California 6022 92-2115369
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of incorp- Classification Code Number) Identification No.)
oration or organization)
----------------
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MICHAEL R. WYMAN Copies to:
Chairman and Chief Executive Officer JOSEPH G. MASON, ESQ.
FNB Bancorp GLENN T. DODD, ESQ.
975 El Camino Real Coudert Brothers LLP
South San Francisco, California 94080 303 Almaden Blvd., Fifth Floor
(650) 583-8450 San Jose, California 95110-2721
(Name, address, including zip code, and telephone (408) 297-9982
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number, including area code, of agent for service)
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. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.
(1) This Registration Statement relates to securities of the Registrant issuable to holders of common stock of First National Bank of Northern California, a national banking association ("FNB"), in the proposed plan of reorganization between FNB and the Registrant. Represents the approximate number of shares of common stock of the Registrant to be issued upon the consummation of the plan of reorganization, based upon the number of shares of FNB common stock outstanding on December 6, 2001, adjusted for the 5 percent stock dividend payable December 14, 2001 (including shares issuable upon the exercise of options pursuant to FNB's stock option plan), all as provided in the Agreement and Plan of Reorganization dated November 1, 2001, attached as Annex A to the attached proxy statement/prospectus.
(2) Pursuant to Rule 457(f), the registration fee was computed on the basis of $26.00, the market value of the common stock of FNB to be exchanged in the plan of reorganization, computed in accordance with Rule 457(c) on the basis of the average of the bid and asked price per share of such stock as quoted on the OTC Bulletin Board on December 6, 2001, and 2,574,346 shares of common stock of FNB which may be received by the Registrant pursuant to the plan of reorganization described herein.
[FIRST NATIONAL BANK OF NORTHERN CALIFORNIA LOGO]
January ___, 2002
Dear Shareholders:
You are cordially invited to attend a special meeting of the shareholders of First National Bank of Northern California.
The board of directors of First National Bank of Northern California has authorized a plan of reorganization under which First National Bank would become a wholly-owned subsidiary of a newly formed California corporation, FNB Bancorp. First National Bank shareholders will be asked to consider and vote on the plan of reorganization at the special meeting. This proposal is described in the accompanying proxy statement/prospectus. The agreement and plan of reorganization signed between First National Bank and FNB Bancorp is attached to this proxy statement/prospectus as Annex A.
In the plan of reorganization, each share of First National Bank common stock outstanding at the effective time of the reorganization will be converted into one share of FNB Bancorp common stock on a share-for-share basis. First National Bank common stock is currently quoted on the OTC Bulletin Board under the symbol "FNBD.OB". The parties to the plan of reorganization intend to file an application for listing of FNB Bancorp common stock on the Nasdaq National Market, to be effective on or as soon as practicable following the effective time of the reorganization.
The date, time, place and purpose of the special meeting are described in the accompanying notice of the special meeting of shareholders of First National Bank. (Notice of the meeting is also being sent to each shareholder of record by certified or registered mail at least ten days prior to the meeting, as required by 12 U.S. Code, Section 215a.) Whether or not you plan to attend the special meeting, please sign, date and promptly return the enclosed proxy card.
Michael R. Wyman Chairman and Chief Executive Officer
The date of the accompanying document is ________________, and is first being mailed to First National Bank shareholders on or about _________________.
FIRST NATIONAL BANK OF NORTHERN CALIFORNIA
975 El Camino Real, South San Francisco, California 94080
Notice of Special Meeting of Shareholders to be held on _________, ______________, 2002
To the shareholders of First National Bank of Northern California:
Notice is hereby given that the Board of Directors has called a special meeting of the shareholders of First National Bank, to be held on __________, _____________, 2002, at 7:30 p.m., local time, at the South San Francisco Branch Office of First National Bank, 211 Airport Boulevard, South San Francisco, California 94080, for the following purposes:
1. To consider and vote on a proposal to approve the Agreement and Plan of Reorganization, dated as of November 1, 2001, between FNB Bancorp and First National Bank of Northern California, attached as Annex A to the accompanying proxy statement/prospectus, and the reorganization transactions covered by the Agreement. The terms and conditions of the reorganization are more fully described in the accompanying 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.
Shareholders of record at the close of business on November 21, 2001, 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,
Thomas C. McGraw, Secretary
South San Francisco, California
January ___, 2002
TABLE OF CONTENTS
Page
INTRODUCTION.............................................................. 1
Why Did You Send Me This Proxy Statement?.............................. 1
What Am I Voting On?................................................... 1
What Is the Recommendation of the Board of Directors?.................. 2
Who is Entitled to Vote?............................................... 2
What Constitutes A Quorum?............................................. 2
What is a "Broker Non-Vote"?........................................... 2
How Do I Vote By Proxy?................................................ 2
How Many Votes Do I Have?.............................................. 2
Can I Change My Vote After I Return My Proxy Card?..................... 3
How Do I Vote In Person?............................................... 3
What Happens If I Don't Vote?.......................................... 3
How Are First National Bank Executive Officers and Directors Expected
to Vote?............................................................... 3
Who Will Pay The Costs of This Proxy Solicitation?..................... 4
Who Can I Call If I Have Questions?.................................... 4
GENERAL INFORMATION REGARDING THE PROPOSED HOLDING
COMPANY REORGANIZATION.................................................... 5
Why Is The Board of Directors Proposing The Reorganization?............ 5
Will The Reorganization Change The Business of The Bank?............... 5
How Will The Reorganization Affect Shareholders?....................... 5
What Is the Vote Required For Approval of the Reorganization?.......... 5
Is The Reorganization Subject to Any Other Approvals?.................. 6
What About Shareholders Who Do Not Wish To Own Shares In FNB Bancorp
Or Simply Don't Want the Reorganization To Go Forward?................. 6
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What Are The Tax Consequences to Shareholders?......................... 6
Will Any Other Matters be Considered At the Special Meeting?........... 6
SHAREHOLDINGS OF CERTAIN BENEFICIAL OWNERS, DIRECTORS AND OFFICERS........ 7
How Many Shares of Stock are Owned by the First National Bank
Directors and Officers?................................................ 8
PRO FORMA FINANCIAL INFORMATION........................................... 11
SELECTED FINANCIAL DATA................................................... 11
SUMMARY OF PROPOSAL....................................................... 13
Information About FNB Bancorp and First National Bank of Northern
California............................................................. 13
Reasons for the Reorganization; Recommendations of the Board of
Directors.............................................................. 14
Recommendations to Shareholders........................................ 14
Federal Income Tax Consequences........................................ 14
Interests of FNB Bancorp and First National Bank Officers and
Directors in the Reorganization........................................ 14
Dissenters' Rights..................................................... 15
Trading Market for Shares.............................................. 15
Dividend Information................................................... 15
Comparison of Shareholder Rights....................................... 16
Regulatory Approvals................................................... 16
Conditions to the Completion of the Reorganization..................... 16
Termination of the Plan of Reorganization.............................. 17
Fees and Expenses of the Reorganization................................ 17
RISK FACTORS.............................................................. 18
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS.......................... 20
INFORMATION ABOUT FNB BANCORP............................................. 22
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Page
General................................................................ 22
Line of Credit......................................................... 22
Properties............................................................. 23
Legal Proceedings...................................................... 23
INFORMATION ABOUT FIRST NATIONAL BANK..................................... 24
General................................................................ 24
Properties............................................................. 25
Legal Proceedings...................................................... 26
SUPPLEMENTARY FINANCIAL INFORMATION....................................... 27
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS AND OTHER STATISTICAL DISCLOSURE OF FIRST NATIONAL BANK..... 28
Earnings Analysis...................................................... 28
Net Interest Income.................................................... 29
Provision and Allowance for Loan Losses................................ 34
Nonperforming Assets................................................... 37
Non-interest Income.................................................... 38
Non-interest Expense................................................... 38
Balance Sheet Analysis................................................. 38
Loans.................................................................. 39
Investment Portfolio................................................... 40
Deposits............................................................... 42
Capital................................................................ 44
Asset and Liability Management......................................... 45
Effect of Changing Prices.............................................. 46
SUPERVISION AND REGULATION................................................ 48
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Page
