Tenant took possession, except for (i) reasonable wear and tear, (ii) loss by fire or other casualty, and (iii) loss by condemnation. Tenant shall, on Landlord's request, remove Tenant's Property on or before the Expiration Date and promptly repair all damage to the Premises or Building caused by such removal.
b. If Tenant abandons or surrenders the Premises, or is dispossessed by process of law or otherwise, any of Tenant's Property left on the Premises shall be deemed to be abandoned, and, at Landlord's option, title shall pass to Landlord under this Lease as by a bill of sale. If Landlord elects to remove all or any part of such Tenant's Property, the cost of removal, including repairing any damage to the Premises or Building caused by such removal, shall be paid by Tenant. On the Expiration Date Tenant shall surrender all keys to the Premises.
19. DESTRUCTION OR DAMAGE.
a. If the Premises or the portion of the Building necessary for Tenant's occupancy is damaged by fire, earthquake, act of God, the elements of other casualty, Landlord shall, subject to the provisions of this Article, promptly repair the damage, if such repairs can, in Landlord's opinion, be completed within (90) ninety days. If Landlord determines that repairs can be completed within ninety (90) days, this Lease shall remain in full force and effect, except that if such damage is not the result of the negligence or willful misconduct of Tenant or Tenant's agents, employees, contractors, licensees or invitees, the Base Rent shall be abated to the extent Tenants use of the Premises is impaired, commencing with the date of damage and continuing until completion of the repairs required of Landlord under Section 19d.
b. If in Landlord's opinion, such repairs to the Premises or portion of the Building necessary for Tenants occupancy cannot be completed within ninety (90) days, Landlord may elect, upon notice to Tenant given within thirty (30) days after the date of such fire or other casualty, to repair such damage, in which event this Lease shall continue in full force and effect, but the Base Rent shall be partially abated as provided in Section 19a. If Landlord does not so elect to make such repairs, this Lease shall terminate as of the date of such fire or other casualty.
c. If any other portion of the Building or Project is totally destroyed or damaged to the extent that in Landlord's opinion repair thereof cannot be completed within ninety (90) days, Landlord may elect upon notice to Tenant given within thirty (30) days after the date of such fire or other casualty, to repair such damage, in which event this Lease shall continue in full force and effect, but the Base Rent shall be partially abated as provided in Section 19a. If Landlord does not elect to make such repairs, this Lease shall terminate as of the date of such fire or other casualty.
d. If the Premises are to be repaired under this Article, Landlord shall repair at its cost any injury or damage to the Building and Building Standard Work in the Premises. Tenant shall be responsible at its sole cost and expense for the repair, restoration and replacement of any other Leasehold Improvements and Tenant's Property. Landlord shall not be liable for any loss of business, inconvenience or annoyance arising from any repair or restoration of any portion of the Premises, Building or Project as a result of any damage from fire or other casualty.
e. his Lease shall be considered an express agreement governing any case of damage to or destruction of the Premises, building or Project by fire or other casualty, and any present or future law which purports to govern the rights of Landlord and Tenant in such circumstances in the absence of express agreement, shall have no application.
20. EMINENT DOMAIN.
a If the whole of the Building or Premises is lawfully taken by condemnation or in any other manner for any public or quasipublic purpose, this lease shall terminate as of the date of such taking, and Rent shall be prorated to such date. If less than the whole of the building or Premises is so taken, this Lease shall be unaffected by such taking, provided that (I) Tenant shall have the right to terminate this lease by notice to Landlord given within ninety (90) days after the date of such taking if twenty percent (20%) or more of the Premises is taken and the remaining area of the premises is not reasonably sufficient for Tenant to continue operation of its business, and (ii) Landlord shall have the right to terminate this Lease by notice to Tenant given within ninety (90) days after the date of such taking. If either Landlord or Tenant so elects to terminate this lease the Lease shall terminate on the thirtieth (30th) day after either such notice. The Rent shall be prorated to the date of termination. If this Lease continues in force upon such partial taking, the Base Rent and Tenant's Proportionate Share shall be equitably adjusted according to the remaining Rentable Area of the Premises and Project.
b. In the event of any taking, partial or whole, all of the proceeds of any award, judgment or settlement payable by the condemning authority SHALL BE THE EXCLUSIVE PROPERTY OF LANDLORD, AND TENANT hereby assigns to Landlord all of its right, title and interest in any award, judgment or SETTLEMENT FROM THE CONDEMNING AUTHORITY. Tenant, however, shall have the right, to the extent that Landlord's award is not reduced or prejudiced, to claim from the condemning authority (but not from Landlord) such compensation as may be recoverable by Tenant in its own right for relocation expenses and damage to Tenant's personal property.
c. In the event of a partial taking of the Premises which does not result in a termination of this Lease, Landlord shall restore the remaining portion of the Premises as nearly as practicable to its condition prior to the condemnation or taking, but only to the extent of Building Standard Work. Tenant shall be responsible at its sole cost and expense for the repair, restoration and replacement of any other Leasehold Improvements and Tenant's Property.
21. INDEMNIFICATION.
a. Tenant shall indemnity and hold Landlord harmless against and from liability
and claims of any kind for loss or damage to property of Tenant or any other
person, or for any injury to or death of any person, arising out of: (1)
Tenant's use and occupancy of the Premises, or any work, activity or other
things allowed or suffered by Tenant to be done in, on or about the Premises;
(2) any breach or default by Tenant of any of Tenant's obligations under this
Lease; or (3) any negligent or otherwise tortious act or omission of Tenant, its
agents, employees, invitees or contractors. Tenant shall at Tenant's expense,
and by counsel satisfactory to Landlord, defend Landlord in any action or
proceeding arising from any such claim and shall indemnify Landlord against all
costs, attorneys' fees, expert witness fees and any other expenses incurred in
such action or proceeding. As a material part of the consideration for
Landlord's execution of this Lease, Tenant hereby assumes all risk of damage or
injury to any person or property in, on or about the Premises from any cause.
b. Landlord shall not be liable for injury or damage which may be sustained by the person or property of Tenant, 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 pipes, sprinklers, wires, appliances, plumbing, air conditioning or lighting fixtures, whether such damage or injury results from conditions arising upon the Premises or upon other portions of the Building or Project or from other sources. Landlord shall not be liable for any damages arising from any act or omission of any other tenant of the Building or Project.
22. TENANT'S INSURANCE.
a. All insurance required to be carried by Tenant hereunder shall be issued by responsible insurance companies acceptable to Landlord and Landlord's lender and qualified to do business in the State. Each policy shall name Landlord, and at Landlord's request any mortgagee of Landlord, as an additional insured, as their respective interests may appear. Each policy shall contain (i) a cross-liability endorsement, (ii) a provision that such policy and the coverage evidenced thereby shall be primary and non-contributing with respect to any policies carried by Landlord and that any coverage carried by Landlord shall be excess insurance, and (iii) a waiver by the insurer of any right of subrogation against Landlord, its agents, employees and representatives, which arises or might arise by reason of any payment under such policy or by reason of any act or omission of Landlord, its agents, employees or representatives. A copy of each paid up policy (authenticated by the insurer) or certificate of the insurer evidencing the existence and amount of each insurance policy required hereunder shall be delivered to Landlord before the date Tenant is first given the right of possession of the Premises, and thereafter within thirty (30) days after any demand by Landlord therefor. Landlord may, at any time and from time to time, inspect and/or copy any insurance policies required to be maintained by Tenant hereunder. No such policy shall be cancelable except after twenty (20) days written notice to Landlord and Landlord's lender. Tenant shall furnish Landlord with renewals or "binders" of any such policy at least ten (10) days prior to the expiration thereof. Tenant agrees that if Tenant does not take out and maintain such insurance, Landlord may (but shall not be required to) procure said insurance on Tenant's behalf and charge the Tenant the premiums together with a twenty-five percent (25%) handling charge, payable upon demand. Tenant shall have the right to provide such insurance coverage pursuant to blanket policies obtained by the Tenant, provided such blanket policies expressly afford coverage to the Premises, Landlord, Landlord's mortgagee and Tenant as required by this Lease.
b. Beginning on the date Tenant is given access to the Premises for any purpose and continuing until expiration of the Term, Tenant shall procure, pay for and maintain in effect policies of casualty insurance covering (i) all Leasehold Improvements (including any alterations, additions or improvements as may be made by Tenant pursuant to the provisions of Article 12 hereof), and (ii) trade fixtures, merchandise and other personal property from time to time in, on or about the Premises, in an amount not less than one hundred percent (100%) of their actual replacement cost from time to time, providing protection against any peril included within the classification "Fire and Extended Coverage" together with insurance against sprinkler damage, vandalism and malicious mischief. The proceeds of such insurance shall be used for the repair or replacement of the property so insured. Upon termination of this Lease following a casualty as set forth herein, the proceeds under (i) shall be paid to Landlord, and the proceeds under (ii) above shall be paid to Tenant.
c. Beginning on the date Tenant is given access to the Premises for any purpose and continuing until expiration of the Term, Tenant shall procure, pay for and maintain in effect workers' compensation insurance as required by law and comprehensive public liability and property damage insurance with respect to the construction of improvements on the Premises, the use, operation or condition of the Premises and the operations of Tenant in, on or about the Premises. Providing personal injury and broad form property damage coverage for not less than One Million Dollars ($1,000,000.00) combined single limit for bodily injury, death and property damage liability.
23. WAIVER OF SUBROGATION.
Landlord and Tenant each hereby waive all rights of recovery against the other and against the officers, employees, agents and representatives of the other, on account of loss by or damage to the waiving party of 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 the loss or damage. Tenant shall, upon obtaining the policies of insurance required under this Lease, give notice to its insurance carrier or carriers that the foregoing mutual waiver of subrogation is contained in this Lease.
24. SUBORDINATION AND ATTORNMENT.
Upon written request of Landlord, or any first mortgagee or first deed of trust beneficiary of Landlord, or ground lessor of Landlord, Tenant shall, in writing, subordinate its rights under this Lease to the lien of any first mortgage or first deed of trust, or to the interest of any lease in which Landlord is lessee, and to all advances made or hereafter to be made thereunder. However, before signing any subordination agreement, Tenant shall have the right to obtain from any lender or lessor or Landlord requesting such subordination, an agreement in writing providing that, as long as Tenant is not in default hereunder, this Lease shall remain in effect for the full Term. The holder of any security interest may, upon written notice to Tenant, elect to have this Lease prior to its security interest regardless of the time of the granting or recording of such security interest.
In the event of any foreclosure sale, transfer in lieu of foreclosure or termination of the lease in which Landlord is lessee, Tenant shall attorn to the purchaser, transferee or lessor as the case may be, and recognize that party as Landlord under this Lease, provided such party acquires and accepts the Premises subject to this Lease.
25. TENANT ESTOPPEL CERTIFICATES.
Within ten (10) days after written request from Landlord, Tenant shall execute
and deliver to Landlord or Landlord's designee, a written statement certifying
(a) that this Lease is unmodified and in full force and effect, or is in full
force and effect as modified and stating the modifications; (b) the amount of
Base Rent and the date to which Base Rent and additional rent have been paid in
advance; (c) the amount of any security deposited with Landlord; and (d) that
Landlord is not in default hereunder or, if Landlord is claimed to be in
default, stating the nature of any CLAIMED default. Any such statement may be
relied upon by a purchaser, assignee or lender. Tenant's failure to execute and
deliver such statement within the time required shall at Landlord's election be
a default under this Lease and shall also be conclusive upon Tenant that: (1)
this Lease is in full force and effect and has not been modified except as
represented by Landlord; (2) there are no uncured defaults in Landlord's
performance and that Tenant has no right of offset, counter-claim or deduction
against Rent; and (3) not more than one month's Rent has been paid in advance.
26. TRANSFER OF LANDLORD'S INTEREST.
In the event of any sale or transfer by Landlord of the Premises, Building or Project, and assignment of this Lease by Landlord, Landlord shall be and is hereby entirely freed and relieved of any and all liability and obligations contained in or derived from this Lease arising out of any act, occurrence or omission relating to the Premises, Building, Project or Lease occurring after the consummation of such sale or transfer, providing the purchaser shall expressly assume all of the covenants and obligations of Landlord under this Lease. If any security deposit or prepaid Rent has been paid by Tenant, Landlord may transfer the security deposit or prepaid Rent to Landlord's successor and upon such transfer, Landlord shall be relieved of any and all further liability with respect thereto,
27. DEFAULT.
27. 1. Tenant's Default. The occurrence of any one or more of the following events shall constitute a default and breach of this Lease by Tenant:
a. If Tenant abandons or vacates the Premises and stops paying rent
b. If Tenant fails to pay any Rent or any other charges required to be paid by Tenant under this Lease and such failure continues for five (5) days after such payment is due and payable; or
c. If Tenant fails to promptly and fully perform any other covenant, condition or agreement contained in this Lease and such failure continues for thirty (30) days after written notice thereof from Landlord to Tenant; or
d. If a writ of attachment or execution is levied on this Lease or on any of Tenant's Property; or
e. If Tenant makes a general assignment for the benefit of creditors, or provides for an arrangement, composition, extension or adjustment with its creditors; or
f. If Tenant files a voluntary petition for relief or if a petition against Tenant in a proceeding under the federal bankruptcy laws or other insolvency laws is filed and not withdrawn or dismissed within forty-five (45) days thereafter, of if under the provisions of any law providing for reorganization or winding up of corporations, any court of competent jurisdiction assumes jurisdiction, custody or control of
Tenant or any substantial part of its property and such jurisdiction, custody or control remains in force unrelinquished, unstayed or unterminated for a period of forty-five (45) days; or
g. If in any proceeding or action in which Tenant is a party, a trustee, receiver, agent or custodian is appointed to take charge of the Premises or Tenant's Property (or has the authority to do so) for the purpose of enforcing a lien against the Premises or Tenant's Property; or
h. If Tenant is a partnership or consists of more than one (1) person or entity, if any partner of the partnership or other person or entity is involved in any of the acts or events described in subparagraphs d through g above.
27.2. Remedies. In the event of Tenant's default hereunder, then in addition to any other rights or remedies Landlord may have under any law, Landlord shall have the right, at Landlord's option, without further notice or demand of any kind to do the following:
a. Terminate this Lease and Tenant's right to possession of the Premises and
reenter the Premises and take position thereof, and Tenant shall have no
further claim to the Premises or under this Lease; or
b. Continue this Lease in effect, reenter and occupy the Premises for the
account of Tenant, and collect any unpaid rent or other charges which have
or thereafter become due any payable; or
c. Reenter the Premises under the provisions of subparagraph b, and thereafter
elect to terminate this lease and Tenant's right to possession of the
premises.
If Landlord reenters the Premises under the provisions of subparagraphs b or c above, Landlord shall not be deemed to have terminated this Lease or the obligation of Tenant to pay any Rent or other charges thereafter accruing, unless Landlord notifies Tenant in writing of Landlord's election to terminate this Lease. In the event of any reentry or retaking of possession by Landlord, Landlord shall have the right, but not the obligation, to remove all or any part of Tenant's Property in the Premises and to place such property in storage at a public warehouse at the expense and risk of Tenant. If Landlord elects to relet the Premises for the account of Tenant, the rent received by Landlord from such reletting shall be applied as follows: first, to the payment of any indebtedness other than Rent due hereunder from Tenant to Landlord; second, to the payment of any costs of such reletting; third, to the payment of the cost of any alterations or repairs to the Premises; fourth to the payment of Rent due and unpaid hereunder; and the balance, if any, shall be held by Landlord and applied in payment of future Rent as it becomes due. It that portion of rent received from the reletting which is applied against the Rent due hereunder is less than the amount of the Rent due, Tenant shall pay the deficiency to Landlord promptly upon demand by Landlord. Such deficiency shall be calculated and paid monthly. Tenant shall also pay to Landlord, as soon as determined, any costs and expenses incurred by Landlord in connection with such reletting or in making alterations and repairs to the Premises, which are not covered by the rent received from the reletting.
Should Landlord elect to terminate this Lease under the provisions of subparagraph a or c above, Landlord may recover as damages from Tenant the following:
1. Past Rent The worth at the time of the award of any unpaid Rent which had been earned at the time of termination; plus
2. Rent Prior to Award. The worth at the time of the 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 Tenant proves could have been reasonably avoided; plus
3. Rent After Award. The worth at the time of the award of the amount by which the unpaid Rent for the balance of the Term after the time of award exceeds the amount of the rental loss that Tenant proves could be reasonably avoided; plus
4. Proximately Caused Damages. Any other amount necessary to compensate Landlord for all detriment proximately caused by Tenant's failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result therefrom, including, but not limited to, any costs or expenses (including attorneys' fees), incurred by Landlord in (a) retaking possession of the Premises, (b) maintaining the Premises after Tenant's default, (c) preparing the Premises for reletting to a new tenant, including any repairs or alterations, and (d) reletting the Premises, including broker's commissions.
"The worth at the time of the award" as used in subparagraphs 1 and 2 above, is to be computed by allowing interest at the rate of ten percent (10%) per annum. "The worth at the time of the award" as used in subparagraph 3 above, is to be computed by discounting the amount at the discount rate of the Federal Reserve Bank situated nearest to the Premises at the time of the award plus one percent (1%).
The waiver by Landlord of any breach of any term, covenant or condition of this Lease shall not be deemed a waiver of such term, covenant or condition or of any subsequent breach of the same or any other term, covenant or condition. Acceptance of Rent by Landlord subsequent to any breach hereof shall not be deemed a waiver of any preceding breach other than the failure to pay the particular Rent so accepted, regardless of Landlord's knowledge of any breach at the time of such acceptance of Rent. Landlord shall not be deemed to have waived any term, covenant or condition unless Landlord gives Tenant written notice of such waiver.
27.3 Landlord's Default. If Landlord fails to perform any covenant, condition or agreement contained in this Lease within thirty (30) days after receipt of written notice from Tenant specifying such default, or if such default cannot reasonably be cured within thirty (30) days, if Landlord fails to commence to cure within that thirty (30) day period, then Landlord shall be liable to Tenant for any damages sustained by Tenant as a result of Landlord's breach; provided, however, it is expressly understood and agreed that if Tenant obtains a money judgment against Landlord resulting from any default or other claim arising under this Lease, that judgment shall be satisfied only out of the rents, issues, profits, and other income actually received on account of Landlord's right, title and interest in the Premises, Building or Project, and no other real, personal or mixed property of Landlord (or of any of the partners which comprise Landlord, if any) wherever situated, shall be subject to levy to satisfy such judgment. If, after notice to Landlord of default, Landlord (or any first mortgagee or first deed of trust beneficiary of Landlord) fails to cure the default as provided herein, then Tenant shall have the right to cure that default at Landlord's expense. Tenant shall not have the right to terminate this Lease or to withhold, reduce or offset any amount against any payments of Rent or any other charges due and payable under this Lease except as otherwise specifically provided herein.
28. BROKERAGE FEES
Tenant warrants and represents that it has not dealt with any real estate broker
or agent in connection with this Lease or its negotiation except those noted in
Section 2.c. Tenant shall indemnify and hold Landlord harmless from any cost,
expense or liability (including costs of suit and reasonable attorneys' fees)
for any compensation, commission or fees claimed by any other real estate broker
or agent in connection with this Lease or its negotiation by reason of any act
of Tenant.
29. NOTICES
ALL notices, approvals and demands permitted or required to be given under this Lease shall be in writing and deemed duly served or given if personally delivered or sent by certified or registered U.S. mail, postage prepaid, and addressed as follows:
(A) IF TO LANDLORD, TO LANDLORD'S MAILING ADDRESS AND TO THE Building manager, and (b) if to Tenant, to Tenant's Mailing address; provided, however, notices to Tenant shall be deemed duly served or given f delivered or mailed to Tenant at the Premises. Landlord and Tenant may from time to time by notice to the other designate another place for receipt of future notices.
30. GOVERNMENT ENERGY OR UTILITY CONTROLS
In the event of imposition of federal, state or local government controls, rules, regulations, or restrictions on the use or consumption of energy or other utilities during the Term, both landlord and Tenant shall be bound thereby. In the event of a difference in interpretation by Landlord and Tenant of any such controls, the interpretation of Landlord shall prevails, and Landlord shall have the right to enforce compliance therewith, including the right of entry into the Premises to effect compliance.
31. RELOCATION OF PREMISES
Landlord shall have the right to relocate the Premises to another part of the Building in accordance with the following:
a. The new premises shall be substantially the same in size, dimensions,
configuration, decor and nature as the Premises described in this Lease, and
if the relocation occurs after the Commencement Date, shall be placed in
that condition by Landlord at its cost.
b. Landlord shall give Tenant at least thirty (30) days written notice of
Landlord's intention to relocate the Premises.
c. As nearly as practicable, the physical relocation of the Premises shall
take place on a weekend and shall be completed before the following Monday.
If the physical relocation has not been completed in that time, Base Rent
shall abate in full from the time the physical relocation commences to the
time it is completed. Upon completion of such relocation, the new premises
shall become the "Premises" under this Lease.
d. All reasonable costs incurred by Tenant as a result of the relocation
shall be paid by Landlord.
e. If the new premises are smaller than the Premises as it existed before
the relocation, Base Rent shall be reduced proportionately.
f. The parties hereto shall immediately execute an amendment to this Lease
setting forth the relocation of the Premises and the reduction of Base Rent,
if any.
32. QUIET ENJOYMENT. Tenant, upon paying the Rent and performing all of its obligations under this Lease, shall peaceably and quietly enjoy the Premises, subject to the terms of this Lease and to any mortgage, lease, or other agreement to which this Lease may be subordinate.
33. OBSERVANCE OF LAW. Tenant 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 now in force or which may hereafter be enacted or promulgated. Tenant 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 insurance underwriters or other similar bodies now or hereafter constituted, relating to, or affecting the condition, use or occupancy of the Premises, excluding structural changes not related to or affected by Tenant's improvements or acts. The judgment of any court of competent jurisdiction or the admission of Tenant in any action against Tenant, whether Landlord is a party thereto or not, that Tenant has violated any law, ordinance or governmental rule, regulation or requirement, shall be conclusive of that fact as between Landlord and Tenant.
34. FORCE MAJEURE. Any prevention, delay or stoppage of work to be performed by Landlord or Tenant which is due to strikes, labor disputes, inability to obtain labor, materials, equipment or reasonable substitutes therefor, acts of God, governmental restrictions or regulations or controls, judicial orders, enemy or hostile government actions, civil commotion, fire or other casualty, or other causes beyond the reasonable control of the party obligated to perform hereunder, shall excuse performance of the work by that party for a period equal to the duration of that prevention, delay or stoppage. Nothing in this Article 34 shall excuse or delay Tenant's obligation to pay Rent or other charges under this Lease.
35. CURING TENANT'S DEFAULTS. If Tenant defaults in the performance of any of its obligations under this Lease, Landlord may (but shall not be obligated to) without waiving such default, perform the same for the account at the expense of Tenant. Tenant shall pay Landlord all costs of such performance promptly upon receipt of a bill therefor.
36. SIGN CONTROL. Tenant shall not affix, paint, erect or inscribe any sign, projection, awning, signal or advertisement of any kind to any part of the Premises, Building or Project, including without limitation, the inside or outside of windows or doors, without the written consent of Landlord. Landlord shall have the right to remove any signs or other matter, installed without Landlord's permission, without being liable to Tenant by reason of such removal, and to charge the cost of removal to Tenant as additional rent hereunder, payable within ten (10) days of written demand by Landlord.
37. MISCELLANEOUS.
a. Accord and Satisfaction; Allocation of Payments. No payment by Tenant or
receipt by Landlord of a lesser amount than the Rent provided for in this Lease
shall be deemed to be other than on account of the earliest due Rent, nor shall
any endorsement or statement on any check or letter accompanying any check or
payment as Rent be deemed an accord and satisfaction, and Landlord may accept
such check or payment without prejudice to Landlord's right to recover the
balance of the Rent or pursue any other remedy provided for in this Lease. In
connection with the foregoing, Landlord shall have the absolute right in its
sole discretion to apply any payment received from Tenant to any account or
other payment of Tenant then not current and due or delinquent.
b. Addenda. If any provision contained in an addendum to this Lease is
inconsistent with any other provision herein, the provision contained in the
addendum shall control, unless otherwise provided in the addendum.
c Attorneys' Fees. If any action or proceeding is brought by either party against the other pertaining to or arising out of this Lease, the finally prevailing party shall be entitled to recover al costs and expenses, including reasonable attorneys' fees, incurred on account of such action or proceeding.
a. Captions, Articles and Section Numbers. The captions appearing within the
body of this Lease have been inserted as a matter of convenience and for
reference only and in no way define, limit or enlarge the scope or meaning
of this lease. All references to Article and Section numbers refer to
Articles and Sections in this Lease.
b. Changes Requested by Lender Neither landlord or Tenant shall unreasonably
withhold its consent to change or amendments to this lease requested by the
Lender on Landlord's interest, so long as these changes do not alter the
basis business terms of this lease or otherwise materially diminish any
rights or materially increase any obligations of the party from whom
consent to such change or amendment is requested.
c. Choice of law. This lease shall be construed and enforced in accordance
with the laws of the State. Consent. Notwithstanding anything contained in
this lease to the contrary. Tenant shall have no claim, and hereby waives
the right to any claim against Landlord for money damages by reason of any
refusal, withholding or delaying by Landlord of any consent, approval or
statement of satisfaction, and in such event, Tenant's only remedies
therefor shall be an action for specific performance, injunction or
declaratory judgment to enforce any right to such consent, etc.
h. Corporate Authority. If Tenant is a corporation, each individual signing this Lease on behalf of Tenant represents and warrants that he is duly AUTHORIZED TO EXECUTE AND DELIVER THIS LEASE ON BEHALF OF THE CORPORATION, AND THAT this Lease is binding on Tenant in accordance with its terms. Tenant shall, at Landlord's request, deliver a certified copy of a resolution of its board of directors authorizing such execution.
i. Counterparts. This Lease may be executed in multiple counterparts, all of
which shall constitute one and the same Lease.
j. Execution of Lease; No Option. The submission of this Lease to Tenant shall
be for examination purposes only, and does not and shall not constitute a
reservation of or option for Tenant to lease, or otherwise create any interest
of Tenant in the Premises or any other premises within the Building or Project.
Execution of this Lease by Tenant and its return to Landlord shall not be
binding on Landlord notwithstanding any time interval, until Landlord has in
tact signed and delivered this Lease to Tenant.
k. Furnishing of Financial Statements; Tenant's Representations. In order to
induce Landlord to enter into this Lease Tenant agrees that it shall promptly
furnish Landlord, from time to time, upon Landlord's written request, with
financial statements reflecting Tenant's current financial condition. Tenant
represents and warrants that all financial statements, records and information
furnished by Tenant to Landlord in connection with this Lease are true, correct
and complete in all respects.
1. Further Assurances. The parties agree to promptly sign all documents
reasonably requested to give effect to the provisions of this Lease.
m. Mortgagee Protection. Tenant agrees to send by certified or registered mail
to any first mortgagee or first deed of trust beneficiary of Landlord whose
address has been furnished to Tenant, a copy of any notice of default served by
Tenant on Landlord. If Landlord fails to cure such default within the time
provided for in this Lease, such mortgagee or beneficiary shall have an
additional thirty (30) days to cure such default; provided that if such default
cannot reasonably be cured within that thirty (30) day period, then such
mortgagee or beneficiary shall have such additional time to cure the default as
is reasonably necessary under the circumstances.
n. Prior Agreements; Amendments. This Lease contains all of the agreements of
the parties with respect to any matter covered or mentioned in this Lease, and
no prior agreement or understanding pertaining to any such matter shall be
effective for any purpose. No provisions of this Lease may be amended or added
to except by an agreement in writing signed by the parties or their respective
successors in interest.
o. Recording. Tenant shall not record this Lease without the prior written
consent of Landlord. Tenant, upon the request of Landlord, shall execute and
acknowledge a "short form" memorandum of this Lease for recording purposes.
p. Severability. A final determination by a court of competent jurisdiction that
any provision of this Lease is invalid shall not affect the validity of any
other provision, and any provision so determined to be invalid shall, to the
extent possible, be construed to accomplish its intended effect.
q. Successors and Assigns. This Lease shall apply to and bind the heirs,
personal representatives, and permitted successors and assigns of the parties.
r. Time of the Essence. Time is of the essence of this Lease.
s. Waiver. No delay or omission in the exercise of any right or remedy of
Landlord upon any default by Tenant shall impair such right or remedy or be
construed as a waiver of such default.
t. Compliance. The parties hereto agree
to comply with all applicable federal, state and local laws, regulations, codes,
ordinances and administrative orders having jurisdiction over the parties,
property or the subject matter of this Agreement, including, but not limited to,
the 1964 Civil Rights Act and all amendments thereto, the Foreign Investment In
Real Property Tax Act, the Comprehensive Environmental Response Compensation and
Liability Act, and The Americans With Disabilities Act.
The receipt and acceptance by Landlord of delinquent Rent shall not constitute a
waiver of any other default; it shall constitute only a waiver of timely payment
for the particular Rent payment involved.
No act or conduct of Landlord, including, without limitation, the acceptance of
keys to the Premises, shall constitute an acceptance of the surrender of the
Premises by Tenant before the expiration of the Term. Only a written notice from
Landlord to Tenant shall constitute acceptance of the surrender of the Premises
and accomplish a termination of the Lease.
Landlord's consent to or approval of any act by Tenant requiring Landlord's
consent or approval shall not be deemed to waive or render unnecessary
Landlord's consent to or approval of any subsequent act by Tenant. Any waiver by
Landlord of any default must be in writing and shall not be a waiver of any
other default concerning the same or any other provision of the Lease.
The parties hereto have executed this Lease as of the dates set forth below.
Date: 7/23/99 Date: 7/8/99
Union Bank of California, Trustee First Source Capital, a wholly owned
Landlord: for Agnes M. J. Bourn and Tenant:: Subsidiary of American River
Holdings
William B. Bourn Trusts
By: /s/ BRIAN T. MULLINS By: /s/ DAVID T. TABER
-------------------------------- ----------------------------------
Brian T. Mullins David T. Taber
Title: President and C.E.O.
|
ADDENDUM TO THE OFFICE BUILDING LEASE
DATED JUNE 29,1999 BY AND BETWEEN
UNION BANK OF CALIFORNIA, N.A., TRUSTEE FOR
AGNES M. BOURN AND WILLIAM B. BOURN TRUSTS, AS LANDLORD, AND
FIRST SOURCE CAPITAL, WHOLLY OWNED SUBSIDIARY OF AMERICAN
RIVER HOLDINGS, AS TENANT
I EXCULPATION OF LANDLORD. It is understood and agreed by the Tenant that Landlord is executing this Lease in its fiduciary capacity only and Landlord and Landlord's officers, directors, employees and agents are not and shall not be liable hereunder, directly or indirectly, except for willful misconduct, under or by execution of this Lease. The rights and claims of Tenant shall be limited exclusively to such rights Tenant may have against the trust or other estate or entity represented herein by Landlord (the "Trust").
2. EXCULPATION OF TRUST. Any liability of Landlord (including without limitation Landlord's shareholders, affiliates, agents, and employees) to Tenant or any other person shall be limited to the estate of the Trust in the Building. Tenant or any other person claiming through Tenant agrees to look solely to such interest for the recovery of any judgement against Landlord, it being intended by the parties that neither Landlord, it trustees or beneficiaries, nor any other assets of the Trust or of such trustees or beneficiaries shall be liable for any such judgment.
3. PAINTING. Landlord, at Landlord's sole cost and expense, shall paint the Premises.
4. CLEANING. At Landlord's sole cost and expenses will clean, including carpets.
CONSULT YOUR ADVISORS - This document (including its exhibits and addendums, if any) has been prepared by Broker for approval by the undersigned respective parties' legal counsel. Broker makes no representation or recommendation as to the legal sufficiency or tax consequences of this document or the transaction to which it relates. These are questions for an attorney or accountant.
THE ABOVE TERMS ARE ACKNOWLEDGED AND AGREED TO:
LANDLORD TENANT
Union Bank of California, Trustee for First Source Capital, a wholly owned
Agnes M. Bourn and William B. Bourn Trusts subsidiary of American River
Holdings
By: /s/ BRIAN T. MULLINS By: /s/ DAVID T. TABER
--------------------------------- -----------------------------
Brian T. Mullins David T. Taber
Vice President/Senior Asset Manager President and C.E.O.
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Date: 7/23/99 Date: 7/8/99
EXHIBIT "Exhibit "D" 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 of the outside or inside of the Building without the written consent of Landlord first had and obtained and Landlord shall have the right to remove any such sign, placard, picture, advertisement, name or notice without notice to and at the expense of Tenant.
All approved signs or lettering on doors shall be printed, painted, affixed or inscribed at the expense of Tenant by a persona approved of by landlord. Tenant 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, that Landlord may furnish and install a Building standard window covering all exterior windows. Tenant shall not without prior written consent of Landlord cause or otherwise sunscreen any window.
2. The sidewalks, halls, passages, exits, entrances, elevators and stairways shall not be obstructed by any of the tenants or used by them for any purpose other than for ingress and egress from their respective Premises.
3. Tenant shall not alter any lock or install any new or additional locks or any bolts on any doors or windows of the Premises.
4. 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 Tenant who, or whose employees or invitees shall have caused it.
5. Tenant shall not overload the floor of the premises or in any way deface the premises or any part thereof.
6. No furniture, freight or equipment of any kind shall be brought into the Building without the prior notice to Landlord and all moving of the same into or out of the Building shall be done at such time and in such manner as Landlord shall designate. Landlord shall have the right to prescribe the weight, size and position of all sales and other heavy equipment brought into the Building and also the times and manner of moving the same in and out to the Building. Sales or other heavy objects shall, if considered necessary by landlord, stand on supports of such thickness as is necessary to properly distribute the weight. Landlord will not be responsible for loss of or damage to any such sale of property from any cause and all damage done to the Building by moving or maintaining any such sale or other property shall be repaired at the expense of Tenant.
7. Tenant shall not use, keep or permit to be used or kept any foul or noxious gas or substance in the Premises, or permit or suffer the Premises to be occupied or used in a manner offensive orobjectionable the Landlord 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 herein, nor shall any animals or birds be brought in or kept in or about the Premises of the Building.
8. No cooking shall be done with the exception of microwave oven or permitted by any Tenant on the Premises, nor shall the Premises be used for the storage of merchandise, for washing clothes, for lodging, or for any improper, objectionable or immoral purposes.
9. Tenant 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 supplies by Landlord.
10. Landlord will direct electricians as to where and how telephone wires are to be introduced. No boring or cutting for wires will be allows without the consent of the Landlord. The location of telephones, call boxes and other office equipment affixed to the Premises shall be subject to the approval of landlord.
11. On Saturdays, Sundays and legal holidays, and on other days between the hours of 6:00 p.m. and 8:00 a.m. the following day, access to the Building or to the halls, corridors, elevators or stairways in the Building, or to the premises may be refused unless the person seeking access is known to the person or employees of the Building in charge and has a pass or is properly identified. The landlord 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. In case of invasion, mob, riot, public excitement, or other commotion, the Landlord reserves the right to prevent access to the Building during the continuance of the same by closing of the doors or otherwise, for the safety of the tenants and protection of property in the Building and the Building.
12. Landlord reserves the right to exclude or expel from the Building any person who, in the judgment of landlord, 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.
13. No vending machine or machines of any description shall be installed, maintained or operated upon the Premises without the written consent of the Landlord.
14. Landlord shall have the right, exercisable without notice and without liability to Tenant, to change the name and street address of the Building of which the Premises are a part.
15. Tenant shall not disturb, solicit, or canvass any occupant of the Building and shall cooperate to prevent same.
16. Without the written consent of Landlord, Tenant shall not use the name of the Building in connection with or in promoting or advertising the business of Tenant except as Tenant's address.
17. Landlord shall have the right to control and operate the public portions of the Building, and the public facilities, and heating and air conditioning, as well as facilities furnished for the common use of the tenants, in such manner as it deems best for the benefit of the tenants generally.
18. All entrance doors in the premises shall be left locked when the Premises are not in use, and all doors opening to public corridors shall be kept closed except for normal ingress and egress from the premises.
CB RICHARD ELLIS, INC. SALE/LEASE DISCLOSURES
Property: 1555 River Park Drive, Sacramento, CA 95815
FLOOD ZONES. According to 060266-001 OE _[SPECIFY SOURCE], the Property X IS/ _ MAY OR MAY NOT be located in a flood zone. Many lenders require flood insurance for properties located in flood zones, and government authorities may regulate development and construction in flood zones. Whether or not located in a flood zone, properties can be subject to flooding and moisture problems, especially properties on a slope or in low-lying areas or in a dam inundation zone (California Government Code Section 8589.5).
Buyers and tenants should have their experts confirm whether the Property is in a flood zone and otherwise investigate and evaluate these matters. Flood Zone Designation: Zone A99
EARTHQUAKES. Earthquakes occur throughout California. According to Fault-Rupture Hazard Zones in California Special Publication 42 [specify source], the Property_ is/ X MAY OR MAY NOT BE situated in an Earthquake Fault Zone and/or a Seismic Hazard Zone (Sections 2621 et seq. and Sections 2690 et seq. of the California Public Resources Code, respectively). Property development and construction in such zones generally are subject to the findings of a geologic report prepared by a state-registered geologist. Whether or not located in such a zone, all properties in California are subject to earthquake risks and may be subject to a variety of state and local earthquake-related requirements, including retrofit requirements. Among other items, all new and existing water heaters must be braced, anchored or strapped to resist falling or horizontal displacement, and in sales transactions, sellers must execute a written certification that the water heaters are so braced, anchored or strapped (California Health and Safety Code Section 19211). Buyers and tenants should have their experts confirm whether the Property is in any earthquake zone and otherwise investigate and evaluate these matters.
HAZARDOUS MATERIALS AND UNDERGROUND STORAGE TANKS. Due to prior or current uses of the Property or in the area or the construction materials used, the Property may have hazardous or undesirable metals (including lead-based paint), minerals (including asbestos), chemicals, hydrocarbons, petroleum-related compounds, or biological or radioactive/emissive items (including electrical and magnetic fields) in soils, water, building components, above or below-ground tanks/containers or elsewhere in areas that may or may not be accessible or noticeable. Such items may leak or otherwise be released. Asbestos has been used in items such as fireproofing, heating/cooling systems, insulation, spray-on and tile acoustical materials, floor tiles and coverings, roofing, drywall and plaster. If the Property was built before 1978 and has a residential unit, sellers/landlords must disclose all reports, surveys and other information known to them regarding lead-based paint to buyers and tenants and allow for inspections (42 United States Code Sections 4851 et seq.). Sellers/landlords are required to advise buyers/tenants if they have any reasonable cause to believe that any hazardous substance has come to be located on or beneath the Property (California Health and Safety Code Section 25359.7), and sellers/landlords must disclose reports and surveys regarding asbestos to certain persons, including their employees, contractors, buyers and tenants (California Health and Safety Code Sections 25915 et seq.); buyers/tenants have similar obligations. Have your experts investigate and evaluate these matters.
AMERICANS WITH DISABILITIES ACT (ADA). The Americans With Disabilities Act (42 United States Code Sections 12101 et seq.) and other federal, state and local requirements may require changes to the Property. Have your experts investigate and evaluate these matters.
Taxes. Sales, leases and other real estate transactions can have federal, state and local tax consequences. In sales transactions, Internal Revenue Code Section 1446 requires buyers to withhold and pay to the IRS 10% of the gross sales price within 10 days of the date of a sale unless the buyers can establish that the sellers are not foreigners, generally by having the sellers sign a Non-Foreign Seller Affidavit. Depending on the structure of the transaction, the tax withholding liability can exceed the net cash proceeds to be paid to the sellers at closing. California imposes an additional withholding requirement equal to 3 1/3% of the gross sales price not only on foreign sellers but also out-of-state sellers and sellers leaving the state if the sales price exceeds $100,000. Withholding generally is required if the last known address of a seller is outside California, if the proceeds are disbursed outside of California or if a financial intermediary is used. Have your experts investigate and evaluate these matters.
Fires. California Public Resources Codes Sections 4125 et seq. require sellers of real property located within state responsibility areas to advise buyers that the property is located within such a wildland zone, that the state does not have the responsibility to provide fire protection services to any structure within such a zone and that such zones may contain substantial forest/wildland fire risks. Government Code Sections 51178 et seq. require sellers of real property located within certain fire hazard zones to disclose that the property is located in such a zone. Sellers must disclose that a property located in a wildland or fire hazard zone is subject to the fire prevention requirements of Public Resources Code Section 4291 and Government Code Section 51182, respectively. Sellers must make such disclosures if either the sellers have actual knowledge that a property is in such a zone or a map showing the property to be in such a zone has been provided to the county assessor. Properties, whether or not located in such a zone, are subject to fire/life safety risks and may be subject to state and local fire/life safety-related requirements, including retrofit requirements. Have your experts investigate and evaluate these matters.
BROKER REPRESENTATION. C13 Richard Ellis, Inc. is a national brokerage firm representing a variety of clients. Depending on the circumstances, CB Richard Ellis, Inc. may represent both the seller/landlord and the buyer/tenant in a transaction, or you may be interested in a property that may be of interest to other CB Richard Ellis, Inc. clients. If CB Richard Ellis, Inc. represents more than one party with respect to a property, CB Richard Ellis, Inc. will not disclose the confidential information of one principal to the other.
SELLER/LANDLORD DISCLOSURE, DELIVERY OF REPORTS, PEST CONTROL REPORTS AND COMPLIANCE WITH LAWS. Sellers/land lords are hereby requested to disclose directly to buyers/tenants all information known to sellers/landlords regarding the Property, including but not limited to, hazardous materials, zoning, construction, design, engineering, soils, title, survey, fire/life safety, and other matters, and to provide buyers/tenants with copies of all reports in the possession of or accessible to sellers/landlords regarding the Property. Sellers/landlords and buyers/tenants Must comply with all applicable federal state and local laws regulations, codes, ordinances and administrative orders, including but not limited to, the 1964 Civil Rights Act and all amendments thereto, the Foreign Investment in Real Property Tax Act, the Comprehensive Environmental Response Compensation and Liability Act, and the Americans with Disabilities Act. If a pest control report is a condition of the purchase contract, buyers are entitled to receive a copy of the report any certification and notice of work completed.
Property Inspections and Evaluations. Buyers/tenants should have the Property thoroughly inspected and all parties should have the transaction thoroughly evaluated by the experts of their choice. Ask your experts what investigations and evaluations may be appropriate as well as the risks of not performing any such investigations or evaluations. Information regarding the Property supplies by the real estate brokers has been received from third party sources and has not been independently verified by the brokers. Have your experts verify all information regarding the Property, including any linear or area measurements and the availability of all utilities. All work should be inspected an evaluated by your experts, as they deem appropriate. Any projections or estimates are for example only, are based on assumptions that may not occur and do not represent the current or future performance of the property. Real estate brokers are not experts concerning nor can they determine if any expert is qualified to provide advice on legal, tax, design, ADA, engineering, construction, soils, title, survey, fire/life safety, insurance, hazardous material, or other such matters. Such areas require special education and, generally, special licenses not possessed by real estate brokers. Consult with the experts of your choice regarding these matters.
AMERICAN RIVER HOLDINGS
1995 STOCK OPTION PLAN
1. PURPOSE
The purpose of the American River Holdings 1995 Stock Option Plan (the "Plan") is to strengthen American River Holdings (the "Corporation") and those corporations which are or hereafter become subsidiary corporations of the Corporation by providing an additional means of attracting and retaining competent directors, officers and management level employees and by providing to participating directors, officers and management level employees added incentive for high levels of performance. The Plan seeks to accomplish these purposes and achieve these results by providing a means whereby such directors, officers and management level employees may purchase shares of the common stock of the Corporation pursuant to options granted in accordance with the Plan.
Options granted pursuant to the Plan are intended to be either "incentive stock options" within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended from time to time (the "Code"), or "nonqualified stock options", as shall be determined and designated upon the grant of each option hereunder.
2. ADMINISTRATION
The Plan shall be administered by the Board of Directors (the "Board"). The Board in its sole discretion may from time to time appoint a committee (the "Stock Option Committee") to administer the Plan and exercise all of the powers, authority and discretion of the Board under the Plan. The Board may from time to
time remove members from, or add members to, the Stock Option Committee, and vacancies on the Stock Option Committee shall be filled by the Board. The Board may abolish the Stock Option Committee at any time and/or revest in the Board the administration of the Plan.
Any action of the Board, or the Stock Option Committee, if applicable, with respect to the administration of the Plan shall be taken pursuant to a majority vote, or the unanimous written consent, of its members. Subject to the express provisions of the Plan, the Board, or the Stock Option Committee, if applicable, shall have the authority to construe and interpret the Plan, define the terms used therein, prescribe, amend and rescind, the rules and regulations relating to administration of the Plan, and make all other determinations necessary or advisable for administration of the Plan.
All decisions, determinations, interpretations or other actions by the Board, or the Stock Option Committee, if applicable, shall be final, conclusive and binding on all persons, optionees, grantees, subsidiary corporations of the Corporation and any successors-in-interest to such parties.
With regard to the granting of a stock option to a member of the Board, or the Stock Option Committee, if applicable, such member must abstain from voting.
3. INCENTIVE STOCK OPTIONS
All options granted which are designated at the time of grant as an "incentive stock option" shall be deemed an incentive stock option.
(a) Incentive stock options granted under the Plan are intended to be qualified under Section 422 of the Code.
(b) Full-time salaried officers and management level employees of the Corporation or a subsidiary corporation (as that term is defined in Section 424(f) of the Code), shall be eligible for selection to participate in the incentive stock option portion of the Plan. No director of the Corporation who is not also a full-time salaried officer or employee of the Corporation or a subsidiary corporation, may be granted an incentive stock option hereunder. Subject to the express provisions of the Plan, the Board, or the Stock Option Committee, if applicable, shall (i) select from the eligible class of employees to whom incentive stock options shall be granted and make recommendations to the Board concerning the individuals to whom incentive stock options shall be granted, (ii) determine the discretionary terms and provisions of the respective incentive stock option agreements (which need not be identical), (iii) determine the times at which such incentive stock options shall be granted, and (iv) determine the number of shares subject to each incentive stock option. An individual who has been granted an incentive stock option may, if he or she is otherwise eligible under the Plan, be granted additional incentive stock options if the Board shall so determine.
(c) The Board shall determine the individuals who shall receive incentive stock options and the terms and provisions of the incentive stock options, and shall grant such incentive stock options to such individuals. Notwithstanding
the above sentence, however, the Board may delegate to the Stock Option Committee the power to determine the individuals who shall receive incentive stock options and the terms and provisions of such incentive stock options, and the power to grant incentive stock options to such individuals.
(d) Except as described in subsection (f) below, the Board, or the Stock Option Committee, if applicable, shall not grant an incentive stock option to purchase shares of the Corporation's common stock to any individual who, at the time of the grant, owns stock possessing more than 10% of the total combined voting power or value of all classes of stock of the Corporation or a subsidiary corporation. The attribution rules of Section 424(d) of the Code shall apply in the determination of ownership of stock for these purposes.
(e) The aggregate fair market value (determined as of the time the incentive stock option is granted) of stock with respect to which incentive stock options are exercisable for the first time by an individual during any calendar year (under all plans of the Corporation and its subsidiary corporations, if any) shall not exceed $100,000, plus any greater amount as may be permitted under subsequent amendments to the Code.
(f) The purchase price of stock subject to each incentive stock option shall be determined by the Board, or the Stock Option Committee, if applicable, but shall not be less than one hundred percent (100%) of the fair market value of such stock at the time such option is granted, except, in the case of optionees who at the time of the grant own more than ten percent (10%) of the total combined voting power of all classes of stock of the Corporation or a
subsidiary corporation (as defined in Section 422 of the Code), in which case the purchase price of the stock shall not be less than one hundred ten percent (110%) of the fair market value of such stock at the time such option is granted and the term of such option shall be for no more than five (5) years. The fair market value of such stock shall be determined in accordance with any reasonable valuation method, including the valuation methods described in Treasury Regulation Section 20.2031-2.
4. NONQUALIFIED STOCK OPTIONS
(a) All options granted which are (i) in excess of the aggregate fair market value limitations set forth in Section 3(e) hereof, (ii) designated at the time of the grant as "nonqualified", or (iii) intended to be incentive stock options but do not meet the requirements of incentive stock options, shall be deemed nonqualified stock options. Nonqualified stock options granted hereunder shall be so designated in the nonqualified stock option agreement entered into between the Corporation and the optionee.
(b) Directors, full-time salaried officers and management level employees of the Corporation or a subsidiary corporation shall be eligible for selection to participate in the nonqualified stock option portion of the Plan. Subject to the express provisions of the Plan, the Board, or the Stock Option Committee, if applicable, shall (i) select from the eligible class of individuals to whom nonqualified stock options shall be granted and make recommendations to the Board concerning the individuals to whom nonqualified stock options shall be granted, (ii) determine the discretionary terms and provisions of the respective
nonqualified stock option agreements (which need not be identical), (iii) determine the times at which such nonqualified stock options shall be granted, and (iv) determine the number of shares subject to each nonqualified stock option. An individual who has been granted a nonqualified stock option may, if he or she is otherwise eligible under the Plan, be granted additional nonqualified stock options if the Board shall so determine.
(c) The Board shall determine the individuals who shall receive nonqualified stock options and the terms and provisions of the nonqualified stock options, and shall grant such nonqualified stock options to such individuals. Notwithstanding the above sentence, however, the Board may delegate to the Stock Option Committee the power to determine the individuals who shall receive nonqualified stock options and the terms and provisions of such nonqualified stock options, and the power to grant nonqualified stock options to such individuals.
(d) The purchase price of stock subject to each nonqualified stock option shall be determined by the Board, or the Stock Option Committee, if applicable, but shall not be less than one hundred percent (100%) of the fair market value of such stock at the time such option is granted. The fair market value of such stock shall be determined in accordance with any reasonable valuation method, including the valuation methods described in Treasury Regulation 20.2031-2.
5. STOCK SUBJECT TO THE PLAN
Subject to adjustments as provided in Section 12, hereof, the stock to be offered under the Plan shall be shares of the Corporation's authorized but
unissued common stock (hereinafter called "stock") and the aggregate amount of stock to be delivered upon exercise of all options granted under the Plan shall not exceed 240,000 shares. If any option shall be cancelled, surrendered or expire for any reason without having been exercised in full, the underlying shares subject thereto shall again be available for purposes of the Plan.
6. CONTINUATION OF EMPLOYMENT
Nothing contained in the Plan (or in any option agreement) shall obligate the Corporation or a subsidiary corporation to employ any optionee for any period or interfere in any way with the right of the Corporation or a subsidiary corporation to reduce the optionee's compensation. However, the Corporation may not reduce the terms of any option without the approval of the optionee.
7. EXERCISE OF OPTIONS
No option shall be exercisable until all necessary regulatory and shareholder approvals of the Plan are obtained. Except as otherwise provided in this section, each option shall be exercisable in such installments, which need not be equal, and upon such contingencies as the Board, or the Stock Option Committee, if applicable, shall determine; provided, however, that if an optionee shall not in any given installment period purchase all of the shares which the optionee is entitled to purchase in such installment period, the
optionee's right to purchase any shares not purchased in such installment period shall continue until expiration or termination of such option. Notwithstanding the foregoing, the options shall vest at the rate of at least 20% per year over a five year period from the date the option is granted.
Fractional share interests shall be disregarded, except that they may be accumulated. Not less than ten (10) shares may be purchased at any one time unless the number of shares purchased is the total number of shares which is exercisable at such time. Options may be exercised by written notice delivered to the Corporation stating the number of shares with respect to which the option is being exercised, together with the full purchase price for such shares. Payment of the option price in full, for the number of shares to be delivered, must be made in cash, or subject to applicable law, with the Corporation's stock previously acquired by the optionee. The equivalent dollar value of shares used to effect a purchase shall be the fair market value of the shares on the date of exercise. If the option is being exercised by any person other than the optionee, said notice shall be accompanied by proof, satisfactory to counsel for the Corporation, of the right of such person to exercise the option. Optionees will have no rights as shareholders with respect to stock of the Corporation subject to their stock option agreements until the date of issuance of the stock certificate to them.
8. NONTRANSFERABILITY OF OPTIONS
Each option shall, by its terms, be nontransferable by the optionee other than by will or the applicable laws of descent and distribution, and shall be
exercisable during his or her lifetime only by the optionee.
9. CESSATION OF DIRECTORSHIP OR EMPLOYMENT
Except as provided in Sections 10 and 20 hereof, if an optionee ceases to be a director or an employee of the Corporation or a subsidiary corporation for any reason other than his or her disability (as defined in Section 22(e)(3) of the Code) or death, the optionee's option shall expire three (3) months after the date of termination of such directorship or employment. During the period after cessation of directorship or employment, such option shall be exercisable only as to those installments, if any, which have accrued and/or vested as of the date on which the optionee ceased to be a director or an employee of the Corporation or a subsidiary corporation.