General................................................................ 48
Capital Standards...................................................... 49
Prompt Corrective Action............................................... 50
Additional Regulations................................................. 51
Limitation on Dividends................................................ 52
COMPETITION............................................................... 53
Competitive Data....................................................... 53
General Competitive Factors............................................ 53
Impact of Legislative and Regulatory Proposals......................... 54
THE SPECIAL MEETING OF SHAREHOLDERS....................................... 57
Date, Time and Place................................................... 57
Notice of Meeting...................................................... 57
Matters to be Considered at the Meeting................................ 57
Record Date; Stock Entitled to Vote; Quorum............................ 57
Number of Votes; Cumulative Voting..................................... 57
Votes Required......................................................... 58
Voting of Proxies...................................................... 58
Recommendation of the First National Bank Board of Directors........... 59
PROPOSAL NO. 1 - Proposed Holding Company Formation....................... 59
What Is the Structure of the Reorganization?........................... 60
Who Are the Parties to the Reorganization?............................. 61
Recommendation of the Board of Directors............................... 61
What Are the Reasons For the Reorganization?........................... 62
How Many of Bank's Shareholders Need to Approve the Reorganization?.... 63
What Are the Organizational Transactions?.............................. 63
What Are the Terms of the Reorganization?.............................. 63
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Page
When Will the Reorganization Be Completed?............................. 63
Are My Rights as a Shareholder Going to Change?........................ 64
What is the Effect of the Reorganization?.............................. 64
Will Share Certificates Be Exchanged?.................................. 64
Will the Directors and Officers of FNB Bancorp Be Different From the
Directors and Officers of First National Bank?......................... 65
Who are the Officers of FNB Bancorp?................................... 65
What About the First National Bank 1997 Stock Option Plan
and other Employee Benefits?........................................... 66
What are the Conditions to the Reorganization?......................... 67
Can the Reorganization Agreement be Terminated?........................ 68
Who Will Bear the Costs of the Reorganization?......................... 68
What are the Income Tax Consequences?.................................. 69
Will There Be a Market for My Newly Acquired FNB Bancorp Common
Stock?................................................................. 70
What About the Payment of Dividends?................................... 70
Will the Accounting Treatment Change?.................................. 70
What About Dissenting Shareholders' Rights?............................ 70
How Do the Rights of Holders of FNB Bancorp Common Stock Compare to
Those of First National Bank Common Stock?............................. 72
What About Resales of FNB Bancorp Common Stock?........................ 72
DESCRIPTION OF FNB BANCORP CAPITAL STOCK.................................. 73
Common Stock........................................................... 73
Preferred Stock........................................................ 73
DESCRIPTION OF FIRST NATIONAL BANK CAPITAL STOCK.......................... 74
Common Stock........................................................... 74
COMPARISON OF SHAREHOLDER RIGHTS.......................................... 74
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Page
General................................................................ 74
Authorized Capital Stock............................................... 75
Serial Preferred Stock................................................. 75
Pre-emptive Rights..................................................... 76
Indemnification of Directors and Executive Officers.................... 76
Quorum Requirements.................................................... 78
Shareholder Meetings and Action by Written Consent..................... 78
Cumulative Voting...................................................... 78
Amendment of Articles and Bylaws....................................... 79
Filling Vacancies on the Board of Directors............................ 79
Call of Annual or Special Meeting of Shareholders and Action by
Shareholders Without a Meeting......................................... 80
MARKET PRICE AND DIVIDEND INFORMATION..................................... 80
Market Quotations...................................................... 80
Dividends and Dividend Policy.......................................... 82
FIRST NATIONAL BANK AUDITED FINANCIAL STATEMENTS ......................... 83
FIRST NATIONAL BANK MANAGEMENT............................................ 83
Background and Business Experience of Management....................... 83
Committees of the Board of Directors................................... 85
Compensation of Directors.............................................. 86
Board Compensation Committee Report on Executive Compensation.......... 86
Executive Compensation................................................. 90
Employment Contracts and Termination of Employment and Change in
Control Arrangements................................................... 93
Comparison of First National Bank Shareholder Return................... 94
Section 16(a) Beneficial Ownership Reporting Compliance................ 95
Transactions with Management and Others................................ 96
Certain Business Relationships......................................... 96
Indebtedness of Management............................................. 96
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Page
EXPERTS................................................................... 96
LEGAL MATTERS............................................................. 96
SHAREHOLDER PROPOSALS..................................................... 97
ANNUAL DISCLOSURE STATEMENT............................................... 97
ANNUAL REPORT............................................................. 97
OTHER MATTERS............................................................. 97
WHERE YOU CAN FIND MORE INFORMATION....................................... 97
ANNEX A - Agreement and Plan of Reorganization............................ A-1
ANNEX B - Title 12, U.S. Code, Section 215(a),(b),(c) and (d) and OCC
Banking Circular No. 259........................................ B-1
ANNEX C - Audited Financial Statements of First National Bank of Northern
California (December 31, 2000, 1999 and 1998)................... C-1
ANNEX D - Unaudited Financial Statements of First National Bank of
Northern California (September 30, 2001)........................ D-1
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PROXY STATEMENT OF
FIRST NATIONAL BANK OF NORTHERN CALIFORNIA
975 El Camino Real
South San Francisco, CA 94080
PROSPECTUS OF FNB BANCORP
975 El Camino Real
South San Francisco, CA 94080
SPECIAL MEETING OF SHAREHOLDERS
_______________, 2002
This proxy statement/prospectus is being furnished by the board of directors of First National Bank of Northern California ("First National Bank") to be used at the special meeting of shareholders to be held at the South San Francisco Branch Office of First National Bank, 211 Airport Boulevard, South San Francisco, California 94080, on ___________, _______________, 2002, at 7:30 p.m. This proxy statement/prospectus is first being mailed to shareholders on or about __________________.
THE FOLLOWING QUESTION AND ANSWER SECTION HIGHLIGHTS SELECTED INFORMATION FROM THIS PROXY STATEMENT/PROSPECTUS AND MAY NOT CONTAIN ALL OF THE INFORMATION THAT YOU CONSIDER IMPORTANT. TO UNDERSTAND THE PROPOSED HOLDING COMPANY REORGANIZATION FULLY, WE URGE YOU TO READ CAREFULLY THIS ENTIRE DOCUMENT, INCLUDING THE ATTACHMENTS.
INTRODUCTION
WHY DID YOU SEND ME THIS PROXY STATEMENT?
We sent you this proxy statement/prospectus and the enclosed proxy card because the board of directors is soliciting your vote at the special meeting of shareholders. This proxy statement/prospectus summarizes the information that you need to know in order to cast an informed vote at the meeting.
WHAT AM I VOTING ON?
At the special meeting you will be asked to vote on:
o the plan of reorganization, which establishes a holding company for First National Bank; and
o any other business properly raised at the meeting.
WHAT IS THE RECOMMENDATION OF THE BOARD OF DIRECTORS?
Your Board of Directors believes that approval of the plan of reorganization is in the best interests of First National Bank and our shareholders. Therefore, we unanimously recommend that you vote "FOR" the plan of reorganization and the formation of FNB Bancorp as a bank holding company.
WHO IS ENTITLED TO VOTE?
If you were a shareholder of record as of the close of business on November 21, 2001, you are entitled to vote at the special meeting. There were 2,208,658 shares of First National Bank's common stock outstanding and entitled to be voted on the record date (subject to adjustment for the 5% stock dividend payable December 14, 2001).
WHAT CONSTITUTES A QUORUM?
To establish a quorum at the special meeting, a majority of the shares of common stock outstanding on the record date must be present either in person or by proxy. Abstentions and "broker non-votes" (see below) will be counted for purposes of establishing the presence of a quorum at the meeting.
WHAT IS A "BROKER NON-VOTE"?
A "broker non-vote" is a proxy submitted by a broker that does not indicate a vote because the broker has not received instructions from the shareholder on how to vote. In the case of this reorganization proposal, the broker does not have discretionary authority to vote, in the absence of instructions. If you do not provide your broker with instructions, your broker will not be prepared to vote and this will have the effect of a vote against the plan of reorganization.
HOW DO I VOTE BY PROXY?
Whether you plan to attend the meeting or not, we urge you to complete, sign and date the enclosed proxy card and to return it promptly in the envelope provided. Returning the proxy card will not affect your right to attend the meeting and vote in person.
If you properly fill in your proxy card and send it to us in time to vote, one of the individuals named on your proxy card will vote your shares as you have directed. If you sign the proxy card but do not make specific choices, your proxy will vote your shares as recommended by the board of directors as follows:
o "FOR" the plan of reorganization; and
o in the discretion of the proxy holders as to any other matter that may properly come before the meeting.
HOW MANY VOTES DO I HAVE?
Each share of common stock entitles you to one (1) vote. The proxy card indicates the number of shares of common stock that you own.
CAN I CHANGE MY VOTE AFTER I RETURN MY PROXY CARD?
Yes. Even after you have submitted your proxy card, you may change your vote at any time before your proxy votes at the special meeting if:
o you file either a written revocation of your proxy card, or a duly executed proxy card bearing a later date, with the Secretary of First National Bank prior to the meeting, or
o you attend the meeting and vote in person. Presence at the meeting will not revoke your proxy card unless and until you vote in person.
If you have instructed a broker to vote your shares, you must follow the directions received from your broker to change your vote or to vote at the special meeting.
HOW DO I VOTE IN PERSON?
If you plan to attend the meeting and vote in person, we will give you a ballot at the meeting. However, if your shares are held in the name of your broker, bank or other nominee, you must bring a proxy card and a letter from the nominee authorizing you to vote the shares and indicating that you are the beneficial owner of the shares on November 21, 2001, the record date for voting.
WHAT HAPPENS IF I DON'T VOTE?
If you "abstain" from voting, it has the same effect as if you voted "against" the plan of reorganization. Also, "broker non-votes" will have the effect of a vote "against" the plan of reorganization.
The inspectors of election for the meeting will count votes cast by proxy or in person at the meeting. Unless otherwise instructed, the inspectors of election will vote each valid proxy card, which is not revoked, as follows:
o "FOR" the plan of reorganization; and
o in the discretion of the proxy holders as to any other matter that may properly come before the meeting.
If any other matter is properly presented before the meeting, your proxy will vote in accordance with the recommendation of the board of directors or, if no recommendation is given, in their own discretion.
HOW ARE FIRST NATIONAL BANK EXECUTIVE OFFICERS AND DIRECTORS EXPECTED TO VOTE?
We currently expect that directors and officers will vote all of their shares in favor of the plan of reorganization. On the record date, November 21, 2001, our executive officers and directors, including their affiliates, had voting power with respect to an aggregate of 198,946 shares of our common stock (subject to adjustment for the 5% stock dividend payable December 14, 2001) or approximately 9.0% of the shares of our common stock then outstanding. This number relates only to the voting power of our executive officers and directors and does not include option shares beneficially owned but not yet exercised or outstanding.
WHO WILL PAY THE COSTS OF THIS PROXY SOLICITATION?
First National Bank and FNB Bancorp have agreed to pay their own expenses in connection with the plan of reorganization this solicitation, including the expense of preparing, assembling, printing and mailing this proxy statement/prospectus and the material used in this solicitation of proxies. The proxies will be solicited principally through the mails, but First National Bank's directors, officers and regular employees may solicit proxies personally or by telephone. Although there is no formal agreement to do so, First National Bank may reimburse banks, brokerage houses and other custodians, nominees and fiduciaries for their reasonable expenses in forwarding these proxy materials to their principals. In addition, First National Bank may pay for and utilize the services of individuals or companies not regularly employed by First National Bank in connection with the solicitation of proxies.
WHO CAN I CALL IF I HAVE QUESTIONS?
If you want additional copies of this proxy statement/prospectus, or if you want to ask questions about the plan of reorganization, you should contact:
Michael R. Wyman
Chairman and Chief Executive Officer
First National Bank of Northern California
975 El Camino Real
South San Francisco, CA 94080
Tel: (650) 583-8450
Fax: (650) 588-9695
GENERAL INFORMATION REGARDING
THE PROPOSED HOLDING COMPANY REORGANIZATION
WHY IS THE BOARD OF DIRECTORS PROPOSING THE REORGANIZATION?
Your board of directors believes that the reorganization will provide First National Bank with greater financial and corporate flexibility. With a holding company, First National Bank will have more options for structuring potential acquisitions and will be able to raise capital by means which are not currently available to First National Bank. Many banking institutions operating in California and elsewhere in the United States have formed holding companies, and the Board of Directors of First National Bank believes that the proposed reorganization is desirable to maintain and enhance the competitive position of First National Bank.
WILL THE REORGANIZATION CHANGE THE BUSINESS OF THE BANK?
No. The reorganization will not change the current business of First National Bank. Following the reorganization, the principal activity of FNB Bancorp, as a bank holding company, will be owning and operating First National Bank, which will continue to conduct its current business from its current offices. The principal executive offices of both First National Bank and FNB Bancorp will be located at 975 El Camino Real, South San Francisco, CA 94080, and their telephone number will be (650) 583-8450.
HOW WILL THE REORGANIZATION AFFECT SHAREHOLDERS?
In connection with this reorganization, you will receive one share of stock in the holding company for each share of First National Bank stock you currently own. Outstanding stock certificates will no longer represent an interest in First National Bank, but will instead represent an interest in FNB Bancorp.
As a result of the reorganization, you will no longer own stock directly in First National Bank, but will instead own stock in the holding company. Your rights will be governed by the FNB Bancorp's Articles of Incorporation and Bylaws and the California General Corporation Law rather than by the First National Bank Articles of Association and Bylaws and the National Bank Act and regulations of the Office of the Comptroller of the Currency.
WHAT IS THE VOTE REQUIRED FOR APPROVAL OF THE REORGANIZATION?
In order to approve the holding company reorganization, the plan of reorganization must receive the affirmative vote of not less than two-thirds (2/3) of the votes of all issued and outstanding shares of First National Bank common stock.
Your board of directors has unanimously approved the reorganization and recommends that you vote for it as well. Because the vote is based on the total number of shares outstanding rather than the votes cast at the meeting, your failure to vote would have the same effect as a vote against the reorganization. As of the record date, directors and executive officers of First National Bank currently have voting control over 198,946 shares of common stock (subject to
adjustment for the 5% stock dividend payable December 14, 2001), which is approximately 9.0% of the shares outstanding. We anticipate that the directors and executive officers will vote all their shares in favor of the reorganization.
IS THE REORGANIZATION SUBJECT TO ANY OTHER APPROVALS?
Yes. The plan of reorganization must also be approved by the federal
agencies that regulate national banks and bank holding companies, respectively:
the Office of the Comptroller of the Currency and the Board of Governors of the
Federal Reserve System. Applications have been filed for these approvals. On
September 14, 2001, the Office of the Comptroller of the Currency approved the
reorganization, and on September 21, 2001, the Federal Reserve Bank of San
Francisco approved the reorganization.
WHAT ABOUT SHAREHOLDERS WHO DO NOT WISH TO OWN SHARES IN FNB BANCORP OR SIMPLY DON'T WANT THE REORGANIZATION TO GO FORWARD?
By following certain procedures, you may dissent from the reorganization. If you vote against the reorganization and provide the appropriate written notice to First National Bank, you will have the right to demand an appraisal for your shares. These procedures are set forth in 12 U.S.C. 215a (b), (c) and (d), and OCC Banking Circular No. 259, which are attached as Annex B. Your board of directors does not intend to complete the reorganization if shareholders seek appraisals for more than 5% of the outstanding shares.
WHAT ARE THE TAX CONSEQUENCES TO SHAREHOLDERS?
First National Bank has received an opinion from its legal counsel that no gains or losses will be recognized by it or by you as a result of the reorganization, except for shareholders who dissent from the reorganization and receive the appraised value of their shares.
WILL ANY OTHER MATTERS BE CONSIDERED AT THE SPECIAL MEETING?
We are unaware of any matter to be presented at the meeting other than the reorganization proposal discussed in this proxy statement/prospectus. If other matters are properly presented at the meeting, then the proxy holders named in the proxy card will have authority to vote all properly executed proxies in accordance with their judgment on any such matter, including any proposal to adjourn or postpone the meeting. If you vote against the proposal, your proxy will not vote in favor of any proposal to adjourn or postpone the meeting if such postponement or adjournment is for the purpose of soliciting additional proxies to approve the proposal.
SHAREHOLDINGS OF CERTAIN BENEFICIAL OWNERS, DIRECTORS AND OFFICERS
The following table shows the beneficial ownership of the common stock of First National Bank as of September 30, 2001, by each person known to First National Bank who owned more than 5% of the common stock. "Beneficial ownership" is a technical term, broadly defined by the Securities and Exchange Commission to mean more than ownership in the usual sense. The common stock of First National Bank can be beneficially owned directly or indirectly. Indirect beneficial ownership by a shareholder means the shareholder has, or shares, through a contract, understanding or relationship, the power to vote or sell the stock, or has the right to acquire the stock within 60 days of November 21, 2001, the record date. The share amounts shown in this table, and in the footnotes, are subject to adjustment for the 5% stock dividend payable December 14, 2001.