10. TERMINATION OF EMPLOYMENT FOR CAUSE
If the stock option agreement so provides and if an optionee's employment by the Corporation or a subsidiary corporation is terminated for cause, the optionee's option shall expire thirty (30) days from the date of such termination. Termination for cause shall include, but not be limited to, termination for malfeasance or gross misfeasance in the performance of duties or conviction of a crime involving moral turpitude, and, in any event, the determination of the Board with respect thereto shall be final and conclusive.
11. DISABILITY OR DEATH OF OPTIONEE
If any optionee dies while serving as a director or an employee of the Corporation or a subsidiary corporation, the option shall expire one (1) year after the date of such death, except as provided in Section 20 hereof. After such death but before such expiration, the persons to whom the optionee's rights under the option shall have passed by will or the applicable laws of descent and distribution or the executor or administrator of optionee's estate shall have the right to exercise such option to the extent that installments, if any, had accrued and/or vested as of the date on which the optionee ceased to be a director or an employee of the Corporation or a subsidiary corporation.
If the optionee shall terminate his or her directorship or employment because of disability (as defined in Section 22(e)(3) of the Code), the optionee may exercise this option to the extent he or she is entitled to do so at the date of termination, at any time within one (1) year of the date of termination, except as provided in Section 20 hereof.
If any optionee dies during the three (3) month period referred to in
Section 9 hereof, the option shall expire one (1) year after the date of such
death, except as provided in Section 20 hereof.
12. ADJUSTMENT UPON CHANGES IN CAPITALIZATION
If the outstanding shares of the stock of the Corporation are increased, decreased, changed into or exchanged for a different number or kind of shares or securities of the Corporation through reorganization, merger,
recapitalization, reclassification, stock split, stock dividend, stock
consolidation or otherwise, without consideration to the Corporation, an
appropriate and proportionate adjustment shall be made in the number and kind of
shares as to which options may be granted. A corresponding adjustment changing
the number or kind of shares and the exercise price per share allocated to
unexercised options or portions thereof, which shall have been granted prior to
any such change shall likewise be made. Any such adjustment, however, in an
outstanding option shall be made without change in the total price applicable to
the unexercised portion of the option, but with a corresponding adjustment in
the price for each share subject to the option. Any adjustment under this
Section 12 shall be made by the Board, whose determination as to what
adjustments shall be made, and the extent thereof, shall be final and
conclusive. No fractional shares of stock shall be issued or made available
under the Plan on account of any such adjustment, and fractional share-interests
shall be disregarded, except that they may be accumulated.
13. TERMINATING EVENTS
A Terminating Event shall be defined as any one of the following events:
(i) a dissolution or liquidation of the Corporation; (ii) a reorganization,
merger or consolidation of the Corporation with one or more corporations, the
result of which (A) the Corporation is not the surviving corporation, or (B) the
Corporation becomes a subsidiary of another corporation (which shall be deemed
to have occurred if another corporation shall own directly or indirectly, over
80% of the aggregate voting power of all outstanding equity securities of the
Corporation); (iii) a sale of substantially all the assets of the Corporation to
another corporation; or (iv) a sale of the equity securities of the Corporation
representing more than 80% of the aggregate voting power of all outstanding
equity securities of the Corporation to any person or entity, or any group of persons and/or entities acting in concert. When the Corporation knows that a Terminating Event will occur (i) the Corporation shall deliver to each optionee no less than thirty (30) days prior to the Terminating Event, written notification of the Terminating Event and the optionee's right to exercise all options granted pursuant to the Plan, whether or not vested under the Plan or applicable stock option agreement, and (ii) all outstanding options granted pursuant to the Plan shall completely vest and become immediately exercisable as to all shares granted pursuant to the option immediately prior to such Terminating Event. This right of exercise shall be conditional upon execution of a final plan of dissolution or liquidation or a definitive agreement of consolidation or merger. Upon the occurrence of the Terminating Event all outstanding options and the Plan shall terminate; provided, however, that any outstanding options not exercised as of the occurrence of the Terminating Event shall not terminate if there is a successor corporation which assumes the outstanding options or substitutes for such options, new options covering the stock of the successor corporation with appropriate adjustments as to the number and kind of shares and prices.
14. AMENDMENT AND TERMINATION
The Board may at any time suspend, amend or terminate the Plan and may, with the consent of the optionee, make such modification of the terms and conditions of the option as it shall deem advisable; provided that, except as permitted under the provisions of Sections 12 and 13 hereof, no amendment or modification which would:
(a) increase the maximum number of shares which may be purchased pursuant to options granted under the Plan either in the aggregate or by an individual;
(b) change the minimum option price;
(c) increase the maximum term of options provided for herein; or
(d) permit options to be granted to anyone other than directors, full-time salaried officers or management level employees of the Corporation or a subsidiary corporation;
may be adopted without the Corporation having first obtained any necessary regulatory and shareholder approvals required by law.
No option may be granted during any suspension or after termination of the Plan. Amendment, suspension or termination of the Plan shall not (except as otherwise provided in Section 12 hereof), without the consent of the optionee, alter or impair any rights or obligations under any option theretofore granted.
15. TIME OF GRANTING OPTIONS
The time an option is granted, sometimes referred to as the date of grant, shall be the day of the action of the Board, or the Stock Option Committee, if applicable, described in Sections 3(c) and 4(c) hereof; provided, however, that if appropriate resolutions of the Board, or the Stock Option Committee, if applicable, indicate that an option is granted as of and on some future date,
the time such option is granted shall be such future date. If action by the Board, or the Stock Option Committee, if applicable, is taken by unanimous written consent of its members, the action of the Board, or the Stock Option Committee, if applicable, shall be deemed to be at the time the last Board, or Stock Option Committee, if applicable, member signs the consent.
16. PRIVILEGES OF STOCK OWNERSHIP; SECURITIES LAW COMPLIANCE; NOTICE OF SALE
No optionee shall be entitled to the privileges of stock ownership as to any shares of stock not actually issued. No shares shall be purchased upon the exercise of any option unless and until the Corporation has fully complied with all applicable requirements of any regulatory agency having jurisdiction over the Corporation, and all applicable requirements of any exchange upon which stock of the Corporation may be listed. The optionee shall give the Corporation notice of any sale or disposition of any such shares not more than five (5) days after such sale or disposition.
17. EFFECTIVE DATE OF THE PLAN
The Plan shall be deemed adopted by the Board as of March 15, 1995 and shall be effective immediately subject to approval by the shareholders of the Corporation within twelve months of the date the Plan is adopted, by the vote of a majority of the outstanding shares represented and voting at a meeting of shareholders at which a quorum is present, or by the written consent vote of the holders of a majority of the outstanding shares of the Corporation's stock.
18. TERMINATION
Unless previously terminated by the Board, the Plan shall terminate at the close of business on a date ten (10) years from the earlier of the date of approval by the Corporation's outstanding shares or the date of adoption of the Plan by the Board. No options shall be granted under the Plan thereafter, but such termination shall not affect any option theretofore granted.
19. OPTION AGREEMENT
Each option shall be evidenced by a written stock option agreement executed by the Corporation and the optionee and shall contain each of the provisions and agreements herein specifically required to be contained therein, and such other terms and conditions as are deemed desirable and are not inconsistent with the Plan. Each incentive stock option agreement shall contain such terms and provisions as the Board, or the Stock Option Committee, if applicable, may determine to be necessary in order to qualify such option as an incentive stock option within the meaning of Section 422 of the Code.
20. OPTION PERIOD
Each option and all rights and obligations thereunder shall expire on such date as the Board, or the Stock Option Committee, if applicable, may determine, but not later than ten (10) years from the date such option is granted, and shall be subject to earlier termination as provided elsewhere in the Plan.
21. EXCULPATION AND INDEMNIFICATION
To the extent permitted by applicable law in effect from time to time, no member of the Board or the Stock Option Committee shall be liable for any act or omission of any other member of the Board or the Stock Option Committee nor for any act or omission on the member's own part, except the member's own willful misconduct or gross negligence. The Corporation and its subsidiary corporations shall pay expenses incurred by, and satisfy a judgment or fine rendered or levied against, a present or former member of the Board or the Stock Option Committee in any action brought by a third party against such person (whether or not the Corporation is joined as a party defendant) to impose a liability or penalty on such person while a member of the Board or the Stock Option Committee arising with respect to the Plan or administration thereof or out of membership on the Board or the Stock Option Committee, or all or any combination of the preceding; provided, the Board determines in good faith that such member of the Board or the Stock Option Committee was acting in good faith, within what such member of the Board or the Stock Option Committee reasonably believed to be the scope of his or her employment or authority, and for a purpose which he or she reasonably believed to be in the best interests of the Corporation or its shareholders. Payments authorized hereunder include amounts paid and expenses incurred in settling any such action or threatened action. This Section 21 does not apply to any action instituted or maintained in the right of the Corporation by a shareholder or holder of a voting trust certificate representing shares of the Corporation or a subsidiary corporation thereof. The provisions of this
Section 21 shall apply to the estate, executor, administrator, heirs, legatees or devisees of a member of the Board or the Stock Option Committee, and the term "person" as used in this Section 21 shall include the estate, executor, administrator, heirs, legatees or devisees of such person.
22. AGREEMENT AND REPRESENTATIONS OF OPTIONEE
Unless the shares of stock covered by the Plan have been registered with the Securities Exchange Commission, each optionee shall, by accepting an option, represent and agree, for himself or herself and his or her transferees by will or the applicable laws of descent and distribution, that all stock will be acquired for investment and not for resale or distribution. Upon such exercise of any portion of an option, the person entitled to exercise the same shall, upon request of the Corporation, furnish evidence satisfactory to the Corporation (including a written and signed representation) to the effect that the stock is being acquired in good faith for investment and not for resale or distribution. Furthermore, the Corporation, at its sole discretion, may take all reasonable steps, including affixing the following legend (and/or such other legend or legends as counsel shall require) on certificates embodying the shares:
The shares represented by this certificate have not been registered under the Securities Act of 1933 and may not be sold, pledged, hypothecated or otherwise transferred or offered for sale in the absence of an effective registration statement with respect to them under the Securities Act of 1933 or a written opinion of counsel for the optionee which opinion shall be acceptable to counsel for American River Holdings that registration is not required.
to assure itself against any sale or distribution by the optionee which does not
comply with the Plan or any federal or state securities laws.
The Corporation agrees to remove any legend affixed to the certificates embodying the shares pursuant to this Section 22 when all of the restrictions on the transfer of the shares, whether imposed by the Plan or federal or state law, have terminated.
23. INFORMATION TO OPTIONEES
The Corporation shall provide optionees with financial statements of the Corporation at least annually.
24. NONEXEMPT PLAN UNDER SECTION 16B-3
The Plan is not a Section 16b-3 exempt plan.
NOTWITHSTANDING ANY OTHER PROVISION OF THIS AGREEMENT, NO SHARES OF AMERICAN RIVER HOLDINGS' COMMON STOCK SHALL BE ISSUED PURSUANT HERETO UNLESS THE AMERICAN RIVER HOLDINGS 1995 STOCK OPTION PLAN SHALL HAVE FIRST BEEN APPROVED BY THE SHAREHOLDERS OF AMERICAN RIVER HOLDINGS.
AMERICAN RIVER HOLDINGS
NONQUALIFIED STOCK OPTION AGREEMENT
This Nonqualified Stock Option Agreement (the "Agreement") is made and entered into as of the ______ day of __________, ____, by and between American River Holdings, a California corporation (the "Corporation"), and ________________________, ("Optionee");
WHEREAS, pursuant to the American River Holdings 1995 Stock Option Plan (the "Plan"), a copy of which is attached hereto, the Board of Directors of the Corporation (or the Stock Option Committee, if authorized by the Board of Directors) has authorized granting to Optionee a nonqualified stock option to purchase all or any part of _______________ (_________) authorized but unissued shares of the Corporation's common stock for cash at the price of ________ Dollars and _____ Cents ($__.__) per share, such option to be for the term and upon the terms and conditions hereinafter stated;
NOW, THEREFORE, it is hereby agreed:
1. GRANT OF OPTION. Pursuant to said action of the Board of Directors, or the Stock Option Committee, if applicable, and pursuant to authorizations granted by all appropriate regulatory and governmental agencies, the Corporation hereby grants to Optionee the option to purchase, upon and subject to the terms and conditions of the Plan, as amended, which is incorporated in full herein by this reference, all or any part of _______________ (______) shares of the
Corporation's common stock (hereinafter called "stock") at the price of ________________ Dollars and _____ Cents ($__.__) per share, which price is not less than one hundred percent (100%) of the fair market value of the stock as of the date of action of the Board of Directors, or the Stock Option Committee, if applicable, granting this option.
3. EXERCISE OF OPTION. This option may be exercised by written notice delivered to the Corporation stating the number of shares with respect to which this option is being exercised, together with cash or shares of the Corporation's stock, as applicable, in the amount of the purchase price of such shares. Not less than ten (10) shares may be purchased at any one time unless the number purchased is the total number which may be purchased under this option and in no event may the option be exercised with respect to fractional shares. Upon exercise, Optionee shall make appropriate arrangements and shall be
responsible for the withholding of any federal and state taxes then due.
4. CESSATION OF DIRECTORSHIP OR EMPLOYMENT. Except as provided in Paragraphs 2 and 5 hereof, if Optionee shall cease to be a director or an employee of the Corporation or a subsidiary corporation for any reason other than Optionee's death or disability [as defined in Section 22(e)(3) of the Internal Revenue Code of 1986, as amended from time to time (the "Code")], this option shall expire three (3) months thereafter. During the three (3) month period this option shall be exercisable only as to those installments, if any, which had accrued as of the date when Optionee ceased to be a director or an employee of the Corporation or a subsidiary corporation.
5. TERMINATION OF EMPLOYMENT FOR CAUSE. If Optionee's employment with the Corporation or a subsidiary corporation is terminated for cause, this option shall expire thirty (30) days from the date of such termination. Termination for cause shall include, but not be limited to, termination for malfeasance or gross misfeasance in the performance of duties or conviction of a crime involving moral turpitude, and, in any event, the determination of the Board of Directors with respect thereto shall be final and conclusive.
6. NONTRANSFERABILITY; DEATH OR DISABILITY OF OPTIONEE. This option shall not be transferable except by will or the applicable laws of descent and distribution and shall be exercisable during Optionee's lifetime only by Optionee. If Optionee dies while serving as a director or an employee of the Corporation or a subsidiary corporation, or during the three (3) month period referred to in Paragraph 4 hereof, this option shall expire one (1) year after the date of Optionee's death or on the day specified in Paragraph 2 hereof, whichever is earlier. After Optionee's death but before such expiration, the persons to whom Optionee's rights under this option shall have passed by will or the applicable laws of descent and distribution or the executor or administrator of Optionee's estate shall have the right to exercise this option as to those shares for which installments had accrued under Paragraph 2 hereof as of the date on which Optionee ceased to be a director or an employee of the Corporation or a subsidiary corporation.
If Optionee terminates his or her directorship or employment because of disability, (as defined in Section 22(e)(3) of the Code), Optionee may exercise this option to the extent he or she is entitled to do so at the date of termination, at any time within one (1) year of the date of termination, or before the expiration date specified in Paragraph 2 hereof, whichever is earlier.
7. EMPLOYMENT. This Agreement shall not obligate the Corporation or a subsidiary corporation to employ Optionee for any period, nor shall it interfere in any way with the right of the Corporation or a subsidiary corporation to
reduce Optionee's compensation.
8. PRIVILEGES OF STOCK OWNERSHIP. Optionee shall have no rights as a shareholder with respect to the Corporation's stock subject to this option until the date of issuance of stock certificates to Optionee. Except as provided in the Plan, no adjustment will be made for dividends or other rights for which the record date is prior to the date such stock certificates are issued.
9. MODIFICATION AND TERMINATION. The rights of Optionee are subject to modification and termination upon the occurrence of certain events as provided in Sections 13 and 14 of the Plan.
10. NOTIFICATION OF SALE. Optionee agrees that Optionee, or any person acquiring shares upon exercise of this option, will notify the Corporation not more than five (5) days after any sale or other disposition of such shares.
11. REPRESENTATIONS OF OPTIONEE. No shares issuable upon the exercise of this option shall be issued and delivered unless and until the Corporation has complied with all applicable requirements of California and federal law and of the Securities and Exchange Commission and the California Department of Corporations pertaining to the issuance and sale of such shares, and all applicable listing requirements of the securities exchanges, if any, on which
shares of the Corporation of the same class are then listed. Optionee agrees to ascertain that such requirements shall have been complied with at the time of any exercise of this option. In addition, if the Optionee is an "affiliate" for purposes of the Securities Act of 1933, there may be additional restrictions on the resale of stock, and Optionee therefore agrees to ascertain what those restrictions are and to abide by the restrictions and other applicable federal and state securities laws.
Furthermore, the Corporation may, if it deems appropriate, issue stop transfer instructions against any shares of stock purchased upon the exercise of this option and affix to any certificate representing such shares the legends which the Corporation deems appropriate.
Optionee represents that the Corporation, its directors, officers, employees and agents have not and will not provide tax advice with respect to the option, and Optionee agrees to consult with his or her own tax advisor as to the specific tax consequences of the option, including the application and effect of federal, state, local and other tax laws.
12. NOTICES. Any notice to the Corporation provided for in this Agreement shall be addressed to it in care of its President or Chief Financial Officer at its main office and any notice to Optionee shall be addressed to Optionee's address on file with the Corporation or a subsidiary corporation, or to such other address as either may designate to the other in writing. Any notice shall be deemed to be duly given if and when enclosed in a properly sealed envelope and addressed as stated above and deposited, postage prepaid,
with the United States Postal Service. In lieu of giving notice by mail as aforesaid, any written notice under this Agreement may be given to Optionee in person, and to the Corporation by personal delivery to its President or Chief Financial Officer.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.
OPTIONEE AMERICAN RIVER HOLDINGS
By__________________________ By______________________________
By______________________________
NOTWITHSTANDING ANY OTHER PROVISION OF THIS AGREEMENT, NO SHARES OF AMERICAN RIVER HOLDINGS' COMMON STOCK SHALL BE ISSUED PURSUANT HERETO UNLESS THE AMERICAN RIVER HOLDINGS 1995 STOCK OPTION PLAN SHALL HAVE FIRST BEEN APPROVED BY THE SHAREHOLDERS OF AMERICAN RIVER HOLDINGS.
AMERICAN RIVER HOLDINGS
INCENTIVE STOCK OPTION AGREEMENT
This Incentive Stock Option Agreement (the "Agreement") is made and entered into as of the ______ day of __________, _____, by and between American River Holdings, a California corporation (the "Corporation"), and ___________________________ ("Optionee");
WHEREAS, pursuant to the American River Holdings 1995 Stock Option Plan (the "Plan"), a copy of which is attached hereto, the Board of Directors of the Corporation (or the Stock Option Committee, if authorized by the Board of Directors) has authorized granting to Optionee an incentive stock option to purchase all or any part of ______________ (_____) authorized but unissued shares of the Corporation's common stock for cash at the price of ___________ Dollars and _______ Cents ($__.__) per share, such option to be for the term and upon the terms and conditions hereinafter stated;
NOW, THEREFORE, it is hereby agreed:
1. GRANT OF OPTION. Pursuant to said action of the Board of Directors, or the Stock Option Committee, if applicable, and pursuant to authorizations granted by all appropriate regulatory and governmental agencies, the Corporation hereby grants to Optionee the option to purchase, upon and subject to the terms and conditions of the Plan, as amended, which is incorporated in full herein by this reference, all or any part of ______________ (_____) shares of the
Corporation's common stock (hereinafter called "stock") at the price of _______________ Dollars and _______ Cents ($__.__) per share, which price is not less than one hundred percent (100%) of the fair market value of the stock (or not less than 110% of the fair market value of the stock for Optionee-shareholders who own securities possessing more than ten percent (10%) of the total combined voting power of all classes of securities of the Corporation) as of the date of action of the Board of Directors, or the Stock Option Committee, if applicable, granting this option.
2. EXERCISABILITY. This option shall be exercisable as to
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This option shall remain exercisable as to all of such shares until _______________ __, _____ (but not later than ten (10) years from the date this option is granted) unless this option has expired or terminated earlier in accordance with the provisions hereof. Shares as to which this option becomes exercisable pursuant to the foregoing provision may be purchased at any time prior to expiration of this option.
3. EXERCISE OF OPTION. This option may be exercised by written notice delivered to the Corporation stating the number of shares with respect to which this option is being exercised, together with cash or shares of the Corporation's stock, as applicable, in the amount of the purchase price of such
shares. Not less than ten (10) shares may be purchased at any one time unless the number purchased is the total number which may be purchased under this option and in no event may the option be exercised with respect to fractional shares. Upon exercise, Optionee shall make appropriate arrangements and shall be responsible for the withholding of any federal and state taxes then due.
4. CESSATION OF EMPLOYMENT. Except as provided in Paragraphs 2 and 5
hereof, if Optionee shall cease to be an employee of the Corporation or a
subsidiary corporation for any reason other than Optionee's death or disability
[as defined in Section 22(e)(3) of the Internal Revenue Code of 1986, as amended
from time to time (the "Code")], this option shall expire three (3) months
thereafter. During the three (3) month period this option shall be exercisable
only as to those installments, if any, which had accrued as of the date when
Optionee ceased to be an employee of the Corporation or a subsidiary
corporation.
5. TERMINATION OF EMPLOYMENT FOR CAUSE. If Optionee's employment with the Corporation or a subsidiary corporation is terminated for cause, this option shall expire thirty (30) days from the date of such termination. Termination for cause shall include, but not be limited to, termination for malfeasance or gross misfeasance in the performance of duties or conviction of a crime involving moral turpitude, and, in any event, the determination of the Board of Directors with respect thereto shall be final and conclusive.
6. NONTRANSFERABILITY; DEATH OR DISABILITY OF OPTIONEE. This option shall not be transferable except by will or the applicable laws of descent and distribution and shall be exercisable during Optionee's lifetime only by Optionee. If Optionee dies while serving as an employee of the Corporation or a subsidiary corporation, or during the three (3) month period referred to in Paragraph 4 hereof, this option shall expire one (1) year after the date of Optionee's death or on the day specified in Paragraph 2 hereof, whichever is earlier. After Optionee's death but before such expiration, the persons to whom Optionee's rights under this option shall have passed by will or the applicable laws of descent and distribution or the executor or administrator of Optionee's estate shall have the right to exercise this option as to those shares for which installments had accrued under Paragraph 2 hereof as of the date on which Optionee ceased to be an employee of the Corporation or a subsidiary corporation.
If Optionee terminates his or her employment because of disability, (as defined in Section 22(e)(3) of the Code), Optionee may exercise this option to the extent he or she is entitled to do so at the date of termination, at any time within one (1) year of the date of termination, or before the expiration date specified in Paragraph 2 hereof, whichever is earlier.
7. EMPLOYMENT. This Agreement shall not obligate the Corporation or a subsidiary corporation to employ Optionee for any period, nor shall it interfere in any way with the right of the Corporation or a subsidiary corporation to
reduce Optionee's compensation.
8. PRIVILEGES OF STOCK OWNERSHIP. Optionee shall have no rights as a shareholder with respect to the Corporation's stock subject to this option until the date of issuance of stock certificates to Optionee. Except as provided in the Plan, no adjustment will be made for dividends or other rights for which the record date is prior to the date such stock certificates are issued.
9. MODIFICATION AND TERMINATION. The rights of Optionee are subject to modification and termination upon the occurrence of certain events as provided in Sections 13 and 14 of the Plan.
10. NOTIFICATION OF SALE. Optionee agrees that Optionee, or any person acquiring shares upon exercise of this option, will notify the Corporation not more than five (5) days after any sale or other disposition of such shares.
11. REPRESENTATIONS OF OPTIONEE. No shares issuable upon the exercise of this option shall be issued and delivered unless and until the Corporation has complied with all applicable requirements of California and federal law and of the Securities and Exchange Commission and the California Department of Corporations pertaining to the issuance and sale of such shares, and all applicable listing requirements of the securities exchanges, if any, on which shares of the Corporation of the same class are then listed. Optionee agrees to ascertain that such requirements shall have been complied with at the time of
any exercise of this option. In addition, if the Optionee is an "affiliate" for purposes of the Securities Act of 1933, there may be additional restrictions on the resale of stock, and Optionee therefore agrees to ascertain what those restrictions are and to abide by the restrictions and other applicable federal and state securities laws.
Furthermore, the Corporation may, if it deems appropriate, issue stop transfer instructions against any shares of stock purchased upon the exercise of this option and affix to any certificate representing such shares the legends which the Corporation deems appropriate.
Optionee represents that the Corporation, its directors, officers, employees and agents have not and will not provide tax advice with respect to the option, and Optionee agrees to consult with his or her own tax advisor as to the specific tax consequences of the option, including the application and effect of federal, state, local and other tax laws.
12. NOTICES. Any notice to the Corporation provided for in this Agreement shall be addressed to it in care of its President or Chief Financial Officer at its main office and any notice to Optionee shall be addressed to Optionee's address on file with the Corporation or a subsidiary corporation, or to such other address as either may designate to the other in writing. Any notice shall be deemed to be duly given if and when enclosed in a properly sealed envelope and addressed as stated above and deposited, postage prepaid,
with the United States Postal Service. In lieu of giving notice by mail as aforesaid, any written notice under this Agreement may be given to Optionee in person, and to the Corporation by personal delivery to its President or Chief Financial Officer.
13. INCENTIVE STOCK OPTION. This Agreement is intended to be an incentive stock option agreement as defined in Section 422 of the Code.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.
OPTIONEE AMERICAN RIVER HOLDINGS
By_______________________ By_________________________
By_________________________
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PUTNAM PROFIT SHARING AND 401 (K) PLAN
PLAN AGREEMENT #001
This is the Plan Agreement for a Putnam prototype profit sharing plan with optional Section 401(k) provisions. Please consult a tax or legal advisor and review the entire form before you sign it. If you fail to fill out this Putnam Plan Agreement properly, the Plan may be disqualified. You can get further information to help you complete the Plan Agreement from your investment dealer, or from Putnam at:
Putnam Defined Contribution Plans One Putnam Place E2B 859 Willard Street Quincy, MA 02269 Phone: 1-800-752-9894
* * *
By executing this Plan Agreement, the Employer establishes a profit sharing plan and trust upon the terms and conditions of Putnam Basic Plan Document #05, as supplemented and modified by the provisions elected by the Employer in this Plan Agreement. THIS PLAN AGREEMENT MUST BE ACCEPTED BY PUTNAM IN ORDER FOR THE EMPLOYER TO RECEIVE FUTURE AMENDMENTS TO THE PUTNAM PROFIT SHARING AND 401(k) PLAN.
* * *
All Employers complete items 1-11 below. Employers who wish to adopt Section 401(k) provisions also complete item 12.
1. Business Information The Employer adopting this Plan is:
A. BUSINESS NAME: American River Bank
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B. BUSINESS ADDRESS: 1545 River Park Drive
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Suite 107
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Sacramento, CA 95815
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SIC Code: 6090
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Person for Putnam to
Contact: Anneliese Hein
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Phone: (916) 368-3410
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C. Federal Tax
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D. Form of Organization (check one):
[ ] Sole proprietorship [X] Corporation [ ] Other
[ ] Partnership [ ] S Corporation
E. Plan Name: AMERICAN RIVER BANK 401 (k) PLAN
F. Plan Number: 002
G. TAXABLE YEAR OF BUSINESS:
[X] (1) Calendar Year.
[ ] (2) Fiscal year ending on____________________
2. PLAN INFORMATION
A. Plan Year. Check one:
[X] (1) The Plan Year will be the same as the Taxable Year
of the Business shown in 1.F. above. If the Taxable
Year of the Business changes, the Plan Year will
change accordingly
[ ] (2) The Plan Year will be the period of 12 months
beginning on the first day of ___________(month)
and ending on the last day of _________(month).
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The Plan Year will also be your Plan's Limitation Year for purposes of the contribution limitation rules in Article 6 of the Plan.
B. EFFECTIVE DATE OF ADOPTION OF PLAN.
Are you adopting this Plan to replace an existing plan?
[X] (1) Yes.
[ ] (2) No.
IF YOU ANSWERED YES IN 2.B. above, the Effective Date of your adoption of this Plan will be the first day of the current Plan Year UNLESS you elect a later date below. Please complete the following:
IF YOU ANSWERED No in 2.B. above, the Effective Date of your adoption of this Plan will be the day you select below (not before the first day of the current Plan Year, and not before the day your Business began):
The Effective Date is:____________________________________
month/day/year
C. IDENTIFYING HIGHLY COMPENSATED EMPLOYEES. Check One:
[X] (1) The Plan will use the regular method under Plan
Section 2.60(a) for identifying Highly Compensated
Employees.
If your Plan Year is the calendar year, do you wish
to make the regular method's "calendar year
election" for identifying your Highly Compensated
Employees?
[X] (a) Yes
[ ] (b) No
[ ] (2) The Plan will use the simplified method under Plan
Section 2.60(b) for identifying Highly Compensated
Employees.
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3. ELIGIBILITY FOR PLAN PARTICIPATION (PLAN SECTION 3.1). Employees will be eligible to participate in the Plan when they complete the requirements you select in A, B and C below.
A. CLASSES OF ELIGIBLE EMPLOYEES. The Plan requires coverage of all
classes of employees of the Employer and any Affiliated Employer,
except for union employees and nonresident aliens without U.
S.-source income. The general rules of the Plan exclude employees
in those two groups, but if you want employees in one or both
categories to be eligible for your Plan, check the appropriate
space below.
The following employees WILL BE ELIGIBLE to participate in the Plan:
[ ] (1) Members of the following collective bargaining
unit(s) (give names of unions):
---------------------------------------------------
---------------------------------------------------
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(2) Nonresident aliens with no U. S.-source income.
B. AGE REQUIREMENT (check and complete one):
[X] (1) No minimum age required for participation.
(2) Employees must reach age _ (not over 21 ) to participate.
C. SERVICE REQUIREMENTS.
A 6-month Eligibility Period is a 6-month period beginning either on an employee's first day of work with the Employer or on the date 6 months following the employee's first day of work, and anniversaries of those dates. A 12-month Eligibility Period is the 12-month period beginning on an employee's first day of work with the Employer, and anniversaries of that date. You may also select another Eligibility Period consisting of a number of months of your choice and each successive period of that number of months.
(1) To become eligible, an employee must complete (choose one):
[X] (a) No minimum service required. Skip to (5) below. [ ] (b) One 6-month Eligibility Period. |
[ ] (c) One ___ month Eligibility Period (must be less
than 12).
[ ] (d) One 12-month Eligibility Period.
[ ] (e) Two 12-month Eligibility Periods (may not be
chosen if you adopt EITHER the Section 401 (k)
provisions under item 12 or a vesting schedule
other than the first choice under item 8.A(l),
which provides for 100% full and immediate
vesting).
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(2) If the Employer acquires a business, will the Eligibility Period for employees of the acquired business be the period selected in (1) above, beginning on the first day of work for the acquired business?
[ ] (a) Yes.
[ ] (b) No.
(3) HOURS OF SERVICE FOR ELIGIBILITY PERIODS.
(a) To receive credit for a 6-month Eligibility Period,
an employee must complete during it at least:
[ ](i) 500 Hours of Service.
[ ](ii) Hours of Service.
------------
(under 500)
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(b) Complete only if (1)(c) above is selected. To receive credit for the Eligibility Period selected in (1)(c) above, an employee must complete during it at least:
(c) To receive credit for a 12-month Eligibility
Period, an employee must complete during it at
least:
[ ](i) 1,000 Hours of Service.
[ ](ii) Hours of Service.
------------
(under 1,000)
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(4) Hours of Service will be credited to an employee by the following method (check one):
[ ] (a) Actual hours for which an employee is paid.
[ ] (b) Any employee who has one actual paid hour in
the following period will be credited with the
number of Hours of Service indicated (check
one):
[ ] (i) Day (10 Hours of Service).
[ ] (ii) Week (45 Hours of Service).
[ ] (iii) Semi-monthly payroll period
(95 Hours of Service).
[ ] (iv) Month 190 Hours of Service).
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(5) ENTRY DATES. Each Employee in an eligible class who completes the age and service requirements specified above will begin to participate in the Plan on (check one):
[ ] (a) The first day of the month in which he
fulfills the requirements.
[X] (b) The first of the following dates occurring
after he fulfills the requirements (or, if
earlier, the first day of the first Plan
Year that begins after the date he fulfills
the requirements) (check one):
[X] (1) The first day of the month
following the date he fulfills the
requirements (monthly).
[ ] (ii) The first day of the first,
fourth, seventh and tenth months
in a Plan Year (quarterly).
[ ] (iii) The first day of the first month
and the seventh month in a Plan
Year (semiannually).
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D. (For New Plans Only) Will all eligible Employees be required to meet the age and service requirements specified in B and C above?
[ ] (1) Yes.
[ ] (2) No; all Employees on the Effective Date will be
eligible as of the Effective Date, even if they have
not met the age and service requirements.
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4. COMPENSATION (PLAN SECTION 2.8).
A. AMOUNT.Compensation for purposes of the Plan will be the amount of the following that is actually paid by your Business to an employee during the Plan Year (check one):
[ ] (1) Form W-2 earnings as defined in Section 2.8 of the
Plan.
[ ] (2) Form W-2 earnings as defined in Section 2.8 of the
Plan, plus any amounts withheld from the employee
under a 401 (k) plan, cafeteria plan, SARSEP, tax
sheltered 403(b) arrangement, or Code Section 457
deferred compensation plan, and contributions
described in Code Section 414(h)(2) that are picked
up by a governmental employer.
[ ] (3) All compensation included in the definition of Code
Section 415 Compensation in Section 6.5(b) of the
Plan.
[X] (4) All compensation included in the definition of Code
Section 415 Compensation in Section 6.5(b) of the
Plan, plus any amounts withheld from the employee
under a 401 (k) plan, cafeteria plan, SARSEP, tax
sheltered 403(b) arrangement, or Code Section 457
deferred compensation plan, and contributions
described in Code Section 414(h)(2) that are picked
up by a governmental employer.
B. MEASURING PERIOD. Compensation will be based on the Plan Year.
However, for an employee's initial year of
participation in the Plan, compensation
shall be recognized as of:
[ ] (1) The first day of the Plan Year.
[X] (2) The date the Participant entered the Plan.
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5. CONTRIBUTIONS (PLAN SECTIONS 4. 1 AND 4.2).
A. EMPLOYER CONTRIBUTIONS - PROFIT LIMITATION.Will Employer contributions to the Plan be limited to the current and accumulated profits of your Business? Check one:
[X] (1) Yes.
[ ] (2) No.
If you will make contributions only under the Section 401(k) provisions in item 12 of this Plan Agreement, skip to part 5D.
B. EMPLOYER CONTRIBUTIONS - AMOUNT
(1) The Employer will contribute to the Plan for each Plan Year (check one):
[ ] (a) An amount chosen by the Employer from year to year.
[ ] (b) ___ % of the Earnings of all Qualified Participants
for the Plan Year.
[ ] (c) $________ for each Qualified Participant per (enter
time period, ex. payroll period, plan year)
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(2) Will Forfeitures for a Plan Year be applied to reduce the amount of the contribution otherwise required?
[ ] (a) Yes.
[ ] (b) No.
(3) Will Forfeitures that are not applied to reduce the amount of contribution otherwise required for the Plan Year be applied to reduce the required Employer Matching Contribution for the Plan Year described in 12.B.(1)?
[ ] (a) Yes.
[ ] (b) No.
If you check No to both (2) and (3) above, Forfeitures will be allocated as though they were additional Profit Sharing Contributions.
C. Employer Contributions - Allocations to Participants
(1) ALLOCATION TO QUALIFIED PARTICIPANTS. Any Employee who has met the eligibility requirements in item 3 of this Plan Agreement is a Qualified Participant UNLESS for reasons other than his death or Retirement, he is not an active Employee on the last day of the Plan Year, AND HE is not credited with more than 500 Hours of Service in the Plan Year.
How will contributions be allocated:
[ ] (a) Pro rata
[ ] (b) Uniform Dollar Amount
[ ] (c) Integrated With Social Security (complete (2)
and (3) below).
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(2) INTEGRATION WITH SOCIAL SECURITY (Complete only if you have elected in 5.C.1 to integrate your Plan with Social Security.) Contributions under paragraph B will be allocated to Qualified Participants as you check below:
[ ] (a) Contributions will be allocated according to the
Top-Heavy Integration Formula in Section
4.2(c)(1) of the Basic Plan Document in every
Plan Year, whether or not the Plan is topheavy.
[ ] (b) Contributions will be allocated according to the
Top-Heavy Integration Formula in Section
4.2(c)(1) of the Basic Plan Document only in
Plan Years in which the Plan is top-heavy. In
all other Plan Years, contributions will be
allocated according to the Non-Top-Heavy
Integration Formula in Section 4.2(c)(2) of the
Basic Plan Document.
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(3) INTEGRATION LEVEL. (Complete only if you have elected in
5.C. I to integrate your Plan with Social Security.) The
Integration Level will be (check one):
[ ] (a) The Social Security Wage Base in effect at the
beginning of the Plan Year.
[ ] (b) ___% (not more than 100%) of the Social Security
Wage Base in effect at the beginning of the Plan
Year.
[ ] (c) $___ (not more than the Social Security Wage
Base).
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NOTE: The Social Security Wage Base is indexed annually to reflect increases in the cost of living.
D. PARTICIPANT CONTRIBUTIONS (Plan Section 4.2(e)). Will your Plan allow Participants to make after-tax contributions?
[ ] (a) Yes.
[X] (b) No.
6. INVESTMENTS (PLAN SECTIONS 13.2 AND 13.3). The Employer selects in part A below the Investment Products that will be available under the Plan (in addition to Policies selected under Plan Article 14, if any). All Investment Products must be sponsored, underwritten, managed or expressly agreed to in writing by Putnam. From the group of available Investment Products selected by the Employer, each Participant chooses the investments for his own Accounts unless the Employer elects differently in B below.
A. AVAILABLE INVESTMENT PRODUCTS (PLAN SECTION 13.2). The following investments will be available under the Plan (check one):
(1) Mutual Funds
[X] The group of funds made available by Putnam, selected by the Employer and communicated to Participants in writing. A current list of the funds selected by the Employer from time to time shall be kept with the records of the Plan. The initial list of funds is a FOLLOWS:
(2) Other Investment Options
[X] (a) Putnam Stable Value Fund.
[ ] (b) Other Investment Products (as defined in Section
2.28 of the Plan).
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If there is any amount in the Trust Fund for which no instructions or unclear instructions are delivered, it will be invested in the default option selected by the Employer in its Service Agreement with Putnam (or if the Employer makes no such selection, by execution of the Plan Agreement, the Employer shall affirmatively elect to have such amounts invested in the Putnam Money Market Fund) until instructions are received in good order, and the Employer will be deemed to have selected the option indicated in its Service Agreement with Putnam (or if none, The Putnam Money Market Fund) as an available Investment Product for that purpose.
B. INSTRUCTIONS (PLAN SECTION 13.3). Investment instructions for
amounts held under the Plan generally will be given by each
Participant for his own Accounts and delivered to Putnam as
indicated in the Service Agreement between Putnam and the
Employer. Check below ONLY if the Employer will make investment
decisions under the Plan with respect to the following
contributions made to the Plan.
(Check all applicable options.)
[ ] (1) The Employer will make all investment decisions
with respect to all employee contributions,
including Elective Deferrals, Participant
Contributions, Deductible Employee Contributions
and Rollover Contributions.
[ ] (2) The Employer will make all investment decisions
with respect to all Employer contributions,
including Profit Sharing Contributions, Employer
Matching Contributions, Qualified Matching
Contributions and Qualified Nonelective
Contributions.
[ ] (3) The Employer will make investment decisions with
respect to Employer Matching Contributions and
Qualified Matching Contributions made pursuant to
Section 12.B and C of this Plan Agreement.
[ ] (4) The Employer will make investment decisions with
respect to Qualified Nonelective Contributions made
pursuant to Section 12.D) of this Plan Agreement.
[ ] (5) The Employer will make investment decisions with
respect to Profit Sharing Contributions made
pursuant to Section 5.B. of this Plan Agreement.
C. CHANGES. Investment instructions may be changed (check one):
[X] (1) on any Valuation Date (daily).
[ ] (2) on the first day of any month (monthly).
[ ] (3) on the first day of the first, fourth, seventh and
tenth months in a Plan Year (quarterly).
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D. EMPLOYER STOCK. (Skip this paragraph if you did not designate Employer Stock as an investment under the Service Agreement.)
(1) VOTING.Section 13.8 of the Plan provides that Employer Stock held as an investment under the Plan will be voted in accordance with the Employer's instructions UNLESS the Employer elects that Participants will direct the voting of Employer Stock to the extent described in Section 13.8. Check below ONLY IF Participants will direct the voting of Employer Stock.
[ ] Participants are hereby appointed named fiduciaries for the purpose of the voting of Employer Stock in accordance with Section 13.8. (NOTE: To the extent a Participant fails to direct the voting of Employer Stock credited to his Account, the Trustee shall not vote such Employer Stock. Unallocated shares of Employer Stock will be voted by the Trustee as directed by the Plan Administrator.)
(2) TENDERING. Section 13.8 of the Plan provides that Employer
Stock held as an investment under the Plan will be
tendered in accordance with the Employer's instructions
UNLESS the Employer elects that Participants will direct
the tendering of Employer Stock to the extent described in
Section 13.8. Check below ONLY IF Participants will direct
the tendering of Employer Stock. (NOTE: Unallocated shares
of Employer Stock will be tendered in proportion to the
percentage of allocated shares which are tendered.)
[ ] Participants are hereby appointed named fiduciaries for the purpose of the tendering of Employer Stock in accordance with Section 13.8. NOTE: To the extent a Participant fails to direct the tendering of Employer Stock credited to his Account, the Trustee shall not tender such Employer Stock.)
E. VOTING OF NON-PUTNAM SHARES. Section 13.10 of the Plan provides that shares of registered investment companies held under the Plan other than Putnam mutual funds shall be voted in accordance with the Employer's instructions UNLESS the Employer elects that Participants will direct the voting of such non-Putnam investment company shares to the extent described in Section 13.10. Check below ONLY IF Participants will direct the voting of such non-Putnam investment company shares:
[ ] Participants are hereby appointed named fiduciaries for the purpose of voting shares of registered investment companies other than Putnam mutual funds in accordance with Section 13.10.
NOTE: Shares of non-Putnam investment companies for which the Trustee receives no voting instructions shall be voted in the same proportion as it votes such shares for which it has received instructions.
7. DISTRIBUTIONS AND WITHDRAWALS.
A. RETIREMENT DISTRIBUTIONS,
(2) EARLY RETIREMENT (PLAN SECTION 7.1). Check and complete the item below only if you want Participants to become fully vested upon fulfilling specified age and service requirements before reaching normal retirement age:
[ ] Early retirement will be permitted at age ________ with at least___________ Years of Service.
(3) ANNUITIES (PLAN SECTION 9.31. Will your Plan permit a Participant to select a life annuity form of distribution? YOU MUST CHECK YES if this Plan replaces an existing Plan that permits distributions in a life annuity form.
[ ] (a) Yes.
[X] (b) No.
B. HARDSHIP DISTRIBUTIONS (PLAN SECTION 12.2). Will your Plan permit hardship distributions from Employer Contribution Accounts?
[X] (1) Yes.
[ ] (2) No.
C. WITHDRAWALS AFTER AGE 59 1/2(PLAN SECTION 12.3). Will your Plan permit employees over age 59 1/2 to withdraw amounts upon request? YOU MUST CHECK YES if this Plan replaces an existing Plan that permits withdrawals after age 59 1/2.
[X] (1) Yes.
[ ] (2) No.
D. LOANS. (Plan Section 12.4). Will your Plan permit loans to employees from their Accounts?
[X] (1) Yes.
[ ] (2) No.
E. AUTOMATIC DISTRIBUTION OF SMALL ACCOUNTS (PLAN SECTION 9.1). Will your Plan automatically distribute vested account balances not exceeding $3,500, within 60 days after the end of the Plan Year in which a Participant separates from employment?
[X] (1) Yes.
[ ] (2) No.
Note: The time for distribution cannot be left to the discretion of the Employer or the Plan Administrator. If you check No above, small accounts will be distributable at the time selected by the Participant.
8. VESTING (PLAN ARTICLE 8).
A. TIME OF VESTING.
(1) The provision checked below will determine a Participant's vested percentage in the Profit Sharing Contribution portion of his Employer Contribution Account:
[ ] (a) 100% vesting immediately upon participation in
the Plan.
[X] (b) Five-Year Graded Schedule:
Vested Percentage 20% 40% 60% 80% 100%
--- --- --- --- ----
Years of Service 1 2 3 4 5
[ ] (c) Six-Year Graded Schedule:
Vested Percentage 20% 40% 60% 80% 100%
--- --- --- --- ----
Years of Service 2 3 4 5 6
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[ ] (d) Seven-Year Graded Schedule:
Vested Percentage 20% 40% 60% 80% 100%
--- --- --- --- ----
Years of Service 3 4 5 6 7
[ ] (e) Three-Year Cliff Schedule:
Vested Percentage 0% 100%
Years of Service 0-2 3
[ ] (f) Five-Year Cliff Schedule:
Vested Percentage 0% 100%
Years of Service 0-4 5
[ ] (g) Other Schedule (must be at least as favorable
as Seven-Year Graded Schedule or Five-Year
Cliff Schedule):
Vested Percentage ___% ___% ___% ___% ___%
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Years of Service ___ ___ ___ ___ ___
If you selected above an "Other Schedule," specify in the space below the schedule that will apply after the Plan is top-heavy. The schedule you specify must be (i) the Six-Year Graded Schedule, or (ii) the Three-Year Cliff Schedule, or (iii) any other schedule that is at least as favorable to employees, at all years of service, as either the Six-Year Schedule or the Three-Year Cliff Schedule.
The top-heavy vesting schedule will be:
[ ] (a) the same "Other Schedule" selected above.
[ ] (b) Vested Percentage ___% ___% ___% ___% ___%
Years of Service ___ ___ ___ ___ ___
(2) If you adopt the Section 401(k) provisions in item 12 and will make Employer Matching Contributions, check the provision below that will determine a Participant's vested percentage in his Employer Matching Contribution Account (check one):
[ ] (a) 100% vesting immediately upon participation in
the Plan.
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[X] (b) Five-Year Graded Schedule:
Vested Percentage 20% 40% 60% 80% 100%
Years of Service 1 2 3 4 5
[ ] (c) Six-Year Graded Schedule:
Vested Percentage 20% 40% 60% 80% 100%
Years of Service 2 3 4 5 6
[ ] (d) Seven-Year Graded Schedule:
Vested Percentage 20% 40% 60% 80% 100%
Years of Service 3 4 5 6 7
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[ ] (e) Three-Year Cliff Schedule:
Vested Percentage 0% 100%
Years of Service 0-2 3
[ ] (f) Five-Year Cliff Schedule:
Vested Percentage 0% 100%
Years of Service 0-4 5
[ ] (g) Other Schedule (must be at least as favorable as
Seven-Year Graded Schedule or Five-Year Cliff
Schedule):
Vested Percentage ___% ___% ___% ___% ___%
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Years of Service ___ ___ ___ ___ ___
If you selected "Other Schedule" above, the vesting schedule that
will apply to the Employer Matching Contribution Account after
the Plan becomes top-heavy will be the top-heavy vesting schedule
applicable to the Employer Contribution Account, as specified in
Section 8.A.(1).
B. SERVICE FOR VESTING. Skip this part B if your Plan will include all of an employee's service in determining his Years of Service for vesting.
Years of Service for vesting will exclude (check one or more):
[ ] (1) Service before the Effective Date of the Plan, if this
is a new plan, or service before the effective date of
your existing plan, if this Plan replaces an existing
plan.
[ ] (2) Service before the Plan Year in which an employee
reached age 18.
[ ] (3) Service for a business acquired by the Employer, before
the date of acquisition.
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C. HOURS OF SERVICE FOR VESTING. The number of Hours of Service required for crediting a Year of Service for vesting will be (check one):
[X] (1) 1,000 Hours of Service.
[ ] (2) _____________Hours of Service.
(under l,000)
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D. YEAR OF SERVICE MEASURING PERIOD FOR VESTING (PLAN SECTION 2.54). The periods of 12 months used for measuring Years of Service will be (check one):
[ ] (1) Plan Years.
[X] (2) 12-month Eligibility Periods.
NOTE: If you are adopting this Plan to replace an existing plan, employees will be credited under this Plan with all service credited to them under the plan you are replacing.
9. TOP-HEAVY MINIMUM CONTRIBUTIONS (PLAN SECTION 15.3). For any Plan Year in which the Plan is top-heavy, you must provide for each Participant who is a non-key employee and who is employed on the last day of the Plan Year an allocation equal to 3% of his Earnings (or if less, the highest percentage allocated to any key employee). Neither Elective Deferrals, nor Employer Matching Contributions nor Qualified Matching Contributions for a non-key employee may be taken into account for purposes of this requirement. If you have adopted Putnam paired plans, for any Plan Year in which the Plan is top-heavy, the top-heavy minimum contribution will be provided under the Putnam Money Purchase Pension Plan.
Skip paragraphs A and B below if you have Putnam paired plans or if you do not maintain any other qualified plan in addition to this Plan.
A. If you maintain another qualified plan in addition to this Plan, specify below
whether a non-key employee who participates in both plans will receive a top-heavy minimum contribution (or benefit) in this Plan or the other plan.
The top-heavy minimum contribution (or benefit) for non-key employees participating both in this Plan and another qualified plan maintained by the Employer will be provided in (check one):
[ ] (1) This Plan.
[ ] (2) The plan named here: ___________________________
B. (Skip this paragraph if you do not maintain a defined benefit plan.) If you maintain a defined benefit plan in addition to this Plan, and the Top-Heavy Ratio (as defined in Plan Section 15.2(c)) for the combined plans is between 60% and 90%, you may elect to provide an increased minimum allocation or benefit pursuant to Plan Section 15.4. Specify your election by completing the statement below:
The Employer will provide an increased (specify contribution or
benefit) ____________ in its (specify defined contribution or
defined benefit) ____________ plan as permitted under Plan
Section 15.4.
10. OTHER PLANS. YOU MUST COMPLETE THIS SECTION IF you maintain or ever maintained another qualified plan in which any Participant in this Plan is (or was) a participant or could become a participant.
The Plan and your other plan(s) combined will meet the contribution limitation rules in Article 6 of the Plan as you specify below:
A. If a Participant in the Plan is covered under another qualified defined contribution plan maintained by your Business, other than a master or prototype plan (check one):
[ ] (1) The provisions of Section 6.2 of the Plan will apply as if the other plan were a master or prototype plan.
[ ] (2) The plans will limit total annual additions to the maximum permissible amount, and will properly reduce any excess amounts, in the manner you describe below.
B. If a Participant in the Plan is or has ever been a participant in a defined benefit plan maintained by your Business, the plans will meet the limits of Article 6 in the manner you describe below:
NOTE: Your description under A or B above cannot be left to discretion and changed from year to year. If you want to amend it from year to year, you must execute a new plan agreement.
If your Business has ever maintained a defined benefit plan, state below the interest rate and mortality table to be used in establishing the present value of any benefit under the defined benefit plan for purposes of computing the top-heavy ratio:
Interest rate: %
----------------------------
Mortality Table:
----------------------------
11. ADMINISTRATION
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A. PLAN ADMINISTRATOR (PLAN SECTION 16.1). You may appoint a person or a committee to serve as Plan Administrator. You may remove and replace anyone you have appointed, and anyone you have appointed may resign, without the need to amend this Plan Agreement, provided that you notify Participants in writing of any such change. If you do not appoint a Plan Administrator, the Plan provides that the Employer will be the Plan Administrator.
The initial Plan Administrator will be (check one):
[ ] This person: __________________________
[X] A committee composed of these people:
B. RECORDKEEPER (PLAN SECTION 16.4). UNLESS Putnam expressly permits otherwise, you must appoint Putnam as Recordkeeper to perform certain routine services determined upon execution of a written Service Agreement between Putnam and you.
The initial Recordkeeper will be:
COMPLETE ITEM 12 BELOW IF YOUR PLAN WILL ALLOW EMPLOYEES TO ELECT PRE-TAX CONTRIBUTIONS UNDER SECTION 401(k) OF THE CODE.
12. SECTION 401(k) PLAN PROVISIONS (PLAN ARTICLE 5).
A. ELECTIVE DEFERRALS (PLAN SECTION 5.2).
(1) A Participant may make Elective Deferrals for each year in an amount not to exceed (check one):
[X] (a) 15 % of his Earnings (specify a percentage).
-------
[ ] (b) % of his Earnings not to exceed $
------- ----------
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(specify a percentage and a dollar amount).
Note: Elective Deferrals may not exceed the annual dollar limit under
Section 402(g) of the Internal Revenue Code.
(2) A Participant may begin to make Elective Deferrals, or change the amount of his Elective Deferrals, as of the following dates (check one):
[X] (a) First business day of each month (monthly)
[ ] (b) First business day of the first, fourth, seventh and tenth months of the Plan Year (quarterly).
[ ] (c) First business day of the first and seventh months of the Plan Year (semiannually).
[ ] (d) First business day of the Plan Year only (annually).
(3) May Participants make Elective Deferrals of bonuses?
[X] (a) Yes.
[ ] (b) No.
NOTE: You may choose to make Employer Matching Contributions or Qualified Matching Contributions, or neither, or both. Qualified Matching Contributions are always fully vested and cannot be distributed from the Plan before a Participant reaches age 59 1/2 or leaves employment. They will be used, to the extent needed, to help the Plan pass the ADP test explained on page _ of the Qs & As. Employer Matching Contributions are subject to the vesting schedule elected in item 8 of this Plan Agreement, and can be withdrawn during employment in the event of financial hardship (as defined in Section 12.2 of the Plan) if you so elect in part F below.
B. EMPLOYER MATCHING CONTRIBUTIONS (PLAN SECTION 5.8). Skip this part B if you will not make Employer Matching Contributions.
(1) The Employer will contribute and will allocate to each Participant's Employer Matching Account an amount equal to:
(Check the provision(s) desired, and fill in the % and/or $ limitation blank(s) in each provision you check. If you wish to determine the amount of Employer Matching Contributions from year to year instead of specifying a fixed percentage, write "V" for variable in the % blank at the beginning of each provision you check. Also write "V" for variable in the % blank for Earnings.)
[X] (b) 50% of Elective Deferrals that do not exceed 6% of Earnings.
[ ] (d) In applying the above election Elective Deferrals shall not exceed $__________.
(2) Will forfeited Employer Matching Contributions be applied to reduce the total contribution specified in B (1) above?
[ ] (a) Yes.
[X] (b) No.
(3) Will forfeited Employer Matching Contributions that are not applied to reduce required Employer Matching Contributions specified in B(l) above be applied to reduce required Employer Contributions for the Plan Year described in 5.B?
[ ] (a) Yes.
[X] (b) No.
If you check No to both (2) and (3) above, forfeited Employer Matching Contributions will be allocated as though they were additional Employer Matching Contributions.
C. QUALIFIED MATCHING CONTRIBUTIONS (PLAN SECTION 2.62). Skip this part C if you will not make Qualified Matching Contributions.
(1) Qualified Matching Contributions will be made with respect to (check one):
[ ] (a) Elective Deferrals by all Participants.
[ ] (b) Elective Deferrals only by Non-Highly Compensated Participants.
(2) The amount of Qualified Matching Contributions made with respect to a Participant will be:
(Check the provision desired and fill in the % and/or $ limitation blank(s) in the provision you check. If you wish to determine the amount of Qualified Matching Contributions from year to year instead of specifying a fixed percentage, write "V" for variable in the % blank at the beginning of each provision you check. Also write "V" for variable in the % blank for Earnings.)
[ ] (a) ____% of his Elective Deferrals.
[ ] (b) ____% of his Elective Deferrals that do not exceed ____% of his Earnings.
[ ] (c) ____% of Participant Contributions.
[ ] (d) In applying the above election, Elective Deferrals shall not exceed $_____________.
D. QUALIFIED NONELECTIVE CONTRIBUTIONS (PLAN SECTION 2.64). Skip this part D if you will not make Qualified Nonelective Contributions.
(1) Qualified Nonelective Contributions will be made on behalf of (check one):
[ ] (a) All Participants.
[ ] (b) Only Participants who are not Highly Compensated
Employees.
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(2) The amount of Qualified Nonelective Contributions for a Plan Year will be (check one):
[ ] (a) ____% (not over 15%) of the Earnings of
Participants on whose behalf Qualified Nonelective
Contributions are made.
[ ] (b) An amount determined by the Employer from year to
year, to be shared in proportion to their Earnings
by Participants on whose behalf Qualified
Nonelective Contributions are made.
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NOTE: Qualified Nonelective Contributions will be used, to the extent needed, to help the Plan pass the ADP test, explained in the Nondiscrimination Package.
E. ACP TEST. Every plan that has after-tax Participant Contributions, Employer Matching Contributions or Qualified Matching Contributions must pass an annual test called the ACP test, which is explained in the Nondiscrimination Package. Elective Deferrals and Qualified Nonelective Contributions will be used to help the Plan pass the ACP test, to the extent needed.
F. HARDSHIP DISTRIBUTIONS FROM 401(k) ACCOUNTS (PLAN SECTIONS 12.2 AND 5.14).
(1) Will your Plan permit hardship distributions from Elective Deferral Accounts?
[X] (a) Yes.
[ ] (b) No.
(2) If your Plan has Employer Matching Contributions, will it permit hardship distributions from Employer Matching
Accounts? [X] (a) Yes. [ ] (b) No. |
13. Reliance on Opinion Letter. If you ever maintained or you later adopt any plan (including a welfare benefit fund, as defined in Section 419(e) of the Code, which provides post-retirement medical benefits allocated to separate accounts for key employees, as defined in Section 419A(d)(3) of the Code; or an individual medical account, as defined in Section 415(l)(2) of the Code) in addition to this plan, YOU MAY NOT rely on an opinion letter issued to Putnam by the National Office of the Internal Revenue Service as evidence that the Plan is qualified under Section 401 of the Internal Revenue Code. If you maintain or adopt multiple plans, in order to obtain reliance with respect to plan qualification of the Plan, you must receive a determination letter from the appropriate Key District Office of Internal Revenue. Putnam will prepare an application for such a letter upon your request at a fee agreed upon by the parties.
The Employer may not rely on the opinion letter issued by the National Office of
the Internal Revenue Service as evidence that this plan is qualified under
Section 401 of the Code UNLESS the terms of the plan, as herein adopted or
amended, that pertain to the requirements of Section 401 (a)(4), 401 (a)(5), 401
(a)(17), 401(l), 410(b) and 414(s) of the Code, as amended by the Tax Reform Act
of 1986 or later laws, (a) are made effective retroactively to the first day of
the first Year beginning after December 31, 1988 (or such later date on which
these requirements first become effective with respect to this plan); or (b) are
made effective no later than the first day on which the Employer is no longer
entitled, under regulations, to rely on a reasonable, good faith interpretation
of these requirements, and the prior provisions of the plan constitute such an
interpretation.
Putnam will inform you of all amendments it makes to the prototype plan. If Putnam ever discontinues or abandons the prototype plan, Putnam will inform you. This Plan Agreement #001 may be used only in conjunction with Putnam's basic Plan document #05.
* * * * *
EMPLOYER'S ADOPTION OF PUTNAM
PROFIT SHARING AND 401(k) PLAN
The Employer named below hereby adopts a PUTNAM PROFIT SHARING AND 401(k) PLAN, and appoints PUTNAM FIDUCIARY TRUST COMPANY to serve as Trustee of the Plan. (NOTE: you may appoint a trustee other than Putnam Fiduciary Trust Company only with Putnam's express permission.) The Employer acknowledges that it has received copies of the current prospectus for each Investment Product available under the Plan, and represents that it will deliver copies of the then current prospectus for each such Investment Product to each Participant before each occasion on which the Participant makes an investment instruction as to his Account. The Employer further acknowledges that the Plan will be acknowledged by Putnam as a Putnam Profit Sharing and 401 (k) Plan only upon Putnam's acceptance of this Plan Agreement.
Employer signature(s) to adopt plan: Date of signature: /s/ David T. Taber 04-12-96 -------------------------------------------- ------------------ /s/ William L. Young 04-12-96 -------------------------------------------- ------------------ |
Please print name(s) ,of authorized person(s) signing above:
David T. Taber, Executive Vice President Telephone: (916) 565-6100
----------------------------------------------------- ---------------
Chief Operating Officer
William L. Young, President & Chief Executive Officer Telephone: (916) 565-6100
----------------------------------------------------- ---------------
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A new Plan must be signed by the last day of the Plan Year in which the Plan is to be effective.
INVESTMENT DEALER INFORMATION
Firm: Financial Network Investment Center
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Branch: Pleasant Hill
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Address: 3478 Buskirk Ave., Suite 300 Pleasant Hill, CA 94523
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* * * * *
ACCEPTANCE OF PUTNAM FIDUCIARY TRUST COMPANY AS TRUSTEE
The Trustee accepts appointment in accordance with the terms and conditions of the Plan, effective as of the date of execution by the Employer set forth above.
Putnam Fiduciary Trust Company, Trustee
By /s/ Arthur R. Abelson ------------------------------------ |
* * * * *
ACCEPTANCE OF OTHER TRUSTEE
Complete this part ONLY IF you have appointed a Trustee other than Putnam Fiduciary Trust Company. (NOTE: You may appoint a trustee other than Putnam Fiduciary Trust Company only with Putnam's express permission, and Putnam may impose an annual maintenance fee as a condition of its acceptance of this plan as a Putnam Prototype 401(k) and Profit Sharing Plan.)
By: Trustee's Tax I.D. Number
---------------------------------- --------------
Trustee
--------------------------------------------------------------------------------
Address of Trustee
Person for Putnam to Contact: Telephone:
---------------------- ----------------
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* * * * *
ACCEPTANCE BY PUTNAM
Putnam hereby accepts this Employer's Plan as a prototype established under Putnam Basic Plan Document #05.
Putnam Mutual Funds Corp.
By: /s/Bonnie Mallin ---------------------------- |
PLAN: AMERICAN RIVER BANK 401(k) PLAN
AMERICAN RIVER HOLDINGS
Employer signature(s) to adopt plan: Date of Signature: /s/ David T. Taber 07-29-99 ------------------------------------ ------------------ /s/ Mitchell A. Derenzo 07-29-99 ------------------------------------ ------------------ |
Please print name(s) of authorized person(s) signing above:
A new Plan must be signed by the last day of the Plan Year in which the Plan is to be effective.
PLAN: AMERICAN RIVER BANK 401(k) PLAN
FIRST SOURCE CAPITAL
Employer signature(s) to adopt plan: Date of Signature:
/s/David T. Taber 07-29-99
--------------------------------------------------- ------------------
/s/Mitchell A. Derenzo 07-29-99
--------------------------------------------------- ------------------
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Please print name(s) of authorized person(s) signing above:
A new Plan must be signed by the last day of the Plan Year in which the Plan is to be effective.
FIRST AMENDMENT TO THE
AMERICAN RIVER BANK 401(K) PLAN
American River Bank (the "Employer") having heretofore adopted the American River Bank 401(k) Plan, a prototype plan document consisting of the Plan Agreement #001 and the Putnam Basic Plan Document #05 (the "Plan") effective as of January 1, 1993, pursuant to the power reserved to the Employer in Section 18.1 of the Plan, hereby amends the Plan Agreement as set forth below:
1. Subsection A(1) of section 12. is amended in its entirety effective as of April 1,1998 to read as follows:
12. SECTION 401(K) PLAN PROVISIONS (PLAN ARTICLE 5).
A. Elective Deferrals (Plan Section 5.2).
(1) A Participant may make Elective Deferrals for each
year in an amount not to exceed (check one);
[X] (a) 18 % of his Earnings (specify a
percentage)
[ ] (b) ___% of his Earnings not to exceed
$___________(specify a percentage
and a dollar amount)
[ ] (c) $_____ (specify a dollar amount)
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Note: Elective Deferrals may not exceed the annual dollar limit under Section 402(g) of the Internal Revenue Code.
In all other respects, the Plan provisions remain in full force and effect.
IN WITNESS, WHEREOF, the Employer has caused the First Amendment to the Plan to be duly executed in its name and behalf and its corporate seal to be affixed this 19th day of March 1998.
ATTEST. American River Bank
By: /s/William L. Young By: /s/David T. Taber
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Title: President & CEO Title: EVP/Chief Operating Officer
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Date: 03-20-98 Date: 03-20-98
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ATTEST: Putnam Fiduciary Trust Company
By: /s/Jan Gill
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Title: Vice President
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Date: 04-14-98
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AMERICAN RIVER HOLDINGS/AMERICAN RIVER BANK
STOCK OPTIONS GROSS UP PLAN
Our company encourages Board and management to be owners and as such we have minimums on Board members' shares, we have stock options as a method of increasing ownership, as well as a stock purchase plan for the employee base.
One challenge for those exercising non-qualified stock options is that they pay an ordinary income tax on the difference between the fair market value and the option consideration. In some cases, this puts a financial burden upon the optionee whereby they are forced to sell their shares in order to pay the ordinary income tax. The company, however, is benefited upon the exercise. First, a real tax deduction is created upon the exercise, saving taxes for the company. Secondly, the exercise of the option provides significant new capital resources to be used in furthering our strategic plan.
The Board of Directors, at their regular meeting held June 18, 1997 has adopted a Stock Options Gross Up Plan whereby, upon exercising a non-qualified stock option, the optionee receives a gross up, in cash, equal to the result of multiplying the company's tax deduction by the company's effective tax rate. The optionees eligible are limited to those listed on Schedule A (see attached). The gross up payment is subject to executing an agreement whereby the optionee agrees to hold the shares for a period of not less than a year or they will be obligated to reimburse the company for the payment made. For example, 10,000 shares with an exercise price of $10.50 and a current market value of $18.50, assuming the options were fully vested would be $80,000 which is the income that accrues to the optionee and is the tax deduction for the company; therefore, the benefit to the company is $80,000 times 40% (our current tax rate) which equals $32,000.
May 20, 1998
GROSS UP PLAN ADOPTED ON JUNE 18, 1997
AMENDED: MAY 20, 1998
James O. Burpo
Robert H. Daneke
Charles D. Fite
Sam J. Gallina
Wayne C. Matthews, MD
David T. Taber
Marjorie G. Taylor
Roger J. Taylor, DDS
Stephen H. Waks
William L. Young
William Badham
Richard Borst
Mitchell Derenzo
Donald Sager
Kevin Bender
Mary Johnson
Adrian Jones
Michael O'Reilly
Patricia Thaxter
AMERICAN RIVER HOLDINGS
STOCK OPTIONS GROSS UP AGREEMENT
The Board of Directors of American River Holdings (the Company), at their regular meeting held June 18, 1997 has adopted a Stock Options Gross Up Plan whereby, upon exercising a non-qualified stock option, as described in the 1995 AMERICAN RIVER HOLDINGS STOCK OPTION PLAN, the Optionee is entitled to receive a gross up, subject to the provisions of this agreement, in cash, net of applicable taxes, equal to the result of multiplying the Company's tax deduction by the Company's effective tax rate, as calculated by the Company's Chief Financial Officer.
The undersigned, ____________________________ (the Optionee) is desirous of exercising non-qualified stock options per the Stock Option Agreement dated ____________and per the Stock Options Gross Up Plan dated June 18, 1997, and, hereby agrees to retain these shares for 12 months from the date of exercise. As an inducement to hold these shares, the Company agrees to pay the corresponding gross up to the Optionee which is calculated by taking the difference between the fair market value (as defined by the bid minus 10% due to the fact that they are restricted shares) less the option price, and multiplying this figure by the Company's current tax rate, as calculated by the Company's Chief Financial Officer just prior to payment. Payment will be made by the Company to the optionee between December 15th and December 31st of the same calendar year the options are exercised.
The Optionee agrees also that the herein mentioned shares will be retained by the Company for 12 months from the date of exercise.
Should the Optionee sell, transfer or otherwise assign these shares prior to 12 months from the date of the execution of this agreement, the Optionee must reimburse the Company for the total amount of the gross up as defined herewith, prior to the Company releasing said shares.
Should the Optionee die during the 12 month holding period and the shares be transferred to the estate of the deceased no reimbursement of the gross up is required.
Should the Company be acquired and the shares be transferred or sold, no reimbursement of the gross up is required.
Number of fully-vested stock options exercised:_______________
Exercise price:_____________
Current market value (bid price):________________
Bid price minus 10%:_________________________
Company's tax deduction: __________________
Company's current tax rate:__________________
Gross Up amount paid to optionee:_____________________
Dated: Dated:
For the Optionee: For the Company:
------------------------ ----------------------
David T. Taber
President & CEO
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AMERICAN RIVER BANK
1998 DEFERRED COMPENSATION PLAN
American River Bank, a California state-chartered bank, hereby establishes an unfunded plan for the purpose of providing deferred compensation for a select group of management and highly compensated employees.
RECITALS
WHEREAS, Employees eligible to participate in this Plan are employed by Employer; and
WHEREAS, Employer desires to adopt the Plan and the Employees desire the Employer to pay deferred compensation to or for the benefit of Employees, or a designated Beneficiary, or both;
NOW, THEREFORE, the Employer hereby establishes this Plan.
SECTION 1
DEFINITIONS
1.1 "Account" shall mean the separate account(s) established under this Plan for each participating Employee. Employer shall furnish each Employee with a statement of his or her account balance at least annually.
1.2 "Beneficiary" shall mean the Beneficiary designated by the Employee to receive Employee's deferred compensation benefits in the event of his or her death.
1.3 "Change in Control" shall have the meaning set forth in Section 5.1 of the Plan.
1.4 "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time, and the rules and regulations promulgated thereunder.
1.5 "Committee" shall mean the Executive Committee of the Board of Directors of the Employer or any other committee designated by the Board of Directors of the Employer to administer this Plan in accordance with Section 8 hereof.
1.6 "Compensation" shall mean the base salary and cash bonuses described in Section 3.1.
1.7 "Effective Date" shall mean May 1, 1998, unless otherwise specified by the Employer in a resolution approving and adopting this Plan.
1.8 "Eligible Compensation" shall mean projected annual compensation from the Employer, determined on an annual basis by the Employer at or before the beginning of the Plan Year, which may consist of salary, bonus, and/or incentive payments, determined before any deductions under any qualified plan of the Employer and excluding any special or non-recurring compensatory payments such as moving or relocation bonuses or automobile allowances.
1.9 "Employee" shall mean each employee of Employer who is selected to participate in this Plan by the Committee and references to Employee herein shall include references to an Employee's Beneficiary where the context so requires.
1.10 "Employer" shall mean American River Bank and any successor organization thereto.
1.11 "Hardship" shall have the meaning set forth in Section 3.6 of the Plan.
1.12 "Plan Year" shall mean the year beginning each January 1 and ending December 31; notwithstanding the foregoing, the initial Plan Year shall mean the period beginning with the Effective Date and ending on December 31, 1998.
1.13 "Plan" shall mean the American River Bank 1998 Deferred Compensation Plan.
1.14 "Permanent Disability" shall mean that the Employee is unable to engage in any substantial gainful activity by reason of any medical determinable physical or mental impairment that can be expected to result in death or otherwise meets the definition of "Permanent Disability" as set forth the in Employer's Disability Plan. An Employee will not be considered to have a Permanent Disability unless he or she furnishes proof of such condition sufficient to satisfy the Employer, in its sole discretion.
SECTION 2
ELIGIBILITY
2.1 ELIGIBILITY. Eligibility to participate in the Plan shall be limited to full-time, executive and senior management officers of the Employer with the title of chief executive officer, president, executive vice-president, or senior vice president, and who have been selected by the Committee to participate in the Plan. The Committee shall designate Employees who shall be covered by this Plan in a separate Acknowledgment (in the form attached hereto as Appendix 1) for each such Employee. Participation in the Plan shall commence as of the date such Acknowledgment is signed by the Employee and delivered to the Employer, provided that deferral of compensation under the Plan shall not commence until the Employee has complied with the election procedures set forth in Section 3.3. Nothing in the Plan or in the Acknowledgment shall be construed to require any contributions to the Plan on behalf of the Employee by Employer.
SECTION 3
DEFERRED COMPENSATION
3.1 DEFERRED COMPENSATION. (a) Each participating Employee may elect,
in accordance with Section 3.3 of this Plan, to defer annually the receipt of a
portion of the Compensation for active service otherwise payable to him or her
by Employer during each year or portion of a year that the Employee shall be
employed by the Employer. Any Compensation deferred by Employee pursuant to
Section 3.3 shall be recorded by the Employer in an Account, maintained in the
name of the Employee, which Account shall be credited with a dollar amount equal
to the total amount of Compensation deferred during each Plan Year under the
Plan, together with earnings thereon credited in accordance with Section 3.8,
less taxes payable by Employer on account of such earnings. The amount or
percentage of Compensation that Employee elects to defer under Section 3.3 will
remain constant for the year of the election and should not be subject to change
during such year; each such election or discontinuance of election will continue
in force for each successive year until or unless suspended or modified by the
filing of a subsequent election with the Employer by the Employee in accordance
with Section 3.3 of the Plan. All deferrals pursuant to this Section 3.1 shall
be fully vested at all times. Deferral elections shall be subject to a minimum
dollar and maximum percentage amounts as follows: (i) the minimum annual
deferral amount is $5,000 which shall be withheld from the employee's "base
salary" or "cash bonus", and (ii) the maximum deferral percentage amount is 80%
of the Employee's "base salary" and 100% of the Employee's "cash bonus". For
purposes of this Section and Appendix 3 hereto, "base salary" means an
Employee's regular annual compensation for a Plan Year, determined as of this
first day of that year, excluding bonuses, commissions, overtime, incentive
payments, non-monetary awards, compensation deferred pursuant to any other plans
of the Employer and other special compensation. For purposes of this Section and
Appendix 3 hereto, "cash bonus" shall mean amounts (if any) awarded under the
bonus policies maintained by the Employer.
(b) Amounts deferred under the Plan shall be calculated and withheld
from the Employee's base salary and/or cash bonus after such compensation has
been reduced to reflect salary reduction contributions to the Employer's Code
Section 401(k) (savings) plan.
3.2 PAYMENT OF ACCOUNT BALANCES. (a) The Employee shall elect whether he or she will receive distribution of his or her entire Account, subject to tax withholding requirements, (i) upon reaching a specified age; (ii) upon passage of a specified number of years; (iii) upon termination of employment of Employee with Employer, or (iv) upon the earlier to occur of (A) termination of employment of Employee with Employer or (B) passage of a specified number of years, as elected by Employee in accordance with the form attached hereto as Appendix 2. A designation of the date of distribution shall be required as a condition of participation under this Plan. The Employee shall also elect to receive all amounts payable to him or her in a lump sum or in equal monthly installments over a designated period of sixty (60), one hundred twenty (120) or one hundred eighty (180) months, pursuant to the provisions of Section 3.2(e). A separate election form regarding the timing and form of distribution shall be required of the Employee for each year of participation in the Plan. These elections shall be made in accordance with Section 3.4 of this Plan.
(b) Distributions shall be made to the maximum extent allowable under
the election made by Employee, except that no distribution shall be made to the
extent that the receipt of such distribution, when combined with the receipt of
all other "applicable employee remuneration" (as defined in Code Section
162(m)(4)), would cause any remuneration received by the Employee to be
nondeductible by the Employer under Code Section 162(m)(1). The portion of any
distribution amount that is not distributed by operation of this Section 3.2(b)
shall be distributed in subsequent years in the manner elected by the Employee
until the Employee's Account has been fully liquidated. For Employees who have
elected to receive payment in a lump sum or over sixty (60), one hundred twenty
(120) or one hundred eighty (180) months, the commencement date of the lump sum
payment or the sixty (60)-, one hundred twenty (120)- or one hundred eighty
(180)- month period
(whichever is applicable) shall be automatically extended, when necessary to satisfy the requirements of this subsection, for twelve (12) month periods until all Account balances have been distributed in the manner elected by the Employee.
(c) Upon termination of Employee's employment with Employer by reason of Permanent Disability prior to the date when payment of Account balances otherwise would commence under the provisions of Section 3.2(a), Employee or Employee's designated Beneficiary will be entitled to receive all amounts credited to the Account of Employee as of the date of his or her Permanent Disability (notwithstanding any contrary election to receive distributions under the first sentence of Section 3.2(a)). Said amounts shall be payable pursuant to the provisions of Section 3.2(e).
(d) In the event that Employee dies while employed by Employer and prior to commencement of distributions pursuant to this Plan, or upon the death of Employee after the date of termination of employment with Employer and prior to complete distribution of the entire balance of Employee's Account, the balance of the Account on the date of death shall be payable to Employee's designated Beneficiary pursuant to the provisions of Section 3.2(e).
(e) The Employer shall distribute or direct distribution of the balance of amounts previously credited to Employee's Account, in a lump sum or in monthly installments over a period of sixty (60), one hundred twenty (120) or one hundred eighty (180) months as Employee shall designate. A designation of the form of distribution shall be required as a condition of participation under this Plan. Distribution of the lump sum or the first installment shall be made or commence within thirty (30) days following the date specified in the first sentence of Section 3.2(a). Subsequent installments, if any, shall be made on the first day of each month following the first installment as determined by Employer. The amount of each installment shall be calculated by dividing the Account balance as of the date of the distribution by the number of installments remaining pursuant to the Employee's distribution election. Each such installment, if any, shall take into account earnings credited
to the balance of the Account remaining unpaid. The Employee's distribution election shall be in the form attached hereto as Appendix 2.
(f) Upon termination of Employee's employment with Employer by reason other than death or Permanent Disability prior to the date when payment of Account balances otherwise would commence under the provisions of Section 3.2(a), the Employer may, in the sole discretion of the Committee, distribute to Employee or Employee's designated Beneficiary all amounts credited to the Employee's Account as of the date of such termination (notwithstanding any contrary election to receive distributions under the first sentence of Section 3.2(a)).
3.3 ELECTION TO DEFER COMPENSATION. Each election of an Employee to defer compensation as provided in Section 3.1 of this Plan shall be in writing, signed by the Employee, and delivered to Employer, together with all other documents required under the provisions of this Plan, at least twenty (20) days prior to the beginning of the Plan Year with respect to which the compensation to be deferred is otherwise payable to Employee; provided, however, that an Employee who is hired or promoted during a Plan Year to a position of eligibility and who is selected by the Committee for participation in the Plan shall have twenty (20) days from the date of such selection in which to submit the required election documents for the then-current Plan Year. For the Plan Year beginning on the Effective Date, each Employee shall have until April 30, 1998, in which to make an election for that Plan Year. Any deferral election made by Employee shall be irrevocable with respect to any Compensation covered by such election, including Compensation payable in the Plan Year in which the election suspending or modifying the prior deferral election is delivered to Employer. The Employer shall withhold the amount or percentage of base salary specified to be deferred in equal amounts for each payroll period and shall withhold the amount or percentage of cash bonus specified to be deferred at the time or times such bonus is or otherwise would be paid to the Employee. The election to defer compensation shall be in the form attached as Appendix 3.
3.4 DISTRIBUTION ELECTION. Each distribution election of an Employee as provided in Section 3.2 of this Plan shall be in writing, signed by the Employee and delivered to Employer, together with all documents required under the provisions of this Plan, at least twenty (20) days prior to the beginning of the Plan Year with respect to which the distribution election is to apply; provided, however, that an Employee who is hired or promoted during a Plan Year to a position of eligibility and who is selected by the Committee for participation in the Plan shall have twenty (20) days from the date of such selection in which to submit the required election documents for the then-current Plan Year. For the Plan Year beginning on the Effective Date, each Employee shall have until April 30, 1998, in which to make a distribution election for that Plan Year. Any distribution election made by Employee shall be irrevocable with respect to any Compensation covered by such election. Employee's distribution election shall be in the form attached hereto as Appendix 2.
3.5 PAYMENT UPON CHANGE IN CONTROL. Notwithstanding any other provisions of this Plan, the aggregate balances credited to and held in the Employees' Accounts shall be distributed to Employees in a lump sum within thirty (30) days of a Change in Control, as defined in Section 5.1. Alternatively, an Employee may elect to continue to participate in the Plan following a Change in Control if the Plan remains in effect thereafter and the Employee notifies the Employer in writing not less than twenty (20) days prior to the effective date of the Change in Control of Employee's election to remain a participant in the Plan.
3.6 HARDSHIP. (a) An Employee may apply for distributions from his or her Account to the extent that the Employee demonstrates to the reasonable satisfaction of the Committee that he or she needs the funds due to Hardship. For purposes of this Section 3.6, a distribution is made on account of Hardship only if the distribution is made on account of an unforeseeable immediate and heavy financial need of the Employee and is necessary to satisfy that financial need. Whether an Employee has an immediate and heavy financial need
shall be determined by the Committee based on all relevant facts and circumstances, and shall include, but not be limited to (i) the need to pay funeral expenses of a family member; (ii) the need to pay expenses for medical care for Employee, the Employee's spouse or any dependent of Employee; or (iii) payments necessary to prevent the eviction of Employee from Employee's principal residence or foreclosure on the mortgage on that residence. A Hardship distribution shall not exceed the amount required to relieve the financial need of the Employee, nor shall a Hardship distribution be made if the need may be satisfied from other resources reasonably available to the Employee. For purposes of this paragraph, an Employee's resources shall be deemed to include those assets of the Employee's spouse and minor children that are reasonably available to the Employee. Prior to approving a Hardship distribution, Employer shall require the Employee to certify in writing that the Employee's financial need cannot reasonably be relieved (i) through reimbursement or compensation by insurance or otherwise; or (ii) by cessation of elective contributions under the Plan; or (iii) by other distributions or nontaxable (at the time of the loan) loans from plans maintained by the Employer or by any other employer, or by borrowing from commercial sources on reasonable commercial terms, in an amount sufficient to satisfy the need.
(b) Any Employee receiving a Hardship distribution under this Section 3.6 shall be ineligible to defer any additional compensation under the Plan until the first day of the Plan Year following the second anniversary of the date of the distribution. In addition, a new Election of Deferral must be submitted to the Employer as a condition of participation in the Plan.
3.7 EMPLOYEE'S RIGHTS UNSECURED. The right of the Employee or his or her designated Beneficiary to receive a distribution hereunder shall be an unsecured claim against the general assets of the Employer, and neither the Employee nor his or her designated Beneficiary shall have any rights in or against any amount credited to his or her Account or any other specific assets of the Employer. Nothing contained in this Plan, and no action taken pursuant to its provisions, shall create or be construed to create a trust of any kind or a fiduciary relationship between the Plan and the Employer or any other person.
3.8 INVESTMENT OF ACCOUNT. The balance held in the Account shall accrue interest at a rate per annum during a Plan Year equal to four percent (4%) greater than the yield on five (5) year United States Treasury Bond as of the beginning of each Plan Year, which interest should be determined and added to the Account at the end of each calendar month during a Plan Year.
SECTION 4
DESIGNATION OF BENEFICIARY
4.1 Employee may designate a Beneficiary or Beneficiaries to receive any amount due hereunder by Employee via written notice thereof to Employer at any time prior to his or her death and may revoke or change the Beneficiary designated therein without the Beneficiary's consent by written notice delivered to Employer at any time and from time to time prior to Employee's death. If Employee is married and a resident of a community property state, one half of any amount due hereunder which is the result of an amount contributed to the Plan during such marriage is the community property of the Employee's spouse and Employee may designate a Beneficiary or Beneficiaries to receive only the Employee's one-half interest. If Employee shall have failed to designate a Beneficiary, or if no such Beneficiary shall survive him or her, then such amount shall be paid to his or her estate. Designations of Beneficiaries shall be in the form attached hereto as Appendix 4.
SECTION 5
CHANGE IN CONTROL
5.1 CHANGE IN CONTROL. For purposes of this Plan, a "Change in Control" means the occurrence of any of the following:
(i) When any "person", as such term is used in Section 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended ("Exchange Act") (other than the Employer, a subsidiary thereof or an employee benefit plan of Employer, including any trustee of such
plan acting as trustee) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Employer representing fifty percent (50%) or more of the combined voting power of the Employer's then outstanding securities, where such person's beneficial ownership of the Employer's securities was not initiated by the Employer or approved by the Employer's Board of Directors; or
(ii) The occurrence of a transaction requiring shareholder approval, and involving the sale of all or substantially all of the assets of the Employer or the merger of the Employer with or into another corporation, where such merger was not initiated by the Employer and in which Employer is not the surviving entity; or
(iii) A change in the composition of the Board of Directors of the Employer, as a result of which fewer than a majority of the directors are Incumbent Directors. "Incumbent Directors" shall mean directors who either (A) are directors of the Employer as of the date hereof, or (B) are elected, or nominated for election, to the Board of Directors of the Employer with the affirmative votes of at least a majority of the Incumbent Directors at the time of such election or nomination (but shall not include an individual whose election or nomination is in connection with an actual or threatened proxy contest relating to the election of directors to the Employer); or
(iv) Any liquidation or dissolution of the Employer.
SECTION 6
UNSECURED GENERAL OBLIGATION
6.1 NO ACCOUNT SEGREGATION. No special or separate fund shall be established and no other segregation of assets shall be made to assure the payment of any benefits hereunder. All Account balances shall be subject to the claims of general creditors of the Employer in the event the Employer becomes insolvent. The obligations of the Employer to pay benefits under the Plan constitute an unfunded, unsecured general obligation and promise to pay and
Employees shall have no greater rights than general creditors of the Employer.
SECTION 7
AMENDMENT AND TERMINATION
7.1 AMENDMENT. The Committee shall have the right to amend this Plan at any time and from time to time, including a retroactive amendment, if required to comply with applicable law or rules and regulations of governmental or regulatory authorities, including, without limitation, the United States Internal Revenue Service or Department of Labor, California State Franchise Tax Board, Federal Deposit Insurance Corporation or California Commissioner of Financial Institutions. Any such amendment shall become effective upon the date stated therein, and shall be binding on all Employees, except as otherwise provided in such amendment; provided, however, that said amendment shall not affect adversely benefits payable to an affected Employee without the Employee's written approval.
SECTION 8
ADMINISTRATION
8.1 ADMINISTRATION. The Committee shall administer and interpret this Plan in accordance with the provisions of the Plan. Any determination or decision by the Committee shall be conclusive and binding on all persons who at any time have or claim to have any interest whatever under this Plan.
8.2 LIABILITY OF COMMITTEE; INDEMNIFICATION. To the maximum extent permitted by law, the Committee shall not be liable to any person for any action taken or omitted in connection with the interpretation and administration of this Plan unless attributable to his or her own bad faith or willful misconduct. The Committee may employ legal counsel, consultants, actuaries and agents as they may deem desirable in the administration of the Plan and may rely on the opinion of such counsel or the computations of such consultant engaged by the Committee prior to their finalization.
8.3 EXPENSES. The costs of the establishment of the Plan and the adoption of the Plan by Employer, including but not limited to legal and accounting fees, and the expenses of administering the Plan shall be borne by the Employer.
SECTION 9
GENERAL AND MISCELLANEOUS
9.1 NOTICES. All notices and other communications provided for in this Plan shall be given or made by personal delivery or by certified or registered mail, postage prepaid and return receipt requested, or by a nationally recognized overnight courier service, to the address set forth below. All such notices or communications shall be deemed to have been duly given when received by Employer or Employee, or their respective authorized representatives at the address set forth below in the case of the Employer and in Appendix 1 in the case of the Employee, or such changed addresses as may be designated in writing by either party to the other from time to time.
American River Bank 1545 River Park Drive, #107 Sacramento, CA 95815 Attn: Chairman of the Board
9.2 RIGHTS AGAINST EMPLOYER. Except as expressly provided by the Plan, the establishment of this Plan shall not be construed as giving to any Employee or to any person whomsoever, any legal, equitable or other rights against the Employer, or against its officers, directors, agents or shareholders, or as giving to any Employee or Beneficiary any equity or other interest in the assets, business or shares of Employer stock or giving any Employee the right to be retained in the employment of the Employer. Neither this plan nor any action taken hereunder shall be construed as giving to any Employee the right to be retained in the employ of the Employer or as affecting the right of the Employer to dismiss any Employee. Any benefit payable under the Plan shall not be deemed salary or other
compensation for the purpose of computing benefits under any employee benefit plan or other arrangement of the Employer for the benefit of its Employees.
9.3 ASSIGNMENT OR TRANSFER. No right, title or interest of any kind in the Plan shall be transferable or assignable by any Employee or Beneficiary or be subject to alienation, anticipation, encumbrance, garnishment, attachment, execution or levy of any kind, whether voluntary or involuntary, nor subject to the debts, contracts, liabilities, engagements, or torts of the Employee or Beneficiary. Any attempt to alienate, anticipate, encumber, sell, transfer, assign, pledge, garnish, attach or otherwise subject to legal or equitable process or encumber or dispose of any interest in the Plan shall be void.
9.4 SEVERABILITY. If any provision of this Plan shall be declared illegal or invalid for any reason, said illegality or invalidity shall not affect the remaining provisions of this Plan but shall be fully severable, and this Plan shall be construed and enforced as if said illegal or invalid provision had never been inserted herein.
9.5 CONSTRUCTION. The article and section headings and numbers are included only for convenience of reference and are not to be taken as limiting or extending the meaning of any of the terms and provisions of this Plan. Whenever appropriate, words used in the singular shall include the plural or the plural may be rear as the singular. When used herein, the masculine gender includes the feminine gender.
9.6 GOVERNING LAW. The validity and effect of this Plan and the rights and obligations of all persons affected hereby shall be construed and determined in accordance with the laws of the State of California unless superseded by federal law.
9.7 PAYMENT DUE TO INCOMPETENCE. If the Committee receives evidence that an Employee or Beneficiary entitled to receive any payment under the Plan is physically or mentally incompetent to receive such payment, the Committee may, in its sole and absolute discretion, direct the payment to any other person or legal representative legally appointed by
a court of competent jurisdiction or to any other person determined by the Employer to be a proper recipient on behalf of such person otherwise entitled to payment, or any of them, in such manner and proportion as the Employer may deem proper. Any such payment shall be in complete discharge of the Employer's obligations under this Plan.
9.8 TAXES. The Employer may withhold from any benefits payable under this Plan, all federal, state, city or other taxes as shall be required pursuant to any law, regulation or ruling of any governmental authority. All amounts deferred pursuant to this Plan shall constitute "wages" for social security, medicare and related tax purposes during the year deferred.
9.9 ARBITRATION. Unless settled by the parties to this Agreement, any controversy or claim arising out of or relating to this Plan, or the breach hereof, or the interpretation hereof, shall be settled by arbitration in accordance with the Rules of the American Arbitration Association; and judgment upon the award rendered in such arbitration shall be final and may be entered in any court having jurisdiction thereof. All of the provisions of Section 1283.05 of the California Code of Civil Procedure are hereby expressly made applicable to any such arbitration. Notice of the demand for arbitration shall be filed in writing with the other party to this Agreement and with the American Arbitration Association. In no event shall the demand for arbitration be made after the date when institution of legal or equitable proceedings based on such claim, dispute or other matter in question would be barred by the applicable statute of limitations. This agreement to arbitrate shall be specifically enforceable under the then prevailing arbitration law.
9.10 BINDING EFFECT. This Plan shall be binding upon and inure to the benefit of the Employer and its successors and assigns and the Employee and the Employee's Beneficiary designee, their respective heirs, personal representatives, executors, administrators and legatees.
APPENDIX 1
ACKNOWLEDGEMENT
The undersigned Employee hereby acknowledges that Employer has selected him or her as a participant in the American River Bank 1998 Deferred Compensation Plan, subject to all terms and conditions of the Plan, a copy of which has been received, read, and understood by the Employee in conjunction with executing this Acknowledgement. Employee acknowledges that he or she has had satisfactory opportunity to ask questions regarding his or her participation in the Plan and has received satisfactory answers to any questions asked. Employee also acknowledges that he or she has sufficient knowledge and experience in financing and business matters to be capable of evaluating the merits and risks of participation in the Plan. Employee understands that his or her participation in the Plan shall not begin until this Acknowledgement has been signed by Employee and returned to Employer.
EMPLOYEE AMERICAN RIVER BANK
Dated: April ___, 1998 Dated: April ___, 1998
Signed: Signed:
---------------------------- --------------------------
Sam J. Gallina
Chairman of the
Board of Directors
Employee's Address:
------------------
------------------
------------------
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APPENDIX 2
DISTRIBUTION ELECTION
Pursuant to Section 3.3 of the American River Bank 1998 Deferred Compensation Plan (the "Plan"), I hereby elect to have all amounts credited to my Account during the period of my participation in the Plan, together with any earnings credited thereon, distributed to me on the terms elected below.
I elect to have any distribution of my Account paid to me:
------ upon reaching age:
----
------ upon the passage of years
----
------ upon termination of employment
------ upon the earlier to occur of termination of
employment or passage of years
----
------ upon the later to occur of termination of employment
of passage of years
----
|
I elect to have any distribution of my Account paid to me in:
------ a lump sum
------ sixty (60) monthly installments determined as of each
installment date by dividing the entire amount in my
Account (including earnings) by the number of
installments then remaining to be paid, with the
final installment to be the entire remaining balance
in the Account.
------ one hundred twenty (120) monthly installments
determined as of each installment date by dividing
the entire amount in my Account (including earnings)
by the number of installments then remaining to be
paid, with the final installment to be the entire
remaining balance in the Account.
------ one hundred eighty (180) monthly installments
determined as of each installment date by dividing
the entire amount in my Account (including earnings)
by the number of installments then remaining to be
paid, with the final installment to be the entire
remaining balance in the Account.
Dated: April ___, 1998
Signed:
-----------------------
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APPENDIX 3
DEFERRAL ELECTION
I understand that, under Section 3.1 of the American River Bank 1998 Deferred Compensation Plan (the "Plan"), the minimum annual deferral amount is $5,000 of base salary or cash bonus and the maximum annual deferral amount is 80% of base salary and 100% of cash bonus for the Plan Year in question. I elect, pursuant to section 3.1 of the Plan, to make the following deferral(s) with respect to compensation earned during the Plan Year beginning May 1, 1998 and ending December 31, 1998:
% of base salary or cash bonus (but not to exceed
------- eighty percent (80%) of base salary or one hundred
percent (100%) of cash bonus), payable to me by
Employer [minimum = $5,000], or
$
------ of base salary or cash bonus payable to me by
Employer (but not to exceed eighty percent (80%) of
base salary or one hundred percent (100%) of cash
bonus) [minimum = $5,000],
and
% of any cash bonus payable to me by Employer, or
------
$ of any cash bonus payable to me by Employer, or
------
all of any cash bonus payable to me by Employer
except for $
--------
|
This election shall take effect for the Plan Year beginning May 1, 1998. It may be terminated or modified by me only with written notice. The election shall remain in effect for each successive Plan Year until a termination, modification or subsequent election is submitted. The deferral of compensation hereby elected is subject to all of the terms and conditions of the Plan, a copy of which I have been given by the Employer, and which I have read and understood.
Dated: April ___, 1998
Signed:
-------------------------
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APPENDIX 4
BENEFICIARY DESIGNATION
In the event I should die prior to the receipt of all money accrued to my credit under this election, I elect to have the balance paid to the following named individual(s) in the following percentage(s):
%
----- --------------------
%
----- --------------------
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Dated: April ___, 1998
Signed: ------------------------
AMERICAN RIVER BANK
DEFERRED FEE AGREEMENT
THIS AGREEMENT is made as of April 1, 1998, by and between AMERICAN RIVER BANK (the "Bank"), and ______________ (the "Director").
RECITALS
WHEREAS, to encourage the Director to remain a member of the Bank's Board of Directors, the Bank desires to provide to the Director an opportunity to defer fees and obtain certain benefits related thereto.
NOW, THEREFORE, in consideration of the services to be rendered by the Director to the Bank in the future and for other good and valuable consideration, receipt of which is hereby acknowledged, the parties agree as follows:
AGREEMENT
ARTICLE 1. DEFINITIONS.
1.1 DEFINITIONS. Whenever used in this Agreement, the following words and phrases shall have the meanings specified:
1.1.1 CHANGE IN CONTROL. The term "Change in Control" shall mean (i) when any "person", as such term is used in Section 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended ("Exchange Act") (other than the Bank, a subsidiary thereof or an employee benefit plan of the Bank, including any trustee of such plan acting as trustee) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Bank representing fifty percent (50%) or more of the combined voting power of the Bank's then outstanding securities, where such person's beneficial ownership of the Bank's securities was not initiated by the Bank or approved by the Bank's Board of Directors; or (ii) the occurrence of a transaction requiring shareholder approval, and involving the sale of all or substantially all of the assets of the Bank or the merger of the Bank with or into another corporation, where such merger was not initiated by the Bank and in which Bank is not the surviving entity; or (iii) a change in the composition of the Board of Directors of the Bank, as a result of which fewer than a majority of the directors are Incumbent Directors (which "Incumbent Directors" shall mean directors who either (A) are directors of the Bank as of the date hereof, or (B) are elected, or nominated for election, to the Board of Directors of the Bank with the affirmative votes of at least a majority of the Incumbent Directors at the time of such election or nomination (but shall not include an individual whose
election or nomination is in connection with an actual or threatened proxy contest relating to the election of directors to the Bank)); or (iv) any liquidation or dissolution of the Bank. As used in this subparagraph 1.1.1, the term "Bank" shall include its parent holding company, American River Holdings.
1.1.2 CODE. The term "Code" shall mean the Internal Revenue Code of 1986, as amended. References to a Code section shall be deemed to be to that section as it now exists and to any successor provision.
1.1.3 DISTRIBUTION DATE. The term "Distribution Date" means the earlier of five (5) years after the date of this Agreement or upon the Director's Termination of Service as defined below.
1.1.4 DEFERRAL ACCOUNT. The term "Deferral Account" means the account established by the Bank on its books to record the amount of fees deferred by the Director and interest accrued thereon.
1.1.5 DEFERRAL PERIOD. The term "Deferral Period" means the period of time beginning with the date of this Agreement and ending with the earlier of the Distribution Date or the Director's Termination of Service.
1.1.6 BENEFIT PERIOD. The term "Benefit Period" means the period of time beginning with the earlier of the Distribution Date or the Director's Termination of Service and ending with payment in full of the Director's Deferral Account balance.
1.1.7 ELECTION FORM. The term "Election Form" means the Form attached as Exhibit A.
1.1.8 FEES. The term "Fees" means the total fees payable to the Director.
1.1.9 TERMINATION OF SERVICE. The term "Termination of Service" means the Director's ceasing to be a member of the Bank's Board of Directors for any reason whatsoever.
ARTICLE 2. DEFERRAL ELECTION.
2.1 INITIAL DEFERRAL ELECTION. The Director shall make an initial deferral election under this Agreement by completion and delivery to the Bank of the Election Form attached hereto as Exhibit A. The Election Form shall set forth the amount of Fees to be deferred, the form of benefit payment and designation of beneficiary. The Election Form shall be delivered to the Bank not later than April 30, 1998 and effective to defer only those Fees earned for services performed after April 30, 1998.
2.2 DEFERRED ELECTION CHANGES.
2.2.1 GENERALLY. The Director may modify the amount of Fees to be deferred and/or form of benefit payment under Section 2.1 by filing a subsequent signed Election Form with the Bank within twenty (20) days prior to the end of a calendar year preceding the calendar year in which the Fees are to be deferred and/or the change in benefit payment is to apply and in each case by obtaining written approval of the Board of Directors of the Bank. Such modified deferrals and/or form of benefit payment shall not be effective until the calendar year following the year in which the subsequent Election Form is received by the Bank.
2.2.2 HARDSHIP. If an unforeseeable financial emergency arising from the death of a family member, divorce, sickness, injury, catastrophe or similar event outside the control of the Director occurs, the Director, by written instructions to the Bank may reduce and/or cease future deferrals under this Agreement.
ARTICLE 3. DEFERRAL ACCOUNT.
3.1 DEFERRAL ACCOUNT. The Bank shall establish a Deferral Account on its books for the Director, and shall credit to the Deferral Account the following amounts:
3.1.1 DEFERRALS. The Fees deferred by the Director on the first day of the month following the month in which the Fees were earned.
3.1.2 INTEREST. On the last day of each calendar month during the Deferral Period only, and immediately prior to the payment of any benefits, the Deferral Account will be credited with interest earned during that month. Interest shall accrue at the rate equal to four percent (4%) greater than the yield on a five (5) year United States Treasury Bond per annum through December 31, 1998, and, thereafter, at the same rate per annum until changed by resolution of the Bank's Board of Directors, in its sole discretion. Interest earned will be calculated by taking the applicable rate of interest multiplied by the principal balance on the last day of each month, divided by 365 days, multiplied by the number of days in the month. At the end of each calendar year, the interest earned during the year will be posted to the account and only then become principal and entitled to future interest accrual.
3.2 STATEMENT OF ACCOUNTS. The Bank shall provide to the Director as soon as practicable following the end of each year, a statement setting forth the Deferral Account balance.
3.3 UNSECURED CREDITOR STATUS. The Deferral Account is solely an accounting device for measuring amounts to be paid under this Agreement. The Deferral Account is not a trust fund of any kind and the director has no rights greater than those of a general unsecured creditor of the Bank for purposes of the payment of benefits under this Agreement. The
Director's rights are not subject in any manner to the anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment, or garnishment by the Director or the Director's creditors or beneficiaries.
ARTICLE 4. DEFERRAL BENEFITS.
4.1 TERMINATION OF SERVICE BENEFIT. Upon the earlier of the Director's Termination of Service at the Normal Termination Date or the Distribution Date, the Bank shall pay to the Director the balance in the Deferral Account in the form elected by the Director on the Election Form.
4.2 CHANGE IN CONTROL BENEFIT. Upon termination of the Director's service
in connection with and either prior to or following a Change in Control, the
Bank shall pay to the Director the balance in the Deferral Account within thirty
(30) days after such occurrence.
4.3 HARDSHIP DISTRIBUTION. Upon the Bank's determination (following petition by the Director) that the Director has suffered an unforeseeable financial emergency as described in Section 2.2.2., the Bank shall distribute to the Director all or a portion of the Deferral Account balance as determined by the Bank, but in no event shall the distribution be greater than is necessary to relieve the financial hardship.
4.4 DEATH DURING DEFERRAL PERIOD. If the Director dies during the Deferral Period, the Bank shall pay to the Director's beneficiary the balance in the Deferral Account and any death benefits under any insurance policy(ies) applicable to the Director at the same time and in the same amounts that would have been paid to the Director had the Director survived.
4.5 DEATH DURING BENEFIT PERIOD. If the Director dies after benefit payments have commenced under this Agreement but before receiving all such payments, the Bank shall pay the remaining benefits to the Director's beneficiary at the same time and in the same amounts that would have been paid to the Director had the Director survived.
ARTICLE 5. BENEFICIARIES.
5.1 BENEFICIARY DESIGNATIONS. The Director shall designate a beneficiary by filing a written designation with the Bank in the form attached as Exhibit A. The Director may revoke or modify the designation at any time by filing a new designation. However, designations will only be effective if signed by the Director and accepted by the Bank during the Director's lifetime. The Director's beneficiary designation shall be deemed automatically revoked if the beneficiary predeceases the Director, or if the Director names a spouse as beneficiary and the marriage is subsequently dissolved. If the Director dies without a valid beneficiary designation, all payments shall be made to the Director's surviving spouse, if any, and if none,
to the Director's surviving children and the descendants of any deceased child by right of representation, and if no children or descendants survive, to the Director's estate.
5.2 FACILITY OF PAYMENT. If a benefit is payable to a minor, to a person declared incompetent, or to a person incapable of handling the disposition of his or her property, the Bank may pay such benefit to the guardian, legal representative or person having the care or custody of such minor, incompetent person or incapable person. The Bank may require proof of incompetency, minority or guardianship as it may deem appropriate prior to distribution of the benefit. Such distribution shall completely discharge the Bank from all liability with respect to such benefit.
ARTICLE 6. CLAIMS AND REVIEW PROCEDURES.
6.1 CLAIMS PROCEDURE. The Bank shall notify the Director's beneficiary in
writing, within ninety (90) days of his or her written application for benefits,
of his or her eligibility or non-eligibility for benefits under the Agreement.
If the Bank determines that the beneficiary is not eligible for benefits or full
benefits, the notice shall set forth (i) the specific reasons for such denial,
(ii) a specific reference to the provisions of the Agreement on which the denial
is based, (iii) a description of any additional information or material
necessary for the claimant to perfect his or her claim, and a description of why
it is needed, and (v) an explanation of the Agreement's claims review procedure
and other appropriate information as to the steps to be taken if the beneficiary
wishes to have the claim reviewed. If the Bank determines that there are special
circumstances requiring additional time to make a decision, the Bank shall
notify the beneficiary of the special circumstances and the date by which a
decision is expected to be made, and may extend the time for up to an additional
ninety (90) day period.