================================================================================
Name and Address Amount and Nature of Percentage of
Beneficial Ownership Ownership(1)
--------------------------------------------------------------------------------
The Ricco Lagomarsino Trust 210,111 9.51
26 Hillcrest Drive
Daly City, CA 94014
--------------------------------------------------------------------------------
Thomas G. Atwood 214,236(2) 9.70
c/o Cypress Abbey Company
P.O. Box 516
Colma, CA 94014
--------------------------------------------------------------------------------
Cede & Co. (3) 674,559 30.54
Box 20, Bowling Green Station
New York, NY 10004
--------------------------------------------------------------------------------
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(1) Based upon 2,208,658 shares outstanding (not adjusted for the 5% stock dividend payable December 14, 2001).
(2) Includes 173,646 shares owned by Cypress Abbey Company, a corporation in which Mr. Atwood is the principal shareholder.
(3) Cede & Co. is the nominee of The Depository Trust Company of New York, New York, and acts as the record owner of securities held in "street name" for a number of brokerage firms and other financial institutions.
HOW MANY SHARES OF STOCK ARE OWNED BY THE FIRST NATIONAL BANK DIRECTORS AND OFFICERS?
The following table sets forth information with respect to beneficial ownership of the common stock of First National Bank by the Chairman and Chief Executive Officer, by the most highly compensated officers of First National Bank in 2000 (excluding Paul B. Hogan, formerly the President and Chief Operating Officer and a director of FNB Bancorp and First National Bank, who resigned all positions effective October 31, 2001), by each Director of First National Bank, and by all executive officers and Directors as a group. The Bank has only one class of shares outstanding, common stock, par value $1.25 per share.
At the close of business on the record date, directors and executive officers of First National Bank and their affiliates beneficially owned and were entitled to vote 198,946 shares of First National Bank common stock (subject to adjustment for the 5% stock dividend payable December 14, 2001), which represented approximately 9.0% of the 2,208,658 shares of First National Bank common stock outstanding on that date (subject to adjustment for the 5% stock dividend payable December 14, 2001). Each of those directors and executive officers is expected to vote, or cause to be voted, the First National Bank common stock owned by him or her "FOR" approval of the plan of reorganization at the special meeting of First National Bank shareholders.
==============================================================================================================
Shares Beneficially Owned
Name Positions Held as of September 30, 2001 (1)
With the Bank % of
Sole (2) Shared (3) Total
--------------------------------------------------------------------------------------------------------------
Michael R. Wyman Chairman of the Board, 2,844 21,039 1.08(4)
Chief Executive
Officer, Director
--------------------------------------------------------------------------------------------------------------
Thomas C. McGraw President, Chief Operating 242 105,485 4.79(5)
Officer, Secretary,
Director
--------------------------------------------------------------------------------------------------------------
Neil J. Vannucci Director 811 43,656 2.01(6)
--------------------------------------------------------------------------------------------------------------
Edward J. Watson Director 1,772 3,009 .22(7)
--------------------------------------------------------------------------------------------------------------
Daniel J. Modena Director 811 1,009 .08(8)
--------------------------------------------------------------------------------------------------------------
Lisa Angelot Director 9,573 ___ .43(9)
--------------------------------------------------------------------------------------------------------------
James B. Ramsey Senior Vice President, 2,348 ___ .11(10)
Chief Financial Officer
--------------------------------------------------------------------------------------------------------------
Jim D. Black Senior Vice President 1,762 1,209 .13(11)
Senior Loan Officer
--------------------------------------------------------------------------------------------------------------
Charles R. Key Senior Vice President 1,663 ___ .08(12)
Director, Information
Systems
--------------------------------------------------------------------------------------------------------------
Anthony J. Clifford Vice President, 1,713 ___ .08(13)
Branch Administrator
--------------------------------------------------------------------------------------------------------------
All directors and executive officers (10 persons) as a group 23,539 175,407 9.01(14)
==============================================================================================================================
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(1) This table is based upon information supplied by directors, executive officers and principal shareholders. The share amounts shown in this table, and in the footnotes to this table, are subject to adjustment for the 5% stock dividend payable December 14, 2001. Percentages are based upon 2,208,658 shares outstanding (not adjusted for the 5% stock dividend payable December 14, 2001).
(2) The named persons exercise sole voting and investment power with respect to shares listed in this column.
(3) The named persons share voting and investment power with respect to shares listed in this column.
(4) Includes 21,039 shares held by the Wyman Family Trust for which Mr. Wyman serves as co-trustee. Includes 2,058 shares of presently exercisable stock options under the Bank's 1997 Stock Option Plan. Excludes 5,708 shares held in the Bank's Deferred Compensation Plan.
(5) Includes 105,485 shares held by the Thomas C. and Virginia K. McGraw Family Trust for which Mr. McGraw serves as co-trustee. Includes 811 shares of presently exercisable stock options under the Bank's 1997 Stock Option Plan.
(6) Includes 43,656 shares held by the Vannucci Family Trust for which Mr. Vanucci serves as co-trustee and 811 shares of presently exercisable stock options under the Bank's 1997 Stock Option Plan.
(7) Includes 3,009 shares held in the Dreher, Garfinkle & Watson Money Purchase Pension Plan, under which Edward J. Watson and Eugene Garfinkle serve as Trustees and 811 shares of presently exercisable stock options under the Bank's 1997 Stock Option Plan.
(8) Includes 811 shares of presently exercisable stock options under the Bank's 1997 Stock Option Plan.
(9) 1,102 shares held by Ms. Angelot as Custodian for Eric Angelot and 115 shares held by Ms. Angelot as Custodian for Katherine Brandenberger. A total of 210,111 shares are held by the Ricco Lagomarsino Trust, for which Ms. Angelot serves as one of the co-trustees, and Ms. Angelot disclaims beneficial ownership of such shares. Includes 637 shares of presently exercisable stock options under the Bank's 1997 Stock Option Plan.
(10) Includes 1,748 presently exercisable stock options under the Bank's 1997 Stock Option Plan. Excludes 3,000 shares held in the Bank's Deferred Compensation Plan.
(11) Includes 1,762 presently exercisable stock options under the Bank's 1997 Stock Option Plan. Excludes 1,136 shares held in the Bank's Deferred Compensation Plan. Includes 180 shares held in trust for Greg Black and includes 180 shares held in trust for Janelle Black.
(12) Includes 1,663 presently exercisable stock options under the Bank's 1997 Stock Option Plan.
(13) Includes 1,649 presently exercisable stock options under the Bank's 1997 Stock Option Plan. Excludes 648 shares held in the Bank's Deferred Compensation Plan.
(14) Includes a total of 12,761 shares of presently exercisable stock options under the Bank's 1997 Stock Option Plan (subject to adjustment for the 5% stock dividend payable December 14, 2001). Excludes shares held under the Bank's Deferred Compensation Plan for the account of Messrs. Wyman, Ramsey, Black and Clifford.
PRO FORMA FINANCIAL INFORMATION
FNB Bancorp was incorporated on February 28, 2001, at the direction of the board of directors of First National Bank, for the purpose of becoming the holding company of First National Bank. At September 30, 2001, FNB Bancorp had no assets or liabilities, and it currently conducts no business activities. Consequently, no separate financial statements of FNB Bancorp, and no pro forma financial information reflecting the proposed combination of First National Bank with FNB Bancorp, is being presented in this proxy statement/prospectus. Upon consummation of the proposed plan of reorganization, the consolidated financial statements of FNB Bancorp and First National Bank will not differ in any significant respect from the financial statements of First National Bank presented in this proxy statement/prospectus.
SELECTED FINANCIAL DATA
The following table presents a condensed summary of the principal components of earnings, as well as per share data, and selected balance sheet data, for First National Bank of Northern California for the nine-month periods ended September 30, 2001 and 2000, and the five years ended December 31, 2000.
The nine-month interim period information is unaudited, while the year-end information is from audited annual reports.