6.2 REVIEW PROCEDURE. If the beneficiary is determined by the Bank not to be eligible for benefits, or if the beneficiary believes that he or she is entitled to greater or different benefits, the beneficiary shall have the opportunity to have such claim reviewed by the Bank by filing a petition for review with the Bank within sixty (60) days after receipt of the notice issued by the Bank. Such petition shall state the specific reasons which the beneficiary believes entitle him or her to benefits or to greater or different benefits. Within sixty (60) days after receipt by the Bank of the petition, the Bank shall afford the beneficiary (and counsel, if any) an opportunity to present his or her position to the Bank orally or in writing, and the beneficiary (or counsel) shall have the right to review the pertinent documents. The Bank shall notify the beneficiary of its decision in writing within the sixty (60) day period, stating specifically the basis of its decision, written in a manner calculated to be understood by the beneficiary and the specific provisions of the Agreement on which the decision is based. If, because of the need for a hearing, the sixty (60) day period is not sufficient, the decision may be deferred for up to another sixty (60) day period at the election of the Bank, but notice of this deferral shall be given to the beneficiary.
ARTICLE 7. AMENDMENT AND TERMINATION.
The Bank may amend or terminate this Agreement at any time prior to the Director's Termination of Service by written notice to the Director. In no event shall this Agreement be terminated without payment to the Director of the balance in the Deferral Account attributable to the Director's deferrals and interest credited on such amounts.
ARTICLE 8. MISCELLANEOUS.
8.1 BINDING EFFECT. This Agreement shall be binding upon the Director and the Bank, and their beneficiaries, survivors, executors, administrators and transferees.
8.2 NO GUARANTY OF EMPLOYMENT. This Agreement is not a contract for services. It does not (i) give the Director the right to remain a director of the Bank, (ii) require the Director to remain a director, (iii) interfere with the shareholders' rights to replace the Director, or (iv) interfere with the Director's rights to terminate services at any time.
8.3 NON-TRANSFERABILITY. Benefits under this Agreement cannot be sold, transferred, assigned, pledged, attached or encumbered in any manner.
8.4 TAX WITHHOLDING. The Bank shall withhold any taxes that are required to be withheld from the benefits provided under this Agreement.
8.5 GOVERNING LAW. The Agreement and all rights hereunder shall be governed by the laws of California, except to the extent preempted by federal law.
8.6 UNFUNDED ARRANGEMENT. The Director and beneficiary are general unsecured creditors of the Bank for the payment of benefits under this Agreement. The benefits represent the mere promise by the Bank to pay such benefits. The rights to benefits are not subject to any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment, or garnishment by creditors or beneficiaries of the Director. Any insurance on the Director's life is a general asset of the Bank to which the Director and beneficiary have no preferred or secured claim.
IN WITNESS WHEREOF, the Director and a duly authorized Bank officer have signed this Agreement as of the above written date.
AMERICAN RIVER BANK DIRECTOR
By
------------------------------- ------------------------------
Sam J. Gallina
Chairman of the
Board of Directors
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EXHIBIT A
TO
DEFERRED FEE AGREEMENT
DEFERRAL ELECTION
I elect to defer fees under my Deferred Fee Agreement with the American River Bank, as follows:
================================================================================
Amount of Deferral Frequency of Deferral Duration
--------------------------------------------------------------------------------
[Initial and Complete One] [Initial One] [Initial and Complete One]
I elect to defer Beginning of Year This Year Only
--- __________% of Fees --- ---
I elect to defer Each fee period For _____ years (not
--- $__________ of Fees --- --- to exceed 5 years)from
the date of the
I elect not to End of Year Agreement
--- defer Fees ---
================================================================================
|
I understand that I may change the amount, frequency and duration of my deferrals by filing a new election form with American River Bank and obtaining written approval of the Board of Directors of the Bank; provided, however, that any subsequent election will not be effective until the calendar year following the year in which the new election is received by the Bank.
FORM OF BENEFIT
I elect to receive benefits under the Agreement in the following form: [Initial One]
Substantially equal monthly installments for:
thirty-six (36) monthly installments with the amount of each installment --- determined as of each installment date by dividing the entire amount in my Deferral Account by the number of installments then remaining to be paid, with the final installment to be the entire remaining balance in the Deferral Account.
sixty (60) monthly installments with the amount of each installment --- determined as of each installment date by dividing the entire amount in my Deferral Account by the number of installments then remaining to be paid, with the final installment to be the entire remaining balance in the Deferral Account.
one hundred twenty (120) monthly installments with the amount of each --- installment determined as of each installment date by dividing the entire amount in my Deferral Account by the number of installments then remaining to be paid, with the final installment to be the entire remaining balance in the Deferral Account.
one hundred eighty (180) monthly installments with the amount of each --- installment determined as of each installment date by dividing the entire amount in my Deferral Account by the number of installments then remaining to be paid, with the final installment to be the entire remaining balance in the Deferral Account.
I understand that I may not change the form of benefit elected, even if I later change the amount of my deferrals under the Agreement without written approval of the Board of Directors of American River Bank.
BENEFICIARY DESIGNATION
I designate the following as beneficiary of benefits under the Deferred Fee Agreement payable following my death:
NOTE: TO NAME A TRUST AS BENEFICIARY, PLEASE PROVIDE THE NAME OF THE
TRUSTEE AND THE EXACT DATE OF THE TRUST AGREEMENT.
I understand that I may change these beneficiary designations by filing a new written designation with American River Bank. I further understand that the designations will be automatically revoked if the beneficiary predeceases me, or, if I have named my spouse as beneficiary, in the event of the dissolution of our marriage.
As of April ____, 1998
Accepted by the American River Bank as of April ____, 1998.
AMERICAN RIVER BANK
Board of Directors
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into as of May __, 1996 by and between AMERICAN RIVER BANK, a California banking corporation ("Employer"), and David T. Taber ("Employee").
RECITALS
WHEREAS, Employer and Employee desire to enter into an agreement for the purposes of engaging the services of Employee by reason of his experience, training and ability in the commercial banking industry;
NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, the Employer and Employee agree as follows:
AGREEMENT
1. TERM OF EMPLOYMENT. Employer employs Employee and Employee hereby accepts employment with Employer, upon the terms and conditions hereinafter set forth, for a period of two (2) years from the date hereof. Upon the occurrence of the second annual anniversary date of this Agreement, the term of this Agreement shall be automatically extended for an additional two (2) year term, and on each anniversary date thereafter, the term of this Agreement shall be deemed extended for an additional one (1) year term upon the affirmative vote of a majority of the Board of Directors of Employer, subject to the termination provisions of paragraph 16.
2. DUTIES AND OBLIGATIONS OF EMPLOYEE. Employee shall serve as the Executive Vice President and Chief Operating Officer of Employer and President and Chief Executive Officer of American River Holdings, the parent holding company of Employer, and shall perform the customary duties of such offices in the commercial banking industry as may from time to time be reasonably requested of him by the Board of Directors of Employer in addition to the following:
(a) Acting as a member of the Board of Directors and all other board committees to which Employee may be appointed or elected;
(b) Participating in community affairs which are beneficial to the Employer;
(c) Maintaining a good relationship with Employer's Board of Directors and shareholders;
(d) Maintaining a good relationship with regulatory agencies and governmental authorities having jurisdiction over Employer;
(e) Providing leadership in planning and implementing the conduct of business and the affairs of the Employer;
(f) Performing ongoing strategic planning and implementation for Employer and its parent holding company;
(g) Evaluating potential merger and acquisition candidates for Employer and its parent holding company;
(h) Working directly with Employer's Executive Committee on strategic planning for mergers and acquisitions; and
(i) Actively soliciting merger and acquisition opportunities for Employer and its parent holding company.
3. DEVOTION TO EMPLOYER'S BUSINESS.
(a) Employee shall devote his full business time, ability, and attention to the business of Employer during the term of this Agreement and shall not during the term of this Agreement, without the prior written consent of Employer's Board of Directors, engage in any other business activities, duties, or pursuits whatsoever, or directly or indirectly render any services of a business, commercial, or professional nature to any other person or organization, whether for compensation or otherwise, which are in conflict with Employer's business. However, the expenditure of reasonable amounts of time for educational, charitable, or professional activities shall not be deemed a breach of this Agreement if those activities do not materially interfere with the services required of Employee under this Agreement. Nothing in this Agreement shall be interpreted to prohibit Employee from making passive personal investments. However, Employee shall not directly or indirectly acquire, hold, or retain any material interest in any business competing with or similar in nature to the business of Employer.
(b) Employee agrees to conduct himself at all times with due regard to public conventions and morals. Employee further agrees not to do or commit any act that will reasonably tend to shock or offend the community, or to prejudice Employer or the banking industry in general.
(c) Employee hereby represents and agrees that the services to be performed under the terms of this Agreement are of a special, unique, unusual, extraordinary, and intellectual character that gives them a peculiar value, the loss of which cannot be reasonably or adequately compensated in damages in an action at law. Employee therefore expressly agrees that
Employer, in addition to any other rights or remedies that Employer may possess, shall be entitled to injunctive and other equitable relief to prevent or remedy a breach of this Agreement by Employee.
4. NONCOMPETITION BY EMPLOYEE. Employee shall not, during the term of this Agreement, directly or indirectly, either as an employee, employer, consultant, agent, principal, stockholder, officer, director, or in any other individual or representative capacity, engage or participate in any competitive banking or financial services business.
5. INDEMNIFICATION FOR NEGLIGENCE OR MISCONDUCT. Employee shall indemnify and hold Employer harmless from all liability for loss, damage, or injury to persons or property resulting from the gross negligence or intentional misconduct of the Employee.
6. DISCLOSURE OF INFORMATION. Employee shall not, either before or after termination of this Agreement, disclose to anyone any information relating to Employer or any financial information, trade or business secrets, customer lists, computer software or other information not otherwise publicly available concerning the business or operations of Employer. Employee recognizes and acknowledges that any financial information concerning any of Employer's customers, as it may exist from time to time, is strictly confidential and is a valuable, special and unique asset of Employer's business. Employee shall not, either before or after termination of this Agreement, disclose to anyone said financial information or any part thereof, for any reason or purpose whatsoever. This paragraph 6 shall survive the expiration or termination of this Agreement.
7. WRITTEN OR PRINTED MATERIAL. All written or printed materials, notebooks and records used by Employee in performing duties for Employer, other than Employee's personal notes and diaries, are and shall remain the sole property of Employer. Upon termination of employment, Employee shall promptly return all such material (including all copies) to Employer. This paragraph 7 shall survive expiration or termination of this Agreement.
8. SURETY BOND. Employee agrees that he will furnish all information and take any other steps necessary from time to time to enable Employer to obtain or maintain a fidelity bond conditional on the rendering of a true account by Employee of all monies, goods, or other property which may come into the custody, charge, or possession of Employee during the term of his employment. The surety company issuing the bond and the amount of the bond must be acceptable to Employer. All premiums on the bond shall be paid by Employer. If Employee cannot qualify for a surety bond at any time during the term of this Agreement, Employer shall have the option to terminate this Agreement
immediately without any obligation to pay severance benefits to Employee in accordance with paragraph 16 (d) of this Agreement.
9. BASE SALARY. In consideration for the services to be performed hereunder, Employee shall receive a salary at the rate of One Hundred Seven Thousand Five Hundred Dollars ($107,500) per annum, payable in installments during the term of this Agreement of approximately Four Thousand Four Hundred Seventy-Nine Dollars and Seventeen Cents ($4,479.17) on the first and fifteenth days of each month, subject to applicable adjustments for withholding taxes and prorations for any partial employment period. Employee shall receive such annual adjustments in salary, if any, as may be determined by Employer's Board of Directors, in its sole discretion, resulting from the Board of Directors annual review of Employee's compensation on or about January 1 of each year during the term of this Agreement.
10. SALARY CONTINUATION DURING DISABILITY. If Employee for any reason (except as expressly provided below) becomes temporarily or permanently disabled so that he is unable to perform the duties under this Agreement, Employer agrees to pay Employee the base salary otherwise payable to Employee pursuant to paragraph 9 of this Agreement, reduced by the amounts received by Employee from state disability insurance, or worker's compensation or other similar insurance benefits through policies provided by Employer, for a period of six (6) months from the date of disability.
For purposes of this paragraph 10, "disability" shall be defined as provided in Employer's disability insurance program. Notwithstanding anything herein to the contrary, Employer shall have no obligation to make payments for a disability resulting from the deliberate, intentional actions of Employee, such as, but not limited to, attempted suicide or chemical dependence of Employee.
11. INCENTIVE COMPENSATION. Employee shall be entitled to participate in Employer's Incentive Compensation Plan (the "Plan"), a copy of which is attached hereto as Exhibit A and incorporated herein by reference, and receive incentive compensation in accordance with the Plan, subject to the right of the Board of Directors in its sole discretion to modify the terms and provisions of the Plan each year during the term of this Agreement in connection with its review of Employee's performance and Employer's results of operations. Under no circumstance shall a right to receive incentive compensation exist in favor of or accrue to or for the benefit of Employee prior to actual receipt of a distribution, if any, under the Plan.
12. STOCK OPTIONS. Employer has previously granted stock options to Employee evidenced by one or more stock option agreements attached hereto as Exhibit B and incorporated herein
by this reference. Employer may, but is not obligated to, grant additional stock options to Employee in the future which grants, if any, shall be within the sole discretion of the Board of Directors of Employer and subject to the terms and provisions of Employer's stock option plan pursuant to which such grants are effected. Any such grants shall be evidenced by a stock option agreement entered into between Employer and Employee pursuant to such stock option plan and a copy of each such stock option agreement shall be attached to this Agreement as an exhibit. Notwithstanding any provision of any such stock option plan or any such stock option agreement to the contrary, no rights of employment shall be conferred upon Employee or result from any such stock option plan or any stock option agreement entered into between Employer and Employee. Any employment rights and corresponding duties of Employee pursuant to his employment by Employer shall be limited to and interpreted solely in accordance with the terms and provisions of this Agreement.
13. OTHER BENEFITS. Employee shall be entitled to those employee benefits adopted by Employer for all employees of Employer, subject to applicable qualification requirements and regulatory approval requirements, if any. Employee shall be further entitled to the following additional benefits which shall supplement or replace, to the extent duplicative of any part or all of the general employee benefits, the benefits otherwise provided to Employee:
(a) VACATION. Employee shall be entitled to four (4) weeks annual vacation leave at his then existing rate of base salary each year during the term of this Agreement. Employee may be absent from his employment for vacation as long as such leave is reasonable and does not jeopardize his responsibilities and duties specified in this Agreement. The length of vacation should not exceed two (2) weeks without the approval of Employer's executive committee of the Board of Directors. Employee shall take at least two (2) consecutive weeks of vacation as required by the California Superintendent of Banks. Accrual of vacation time, if any, shall be determined in accordance with Employer's personnel policies.
(b) AUTOMOBILE ALLOWANCE AND INSURANCE. Employer shall acquire or otherwise make available to Employee for his business and incidental personal use an automobile, suitable to his position, and (i) maintain it in good condition and repair; and (ii) provide public liability insurance and property damage insurance policies with insurer(s) acceptable to Employer and with coverages in such amounts as may be acceptable to Employer from time to time.
14. ANNUAL PHYSICAL EXAMINATION. Employer shall pay or reimburse Employee for the cost of an annual physical examination conducted by a California licensed physician selected by Employee and reasonably acceptable to Employer.
15. BUSINESS EXPENSES. Employee shall be reimbursed for all ordinary and necessary expenses incurred by Employee in connection with his employment. Employee shall also be reimbursed for reasonable expenses incurred in activities associated with promoting the business of Employer, including expenses for entertainment, travel, conventions, educational programs and similar items, and with the prior approval of Employer's Executive Committee, club memberships. Employer will pay for or will reimburse Employee for such expenses upon presentation by Employee from time to time of receipts or other appropriate evidence of such expenditures.
16. TERMINATION OF AGREEMENT.
(a) AUTOMATIC TERMINATION. This Agreement shall terminate automatically without further act of the parties and immediately upon the occurrence of any one of the following events, subject to either party's right, without any obligation whatsoever, to waive an event reasonably susceptible of waiver, and the obligation of Employer to pay the amounts which would otherwise be payable to Employee under this Agreement through the end of the month in which the event occurs, except that only in the event of termination based upon subparagraphs (1), (4) or (12, to the extent of Employer's breach) below shall Employee be entitled to receive severance payments based upon automatic termination pursuant to paragraph 16 (d) of this Agreement:
(1) The occurrence of circumstances that make it impossible or impractical for Employer to conduct or continue its business.
(2) The death of Employee.
(3) The loss by Employee of legal capacity.
(4) The loss by Employer of legal capacity to contract.
(5) The willful, intentional and material breach of duty by Employee in the course of his employment.
(6) The habitual and continued neglect by Employee of his employment duties and obligations under this Agreement.
(7) The continuous mental or physical incapacity of Employee, subject to Employee's rights under paragraph 10 of this Agreement.
(8) Employee's willful and intentional violation of any State of California or federal banking laws, or of the Bylaws, rules, policies or resolutions of Employer or its parent holding company, or of the rules or regulations of the California Superintendent of Banks or the Federal Deposit Insurance Corporation, or other regulatory agency or governmental authority having jurisdiction over Employer or its parent holding company.
(9) The determination by a state or federal banking agency or governmental authority having jurisdiction over Employer that Employee is not suitable to act in the capacity for which he is employed by Employer.
(10) Employee is convicted of any felony or a crime involving moral turpitude or commits a fraudulent or dishonest act.
(11) Employee discloses without authority any secret or confidential information concerning Employer or takes any action which Employer's Board of Directors determines, in its sole discretion and subject to good faith, fair dealing and reasonableness, constitutes unfair competition with or induces any customer to breach any contract with Employer.
(12) Either party breaches the terms or provisions of this Agreement.
(b) TERMINATION BY EMPLOYER. Employer may, at its election and in its sole discretion, terminate this Agreement for any reason, or for no reason, by giving not less than thirty (30) days' prior written notice of termination to Employee, without prejudice to any other remedy to which Employer may be entitled either at law, in equity or under this Agreement. Upon such termination, Employee shall be entitled to receive any employment benefits which shall have accrued prior to such termination and the severance pay specified in paragraph 16 (d) below.
(c) TERMINATION BY EMPLOYEE. This Agreement may be terminated by Employee for any reason, or no reason, by giving not less than thirty (30) days' prior written notice of termination to Employer. Upon such termination, all rights and obligations accruing to Employee under this Agreement shall cease, except that such termination shall not prejudice Employee's rights regarding employment benefits which shall have
accrued prior to such termination and any other remedy which Employee may have at law, in equity or under this Agreement, which remedy accrued prior to such termination.
(d) SEVERANCE PAY - TERMINATION BY EMPLOYER. In the event of
termination by Employer pursuant to paragraph 16 (b) or automatic termination
based upon paragraph 16 (a) (1), (4) or (12, to the extent of Employer's breach)
of this Agreement, Employee shall be entitled to receive severance pay at
Employee's rate of salary immediately preceding such termination equal to six
(6) months' salary (in addition to incentive compensation or bonus payments due
Employee, if any), payable in lump sum. Notwithstanding the foregoing, in the
event of a "change in control" as defined in subparagraph (e) below, Employee
shall not be entitled to severance pay pursuant to this subparagraph (d) and any
rights of Employee to severance pay shall be limited to such rights as are
specified in subparagraph (e) below. Employee acknowledges and agrees that
severance pay pursuant to this subparagraph (d) is in lieu of all damages,
payments and liabilities on account of the early termination of this Agreement
and the sole and exclusive remedy for Employee terminated at the will of
Employer pursuant to paragraph 16(b) or pursuant to certain provisions of
paragraph 16 (a) described herein.
(e) SEVERANCE PAY - CHANGE IN CONTROL. In the event of a "change in control" as defined herein and within a period of two (2) years following consummation of such a change in control (i) Employee's employment is terminated; or (ii) without Employee's consent there occurs (A) any adverse change in the nature and scope of Employee's position, responsibilities, duties, salary, benefits or location of employment, or (B) any event which reasonably constitutes a demotion, significant diminution or constructive termination (by resignation or otherwise) of Employee's employment, then Employee shall be entitled to receive severance pay in addition to any bonus or incentive compensation payments due Employee. Any such severance pay due Employee shall be in an amount equal to one and one-half (1 1/2) times Employee's average annual compensation for the five (5) years immediately preceding the change in control. Employee's average annual compensation shall be the average of the aggregate compensation paid by Employer to Employee which was includable in Employee's gross income for federal income tax purposes for the five (5) tax years ending immediately prior to the change in control divided by the number five (5).
If all or any portion of the amounts payable to Employee
pursuant to this paragraph 16 (e) alone or together with other payments which
Employee has the right to receive from Employer, constitute "excess parachute
payments" within the meaning of Section 280G of the Internal Revenue Code of
1986, as amended (the "Code"), that are subject to the excise tax imposed by
Section 4999 of the Code (or similar tax and/or assessment),
such amounts payable hereunder shall be reduced to the extent necessary, after first applying any similar reduction in payments to be received from any other plan or program sponsored by Employer from which Employee has a right to receive payments subject to Sections 280G and 4999 of the Code, including without limitation any Salary Continuation Agreement made between Employer and Employee, so as to cause a reduction of any excise tax pursuant to Section 4999 of the Code to equal "zero".
Any such severance shall be payable in lump sum. Such severance payment, if any, shall be in lieu of all damages, payments and liabilities on account of the events described above for which such severance payment, if any, may be due Employee and any severance payment rights of Employee under paragraph 16 (d) of this Agreement. This subparagraph (e) shall be binding upon and inure to the benefit of the parties and any successors or assigns or employer or any "person" as defined herein.
Notwithstanding the foregoing, Employee shall not be entitled to receive nor shall Employer, its successors, assigns or any "person" as defined herein be obligated to pay severance payments pursuant to this subparagraph (e) in the event of an occurrence described in paragraph 16, subparagraphs (5), (6), (8), (10), (11) or (12, to the extent of an Employee breach), or in the event of a determination pursuant to subparagraph (9) thereof, or in the event Employee terminates employment in accordance with paragraph 16 (c) and the termination is not a result of or based upon the occurrence of any event described in paragraph 16 (e)(ii).
A "change in control" of Employer for purposes of this
Agreement and subparagraph (e) shall mean the occurrence of any of the following
events with respect to Employer (with the term "Employer" being defined for such
a change in control to include any parent holding company): (i) a change in
control of a nature that would be required to be reported in response to Item
6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), or in response to any other form
or report to the regulatory agencies or governmental authorities having
jurisdiction over Employer or any stock exchange on which Employer's shares are
listed which requires the reporting of a change in control; (ii) any merger,
consolidation or reorganization of Employer in which Employer does not survive;
(iii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition
(in one transaction or a series of transactions) of any assets of Employer
having an aggregate fair market value of more than fifty percent (50%) of the
total value of the assets of Employer, reflected in the most recent balance
sheet of Employer; (iv) a transaction whereby any "person" (as such term is used
in the Exchange Act or any individual, corporation, partnership, trust or any
other entity) is or becomes the beneficial owner, directly or indirectly, of
securities of Employer representing more than 50% of the combined voting power of Employer's then outstanding securities; (v) if in any one year period, individuals who at the beginning of such period constitute the Board of Directors of Employer cease for any reason to constitute at least a majority thereof, unless the election, or the nomination for election by Employer's shareholders, of each new director is approved by a vote of a least three-quarters of the directors then still in office who were directors at the beginning of the period; (iv) a majority of the members of the Board of Directors of Employer in office prior to the happening of any event determines in its sole discretion that as a result of such event there has been a change in control.
17. NOTICES. Any notices to be given hereunder by either party to the other shall be in writing and may be transmitted by personal delivery or by U.S. mail, registered or certified, postage prepaid with return receipt requested. Mailed notices shall be addressed to the parties at the addresses listed as follows:
Employer: Principal place of business
Employee: Principal place of business as shown in Employer's
Personnel Records and Employee's personal file.
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Each party may change the address for receipt of notices by written notice in accordance with this paragraph 17. Notices delivered personally shall be deemed communicated as of the date of actual receipt; mailed notices shall be deemed communicated as of three (3) days after the date of mailing.
18. ARBITRATION. All claims, disputes and other matters in question arising out of or relating to this Agreement or the breach or interpretation thereof, other than those matters which are to be determined by the Employer in its sole and absolute discretion, shall be resolved first by resort to non-binding mediation with such mediation service or mediator as the parties may mutually agree upon. If the parties cannot agree upon such mediation service or mediator and submit the matter to mediation within thirty (30) days of notice of demand to mediate given by a party to the other party, or if the matter is not resolved in a manner satisfactory to the parties within sixty (60) days of submission of the matter to the mediation service or mediator, then in that event, the matter shall be resolved by binding arbitration before a representative member, selected by the mutual agreement of the parties, of the Judicial Arbitration and Mediation Services, Inc. ("JAMS"), presently located at 111 Pine Street, Suite 710, in San Francisco, California, in accordance with the rules and procedures of JAMS then in effect. In the event JAMS is unable or unwilling to conduct such arbitration, or has discontinued its business, the parties agree that a
representative member, selected by the mutual agreement of the parties, of the American Arbitration Association ("AAA"), presently located at 417 Montgomery Street, in San Francisco, California, shall conduct such binding arbitration in accordance with the rules and procedures of the AAA then in effect. Notice of the demand for arbitration shall be filed in writing with the other party to this Agreement and with JAMS (or AAA, if necessary). In no event shall the demand for arbitration be made after the date when institution of legal or equitable proceedings based on such claim, dispute or other matter in question would be barred by the applicable statute of limitations. Any award rendered by JAMS or AAA shall be final and binding upon the parties, and as applicable, their respective heirs, beneficiaries, legal representatives, agents, successors and assigns, and may be entered in any court having jurisdiction thereof. The obligation of the parties to arbitrate pursuant to this clause shall be specifically enforceable in accordance with, and shall be conducted consistently with, the provisions of Title 9 of Part 3 of the California Code of Civil Procedure. Any arbitration hereunder shall be conducted in Sacramento, California, unless otherwise agreed to by the parties.
19. ATTORNEYS' FEES AND COSTS. In the event of litigation, arbitration or any other action or proceeding between the parties to interpret or enforce this Agreement or any part thereof or otherwise arising out of or relating to this Agreement, the prevailing party shall be entitled to recover its costs related to any such action or proceeding and its reasonable fees of attorneys, accountants and expert witnesses incurred by such party in connection with any such action or proceeding. The prevailing party shall be deemed to be the party which obtains substantially the relief sought by final resolution, compromise or settlement, or as may otherwise be determined by order of a court of competent jurisdiction in the event of litigation, an award or decision of one or more arbitrators in the event of arbitration, or a decision of a comparable official in the event of any other action or proceeding. Every obligation to indemnify under this Agreement includes the obligation to pay reasonable fees of attorneys, accountants and expert witnesses incurred by the indemnified party in connection with matters subject to indemnification.
20. ENTIRE AGREEMENT. This Agreement supersedes any and all other agreements, either oral or in writing, between the parties with respect to the employment of Employee by Employer and contains all of the covenants and agreements between the parties with respect to the employment of Employee by Employer. Each party to this Agreement acknowledges that no other representations, inducements, promises, or agreements, oral or otherwise, have been made by any party, or anyone acting on behalf of any party, which are not set forth herein, and that no other agreement, statement, or promise not contained in this Agreement shall be valid or binding on either party.
21. MODIFICATIONS. Any modification of this Agreement will be effective only if it is in writing and signed by a party or its authorized representative.
22. WAIVER. The failure of either party to insist on strict compliance with any of the terms, provisions, covenants, or conditions of this Agreement by the other party shall not be deemed a waiver of any term, provision, covenant, or condition, individually or in the aggregate, unless such waiver is in writing, nor shall any waiver or relinquishment of any right or power at any one time or times be deemed a waiver or relinquishment of that right or power for all or any other times.
23. PARTIAL INVALIDITY. If any provision in this Agreement is held by a court of competent jurisdiction to be invalid, void, or unenforceable, the remaining provisions shall nevertheless continue in full force and effect without being impaired or invalidated in any way.
24. INTERPRETATION. This Agreement shall be construed without regard to the party responsible for the preparation of the Agreement and shall be deemed to have been prepared jointly by the parties. Any ambiguity or uncertainty existing in this Agreement shall not be interpreted against either party, but according to the application of other rules of contract interpretation, if an ambiguity or uncertainty exists.
25. GOVERNING LAW AND VENUE. The laws of the State of California, other than those laws denominated choice of law rules, shall govern the validity, construction and effect of this Agreement. Any action which in any way involves the rights, duties and obligations of the parties hereunder shall be brought in the courts of the State of California and venue for any action or proceeding shall be in Sacramento County or in the United States District Court for the Eastern District of California, and the parties hereby submit to the personal jurisdiction of said courts.
26. PAYMENTS DUE DECEASED EMPLOYEE. If Employee dies prior to the expiration of the term of his employment, any payments that may be due Employee from Employer under this Agreement as of the date of death shall be paid to Employee's executors, administrators, heirs, personal representatives, successors, or assigns.
IN WITNESS WHEREOF, the parties have executed this Agreement consisting of thirteen pages in the City of Sacramento, County of Sacramento, State of California as of the date set forth above.
EMPLOYER: EMPLOYEE:
AMERICAN RIVER BANK
By: /s/ SAM J. GALLINA /s/ DAVID T. TABER
----------------------------- --------------------------------
Sam J. Gallina David T. Taber
Chairman of the Board
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[ADD NOTARIAL ACKNOWLEDGEMENT]
AMERICAN RIVER BANK
AMENDMENT TO EMPLOYMENT AGREEMENT
7/18/96
Pursuant to the Board of Directors meeting held July 17, 1996, attached is the Incentive Compensation Plan for Executive Management which has been updated per decisions made at the stated Board of Directors meeting.
This constitutes the first amendment to the Employment Agreement made between American River Bank and David T. Taber, duly executed on May 29, 1996.
This document and the Incentive Compensation Plan for Executive Management hereto attached supersedes the plan outlined on page 4, paragraph 11 of the Employment Agreement which is entitled "Incentive Compensation".
Furthermore, the last sentence in paragraph 11 which reads as follows: "Under no circumstance shall a right to receive incentive compensation exist in favor of or accrue to or for the benefit of Employee prior to actual receipt of a distribution, if any, under the Plan" shall be superseded by the Payout conditions stipulated in the Incentive Compensation Plan for Executive Management hereto attached.
EMPLOYER: EMPLOYEE: AMERICAN RIVER BANK By /s/ SAM J. GALLINA /s/ DAVID T. TABER ----------------------------- -------------------------------- Sam J. Gallina David T. Taber Chairman of the Board |
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into as of May __, 1996 by and between AMERICAN RIVER BANK, a California banking corporation ("Employer"), and William L. Young ("Employee").
RECITALS
WHEREAS, Employer and Employee desire to enter into an agreement for the purposes of engaging the services of Employee by reason of his experience, training and ability in the commercial banking industry;
NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, the Employer and Employee agree as follows:
AGREEMENT
1. TERM OF EMPLOYMENT. Employer employs Employee and Employee hereby accepts employment with Employer, upon the terms and conditions hereinafter set forth, for a period of two (2) years from the date hereof. Upon the occurrence of the second annual anniversary date of this Agreement, the term of this Agreement shall be automatically extended for an additional two (2) year term, and on each anniversary date thereafter, the term of this Agreement shall be deemed extended for an additional one (1) year term upon the affirmative vote of a majority of the Board of Directors of Employer, subject to the termination provisions of paragraph 16.
2. DUTIES AND OBLIGATIONS OF EMPLOYEE. Employee shall serve as the President and Chief Executive Officer of Employer and shall perform the customary duties of such office in the commercial banking industry as may from time to time be reasonably requested of him by the Board of Directors of Employer in addition to the following:
(a) Acting as a member of the Board of Directors and all other board committees to which Employee may be appointed or elected;
(b) Participating in community affairs which are beneficial to the Employer;
(c) Maintaining a good relationship with Employer's Board of Directors and shareholders;
(d) Maintaining a good relationship with regulatory agencies and governmental authorities having jurisdiction over Employer;
(e) Providing leadership in planning and implementing the conduct of business and the affairs of the Employer; and
(f) Hiring and firing of all employees, except Executive Vice Presidents, subject at all times to the policies and directives set by the Employer's Board of Directors.
3. DEVOTION TO EMPLOYER'S BUSINESS.
(a) Employee shall devote his full business time, ability, and attention to the business of Employer during the term of this Agreement and shall not during the term of this Agreement, without the prior written consent of Employer's Board of Directors, engage in any other business activities, duties, or pursuits whatsoever, or directly or indirectly render any services of a business, commercial, or professional nature to any other person or organization, whether for compensation or otherwise, which are in conflict with Employer's business. However, the expenditure of reasonable amounts of time for educational, charitable, or professional activities shall not be deemed a breach of this Agreement if those activities do not materially interfere with the services required of Employee under this Agreement. Nothing in this Agreement shall be interpreted to prohibit Employee from making passive personal investments. However, Employee shall not directly or indirectly acquire, hold, or retain any material interest in any business competing with or similar in nature to the business of Employer.
(b) Employee agrees to conduct himself at all times with due regard to public conventions and morals. Employee further agrees not to do or commit any act that will reasonably tend to shock or offend the community, or to prejudice Employer or the banking industry in general.
(c) Employee hereby represents and agrees that the services to be performed under the terms of this Agreement are of a special, unique, unusual, extraordinary, and intellectual character that gives them a peculiar value, the loss of which cannot be reasonably or adequately compensated in damages in an action at law. Employee therefore expressly agrees that Employer, in addition to any other rights or remedies that Employer may possess, shall be entitled to injunctive and other equitable relief to prevent or remedy a breach of this Agreement by Employee.
4. NONCOMPETITION BY EMPLOYEE. Employee shall not, during the term of this Agreement, directly or indirectly, either as an employee, employer, consultant, agent, principal, stockholder, officer, director, or in any other individual or representative capacity, engage or participate in any competitive banking or financial services business.
5. INDEMNIFICATION FOR NEGLIGENCE OR MISCONDUCT. Employee shall indemnify and hold Employer harmless from all liability for loss, damage, or injury to persons or property resulting from the gross negligence or intentional misconduct of the Employee.
6. DISCLOSURE OF INFORMATION. Employee shall not, either before or after termination of this Agreement, disclose to anyone any information relating to Employer or any financial information, trade or business secrets, customer lists, computer software or other information not otherwise publicly available concerning the business or operations of Employer. Employee recognizes and acknowledges that any financial information concerning any of Employer's customers, as it may exist from time to time, is strictly confidential and is a valuable, special and unique asset of Employer's business. Employee shall not, either before or after termination of this Agreement, disclose to anyone said financial information or any part thereof, for any reason or purpose whatsoever. This paragraph 6 shall survive the expiration or termination of this Agreement.
7. WRITTEN OR PRINTED MATERIAL. All written or printed materials, notebooks and records used by Employee in performing duties for Employer, other than Employee's personal notes and diaries, are and shall remain the sole property of Employer. Upon termination of employment, Employee shall promptly return all such material (including all copies) to Employer. This paragraph 7 shall survive expiration or termination of this Agreement.
8. SURETY BOND. Employee agrees that he will furnish all information and take any other steps necessary from time to time to enable Employer to obtain or maintain a fidelity bond conditional on the rendering of a true account by Employee of all monies, goods, or other property which may come into the custody, charge, or possession of Employee during the term of his employment. The surety company issuing the bond and the amount of the bond must be acceptable to Employer. All premiums on the bond shall be paid by Employer. If Employee cannot qualify for a surety bond at any time during the term of this Agreement, Employer shall have the option to terminate this Agreement immediately without any obligation to pay severance benefits to Employee in accordance with paragraph 16 (d) of this Agreement.
9. BASE SALARY. In consideration for the services to be performed hereunder, Employee shall receive a salary at the rate of One Hundred Fifteen Thousand Dollars ($115,000) per annum, payable in installments during the term of this Agreement of approximately Four Thousand Seven Hundred Ninety-One Dollars and Sixty-Six Cents ($4,791.66) on the first and fifteenth days of each month, subject to applicable adjustments for withholding taxes and prorations for any partial employment period. Employee shall receive such annual adjustments in salary, if any, as may be determined by Employer's Board of Directors, in its sole discretion, resulting from the
Board of Directors annual review of Employee's compensation each year during the term of this Agreement.
10. SALARY CONTINUATION DURING DISABILITY. If Employee for any reason (except as expressly provided below) becomes temporarily or permanently disabled so that he is unable to perform the duties under this Agreement, Employer agrees to pay Employee the base salary otherwise payable to Employee pursuant to paragraph 9 of this Agreement, reduced by the amounts received by Employee from state disability insurance, or worker's compensation or other similar insurance benefits through policies provided by Employer, for a period of six (6) months from the date of disability.
For purposes of this paragraph 10, "disability" shall be defined as provided in Employer's disability insurance program. Notwithstanding anything herein to the contrary, Employer shall have no obligation to make payments for a disability resulting from the deliberate, intentional actions of Employee, such as, but not limited to, attempted suicide or chemical dependence of Employee.
11. INCENTIVE COMPENSATION. Employee shall be entitled to participate in Employer's Incentive Compensation Plan (the "Plan"), a copy of which is attached hereto as Exhibit A and incorporated herein by reference, and receive incentive compensation in accordance with the Plan, subject to the right of the Board of Directors in its sole discretion to modify the terms and provisions of the Plan each year during the term of this Agreement in connection with its review of Employee's performance and Employer's results of operations. Under no circumstance shall a right to receive incentive compensation exist in favor of or accrue to or for the benefit of Employee prior to actual receipt of a distribution, if any, under the Plan.
12. STOCK OPTIONS. Employer has previously granted stock options to Employee evidenced by one or more stock option agreements attached hereto as Exhibit B and incorporated herein by this reference. Employer may, but is not obligated to, grant additional stock options to Employee in the future which grants, if any, shall be within the sole discretion of the Board of Directors of Employer and subject to the terms and provisions of Employer's stock option plan pursuant to which such grants are effected. Any such grants shall be evidenced by a stock option agreement entered into between Employer and Employee pursuant to such stock option plan and a copy of each such stock option agreement shall be attached to this Agreement as an exhibit. Notwithstanding any provision of any such stock option plan or any such stock option agreement to the contrary, no rights of employment shall be conferred upon Employee or result from any such stock option plan or any stock option agreement entered into between Employer and Employee. Any employment rights and corresponding duties of Employee pursuant to his employment by Employer shall be limited to
and interpreted solely in accordance with the terms and provisions of this Agreement.
13. OTHER BENEFITS. Employee shall be entitled to those employee benefits adopted by Employer for all employees of Employer, subject to applicable qualification requirements and regulatory approval requirements, if any. Employee shall be further entitled to the following additional benefits which shall supplement or replace, to the extent duplicative of any part or all of the general employee benefits, the benefits otherwise provided to Employee:
(a) VACATION. Employee shall be entitled to four (4) weeks annual vacation leave at his then existing rate of base salary each year during the term of this Agreement. Employee may be absent from his employment for vacation as long as such leave is reasonable and does not jeopardize his responsibilities and duties specified in this Agreement. The length of vacation should not exceed two (2) weeks without the approval of Employer's executive committee of the Board of Directors. Employee shall take at least two (2) consecutive weeks of vacation as required by the California Superintendent of Banks. Accrual of vacation time, if any, shall be determined in accordance with Employer's personnel policies.
(b) AUTOMOBILE ALLOWANCE AND INSURANCE. Employer shall acquire or otherwise make available to Employee for his business and incidental personal use an automobile, suitable to his position, and (i) maintain it in good condition and repair; and (ii) provide public liability insurance and property damage insurance policies with insurer(s) acceptable to Employer and with coverages in such amounts as may be acceptable to Employer from time to time.
14. ANNUAL PHYSICAL EXAMINATION. Employer shall pay or reimburse Employee for the cost of an annual physical examination conducted by a California licensed physician selected by Employee and reasonably acceptable to Employer.
15. BUSINESS EXPENSES. Employee shall be reimbursed for all ordinary and necessary expenses incurred by Employee in connection with his employment. Employee shall also be reimbursed for reasonable expenses incurred in activities associated with promoting the business of Employer, including expenses for entertainment, travel, conventions, educational programs and similar items, and with the prior approval of Employer's Executive Committee, expenses for club memberships. Employer will pay for or will reimburse Employee for such expenses upon presentation by Employee from time to time of receipts or other appropriate evidence of such expenditures.
16. TERMINATION OF AGREEMENT.
(a) AUTOMATIC TERMINATION. This Agreement shall terminate automatically without further act of the parties and immediately upon the occurrence of any one of the following events, subject to either party's right, without any obligation whatsoever, to waive an event reasonably susceptible of waiver, and the obligation of Employer to pay the amounts which would otherwise be payable to Employee under this Agreement through the end of the month in which the event occurs, except that only in the event of termination based upon subparagraphs (1), (4) or (12, to the extent of Employer's breach) below shall Employee be entitled to receive severance payments based upon automatic termination pursuant to paragraph 16 (d) of this Agreement:
(1) The occurrence of circumstances that make it impossible or impractical for Employer to conduct or continue its business.
(2) The death of Employee.
(3) The loss by Employee of legal capacity.
(4) The loss by Employer of legal capacity to contract.
(5) The willful, intentional and material breach of duty by Employee in the course of his employment.
(6) The habitual and continued neglect by Employee of his employment duties and obligations under this Agreement.
(7) The continuous mental or physical incapacity of Employee, subject to Employee's rights under paragraph 10 of this Agreement.
(8) Employee's willful and intentional violation of any State of California or federal banking laws, or of the Bylaws, rules, policies or resolutions of Employer or its parent holding company, or of the rules or regulations of the California Superintendent of Banks or the Federal Deposit Insurance Corporation, or other regulatory agency or governmental authority having jurisdiction over Employer or its parent holding company.
(9) The determination by a state or federal banking agency or governmental authority having jurisdiction over Employer that
Employee is not suitable to act in the capacity for which he is employed by Employer.
(10) Employee is convicted of any felony or a crime involving moral turpitude or commits a fraudulent or dishonest act.
(11) Employee discloses without authority any secret or confidential information concerning Employer or takes any action which Employer's Board of Directors determines, in its sole discretion and subject to good faith, fair dealing and reasonableness, constitutes unfair competition with or induces any customer to breach any contract with Employer.
(12) Either party breaches the terms or provisions of this Agreement.
(b) TERMINATION BY EMPLOYER. Employer may, at its election and in its sole discretion, terminate this Agreement for any reason, or for no reason, by giving not less than thirty (30) days' prior written notice of termination to Employee, without prejudice to any other remedy to which Employer may be entitled either at law, in equity or under this Agreement. Upon such termination, Employee shall be entitled to receive any employment benefits which shall have accrued prior to such termination and the severance pay specified in paragraph 16 (d) below.
(c) TERMINATION BY EMPLOYEE. This Agreement may be terminated by Employee for any reason, or no reason, by giving not less than thirty (30) days' prior written notice of termination to Employer. Upon such termination, all rights and obligations accruing to Employee under this Agreement shall cease, except that such termination shall not prejudice Employee's rights regarding employment benefits which shall have accrued prior to such termination and any other remedy which Employee may have at law, in equity or under this Agreement, which remedy accrued prior to such termination.
(d) SEVERANCE PAY - TERMINATION BY EMPLOYER. In the event of
termination by Employer pursuant to paragraph 16 (b) or automatic termination
based upon paragraph 16 (a) (1), (4) or (12, to the extent of Employer's breach)
of this Agreement, Employee shall be entitled to receive severance pay at
Employee's rate of salary immediately preceding such termination equal to six
(6) months' salary (in addition to incentive compensation or bonus payments due
Employee, if any), payable in lump sum. Notwithstanding the foregoing, in the
event of a "change in control" as defined in subparagraph (e) below, Employee
shall not be entitled to severance pay pursuant to this subparagraph (d) and any
rights of Employee to severance pay shall be limited to such
rights as are specified in subparagraph (e) below. Employee acknowledges and agrees that severance pay pursuant to this subparagraph (d) is in lieu of all damages, payments and liabilities on account of the early termination of this Agreement and the sole and exclusive remedy for Employee terminated at the will of Employer pursuant to paragraph 16(b) or pursuant to certain provisions of paragraph 16 (a) described herein.
(e) SEVERANCE PAY - CHANGE IN CONTROL. In the event of a "change in control" as defined herein and within a period of two (2) years following consummation of such a change in control (i) Employee's employment is terminated; or (ii) without Employee's consent there occurs (A) any adverse change in the nature and scope of Employee's position, responsibilities, duties, salary, benefits or location of employment, or (B) any event which reasonably constitutes a demotion, significant diminution or constructive termination (by resignation or otherwise) of Employee's employment, then Employee shall be entitled to receive severance pay in addition to any bonus or incentive compensation payments due Employee. Any such severance pay due Employee shall be in an amount equal to one and one-half (1 1/2) times Employee's average annual compensation for the five (5) years immediately preceding the change in control. Employee's average annual compensation shall be the average of the aggregate compensation paid by Employer to Employee which was includable in Employee's gross income for federal income tax purposes for the five (5) tax years ending immediately prior to the change in control divided by the number five (5).
If all or any portion of the amounts payable to Employee
pursuant to this paragraph 16 (e) alone or together with other payments which
Employee has the right to receive from Employer, constitute "excess parachute
payments" within the meaning of Section 280G of the Internal Revenue Code of
1986, as amended (the "Code"), that are subject to the excise tax imposed by
Section 4999 of the Code (or similar tax and/or assessment), such amounts
payable hereunder shall be reduced to the extent necessary, after first applying
any similar reduction in payments to be received from any other plan or program
sponsored by Employer from which Employee has a right to receive payments
subject to Sections 280G and 4999 of the Code, including without limitation any
Salary Continuation Agreement made between Employer and Employee, so as to cause
a reduction of any excise tax pursuant to Section 4999 of the Code to equal
"zero".
Any such severance shall be payable in lump sum. Such severance payment, if any, shall be in lieu of all damages, payments and liabilities on account of the events described above for which such severance payment, if any, may be due Employee and any severance payment rights of Employee under paragraph 16 (d) of this Agreement. This subparagraph (e) shall be binding upon and
inure to the benefit of the parties and any successors or assigns or employer or any "person" as defined herein.
Notwithstanding the foregoing, Employee shall not be entitled to receive nor shall Employer, its successors, assigns or any "person" as defined herein be obligated to pay severance payments pursuant to this subparagraph (e) in the event of an occurrence described in paragraph 16, subparagraphs (5), (6), (8), (10), (11) or (12, to the extent of an Employee breach), or in the event of a determination pursuant to subparagraph (9) thereof, or in the event Employee terminates employment in accordance with paragraph 16 (c) and the termination is not a result of or based upon the occurrence of any event described in paragraph 16 (e)(ii).
A "change in control" of Employer for purposes of this
Agreement and subparagraph (e) shall mean the occurrence of any of the following
events with respect to Employer (with the term "Employer" being defined for such
a change in control to include any parent holding company): (i) a change in
control of a nature that would be required to be reported in response to Item
6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), or in response to any other form
or report to the regulatory agencies or governmental authorities having
jurisdiction over Employer or any stock exchange on which Employer's shares are
listed which requires the reporting of a change in control; (ii) any merger,
consolidation or reorganization of Employer in which Employer does not survive;
(iii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition
(in one transaction or a series of transactions) of any assets of Employer
having an aggregate fair market value of more than fifty percent (50%) of the
total value of the assets of Employer, reflected in the most recent balance
sheet of Employer; (iv) a transaction whereby any "person" (as such term is used
in the Exchange Act or any individual, corporation, partnership, trust or any
other entity) is or becomes the beneficial owner, directly or indirectly, of
securities of Employer representing more than 50% of the combined voting power
of Employer's then outstanding securities; (v) if in any one year period,
individuals who at the beginning of such period constitute the Board of
Directors of Employer cease for any reason to constitute at least a majority
thereof, unless the election, or the nomination for election by Employer's
shareholders, of each new director is approved by a vote of a least
three-quarters of the directors then still in office who were directors at the
beginning of the period; (iv) a majority of the members of the Board of
Directors of Employer in office prior to the happening of any event determines
in its sole discretion that as a result of such event there has been a change in
control.
17. NOTICES. Any notices to be given hereunder by either party to the other shall be in writing and may be transmitted by personal delivery or by U.S. mail, registered or certified, postage
prepaid with return receipt requested. Mailed notices shall be addressed to the parties at the addresses listed as follows:
Employer: Principal place of business
Employee: Principal place of business as shown in Employer's
Personnel Records and Employee's personal file.
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Each party may change the address for receipt of notices by written notice in accordance with this paragraph 17. Notices delivered personally shall be deemed communicated as of the date of actual receipt; mailed notices shall be deemed communicated as of three (3) days after the date of mailing.
18. ARBITRATION. All claims, disputes and other matters in question arising out of or relating to this Agreement or the breach or interpretation thereof, other than those matters which are to be determined by the Employer in its sole and absolute discretion, shall be resolved first by resort to non-binding mediation with such mediation service or mediator as the parties may mutually agree upon. If the parties cannot agree upon such mediation service or mediator and submit the matter to mediation within thirty (30) days of notice of demand to mediate given by a party to the other party, or if the matter is not resolved in a manner satisfactory to the parties within sixty (60) days of submission of the matter to the mediation service or mediator, then in that event, the matter shall be resolved by binding arbitration before a representative member, selected by the mutual agreement of the parties, of the Judicial Arbitration and Mediation Services, Inc. ("JAMS"), presently located at 111 Pine Street, Suite 710, in San Francisco, California, in accordance with the rules and procedures of JAMS then in effect. In the event JAMS is unable or unwilling to conduct such arbitration, or has discontinued its business, the parties agree that a representative member, selected by the mutual agreement of the parties, of the American Arbitration Association ("AAA"), presently located at 417 Montgomery Street, in San Francisco, California, shall conduct such binding arbitration in accordance with the rules and procedures of the AAA then in effect. Notice of the demand for arbitration shall be filed in writing with the other party to this Agreement and with JAMS (or AAA, if necessary). In no event shall the demand for arbitration be made after the date when institution of legal or equitable proceedings based on such claim, dispute or other matter in question would be barred by the applicable statute of limitations. Any award rendered by JAMS or AAA shall be final and binding upon the parties, and as applicable, their respective heirs, beneficiaries, legal representatives, agents, successors and assigns, and may be entered in any court having jurisdiction thereof. The obligation of the parties to arbitrate pursuant to this clause shall be specifically enforceable in accordance with, and shall be conducted consistently with, the provisions of Title 9 of Part 3 of the California Code of Civil Procedure. Any arbitration hereunder
shall be conducted in Sacramento, California, unless otherwise agreed to by the parties.
19. ATTORNEYS' FEES AND COSTS. In the event of litigation, arbitration or any other action or proceeding between the parties to interpret or enforce this Agreement or any part thereof or otherwise arising out of or relating to this Agreement, the prevailing party shall be entitled to recover its costs related to any such action or proceeding and its reasonable fees of attorneys, accountants and expert witnesses incurred by such party in connection with any such action or proceeding. The prevailing party shall be deemed to be the party which obtains substantially the relief sought by final resolution, compromise or settlement, or as may otherwise be determined by order of a court of competent jurisdiction in the event of litigation, an award or decision of one or more arbitrators in the event of arbitration, or a decision of a comparable official in the event of any other action or proceeding. Every obligation to indemnify under this Agreement includes the obligation to pay reasonable fees of attorneys, accountants and expert witnesses incurred by the indemnified party in connection with matters subject to indemnification.
20. ENTIRE AGREEMENT. This Agreement supersedes any and all other agreements, either oral or in writing, between the parties with respect to the employment of Employee by Employer and contains all of the covenants and agreements between the parties with respect to the employment of Employee by Employer. Each party to this Agreement acknowledges that no other representations, inducements, promises, or agreements, oral or otherwise, have been made by any party, or anyone acting on behalf of any party, which are not set forth herein, and that no other agreement, statement, or promise not contained in this Agreement shall be valid or binding on either party.
21. MODIFICATIONS. Any modification of this Agreement will be effective only if it is in writing and signed by a party or its authorized representative.
22. WAIVER. The failure of either party to insist on strict compliance with any of the terms, provisions, covenants, or conditions of this Agreement by the other party shall not be deemed a waiver of any term, provision, covenant, or condition, individually or in the aggregate, unless such waiver is in writing, nor shall any waiver or relinquishment of any right or power at any one time or times be deemed a waiver or relinquishment of that right or power for all or any other times.
23. PARTIAL INVALIDITY. If any provision in this Agreement is held by a court of competent jurisdiction to be invalid, void, or unenforceable, the remaining provisions shall nevertheless continue in full force and effect without being impaired or invalidated in any way.