FIRST NATIONAL BANK OF NORTHERN CALIFORNIA
SELECTED FINANCIAL DATA
Nine Months
Ended September 30, Year Ended December 31,
----------------------- -----------------------------------------------------------
(in thousands, except share data) 2001 2000 2000 1999 1998 1997 1996
----------------------- -----------------------------------------------------------
STATEMENT OF INCOME DATA:
Total interest income $24,099 $22,651 $30,862 $27,586 $24,739 $21,171 $18,778
Total interest expense 6,476 5,916 8,192 6,998 6,877 6,000 5,026
----------------------- -----------------------------------------------------------
Net interest income 17,623 16,735 22,670 20,588 17,862 15,171 13,752
Provision for loan losses 225 279 425 750 750 340 -
----------------------- -----------------------------------------------------------
Net interest income after
provision for loan losses 17,398 16,456 22,245 19,838 17,112 14,831 13,752
Total non interest income 2,309 2,992 3,781 2,785 2,654 2,452 2,424
Total non interest expenses 13,090 11,422 15,977 14,519 14,215 12,496 12,235
----------------------- -----------------------------------------------------------
Earnings before taxes 6,617 8,026 10,049 8,104 5,551 4,787 3,941
Income tax expense 2,203 2,940 3,263 2,887 1,508 1,771 1,440
----------------------- -----------------------------------------------------------
Net earnings $4,414 $5,086 $6,786 $5,217 $4,043 $3,016 $2,501
======================= ===========================================================
Net earnings per share:
Basic $2.00 $2.42 $3.07 $2.36 $1.83 $1.58 $1.38
Diluted $2.00 $2.42 $3.07 $2.36 $1.83 $1.58 $1.38
Weighted average shares outstanding
Basic 2,208,658 2,103,698 2,208,645 2,208,637 2,208,637 1,908,780 1,812,326
Diluted 2,212,553 2,104,691 2,210,338 2,208,637 2,208,637 1,908,780 1,812,326
Cash dividends per share $0.48 $0.48 $1.23 $1.00 $0.36 $0.15 $0.60
BALANCE SHEET DATA:
Assets $403,395 $374,370 $379,974 $348,054 $321,031 $290,733 $248,587
Net loans $284,912 $238,893 $229,669 $237,062 $203,884 $180,796 $146,159
Deposits $351,702 $326,778 $330,457 $305,361 $280,589 $256,490 $217,233
Shareholders' equity $47,129 $42,418 $42,786 $37,507 $35,761 $32,098 $29,407
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SUMMARY OF PROPOSAL
This summary highlights selected information in this document and may not contain all of the information that you consider important. For a more complete description of the terms of the plan of reorganization, you should carefully read this entire document and the other information to which it refers. See "Where You Can Find More Information" on page 97. The plan of reorganization is attached to this document as Annex A. We encourage you to read the plan of reorganization, since it is the legal document that governs the proposed transaction.
INFORMATION ABOUT FNB BANCORP AND FIRST NATIONAL BANK OF NORTHERN CALIFORNIA
(pages 22 through 27)
FNB BANCORP
975 El Camino Real
South San Francisco, California 94080
(650) 583-8450
FNB Bancorp was incorporated on February 28, 2001, in California as a for-profit corporation for the principal purpose of engaging in activities permitted for a bank holding company. FNB Bancorp has not yet commenced active operations. FNB was incorporated at the direction of the board of directors of First National Bank and its activities to date have been limited to corporate organizational matters, including the preparation of a notice to the Board of Governors of the Federal Reserve System of intent to become the holding company for First National Bank, registered under the Bank Holding Company Act of 1956, as amended. On September 21, 2001, the Federal Reserve Bank of San Francisco approved the holding company reorganization. After consummation of the reorganization, FNB Bancorp will act as a holding company for First National Bank and will be a legal entity separate and distinct from First National Bank. The operations of FNB Bancorp will be conducted at the same location and in the same facilities as the head office of First National Bank.
FIRST NATIONAL BANK
975 El Camino Real
South San Francisco, California 94080
(650) 583-8450
First National Bank is a national banking association, organized in 1963, with its administrative headquarters in South San Francisco, California. Originally chartered as "First National Bank of Daly City," the shareholders approved a change in the name to "First National Bank of Northern California" in 1995. First National Bank is locally owned and presently operates twelve banking offices within its primary service area of San Mateo County, California, in the cities of Colma, Daly City, South San Francisco, Milbrae, Pacifica, Half Moon Bay, San Mateo, Redwood City and Pescadero. First National Bank also serves the City and County of San Francisco through its Flower Mart Branch in San Francisco, California. First National Bank's primary business is servicing the deposit and loan business and commercial banking needs of individuals and small to mid-sized businesses within San Francisco and San Mateo Counties.
As a national banking association, First National Bank is subject to supervision and regulation by the Office of the Comptroller of the Currency and on September 14, 2001, obtained the approval of the Comptroller of the Currency to reorganize into a holding company structure with FNB Bancorp.
REASONS FOR THE REORGANIZATION; RECOMMENDATIONS OF THE BOARD OF DIRECTORS (page
61-62)
The board of directors of First National Bank believes that the
reorganization is in the best interests of First National Bank, its
shareholders, communities and banking customers. The directors expect that First
National Bank will be stronger in terms of growth and expansion opportunities
due to the greater flexibility of a bank holding company structure in the
acquisition or establishment of other businesses related to banking and in the
raising of capital, including borrowing as needed.
RECOMMENDATIONS TO SHAREHOLDERS (pages 59 through 62)
The board of directors of First National Bank believes that the reorganization is in your best interests and unanimously recommends that you vote "FOR" the proposal to approve the plan of reorganization.
FEDERAL INCOME TAX CONSEQUENCES (page 69)
The plan of reorganization has been structured so that, in general, FNB Bancorp and First National Bank and the shareholders of First National Bank will not recognize gain or loss for federal income tax purposes, except for taxes payable because of any cash received by First National Bank shareholders for dissenting shares. It is a condition, upon consummation of the reorganization, that FNB Bancorp and First National Bank receive a tax opinion to the effect, among other matters, that the reorganization should qualify as a tax-free transfer under the provisions of the Internal Revenue Code.
TAX MATTERS ARE VERY COMPLICATED. THE TAX CONSEQUENCES OF THE REORGANIZATION 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 REORGANIZATION, INCLUDING THE APPLICABLE FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS.
INTERESTS OF FNB BANCORP AND FIRST NATIONAL BANK OFFICERS AND DIRECTORS IN THE REORGANIZATION (PAGES 83 THROUGH 94)
Some of First National Bank's directors and officers have interests in the reorganization that are different from, or in addition to, yours, as further discussed below. As a result, these directors and officers may be more likely to vote to approve the plan of reorganization than shareholders of First National Bank generally.
The plan of reorganization provides that the directors and executive officers of First National Bank will continue to serve as directors and executive officers following consummation of the reorganization. Consequently, they will be entitled to, as applicable, director fees, executive compensation, continuation of indemnification rights and other benefits, which may be available to directors and executive officers. The reorganization will not constitute a "change of control" as defined under the Salary Continuation Agreements between First National Bank and its executive officers, Michael R. Wyman and James B. Ramsey, respectively, which entitle them to certain benefits upon termination of employment, nor will the reorganization constitute a "change
in control" under the First National Bank Profit Sharing and 401(k) Plan, the Deferred Compensation Plan or the 1997 Stock Option Plan. The members of the board of directors knew about these additional interests, and considered them, when they approved the transactions covered by the plan of reorganization.
At the close of business on November 21, 2001, directors and executive officers of First National Bank, and their affiliates, respectively, beneficially owned and were entitled to vote 198,946 shares of First National Bank common stock, including exercisable stock options (all subject to adjustment for the 5% stock dividend payable December 14, 2001), which represented approximately 9.0% of the shares outstanding on that date. Each of those directors and executive officers is expected to vote the shares owned by him or her in favor of the plan of reorganization. The vote required for approval of the plan of reorganization is two-thirds (2/3) of all outstanding shares of First National Bank.
DISSENTERS' RIGHTS (page 70)
If the reorganization is consummated, a shareholder of First National
Bank who voted against the reorganization or who gave notice in writing at or
prior to the special meeting that the shareholder dissents, may be entitled to
receive an amount equal to the appraised value of his or her shares as of the
effective date of the reorganization in accordance with dissenters' rights under
Section 215a(b), (c) and (d) of Title 12 of the United States Code. Copies of
Section 215a (b), (c) and (d) and Office of the Comptroller of the Currency
Banking Circular No. 259 are attached as Annex B to this document and should be
read for more complete information concerning dissenters' rights. Banking
Circular No. 259 describes the specific requirements of the appraisal process
conducted by the Office of the Comptroller of the Currency 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.