24. INTERPRETATION. This Agreement shall be construed without regard to the party responsible for the preparation of the Agreement and shall be deemed to have been prepared jointly by the parties. Any ambiguity or uncertainty existing in this Agreement shall not be interpreted against either party, but according to the application of other rules of contract interpretation, if an ambiguity or uncertainty exists.
25. GOVERNING LAW AND VENUE. The laws of the State of California, other than those laws denominated choice of law rules, shall govern the validity, construction and effect of this Agreement. Any action which in any way involves the rights, duties and obligations of the parties hereunder shall be brought in the courts of the State of California and venue for any action or proceeding shall be in Sacramento County or in the United States District Court for the Eastern District of California, and the parties hereby submit to the personal jurisdiction of said courts.
26. PAYMENTS DUE DECEASED EMPLOYEE. If Employee dies prior to the expiration of the term of his employment, any payments that may be due Employee from Employer under this Agreement as of the date of death shall be paid to Employee's executors, administrators, heirs, personal representatives, successors, or assigns.
IN WITNESS WHEREOF, the parties have executed this Agreement consisting of twelve pages in the City of Sacramento, County of Sacramento, State of California as of the date set forth above.
EMPLOYER: EMPLOYEE:
AMERICAN RIVER BANK
By: /s/ SAM J. GALLINA /s/ WILLIAM L. YOUNG
-------------------------- ------------------------------
Sam J. Gallina William L. Young
Chairman of the Board
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[ADD NOTARIAL ACKNOWLEDGEMENT]
AMERICAN RIVER BANK
AMENDMENT TO EMPLOYMENT AGREEMENT
7/18/96
Pursuant to the Board of Directors meeting held July 17, 1996, attached is the Incentive Compensation Plan for Executive Management which has been updated per decisions made at the stated Board of Directors meeting.
This constitutes the first amendment to the Employment Agreement made between American River Bank and William L. Young, duly executed on May 29, 1996.
This document and the Incentive Compensation Plan for Executive Management hereto attached supersedes the plan outlined on page 4, paragraph 11 of the Employment Agreement which is entitled "Incentive Compensation".
Furthermore, the last sentence in paragraph 11 which reads as follows: "Under no circumstance shall a right to receive incentive compensation exist in favor of or accrue to or for the benefit of Employee prior to actual receipt of a distribution, if any, under the Plan" shall be superseded by the Payout conditions stipulated in the Incentive Compensation Plan for Executive Management hereto attached.
EMPLOYER: EMPLOYEE: AMERICAN RIVER BANK By /s/ SAM J. GALLINA /s/ WILLIAM L. YOUNG --------------------------- ------------------------------- Sam J. Gallina William L. Young Chairman of the Board |
AMERICAN RIVER BANK
7/96
INCENTIVE COMPENSATION PLAN FOR
EXECUTIVE MANAGEMENT
PURPOSE
American River Bank ("Bank") is desirous of establishing an incentive compensation plan to reward executive management for productivity and high performance. The program is also a tool to assure that the bank will meet ROE and ROA goals for the subject year and for future years.
WHO IS ELIGIBLE?
The program is available to two members of Executive Management. The composition of the Executive Management grouping shall be determined by the Executive Committee of the Board of Directors, with ratification by the entire Board of Directors. At this present date, the Executive Management group consists of William L. Young, President & C.E.O. of American River Bank and David T. Taber, President & C.E.O. of American River Holdings.
HOW DOES THE PLAN WORK?
The program is an incentive compensation program that shares rewards between shareholders and plan participants. Plan participants would not be rewarded with additional compensation unless the bank achieves a minimum level of performance. Under the program, no incentive compensation would be provided until the Bank achieved twelve percent (12%) net shareholder return on beginning equity for each year the program is in effect. The amounts shall be adjusted as net shareholders' return increases. For net shareholder return in excess of twelve percent (12%) of beginning equity, such excess would be divided as follows:
Net Shareholder Return 12% to 14%
Shareholders 80.50%
Executive Management 19.50%
Net Shareholder Return 14% to 16%
Shareholders 77.25%
Executive Management 22.75%
Net Shareholders Return 16% plus
Shareholders 74.00%
Executive Management 26.00%
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For purposes of calculating additional compensation, the following definitions apply:
BEGINNING EQUITY - shareholders equity from audited financial statements as of December 31st of the year prior to the performance year in question, adjusted for unrealized gain or loss on securities.
AMERICAN RIVER BANK
ICP - 7/96
EQUITY RETURN - determined by adding net addition to beginning equity, plus cash dividends, minus additional capital stock sold or converted. Joint venture income or loss will not be included in calculation of pre-incentive income. Income will be imputed on average funds invested in a project at a rate equal to the overall yield of earning assets for the period.
The calculation of additional compensation will be based upon audited financial statements as performed by the certified public accountants for the Bank.
ADDITIONAL CRITERIA
In addition to the Bank achieving net shareholder return of 12% on beginning equity for the incentive compensation program to become effective, the following additional criteria must be met for any additional compensation to be paid to plan participants:
LOAN QUALITY - Loan quality for the Bank must remain satisfactory, with loan delinquency on an average basis for the entire year to be less than 2.5% of average gross loans.
LOAN LOSSES - Loan losses for the Bank for the subject year shall not exceed 0.80% of beginning loans for that year.
NET INCOME - Net income before loan loss reserves and taxes as a percentage of average assets shall be in excess of 1.50%
REGULATORY EXAMINATIONS - The Bank shall receive a CAMEL rating from the Federal Deposit Insurance Corporation of a "1" or "2" for the condition of the entire Bank and the same, or better, rating from the State Banking Department.
PAYOUT
To assure the continued performance of the Bank, a portion of the payout shall be deferred. The payment of the additional compensation to plan participants is as follows:
o 60% payment within five days of receipt of audited financial statements.
o 40% payment within five days of receipt of audited financial statements for the following year.
The Bank shall accrue for the additional compensation on a monthly basis.
PAYOUT CONDITIONS
The payout for the deferred portions in the second year is subject to the following conditions:
o Attainment of twelve percent (12%) net shareholder return on beginning equity for the second year.
AMERICAN RIVER BANK
ICP - 7/96
o Maintenance of the additional criteria standards previously specified for each of the subsequent years.
Failure to achieve these criteria will return the deferred portions of the additional compensation to the Bank.
The payout of the deferred portion to individual plan participants in the Executive Management grouping is conditioned upon the continued employment with the Bank. If an individual plan participant in the Executive Management grouping is terminated for cause or resigns voluntarily from the Bank, such individual plan participant shall lose all interest in the deferred portion of the additional compensation.
If such individual plan participant in the Executive Management grouping is terminated without cause, such individual shall be entitled to the deferred portion of the additional compensation subject to attainment of the additional criteria and payout conditions previously described.
However, in the event of the sale of the Bank, or a merger where the Bank is not the surviving entity, the deferred portions shall be paid immediately upon the occurrence of such an event.
PARTICIPANTS' DISTRIBUTION
The distribution of the additional compensation within the Executive Management grouping is subject to review by the Board of Directors of the Bank. This distribution will be broken down as follows:
PERCENTAGE
William L. Young 50% David T. Taber 50% Total 100% |
This Incentive Compensation Plan has been approved by The Board of Directors at their regular Board Meeting on July 17, 1996.
Exhibit 10.16
AMERICAN RIVER BANK EMPLOYEE SEVERANCE POLICY
It is the policy of American River Bank (the "Bank"), which shall be binding upon any successor, to pay severance to certain Bank employees designated by resolu- tion of the Bank's Board of Directors, in the event of termination of such employee in connection with and either prior to or within one year following a "change in control" (as defined hereinafter) of the Bank. A "change in control" for purposes of this policy shall mean any merger, consolidation or reorganization of the Bank in which the Bank does not survive, or where the Bank survives as a subsidiary of an acquiring entity other than a bank holding company organized by or at the direction of the Bank.
Notwithstanding the foregoing, no severance shall be payable to an employee terminated "with cause" under applicable Bank personnel policies. Furthermore, no Bank employee shall have rights of employment conferred by this Policy and nothing contained in this Policy shall modify or amend (i) the "at will" relationship between such employee and the Bank, or (ii) any rights the Bank may have to terminate employees under applicable provisions of the Bank's personnel policies. The only right conferred by this Policy to any such employee is the right to receive severance payments in connection with a "change in control" and in accordance with the provisions of this Policy.
This Policy shall apply only to an employee who (i) is designated by resolution of the Board of Directors to be covered thereby, (ii) is provided a copy of the implementing resolutions and this Policy confirming such designation, and (iii) signs the acknowledge- ment block set forth below.
The effective date of application of the foregoing Policy to such an employee shall be the date of adoption of a resolution by the Board of Directors designating such an employee as covered thereby subject to delivery of the implementing resolutions and a copy of the Policy as stated above.
Dated: March 18, 1998
Acknowledgment:
The undersigned employee hereby acknowledges receipt of the foregoing Policy and a copy of resolutions referenced therein. The undersigned further acknowledges having read and understood the provisions of the Policy and in particular the "at will" employment disclosure stated therein.
Dated: _________________ ________________________________
A M E R I C A N R I V E R B A N K
E M P L O Y E E S T O C K P U R C H A S E P L A N
The Employee Stock Purchase Plan is designed to provide employees of American River Bank (Bank), who voluntarily elect to participate, a continued opportunity to purchase American River Holdings (Parent Company of American River Bank) (Company) stock through voluntary payroll deductions, thus making it easier for them to acquire such shares and relieving them of the details of normal stock transactions. The Bank believes that ownership of Company stock by employees will foster greater employee interest in the Company's success, growth and development and will be to the mutual benefit of both the employee and the Company
The Plan will be administered by "Administrator" who shall be appointed by the Bank. The Administrator shall maintain an account for each participant. The Administrator makes no solicitation of participants and is not responsible for enrollment. The Administrator is responsible only for the accounting of monies or stock. The Administrator assumes no responsibility or liability for the validity of these records.
The Bank will bear all costs of administering the Plan, including Broker's fees, commissions, postage and other costs actually incurred.
ELIGIBILITY
All employees of the Bank are eligible to participate in the Plan. The word "employee" includes officers, but not persons who are solely Directors. Employees may elect to participate in the Plan by signing a payroll deduction authorization form.
COMMENCEMENT OF DEDUCTIONS
Voluntary payroll deductions will start with the payroll date stated on the payroll deduction authorization form. If no date is stated then the deduction will start with the first pay period following receipt of the authorization.
TRANSFER OF FUNDS TO THE ADMINISTRATOR
A special Employee Stock Purchase Checking Account will be opened and maintained by the Administrator. The Bank will remit employee payroll deductions directly to this account.
STOCK PURCHASES
The Administrator will use the funds in the Employee Stock Purchase Account to purchase company stock. Transactions will be executed as often as practicable and full
shares only will be traded. Stock is purchased at fair market value as of date of purchase.
STOCK ALLOCATIONS
The Administrator shall allocate shares to each employees account based on deposits made to the account and prices paid for stock purchased by the Plan.
DIVIDENDS/INTEREST
The Administrator shall credit all interest and dividends (if any) paid to the Plan for shares in the name of "American River Bank Employee Stock Purchase Plan" directly into the Plan account. These monies deposited to the Plan account will be used to purchase stock, thereby reducing the average price per share to the employees.
REGISTRATION OF STOCK
The Administrator will maintain records, in writing, of the names, addresses and social security number in which the stocks are to be registered.
ISSUANCE OF STOCKS
The Administrator will issue shares to the participants twice per year. Once in July and again in January. There is a five share minimum. Twice a year, each participant will receive a form stating the number of shares issued, the average price paid per share, and the new account balance.
REPORTS TO PARTICIPANTS
The Administrator will report year-end the following information to each participant:
a. Beginning balance.
b. Total contributions/deposits.
c. Withdrawals made from the account.
d. Total shares issued to the participant from the account.
e. Ending balance of the account in shares.
f. Total dollar value of the account.
TERMINATING PARTICIPATION
A participant may direct the Bank, in writing, to cease payroll deductions at any time. The participant needs to advise the Administrator as to what he/she want done with the money/shares in this account. The participant has the right to keep the money/shares in his/her account and have a certificate issued (minimum 5 shares) for all or part. Any monies remaining in the account, after the certificate is issued, will be sent to the participant. The Plan may purchase shares back from participants at the current rate being quoted by the brokerage house trading the Company's stock. Any participant terminating participation from the plan must wait a minimum of six months before he/she is eligible to participate again.
Upon termination of employment for any reason whatsoever, including but not limited to death or retirement, the settlement of the account shall be made to the participant or his/her estate.
PLAN TERMINATION
In the event of termination of the Plan, the Administrator will send to the participant all monies and or shares in his/her account.
The Bank establishes this Plan with the bona fide intention that the Plan will continue as long as sufficient employees are interested in participating to justify its continuance. The Bank, however, is not and shall not be under any obligation or liability whatsoever to continue to maintain the Plan for any given length of time, and may in its sole and absolute discretion terminate the Plan at any time, without any liability for such termination. The Bank in reserving its rights to amend the Plan includes the right to change custodians or Administrators at its discretion and at any time.
TO: PAYROLL DEPARTMENT
RE: AUTHORIZATION TO MAKE PAYROLL DEDUCTIONS
In accordance with, and subject to, rules governing operation and distribution of the Employee Stock Purchase Plan, as set forth in the Plan document, receipt of which is acknowledged:
I hereby authorize the Payroll Department to deduct from my paycheck each payroll period, the sum of $____________($15.00 minimum). Payroll deductions shall begin with the pay period ending _____________.
I direct my deductions to the Administrator for the purpose of buying American River Holdings (Parent Company of American River Bank) Stock.
----------------------------- --------------------------
Signature Date
DESIGNATION OR CHANGE OF BENEFICIARY FOR THE PLAN COMMITTEE
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I hereby designate as my beneficiary to receive all proceeds under the Stock Purchase Plan in the event of my death. -
This designation supersedes all previous beneficiary designation.
------------------------------ -------------------------- Employee's Signature Date ------------------------------ Social Security Number |
STOCK TO BE REGISTERED AS FOLLOWS:
(PLEASE PRINT)
NOTE: If Stock is to be registered in more than one name, it must be as "Joint Tenants" or "Community Property". It must also be "John Doe AND Jane Doe, Joint Tenants," rather than "OR". This is a law, and for your protection.
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We hereby consent to the use in this Registration Statement on Form S-4 for American River Holdings of our report dated February 24, 2000, except for Note 18, as to which the date is March 1, 2000, relating to the financial statements of American River Holdings and Subsidiaries for the years ended December 31, 1999, 1998 and 1997, and to the reference to our Firm under the headings "Selected Historical and Pro Forma Financial Data" and "Experts" in the joint proxy statement/prospectus, which is part of this Registration Statement.
/s/ PERRY-SMITH LLP May 3, 2000 |
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We hereby consent to the use in this Registration Statement on Form S-4 for American River Holdings of our report dated February 17, 2000, except for Note 15, as to which the date is March 1, 2000, relating to the financial statements of North Coast Bank for the year ended December 31, 1999 and to the reference to our Firm under the headings "Selected Historical and Pro Forma Financial Data" and "Experts" in the joint proxy statement/prospectus, which is part of this Registration Statement.
/s/ PERRY-SMITH LLP May 3, 2000 |
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
We hereby consent to the use in this Registration Statement on Form S-4 for American River Holdings of our report dated February 19, 1999, relating to the financial statements of North Coast Bank, N.A. for the years ended December 31, 1998 and 1997, and to the reference to our Firm under the headings "Selected Historical and Pro Forma Financial Data" and "Experts" in the joint proxy statement/prospectus, which is part of this Registration Statement.
/s/ RICHARDSON & COMPANY May 3, 2000 |
EXHIBIT 23.5
CONSENT OF SEAPOWER CARPENTER CAPITAL, INC.,
dba CARPENTER AND COMPANY
We hereby consent to the inclusion in the Proxy Statement/Prospectus forming part of this Registration Statement on Form S-4 of American River Holdings of our opinion attached thereto and to the reference to such opinion and to our firm therein. We also confirm the accuracy in all material respects of the description and summary of such fairness opinion, the description and summary of our analyses, observations, beliefs and conclusions relating thereto set forth under the heading "Opinion of North Coast Bank, N.A.'s Financial Advisor" therein. In giving such consent, we do not admit (i) that we come within the category of persons whose consent is required under Section 7 of the Securities Act of 1933 and the rules and regulations of the Securities and Exchange Commission issued thereunder or (ii) that we are experts with respect to any part of the Proxy Statement/Prospectus within the meaning of the term "experts" as used in the Securities Act and the rules and regulations of the Securities and Exchange Commission promulgated thereunder.
/s/ Seapower Carpenter Capital, Inc., dba Carpenter and Company ____________________, 2000 |
EXHIBIT 23.6
CONSENT OF HOEFER & ARNETT INCORPORATED
We hereby consent to the inclusion of our opinion letter dated ____________, 2000, to the Board of Directors of American River Holdings as Annex C to the Joint Proxy Statement/Prospectus relating to the Agreement and Plan of Reorganization and Merger dated March 1, 2000 and the transactions contemplated thereby, among American River Holdings, ARH Interim National Bank and North Coast Bank, N.A. contained in the Registration Statement on Form S-4 as filed with the Securities and Exchange Commission and to the references to our firm and our opinion in the Joint Proxy Statement/Prospectus. In giving our consent, we do not admit that we come within the category of persons whose consent is required under Section 7 of the Securities Act of 1933, as amended, or the rules and regulations of the Securities and Exchange Commission thereunder, nor do we admit that we are experts with respect to any part of such Registration Statement within the meaning of the term "experts" as used in the Securities Act of 1933, as amended, or the rules and regulations of the Securities and Exchange Commission thereunder.
/s/ HOEFER & ARNETT INCORPORATED May 3, 2000 |
EXHIBIT 23.7
CONSENT OF PERRY-SMITH LLP
We consent to the reference to our firm and our tax opinion under the caption "Legal Matters" and elsewhere in the Registration Statement on Form S-4 as filed by American River Holdings with the Securities and Exchange Commission and to the filing of the form of our tax opinion as Exhibit 8.1 to the Registration Statement.
/s/ PERRY-SMITH LLP May 3, 2000 |
EXHIBIT 99.1
AMERICAN RIVER HOLDINGS
SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF SHAREHOLDERS
ON ______________, 2000
The undersigned holder of common stock acknowledges receipt of a copy of the notice of annual meeting of shareholders of American River Holdings and the accompanying joint proxy statement/prospectus dated ___________, 2000, and revoking any proxy heretofore given, hereby constitutes and appoints Mitchell A. Derenzo and David T. Taber, and each of them, with full power of substitution, as attorneys and proxies to appear and vote all of the shares of common stock of American River Holdings, a California corporation, outstanding in the name of the undersigned which the undersigned could vote if personally present and acting at the annual meeting of shareholders of American River Holdings, to be held at the administrative office of American River Bank at 1545 River Park Drive, Suite 107, Sacramento, California, on ______________, 2000, at ____:___ __.m. or at any postponements or adjournments thereof, upon the following items as set forth in the notice of meeting and joint proxy statement/prospectus and to vote according to their discretion on all matters which may be properly presented for action at the meeting or any postponements or adjournments thereof.
PLEASE NOTE THAT PROPOSAL 1 AND 2 MUST BOTH BE APPROVED TO PERMIT CONSUMMATION OF THE MERGER, SUBJECT TO SATISFACTION OF CONDITIONS TO THE MERGER, AS DESCRIBED IN THE JOINT PROXY STATEMENT/PROSPECTUS.
UNLESS OTHERWISE SPECIFIED, THIS PROXY WILL BE VOTED "FOR" THE
FOLLOWING ITEMS:
1. To consider and vote on a proposal to approve the Agreement and Plan of Reorganization and Merger, dated as of March 1, 2000, among American River Holdings, North Coast Bank, N.A. and ARH Interim National Bank, the Agreement of Merger attached as exhibit A to the Agreement and Plan of Reorganization and Merger, and the transactions contemplated thereby, including the merger of North Coast Bank, N.A. into ARH Interim National Bank.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. To approve the American River Holdings 2000 Stock Option Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. To approve amendments to the American River Holdings articles of incorporation and bylaws to provide for the classification of the board of directors.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. To approve amendments to the American River Holdings articles of incorporation and bylaws to eliminate cumulative voting in the election of directors.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. To elect as directors of American River Holdings management's nominees set forth below who will be elected (a) to the class designated in the accompanying joint proxy statement/prospectus dated ____________, 2000 provided that Proposal No. 3 above is approved and (b) in the event Proposal No. 3 is not approved, as directors without classification:
[ ] FOR all nominees listed below (except [ ] WITHHOLD AUTHORITY to vote as marked to the contrary below): for all nominees listed below
INSTRUCTION: To withhold authority to vote for any individual nominee, strike a line through the nominee's name in the list below:
James O. Burpo Wayne C. Matthews, M.D. Roger J. Taylor, D.D.S. Charles D. Fite David T. Taber Stephen H. Waks Sam J. Gallina Marjorie G. Taylor William L. Young |
6. To ratify the appointment of Perry-Smith LLP as independent accountants for the year 2000.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
7. In their discretion, to transact such other business as may properly come before the annual meeting or any postponements or adjournments of the annual meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSALS 1, 2, 3, 4, 5 AND 6 SET FORTH ABOVE. THE PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED. IF NO DIRECTION IS MADE, IT WILL BE VOTED "FOR" PROPOSALS 1, 2, 3, 4, 5 AND 6 SET FORTH ABOVE.
No. of Common Shares ______
SHAREHOLDER(S)
Date:_________________, 2000 Please date and sign exactly as your
name(s) appears. When signing as
attorney, executor, administrator,
trustee, or guardian, please give
full title. If more than one trustee,
all should sign. All joint owners
should sign. WHETHER OR NOT YOU PLAN
TO ATTEND THIS MEETING, PLEASE EITHER
DATE, SIGN AND RETURN THIS PROXY AS
PROMPTLY AS POSSIBLE IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
I/we do [ ] or do not [ ] expect
to attend this meeting.
|
THIS PROXY IS SOLICITED BY, AND ON BEHALF OF, THE
BOARD OF DIRECTORS AND MAY BE REVOKED PRIOR TO ITS EXERCISE.
EXHIBIT 99.2
NORTH COAST BANK, NATIONAL ASSOCIATION
SOLICITED BY THE BOARD OF DIRECTORS
FOR THE SPECIAL MEETING OF SHAREHOLDERS
ON _______________, 2000
The undersigned holder of common stock acknowledges receipt of a copy of the notice of special meeting of shareholders of North Coast Bank, N.A. and the accompanying joint proxy statement/prospectus dated ______________, 2000 and revoking any proxy heretofore given, hereby constitutes and appoints Herbert C. Steiner and Leo J. Becnel, and each of them, with full power of substitution, as attorneys and proxies to appear and vote all of the shares of common stock of North Coast Bank, N.A., a national banking association, outstanding in the name of the undersigned which the undersigned could vote if personally present and acting at the special meeting of shareholders of North Coast Bank, N.A., to be held at the administrative office of the Bank, located at 50 Santa Rosa Avenue, Santa Rosa, California, on ________________, 2000, at ___:___ __.m. or at any postponements or adjournments thereof, upon the following items as set forth in the notice of meeting and joint proxy statement/prospectus and to vote according to their discretion on all matters which may be properly presented for action at the meeting or any postponements or adjournments thereof.
UNLESS OTHERWISE SPECIFIED, THIS PROXY WILL BE VOTED "FOR" THE
FOLLOWING ITEMS:
1. To consider and vote on a proposal to approve the Agreement and Plan of Reorganization and Merger, dated as of March 1, 2000, among American River Holdings, North Coast Bank, N.A. and ARH Interim National Bank, the Agreement of Merger attached as exhibit A to the Agreement and Plan of Reorganization and Merger, and the transactions contemplated thereby, including the merger of North Coast Bank, N.A. into ARH Interim National Bank.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. In their discretion, to transact such other business as may properly come before the annual meeting or any postponements or adjournments of the annual meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSAL 1 SET FORTH ABOVE. THE PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED. IF NO DIRECTION IS MADE, IT WILL BE VOTED "FOR" PROPOSAL 1 SET FORTH ABOVE.
No. of Common Shares ______
SHAREHOLDER(S)
Date: _________________, 2000
Please date and sign exactly as your name(s) appears. When signing as attorney, executor, administrator, trustee, or guardian, please give full title.
If more than one trustee, all
should sign. All joint owners
should sign. WHETHER OR NOT YOU
PLAN TO ATTEND THIS MEETING, PLEASE
EITHER DATE, SIGN AND RETURN THIS
PROXY AS PROMPTLY AS POSSIBLE IN
THE ENCLOSED POSTAGE-PAID ENVELOPE.
I/we do [ ] or do not [ ]expect
to attend this meeting.
THISPROXY IS SOLICITED BY, AND ON BEHALF OF, THE
BOARD OF DIRECTORS AND MAY BE REVOKED PRIOR TO ITS EXERCISE.
North Coast Bank
President & Chief Executive Officer
Employment Agreement
This agreement made and entered into this SIXTEENTH day of DECEMBER, 1999, between North Coast Bank, Santa Rosa, California ("the Bank") and Kathy A. Pinkard, ("Employee");
WHEREAS, the Bank is a national bank, regulated by the Office of the Comptroller of the Currency, insured by the Federal Deposit Insurance Corporation, and located in Santa Rosa, California; and
WHEREAS, the Bank wants to employ the Employee as President and Chief Executive Officer of the Bank; and
WHEREAS, the parties desire to enter into this agreement setting forth the terms and conditions of the employment relationship of the Bank and the Employee;
NOW, THEREFORE, it is agreed as follows:
A. ESTABLISH RELATIONSHIP AND DUTIES
1. The Bank hereby will employ Employee as President and Chief Executive Officer, to hold the title of President and Chief Executive Officer, and to perform such services and duties as the Board of Directors may, from time to time, designate during the term hereof. Subject to the terms and conditions hereof, Employee will perform such duties and exercise such authority as are customarily performed and exercised by persons holding such office, subject to the general direction of the Board of Directors of the Bank, exercised in good faith in accordance with standards of reasonable business judgment and safety and soundness within the confines of the law.
2. Employee shall serve on the Board of Directors of the Bank subject to the terms hereof.
3. Employee accepts such employment and shall devote her full time, attention, and efforts to the due diligent performance of her duties herein specified and as an officer and director of the Bank and will not accept employment with any other individual, corporation, partnership, governmental authority, or any other entity, or engage in any other venture for profit which the Bank may consider to be in conflict with her or its best interest or to be in competition with the Bank's business, or which may interfere in any way with Employee's performance of her duties hereunder. Any exception to this must be made by written notification and approval of the Board.
B. TERMS OF EMPLOYMENT
1. The initial term of employment under this Agreement shall continue for three (3) years unless such agreement is terminated pursuant to the terms hereof or by the first to occur of the conditions to be stated hereinafter. This Agreement will be automatically extended each year after the initial term unless either party gives contrary written notice to the other 90 days prior to the renewal anniversary date. The terms previously stated notwithstanding, this contract will be terminated by the occurrence of any of the following:
a. The death of Employee;
b. The complete disability of Employee. "Complete disability" as used herein shall mean the inability of Employee, due to illness, accident, or other physical or mental incapacity to perform the services provided for hereunder for an aggregate of sixty days within any period of 120 consecutive days during the term hereof, provided, however that said disability shall not constitute a basis for discharge for cause;
c. The discharge of Employee by the Bank for cause. "Cause" as used herein shall mean:
1. such negligence or misconduct as shall constitute, as a matter of law, a breach of the covenants and obligations of Employee hereunder;
2. failure or refusal of Employee to comply with the provisions of this agreement;
3. employee being convicted by any duly constituted court with competent jurisdiction of a crime involving moral turpitude;
4. at the discretion of the Board, this contract may be terminated if there are acts the Board feels are moral turpitude;
5. at the discretion of the Board for failure to perform at acceptable levels of deposit growth or asset growth and other performance standards including safety and soundness measures as determined by the Board.
Termination of employment shall constitute a tender by Employee of her resignation as an officer and director of the Bank. In the event of termination, the Employee is entitled to severance pay equal to one month's pay for each year employed by the Bank up to six month's salary.
C. COMPENSATION
1. For all services which Employee may render to the Bank during the term hereof, the Bank shall pay to Employee, subject to such deductions as may be required by law:
a. BASE SALARY - An annual salary of $104,500 payable in equal bimonthly installments and subject to such deductions as may be required by law, for the first 12 months. Thereafter, annual performance reviews will be completed during the month of December each year, for a January 1 effective date during the term of this Agreement. With the performance evaluation, the Board will determine the annual salary to be effective January 1 of each year during the term of the Agreement. The Board has sole discretion as to the amount of the CEO's compensation.
b. PERFORMANCE BONUS - Each year, a performance bonus, ranging from 0% to 50% of CEO's annual base salary will be awarded, based upon mutually agreed upon goals. The Board has sole discretion as to the goals of the bonus program.
D. OTHER BENEFITS
1. The Employee shall be entitled to participate in any plan of the Bank relating to stock options, stock purchases, profit sharing, thrift, group life insurance, medical coverage, education, or other bonus, retirement or employee benefits that the Bank may adopt for the benefit of its employees.
2. Employee shall be entitled to an annual vacation of four (4) weeks per year. The Employee shall schedule timing of vacations in a reasonable manner.
3. Employee shall be eligible to participate in any other benefits, which may be or become applicable to the Bank's executive officers. Employee shall be reimbursed for mileage associated with the business of the Bank at the then current reimbursable rate allowed by the IRS. Employer agrees the payment of reasonable expenses for attending annual and periodic meetings of trade associations, and any other benefits, which are commensurate with the responsibilities and functions to be performed by the Employee under this Agreement.
E. CHANGE OF CONTROL
1. If during the term of the Agreement there is a change of control (COC) of the Bank, the Employee shall be entitled to termination or severance pay in the event employment is terminated, except for just cause as defined in Section B, paragraph c, after the change in control. In the event the Employee is terminated as a result of the COC, the Employee shall be entitled to receive her salary through the last day of the calendar month of the termination, or payment in lieu of the notice period. In addition, the terminated Employee shall receive an amount equal to 2 (two) times her then existing annual base salary. This payment shall also be made in connection with, or within 3 years after, a change in control of the Bank results in termination of employment of Employee. This payment shall be in addition to any amount otherwise owed to the Employee pursuant to this Agreement. This Agreement will be automatically extended each year after the initial term unless either party gives contrary written notice to the other 90 days prior to the renewal anniversary date.
The term "control" shall refer to the acquisition of 25 percent or more of the voting securities of the Bank by any person, or persons acting as a group within the meaning of Section 13(d) of the Securities Exchange Act of 1934, or to such acquisition of a percentage between 10 percent and 25 percent if the Board of Directors of the Bank or the Comptroller of the Currency, the FDIC, or the Federal Reserve Bank have made a determination that such acquisition constitutes or will constitute control of the Bank. The term "person" refers to an individual, corporation, bank, bank holding company, or other entity.
2. The following items are automatically considered due and payable in the event that a change of control occurs:
a. Non-forfeitable deferred compensation shall be paid out in full.
b. All earned compensation relative to the terms and conditions of a bonus program in place at the time of the COC shall be considered due and payable.
c. In the event that the Employee is a participant in a restricted stock plan, or share option plan, and such plan is terminated involuntarily as a result of the COC, all stock and options shall be declared 100% vested, and distributed.
F. POST TERMINATION COVENANTS
1. If during the term hereof Employee shall cease employment hereunder for any reason other than a change of control, employee agrees that she will not, without prior written consent of the Bank:
a. furnish anyone with the name of, or any list or lists of, customers of the Bank or utilize such list or information himself for banking purposes; or
b. furnish, use or divulge to anyone any information acquired by him from the Bank relating to the Bank's methods of doing business.
2. It is understood and agreed by the parties hereto that the provisions of this section are independent of each other, and the invalidity of any such provision or portion thereof shall not affect the validity or enforceability of any other provisions of this agreement.
G. WAIVER OF PROVISIONS
Failure of any of the parties to insist, in one or more instances, on performance by the others in strict accordance with the terms and conditions of this agreement shall not be deemed a waiver or relinquishment of any right granted hereunder of the future performance of any such term or condition or of any other term or condition of this agreement, unless such waiver is contained in writing signed by or on behalf of all parties.
H. GOVERNING LAW
This agreement shall be governed by and construed and enforced in accordance with the laws of the State of California. If for any reason any provision of this agreement shall be held by a court of competent jurisdiction to be void or unenforceable, the same shall not affect the remaining provisions thereof.
I. MODIFICATION AND AMENDMENT
This agreement contains the sole and entire agreement among the parties hereto and supersedes all prior discussions and agreements among the parties, and any such prior agreements shall, from and after the date hereof, be null and void. This agreement shall not be modified or amended except by an instrument in writing signed by or on behalf of the parties hereto.
J. NON-ASSIGNABLE CONTRACT
This agreement may not be assigned or transferred by any party hereto, in whole or in part, without the prior written consent of the other.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the year and date shown below.
Employee:
-------------------------------- -------------------- Kathy Pinkard, President & CEO Date North Coast Bank ----------------------------------- -------------------- M. Edgar Deas, Chairman of the Board Date North Coast Bank |
North Coast Bank President & Chief Executive Officer Employment Agreement Addendum
This is an addendum to the Employment Agreement made and entered into on the SIXTEENTH day of DECEMBER, 1999, between North Coast Bank, Santa Rosa, California ("the Bank") and Kathy A. Pinkard, ("Employee") as follows:
If all or any portion of the amounts payable to Employee pursuant to
paragraph E - Change of Control alone or together with other payments which
Employee has the right to receive from Employer, constitute "excess parachute
payments" within the meaning of Section 280G of the Internal Revenue Code of
1986, as amended (the "Code"), that are subject to the excise tax imposed by
Section 4999 of the Code (or similar tax and/or assessment), such amounts
payable hereunder shall be reduced to the extent necessary, after first applying
any similar reduction in payment to be received from any other plan or program
sponsored by Employer from which Employee has a right to receive payment subject
to Sections 280G and 4999 of the Code, including without limitation any Salary
Continuation Agreement made between Employer and Employee, so as to cause a
reduction of any excise tax pursuant to Section 4999 of the Code to equal
"zero".
Employee:
------------------------------------ -------------------- Kathy Pinkard, President & CEO Date North Coast Bank ------------------------------------ -------------------- M. Edgar Deas, Chairman of the Board Date North Coast Bank |
North Coast Bank Senior Vice President & Chief Financial Officer Change of Control Employment Agreement
This agreement made and entered into this SIXTEENTH day of DECEMBER, 1999, between North Coast Bank, Santa Rosa, California ("the Bank") and Debbie Fakalata, ("Employee");
WHEREAS, the Bank is a national bank, regulated by the Office of the Comptroller of the Currency, insured by the Federal Deposit Insurance Corporation, and located in Santa Rosa, California; and
WHEREAS, the Bank wants to employ the Employee as Senior Vice President and Chief Financial Officer of the Bank; and
WHEREAS, the parties desire to enter into this agreement setting forth the terms and conditions of the employment relationship of the Bank and the Employee;
NOW, THEREFORE, it is agreed as follows:
A. TERMS OF AGREEMENT
1. The initial term of this Agreement shall continue for three (3) years unless such agreement is terminated pursuant to the terms hereof or by the first to occur of the conditions to be stated hereinafter. This Agreement will be automatically extended each year after the initial term unless either party gives contrary written notice to the other 90 days prior to the renewal anniversary date. The terms previously stated notwithstanding, this contract will be terminated by the occurrence of any of the following:
a. The death of Employee;
b. The complete disability of Employee. "Complete disability" as used herein shall mean the inability of Employee, due to illness, accident, or other physical or mental incapacity to perform the services provided for hereunder for an aggregate of sixty days within any period of 120 consecutive days during the term hereof, provided, however that said disability shall not constitute a basis for discharge for cause;
c. The discharge of Employee by the Bank for cause. "Cause" as used herein shall mean:
1. such negligence or misconduct as shall constitute, as a matter of law, a breach of the covenants and obligations of Employee hereunder;
2. failure or refusal of Employee to comply with the provisions of this agreement;
3. employee being convicted by any duly constituted court with competent jurisdiction of a crime involving moral turpitude;
4. at the discretion of the Board, this contract may be terminated if there are acts the Board feels are moral turpitude;
5. at the discretion of the Board for failure to perform at acceptable levels of deposit growth or asset growth and other performance standards including safety and soundness measures as determined by the Board.
Termination of employment shall constitute a tender by Employee of her resignation as an officer of the Bank. In the event of termination, the Employee is entitled to severance pay equal to one month's pay for each year employed by the Bank up to six month's salary.
B. CHANGE OF CONTROL
1. If during the term of the Agreement there is a change of control (COC) of the Bank, the Employee shall be entitled to termination or severance pay in the event employment is terminated, except for just cause as defined in Section B, paragraph c, after the change in control. In the event the Employee is terminated as a result of the COC, the Employee shall be entitled to receive her salary through the last day of the calendar month of the termination, or payment in lieu of the notice period. In addition, the terminated Employee shall receive an amount equal to 1 (one) times her then existing annual base salary. This payment shall also be made in connection with, or within 180 days after, a change in control of the Bank results in termination of employment of Employee. This payment shall be in addition to any amount otherwise owed to the Employee pursuant to this Agreement.
The term "control" shall refer to the acquisition of 25 percent or more of the voting securities of the Bank by any person, or persons acting as a group within the meaning of Section 13(d) of the Securities Exchange Act of 1934, or to such acquisition of a percentage between 10 percent and 25 percent if the Board of Directors of the Bank or the Comptroller of the Currency, the FDIC, or the Federal Reserve Bank have made a determination that such acquisition constitutes or will constitute control of the Bank. The term "person" refers to an individual, corporation, bank, bank holding company, or other entity.
2. The following items are automatically considered due and payable in the event that a change of control occurs:
a. Non-forfeitable deferred compensation shall be paid out in full.
b. All earned compensation relative to the terms and conditions of a bonus program in place at the time of the COC shall be considered due and payable.
c. In the event that the Employee is a participant in a restricted stock plan, or share option plan, and such plan is terminated involuntarily as a result of the COC, all stock and options shall be declared 100% vested, and distributed.
C. WAIVER OF PROVISIONS
Failure of any of the parties to insist, in one or more instances, on performance by the others in strict accordance with the terms and conditions of this agreement shall not be deemed a waiver or relinquishment of any right granted hereunder of the future performance of any such term or condition or of any other term or condition of this agreement, unless such waiver is contained in writing signed by or on behalf of all parties.
D. GOVERNING LAW
This agreement shall be governed by and construed and enforced in accordance with the laws of the State of California. If for any reason any provision of this agreement shall be held by a court of competent jurisdiction to be void or unenforceable, the same shall not affect the remaining provisions thereof.
E. MODIFICATION AND AMENDMENT
This agreement contains the sole and entire agreement among the parties hereto and supersedes all prior discussions and agreements among the parties, and any such prior agreements shall, from and after the date hereof, be null and void. This agreement shall not be modified or amended except by an instrument in writing signed by or on behalf of the parties hereto.
F. NON-ASSIGNABLE CONTRACT
This agreement may not be assigned or transferred by any party hereto, in whole or in part, without the prior written consent of the other.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the year and date shown below.
Employee:
-------------------------------------------- -------------------- Debbie Fakalata, Senior Vice President & CFO Date North Coast Bank |
North Coast Bank Senior Vice President & Chief Credit Officer Change of Control Employment Agreement
This agreement made and entered into this SIXTEENTH day of DECEMBER, 1999, between North Coast Bank, Santa Rosa, California ("the Bank") and David Wattell, ("Employee");
WHEREAS, the Bank is a national bank, regulated by the Office of the Comptroller of the Currency, insured by the Federal Deposit Insurance Corporation, and located in Santa Rosa, California; and
WHEREAS, the Bank wants to employ the Employee as Senior Vice President and Chief Credit Officer of the Bank; and
WHEREAS, the parties desire to enter into this agreement setting forth the terms and conditions of the employment relationship of the Bank and the Employee;
NOW, THEREFORE, it is agreed as follows:
A. TERMS OF AGREEMENT
1. The initial term of this Agreement shall continue for three (3) years unless such agreement is terminated pursuant to the terms hereof or by the first to occur of the conditions to be stated hereinafter. This Agreement will be automatically extended each year after the initial term unless either party gives contrary written notice to the other 90 days prior to the renewal anniversary date. The terms previously stated notwithstanding, this contract will be terminated by the occurrence of any of the following:
a. The death of Employee;
b. The complete disability of Employee. "Complete disability" as used herein shall mean the inability of Employee, due to illness, accident, or other physical or mental incapacity to perform the services provided for hereunder for an aggregate of sixty days within any period of 120 consecutive days during the term hereof, provided, however that said disability shall not constitute a basis for discharge for cause;
c. The discharge of Employee by the Bank for cause. "Cause" as used herein shall mean:
1. such negligence or misconduct as shall constitute, as
a matter of law, a breach of the covenants and
obligations of Employee hereunder;
2. failure or refusal of Employee to comply with the
provisions of this agreement;
3. employee being convicted by any duly constituted
court with competent jurisdiction of a crime
involving moral turpitude;
4. at the discretion of the Board, this contract may be
terminated if there are acts the Board feels are
moral turpitude;
5. at the discretion of the Board for failure to perform
at acceptable levels of deposit growth or asset
growth and other performance standards including
safety and soundness measures as determined by the
Board.
Termination of employment shall constitute a tender by Employee of her resignation as an officer of the Bank. In the event of termination, the Employee is entitled to severance pay equal to one month's pay for each year employed by the Bank up to six month's salary.
B. CHANGE OF CONTROL
1. If during the term of the Agreement there is a change of control (COC) of the Bank, the Employee shall be entitled to termination or severance pay in the event employment is terminated, except for just cause as defined in Section B, paragraph c, after the change in control. In the event the Employee is terminated as a result of the COC, the Employee shall be entitled to receive her salary through the last day of the calendar month of the termination, or payment in lieu of the notice period. In addition, the terminated Employee shall receive an amount equal to 1 (one) times her then existing annual base salary. This payment shall also be made in connection with, or within 180 days after, a change in control of the Bank results in termination of employment of Employee. This payment shall be in addition to any amount otherwise owed to the Employee pursuant to this Agreement.
The term "control" shall refer to the acquisition of 25 percent or more of the voting securities of the Bank by any person, or persons acting as a group within the meaning of Section 13(d) of the Securities Exchange Act of 1934, or to such acquisition of a percentage between 10 percent and 25 percent if the Board of Directors of the Bank or the Comptroller of the Currency, the FDIC, or the Federal Reserve Bank have made a determination that such acquisition constitutes or will constitute control of the Bank. The term "person" refers to an individual, corporation, bank, bank holding company, or other entity.
2. The following items are automatically considered due and payable in the event that a change of control occurs:
a. Non-forfeitable deferred compensation shall be paid out in full.
b. All earned compensation relative to the terms and conditions of a bonus program in place at the time of the COC shall be considered due and payable.
c. In the event that the Employee is a participant in a restricted stock plan, or share option plan, and such plan is terminated involuntarily as a result of the COC, all stock and options shall be declared 100% vested, and distributed.
C. WAIVER OF PROVISIONS
Failure of any of the parties to insist, in one or more instances, on performance by the others in strict accordance with the terms and conditions of this agreement shall not be deemed a waiver or relinquishment of any right granted hereunder of the future performance of any such term or condition or of any other term or condition of this agreement, unless such waiver is contained in writing signed by or on behalf of all parties.
D. GOVERNING LAW
This agreement shall be governed by and construed and enforced in accordance with the laws of the State of California. If for any reason any provision of this agreement shall be held by a court of competent jurisdiction to be void or unenforceable, the same shall not affect the remaining provisions thereof.
E. MODIFICATION AND AMENDMENT
This agreement contains the sole and entire agreement among the parties hereto and supersedes all prior discussions and agreements among the parties, and any such prior agreements shall, from and after the date hereof, be null and void. This agreement shall not be modified or amended except by an instrument in writing signed by or on behalf of the parties hereto.
F. NON-ASSIGNABLE CONTRACT
This agreement may not be assigned or transferred by any party hereto, in whole or in part, without the prior written consent of the other.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the year and date shown below.
Employee: ------------------------------------------ ----------------- David Wattell, Senior Vice President & CCO Date North Coast Bank ------------------------------------------ ----------------- M. Edgar Deas, Chairman of the Board Date North Coast Bank |
LEASE
PARTIES
THIS LEASE, executed in duplicate at Windsor, California this 30 day of April, 1992, by and between TROWBRIDGE AND WRIGHT, INC. and WINDSOR OAKS NATIONAL BANK hereinafter called respectively Lessor and Lessee, without regard to number or gender,
USE AND PREMISES
WITNESSETH: That Lessor hereby leases to Lessee, and Lessee hires from Lessor, for the purpose of conducting therein banking or other office uses, and for no other purpose, those certain premises with the appurtenances, situated in WINDSOR, State of California, and more particularly described as follows, to wit:
8733 Lakewood Drive, Suite A (downstairs) to Suite E (upstairs) Windsor, CA 95492 approx. 4480 sq. ft. (HAND NOTE: not incl. conf. rm. or closet)
TERM
The initial term shall be for 120 Months, commencing on the 1st day of February, 1993, and ending on the 1st day of February, 2003.
RENTAL
Lessee agrees to pay Lessor, without deduction or offset, at such place or places as may be designated from time to time by Lessor, monthly installments of $6,201.04 (includes load factors set forth in Exhibit "A" attached hereto) plus its pro rata share of common area expenses INFRA in dollars, lawful money of the United States of America.
Fixed minimum rental during the primary term of lease shall be $1.20 per square foot of leased space plus a proportionate share of the common area expenses as follows: taxes, insurance, maintenance, (NOTE: does not include capital improvements such as reroofing, paving or structural repairs) utilities, cleaning, landscaping and garbage; based on the square footage of the space actually occupied by Lessee.
SECURITY DEPOSIT
Lessee has deposited with Lessor $6,201.04 as security for the full and faithful performance of each and every term, provision, covenant and condition of this lease. In the event Lessee defaults in respect of any of the terms, provisions, covenants or conditions of this lease, including, but not limited to the payment of rent, Lessor may use, apply or retain the whole or any part of such security for the payment of any rent in default or for any other sum which Lessor may spend or be required to spend by reason of Lessee's default. Should Lessee faithfully and fully comply with all of the terms, provisions, covenants and conditions of this lease, the security or any balance thereof shall be returned to Lessee or, at the option of Lessor, to the last assignee of Lessee's interest in this lease at the expiration of the term hereof. Lessee shall be entitled to 5% interest on said security deposit.
It is further mutually agreed between the parties as follows:
POSSESSION
1. See addendum.
ACCEPTANCE OF PREMISES AND COVENANT TO SURRENDER
2. By entry hereunder, the Lessee accepts the premises as being in good and sanitary order, condition and repair, and accepts the building and other improvements in their present condition. Any exceptions to the foregoing must be submitted to the Lessor in written form, signed and dated by the Lessee, and approved by the Lessor, prior to, or concurrently with, the execution of this Lease provided there are no changes or alterations other than agreed upon tenant improvements prior to occupancy by the Lessee. The Lessee agrees on the last day of the term hereof, or on sooner termination of this lease, to surrender the premises, together with all alterations, additions, and improvements which may have been made in, or on the premises by Lessor or Lessee, unto Lessor in good and sanitary order, condition and repair, excepting for such wear and tear as would be normal for the period of the Lessee's occupancy. The Lessee, on or before the end of the term or sooner termination of this Lease, shall remove all of his or its personal property and trade fixtures from the premises and all property not so removed shall be deemed to be abandoned by the Lessee. If the premises be not surrendered at the end of the term or sooner termination of this lease, the Lessee shall indemnify the Lessor against loss or liability resulting from delay by the Lessee in so surrendering the premises including, without limitation, any claims made by any succeeding tenant founded on such delay.
USES PROHIBITED
3. Lessee shall not commit, or suffer to be committed, any waste upon the said premises, or any nuisance, or other act or thing which may disturb the quiet enjoyment of any other tenant in or around the
buildings in which the demised premises may be located, or allow any sale by auction upon the premises, or allow the premises to be used for any improper, immoral, unlawful or objectionable purpose, or place any loads upon the floor, walls, or ceiling which endanger the structure, or place any harmful liquids in the drainage system of the building. No waste materials or refuse shall be dumped upon or permitted to remain upon any part of the leased premises outside of the building proper. No materials, supplies, equipment, finished products or semi-finished products, raw materials or articles of any nature shall be stored upon or permitted to remain on any portion of the leased premises outside of the buildings proper.
ALTERATIONS AND ADDITIONS
4. The Lessee shall not make, or suffer to be made, any alterations or additions to the said premises, or any part thereof, without the written consent of the Lessor first had and obtained by the Lessee; any addition or alteration to the said premises, except movable furniture, the vault, and trade fixtures, shall become at once a part of the realty and belong to the Lessor. Alterations and additions which are not to be deemed as trade fixtures shall include heating, lighting, electrical systems, air-conditioning, partitioning, carpeting, or any other installation which has become an integral part of the leased premises. The lessee will at all times permit notices of non-responsibility to be posted and to remain posted until the completion of alterations or additions which have been approved by the Lessor. Lessor and Lessee may agree in advance to allow Lessee to remove certain tenant improvements.
MAINTENANCE OF PREMISES
5. Lessor shall, at his sole cost, keep and maintain said premises and
appurtenances and every part thereof, including, but not limited to, glazing,
sidewalks, parking areas, plumbing, electrical systems, heating and air
conditioning installations, any store front, and the interior of the premises in
good and sanitary order, condition, and repair. The Lessee hereby waives all
right to make repairs at the expense of Lessor as provided in Section 1942 of
the Civil Code of the State of California, and all rights provided for by
Section 1941 of said Civil Code.
FIRE AND EXTENDED COVERAGE INSURANCE AND SUBROGATION
6. Lessee shall not use, or permit said premises, or any part thereof, to be used, for any purpose other than that for which the said premises are hereby leased; and no use shall be made or permitted to be made of the said premises, nor acts done, which will cause a cancellation of any insurance policy covering said building, or any part thereof, nor shall Lessee sell or permit to be kept, used or sold, in or about said premises, any article which may be prohibited by the standard form of fire insurance policies. Lessee shall, at his sole cost and expense, comply with any and all requirements, pertaining to said premises, of any insurance organization or company, necessary for the maintenance of reasonable fire and public liability insurance, covering said building and appurtenances. The Lessor agrees to purchase and keep in force fire, earthquake and extended coverage insurance covering the leased premises in amounts not to exceed the actual insurable value of said premises as determined by insurance company appraisers. The Lessee agrees to pay to the Lessor as additional rent, on demand the full cost of said insurance as evidenced by insurance billings to the Lessor. If said insurance billings cover the entire building, and this lease does not cover the entire building, the insurance premiums allocated to the leased premises shall be pro-rated on a square footage or other equitable basis, as calculated by Lessor. It is understood and agreed that Lessee's obligation under this paragraph will be pro-rated to reflect the commencement and termination dates of this lease. Lessor and Lessee each hereby waives its rights of subrogation on any loss or damage, caused by the negligence of the other, to the herein demised premises or its contents to the extent said loss or damage is covered by valid Fire, Extended Coverage, Vandalism or Malicious Mischief Insurance, provided such waiver shall not offset the right of the insured to recover thereunder.
ABANDONMENT
7. Lessee shall not vacate or abandon the premises at any time during the term; and if Lessee shall abandon, vacate or surrender said premises, or be dispossessed by process of law, or otherwise, any personal property belonging to Lessee and left on the premises shall be deemed to be abandoned, at the option of Lessor, except such property as may be mortgaged to Lessor.
FREE FROM LIENS
8. Lessee shall keep the demised premises and the property in which the demised premises are situated, free from any liens arising out of any work performed, materials furnished, or obligations incurred by Lessee.
CQMPLIANCE WITH GOVERNMENTAL REGULATIONS
9. Lessee shall, at his sole cost and expense, comply with all of the requirements of all Municipal, State and Federal authorities now in force, or which may hereafter be in force, pertaining to the said premises, and shall faithfully observe in the use of the premises all Municipal ordinances and State and Federal statutes now in force or which may hereafter be in force.
INDEMNIFICATION OF LESSOR AND LESSEE'S LIABILITY INSURANCE.
10. See addendum.
ADVERTISEMENTS AND SIGNS.
11. See addendum.
UTILITIES
12. See common area expenses under "rental" SUPRA.
ATTORNEY'S FEES
13. In case suit should be brought for the possession of the premises, for the recovery of any sum due hereunder, or because of the breach of any other covenant herein, the losing party shall pay to the prevailing party a reasonable attorney's fee, which shall be deemed to have accrued on the commencement of such action and shall be enforceable whether or not such action is prosecuted to judgment.
INSOLVENCY OR BANKRUPTCY
14. Either (a) the appointment of a receiver to take possession of all or
substantially all of the assets of Lessee, or (b) a general assignment by Lessee
for the benefit of creditors, or (c) any action taken or suffered by Lessee
under any insolvency or bankruptcy act shall constitute a breach of this lease
by Lessee. Upon the happening of any such event this lease shall terminate ten
(10) days after written notice of termination from Lessor to Lessee.
DEFAULT
15. In the event of any breach of this lease by the Lessee, which is not
cured within thirty (30) days of notification in writing by Lessor, or an
abandonment of the premises by the Lessee, the Lessor has the option of 1)
removing all persons and property from the premises and repossessing the
premises in which case any of the Lessee's property which the Lessor removes
from the premises may be stored in a public warehouse or elsewhere at the cost
of, and for the account of Lessee, or 2) allowing the Lessee to remain in full
possession and control of the premises. If the Lessor chooses to repossess the
premises, the lease will automatically terminate in accordance with provisions
of the California Civil Code, section 1951.2. In the event of such termination
of the lease, the Lessor may recover from the Lessee: 1) the worth at the time
of award of the unpaid rent which had been earned at the time of termination
including interest at 10% per annum; 2) 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 the Lessee
proves could have been reasonably avoided including interest at 10% per annum;
3) 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 the Lessee proves could be reasonably avoided; and 4) any other amount
necessary to compensate the Lessor for all the detriment proximately caused by
the Lessee's failure to perform his obligations under the lease or which in the
ordinary course of things would be likely to result therefrom. If the Lessor
chooses not to repossess the premises, but allows the Lessee to remain in full
possession and control of the premises, then in accordance with provisions of
the California Civil Code, section 1951.4, the Lessor may treat the lease as
being in full force and effect, and may collect from the Lessee all rents as
they become due through the termination date of the lease as specified in the
lease. For the purposes of this paragraph, the following do not constitute a
termination of Lessee's right to possession:
a) Acts of maintenance or preservation or efforts to relet the property.
b) The appointment of a receiver on the initiative of the Lessor to protect his interest under this lease.
SURRENDER OF LEASE
16. 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 Lessor, terminate all or any existing subleases or subtenancies, or may, at the option of Lessor, operate as an assignment to him of any or all such subleases or subtenancies.
TAX INCREASES
17. Lessee agrees to pay to Lessor on demand, as additional rental, any increase in real estate taxes which are assessed to the leased premises in excess of the amount of said taxes for the fiscal year save and except for those increases caused by a sale of said premises, building or parcel. Lessee also agrees to pay the yearly installments of any assessments levied against the leased premises after the commencement date of this lease. If said taxes and assessment installments are assessed against the entire building and building site, and this lease does not cover the entire building and building site, the taxes and assessment installments allocated to the leased premises shall be pro-rated on a square footage basis on the area actually occupied by Lessee. It is understood
and agreed that Lessee's obligation under this paragraph will be pro rated to reflect the commencement and termination date of this lease.
NOTICES
18. All notices to be given to Lessee may be given in writing personally or by depositing the same in the United States mail, postage prepaid, and addressed to Lessee at the said premises, whether or not Lessee has departed from, abandoned or vacated the premises.
ENTRY BY LESSOR
19. Lessee shall permit Lessor and his agent to enter into and upon said premises at all reasonable times for the purpose of inspecting the same or for the purpose of maintaining the building in which said premises are situated, or for the purpose of making repairs, alterations or additions to any other portion of said building, including the erection and maintenance of such scaffolding, canopies, fences and props as may be required, and shall permit Lessor and his agents, at any time within ninety days prior to the expiration of this lease, to place upon said premises any usual or ordinary "For Sale" or "to lease" signs and exhibit the premises to prospective tenants at reasonable hours; provided at least 24 hours' notice to Lessee is provided.
DESTRUCTION OF PREMISES
20. In the event of a partial destruction of the said premises during the said term from any cause, Lessor shall forthwith repair the same, provided such repairs can be made within six (6) months under the laws and regulations of State, Federal, County or Municipal authorities, but such partial destruction shall in no way annul or void this lease, except that Lessee shall be entitled to a proportionate reduction of rent while such repairs are being made, such proportionate reduction to be based upon the extent to which the making of such repairs shall interfere with the business carried on by Lessee in the said premises. In the event that Lessor does not so elect to make such repairs, or such repairs cannot be made under such laws and regulations, this lease may be terminated at the option of either party. In respect to any partial destruction which Lessor is obligated to repair or may elect to repair under the terms of this paragraph, the provision of Section 1932, Subdivision 2, and of Section 1933, Subdivision 4, of the Civil Code of the State of California are waived by Lessee. A total destruction of the building in which the said premises may be situated shall terminate this lease. In the event of any dispute between Lessor and Lessee relative to the provisions of this paragraph, they shall each select an arbitrator, the two arbitrators so selected shall select a third arbitrator and the three arbitrators so selected shall hear and determine the controversy and their decision thereon shall be final and binding upon both Lessor and Lessee, who shall bear the cost of such arbitration equally between them.
ASSIGNMENT AND SUBLETTING
21. Lessee shall not assign this lease, or any interest therein, and shall not sublet the said premises or any part thereof, or any right or privilege appurtenant thereto, or suffer any other person (the agents and servants of Lessee excepted) to occupy or use the said premises, or any portion thereof, without the written consent of Lessor first had and obtained, and a consent to one assignment, subletting, occupation or use by any other person, shah not be deemed to be a consent to any subsequent assignment, subletting, occupation or use by another person. Any such assignment or subletting without such consent shall be void, and shall, at the option of the Lessor, terminate this lease. This lease shall not, nor shall any interest therein, be assignable, as to the interest of Lessee, by operation of law, without the written consent of Lessor. The Lessor, however, cannot unreasonably withhold consent to sublet, assign, or both.
CONDEMNATION
22. If any part of the premises shall be taken for any public or quasi-public use, under any statute or by right of eminent domain or private purchase in lieu thereof, and a part thereof remains which is susceptible of occupation hereunder, this lease shall, as to the part so taken, terminate as of the date title shall vest in the condemnor or purchaser, and the rent payable hereunder shall be adjusted so that the Lessee shall be required to pay for the remainder of the term only such portion of such rent as the value of the part remaining after such taking bears to the value of the entire premises prior to such taking; but in such event Lessor shall have the option to terminate this lease as of the date when title to the part so taken vests in the condemnor or purchaser. If all of the premises, or such part thereof be taken so that there does not remain a portion susceptible for occupation hereunder, this lease shall thereupon terminate. If a part or all of the premises be taken, all compensation awarded upon such taking shah go to the Lessor and the Lessee shall have no claim thereto, except for compensation pertaining to goodwill, loss of business and relocation expenses pertaining to Lessee which shall be paid to Lessee.
EFFECT OF CONVEYANCE
23. The term "Lessor" as used in this lease, means only the owner for the time being of the land and building containing the premises, so that, in the event of any sale of said land or building, or in the event of a lease of said building, the Lessor shall be and hereby is entirely freed and relieved of all covenants and obligations of the Lessor hereunder, and it shall be deemed and construed, without further agreement between the parties and the purchaser at any such sale, or the lessee of the building, that the purchaser or Lessee of the building has assumed and agreed to carry out any and all covenants and obligations of the Lessor hereunder. If any security be given by the Lessee to secure the faithful performance of all or any of the covenants of this
lease on the part of Lessee, the Lessor shall transfer and deliver the security, as such, to the purchaser at any such sale or the Lessee of the building, and thereupon the Lessor shall be discharged from any further liability in reference thereto.
SUBORDINATION
24. Lessee agrees that this lease may, at the option of Lessor, be subject and subordinate to any mortgage, deed of trust or other instrument of security which has been or shall be placed on the land and building or land or building of which the premises form a part, and this subordination is hereby made effective without any further act of Lessee. The Lessee shall, at any time hereinafter, on demand, execute any instruments, releases, or other documents that may be required by any mortgagee, mortgagor, or trustor or beneficiary under any deed of trust for the purpose of subjecting and subordinating this lease to the lien of any such mortgage, deed of trust or other instrument of security, and the failure of the Lessee to execute any such instruments, releases or documents, shall constitute a default hereunder.
INTEREST UPON FAILURE TO PAY
25. If Lessee defaults in the payment of any amounts due to Lessor, such amounts due shall bear interest at the rate of 10% per annum from the date it is due until actually paid. All other obligations, benefits or monies which may become due to Lessor from Lessee under the terms of this lease agreement or which are paid by Lessor because of Lessee's default of this agreement shall bear interest at the rate of 10% per annum from the due date until paid, or in the case of sums paid by Lessor because of Lessee's default from the date such payments were made by Lessor until the date Lessor is reimbursed by Lessee.
WAIVER
26. The waiver by Lessor of any breach of any term, covenant or condition, herein contained shall not be deemed to be a waiver of such term, covenant or condition or any subsequent breach of the same or any other term, covenant or condition therein contained. The subsequent acceptance of rent hereunder by Lessor shall not be deemed to be a waiver of any preceding breach by Lessee of any term, covenant or condition of this lease, other than the failure of Lessee to pay the particular rental so accepted, regardless of Lessor's knowledge of such preceding breach at the time of acceptance of such rent.
HOLDING OVER
27. Any holding over after the expiration of the said term, with the consent of Lessor, shall be construed to be a tenancy from month to month, at a rental to be negotiated by Lessor and Lessee prior to the expiration of said term, and shall otherwise be on the terms and conditions herein specified, so far as applicable.
SUCCESSORS AND ASSIGNS
28. The covenants and conditions herein contained shall, subject to the provisions as to assignment, apply to and bind the heirs, successors, executors, administrators and assigns of all of the parties hereto; and all of the parties hereto shall be jointly and severally liable hereunder.
TIME
29. Time is of the essence of this lease.
MARGINAL CAPTIONS
30. The marginal headings or titles to the paragraphs of this lease are not a part of this lease and shall have no effect upon the construction or interpretation of any part thereof. This instrument contains all of the agreements and conditions made between the parties hereto and may not be modified orally or in any other manner than by an agreement in writing signed by all of the parties hereto or their respective successors in interest.
COST OF LIVING
31. Minimum rent shall be adjusted every year (the "Adjustment Date") of this Lease to reflect any upward change in the cost of living. The adjustment, if any, shall be calculated upon the basis of the United States Department of Labor, Bureau of Labor Statistics Consumer Price Index, entitled "CPI-W", San Francisco Bay Area average. The index published for the month prior to the Commencement Date shall be considered the '"base". Minimum rent for each period shall be adjusted by the percentage increase, if any, in the index as of the adjustment date over the "base". In no event shall minimum rent be less than the amount specified, notwithstanding that the index may as of some adjustment date be less than the base. If on any rental adjustment date there shall not exist the CPI-W, we shall substitute any official index published by the Bureau of Labor Statistics or successor or similar governmental agency as may then be in existence and most nearly equivalent thereto. Said annual adjustment shall be no less than 3%, nor more than 7% per annum.
SAVINGS CLAUSE
32. The invalidity or unenforceability of any provision of this lease shall not affect or impair the validity of any other provisions.
IN WITNESS WHEREOF, Lessor and Lessee have executed these presents, the day and year first above
written. LESSOR LESSEE TROWBRIDGE and WRIGHT, INC. WINDSOR OAKS NATIONAL BANK /s/ Philip A. Wright -------------------- Philip A. Wright President |
ADDENDUM
THIS ADDENDUM ("Addendum") is made to that certain Commercial Lease and Deposit Receipt (the "Lease"), dated concurrently with this Addendum, between Trowbridge and Wright ("Lessor") and Windsor Oaks National Bank ("Lessee"). Lessor is a corporation, organized under the laws of the state of California, with principal offices at 8733 A Lakewood Drive, Windsor, California. Lessee is a national bank with principal offices at 9101 Los Amigos, P.O. Box 946, Windsor, California 95942. Lessee and Lessor hereby agree that, notwithstanding anything contained in the Lease to the contrary, the provisions set forth below will be deemed to be part of the Lease and shall supersede, to the extent they differ, any contrary provisions in the Lease. All references in the Lease and in this Addendum to "Lease" shall be construed to mean the Lease and Exhibits, as amended and supplemented by this Addendum. All terms used in this Addendum, unless specifically defined in this Addendum, shall have the same meaning as the terms used in the Lease.
1. MAINTENANCE, REPAIRS AND ALTERATIONS. Notwithstanding any provision of the Lease to the contrary:
Lessee shall have the right to terminate this Lease at any time if, for any reason, Lessee does not receive all permits and entitlements to operate a national bank on the premises in a commercially reasonable time using commercially reasonable efforts.
2. ENTRY AND INSPECTION. Notwithstanding any provision of the Lease to the contrary, Lessor's rights and remedies hereunder, including the right to reenter or to inspect the premises, shall be exercised in accordance with all applicable State and Federal laws and regulations applicable to Lessee and, whether or not Lessee is in default hereunder, Lessee shall have the sole right, at all times, to possess and to remove the contents of Lessees' vault, safe deposit boxes, money, papers and files.
3. HAZARDOUS MATERIALS. Lessor warrants that the premises do not contain hazardous materials and that the Lessor has complied with all applicable laws regarding the treatment and disposition of such materials.
4. INDEMNITY. Paragraph 10 of the Lease is amended to read as follows:
10. Lessee shall indemnify, defend, protect and hold Lessor harmless from all claims and liabilities which meet all the following criteria:
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a. they are for personal injury, death, or property damage;
b. they are for incidents occurring in or about the premises or the Building; and
c. they are caused by the negligence or willful misconduct of Lessee, its agents, employees, or invitees.
When the claim or liability is caused by the joint negligence or wilful misconduct of Lessee and Lessor or Lessee and a third party unrelated to Lessee, except Lessee's agents, employees, or invitees, Lessee's duty to defend, indemnify, protect and hold Lessor harmless shall be in proportion to lessee's allocable share of the joint negligence or willful misconduct.
Lessee shall maintain during the Term comprehensive (or commercial) general liability insurance, with limits of not less than $1,000,000 combined single limit for personal injury, bodily injury or death, or property damage or destruction (including loss of use thereof) for any one occurrence. Lessee shall also maintain during the Term worker compensation insurance as required by statute, and primary, contributory, "all-risk" property damage insurance covering Lessee's personal property, business records, fixtures and equipment, for damage or other loss caused by fire or other casualty or cause including, but not limited to, vandalism and malicious mischief, theft, water damage of any type, including sprinkler leakage, bursting or stoppage of pipes, explosion, business interruption, and other insurable risks in amounts not less than the full insurable replacement value of such property and full insurable value of such other interests of Lessee (subject to reasonable deductible amounts). Lessee, shall maintain during the term comprehensive (or commercial) general liability insurance, with limits of not less than $1,000,000 combined single limit for personal injury, bodily injury or death, or property damage or destruction (including loss of use thereof) for any one occurrence. Lessor shall also maintain during the term worker compensation insurance as required by statute, and primary, non-contributory, extended coverage or "all-risk" property damage insurance, and subject to reasonable deductible amounts), or such other amount necessary to prevent Lessor from being a co-insured, and such other coverage as Lessor shall deem appropriate.
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Lessee shall provide Lessor with certificates evidencing such coverage prior to the Commencement Date, which shall state that such insurance coverage may not be changed or cancelled without at least twenty (20) days' prior written notice to Lessor, and shall provide renewal certificates to lessor at least twenty (20) days prior to expiration of such policies. Except as provided to the contrary herein, any insurance carried by Lessor or Lessee shall be for the sole benefit of the party carrying such insurance. Any insurance policies hereunder may be "blanket policies." All insurance required hereunder shall be provided by responsible insurers. By this Paragraph, Lessor and Lessee intend that their respective property loss risks shall be borne by responsible insurance carriers to the extent above provided, and Lessor and Lessee hereby agree to look solely to, and seek recovery only from, their respective insurance carriers in the event of a property loss to the extent that such coverage is agreed to be provided hereunder. The parties each hereby waive all rights and claims against each other for such losses, and waive all rights of subrogation of their respective insurers, provided such waiver of subrogation shall not affect the right of the insured to recover thereunder. The parties agree that their respective insurance policies are now, or shall be, endorsed such that said waiver of subrogation shall not affect the right of the insured to recover thereunder, so long as no material additional premium is charged therefor."
5. POSSESSION. Paragraph 1 of the Lease is amended to read as follows:
"1. POSSESSION: If Lessor is unable to deliver possession of the premises at the commencement hereof, Lessor shall be liable for any damage caused thereby. Lessee shall not be liable for any rent until possession is delivered. Lessee may terminate this lease if possession is not delivered within sixty days of the commencement date of the term hereof."
6. SIGNS. Paragraph 11 of the Lease is amended to read as follows:
"Signs: Lessee may place on the premises any sign allowed by applicable
law. Lessor shall be responsible for the costs of removal of the
outside sign on the southern side of the building which indicates
'Wright Realty' at its expense to include repainting the area covered
by said sign currently. Lessee shall be
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responsible for erecting its sign 'Windsor Oaks National Bank' in that area at its sole expense. Lessor shall leave all wiring, hardware, and time clocks currently available for the operation of the outside sign in place.
Lessor shall remove its sign from the primary monument sign for the building and Lessor shall be entitled to utilize that space for its primary sign."
7. NONDISTURBANCE. On or before the commencement of the term hereof, Lessor shall obtain commercially reasonable nondisturbance agreements in favor of Lessee from each person or entity which is the mortgagee, beneficiary or ground lessor under any mortgage, deed of trust, ground lease or other financing against the premises which nondisturbance agreements shall provide that, so long as Lessee is not in default hereunder, Lessee's rights hereunder shall not be terminated or otherwise impaired by any foreclosure, termination or other remedy exercised in connection with such mortgage, deed of trust or ground lease.
8. OPTION TO EXTEND LEASE TERM
Lessee is hereby granted and shall, if not then in default under this Lease, have an option to extend the term of this Lease for an additional period of ten years from the original expiration date of this Lease in successive periods of five years each on the same terms, covenants and conditions contained in this Lease, provided however, that the minimum monthly rent to be paid by Lessee to Lessor shall be as agreed upon by Lessee and Lessor, or if the parties are unable to agree, fixed by appraisal in the following matter:
(1) The successive options set forth herein shall be exercised only by a Lessee delivering to Lessor one hundred eighty (180) days before the expiration of the term hereof written notice of Lessee's election to renew the term of this lease as provided in this Article.
(2) On or before 90 days before the commencement of the extended term Lessor and Lessee shall each appoint an appraiser and give written notice of the name and address of that appraiser to the other party to this lease. The two appraisers shall, within 30 days after appointment of the last of the two appraiser to be appointed, appoint a third appraiser and serve written notice of the name and address of that appraiser upon the Lessee and Lessor in the manner prescribed by this Lease for service of notice on one party of the Lease by the other. All appraisers appointed under this Article shall be, at the time of their appointment, licensed Real Estate Appraiser, certified by the State of California.
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Within 30 days after the appointment of the third appraiser, the appraisers shall confer and each submit in writing to the Lessor and the Lessee his or her appraisal of the fair rental value of the leased premises which, in this case, be defined as the "price a willing lessee would pay a willing lessor for the leased premises for the uses, regardless of the highest and best potential use of the premises, as specified in this lease. The appraised value agreed upon in writing by any two of the three appointed appraisers shall be conclusive and binding and shall establish the fair rental value of the leased premises. If no two of the three appraisers are able to agree on the fair rental value of the leased premises, both the highest appraisal and the lowest appraisal submitted by any of the three appraisers shall be disregarded and the remaining appraisal shall be binding and conclusive upon the parties to this lease.
If either Lessor or Lessee fail to appoint an appraiser as required under this Article, the appraiser so appointed by the other party shall act for both Lessor and Lessee and his decision as to the determination of fair rental value will be final and binding on both parties.
Lessor and Lessee shall each pay the fee and all expenses incurred by the appraiser appointed by each of them and one-half of all expenses and the fee incurred by the third appraiser appointed pursuant to this Article.
9. OPTION TO LEASE ADDITIONAL SPACE
Lessor hereby grants to Lessee the option to lease the following additional square footage of rentable floor space located in the building of which the leased premises are a part on the same terms and conditions of this lease in the cumulative
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amounts as hereinafter set forth and described as optional square footage:
Additional/
Total Optional
Term of Lease Square Footage Square Footage
Third or Fourth 5670 1190
successive twelve
month period
Fifth successive 6948 1278
twelve month period
Sixth successive 8204 1256
twelve month period
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The successive options set forth herein shall be exercised by Lessee delivering to Lessor ninety (90) days before the expiration of the prior successive 12 month period written notice of Lessee's election to obtain the additional/optional square footage as provided in this Article.
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10. RIGHT OF FIRST REFUSAL
In further consideration of the rents, covenants and conditions to be paid, performed, and observed by Lessee hereunder, Lessor hereby grants to tenant a right of first refusal to lease any additional space in the building in which the leased premises are located in excess of the initial square footage or the optional square footage previously referred to in this Lease. Said right of first refusal would be on the same terms and conditions as the third party offer. Lessor shall notify Lessee in writing of any offers including the amount of rent offered and other terms and conditions of said offer. Lessee shall have twenty (20) business days within which to notify Lessor in writing whether Lessee agrees to the same terms and conditions as the third party offer. In the event Lessee fails to give written notice of its election to lease the additional space within the above-referenced time frame, Lessor shall be free to accept the bona fide offer and lease additional space to the third party offeror. If the additional space or other additional space subsequently becomes available again during the term of this Lease or any options thereof, Tenant shall have the same right of first refusal granted herein with respect to a subsequent bona fide offer to lease the additional space by a subsequent third party offeror.
11. CONSTRUCTION OF TENANT IMPROVEMENTS
It is understood by and between Lessor and Lessee that Lessor shall complete tenant improvements as agreed upon by both Lessor and Lessee. Said agreement to tenant improvements shall be in the form of written specifications executed by both parties hereto and attached as an Exhibit to this Lease document.
12. NONCOMPETITION
The leased premises are a part of other real property owned by Lessor on the same parcel. Lessor covenants and agrees that during the entire term of this Lease and any extensions of the term, Lessor shall not rent or lease or
permit occupation by Lessor or others of any portion of the adjoining property for the purposes of operating or conducting the primary business of a banking facility or other financial institution.
Notwithstanding any other provision in this Lease, these covenants shall be binding on the Lessor and each successive owner, if any, during his or her ownership of the property or any portion of the property.
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13. PARCEL TRAFFIC IMPROVEMENTS
Lessor and Lessee agree that Lessee may, at its cost, evaluate and study the traffic and parking patterns of the parcel on which the premises are located to include the entrances thereto; and that Lessor and Lessee will share equally the cost of any improvements which are made to said parcel as a result of those studies and/or evaluations.
14. OCC APPROVAL
The final acceptance of the terms and conditions of the lease are expressly conditioned upon its approval by the Office of the Comptroller of the Currency.
IN WITNESS WHEREOF, the parties have executed this Addendum as of the date first above written.
LESSEE
LESSOR
Trowbridge and Wright, Inc. Windsor Oaks National Bank
By /s/ PHILIP A. WRIGHT By /s/ JACK FITZPATRICK
--------------------------- -----------------------
Philip A. Wright Jack Fitzpatrick
President CEO
By /s/ RICHARD C. CALETTI
-----------------------
Richard C. Caletti,
Vice Chairman
8
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WONB - Rent Calcs
Downstairs Sq. Feet Rent & Extension Rent / $1.20 % Calcs
Occupied Space 3462 100% 3462 $4,154.40
Load 1604 33% 527.48305 $632.98 0.32885476
0 $0.00
Upstairs 0 $0.00
Occupied Space 1018 l00. 1018 $1,221.60
Load 1655 10160.055618 $192.06 0.09670913
Totals $6,201.04
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Exhibit A
WINDSOR OAKS NATIONAL BANK
PHASED SECOND FLOOR TENANT IMPROVEMENT
DEVELOPMENT PLAN
[GRAPHIC OMITTED]
EXHIBIT B
ADDENDUM II
The parties hereto agree to the leasing of additional space under item 10 of the addendum (Right of First Refusal) to that certain commercial lease and deposit receipt (hereinafter "lease") and Addendum (hereinafter "Addendum") concurrently dated the 30th day of April, 1992, by and between Trowbridge & Wright (hereinafter "Leasor") and Windsor Oaks National Bank (hereinafter "Leasee"). Leasor and Leasee hereby agree that, the bank shall lease as additional space the conference room which is part of suite C, on the commencement date of said lease and occupancy thereunder, and under the following terms and conditions:
TOTAL MONTHLY BASE RENT WITH COMMON AREA $ 445.20(1)
LESS CREDIT MONTHLY FOR 12 MONTHS $-222.60
---------
TOTAL MONTHLY RENT LESS CREDIT (1st 12 months) $ 222.60(2)
TOTAL MONTHLY BASE RENT (13th and
subsequent months - subject $ 445.20(2)
to annual adjustments as outlined
in primary lease)
-------------
|
l Common area allocations are set forth on Attachment A, which is affixed hereto and made a part hereof.
2 Cost of living adjustment shall commence, as to this additional monthly base rent, following the 24th month of occupancy.
ATTACHMENT A
WRIGHT BUILDING - TENANT IMPROVEMENTS
A. WINDSOR OAKS NATIONAL BANK USABLE AREA 322 SF = 3.06%
B. TOTAL BUILDING USABLE AREA 10,526 SF
COMMON AREA
FIRST FLOOR RESTROOMS
RESTROOM HALL
TELEPHONE ROOM
ELECTRICAL ROOM
LOBBY
ELEVATOR AND STAIRS
FIRST FLOOR
TOTAL COMMON AREA 1604.60
3.06% OF COMMON AREA 49 SF
TOTAL RENTABLE AREA 322 SF
------
371 SF
MONTHLY RENT WITH COMMON AREA $ 445.20
LESS CREDIT MONTHLY FOR 12 MONTHS -222.60
-------
TOTAL RENT LESS CREDIT $ 222.60
|
IN WITNESS WHEREOF, the parties have executed Addendum II as set forth below.
Dated: TROWBRIDGE & WRIGHT, INC.
/s/ Philip A. Wright
-------------------------
By
Leasor
Dated: WINDSOR OAKS NATIONAL BANK
/s/ Jack Fitzpatrick
--------------------------
By Jack Fitzpatrick, CEO
Leasee
Dated: /s/ Richard C. Calletti,
--------------------------
By Richard C. Calletti,
Vice Chairman
|
STANDARD INDUSTRIAL/COMMERCIAL MULTI-TENANT LEASE MODIFIED NET
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
AIR
1. BASIC PROVISIONS ("BASIC PROVISIONS").
1.1 PARTIES: This Lease ("Lease"), dated for reference purposes only, September 1, 1998, is made by and between ROSARIO LLC. ("Lessor") and NORTH COAST BANK ("Lessee"), (collectively the "Parties," or individually a "Party").
1.2(a) PREMISES: That certain portion of the Building, including all improvements therein or to be provided by Lessor under the terms of this Lease, commonly known by the street address of 50 SANTA ROSA AVENUE located in the City of SANTA ROSA, County of SONOMA , State of CALIFORNIA ,with zip code 95401 , as outlined on Exhibit A attahed hereto ("Premises"). The "Building" is that certain building containing the Premises and generally described as (describe briefly the nature of the Building)
A FIVE STORY COMMERCIAL OFFICE BUILDING WITH LESSEE OCCUPYING THE ENTIRE FIRST FLOOR SUITE OF APPROXIMATELY 7,072 RENTABLE SQUARE FEET.
In addition to Lessee's rights to use and occupy the Premises as hereinafter specified, Lessee shall have non-exclusive rights to the Common Areas (as defined in Paragraph 2.7 below) as hereinafter specified, but shall not have any rights to the roof, exterior walls or utility raceways of the Building or to any other buildings in the Industrial Center. The Premises, the Building, the Common Areas, the land upon which they are located, along with all other buildings and improvements thereon, are herein collectively referred to as the "Industrial Center." (Also see Paragraph 2.)
1.2(b) PARKING: ZERO (0) unreserved vehicle parking spaces ("UNRESERVED PARKING SPACES"); and ZERO (0)reserved vehicle parking spaces ("RESERVED PARKING SPACES"). (Also see Paragraph 2.6.)
1.3 TERM: 10 years and 0 months ("Original Term") commencing
COMMENCEMENT Date") and ending OCTOBER 31 , 2008("EXPIRATION DATE"). (Also
see Paragraph 3.)
1.4 EARLY POSSESSION: UPON SUBSTANTIAL COMPLETION OF LANDLORD'S TENANT
IMPROVEMENT WORK AND PRIOR TO NOV. 1, 1998. (Also see. Paragraphs: 3.2 and 3.3)
1.5 BASE RENT: $. 8,840 per month ("BASE RENT"), payable on the FIRST day of each month commencing WITH MONTH ONE, NOVEMBER 1998 (Also see Paragraph 4.)
1.6(a) BASE RENT PAID UPON EXECUTION: $ 8,840 as Base Rent for the period EQUAL TO MONTH ONE OF THE LEASE TERM
1.8 PERMITTED USE: GENERAL BANKING AND RELATED USES PERMITTED BY LAW
("PERMITTED USE") (Also see Paragraph 6.)
1.9 INSURING PARTY. Lessor is the "Insuring Party." (Also see Paragraph 8.)
1.10(a) REAL ESTATE BROKERS. The following real estate broker(s) (collectively, the "Brokers") and brokerage relationships exist in this transaction and are consented to by the Parties (check applicable boxes):
[X] KEVIN CANADY OF KEEGAN & COPPIN CO., INC., represents Lessor exclusively
("Lessor's Broker");
[ ] represents Lessee exclusively ("Lessee's Broker"); or
[ ] represents both Lessor and Lessee ('"Dual Agency"). (Also see Paragraph 15.)
1.10(b) PAYMENT TO BROKERS. Upon the execution of this Lease by both Parties, Lessor shall pay to said Broker(s) jointly, or in such separate shares as they may mutually designate in writing, a fee as set forth in a separate written agreement between Lessor and said Broker(s) (or in the event there is no separate written agreement between Lessor and said Broker(s), the sum of $ * ) for brokerage services rendered by said Broker(s) in connection with this transaction.
1.11 GUARANTOR. The obligations of the Lessee under this Lease are to be guaranteed by N/A
1.12 ADDENDA AND EXHIBITS. Attached hereto is an Addendum or Addenda consisting of Paragraphs 49 through 58 A through C, all of which constitute a part of this Lease.
PREMISES, PARKING AND COMMON AREAS.
2.1 LETTING. Lessor hereby leases to Lessee, and Lessee hereby leases from Lessor, the Premises, for the term, at the rental, and upon all of the terms, covenants and conditions set forth in this Lease. Unless otherwise provided herein, any statement of square footage set forth in this Lease, or that may have been used in calculating rental and/or Common Area Operating Expenses, is an approximation which Lessor and Lessee agree is reasonable and the rental and Lessee's Share (as defined in Paragraph 1.6(b)) based thereon is not subject to revision whether or not the actual square footage is more or less.
2.2 CONDITION. Lessor shall deliver the Premises to Lessee clean and free of debris on the Commencement Date and warrants to Lessee that the existing plumbing, electrical systems, fire sprinkler system, lighting, air conditioning and heating systems and loading doors, if any, in the Premises, other than those constructed by Lessee, shall be in good operating condition on the Commencement Date. If a non-compliance with said warranty exists as of the Commencement Date, Lessor shall, except as otherwise provided in this Lease, promptly after receipt of written notice from Lessee setting forth with specificity the nature and extent of such non-compliance, rectify same at Lessor's expense. If Lessee does not give Lessor written notice of a non-compliance with this warranty within thirty(30) days after the Commencement Date, correction of that non-compliance shall be the obligation of Lessee at Lessee's sole cost and expense.
2.3 COMPLIANCE WITH COVENANTS, RESTRICTIONS AND BUILDING Code. Lessor warrants that any improvements (other than those constructed by Lessee or at Lessee's direction) on or in the Premises which have been constructed or installed by Lessor or with Lessor's consent or at Lessor's direction shall comply with all applicable covenants or restrictions of record and applicable building codes, regulations and ordinances in effect on the Commencement Date. Lessor further warrants to Lessee that Lessor has no knowledge of any claim having been made by any governmental agency that a violation or violations of applicable building codes, regulations, or ordinances exist with regard to the Premises as of the Commencement Date. Said warranties shall not apply to any Alterations or Utility Installations (defined in Paragraph 7.3(a)) made or to be made by Lessee. If the Premises do not comply with said warranties, Lessor shall, except as otherwise provided in this Lease, promptly after receipt of written notice from Lessee given within six (6) months following the Commencement Date and setting forth with specificity the nature and extent of such non-compliance, take such action, at Lessor's expense, as may be reasonable or appropriate to rectify the non-compliance. Lessor makes no warranty that the Permitted Use in Paragraph 1.8 is permitted for the Premises under Applicable Laws (as defined in Paragraph 2.4).
2.4 ACCEPTANCE OF PREMISES. Lessee hereby acknowledges: (a) that it has been advised by the Broker(s) to satisfy itself with respect to the condition of the Premises' (including but not limited to the electrical and fire sprinkler systems, security, environmental aspects, seismic and earthquake requirements, and compliance with the Americans with Disabilities Act and applicable zoning, municipal, county, state and federal laws, ordinances and regulations and any covenants or restrictions of record (collectively, "APPLICABLE LAWS") and the present and future suitability of the Premises for Lessee's intended use; (b) that Lessee has made such investigation as it deems necessary with reference to such matters, is satisfied with reference thereto, and assumes all responsibility therefore as the same ,relate to Lessee's occupancy of the Premises and/or the terms of this Lease; and (c) that neither Lessor, nor any of Lessor's agents, has made any oral or written representations or warranties with respect to said matters other than as set forth in this Lease.
2.5 LESSEE AS PRIOR OWNER/OCCUPANT. The warranties made by Lessor in this Paragraph 2 shall be of no force or effect if immediately prior to the date set forth in Paragraph 1.1 Lessee was the owner or occupant of the Premises. In such event, Lessee shall, at Lessee's sole cost and expense, correct any noncompliance of the Premises with said warranties.
*Per separate agreement between Lessor and Keegan & Coppin Co., Inc.
(C)American Industrial Real Estate Association 1993 MULTI-TENANT -
MODIFIED NET
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[SECTION 2.6 HAS BEEN DELETED AND INITIALED FROM ORIGINAL COPY.]
2.6 VEHICLE PARKING, Lessee shall be entitled to use the number of
Unreserved Parking Spaces and Reserved Parking Spaces specified in Paragraph
(b) on those portions of the Common Areas designated from time to time by Lessor
for parking. Lessee shall not use more parking spaces than said number. Said
parking spaces shall be used for parking by vehicles no larger than full-size
passenger automobiles or pick-up trucks herein called "PERMITTED SIZE VEHICLES"
Vehicles other than Permitted Size Vehicles shall be parked and loaded or
unloaded as directed by Lessor in the Rules and Regulations (as defined in
paragraph 40) issued by Lessor. (Also see Paragraph 2.9.)-
(a) Lessee shall not permit or allow any vehicles that belong to or are controlled by Lessee or Lessee's employees, suppliers, shippers, customers, contractors or invitees to be loaded, unloaded, or parked in areas other than those designated by Lessor for such activities.
(b)If Lessee permits or allows any of the prohibited activities described in this Paragraph 2.6, then Lessor shall have the right, without notice in addition to such other rights and remedies that it may have to remove or tow any of the vehicles involved and charge the cost to Lessee which cost shall be immediately payable upon demand by Lessor.
(c) Lessor shall at the Commencement Date of this Lease, provide the parking facilities required by Applicable Law.
2.7 COMMON AREAS - Definition. The term "COMMON AREAS" is defined as all areas and facilities outside the Premises and within the exterior boundary line of the Industrial Center and interior utility raceways within the Premises that are provided and designated by the Lessor from time to time for the general non-exclusive use of Lessor, Lessee and other lessees of the Industrial Center and their respective employees, suppliers, shippers, customers, contractors and invitees, including parking areas, loading and unloading areas, trash areas, roadways, sidewalks, walkways, parkways, driveways and landscaped areas.
2.8 COMMON AREAS - LESSEE'S RIGHTS. Lessor hereby grants to Lessee, for the benefit of Lessee and its employees, suppliers, shippers, contractors, customers and invitees, during the term of this Lease, the non-exclusive right to use, in common with others entitled to such use, the Common Areas as they exist from time to time, subject to any rights, powers, and privileges reserved by Lessor under the terms hereof or under the terms of any rules and regulations or restrictions governing the use of the Industrial Center. Under no circumstances shall the right herein granted to use the Common Areas be deemed to include the right to store any property, temporarily or permanently, in the Common Areas. Any such storage shall be permitted only by the prior written consent of Lessor or Lessor's designated agent, which consent may be revoked at any time. In the event that any unauthorized storage shall occur then Lessor shall have the right, without notice, in addition to such other rights and remedies that it may have, to remove the property and charge the cost to Lessee, which cost shall be immediately payable upon demand by Lessor.
2.9 COMMON AREAS - RULES AND REGULATIONS. Lessor or such other person(s) as Lessor may appoint shall have the exclusive control and management of the Common Areas and shall have the right, from time to time, to establish, modify, amend and enforce reasonable Rules and Regulations with respect thereto in accordance with Paragraph 40. Lessee agrees to abide by and conform to all such Rules and Regulations, and to cause its employees, suppliers, shippers, customers, contractors and invitees to so abide and conform. Lessor shall not be responsible to Lessee for the non-compliance with said rules and regulations by other lessees of the industrial Center.
2.10 COMMON AREAS - CHANGES. Lessor shall have the right, in Lessor's sole discretion, from time to time:
(a) To make changes to the Common Areas, including, without limitation, changes in the location, size, shape and number of driveways, entrances, parking spaces, parking areas, loading and unloading areas, ingress, egress, direction of traffic, landscaped areas, walkways and utility raceways;
(b)To close temporarily any of the Common Areas for maintenance purposes so long as reasonable access to the Premises remains available;
(c)To designate other land outside the boundaries of the industrial Center to be a part of the Common Areas;
(d)To add additional buildings and improvements to the Common Areas;
(e)To use the Common Areas while engaged in making additional improvements, repairs or alterations to the Industrial Center, or any portion thereof; and
(f) To do and perform such other acts and make such other changes in, to or with respect to the Common Areas and industrial Center as Lessor may, in the exercise of sound business judgment, deem to be appropriate.
3. Term.
3.1 TERM. The Commencement Date, Expiration Date and Original Term of this Lease are as specified in Paragraph 1.3.
3.2 EARLY POSSESSION. If an Early Possession Date is specified in Paragraph 1.4 and if Lessee totally or partially occupies the Premises after the Early Possession Date but prior to the Commencement Date, the obligation to pay Base Rent shall be abated for the period of such early occupancy. All other terms of this Lease, however, (including but not limited to the obligations to pay Lessee's Share of Common Area Operating Expenses and to carry the insurance required by Paragraph 8) shall be in effect during such period. Any such early possession shall not affect nor advance the Expiration Date of the Original Term.
3.3 DELAY IN POSSESSION. If for any reason Lessor cannot deliver possession of the Premises to Lessee by the Early Possession Date, if one is specified in Paragraph 1.4, or if no Early Possession Date is specified, by the Commencement Date, Lessor shall not be subject to any liability therefor, nor shall such failure affect the validity of this Lease, or the obligations of Lessee hereunder, or extend the term hereof, but in such case, Lessee shall not, except as otherwise provided herein, be obligated to pay rent or perform any other obligation of Lessee under the terms of this Lease until Lessor delivers possession of the Premises to Lesseeo If possession of the Premises is not delivered to Lessee within sixty (60) days after the Commencement Date, Lessee may, at its option, by notice in writing to Lessor within ten (10) days after the end of said sixty (60) day period, cancel this Lease, in which event the parties shall be discharged from all obligations hereunder; provided further, however, that if such written notice of Lessee is not received by Lessor within said ten (10) day period, Lessee's right to cancel this Lease hereunder shall terminate and be of no further force or effect. Except as may be otherwise provided, and regardless of when the Original Term actually commences, if possession is not tendered to Lessee when required by this Lease and Lessee does not terminate this Lease, as aforesaid, the period free of the obligation to pay Base Rent, if any, that Lessee would otherwise have enjoyed shall run from the date of delivery of possession and continue for a period equal to the period during which the Lessee would have otherwise enjoyed under the terms hereof, but minus any days of delay caused by the acts, changes or omissions of Lessee.
4. RENT.
4.1 BASE RENT. Lessee shall pay Base Rent and other rent or charges, as the same may be adjusted from time to time, to Lessor in lawful money of the United States, without offset or deduction, on or before the day on which it is due under the terms of this Lease. Base Rent and all other rent and charges for any period during the term hereof which is for less than one full month shall be prorated based upon the actual number of days of the month involved. Payment of Base Rent and other charges shall be made to Lessor at its address stated herein or to such other persons or at such other addresses as Lessor may from time to time designate in writing to Lessee.
4.2 COMMON AREA OPERATING EXPENSES. Lessee shall pay to Lessor during the term hereof, in addition to the Base Rent, Lessee's Share (as specified in Paragraph 1.6(b)) of all Common Area Operating Expenses, as hereinafter defined, during each calendar year of the term of this Lease, in accordance with the following provisions:
(a) "COMMON AREA OPERATING EXPENSES" are defined, for purposes of this Lease, as all costs incurred by Lessor relating to the ownership and operation of the Industrial Center, including, but not limited to, the following:
(i)The operation, repair and maintenance, in neat, clean, good order and condition, of the following:
(aa) The Common Areas, including parking areas, loading and unloading areas, trash areas, roadways, sidewalks, walkways, parkways, driveways, landscaped areas, striping, bumpers, irrigation systems, Common Area lighting facilities, fences and gates, elevators and roof.
(bb) Exterior signs and any tenant directories.
(cc) Fire detection and sprinkler systems.
(ii) The cost of water, gas, electricity and telephone to service the Common Areas.*
(iii)Trash disposal, property management and security services and the costs of any environmental inspections.
(iv) Reserves set aside for maintenance and repair of Common Areas.
(v) Real Property Taxes (as defined in Paragraph 10.2) to be paid by Lessor for the Building and the Common Areas under Paragraph 10 hereof.
(vi) The cost of the premiums for the insurance policies maintained by Lessor under Paragraph 8 hereof.
(vii) Any deductible portion of an insured loss concerning the Building or the Common Areas.
(viii) Any other services to be provided by Lessor that are stated elsewhere in this Lease to be a Common Area Operating Expense.
(b) Any Common Area Operating Expenses and Real Property Taxes that are specifically attributable to the Building or to any other building in the Industrial Center or to the operation, repair and maintenance thereof, shall be allocated entirely to the Building or to such other building. However, any Common Area Operating Expenses and Real Property Taxes that are not specifically attributable to the Building or to any other building or to the operation, repair and maintenance thereof, shall be equitably allocated by Lessor to all buildings in the Industrial Center.
(c) The inclusion of the improvements, facilities and services set forth in Subparagraph 4.2(a) shall not be deemed to impose an obligation upon Lessor to either have said improvements or facilities or to provide those services unless the Industrial Center already has the same, Lessor already provides the services, or Lessor has agreed elsewhere in this Lease to provide the same or some of them.
(d) Lessee's Share of Common Area Operating Expenses shall be payable by Lessee within ten (10) days after a reasonably detailed statement of actual expenses is presented to Lessee by Lessor. At Lessor's option, however, an amount may be estimated by Lessor from time to time of Lessee's Share of ANNUAL Common Area Operating Expenses and the same shall be payable monthly or quarterly, as Lessor shall designate, during each 12-month period of THE Lease term, on the same day as the Base Rent is due hereunder. Lessor shall deliver to Lessee within sixty (60) days after the expiration of each calendar year a REASONABLY detailed statement showing Lessee's Share of the actual Common Area Operating Expenses incurred during the preceding year. If Lessee's payments UNDER this Paragraph 4.2(d) during said preceding year exceed Lessee's Share as indicated on said statement, Lessee shall be credited the amount of such over-
*and the building. All tenants will pay their pro rata share of all utility costs and expenses per their PRO rata share per Paragraph 1.6(b) and Paragraph 4.2 of this lease.
MULTI-TENANT - MODIFIED NET
(C)American Industrial Real Estate Association 1993
payment against Lessee's Share of Common Area Operating Expenses next becoming due. If Lessee's payments under this Paragraph 4.2(d) during said preceding year were less than Lessee's Share as indicated on said statement, Lessee shall pay to Lessor the amount of the deficiency within ten (10) days after delivery by Lessor to Lessee of said statement.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon Lessee's execution hereof the Security Deposit set forth in Paragraph 1.7 as security for Lessee's faithful performance of Lessee's obligations under this Lease. If Lessee fails to pay Base Rent or other rent or charges due hereunder, or otherwise Defaults under this Lease (as defined in Paragraph 13.1 ), Lessor may use, apply or retain all or any portion of said Security Deposit for the payment of any amount due Lessor or to reimburse or compensate Lessor for any liability, cost, expense, loss or damage (including attorneys' fees) which Lessor may suffer or incur by reason thereof. If Lessor uses or applies all or any portion of said Security Deposit, Lessee shall within ten (10) days after written request therefore deposit monies with Lessor sufficient to restore said Security Deposit to the full amount required by this Lease. Any time the Base Rent increases during the term of this Lease, Lessee shall, upon written request from Lessor, deposit additional monies with Lessor as an addition to the Security Deposit so that the total amount of the Security Deposit shall at all times bear the same proportion to the then current Base Rent as the initial Security Deposit bears to the initial Base Rent set forth in Paragraph 15. Lessor shall not be required to keep all or any part of the Security Deposit separate from its general accounts. Lessor shall, al the expiration or earlier termination of the term hereof and after Lessee has vacated the Premises, return to Lessee (or, at Lessor's option, to the last assignee, if any, of Lessee's interest herein), that portion of the Security Deposit not used or applied by Lessor. Unless otherwise expressly agreed in writing by Lessor, no part of the Security Deposit shall be considered to be held in trust, to bear interest or other increment for its use, or to be prepayment for any monies to be paid by Lessee under this Lease.
6. USE.
6.1 PERMITTED USE.
(a) Lessee shall use and occupy the Premises only for the Permitted Use set forth in Paragraph 1.8, or any other legal use which is reasonably comparable thereto, and for no other purpose. Lessee shall not use or permit the use of the Premises in a manner that is unlawful, creates waste or a nuisance, or that disturbs owners and/or occupants of, or causes damage to the Premises or neighboring premises or properties.
(b) Lessor hereby agrees to not unreasonably withhold or delay its consent to any written request by Lessee, Lessee's assignees or subtenants, and by prospective assignees and subtenants of Lessee, its assignees and subtenants, for a modification of said Permitted Use, so long as the same will not impair the structural integrity of the improvements on the Premises or in the Building or the mechanical or electrical systems therein, does not conflict with uses by other lessees, is not significantly more burdensome to the Premises or the Building and the improvements thereon, and is otherwise permissible pursuant to this Paragraph 6. If Lessor elects to withhold such consent, Lessor shall within five (5) business days after such request give a written notification of same, which notice shall include an explanation of Lessor's reasonable objections to the change in use.
6.2 HAZARDOUS SUBSTANCES.
(a) Reportable Uses Require Consent. The term "Hazardous Substance" as used in this Lease shall mean any product, substance, chemical, material or waste whose presence, nature, quantity and/or intensity of existence, use, manufacture, disposal, transportation, spill, release or effect, either by itself or in combination with other materials expected to be on the Premises, is either: (i) potentially injurious to the public health, safety or welfare, the environment, or the Premises; (it) regulated or monitored by any governmental authority; or (iii) a basis for potential liability of Lessor to any governmental agency or third party under any applicable statute or common law theory. Hazardous Substance shall include, but not be limited to, hydrocarbons, petroleum, gasoline, crude oil or any products or by-products thereof. Lessee shall not engage in any activity in or about the Premises which constitutes a Reportable Use (as hereinafter defined) of Hazardous Substances without the express prior written consent of Lessor and compliance in a timely manner (at Lessee's sole cost and expense) with all Applicable Requirements (as defined in Paragraph 6.3). "REPORTABLE USE" shall mean (i) the installation or use of any above or below ground storage tank, (it) the generation, possession, storage, use, transportation, or disposal of a Hazardous Substance that requires a permit from, or with respect to which a report, notice, registration or business plan is required to be filed with, any governmental authority, and (iii) the presence in, on or about the Premises of a Hazardous Substance with respect to which any Applicable Laws require that a notice be given to persons entering or occupying the Premises or neighboring properties. Notwithstanding the foregoing, Lessee may, without Lessor's prior consent, but upon notice to Lessor and in compliance with all Applicable Requirements, use any ordinary and customary materials reasonably required to be used by Lessee in the normal course of the Permitted Use, so long as such use is not a Reportable Use and does not expose the Premises or neighboring properties to any meaningful risk of contamination or damage or expose Lessor to any liability therefor. In addition, Lessor may (but without any obligation to do so) condition its consent to any Reportable Use of any Hazardous Substance by Lessee upon Lessee's giving Lessor such additional assurances as Lessor, in its reasonable discretion, deems necessary to protect itself, the public, the Premises and the environment against damage, contamination or injury and/or liability therefor, including but not limited to the installation (and, at Lessor's option, removal on or before Lease expiration or earlier termination) of reasonably necessary protective modifications to the Premises (such as concrete encasements) and/or the deposit of an additional Security Deposit under Paragraph 5 hereof.
(b) DUTY TO INFORM LESSOR. If Lessee knows, or has reasonable cause to believe, that a Hazardous Substance has come to be located in, on, under or about the Premises or the Building, other than as previously consented to by Lessor, Lessee shall immediately give Lessor written notice thereof, together with a copy of any statement, report, notice, registration, application, permit, business plan, license, claim, action, or proceeding given to, or received from, any governmental authority or private party concerning the presence, spill, release, discharge of, or exposure to, such Hazardous Substance including but not limited to all such documents as may be involved in any Reportable Use involving the Premises. Lessee shall not cause or permit any Hazardous Substance to be spilled or released in, on, under or about the Premises (including, without limitation, through the plumbing or sanitary sewer system).
(c) INDEMNIFICATION. Lessee shall indemnify, protect, defend and hold Lessor, its agents, employees, lenders and ground lessor, if any, and the Premises, harmless from and against any and all damages, liabilities, judgments, costs, claims, liens, expenses, penalties, loss of permits and attorneys' and consultants' fees arising out of or involving any Hazardous Substance brought onto the Premises by or for Lessee or by anyone under Lessee's control. Lessee's obligations under this Paragraph 6.2(c) shall include, but not be limited to, the effects of any contamination or injury to person, property or the environment created or suffered by Lessee, and the cost of investigation (including consultants' and attorneys' fees and testing), removal, remediation, restoration and/or abatement thereof, or of any contamination therein involved, and shall survive the expiration or earlier termination of this Lease. No termination, cancellation or release agreement entered into by Lessor and Lessee shall release Lessee from its obligations under this Lease with respect to Hazardous Substances, unless specifically so agreed by Lessor in writing at the time of such agreement.
6.3 LESSEE'S COMPLIANCE WITH REQUIREMENTS. Lessee shall, at Lessee's sole cost and expense, fully, diligently and in a timely manner, comply with all "Applicable Requirements," which term is used in this Lease to mean all laws, rules, regulations, ordinances, directives, covenants, easements and restrictions of record, permits, the requirements of any applicable fire insurance underwriter or rating bureau, and the recommendations of Lessor's engineers and/or consultants, relating in any manner to the Premises (including but not limited to matters pertaining to (i) industrial hygiene, (it) environmental conditions on, in, under or about the Premises, including soil and groundwater conditions, and (iii) the use, generation, manufacture, production, installation, maintenance, removal, transportation, storage, spill, or release of any Hazardous Substance), now in effect or which may hereafter come into effect. Lessee shall, within five (5) days after receipt of Lessor's written request, provide Lessor with copies of all documents and information, including but not limited to permits, registrations, manifests, applications, reports and certificates, evidencing Lessee's compliance with any Applicable Requirements specified by Lessor, and shall immediately upon receipt, notify Lessor in writing (with copies of any documents involved) of any threatened or actual claim, notice, citation, warning, complaint or report pertaining to or involving failure by Lessee or the Premises to comply with any Applicable Requirements.