TRADING MARKET FOR SHARES (page 70 and 80)
First National Bank common stock is not listed on any exchange, but is quoted on the OTC Bulletin Board under the symbol "FNBD.OB." Following the reorganization, all outstanding shares of First National Bank common stock will be held by FNB Bancorp, but not publicly traded, and FNB Bancorp will take the action necessary to apply for the listing of its common stock for trading on the Nasdaq National Market. At present, FNB Bancorp common stock is not listed on any exchange, nor is it quoted on the OTC Bulletin Board.
DIVIDEND INFORMATION (page 82)
The ability of FNB Bancorp to pay cash dividends in the future will depend to a large extent upon the ability of First National Bank to pay cash dividends to FNB Bancorp. The ability of First National Bank to pay dividends to FNB Bancorp will depend upon the earnings and financial condition of First National Bank. It is currently expected that FNB Bancorp will adopt a cash dividend policy that is substantially similar to the cash dividend policy of First National Bank. It is the intention of FNB Bancorp to pay cash dividends in
the future, subject to regulatory restrictions and depending upon the level of earnings, management's assessment of future capital needs and other factors considered by the FNB Bancorp board of directors. First National Bank has paid cash dividends to its shareholders for each of the last 59 consecutive quarters, and intends to continue to declare and pay cash dividends in accordance with its past practices. Also, First National Bank has paid a stock dividend annually for the last 34 years (including the 5% stock dividend payable December 14, 2001).
COMPARISON OF SHAREHOLDER RIGHTS (page 74)
The National Bank Act and the Articles of Association and Bylaws of First National Bank currently govern your rights as a shareholder. If the reorganization is completed, your rights as an FNB Bancorp shareholder will be governed by California law, but will also be determined by the FNB Bancorp Articles of Incorporation and Bylaws, which differ in some respects from the First National Bank's Articles of Association and Bylaws.
REGULATORY APPROVALS (page 67)
The transactions contemplated by the plan of reorganization require the prior approval of the Board of Governors of the Federal Reserve System under the provisions of the Bank Holding Company Act of 1956, as amended, and the Office of the Comptroller of the Currency under Section 215a-2 of the National Bank Act, as amended. FNB Bancorp and First National Bank have filed applications for approval of the reorganization with the Federal Reserve Bank of San Francisco and the Office of the Comptroller of the Currency, respectively, and such approvals have been obtained.
CONDITIONS TO THE COMPLETION OF THE REORGANIZATION (page 67)
We will not complete the reorganization unless a number of conditions are satisfied. These include:
o approval of the plan of reorganization by First National Bank shareholders;
o dissenting shares aggregate less than 5 percent of outstanding shares;
o continued effectiveness of all required governmental approvals;
o absence of any governmental proceeding that would prohibit the reorganization;
o receipt of a tax opinion to the effect that the reorganization will be treated as a tax-free transfer under the Internal Revenue Code; and
o absence of any orders suspending the effectiveness of the registration statement filed by FNB Bancorp with the Securities and Exchange Commission in order to register the shares to be issued to First National Bank shareholders, and the receipt of all required state securities law approvals.
FNB Bancorp and First National Bank could decide to complete the reorganization even though one or more of these conditions has not been met, except conditions required by law. It is not certain when or if all of the conditions to the reorganization will be satisfied or waived, or if the reorganization will be completed.
TERMINATION OF THE PLAN OF REORGANIZATION (page 68)
First National Bank and FNB Bancorp can decide to terminate the plan of reorganization at any time before the reorganization is completed, even if the shareholders of First National Bank have approved the plan of reorganization. The plan of reorganization can be terminated by mutual agreement of the Board of Directors of First National Bank and the Board of Directors of FNB Bancorp for any reason.
In addition, First National Bank can terminate the plan of reorganization if in the sole judgment of its Board of Directors, the reorganization would be inadvisable because of the number of shareholders of First National Bank who perfect their dissenting shareholders' rights in accordance with applicable law exceeds 5 percent of outstanding shares, or if the reorganization would not be in the best interests of First National Bank or its employees, depositors or shareholders, for any reason whatsoever.
FEES AND EXPENSES OF THE REORGANIZATION (page 68)
The total expenses of the transactions covered by the agreement and plan of reorganization are estimated to be approximately $300,000.
RISK FACTORS
In deciding whether to vote in favor of the plan of reorganization, the shareholders of First National Bank should consider carefully the following factors, in addition to the other information set forth in this proxy statement/prospectus.
THE PROFITABILITY OF FNB BANCORP WILL BE DEPENDENT ON THE PROFITABILITY OF FIRST NATIONAL BANK
FNB Bancorp was recently incorporated, on February 28, 2001, and has no operating history, and since its principal activity for the foreseeable future will be to act as the holding company of First National Bank, the profitability of FNB Bancorp will be dependent on the profitability of First National Bank. First National Bank operates in an extremely competitive banking environment, competing with a number of banks and other financial institutions which possess greater financial resources than those available to First National Bank, in addition to other independent banks. In addition, the banking business is affected by general economic and political conditions, both domestic and international, and by government monetary and fiscal policies. Conditions such as inflation, recession, unemployment, high interest rates, short money supply, scarce natural resources, international terrorism and other disorders as well as other factors beyond the control of First National Bank may adversely affect its profitability. Banks are also subject to extensive governmental supervision, regulation and control, and future legislation and government policy could adversely affect the banking industry and the operations of First National Bank.
THE SHAREHOLDERS OF FNB BANCORP WILL NOT BE ENTITLED DIRECTLY TO ELECT THE DIRECTORS OF FIRST NATIONAL BANK
After consummation of the plan of reorganization, the Board of Directors of FNB Bancorp, acting on behalf of FNB Bancorp in its capacity as the sole shareholder of First National Bank, will elect the directors of First National Bank. The shareholders of FNB Bancorp will elect the directors of FNB Bancorp, but will no longer be entitled, as shareholders of FNB Bancorp, to directly elect the directors of First National Bank.
ADDITIONAL SHARES OF FNB BANCORP COMMON STOCK ISSUED IN THE FUTURE COULD HAVE A DILUTIVE EFFECT
Shares of FNB Bancorp common stock eligible for future issuance and sale could have a dilutive effect on the market for the shares of FNB Bancorp common stock proposed to be exchanged for the issued and outstanding shares of common stock of First National Bank. The Articles of Incorporation of FNB Bancorp authorize the issuance of 10,000,000 shares of common stock, and the Articles of Association of First National Bank also authorize the issuance of 10,000,000 shares of common stock. As of September 30, 2001 (subject to adjustment for the 5% stock dividend payable December 14, 2001), there were 2,208,658 shares of common stock of First National Bank issued and outstanding, plus an additional 145,861 shares of its authorized common stock available for the future grant of options and an additional 97,218 shares of common stock reserved for issuance to the holders of stock options previously granted and still outstanding under the First National Bank 1997 Stock Option Plan. Pursuant to the plan of reorganization, each share of First National Bank common stock outstanding upon consummation of the reorganization (excluding any dissenting shares entitled to appraisal rights) will be exchanged for one share of FNB Bancorp common stock. In addition, FNB Bancorp will assume the First National Bank 1997 Stock Option Plan and all outstanding options will be deemed to be options to purchase shares
of FNB Bancorp common stock on the same terms and conditions. Thus, approximately 7,500,000 shares of FNB Bancorp common stock will remain authorized (not reserved for stock options or available for future issuance and sale) at the discretion of the Board of Directors. The Articles of Association of First National Bank provide that, "If the capital stock is increased by the sale of additional shares thereof, each shareholder shall be entitled to subscribe for such additional shares in proportion to the number of shares of said capital stock owned by him at the time the increase is authorized by the shareholders, unless another time subsequent to the date of the shareholders' meeting is specified in a resolution adopted by the shareholders at the time the increase is authorized." These pre-emptive rights to subscribe for additional shares provide the shareholders of First National Bank with a certain measure of protection against the potential dilution of their respective holdings of common stock. No such pre-emptive rights or other anti-dilution provision is contained in the Articles of Incorporation of FNB Bancorp. That is, FNB Bancorp will not be legally required to offer to its shareholders the right to participate in any future sale of common stock or to structure any capital offering in a manner that allows its shareholders to maintain their percentage ownership of FNB Bancorp, although it is possible that the board of directors of FNB Bancorp would decide to provide the existing shareholders with such an opportunity.