6.4 INSPECTION; COMPLIANCE with Law. Lessor, Lessor's agents, employees, contractors and designated representatives, and the holders of any mortgages, deeds of trust or ground leases on the Premises ("LENDERS") shall have the right to enter the Premises at any time in the case of an emergency, and otherwise at reasonable times, for the purpose of inspecting the condition of the Premises and for verifying compliance by Lessee with this Lease and all Applicable requirements (as defined in Paragraph 6.3), and Lessor shall be entitled to employ experts and/or consultants in connection therewith to advise Lessor with respect to Lessee's activities, including but not limited to Lessee's installation, operation, use, monitoring, maintenance, or removal of any Hazardous Substance on or from the Premises. The costs and expenses of any such inspections shall be paid by the party requesting same, unless a Default or Breach of this Lease by Lessee or a violation of Applicable Requirements or a contamination, caused or materially contributed to by Lessee, is found to exist or to be imminent, or unless the inspection is requested or ordered by a governmental authority as the result of any such existing or imminent violation or contamination. In such case, Lessee shall upon request reimburse Lessor or Lessor's Lender, as the case may be, for the costs and expenses of such inspections.
7. MAINTENANCE, REPAIRS, UTILITY INSTALLATIONS, TRADE FIXTURES AND ALTERATIONS.
7.1 LESSEE'S OBLIGATIONS.
(a) Subject to the provisions of Paragraphs 2.2 (Condition), 2.3 (Compliance with Covenants, Restrictions and Building Code), 7.2 (Lessor's Obligations), 9 (Damage or Destruction), and 14 (Condemnation), Lessee shall, at Lessee's sole cost and expense and at all times, keep the Premises and every part thereof in good order, condition and repair (whether or not such portion of the Premises requiring repair, or the means of repairing the same, are reasonably or readily accessible to Lessee, and whether or not the need for such repairs occurs as a result of Lessee's use, any prior use, the elements or the age of such portion of the Premises), including, without limiting the generality of the foregoing, all equipment or facilities specifically serving the Premises, such as plumbing, heating, air conditioning, ventilating, electrical, lighting facilities, boilers, fired or unfired pressure vessels, fire hose connections if within the Premises, fixtures, interior walls, interior surfaces of exterior walls, ceilings, floors, windows, doors, plate glass, and skylights, but excluding any items which are the responsibility of Lessor pursuant to Paragraph 7.2 below. Lessee, in keeping the Premises in good order, condition and repair, shall exercise and perform good maintenance practices. Lessee's obligations shall include restorations, replacements or renewals when necessary to keep the Premises and all improvements thereon or a part thereof in good order, condition and state of repair.
(b) Lessee shall, at Lessee's sole cost and expense, procure and maintain a contract, with copies to Lessor, in customary form and substance for and with a contractor specializing and experienced in the inspection, maintenance and service of the heating, air conditioning and ventilation system for the Premises. However, Lessor reserves the right, upon notice to Lessee, to procure and maintain the contract for the heating, air conditioning and ventilating systems, and if Lessor so elects, Lessee shall reimburse Lessor, upon demand, for the cost thereof.
(c) If Lessee fails to perform Lessee's obligations under this Paragraph 7.1, Lessor may enter upon the Premises after ten (10) days' prior written notice to Lessee (except in the case of an emergency, in which case no notice shall be required), perform such obligations on Lessee's behalf, and put the Premises in good order, condition and repair; in accordance with Paragraph 13.2 below.
7.2 LESSOR'S OBLIGATIONS. Subject to the provisions of Paragraphs 2.2
(Condition), 2.3 (Compliance with Covenants, Restrictions and Building Code),
4.2 (Common Area Operating Expenses), 6 (Use), 7.1 (Lessee's Obligations), 9
(Damage or Destruction) and 14 (Condemnation), Lessor, subject to reimbursement
pursuant to Paragraph 4.2, shall keep in good order, condition and repair the
foundations, exterior walls, structural condition of interior bearing walls,
exterior roof, fire sprinkler and/or standpipe and hose (if located in the
Common Areas) or other automatic fire extinguishing system including fire alarm
and/or smoke
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(c) American Industrial Real Estate Association 1993
detection systems and equipment, fire hydrants, parking lots, walkways, parkways, driveways, landscaping, fences, signs and utility systems serving the Common Areas and all parts thereof, as well as providing the services for which there is a Common Area Operating Expense pursuant to Paragraph 4.2. Lessor shall not be obligated to paint the exterior or interior surfaces of exterior walls nor shall Lessor be obligated to maintain, repair or replace windows, doors or plate glass of the Premises. Lessee expressly waives the benefit of any statute now or hereafter in effect which would otherwise afford Lessee the right to make repairs at Lessor's expense or to terminate this Lease because of Lessor's failure to keep the Building, Industrial Center or Common Areas in good order, condition and repair.
7.3 UTILITY INSTALLATIONS, TRADE FIXTURES, ALTERATIONS.
(a) DEFINITIONS; CONSENT REQUIRED, The term "UTILITY INSTALLATIONS" is used in this Lease to refer to all air lines, power panels, electrical distribution, security, fire protection systems, communications systems, lighting fixtures, heating, ventilating and air conditioning equipment, plumbing, and fencing in, on or about the Premises. The term "TRADE FIXTURES" shall mean Lessee's machinery and equipment which can be removed without doing material damage to the Premises. The term "ALTERATIONS" shall mean any modification of the improvements on the Premises which are provided by Lessor under the terms el this Lease, other than Utility Installations or Trade Fixtures. "LESSEE-OWNED ALTERATIONS AND/OR UTILITY INSTALLATIONS" are defined as Alterations and/or Utility Installations made by Lessee that are not yet owned by Lessor pursuant to Paragraph 7.4(a). Lessee shall not make nor cause to be made any Alterations or Utility Installations in, on, under or about the Premises without Lessor's prior written consent. Lessee may, however, make non-structural Utility Installations to the interior of the Premises (excluding the roof) without Lessor's consent but upon notice to Lessor, so long as they are not visible from the outside of the Premises, do not involve puncturing, relocating or removing the roof or any existing walls, or changing or interfering with the fire sprinkler or fire detection systems and the cumulative cost thereof during the term of this Lease as extended does not exceed $2,500.00.
(b) CONSENT. Any Alterations or Utility Installations that Lessee shall
desire to make and which require the consent of the Lessor shall be presented to
Lessor in written form with detailed plans. All consents given by Lessor,
whether by virtue of Paragraph 7.3(a) or by subsequent specific consent, shall
be deemed conditioned upon: (i) Lessee's acquiring all applicable permits
required by governmental authorities; (ii) the furnishing of copies of such
permits together with a copy of the plans and specifications for the Alteration
or Utility Installation to Lessor prior to commencement of the work thereon; and
(iii) the compliance by Lessee with all conditions of said permits in a prompt
and expeditious manner. Any Alterations or Utility Installations by Lessee
during the term of this Lease shall be done in a good and workmanlike manner,
with good and sufficient materials, and be in compliance with all Applicable
Requirements. Lessee shall promptly upon completion thereof furnish Lessor with
as-built plans and specifications therefor. Lessor may, (but without obligation
to do so) condition its consent to any requested Alteration or Utility
Installation that costs $2,500.00 or more upon Lessee's providing Lessor with a
lien and completion bond in an amount equal to one and one-half times the
estimated cost of such Alteration or Utility Installation.
(c) LIEN PROTECTION. Lessee shall pay when due all claims for labor or materials furnished or alleged to have been furnished to or for Lessee at or for use on the Premises, which claims are or may be secured by any mechanic's or materialmen's lien against the Premises or any interest therein. Lessee shall give Lessor not less than ten (10) days' notice prior to the commencement of any work in, on, or about the Premises, and Lessor shall have the right to pest notices of non-responsibility in or on the Premises as provided by law. If Lessee shall, in good faith, contest the validity of any such lien, claim or demand, then Lessee shall, at its sole expense, defend and protect itself, Lessor and the Premises against the same and shall pay and satisfy any such adverse judgment that may be rendered thereon before the enforcement thereof against the Lessor or the Premises. If Lessor shall require, Lessee shall furnish to Lessor a surety bond satisfactory to Lessor in an amount equal to one and one-half limes the amount of such contested lien claim or demand, indemnifying Lessor against liability for the same, as required by law for the holding of the Premises free from the effect of such lien or claim. In addition, Lessor may require Lessee to pay Lessor's attorneys' fees and costs in participating in such action if Lessor shall decide it is to its best interest to do so.
7.4 OWNERSHIP, REMOVAL, SURRENDER, AND RESTORATION.
(a) OWNERSHIP. Subject to Lessor's right to require their removal and to cause Lessee to become the owner thereof as hereinafter provided in this Paragraph 7.4, all Alterations and Utility Installations made to the Premises by Lessee shall be the property of and owned by Lessee, but considered a part of the Premises. Lessor may, at any time and at its option, elect in writing to Lessee to be the owner of all or any specified part of the Lessee-Owned Alterations and Utility Installations. Unless otherwise instructed per Subparagraph 7.4(b) hereof, all Lessee-Owned Alterations and Utility Installations shall, at the expiration or earlier termination of this Lease, become the property of Lessor and remain upon the Premises and be surrendered with the Premises by Lessee.
(b) REMOVAL. Unless otherwise agreed in writing, Lessor may require that any or all Lessee-Owned Alterations or Utility Installations be removed by the expiration or earlier termination of this Lease, notwithstanding that their installation may have been consented to by Lessor. Lessor may require the removal at any time of all or any part of any Alterations or Utility Installations made without the required consent of Lessor.
(c) SURRENDER/RESTORATION. Lessee shall surrender the Premises by the end of the last day of the Lease term or any earlier termination date, clean and free of debris and in good operating order, condition and state of repair, ordinary wear and tear excepted. Ordinary wear and tear shall not include any damage or deterioration that would have been prevented by good maintenance practice or by Lessee performing all of its obligations under this Lease. Except as otherwise agreed or specified herein, the Premises, as surrendered, shall include the Alterations and Utility Installations. The obligation of Lessee shall include the repair of any damage occasioned by the installation, maintenance or removal of Lessee's Trade Fixtures, furnishings, equipment, and Lessee-Owned Alterations and Utility Installations, as well as the removal of any storage tank installed by or for Lessee, and the removal, replacement, or remediation of any soil, material or ground water contaminated by Lessee, all as may then be required by Applicable Requirements and/or good practice. Lessee's Trade Fixtures shall remain the property of Lessee and shall be removed by Lessee subject to its obligation to repair and restore the Premises per this Lease.
8. INSURANCE; INDEMNITY.
8.1 PAYMENT OF PREMIUMS. The cost of the premiums for the insurance policies maintained by Lessor under this Paragraph 8 shall be a Common Area Operating Expense pursuant to Paragraph 4.2 hereof. Premiums for policy periods commencing prior to, or extending beyond, the term of this Lease shall be pro- rated to coincide with the corresponding Commencement Date or Expiration Date.
8.2 LIABILITY INSURANCE.
(a) CARRIED BY LESSEE. Lessee shall obtain and keep in force during
the term of this Lease a Commercial General Liability policy of insurance
protecting Lessee, Lessor and any Lender(s) whose names have been provided to
Lessee in writing (as additional insureds) against claims for bodily injury,
personal injury and property damage based upon, involving or arising out of the
ownership, use, occupancy or maintenance of the Premises and all areas
appurtenant thereto. Such insurance shall be on an occurrence basis providing
single limit coverage in an amount not less than $1,000,000 per occurrence with
an "Additional Insured-Managers or Lessors of Premises" endorsement and contain
the "Amendment of the Pollution Exclusion" endorsement for damage caused by
heat, smoke or fumes from a hostile fire. The policy shall not contain any
intra-insured exclusions as between insured persons or organizations, but shall
include coverage for liability assumed under this Lease as an "Insured contract"
for the performance of Lessee's indemnity obligations under this Lease. The
limits of said insurance required by this Lease or as carried by Lessee shall
not, however, limit the liability of Lessee nor relieve Lessee of any obligation
hereunder. All insurance to be carried by Lessee shall be primary to and not
contributory with any similar insurance carried by Lessor, whose insurance shall
be considered excess insurance only.
(b) CARRIED BY LESSOR. Lessor shall also maintain liability insurance
described in Paragraph 8.2(a) above, in addition to and not in lieu of, the
insurance required to be maintained by Lessee. Lessee shall not be named as an
additional insured therein.
8.3 PROPERTY INSURANCE-BUILDING, IMPROVEMENTS AND RENTAL VALUE.
(a) BUILDING AND IMPROVEMENTS. Lessor shall obtain and keep in force
during the term of this Lease a policy or policies in the name of Lessor, with
loss payable to Lessor and to any Lender(s), insuring against loss or damage to
the Premises. Such insurance shall be for full replacement cost, as the same
shall exist from time to time, or the amount required by any Lender(s), but in
no event more than the commercially reasonable and available insurable value
thereof if, by reason of the unique nature or age of the improvements involved,
such latter amount is less than full replacement cost. Lessee-Owned Alterations
and Utility Installations, Trade Fixtures and Lessee's personal property shall
be insured by Lessee pursuant to Paragraph 8.4. If the coverage is available and
commercially appropriate, Lessor's policy or policies shall insure against all
risks of direct physical loss or damage (except the perils of flood and/or
earthquake unless required by a Lender), including coverage for any additional
costs resulting from debris removal and reasonable amounts of coverage for the
enforcement of any ordinance or law regulating the reconstruction or replacement
of any undamaged sections of the Building required to be demolished or removed
by reason of the enforcement of any building, zoning, safety or land use laws as
the result of a covered loss, but not including plate glass insurance. Said
policy or policies shall also contain an agreed valuation provision in lieu of
any co-insurance clause, waiver of subrogation, and inflation guard protection
causing an increase in the annual property insurance coverage amount by a factor
of not less than the adjusted U.S. Department of Labor Consumer Price Index for
All Urban Consumers for the city nearest to where the Premises are located.
(b) RENTAL VALUE. Lessor shall also obtain and keep in force during the
term of this Lease a policy or policies in the name of Lessor, with loss payable
to Lessor and any Lender(s), insuring the loss of the full rental and other
charges payable by all lessees of the Building to Lessor for one year (including
all Real Property Taxes. insurance costs, all Common Area Operating Expenses and
any scheduled rental increases). Said insurance may provide that in the event
the Lease is terminated by reason of an insured loss, the period of indemnity
for such coverage shall be extended beyond the date of the completion of repairs
or replacement of the Premises, to provide for one full year's loss of rental
revenues from the date of any such loss. Said insurance shall contain an agreed
valuation provision in lieu of any co-insurance clause, and the amount of
coverage shall be adjusted annually to reflect the projected rental income, Real
Property Taxes, insurance premium costs and other expenses, if any, otherwise
payable, for the next 12-month period. Common Area Operating Expenses shall
include any deductible amount in the event of such loss.
(c) ADJACENT PREMISES. Lessee shall pay for any increase in the
premiums for the property insurance of the Building and for the Common Areas or
other buildings in the Industrial Center if said increase is caused by Lessee's
acts, omissions, use or occupancy of the Premises.
(d) LESSEE'S IMPROVEMENTS. Since Lessor is the Insuring Party, Lessor
shall not be required to insure Lessee-Owned Alterations and Utility
Installations unless the item in question has become the property of Lessor
under the terms of this Lease.
8.4 LESSEE'S PROPERTY INSURANCE. Subject to the requirements of Paragraph 8.5, Lessee at its cost shall either by separate policy or, at Lessor's option, by endorsement 1o a policy already carried, maintain insurance coverage on all of Lessee's personal property, Trade Fixtures and Lessee-Owned Alterations and Utility Installations in, on, or about the Premises similar in coverage to that carried by Lessor as the Insuring Party under Paragraph 8.3(a). Such insurance shall be full replacement cost coverage with a deductible not to exceed $1,000 per occurrence. The proceeds from any such insurance shall be used by LESSEE for the replacement of personal property and the restoration of Trade Fixtures and Lessee-Owned Alterations and Utility Installations. Upon request from Lessor, Lessee shall provide Lessor with written evidence that such insurance is in force.
8.5 INSURANCE POLICIES. Insurance required hereunder shall be in companies duly licensed to transact business in the slate where the Premises are located, and maintaining during the policy term a "General Policyholders Rating" of at least B+, V, or such other rating as may be required by a Lender, as set forth in the most current issue of "Beat's Insurance Guide," Lessee shall not do or permit to be done anything which Shall invalidate the insurance policies referred to in
(C)American Industrial Real Estate Association 1993
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this Paragraph 8. Lessee shall cause to be delivered to Lessor, within seven
(7) days after the earlier of the Early Possession Date or the Commencement
Date, verified copies of, or certificates evidencing the existence and amounts
of, the insurance required under Paragraph 8.2(a) and 8.4. No such policy shall
be cancellable or subject to modification except after thirty (30) days' prior
written notice to Lessor. Lessee shall at least thirty (30) days prior to the
expiration of such policies, furnish Lessor with evidence of renewals or
"insurance binders" evidencing renewal thereof, or Lessor may order such
insurance and charge the cost thereof to LESSEE, WHICH amount shall be payable
by Lessee to Lessor upon demand.
8.6 WAIVER OF SUBROGATION. Without affecting any other rights or remedies, Lessee and Lessor each hereby release and relieve the other, and waive their entire right to recover damages (whether in contract or in tort) against the other, for loss or damage to their property arising out of or incident to the perils required to be insured against under Paragraph 8. The effect of such releases and waivers of the right to recover damages shall not be limited by the amount of insurance carried or required, or by any deductibles applicable thereto. Lessor and Lessee agree to have their respective insurance companies issuing property damage insurance waive any right to subrogation that such companies may have against Lessor or Lessee, as the case may be, so long as the insurance is not invalidated thereby.
8.7 INDEMNITY. Except for Lessor's negligence and/or breach of express warranties, Lessee shall indemnify, protect, defend and hold harmless the Premises, Lessor and its agents, Lessor's master or ground lessor, partners and Lenders, from and against any and all claims, loss of rents and/or damages, costs, liens, judgments, penalties, loss of permits, attorneys' and consultants' fees, expenses and/or liabilities arising out of, involving, or in connection with, the occupancy of the Premises by Lessee, the conduct of Lessee's business, any act, omission or neglect of Lessee, its agents, contractors, employees or invitees, and out of any Default or Breach by Lessee in the performance in a timely manner of any obligation on Lessee's part to be performed under this Lease. The foregoing shall include, but not be limited to, the defense or pursuit of any claim or any action or proceeding involved therein, and whether or not (in the case of claims made against Lessor) litigated and/or reduced to judgment. In case any action or proceeding be brought against Lessor by reason of any of the foregoing matters, Lessee upon notice from Lessor shall defend the same at Lessee's expense by counsel reasonably satisfactory to Lessor and Lessor shall cooperate with Lessee in such defense. Lessor need not have first paid any such claim in order to be so indemnified.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessor shall not be liable for injury or damage to the person or goods, wares, merchandise or other property of Lessee, Lessee's employees, contractors, invitees, customers, or any other person in or about the Premises, whether such damage or injury is caused by or results from fire, steam, electricity, gas, water or rain, or from the breakage, leakage, obstruction or other defects of pipes, fire sprinklers, wires, appliances, plumbing, air conditioning or lighting fixtures, or from any other cause, whether said injury or damage results from conditions arising upon the Premises or upon other portions of the Building of which the Premises are a part, from other sources or places, and regardless of whether the cause of such damage or injury or the means of repairing the same is accessible or not. Lessor shall not be liable for any damages arising from any act or neglect of any other lessee of Lessor nor from the failure by Lessor to enforce the provisions of any other lease in the Industrial Center. Notwithstanding Lessor's negligence or breach of this Lease, Lessor shall under no circumstances be liable for injury to Lessee's business or for any loss of income or profit therefrom.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "PREMISES PARTIAL DAMAGE" shall mean damage or destruction to the
Premises, other than Lessee-Owned Alterations and Utility Installations, the
repair cost of which damage or destruction is less than fifty percent (50%) of
the then Replacement Cost (as defined in Paragraph 9.1(d)) of the Premises
(excluding Lessee-Owned Alterations and Utility Installations and Trade
Fixtures) immediately prior to such damage or destruction.
(b) "PREMISES TOTAL DESTRUCTION" shall mean damage or destruction to
the Premises, other than Lessee-Owned Alterations and Utility installations,
the repair cost of which damage or destruction is fifty percent (50%) or more of
the then Replacement Cost of the Premises (excluding Lessee,ned Alterations
and Utility Installations and Trade Fixtures) immediately prior to such damage
or destruction. In addition, damage or destruction to the Building, other than
Lessee-Owned Alterations and Utility Installations and Trade Fixtures of any
lessees of the Building, the cost of which damage or destruction is fifty
percent (50%) or more of the then Replacement Cost (excluding Lessee-Owned
Alterations and Utility Installations and Trade Fixtures of any lessees of the
Building) of the Building shall, at the option of Lessor, be deemed to be
Premises Total Destruction.
(c) "INSURED LOSS" shall mean damage or destruction to the Premises,
other than Lessee-Owned Alterations and Utility Installations and Trade
Fixtures, which was caused by an event required to be covered by the insurance
described in Paragraph 8.3(a) irrespective of any deductible amounts or coverage
limits involved.
(d) "REPLACEMENT COST" shall mean the cost to repair or rebuild the
improvements owned by Lessor at the time of the occurrence to their condition
existing immediately prior thereto, including demolition, debris removal and
upgrading required by the operation of applicable building codes, ordinances or
laws, and without deduction for depreciation.
(e) "HAZARDOUS SUBSTANCE CONDITION" shall mean the occurrence or
discovery of a condition involving the presence of, or a contamination by, a
Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the
Premises.
9.2 PREMISES PARTIAL DAMAGE - INSURED LOSS. If Premises Partial Damage that is an Insured Loss occurs, then Lessor shall, at Lessor's expense, repair such damage (but not Lessee's Trade Fixtures or Lessee-Owned Alterations and Utility Installations) as soon as reasonably possible and this Lease shall continue in full force and effect. In the event, however, that there is a shortage of insurance proceeds and such shortage is due to the fact that, by reason of the unique nature of the improvements in the Premises, full replacement cost insurance coverage was not commercially reasonable and available, Lessor shall have no obligation to pay for the shortage in insurance proceeds or to fully restore the unique aspects of the Premises unless Lessee provides Lessor with the funds to cover same, or adequate assurance thereof, within ten (10) days following receipt of written notice of such shortage and request therefor. If Lessor receives said funds or adequate assurance thereof within said ten (10) day period, Lessor shall complete them as soon as reasonably possible and this Lease shall remain in full force and effect. If Lessor does not receive such funds or assurance within said period, Lessor may nevertheless elect by written notice to Lessee within ten (10) days thereafter to make such restoration and repair as is commercially reasonable with Lessor paying any shortage in proceeds, in which case this Lease shall remain in full force and effect. If Lessor does not receive such funds or assurance within such ten (10) day period, and if Lessor does not so elect to restore and repair, then this Lease shall terminate sixty (60) days following the occurrence of the damage or destruction. Unless otherwise agreed, Lessee shall in no event have any right to reimbursement from Lessor for any funds contributed by Lessee to repair any such damage or destruction. Premises Partial Damage due to flood or earthquake shall be subject to Paragraph 9.3 rather than Paragraph 9.2, notwithstanding that there may be some insurance coverage, but the net proceeds of any such insurance shall be made available for the repairs if made by either Party.
9.3 PARTIAL DAMAGE - UNINSURED LOSS. If Premises Partial Damage that is not
an Insured Loss occurs, unless caused by a negligent or willful act of Lessee
(in which event Lessee shall make the repairs at Lessee's expense and this Lease
shall continue in full force and effect), Lessor may at Lessor's option, either
(i) repair such damage as soon as reasonably possible at Lessor's expense, in
which event this Lease shall continue in full force and effect, or (it) give
written notice to Lessee within thirty (30) days after receipt by Lessor of
knowledge of the occurrence of such damage of Lessor's desire to terminate this
Lease as of the date sixty (60) days following the date of such notice. In the
event Lessor elects to give such notice of Lessor's intention to terminate this
Lease, Lessee shall have the right within ten (10) days after the receipt of
such notice to give written notice to Lessor of Lessee's commitment to pay for
the repair of such damage totally at Lessee's expense and without reimbursement
from Lessor. Lessee shall provide Lessor with the required funds or satisfactory
assurance thereof within thirty (30) days following such commitment from Lessee.
In such event this Lease shall continue in full force and effect, and Lessor
shall proceed to make such repairs as soon as reasonably possible after the
required funds are available. If Lessee does not give such notice and provide
the funds or assurance thereof within the times specified above, this Lease
shall terminate as of the date specified in Lessor's notice of termination.
9.4 TOTAL DESTRUCTION. Notwithstanding any other provision hereof, if Premises Total Destruction occurs (including any destruction required by any authorized public authority), this Lease shall terminate sixty (60) days following the date of such Premises Total Destruction, whether or not the damage or destruction is an Insured Loss or was caused by a negligent or willful act of Lessee. In the event, however, that the damage or destruction was caused by Lessee, Lessor shall have the right to recover Lessor's damages from Lessee except as released and waived in Paragraph 9.7.
9.5 DAMAGE NEAR END OF TERM. If at any time during the last six (6) months of the term of this Lease there is damage for which the cost to repair exceeds one month's Base Rent, whether or not an Insured Loss, Lessor may, at Lessor's option, terminate this Lease effective sixty (60.) days following the date of occurrence of such damage by giving written notice to Lessee of Lessor's election to do so within thirty (30) days after the date of occurrence of such damage. Provided, however, it Lessee at that time has an exercisable option to extend this Lease or to purchase the Premises, then Lessee may preserve this Lease by (a) exercising such option, and (b) providing Lessor with any shortage in insurance proceeds (or adequate assurance thereof) needed to make the repairs on or before the earlier of (i) the date which is ten (10) days after Lessee's receipt of Lessor's written notice purporting to terminate this Lease, or (ii) the day prior to the date upon which such option expires. If Lessee duly exercises such option during such period and provides Lessor with funds (or adequate assurance thereof) to cover any shortage in insurance proceeds, Lessor shall, at Lessor's expense repair such damage as soon as reasonably possible and this Lease shall continue in full force and effect. If Lessee fails to exercise such option and provide such funds or assurance during such period, then this Lease shall terminate as of the date set forth in the first sentence of this Paragraph 9.5.
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event of (i) Premises Partial Damage or (ii) Hazardous
Substance Condition for which Lessee is not legally responsible, the Base Rent,
Common Area Operating Expenses and other charges, if any, payable by Lessee
hereunder for the period during which such damage or condition, its repair,
remediation or restoration continues, shall be abated in proportion to the
degree to which Lessee's use of the Premises is impaired, but not in excess of
proceeds from insurance required to be carried under Paragraph 8.3(b). Except
for abatement of Base Rent, Common Area Operating Expenses and other charges, if
any, as aforesaid, all other obligations of Lessee hereunder shall be performed
by Lessee, and Lessee shall have no claim against Lessor for any damage suffered
by reason of any such damage, destruction, repair, remediation or restoration.
(b) If Lessor shall be obligated to repair or restore the Premises
under the provisions of this Paragraph 9 and shall not commence, in a
substantial and meaningful way, the repair or restoration of the Premises within
ninety (90) days after such obligation shall accrue, Lessee may, at any time
prior to the commencement of such repair or restoration, give written notice to
Lessor and to any Lenders of which Lessee has actual notice of Lessee's election
to terminate this Lease on a date not less than sixty (60) days following the
giving of such notice. If Lessee gives such notice to Lessor and such Lenders
and such repair or restoration is not commenced within thirty (30) days after
receipt of such notice, this Lease shall terminate as of the date specified in
said notice. If Lessor or a Lender commences the repair or restoration of the
Premises within thirty (30) days after the receipt of such notice, this Lease
shall continue in full force and effect. "COMMENCE" as used in this Paragraph
9.6 shall mean either the unconditional authorization of the preparation of the
required plans, or the beginning of the actual work on the Premises, whichever
occurs first.
9.7 HAZARDOUS SUBSTANCE CONDITIONS. If a Hazardous Substance Condition occurs, unless Lessee is legally responsible therefor (in which case LESSEE shall make the investigation and remediation thereof required by Applicable Requirements and this Lease shall continue in full force and effect, but subject
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to Lessor's rights under Paragraph 6.2(c) and Paragraph 13), Lessor may at Lessor's option either (i) investigate and remediate such Hazardous Substance Condition, if required, as soon as reasonably possible at Lessor's expense, in which event this Lease shall continue in full force and effect, or (ii) if the estimated cost to investigate and remediate such condition exceeds twelve (12) times the then monthly Base Rent or $100,000 whichever is greater, give written notice to Lessee within thirty (30) days after receipt by Lessor of knowledge of the occurrence of such Hazardous Substance Condition of Lessor's desire to terminate this Lease as of the date sixty (60) days following the date of such notice. In the event Lessor elects to give such notice of Lessor's intention to terminate this Lease, Lessee shall have the right within ten (10) days after the receipt of such notice to give written notice to Lessor of Lessee's commitment to pay for the excess costs of (a} investigation and remediation of such Hazardous Substance Condition to the extent required by Applicable Requirements, over (b) an amount equal to twelve (12) times the then monthly Base Rent or $100,000, whichever is greater. Lessee shall provide Lessor with the funds required of Lessee or satisfactory assurance thereof within thirty (30) days following said commitment by Lessee. In such event this Lease shall continue in full force and effect, and Lessor shall proceed to make such investigation and remediation as soon as reasonably possible after the required funds are available. If Lessee does not give such notice and provide the required funds or assurance thereof within the time period specified above, this Lease shall terminate as of the date specified in Lessor's notice of termination.
9.8 TERMINATION - ADVANCE PAYMENTS. Upon termination of this Lease pursuant to this Paragraph 9, Lessor shall return to Lessee any advance payment made by Lessee to Lessor and so much of Lessee's Security Deposit as has not been, or is not then required to be, used by Lessor under the terms of this Lease.
9.9 WAIVER OF STATUTES. Lessor and Lessee agree that the terms of this Lease shall govern the effect of any damage to or destruction of the Premises and THE Building with respect to the termination of this Lease and hereby waive the provisions of any present or future statute to the extent it is inconsistent herewith.
10. REAL PROPERTY TAXES.
10.1 PAYMENT OF TAXES. Lessor shall pay the Real Property Taxes, as defined in Paragraph 10.2, applicable to the Industrial Center, and except as otherwise provided in Paragraph 10.3, any such amounts shall be included in the calculation of Common Area Operating Expenses in accordance with the provisions of Paragraph 4.2.
10.2 REAL PROPERTY TAX DEFINITION. As used herein, the term "REAL PROPERTY TAXES" shall include any form of real estate tax or assessment, general, special, ordinary or extraordinary, and any license fee, commercial rental tax, improvement bond or bonds, levy or tax (other than inheritance, personal income or estate taxes) imposed upon the Industrial Center by any authority having the direct or indirect power to tax, including any city, state or federal government, or any school, agricultural, sanitary, fire, street, drainage, or other improvement district thereof, levied against any legal or equitable interest of Lessor in the Industrial Center or any portion thereof, Lessor's right to rent or other income therefrom, and/or Lessor's business of leasing the Premises. The term "REAL PROPERTY TAXES" shall also include any tax, fee, levy, assessment or charge, or any increase therein, imposed by reason of events occurring, or changes in Applicable Law taking effect, during the term of this Lease, including but not limited to a change in the ownership of the Industrial Center or in the improvements thereon, the execution of this Lease, or any modification, amendment or transfer thereof, and whether or not contemplated by the Parties. In calculating Real Property Taxes for any calendar year, the Real Properly Taxes for any real estate tax year shall be included in the calculation of Real Property Taxes for such calendar year based upon the number of days which such calendar year and tax year have in common.
10.3 ADDITIONAL IMPROVEMENTS. Common Area Operating Expenses shall not include Real Property Taxes specified in the tax assessor's records and work sheets as being caused by additional improvements placed upon the Industrial Center by other lessees or by Lessor for the exclusive enjoyment of such other lessees. Notwithstanding Paragraph 10.1 hereof, Lessee shall, however, pay to Lessor at the time Common Area Operating Expenses are payable under Paragraph 4.2, the entirety of any increase in Real Property Taxes if assessed solely by reason of Alterations, Trade Fixtures or Utility Installations placed upon the Premises by Lessee or at Lessee's request.
10.4 JOINT ASSESSMENT. If the Building is not separately assessed, Real Property Taxes allocated to the Building shall be an equitable proportion of the Real Property Taxes for all of the land and improvements included within the tax parcel assessed, such proportion to be determined by Lessor from the respective valuations assigned in the assessor's work sheets or such other information as may be reasonably available. Lessor's reasonable determination thereof, in good faith, shall be conclusive.
10.5 LESSEE'S PROPERTY TAXES. Lessee shall pay prior to delinquency all
taxes assessed against and levied upon Lessee-Owned Alterations and Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee contained in the Premises or stored within the Industrial Center. When
possible, Lessee shall cause its Lessee-Owned Alterations and Utility
Installations, Trade Fixtures, furnishings, equipment and all other personal
property to be assessed and billed separately from the real property of Lessor.
If any of Lessee's said property shall be assessed with Lessor's real property,
Lessee shall pay Lessor the taxes attributable to Lessee's property within ten
(10) days after receipt of a written statement setting forth the taxes
applicable to Lessee's property.
11. UTILITIES. Lessee shall pay directly for all utilities and services supplied to the Premises, including but not limited to electricity, telephone, security, gas and cleaning of the Premises, together with any taxes thereon. If any such utilities or services are not separately metered to the Premises or separately billed to the Premises, Lessee shall pay to Lessor a reasonable proportion to be determined by Lessor of all such charges jointly metered or billed with other premises in the Building, in the manner and within the time periods set forth in Paragraph 4.2(d).
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED.
(a) Lessee shall not voluntarily or by operation of law assign,
transfer, mortgage or otherwise transfer or encumber (collectively, "assign") or
sublet all or any part of Lessee's interest in this Lease or in the Premises
without Lessor's prior written consent given under and subject to the terms of
Paragraph 36.
(b) A change in the control of Lessee shall constitute an assignment
requiring Lessor's consent. The transfer, on a cumulative basis, of twenty-five
percent (25%) or more of the voting control of Lessee shall constitute a change
in control for this purpose.
(c) The involvement of Lessee or its assets in any transaction, or
series of transactions (by way of merger, sale, acquisition, financing,
refinancing, transfer, leveraged buy-out or otherwise), whether or not a formal
assignment or hypothecation of this Lease or Lessee's assets occurs, which
results or will result in a reduction of the Net Worth of Lessee, as hereinafter
defined, by an amount equal to or greater than twenty-five percent (25%) of such
Net Worth of Lessee as it was represented to Lessor at the time of full
execution and delivery of this Lease or at the time of the most recent
assignment to which Lessor has consented, or as it exists immediately prior to
said transaction or transactions constituting such reduction, at whichever time
said Net Worth of Lessee was or is greater, shall be considered an assignment of
this Lease by Lessee to which Lessor may reasonably withhold its consent. "NET
WORTH OF LESSEE" for purposes of this Lease shall be the net worth of Lessee
(excluding any Guarantors) established under generally accepted accounting
principles consistently applied.
(d) An assignment or subletting of Lessee's interest in this Lease
without Lessor's specific prior written consent shall, at Lessor's option, be a
Default curable after notice per Paragraph 13.1, or a non-curable Breach without
the necessity of any notice and grace period. If Lessor elects !o treat such
unconsented to assignment or subletting as a non-curable Breach, Lessor shall
have the right to either: (i) terminate this Lease, or (ii) upon thirty (30)
days' written notice ("LESSOR'S NOTICE"), increase the monthly Base Rent for the
Premises to the greater of the then fair market rental value of the Premises, as
reasonably determined by Lessor, or one hundred ten percent (110%) of the Base
Rent then in effect. Pending determination of the new fair market rental value,
if disputed by Lessee, Lessee shall pay the amount set forth in Lessor's Notice,
with any overpayment credited against the next installment(s) of Base Rent
coming due, and any underpayment for the period retroactively to the effective
date of the adjustment being due and payable immediately upon the determination
thereof. Further, in the event of such Breach and rental adjustment, (i) the
purchase price of any option to purchase the Premises held by Lessee shall be
subject to similar adjustment to be then fair market value as reasonably
determined by Lessor (without the Lease being considered an encumbrance or any
deduction for depreciation or obsolesence, and considering the Premises at
its highest and best use and in good condition) or one hundred ten percent
(1t0%) of the price previously in effect, (ii) any index-oriented rental or
price adjustment formulas contained in this Lease shall be adjusted to require
that the base index be determined with reference to the index applicable to the
time of such adjustment, and (iii) any fixed rental adjustments scheduled during
the remainder of the Lease term shall be increased in the same ratio as the new
rental bears to the Base Rent in effect immediately prior to the adjustment
specified in Lessor's Notice.
(e) Lessee's remedy for any breach of this Paragraph 12.1 by Lessor
shall be limited to compensatory damages and/or injunctive relief.
12.2 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.
(a) Regardless of Lessor's consent, any assignment or subletting shall
not (i) be effective without the express written assumption by such assignee or
sublessee of the obligations of Lessee under this Lease, (ii) release Lessee of
any obligations hereunder, nor (iii) alter the primary liability of Lessee for
the payment of Base Rent and other sums due Lessor hereunder or for the
performance of any other obligations to be performed by Lessee under this Lease.
(b) Lessor may accept any rent or performance of Lessee's obligations
from any person other than Lessee pending approval or disapproval of an
assignment. Neither a delay in the approval or disapproval of such assignment
nor the acceptance of any rent for performance shall constitute a waiver or
estoppel of Lessor's right to exercise its remedies for the Default or Breach by
Lessee of any of the terms, covenants or conditions of this Lease.
(c) The consent of Lessor to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting by Lessee or to
any subsequent or successive assignment or subletting by the assignee or
sublessee. However, Lessor may consent to subsequent sublettings and assignments
of the sublease or any amendments or modifications thereto without notifying
Lessee or anyone else liable under this Lease or the sublease and without
obtaining their consent, and such action shall not relieve such persons from
liability under this Lease or the sublease.
(d) In the event of any Default or Breach of Lessee's obligation under
this Lease, Lessor may proceed directly against Lessee, any Guarantors or anyone
else responsible for the performance of the Lessee's obligations under this
Lease, including any sublessee, without first exhausting Lessor's remedies
against any other person or entity responsible therefor to Lessor, or any
security held by Lessor.
(e) Each request for consent to an assignment or subletting shall be in writing, accompanied by information relevant to Lessor's determination as to the financial and operational responsibility and appropriateness of the proposed assignee or sublessee, including but not limited to the intended use and/or required modification of the Premises, if any, together with a non-refundable deposit of $1,000 or ten percent (10%) of the monthly Base Rent applicable to the portion of the Premises which is the subject of the proposed assignment or sublease, whichever is greater, as reasonable consideration for Lessor's considering and processing the request for consent. Lessee agrees to provide Lessor with such other or additional information and/or documentation as may be reasonably requested by Lessor.
(f) Any assignee of, or subleases under, this Lease shall, by reason of accepting such assignment or entering into such sublease, be deemed, for the benefit of Lessor, to have assumed and agreed to conform and comply with each and every term, covenant, condition and obligation herein to be observed or performed by Lessee during the term of said assignment or sublease, other than such obligations as are contrary to or inconsistent with provisions of an assignment or sublease to which Lessor has specifically consented in writing.
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[SUBSECTIONS (g) and (h) have been deleted from original copy.]
(g) The occurrence of a transaction described in Paragraph 12.2(c) shall give Lessor the right (but not the obligation) to require that the Security Deposit be increased by an amount equal to six (6) times the then monthly Base Rent, and Lessor may make the actual receipt by lessor of the Security Deposit erease a condition to Lessor's consent to such transaction.
(h) Lessor, as a condition to giving its consent to any assignment or subletting, may require that the amount and adjustment schedule of the rent payable under this Lease be adjusted to what is then the market value and/or adjustment schedule for property similar to the Premisee as then constituted, as determined by Lessor.
12.3 Additional TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. The following terms and conditions shall apply to any subletting by Lessee of all or any part of the Premises and shall be deemed included in all subleases under this Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's interest in all rentals and income arising from any sublease of all or a portion of the Premises heretofore or hereafter made by Lessee, and Lessor may collect such rent and income and apply same toward Lessee's obligations under this Lease; provided, however, that until a Breach (as defined in Paragraph 13.1) shall occur in the performance of Lessee's obligations under this Lease, Lessee may, except as otherwise provided in this Lease, receive, collect and enjoy the rents accruing under such sublease. Lessor shall not, by reason of the foregoing provision or any other assignment of such sublease to Lessor, nor by reason of the collection of the rents from a sublessee, be deemed liable to the sublessee for any failure of Lessee to perform and comply with any of Lessee's obligations to such sublessee under such Sublease. Lessee hereby irrevocably authorizes and directs any such sublessee, upon receipt of a written notice from Lessor stating that a Breach exists in the performance of Lessee's obligations under this Lease, to pay to Lessor the rents and other charges due and to become due under the sublease. Sublessee shall rely upon any such statement and request from Lessor and shall pay such rents and other charges to Lessor without any obligation or right to inquire as to whether such Breach exists and notwithstanding any notice from or claim from Lessee to the contrary. Lessee shall have no right or claim against such sublessee, or, until the Breach has been cured, against Lessor, for any such rents and other charges so paid by said sublessee to Lessor.
(b) In the event of a Breach by Lessee in the performance of its obligations under this Lease, Lessor, at its option and without any obligation to do so, may require any sublessee to attorn to Lessor, in which event Lessor shall undertake the obligations of the sublessor under such sublease from the time of the exercise of said option to the expiration of such sublease; provided, however, Lessor shall not be liable for any prepaid rents or security deposit paid by such sublessee to such sublessor or for any other prior defaults or breaches of such sublessor under such sublease.
(c) Any matter or thing requiring the consent of the sublessor under a sublease shall also require the consent of Lessor herein.
(d) No sublessee under a sublease approved by Lessor shall further assign or sublet all or any part of the Premises without Lessor's prior written consent.
(e) Lessor shall deliver a copy of any notice of Default or Breach by Lessee to the sublessee, who shall have the right to cure the Default of Lessee within the grace period, if any, specified in such notice. The sublessee shall have a right of reimbursement and offset from and against Lessee for any such Defaults cured by the sublessee.
13. DEFAULT; BREACH; REMEDIES.
13.1 DEFAULT; BREACH. Lessor and Lessee agree that if an attorney is consulted by Lessor in connection with a Lessee Default or Breach (as hereinafter defined), $350.00 is a reasonable minimum sum per such occurrence for legal services and costs in the preparation and service of a notice of Default, and that Lessor may include the cost of such services and costs in said notice as rent due and payable to cure said default. A "Default" by Lessee is defined as a failure by Lessee to observe, comply with or perform any of the terms, covenants, conditions or rules applicable to Lessee under this Lease. A "Breach" by Lessee is fined as the occurrence of any one or more of the following Defaults, and, where a grace period for cure after notice is specified herein, the failure by Lessee to such Default prior to the expiration of the applicable grace period, and shall entitle Lessor to pursue the remedies set forth in Paragraphs 13.2 and/or 13.3:
(a) The vacating of the Premises without the intention to reoccupy same, or the abandonment of the Premises.
(b) Except as expressly otherwise provided in this Lease, the failure by Lessee to make any payment of Base Rent, Lessee's Share of Common Area Operating Expenses, or any other monetary payment required to be made by Lessee hereunder as and when due, the failure by Lessee to provide Lessor with reasonable evidence of insurance or surety bond required under this Lease, or the failure of Lessee to fulfill any obligation under this Lease which endangers or threatens life or property, where such failure continues for a period of three (3) days following written notice thereof by or on behalf of Lessor to Lessee.
(c) Except as expressly otherwise provided in this Lease, the failure
by Lessee to provide Lessor with reasonable written evidence (in duly executed
original form, if applicable) of (i) compliance with Applicable Requirements per
Paragraph 6.3, (ii) the inspection, maintenance and service contracts required
under Paragraph 7.1 (b), (iii) the rescission of an unauthorized assignment or
subletting per Paragraph 12.1, (iv) a Tenancy Statement per Paragraphs 16 or 37,
(v) the subordination or non-subordination of this Lease per Paragraph 30, (vi)
the guaranty of the performance of Lessee's obligations under this Lease if
required under Paragraphs 1.11 and 37, (vii) the execution of any document
requested under Paragraph 42 (easements), or (viii) any other documentation or
information which Lessor may reasonably require of Lessee under the terms of
this lease, where any such failure continues for a period of ten (10) days
following written notice by or on behalf of Lessor to Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions or provisions of this Lease, or of the rules adopted under Paragraph 40 hereof that are to be observed, complied with or performed by Lessee, other than those described in Subparagraphs 13.1 (a), (b) or (c), above, where such Default continues for a period of thirty (30) days after written notice thereof by or on behalf of Lessor to Lessee; provided, however, that if the nature of Lessee's Default is such that more than thirty (30) days are reasonably required for its cure, then it shall not be deemed to be a Breach of this Lease by Lessee if Lessee commences such cure within said thirty (30) day period and thereafter diligently prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) the making by
Lessee of any general arrangement or assignment for the benefit of creditors;
(ii) Lessee's becoming a "debtor" as defined in 11 U.S. Code Section 101 or any
successor statute thereto (unless, in the case of a petition filed against
Lessee, the same is dismissed within sixty (60) days); (iii) 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 (iv) 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; provided, however, in the
event that any provision of this Subparagraph 13.1(e) is contrary to any
applicable law, such provision shall be of no force or effect, and shall not
affect the validity of the remaining provisions.
(f) The discovery by Lessor that any financial statement of Lessee or of any Guarantor, given to Lessor by Lessee or any Guarantor, was materially false.
(g) If the performance of Lessee's obligations under this Lease is guaranteed: (i) the death of a Guarantor, (if) the termination of a Guarantor's liability with respect to this Lease other than in accordance with the terms of such guaranty, (iii) a Guarantor's becoming insolvent or the subject of a bankruptcy filing, (iv) a Guarantor's refusal to honor the guaranty, or (v) a Guarantor's breach of its guaranty obligation on an anticipatory breach basis, and Lessee's failure, within sixty (60) days following written notice by or on behalf of Lessor to Lessee of any such event, to provide Lessor with written alternative assurances of security, which, when coupled with the then existing resources of Lessee, equals or exceeds the combined financial resources of Lessee and the Guarantors that existed at the time of execution of this Lease.
13.2 Remedies. If Lessee fails to perform any affirmative duty or obligation of Lessee under this Lease, within ten (10) days after written notice to Lessee in case of an emergency, without notice), Lessor may at its option (but without obligation to do so), perform such duty or obligation on Lessee's behalf, including not limited to the obtaining of reasonably required bonds, insurance policies, or governmental licenses, permits or approvals. The costs and expenses of any such performance by Lessor shall be due and payable by Lessee to Lessor upon invoice therefor. If any check given to Lessor by Lessee shall not be honored by the bank upon which it is drawn, Lessor, at its own option, may require all future payments to be made under this Lease by Lessee to be made only by cashier's check, In the event of a Breach of this Lease by Lessee (as defined in Paragraph 13.1), with or without further notice or demand, and without limiting Lessor in the exercise of any right or remedy which Lessor may have by reason of such Breach, Lessor may:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease and the term hereof shall terminate and
Lessee shall immediately surrender possession of the Premises to Lessor. In such
event Lessor shall be entitled to recover from Lessee: (i) the worth at the time
of the award of the unpaid rent which had been earned at the time of
termination; (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 the Lessee proves could have
been reasonably avoided: (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 the Lessee proves could be
reasonably avoided: and (iv) any other amount necessary to compensate Lessor for
all the detriment proximately caused by the Lessee's failure to perform its
obligations under this Lease or which in the ordinary course of things would be
likely to result therefrom, including but not limited to the cost of recovering
possession of the Premises, expenses of reletting, including necessary
renovation and alteration of the Premises, reasonable attorneys' fees, and that
portion of any leasing commission paid by Lessor in connection with this Lease
applicable to the unexpired term of this Lease. The worth at the time of award
of the amount referred to in provision (iii) of the immediately preceding
sentence shall be computed by discounting such amount at the discount rate of
the Federal Reserve Bank of San Francisco or the Federal Reserve Bank District
in which the Premises are located at the time of award plus one percent (1%).
Efforts by Lessor to mitigate damages caused by Lessee's Default or Breach of
this Lease shall not waive Lessor's right to recover damages under this
Paragraph 13.2. If termination of this Lease is obtained through the provisional
remedy of unlawful detainer, Lessor shall have the right to recover in such
proceeding the unpaid rent and damages as are recoverable therein, or Lessor may
reserve the right to recover all or any part thereof in a separate suit for such
rent and/or damages. If a notice and grace period required under Subparagraph
13.1 (b), (c) or (d) was not previously given, a notice to pay rent or quit, or
to perform or quit, as the case may be, given to Lessee under any statute
authorizing the forfeiture of leases for unlawful detainer shall also constitute
the applicable notice for grace period purposes required by Subparagraph
13.1(b),(c) or (d). In such case, the applicable grace period under the unlawful
detainer statue shall run concurrently after the one such statutory notice, and
the failure of Lessee to cure the Default within the greater of the two (2) such
grace periods shall constitute both an unlawful detainer and a Breach of this
Lease entitling Lessor to the remedies provided for in this Lease and/or by said
statute.
(b) Continue the Lease and Lessee's right to possession in effect (in California under California Civil Code Section 1951.4) after Lessee's Breach and recover the rent as it becomes due, provided Lessee has the right to sublet or assign, subject only to reasonable limitations. Lessor and Lessee agree that the limitations on assignment and subletting in this Lease are reasonable. Acts of maintenance or preservation, efforts to relet the Premises, or the appointment of a receiver to protect the Lessor's interest under this Lease, shall not constitute a termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available to Lessor under the laws or judicial decisions of the state wherein the Premises are located.
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(d) The expiration or termination of this Lease and/or the termination of Lessee's right to possession shall not relieve Lessee from liability under any indemnity provisions of this Lease as to matters occurring or accruing during the term hereof or by reason of Lessee's occupancy of the Premises.
13.3 INDUCEMENT RECAPTURE IN EVENT OF BREACH. Any agreement by Lessor for free or abated rent or other charges applicable to the Premises, or for the giving or paying by Lessor to or for Lessee of any cash or other bonus, inducement or consideration for Lessee's entering into this Lease, all of which concessions are hereinafter referred to as "Inducement Provisions" shall be deemed conditioned upon Lessee's full and faithful performance of all of the terms, covenants and conditions of this Lease to be performed or observed by Lessee during the term hereof as the same may be extended. Upon the occurrence of a Breach (as defined in Paragraph 13.1) of this Lease by Lessee, any such Inducement Provision shall automatically be deemed deleted from this Lease and of no further force or effect, and any rent, other charge, bonus, inducement or consideration theretofore abated, given or paid by Lessor under such an Inducement Provision shall be immediately due and payable by Lessee to Lessor, and recoverable by Lessor, as additional rent due under this Lease, notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by Lessor of rent or the cure of the Breach which initiated the operation of this Paragraph 13.3 shall not be deemed a waiver by Lessor of the provisions of this Paragraph 13.3 unless specifically so stated in writing by Lessor at the time of such acceptance.
13.4 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 upon Lessor by the terms of any ground lease, mortgage or deed of trust covering the Premises. Accordingly, if any installment of rent or 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, then, without any requirement for notice to Lessee, Lessee shall pay to Lessor a late charge equal to six percent (6%) 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 or Breach with respect to such overdue amount, nor prevent Lessor from exercising any of the other rights and remedies granted hereunder. In the event that a late charge is payable hereunder, whether or not collected, for three (3) consecutive installments of Base Rent, then notwithstanding Paragraph 4.1 or any other provision of this Lease to the contrary, Base Rent shall, at Lessor's option, become due and payable quarterly in advance.
13.5 BREACH BY LESSOR. Lessor shall not be deemed in breach of this Lease unless Lessor fails within a reasonable time to perform an obligation required to be performed by Lessor. For purposes of this Paragraph 13.5, a reasonable time shall in no event be less than thirty (30) days after receipt by Lessor, and by any Lender(s) whose name and address shall have been furnished to Lessee in writing for such purpose, of written notice specifying wherein such obligation of Lessor has not been performed; provided, however, that if the nature of Lessor's obligation is such that more than thirty (30) days after such notice are reasonably required for its performance, then Lessor shall not be in breach of this Lease if performance is commenced within such thirty (30) day period and thereafter diligently pursued to completion.