SHARES OF FNB BANCORP PREFERRED STOCK ISSUED IN THE FUTURE COULD HAVE DILUTIVE AND OTHER EFFECTS
Shares of FNB Bancorp preferred stock eligible for future issuance and sale could have a dilutive effect on the market for the shares of FNB Bancorp common stock proposed to be exchanged for the issued and outstanding shares of common stock of First National Bank. In addition to 10,000,000 shares of common stock, the Articles of Incorporation of FNB Bancorp authorize the issuance of 5,000,000 shares of preferred stock. No shares of preferred stock are authorized under the Articles of Association of First National Bank. Although the FNB Bancorp board of directors has no present intent to authorize the issuance of shares of preferred stock, such shares could be authorized in the future. If such shares of preferred stock are made convertible into shares of FNB Bancorp common stock, there could be a dilutive effect on the shares of common stock then outstanding. In addition, shares of preferred stock may be provided a preference over holders of common stock upon liquidation of FNB Bancorp or with respect to the payment of dividends, in respect of voting rights or in the redemption of the capital stock of FNB Bancorp. The rights, preferences, privileges and restrictions applicable to any series of preferred stock would be determined by the board of directors of FNB Bancorp and set forth in an amendment to the FNB Bancorp articles of incorporation, and such an amendment would be subject to approval by the holders of FNB Bancorp common stock.
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
Statements in this document and in the documents attached to this document 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 document and attached to this document.
Forward-looking statements regarding each of FNB Bancorp and First National Bank and the combined company following the reorganization, include statements relating to:
o the financial condition, results of operations and business of FNB Bancorp and First National Bank following completion of the reorganization; and
o the restructuring charges expected to be incurred in connection with the reorganization.
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 competitive pressures among depository and other financial services companies increase significantly;
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 and increased loan losses or a reduced demand for credit;
o shortages in electricity and other sources of power;
o acts of terrorism such as the events of September 11, 2001;
o legislation or regulatory requirements or changes adversely affect the businesses in which the combined company would be engaged;
o changes in the securities market, or a decline in the trading price of FNB Bancorp common stock; and
o other factors referenced in this proxy statement/prospectus.
The management of First National Bank and FNB Bancorp believe 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 FNB Bancorp and First National Bank following completion of the reorganization may differ materially from those expressed in these forward-looking statements. Many of the factors that will determine these results and values are beyond the ability of FNB Bancorp and First National Bank to control or predict.
INFORMATION ABOUT FNB BANCORP
General
FNB Bancorp has been organized at the direction of the board of directors of First National Bank for the purpose of becoming the holding company of First National Bank. FNB Bancorp was incorporated under the laws of the State of California on February 28, 2001. As a bank holding company, FNB Bancorp would be 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 975 El Camino Real, South San Francisco, California 94080, and its telephone number is (650) 588-6800.
At September, 30, 2001, FNB Bancorp had no assets or liabilities and FNB Bancorp currently conducts no business activities. However, as a registered bank holding company, it will be authorized, with the prior approval of the Board of Governors of the Federal Reserve System (the "Board of Governors"), to engage in a variety of activities which are deemed closely related to the business of banking. See "Supervision and Regulation" on page 48.
At present, FNB Bancorp has 100 shares of common stock issued and outstanding, and the sole shareholder of FNB Bancorp is Michael R. Wyman, Chairman and Chief Executive Officer of FNB Bancorp and First National Bank.
The directors of FNB Bancorp are the same as the directors of First National Bank namely: Michael R. Wyman, Thomas C. McGraw, Neil J. Vanucci, Edward J. Watson, Daniel J. Modena and Lisa Angelot. The executive officers of FNB Bancorp are the same as the executive officers of First National Bank, namely: Michael R. Wyman, Chairman and Chief Executive Officer, Thomas C. McGraw, President and Chief Operating Officer and Secretary, James B. Ramsey, Senior Vice President and Chief Financial Officer and Jim D. Black, Senior Vice President and Chief Credit Officer. See "First National Bank Management" on page 83.
All of the above-named directors and executive officers have held their respective offices since the incorporation of FNB Bancorp. They will hold office until the next annual meeting of shareholders of FNB Bancorp or until their successors are duly elected and qualified. No arrangements or understandings exist between any of the directors or any other persons pursuant to which any of the above persons have been selected as directors.
Line of Credit
In order to pay the expenses associated with the organization of FNB Bancorp and the plan of reorganization, registration under the Bank Holding Company Act of 1956, as amended, and the listing of its common stock for trading on the Nasdaq National Market, the Board of Directors of FNB Bancorp arranged a line of credit with Pacific Coast Bankers' Bank, based in San Francisco, California. All of the shareholders of Pacific Coast Bankers' Bank are California-based commercial banks. First National Bank is a shareholder, with less than a five percent equity interest. Pursuant to a Business Loan Agreement dated August 15, 2001, signed with Pacific Coast Bankers' Bank, FNB Bancorp may borrow up to $500,000, and the outstanding principal, plus accrued interest, is evidenced by an unsecured promissory note of the same date. Outstanding advances, together with unpaid interest calculated at a variable rate which is
one percentage point over the prevailing Prime Rate, as published from time to
time in the Western Edition of the Wall Street Journal, will be due on the
maturity date of the note, which is February 22, 2002. The initial rate of
interest applicable to such borrowings is 7.750 percent per annum. As of
September 30, 2001, FNB Bancorp had no borrowings outstanding under the line of
credit. Upon consummation of the plan of reorganization, it is expected that
First National Bank will declare and pay a special cash dividend to FNB Bancorp
in an amount sufficient to allow FNB to retire all amounts outstanding under the
line of credit and to pay for its initial operating expenses. See "Proposal No.
1 - Proposed Holding Company Formation" on page 59.
PROPERTIES
FNB Bancorp does not own any real property. It is anticipated that FNB Bancorp will conduct its operations following consummation of the reorganization at the administrative offices of First National Bank, located at 975 El Camino Real, South San Francisco, California 94080.
LEGAL PROCEEDINGS
There are no legal proceedings adverse to FNB Bancorp to which any director, officer, affiliate of FNB Bancorp, or 5% shareholder of FNB Bancorp, or any associate of any such director, officer, affiliate or 5% shareholder of FNB Bancorp are a party, and none of the above persons has a material interest adverse to FNB Bancorp.
FNB Bancorp's management is not aware of any material pending legal proceedings to which it 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 FNB Bancorp.
INFORMATION ABOUT FIRST NATIONAL BANK
General
First National Bank is a national banking association, organized in 1963 as "First National Bank of Daly City." In 1995, the shareholders approved a change in the name to "First National Bank of Northern California." The administrative headquarters of First National Bank is located at 975 El Camino Real, South San Francisco, California. First National Bank is locally owned and presently operates twelve full service banking offices within its primary service area of San Mateo County, in the cities of Colma, Daly City, South San Francisco, Milbrae, Pacifica, Half Moon Bay, San Mateo, Redwood City and Pescadero. First National Bank also serves the City and County of San Francisco through its Flower Mart Branch in San Francisco. First National Bank's primary business is servicing the business or commercial banking needs of individuals and small to mid-sized businesses within San Mateo and San Francisco Counties.
First National Bank 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 Federal Deposit Insurance Corporation insures the deposits of First National Bank up to the applicable legal limits. First National Bank 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, the Board of Governors of the Federal Reserve System, and the Office of the Comptroller of the Currency govern many aspects of First National Bank's business and activities, including investments, loans, borrowings, branching, mergers and acquisitions, reporting and numerous other areas. First National Bank 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 48.
First National Bank offers a broad range of services to individuals and businesses in its primary service area with an emphasis upon efficiency and personalized attention. First National Bank provides a full line of business financial products with specialized services such as courier, appointment banking, and business internet banking. First National Bank 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. First National Bank 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, First National Bank 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 First National Bank's deposits are obtained from commercial businesses, professionals and individuals. As of September 30, 2001, First National Bank had a total of 15,616 accounts consisting of demand deposit, NOW and money market accounts with an average balance of approximately $14,578; 7,755 savings accounts with an average balance of approximately $6,106; time certificates of $100,000 or more with an average balance of $121,484; and other
time deposits with an average balance of approximately $23,347. On occasion, First National Bank has obtained deposits through deposit brokers for which First National Bank pays a broker fee. As of September 30, 2001, First National Bank had no such deposits. There is no concentration of deposits or any customer with 5% or more of First National Bank's deposits.