14. CONDEMNATION. If the Premises or any portion thereof are taken under the power of eminent domain or sold under the threat of the exercise of said power (all of which are herein called "condemnation"), this Lease shall terminate as to the part so taken as of the date the condemning authority takes title or possession, whichever first occurs. If more than ten percent (10%) of the floor area of the Premises, or more than twenty-five percent (25%) of the portion of the Common Areas designated for Lessee's parking, is taken by condemnation, Lessee may, at Lessee's option, to be exercised in writing within ten (10) days after Lessor shall have given Lessee written notice of such taking (or in the absence of such notice, within ten (10) days after the condemning authority shall have taken possession) terminate this Lease as of the date the condemning authority takes such possession. If Lessee does not terminate this Lease in accordance with the foregoing, this Lease shall remain in full force and effect as to the portion of the Premises remaining, except that the Base Rent shall be reduced in the same proportion as the rentable floor area of the Premises taken bears to the total rentable floor area of the Premises. No reduction of Base Rent shall occur if the condemnation does not apply to any portion of the Premises. Any award for the taking of all or any part of the Premises under the power of eminent domain or any payment made under threat of the exercise of such power shall be the property of Lessor, whether such award shall be made as compensation for diminution of value of the leasehold or the taking of the fee, or as severance damages; provided, however, that Lessee shall be entitled to any compensation, separately awarded to Lessee for Lessee's relocation expenses and/or loss of Lessee's Trade Fixtures. In the event that this Lease is not terminated by reason of such condemnation, Lessor shall to the extent of its net severance damages received, over and above Lessee's Share of the legal and other expenses incurred by Lessor in the condemnation matter, repair any damage to the Premises caused by such condemnation authority. Lessee shall be responsible for the payment of any amount in excess of such net severance damages required to complete such repair.
15. BROKERS' FEES.
15.1 PROCURING CAUSE. The Broker(s) named in Paragraph 1.10 is/are the procuring cause of this Lease.
15.2 ADDITIONAL TERMS. Unless Lessor and Broker(s) have otherwise agreed in
writing, Lessor agrees that: (a) if Lessee exercises any Option (as defined in
Paragraph 39.1) granted under this Lease or any Option subsequently granted, or
(b) if Lessee acquires any rights to the Premises or other premises in which
Lessor has an interest, or (c) if Lessee remains in possession of the Premises
with the consent of Lessor after the expiration of the term of this Lease after
having failed to exercise an Option, or (d) if said Brokers are the procuring
cause of any other lease or sale entered into between the Parties pertaining to
the Premises and/or any adjacent property in which Lessor has an interest, or
(e) if Base Rent is increased, whether by agreement or operation of an
escalation clause herein, then as to any of said transactions, Lessor shall pay
said Broker(s) a fee in accordance with the schedule of said Broker(s) in effect
at the time of the execution of this Lease.
15.3 ASSUMPTION OF OBLIGATIONS. Any buyer or transferee of Lessor's interest in this Lease, whether such transfer is by agreement or by operation of law, shall be deemed to have assumed Lessor s obligation under this Paragraph 15. Each Broker shall be an intended third party beneficiary of the provisions of Paragraph 1.10 and of this Paragraph 15 to the extent of its interest in any commission arising from this Lease and may enforce that right directly against Lessor and its successors.
15.4 REPRESENTATIONS AND WARRANTIES. Lessee and Lessor each represent and warrant to the other that it has had no dealings with any person, firm, broker or finder other than as named in Paragraph 1.10{a) in connection with the negotiation of this Lease and/or the consummation of the transaction contemplated hereby, and that no broker or other person, firm or entity other than said named Broker(s) is entitled to any commission or finder's fee in connection with said transaction. Lessee and Lessor do each hereby agree to indemnify, protect, defend and hold the other harmless from and against liability for compensation or charges which may be claimed by any such unnamed broker, finder or other similar party by reason of any dealings or actions of the indemnifying Party, including any costs, expenses, and/or attorneys' fees reasonably incurred with respect thereto.
16. TENANCY AND FINANCIAL STATEMENTS.
16.1 TENANCY STATEMENT. Each Party (as "RESPONDING PARTY") shall within ten
(10) days after written notice from the other Party (the "Requesting Party")
execute, acknowledge and deliver to the Requesting Party a statement in writing
in a form similar to the then most current "Tenancy Statement" form published by
the American Industrial Real Estate Association, plus such additional
information, confirmation and/or statements as may be reasonably requested by
the Requesting Party.
16.2 FINANCIAL STATEMENT. If Lessor desires to finance, refinance, or sell the Premises or the Building, or any part thereof, Lessee and all Guarantors shall deliver to any potential lender or purchaser designated by Lessor such financial statements of Lessee and such Guarantors as may be reasonably required by such lender or purchaser, including but not limited to Lessee's financial statements for the past three (3) years. All such financial statements shall be received by Lessor and such lender or purchaser in confidence and shall be used only for the purposes herein set forth.
17. LESSOR'S LIABILITY. The term "LESSOR" as used herein shall mean the owner or owners at the time in question of the fee title to the Premises. In the event a transfer of Lessor's title or interest in the Premises or in this Lease, Lessor shall deliver to the transferee or assignee (in cash or by credit) any unused Security Deposit held by Lessor at the time of such transfer or assignment. Except as provided in Paragraph 15.3, upon such transfer or assignment and delivery of the Security Deposit, as aforesaid, the prior Lessor shall be relieved of all liability with respect to the obligations and/or covenants under this Lease thereafter to be performed by the Lessor. Subject to the foregoing, the obligations and/or covenants in this Lease to be performed by the Lessor shall be binding only upon the Lessor as hereinabove defined.
18. SEVERABILITY. The invalidity of any provision of this Lease, as determined by a court of competent jurisdiction, shall in no way affect the validity of any other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Any monetary payment due Lessor hereunder, other than late charges, not received by Lessor within ten (10) days following the date on which it was due, shall bear interest from the date due at the prime rate charged by the largest state chartered bank in the state in which the Premises are located plus four percent (4%) per annum, but not exceeding the maximum rate allowed by law, in addition to the potential late charge provided for in Paragraph 13.4.
20. TIME OF ESSENCE. Time is of the essence with respect to the performance of all obligations to be performed or observed by the Parties under this Lease.
21. RENT DEFINED. All monetary obligations of Lessee to Lessor under the terms of this Lease are deemed to be rent.
22. NO PRIOR OR OTHER AGREEMENTS; BROKER DISCLAIMER. This Lease contains all agreements between the Parties with respect to any matter mentioned herein, and no other prior or contemporaneous agreement or understanding shall be effective. Lessor and Lessee each represents and warrants to the Brokers that it has made, and is relying solely upon, its own investigation as to the nature, quality, character and financial responsibility of the other Party to this Lease and as to the nature, quality and character of the Premises. Brokers have no responsibility with respect thereto or with respect to any default or breach hereof by either Party. Each Broker shall be an intended third party beneficiary of the provisions of this Paragraph 22.
23. NOTICES.
23.1 NOTICE REQUIREMENTS. All notices required or permitted by this Lease shall be in writing and may be delivered in person (by hand or by messenger or courier service) or may be sent by regular, certified or registered mail or U.S. Postal Service Express Mail, with postage prepaid, or by facsimile transmission during normal business hours, and shall be deemed sufficiently given if served in a manner specified in this Paragraph 23. The addresses noted adjacent to a Party's signature on this Lease shall be that Party's address for delivery or mailing of notice purposes. Either Party may by written notice to the other specify a different address for notice purposes, except that upon Lessee's taking possession of the Premises, the Premises shall constitute Lessee's address for the purpose of mailing or delivering notices to Lessee. A copy of all notices required or permitted to be given to Lessor hereunder shall be concurrently transmitted to such party or parties at such addresses as Lessor may from time to time hereafter designate by written notice to Lessee.
23.2 DATE OF NOTICE. Any notice sent by registered or certified mail, return receipt requested, shall be deemed given on the date of delivery shown on the receipt card, or if no delivery date is shown, the postmark thereon. If sent by regular mail, the notice shall be deemed given forty-eight (48) hours after the same is addressed as required herein and mailed with postage prepaid. Notices delivered by United States Express Mail or overnight courier that guarantees next day
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delivery shall be deemed given twenty-four (24) hours after delivery of the same to the United States Postal Service or courier. If any notice is transmitted by facsimile transmission or similar means, the same shall be deemed served or delivered upon telephone or facsimile confirmation of receipt of the transmission thereby, provided a copy is also delivered via delivery or mail. If notice is received on a Saturday or a Sunday or a legal holiday, it shall be deemed received on the next business day.
24. WAIVERS. No waiver by Lessor of the Default or Breach of any term, covenant or condition hereof by Lessee, shall be deemed a waiver of any other term, covenant or condition hereof, or of any subsequent Default or Breach by Lessee of the same or any other term, covenant or condition hereof. Lessor's consent to, or approval of, any such act shall not be deemed to render unnecessary the obtaining of Lessor's consent to, or approval of, any subsequent or similar act by LESSEE, or be construed as the basis of an estoppel to enforce the provision or provisions of this Lease requiring such consent. Regardless of Lessor's knowledge of a Default or Breach at the time of accepting rent, the acceptance of rent by Lessor shall not be a waiver of any Default or Breach by Lessee of any provision hereof. Any payment given Lessor by Lessee may be accepted by Lessor on account of moneys or damages due Lessor, notwithstanding any qualifying statements or conditions made by Lessee in connection therewith, which such statements and/or conditions shall be of no force or effect whatsoever unless specifically agreed to in writing by Lessor at or before the time of deposit of such payment.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other, execute, acknowledge and deliver to the other a short form memorandum of this Lease for recording purposes. The Party requesting recordation shall be responsible for payment of any fees or taxes applicable thereto.
26. NO RIGHT TO HOLDOVER. Lessee has no right to retain possession of the Premises or any part thereof beyond the expiration or earlier termination of this Lease. In the event that Lessee holds over in violation of this Paragraph 26 then the Base Rent payable from and after the time of the expiration or earlier termination of this Lease shall be increased to two hundred percent (200%) of the Base Rent applicable during the month immediately preceding such expiration or earlier termination. Nothing contained herein shall be construed as a consent by Lessor to any holding over by Lessee.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed exclusive but shall, wherever possible, be cumulative with all other remedies law or in equity.
28. COVENANTS AND CONDITIONS. All provisions of this Lease to be observed or performed by Lessee are both covenants and conditions.
29. BINDING EFFECT; CHOICE OF LAW. This Lease shall be binding upon the Parties, their personal representatives, successors and assigns and be governed by the laws of the State in which the Premises are located. Any litigation between the Parties hereto concerning this Lease shall be initiated in the county in which the Premises are located.
30. SUBORDINATION; ATTORNMENT; NON-DISTURBANCE.
30.1 SUBORDINATION. This Lease and any Option granted hereby shall be subject and subordinate to any ground lease, mortgage, deed of trust, or other hypothecation or security device (collectively, "SECURITY DEVICE"), now or hereafter placed by Lessor upon the real property of which the Premises are a part, to any and all advances made on the security thereof, and to all renewals, modifications, consolidations, replacements and extensions thereof. Lessee agrees that the Lenders holding any such Security Device shall have no duty, liability or obligation to perform any of the obligations of Lessor under this Lease, but that in the event of Lessor's default with respect to any such obligation, Lessee will give any Lender whose name and address have been furnished Lessee in writing for such purpose notice of Lessor's default pursuant to Paragraph 13.5. If any Lender shall elect to have this Lease and/or any Option granted hereby superior to the lien of its Security Device and shall give written notice thereof to Lessee, this Lease and such Options shall be deemed prior to such Security Device, notwithstanding the relative dates of the documentation or recordation thereof.
30.2 ATTORNMENT. Subject to the non-disturbance provisions of Paragraph 30.3, Lessee agrees to attorn to a Lender or any other party who acquires ownership of the Premises by reason of a foreclosure of a Security Device, and that in the event of such foreclosure, such new owner shall not: (i) be liable for any act or omission of any prior lessor or with respect to events occurring prior to acquisition of ownership, (ii) be subject to any offsets or defenses which Lessee might have against any prior lessor, or (iii) be bound by prepayment of more than one month's rent.
30.3 NON-DISTURBANCE. With respect to Security Devices entered into by Lessor after the execution of this lease, Lessee's subordination of this Lease shall be subject to receiving assurance (a "non-disturbance agreement") from the Lender that Lessee's possession and this Lease, including any options to extend the term hereof, will not be disturbed so long as Lessee is not in Breach hereof and attorns to the record owner of the Premises.
30.4 SELF-EXECUTING. The agreements contained in this Paragraph 30 shall be effective without the execution of any further documents; provided, however, that upon written request from Lessor or a Lender in connection with a sale, financing or refinancing of Premises, Lessee and Lessor shall execute such further writings as may be reasonably required to separately document any such subordination or non-subordination, attornment and/or non-disturbance agreement as is provided for herein.
31. ATTORNEYS' FEES. If any Party or Broker brings an action or proceeding to enforce the terms hereof or declare rights hereunder, the Prevailing Party (as hereafter defined) in any such proceeding, action, or appeal thereon, shall be entitled to reasonable attorneys' fees. Such fees may be awarded in the same suit or recovered in a separate suit, whether or not such action or proceeding is pursued to decision or judgment. The term "Prevailing Party" shall include, without limitation, a Party or Broker who substantially obtains or defeats the relief sought, as the case may be, whether by compromise, settlement, judgment, or the abandonment by the other Party or Broker of its claim or defense. The attorneys' fee award shall not be computed in accordance with any court fee schedule, but shall be such as to fully reimburse all attorneys' fees reasonably incurred. Lessor shall be entitled to attorneys' fees, costs and expenses incurred in preparation and service of notices of Default and consultations in connection therewith, whether or not a legal action is subsequently commenced in connection with such Default or resulting Breach. Broker(s) shall be intended third party beneficiaries of this Paragraph 31.
32. LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS. Lessor and Lessor's agents shall have the right to enter the Premises at any time, in the case of an emergency, and otherwise at reasonable times for the purpose of showing the same to prospective purchasers, lenders, or lessees, and making such alterations, repairs, improvements or additions to the Premises or to the Building, as Lessor may reasonably deem necessary. Lessor may at any time place on or about the Premises or Building any ordinary "For Sale" signs and Lessor may at any time during the last one hundred eighty (180) days of the term hereof place on or about the Premises any ordinary "For Lease" signs. All such activities of Lessor shall be without abatement of rent or liability to Lessee.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either voluntarily or involuntarily, any auction upon the Premises without first having obtained Lessor's prior written consent. Notwithstanding anything to the contrary in this Lease, Lessor shall not be obligated to exercise any standard of reasonableness in determining whether to grant such consent.
34. SIGNS. Lessee shall not place any sign upon the exterior of the Premises or the Building, except that Lessee may, with Lessor's prior written consent, install (but not on the roof) such signs as are reasonably required to advertise Lessee's own business so long as such signs are in a location designated by Lessor and comply with Applicable Requirements and the signage criteria established for the Industrial Center by Lessor. The installation of any sign on the Premises by or for Lessee shall be subject to the provisions of Paragraph 7 (Maintenance, Repairs, Utility Installations, Trade Fixtures and Alterations). Unless otherwise expressly agreed herein, Lessor reserves all rights to the use of the roof of the Building, and the right to install advertising signs on the Building, including the roof, which do not unreasonably interfere with the conduct of Lessee's business; Lessor shall be entitled to all revenues from such advertising signs.
35. TERMINATION; MERGER. Unless specifically stated otherwise in writing by Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual termination or cancellation hereof, or a termination hereof by Lessor for Breach by Lessee, shall automatically terminate any sublease or lesser estate in the Premises; provided, however, Lessor shall, in the event of any such surrender, termination or cancellation, have the option to continue any one or all of any existing subtenancies. Lessor's failure within ten (10) days following any such event to make a written election to the contrary by written notice to the holder of any such lesser erest, shall constitute Lessor's election to have such event constitute the termination of such interest.
36. CONSENTS.
(a) Except for Paragraph 33 hereof (Auctions) or as otherwise provided herein, wherever in this Lease the consent of a Party is required to an act by or for the other Party, such consent shall not be unreasonably withheld or delayed. Lessor's actual reasonable costs and expenses (including but not limited to architects', attorneys', engineers' and other consultants' fees) incurred in the consideration of, or response to, a request by Lessee for any Lessor consent pertaining to this Lease or the Premises, including but not limited to consents to an assignment a subletting or the presence or use of a Hazardous Substance, shall be paid by Lessee to Lessor upon receipt of an invoice and supporting documentation therefor. In addition to the deposit described in Paragraph 12.2(e), Lessor may, as a condition to considering any such request by Lessee, require that Lessee deposit with Lessor an amount of money (in addition to the Security Deposit held under Paragraph 5) reasonably calculated by Lessor to represent the cost Lessor will incur in considering and responding to Lessee's request. Any unused portion of said deposit shall! be refunded to Lessee without interest. Lessor's consent to any act, assignment of this Lease or subletting of the Premises by Lessee shall not constitute an acknowledgment that no Default or Breach by Lessee of this Lease exists, nor shall such consent be deemed a waiver of any then existing Default or Breach, except as may be otherwise specifically stated in writing by Lessor at the time of such consent.
(b) All conditions to Lessor's consent authorized by this Lease are acknowledged by Lessee as being reasonable. The failure to specify herein ANY particular condition to Lessor's consent shall not preclude the impositions by Lessor at the lime of consent of such further or other conditions as are then reasonable with reference to the particular matter for which consent is being given.
37. GUARANTOR.
37.1 FORM OF GUARANTY. If there are to be any Guarantors of this Lease per Paragraph 1.11, the form of the guaranty to be executed by each such Guarantor shall be in the form most recently published by the American Industrial Real Estate Association, and each such Guarantor shall have the same obligations as Lessee under this lease, including but not limited to the obligation to provide the Tenancy Statement and information required in Paragraph 16.
37.2 ADDITIONAL OBLIGATIONS OF GUARANTOR. It shall constitute a Default of the Lessee under this Lease if any such Guarantor fails or refuses, upon reasonable request by Lessor to give: (a) evidence of the due execution of the guaranty called for by this Lease, including the authority of the Guarantor (and of the party signing on Guarantor's behalf) to obligate such Guarantor on said guaranty, and resolution of its board of directors authorizing the making of such guaranty, together with a certificate of incumbency showing the signatures of the persons authorized to sign on its behalf, (b) current financial statements of Guarantor as may from time to time be requested by Lessor, (c) a Tenancy Statement, or (d) written confirmation that the guaranty is still in effect.
38. QUIET POSSESSION. Upon payment by Lessee of the rent for the Premises and the performance of all of the covenants, conditions and provisions on Lessee's part to be observed and performed under this Lease, Lessee shall have quiet possession of the Premises for the entire term hereof subject to all of the provisions of this Lease.
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39. OPTIONS.
39.1 DEFINITION. As used in this Lease, the word "OPTION" has the following meaning: (a) the right to extend the term of this Lease or to renew this Lease or to extend or renew any lease that Lessee has on other property of Lessor; (b) the right of first refusal to lease the Premises or the right of first offer to lease the Premises or the right of first refusal to lease other property of Lessor or the right of first offer to lease other property of Lessor; (c) the right to purchase the Premises, or the right of first refusal to purchase the Premises, or the right of first offer to purchase the Premises, or the right to purchase other property of Lessor, or the right of first refusal to purchase other property of Lessor, or the right of first offer to purchase other property of Lessor.
39.2 OPTIONS PERSONAL TO ORIGINAL LESSEE. Each Option granted to Lessee in this Lease is personal to the original Lessee named in Paragraph 1.1 hereof, and cannot be voluntarily or involuntarily assigned or exercised by any person or entity other than said original Lessee while the original Lessee is in full and actual possession of the Premises and without the intention of thereafter assigning or subletting. The Options, if any, herein granted to Lessee are not assignable, either as a part of an assignment of this Lease or separately or apart therefrom, and no Option may be separated from this Lease in any manner, by reservation or otherwise.
39.3 MULTIPLE OPTIONS. In the event that Lessee has any multiple Options to extend or renew this Lease, a later option cannot be exercised unless the prior Options to extend or renew this Lease have been validly exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option, notwithstanding
any provision in the grant of Option to the contrary: (i) during the period
commencing with the giving of any notice of Default under Paragraph 13.1 and
continuing until the noticed Default is cured, or (ii) during the period of time
any monetary obligation due Lessor from Lessee is unpaid (without regard to
whether notice thereof is given Lessee), or (iii) during the time Lessee is in
Breach of this Lease, or (iv) in the event that Lessor has given to Lessee three
(3) or more notices of separate Defaults under Paragraph 13.1 during the twelve
(12) month period immediately preceding the exercise of the Option, whether or
not the Defaults are cured.
(b) The period of time within which an Option may be exercised shall not be extended or enlarged by reason of Lessee's inability to exercise an Option because of the provisions of Paragraph 39.4(a)
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due and
timely exercise of the Option, if, after such exercise and during the term of
this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee
for a period of thirty (30) days after such obligation becomes due (without any
necessity of Lessor to give notice thereof to Lessee), or (ii) Lessor gives to
Lessee three (3) or more notices of separate Defaults under Paragraph 13.1
during any twelve (12) month period, whether or not the Defaults are cured, or
(iii) if Lessee commits a Breach of this Lease.
40. RULES AND REGULATIONS. Lessee agrees that it will abide by, and keep and observe all reasonable rules and regulations ("Rules and Regulations") which Lessor may make from time to time for the management, safety, care, and cleanliness of the grounds, the parking and unloading of vehicles and the preservation of good order, as well as for the convenience of other occupants or tenants of the Building and the Industrial Center and their invitees.
41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable to Lessor hereunder does not include the cost of guard service or other security measures, and that Lessor shall have no obligation whatsoever to provide same. Lessee assumes all responsibility for the protection of the Premises, Lessee, its agents and invitees and their property from the acts of third parties.
42. RESERVATIONS. Lessor reserves the right, from time to time, to grant, without the consent or joinder of Lessee, such easements, rights of way, utility raceways, and dedications that Lessor deems necessary, and to cause the recordation of parcel maps and restrictions, so long as such easements, rights of way, utility raceways, dedications, maps and restrictions do not reasonably interfere with the use of the Premises by Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to effectuate any such easement rights, dedication, map or restrictions.
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any amount or sum of money to be paid by one Party to the other under the provisions hereof, the Party against whom the obligation to pay the money is asserted shall have the right to make payment "under protest" and such payment shall not be regarded as a voluntary payment and there shall survive the right on the part of said Party to institute suit for recovery of such sum. If it shall be adjudged that THERE was no legal obligation on the part of said Party to pay such sum or any part thereof, said Party shall be entitled to recover such sum or so much thereof as it WAS not legally required to pay under the provisions of this Lease.
44. AUTHORITY. If either Party hereto is a corporation, trust, or general or limited partnership, each individual executing this Lease on behalf of such entity represents and warrants that he or she is duly authorized to execute and deliver this Lease on its behalf. If Lessee is a corporation, trust or partnership, Lessee shall, within thirty (30) days after request by Lessor, deliver to Lessor evidence satisfactory to Lessor of such authority.
45. CONFLICT. Any conflict between the printed provisions of this Lease and the typewritten or handwritten provisions shall be controlled by the typewritten or handwritten provisions.
46. OFFER, PREPARATION of this Lease by either Lessor or Lessee or Lessor's agent or Lessee's agent and submission of same to Lessee or Lessor shall not be deemed an offer to lease. This Lease is not intended to be binding until executed and delivered by all Parties hereto.
47. AMENDMENTS. This Lease may be modified only in writing, signed by the parties in interest at the time of the modification. The Parties shall amend this Lease from time to time to reflect any adjustments that are made to the Base Rent or other rent payable under this Lease. As long as they do not materially change Lessee's obligations hereunder, Lessee agrees to make such reasonable non-monetary modifications to this Lease as may be reasonably required by an institutional insurance company or pension plan Lender in connection with the obtaining of normal financing or refinancing of the property of which the Premises are a part.
48. MULTIPLE PARTIES. Except as otherwise expressly provided herein, if more than one person or entity is named herein as either Lessor or Lessee, the obligations of such multiple parties shall be the joint and several responsibility of all persons or entities named herein as such Lessor or Lessee.
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(C)American Industrial Real Estate Association 1993
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR YOUR ATTORNEY'S REVIEW AND APPROVAL. FURTHER, EXPERTS SHOULD BE CONSULTED TO EVALUATE THE CONDITION OF THE PROPERTY FOR THE POSSIBLE PRESENCE OF ASBESTOS, UNDERGROUND STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE BROKERS OR THEIR CONTRACTORS, AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT RELATES; THE PARTIES SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE. IF THE SUBJECT PROPERTY IS IN A STATE OTHER THAN CALIFORNIA, AN ATTORNEY FROM THE STATE WHERE THE PROPERTY IS LOCATED SHOULD BE CONSULTED.
The parties hereto have executed this Lease at the place and on the dates specified above their respective signatures.
Executed at: . Executed at: .
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on: . on: .
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BY LESSOR: BY LESSEE:
ROSARIO LLC NORTH COAST BANK
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By: /s/ Thomas McCormack By: /s/ Kathy Pinkard
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Name Printed: THOMAS McCORMACK Name Printed: KATHY PINKARD
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Title: President Title: President/CEO
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By: By:
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Name Printed: Name Printed:
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Title: Title:
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Address: Address:
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Telephone: (707) 374-5586 Telephone: (707) 838-8200
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Facsimile: (707) 374-2766 Facsimile: (707) 838-8225
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BROKER: BROKER:
Executed at: Executed at:
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on: on:
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By: By:
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Name Printed: Name Printed:
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Title: Title:
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Address: Address:
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Telephone:( ) Telephone:( )
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Facsimile:( ) Facsimile: ( )
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NOTES: These forms are often modified to meet changing requirements of law and
needs of the Industry. Always write or call to make sure you are
utilizing the most current form: AMERICAN INDUSTRIAL REAL ESTATE
ASSOCIATION, 700 South Flower Street, Suite 600, Los Angeles, CA 90017.
(213) 687-8777.
MULTI-TENANT--MODIFIED NET
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ADDENDUM TO
STANDARD INDUSTRIAL LEASE
DATED: SEPTEMBER 1 1998
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BY AND BETWEEN: ROSARIO LLC (LESSOR) AND NORTH COAST BANK (LESSEE)
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ADDRESS: 50 SANTA ROSA AVENUE, SANTA ROSA, CALIFORNIA
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49. RENT ESCALATIONS
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(a) On THE FIRST ANNIVERSARY OF THIS LEASE AND EVERY ANNIVERSARY THEREAFTER, the monthly rent payable under Paragraph 1.5 and Paragraph 4 of the attached lease shall be adjusted by the increase, if any, from the date this lease commenced, in the Consumer Price Index of the Bureau of Labor Statistics of the U. S. Department of Labor for all Urban Consumers, San Francisco-Oakland-San Jose, California (1982-1984 base period) "All Items", herein referred to as "C.P.I."
(b) The monthly rent payable in accordance with paragraph (a) of this Addendum shall be calculated as follows: the rent payable for the first month of the term of this lease, as set forth in Paragraph 4 of the attached lease, shall be multiplied by a fraction, the numerator of which shall be the C.P.I. of the calendar month during which the adjustment is to take effect, and the denominator of which shall be the C.P.I. for the calendar month in which the original lease term commences. The sum so calculated shall constitute the new monthly rent hereunder, but in no event shall such new monthly rent be less than the rent payable for the month immediately preceding the date for rent adjustment.
(c) Pending receipt of the required C.P.I. and determination of the actual adjustment, Lessee shall pay an estimated adjusted rental, as reasonably determined by Lessor by reference to the then available C.P.I. information. Upon notification of the actual adjustment after publication of the required C.P.I., any overpayment shall be credited against the next installment of rent due, and any underpayment shall be immediately due and payable by Lessee. Lessor's failure to request payment of an estimated or actual rent adjustment shall not constitute a waiver of the right to any adjustment provide for in the lease or this addendum.
(d) In the event the compilation and/or publication of the C.P.I. shall be transferred to any other governmental department or bureau or agency or shall be discontinued, then the index most nearly the same as the C.P.I. shall be used to make such calculation. In the event that Lessor and Lessee cannot agree on such alternative index, then the matter shall be submitted for decision to the American Arbitration Association in accordance with the then rules of said association and the decision of the arbitrators shall be binding upon the parties. The cost of said Arbitrators shall be paid equally by Lessor and Lessee.
(e) In no event however, will Lessee's annual base rent CPI increase be less than 2% nor more than 4% per year.
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STANDARD LEASE CONDITIONS ADDENDUM
To Lease dated SEPTEMBER 1, 1998 by and between Lessor ROSARIO LLC and Lessee NORTH COAST BANK
50: TENANT IMPROVEMENT SCOPE:
Lessor shall grant Lessee a tenant improvement allowance equal to $94,150
to be applied towards Lessee's desired interior improvement alterations
and additions. Lessor shall make four (4) equal installment payments to
Lessee upon receipt by Lessee of invoices and charges to date by the
project architect and general contractor. These payments to Lessee should
mirror in some fashion Lessee's contract with the general contractor.
Lessee's architect shall prepare all necessary architectural plans, and Lessee shall be responsible to hire the approved general contractor and perform the agreed upon tenant improvement work. If requested by either Lessor or Lessee, Lessee will competitively bid the scope of work by at least 3 general contractors acceptable to both parties.
Said tenant improvement allowance shall include all construction labor and supplies, all architects costs, fee and permit costs associated with these alterations, and any code compliance alterations required by a governmental authority for any and all existing building components, restroom, HVAC equipment, etc.
Should the cost of the overall scope of work exceed the stipulated allowance, Lessee shall have the option to pay directly to the Landlord for the additional costs prior to occupancy, or Lessee may elect to borrow and finance from the Landlord up to an additional $35,360.00. If Lessee elects to borrow said additional tenant improvement money from Lessor, the Lessee shall repay the total amount to Lessor through monthly installments along with the base rent, to be known as "additional rent." Said "additional rent" shall carry an interest rate of 10% and shall be amortized over the initial 10 year term. By way of example only: if Lessee financed an additional $35,360, then the monthly "additional rent" due to Landlord would be: $467.28.
Lessor and Lessee to approve plans, specifications and costs covering the layout of the premises and the scope of responsibility of the Tenant Improvements between Lessor and Lessee as stipulated in the lease, and in Exhibit C the Work Letter, Exhibit A-1 the floor plan, and to be finalized in Architect's actual construction drawings. Said approval of the plans and the overall cost of the improvement work shall be forthcoming within fifteen (15) days of mutual acceptance hereof.
Lessee to commence Tenant Improvement work in a quality, good workmanlike manner in accordance with approved plans and specifications immediately upon receipt of all applicable building permits.
Lessor and Lessee shall inspect said premises within three (3) days of completion to ascertain that Tenant
Improvements have been installed in accordance with plans and specifications. Lessee shall provide to the general contractor a "punch list" of items not in accordance with plans and specifications or not installed in a good workmanlike manner.
When Lessee installs any portion of the tenant improvements, he or she shall have the full responsibility as indicated above and additionally Lessee shall remove all mechanic's liens, to satisfy all claims and meet all contract requirements with suppliers, contractors and employees arising out of said installation of improvements. Lessee to have workman compensation and liability insurance with a minimum $500,000 per occurrence for said installation and to name Lessor additional insured. Lessee shall indemnify and hold harmless Lessor for all claims of employees, invitees, materialmen, supplier arising out of said installation.
51. FINANCIAL INFORMATION Lessor shall have ten (10) days from mutual execution to review and approve financial statements and credit reports of Lessee.
Lessor may deliver such financial information in Lessor's possession to lending institutions, mortgage brokers, investors in the project or prospective purchasers.
Keegan & Coppin is authorized to release funds to Lessor upon full execution of Lease.
52. PERMITS Lessee will be responsible to obtain in a timely fashion all necessary building permits and Lessee will obtain a use permit and a wastewater discharge permit if required from the appropriate municipality within thirty (30) days of acceptance hereof. Lessee shall use due diligence in pursuing such permits and pay all costs associated with them. Lessee shall have the responsibility to maintain any use permits and to comply with all terms and conditions of said use permits during the term of this Lease. If Lessee's application for a use permit is denied, Lessor or Lessee may declare this lease void, in which event all deposits and prepaid rent shall be returned to Lessee.
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53. HAZARDOUS WASTE "If Lessee uses, stores, or becomes aware of any hazardous waste or substances as listed by Proposition 65, he will advise Lessor within three (3) days of such existence and either obtain approval from Lessor and the appropriate governing agencies within thirty (30) days from notice or remove and clean up said hazardous waste to standards required by the Lessor and the appropriate governing agencies within sixty (60) days from notice."
"If Lessee, his invitees, employees, agents or associates cause or allow a spill, or contamination of the premises, common area, soil or surrounding area, then it will be the responsibility of Lessee to clean up said hazard to the degree required and within the time frame set by any public entity which has jurisdiction and particularly in response to the Super Fund Act and Proposition 65."
54. AREA MEASUREMENT:
Lessee has reviewed and approved the system of measurement and the
useable and/or rentable area of the subject premises within.
55. Lessor and Lessee are advised to have legal review of the Lease.
AGREED BY: Lessee: /s/ Kathy Pinkard Date: 8/27/98
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AGREED BY: Lessor: /s/ Thomas McCormack Date: 8/31/98
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56. SIGNAGE:
Lessor to provide Lessee with suite entrance signage and lobby directory
signage as per building standards. Lessee at their cost may install their
name on the existing monument sign and on the exterior facade of the
building and shall meet all applicable codes and requirements. Lessee
shall satisfy themselves as to the quantity and type of exterior signage
available, and if necessary meet with city officials, and/or submit all
necessary applications and receive any necessary approvals within 15 days
of mutual acceptance hereof.
57. SEE ATTACHED OPTION TO EXTEND ADDENDUM.
58. SEE ATTACHED STANDARD/LEASE DISCLOSURE ADDENDUM.
ADDENDUM TO OFFICE LEASE
Dated September 1, 1998
By and Between ROSARIO LLC (LESSOR) AND NORTH COAST BANK (LESSEE)
57. OPTION TO EXTEND
A. Landlord hereby grants to Tenant the option to extend the term of this Lease for TWO PERIODS OF 5 YEARS EACH when the prior term expires upon each and all of the following terms and conditions:
(i) Tenant gives to Landlord, and Landlord actually receives, on a date which is prior to the date that the option period would commence (if exercised) by at least six (6) and not more than nine (9) months, a written notice of the exercise of the option to extend this lease for said additional term, time being of the essence. If said notification of the exercise of said option is not so given and received, this option shall automatically expire;
(ii) The provisions relating to default of Tenant set forth in paragraph 21 of this Lease are conditions of this Option;
(iii) All of the terms and conditions of this Lease except where specifically modified by this option shall apply;
(iv) The monthly rent for each month of the option period shall be calculated as follows:
(a) As used herein, the term "C.P.I." shall mean the Consumer Price Index of the Bureau of Labor Statistics of the U.S. Department of Labor for all Urban Consumers, San Francisco-Oakland-San Jose, California (1982-1984=100 base period) "All Items", herein referred to as "C.P.I.".
(b) The rent payable for the first month of the initial term of this Lease, as set forth in paragraph 4 of the attached lease, shall be multiplied by a fraction the numerator of which shall be the C.P.I. of the calendar month during which the option period commences and the denominator of which shall be the C.P.I. for the month in which the original Lease term commenced. The sum calculated shall constitute the new monthly rent during the option period, but, in no event, shall such new monthly rent be less than the rent payable for the month immediately preceding the commencement of the option period.
(c) Pending receipt of the required C.P.I. and determination of the actual adjustment, Tenant shall pay an estimated adjusted rental, as reasonably determined by Landlord by reference to the then available C.P.I. information. Upon notification of the actual adjustment after publication of the required C.P.I., any overpayment shall be credited against the next installment of rent due, and any underpayment shall be immediately due and payable by Tenant. Landlord's failure to request payment of an estimated or actual rent adjustment shall not constitute a waiver of the right to any
adjustment provided for in the Lease or this addendum.
(d) In the event the compilation and/or publication of the C.P.I. shall be transferred to any other governmental department or bureau or agency or shall be discontinued, then the index most nearly the same as the C.P.I. shall be used to make such calculation. In the event that Landlord and Tenant cannot agree on such alternative index, then the matter shall be submitted for decision to the American Arbitration Association in accordance with the then rules of said association and the decision of the arbitrators shall be binding upon the parties. The cost of said Arbitrators shall be paid equally by Landlord and Tenant.
(e) In no event however will Lessee's annual base rent increase be less
than 2%, nor more than
4% per year.
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58. STANDARD LEASE DISCLOSURE ADDENDUM
NOTICE TO OWNERS, BUYERS AND TENANTS REGARDING HAZARDOUS WASTES OR SUBSTANCES AND UNDERGROUND STORAGE TANKS
Comprehensive federal and state laws and regulations have been enacted in the last few years in an effort to develop controls over the use, storage, handling, cleanup, removal and disposal of hazardous wastes or substances. Some of these laws and regulations, such as, for example, the so-called "Super Fund Act", provide for broad liability schemes wherein an owner, tenant or other user of the property may be liable for cleanup costs and damages regardless of fault. Other laws and regulations set standards for tire handling of asbestos or establish requirements for the use, modification, abandonment, or closing of underground storage tanks.
It is not practical or possible to list all such laws and regulations in this Notice. Therefore, lessors and lessees are urged to consult legal counsel to determine their respective rights and liabilities with respect to the issues described in this Notice as well as other aspects of the proposed transaction. If various materials that have been or may be in the future determined to be toxic, hazardous or undesirable, or are going to be used, stored, handled or disposed of on the property, or if the property has or may have underground storage tanks for storage of such hazardous materials, or that such materials may be in tire equipment, improvements or soil, it is essential that legal and technical advice be obtained to determine, among other things, what permits and approvals have been or may be required, if any, the estimated costs and expenses associated with the use, storage, handling, cleanup, removal or disposal of the hazardous wastes or substances and what contractual provisions and protection are necessary or desirable. It may also be important to obtain expert assistance for site investigations and building inspections. The past uses of the property may provide valuable information as to the likelihood of hazardous wastes or substances, or underground storage tanks being on the property.
The term "hazardous wastes or substances" is used in this Notice in its very broadest sense and includes, but is not limited to, all those listed under Proposition 65, petroleum base products, paints and solvents, lead, cyanide, DDT, printing inks, acids, pesticides, ammonium compounds, asbestos, PCBs and other chemical products. Hazardous wastes or substances and underground storage tanks may be present on all types of real property. This Notice is, therefore, meant to apply to any transaction involving any type of real property, whether improved or unimproved.
Although Keegan & Coppin Co., Inc. or its salespeople, will disclose any knowledge it actually possesses with respect to the existence of hazardous wastes or substances, or underground storage tanks on the property, Keegan & Coppin Co., Inc. has not made investigations or obtained reports regarding the subject matter of this Notice, except as may be described in a separate written document, studies or investigation by experts. Therefore, unless there are additional documents or studies attached to this notice, lease or contract, this will serve as notification that Keegan & Coppin Co., Inc. or its salespeople make no representation regarding the existence or non-existence of hazardous wastes or substances, or underground storage tanks on the property. You should contact a professional, such as a civil engineer, geologist, industrial hygienist or other persons with experience in these matters to advise you concerning the property.
AMERICANS WITH DISABILITIES ACT (ADA)
On July 26, 1991, the federal legislation known as the Americans with Disabilities Act (ADA) was signed into law by President Bush. The purpose of the (ADA)is to integrate persons with disabilities into the economic and social mainstream of American life. Title III of the ADA applies to Lessors and Lessees of "places of public accommodation" and "commercial facilities", and requires that places of public accommodation undertake "readily achievable" removal of communication and access barriers to the disabled. This requirement of Title III of
the ADA is effective January 26, 1992.
It is important that building owners identify and undertake "readily achievable" removal of any such barriers in the common areas, sidewalks, parking lots and other areas of the building under their control.
The lessor and lessee is responsible for compliance with ADA relating to removal of barriers within the workplace i.e., arrangement of interior furnishings and access within the premises, and any improvements installed by lessor and lessee.
Keegan & Coppin Company, Inc. recommends that both parties seek expert advice regarding the implications of the Act as it affects this agreement.
ALQUIST-PRIOLO:
The property which is the subject of this contract may be situated in a Special Study Zone as designated under the Alquist-Priolo Geologic Hazard Act, Sections 2621-2625, inclusive, of the California Public Resources Code; and, as such, the construction or development on this property of any structure for human occupancy may be subject to the findings of a geologic report prepared by a geologist registered in the State of California, unless such report is waived by the City or County under the terms of that act. No representations on the subject are made by the lessor or agent, and the lessee should make his own inquiry or investigation".
FLOOD HAZARD AREA DISCLOSURE:
The subject properly may be situated in a "Special Flood Hazard Area" as set forth on a Federal Emergency Management Agency (FEMA) "Flood Insurance Rate Map" (FIRM) or "Flood Hazard Boundary Map" (FHBM). The law provides that, as a condition of obtaining financing on most structures located in a "Special Floods Hazard Area", lender requires flood insurance where the property or its attachments are security for a loan. Lessee should consult with experts concerning the possible risk of flooding.
Lessee: /s/ Kathy Pinkard Date: 8/27/98
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Lessor: /s/ Thomas McCormack Date: 8/31/98
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EXHIBIT A
FIRST FLOOR - FLOOR PLAN
[GRAPHIC OMITTED]
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STANDARD OFFICE LEASE
FLOOR PLAN TO BE REPLACED WITH FINAL
FLOOR PLAN AGREED UPON
[LOGO] BETWEEN THE PARTIES
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[GRAPHIC OMITTED]
FULL-SERVICE GROSS
50 Santa Rosa Avenue
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GENERAL RULES
1. Lessee shall not suffer or permit the obstruction of any Common Areas,
including driveways, walkways and stairways.
2. Lessor reserves the right to refuse access to any persons Lessor in
good faith judges to be a threat to the safety, reputation, or property of the
Office Building Project and its occupants.
3. Lessee shall not make or permit any noise or odors that annoy or
interfere with other lessees or persons having business within the Office
Building Project.
4. Lessee shall not keep animals or birds within the Office Building
Project, and shall not bring bicycles, motorcycles or other vehicles into areas
not designated as authorized for same.
5. Lessee shall not make, suffer or permit litter except in appropriate
receptacles for that purpose.
6. Lessee shall not alter any lock or install new or additional locks or
bolts.
7. Lessee shall be responsible for the inappropriate use of any toilet
rooms, plumbing or other utilities. No foreign substances of any kind are to be
inserted therein.
8. Lessee shall not deface the walls, partitions or other surfaces of the
premises or Office Building Project.
9. Lessee shall not Suffer or permit any thing in or around the Premises
or Building that causes excessive vibration or floor loading in any part of the
Office Building Project.
10. Furniture, significant freight and equipment shall be moved into or
out of the building only with the Lessor's knowledge and consent, and subject
< > ch reasonable limitations, techniques and timing, as
may be designated by Lessor. Lessee shall be responsible for any damage to the
Office ,ding Project arising from any such activity
11. Lessee shall not employ any service or contractor for services or work
to be performed in the Building, except as approved by Lessor.
12. Lessor reserves the right to close and lock the Building on Saturdays,
Sundays and legal holidays, and on other days between the hours of ____"P.M."
and ____ "A.M." of the following day If Lessee uses the Premises during such
periods, Lessee shall be responsible for securely locking any doors it may have
opened for entry.
13. Lessee shall return all keys at the termination of its tenancy and
shall be responsible for the cost of replacing any keys that are lost.
14. No window coverings, shades or awnings shall be installed or used by
Lessee.
15. No Lessee, employee or invitee shall go upon the roof of the Building.
16. Lessee shall not suffer or permit smoking or carrying of lighted
cigars or cigarettes in areas reasonably designated by Lessor or by applicable
governmental agencies as non-smoking areas.
17. Lessee shall not use any method of heating or air conditioning other
than as provided by Lessor.
18. Lessee shall not install, maintain or operate any vending machines
upon the Premises without Lessor's written consent.
19. The Premises Shall not be used for lodging or manufacturing, cooking
or food preparation.
20. Lessee shall comply with all safety, fire protection and evacuation
regulations established by Lessor or any applicable governmental agency
21. Lessor reserves the right to waive any one of these rules or
regulations, and/or as to any particular Lessee, and any such waiver shall not
constitute a waiver of any other rule or regulation or any subsequent
application thereof to such Lessee.
22. Lessee assumes all risks from theft or vandalism and agrees to keep
its Premises locked as may be required.
23. Lessor reserves the right to make such other reasonable rules and
regulations as it may from time to time deem necessary for the appropriate
operation and safety of the Office Building Project and its occupants. Lessee
agrees to abide by these and such rules and regulations.
PARKING RULES
[THE FOLLOWING ITEMS 1-12 HAVE BEEN DELETED FROM ORIGINAL]
1. Parking areas shall be used only for parking by vehicles no longer than
full size, passenger automobiles heroin called "Permitted Size Vehicles."
Vehicles other than Permitted Size Vehicles are herein referred to as "Oversized
Vehicles?
2. Lessee shall not permit or allow any vehicles that belong to or are
controlled by Lessee or Lessee's employees, suppliers, shippers, customers,
invitees to be loaded, unloaded, or parked in areas other than those designated
by Lessor for such activities.
3. Parking stickers or identification devices shall be the property of
Lessor and be returned to Lessor by the holder thereof upon termination of the
holder's parking privilegeso Lessee will pay such replacement charge as is
reasonably established by Lessor for the loss of such devices.
4. Lessor reserves the right to refuse the sale of monthly identification
devices to any person or entity that willfully refuses to comply with the
applicable rules, regulations, laws and/or agreements.
5. Lessor reserves the right to relocate all or a part of parking spaces
from floor to floor, within one floor, and/or to reasonably adjacent offsite
location(s), and to reasonably allocate them between compact and standard size
spaces, as long as the same complies with applicable laws, ordinances and
regulations.
6. Users of the parking area will obey all posted signs and park only in
the areas designated for vehicle parking.
7. Unless otherwise instructed, every person using the parking area is
required to park and lock his own vehicle. Lessor will not be responsible for
any damage to vehicles, injury to persons or loss of property, all of which
risks are assumed by the party using the parking area.
8. Validation, if established, will be permissible only by such method or
methods as Lessor and/or its licensee may establish at rates generally
applicable to visitor parking.
9. The maintenance, washing, waxing or cleaning of vehicles in the parking
structure or Common Areas is prohibited.
10 Lessee shall be responsible for seeing that all of its employees,
agents and invitees comply with the applicable parking rules, regulations, laws
and agreements.
11. Lessor reserves the right to modify these rules and/or adopt such
other reasonable and non-discriminatory rules and regulations as it may deem
necessary for the proper operation of the parking area.
12. Such parking use as is herein provided is intended merely as a license
only and no bailment is intended or shall be created hereby.
(c) 1984 American Industrial Real Estate Association FULL SERVICE-GROSS
EXHIBIT B
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WORK LETTER TO STANDARD OFFICE LEASE
The Premises shall be constructed in accordance with Lessor's Standard Improvements, as follows: those certain architectural drawings and specifications to be created by the project architect and mutually agreed upon between Lessee and Lessor.
Lessee shall be responsible to hire the project architect, who shall be legally certified.
Lessee shall also be responsible to hire the project general contractor who shall be licensed and bonded, and together/Lessee and the general contractor shall post the necessary notices of < > non-responsibility for the landlord, secure the necessary insurance for the work to be performed, and shall relieve Lessor from the obligation and responsibility to perform any aspect of the improvement work. The general contractor shall use good quality, standard commercial grade materials for the improvement work.
See Addendum #50 for continuation.
1. Petitions
2. Wall Surface
3. Draperies
4. Carpeting
5. Doors
6. Electrical and Telephone Outlets
7. Ceiling
8. Lighting
9. Heating and Air Conditioning Ducts
10. Sound Proofing
11. Plumbing
(Copyright)1984 American Industrial Real Estate Association FULL SERVICE-NET
EXHIBIT C
PAGE 1 OF 2 PAGES
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12. Entrance Doors
13. Completion of Improvements Lessor shall construct and complete the Premises substantially in accordance with the plans and specifications prepared by________________________ _______________________________________________________________________ , dated T.B.D.__________________________________________________________________________ consisting of sheets_______________________________
14 Preparation of Plans and Specifications Within _____ days after the date of this Lease Lessor shall prepare at its cost and deliver to Lessee for its approval_____ copies of preliminary plans and specifications for the completion of the Premises, which plans and specifications shall itemize the work to be done by each party, including a cost estimate of any work required of Lessor in excess of Lessor's Standard Improvements. Lessee shall approve said preliminary plans and specifications and preliminary cost estimate or specify with particularity its objection thereto within days ______ following receipt thereof Failure to so approve or disapprove within said period o[ time shall constitute approval thereof. If Lessee shall reject said preliminary plans and specifications either partially or totally, and they cannot in good faith be modified within ten (10) days after such rejection to be acceptable to Lessor and Lessee, this Lease shall terminate and neither party shall thereafter be obligated to the other party for any reason whatsoever having to do with this Lease, except that Lessee shall be refunded any security deposit or prepaid rent The plans and specifications, when approved by Lessee, shall supersede any prior agreement concerning the improvements.
15. Construction If Lessor's cost of constructing the Improvements in the Premises exceeds Lessor's Standard Improvements, Lessee shall pay to Lessor in cash before the commencement of such construction a sum equal to such excess. If the final plans and specifications are approved by Lessor and Lessee and Lessee pays Lessor for such excess, then Lessor shall, at its sole cost and expense, construct the Improvements substantially in accordance with said approved final plans and specifications and all applicable rules, regulations, laws or ordinances.
16. Completion.
16.1 Lessor shall obtain a building permit to construct the Improvements
as soon as possible.
16.2 Lessor shall complete the construction of the Improvements as soon as
reasonably possible after the obtaining of necessary building permits.
16.3 The term "Completion" as used in this Work Letter, is hereby defined
to mean the date tile building department of the municipality having
jurisdiction of the Premises shall have made a final inspection of tile
Improvements and authorized a final release of restrictions on the use of public
utilities in connection therewith and the same are in a broom clean condition
16.4 Lessor shall use its best efforts to achieve Completion of the
Improvements on or before the Commencement Date set forth in paragraph 15 of the
Basic Lease Provisions or within one hundred eighty (180) days after Lessor
obtains the building permit from the applicable building department, whichever
is later.
16.5 In the event that the improvements or any portion there of have not
reached Completion by the Commencement Date, this Lease shall not be invalid,
but rather Lessor shall complete the same as soon thereafter as is possible and
Lessor shall not be liable to Lessee for damages in any respect whatsoever.
16.6 If Lessor shall be delayed at any trine in the progress of the
construction of [he improvements or any portion thereof by extra work, changes
in construction ordered by Lessee, or by strikes, lockouts, fire, delay in
transportation, unavoidable casualties, rain or weather conditions, governmental
procedures or delay, or by any other cause beyond Lessor's control, then the
Commencement Date established in paragraph 1.5 of the Lease shall be extended by
the period of such delay
17. Term Upon Completion of the improvements as defined in paragraph 16 3. above, Lessor and Lessee shall execute an amendment to the Lease setting forth the date of tender of possession as defined in paragraph 3.2.1 of the Lease or of actual taking of possession, whichever first occurs, as the Commencement Date of this Lease
18. Work Done by Lessee Any work done by Lessee shall be done only with Lessor's prior written consent and in conformity
with a valid building permit and all applicable rules, regulations, laws and ordinances, and be done in a good and workmanlike manner of good and sufficient materials All work shall be done only with union labor and only by contractors approved by Lessor. it being understood that all plumbing, mechanical, electrical wiring and ceiling work are to be done only by contractors disengagement by Lessor.
19. Taking of Possession of Premises
Lessor shall notify Lessee of the Estimated Completion Date at least ten
(10) days before said date Lessee shall thereafter have the right to enter the
Premises to commence construction of any Improvements Lessee is to construct and
to equip and fixturize the Premises. as long as such entry does not interfere
with Lessor's work Lessee shall take possession of the Premises upon the tender
thereof as provided in paragraph 3.2.1 of the Lease to which this Work Letter is
attached. Any entry by Lessee of the Premises under this paragraph shall be
under all of the terms and provisions of the Lease to which this Work Letter is
attached.
20. Acceptance of Premises
Lessee shall notify Lessor in writing of any items that Lessee deems incomplete or incorrect in order for the Premises to be acceptable to Lessee within ten (10) days following Tender of Possession as set forth in paragraph 3.2.1 of the Lease to which this Work Letter is attached. Lessee shall be deemed to have accepted the Premises and approved construction if Lessee does not deliver such a list to Lessor within said number of days.
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(c) 1984 American Industrial Real Estate Association SERVICE-NET
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EXHIBIT C
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NOTE: These forms are often modified to meet changing requirements of law and needs of the industry Always write or call to make sure you are utilizing the most current form: AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION, 345 So. Figueroa St., M-1, Los Angeles. CA 90071. (213) 687-8777