At September 30, 2001, First National Bank had total assets of $403,000,000, total net loans of $285,000,000, deposits of $352,000,000 and shareholders' equity of $47,000,000. First National Bank competes with approximately 28 other banking or savings institutions in its service areas. First National Bank's market share of Federal Deposit Insurance Corporation insured deposits in the service area of San Mateo County was approximately 2.7% (based upon the most recent information made available by the Federal Deposit Insurance Corporation through June 30, 2000). See "Competitive Data" on page 53.
At September 30, 2001, First National Bank employed 184 persons on a full-time basis. First National Bank believes its employee relations are good.
PROPERTIES
First National Bank owns the land and building at 975 El Camino Real, South San Francisco, California 94080. The premises consist of a modern, three-story building of approximately 20,000 square feet and off-street parking for employees and customers of approximately 45 vehicles. The Buri Buri Branch Office of First National Bank is located on the ground floor of this three-story building and administrative offices, including the offices of senior management, occupy the second and third floors.
First National Bank owns the land and two-story building occupied by the Daly City Branch Office (6600 Mission Street, Daly City, CA 94014); the land and two-story building occupied by the Colma Branch Office (1300 El Camino Real, Colma, CA 94014); the land and two-story building occupied by the South San Francisco Branch Office (211 Airport Boulevard, South San Francisco, CA 94080); the land and two-story building occupied by the Redwood City Branch Office (700 El Camino Real, Redwood City, CA 94063); the land and two-story building occupied by the Millbrae Branch Office (1551 El Camino Real, Millbrae, CA 94030); the land and single-story building occupied by the Half Moon Bay Branch Office (756 Main Street, Half Moon Bay, CA 94019); and the land and two-story building occupied by the Pescadero Branch Office (239 Stage Road, Pescadero, CA 94060). All properties include adequate vehicle parking for customers and employees.
All of the foregoing properties are owned by First National Bank, free and clear of any mortgage lien or similar encumbrance, with the exception of 1300 El Camino Real, Colma, California, on which there is recorded a deed of trust securing a note with a principal balance of approximately $153,000.
First National Bank leases premises at 1450 Linda Mar Shopping Center, Pacifica, California 94044, for its Linda Mar Branch Office. This ground floor space of approximately 4,100 square feet is leased from Fifty Associates and Demartini/Linda Mar, LLC. The lease term is 10 years and expires on September 1, 2009.
First National Bank leases premises at 210 Eureka Square, Pacifica, California 94044, for its Eureka Square Branch Office. This ground floor space of approximately 3,000 square feet is leased from Joseph A. Sorci and Eldiva Sorci. The lease term is for 5 years, commencing January 1, 1995, with two 5-year options to extend the lease term, the first of which has been exercised and expires on December 31, 2004.
First National Bank leases premises at 640 Brannan Street, Suite 102, San Francisco, California 94107, for its Flower Mart Branch Office. This ground floor space of approximately 300 square feet is leased from California Flower Market, Inc. The lease term is for 5 years, commencing September 1, 1996, with two 5-year options to extend the lease term, the first of which has been exercised and expires on September 1, 2006.
First National Bank leases premises at 491 El Camino Real, Suite B, San Mateo, California 94402, for its San Mateo Branch Office. Suite B is ground floor space of approximately 3,349 square feet, and is subleased from Union Bank of California N.A. under its master lease with Nikko Capital Corp. for the entire building (Suites A and B) at that address, consisting of approximately 5,753 total square feet. The sublease is for 7 years and expires on January 31, 2004.
First National Bank leases approximately 2,242 square feet of office space in an office building located at 520 South El Camino Real, San Mateo, California. The Business Banking Division of First National Bank occupies Suite 430 at that address. The landlord is Westlake Development Company, Inc. The lease is for 3 years, expiring June 15, 2003.
See Annex C, First National Bank Financial Statements, "Note I - Commitments" on page C-14, for a description of the annual minimum lease commitments under the above leases.
LEGAL PROCEEDINGS
There are no material legal proceedings adverse to First National Bank which any director, officer, affiliate of First National Bank, or 5% shareholder of First National Bank, or any associate of any such director, officer, affiliate or 5% shareholder of First National Bank is a party, and none of the above persons has a material interest adverse to First National Bank
From time to time, First National Bank is a party to claims and legal proceedings arising in the ordinary course of business. First National Bank's management is not aware of any material pending legal proceedings to which it 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 First National Bank.
FIRST NATIONAL BANK OF NORTHERN CALIFORNIA
Supplementary Financial Information (Unaudited)
A summary of unaudited quarterly financial data for 2000 and 1999 and for the three quarters ended September 30, 2001 is presented below:
2000 Quarterly Annual
-------------------------------------------------
First Second Third Fourth Total
----- ------ ----- ------ -----
Interest Income $7,260 $7,456 $7,935 $8,211 $30,862
Interest Expense (1,886) (1,903) (2,127) (2,276) (8,192)
-------------------------------------------------
Net Interest Income 5,374 5,553 5,808 5,935 22,670
Provision for Loan Losses (87) (96) (96) (146) (425)
-------------------------------------------------
Net interest income,
After provision for
Loan losses 5,287 5,457 5,712 5,789 22,245
Non-interest Income 1,377 754 861 789 3,781
Non-interest Expense (3,723) (3,831) (3,868) (4,555) (15,977)
-------------------------------------------------
Income before Income Taxes 2,941 2,380 2,705 2,023 10,049
Provision for Income Taxes (1,084) (862) (994) (323) (3,263)
-------------------------------------------------
Net Earnings $1,857 $1,518 $1,711 $1,700 $6,786
=================================================
Basic Earnings Per Share $0.84 $0.69 $0.77 $0.77 $3.07
Diluted Earnings Per Share $0.84 $0.69 $0.77 $0.77 $3.07
1999
Interest Income $6,293 $7,277 $6,828 $7,188 $27,586
Interest Expense (1,667) (1,740) (1,797) (1,794) (6,998)
-------------------------------------------------
Net Interest Income 4,626 5,537 5,031 5,394 20,588
Provision for Loan Losses (61) (459) (111) (119) (750)
-------------------------------------------------
Net interest income,
After provision for
Loan losses 4,565 5,078 4,920 5,275 19,838
Non-interest Income 591 654 797 743 2,785
Non-interest expense (3,438) (3,634) (3,809) (3,638) (14,519)
-------------------------------------------------
Income before Income Taxes 1,718 2,098 1,908 2,380 8,104
Provision for Income Taxes (555) (757) (652) (923) (2,887)
-------------------------------------------------
Net Earnings $1,163 $1,341 $1,256 $1,457 $5,217
=================================================
Basic Earnings Per Share $0.53 $0.61 $0.57 $0.66 $2.36
Diluted Earnings Per Share $0.53 $0.61 $0.57 $0.66 $2.36
|
NINE MONTHS ENDED
SEPTEMBER 30, 2001
Interest Income $8,052 $8,119 $7,928 $24,099
Interest Expense (2,292) (2,239) (1,945) (6,476)
----------------------------- ---------
Net Interest Income 5,760 5,880 5,983 17,623
Provision for Loan Losses (75) (75) (75) (225)
Net interest income,
After provision for
Loan losses 5,685 5,805 5,908 17,398
Non-interest Income 847 712 750 2,309
Non-interest expense (4,239) (4,505) (4,346) (13,090)
----------------------------- ---------
Income before Income Taxes 2,293 2,012 2,312 6,617
Provision for Income Taxes (567) (746) (890) (2,203)
----------------------------- ---------
Net Earnings $1,726 $1,266 $1,422 $4,414
============================= =========
Basic Earnings Per Share $0.78 $0.57 $0.64 $2.00
Diluted Earnings Per Share $0.78 $0.57 $0.64 $2.00
|
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS AND OTHER STATISTICAL DISCLOSURE OF
FIRST NATIONAL BANK
The following discussion and analysis highlights the major components affecting First National Bank's growth in net income and total assets for each of the three-years in the period ended December 31, 2000, and the nine-month periods ended September 30, 2001 and 2000. This presentation includes and should be reviewed in conjunction with, information derived from financial statements and related notes appearing elsewhere in this proxy statement/prospectus. First National Bank's audited financial statements are set forth at Annex C of this proxy statement/prospectus, and First National Bank's unaudited financial statements for the nine months ended September 30, 2001, are set forth at Annex D of this proxy statement/prospectus. Reference to 2000, 1999 and 1998 represents activity for the three years in the period ending December 31, 2000.
EARNINGS ANALYSIS
Net earnings in 2000 was $6,786,000, a 30.1% increase over 1999 earnings of $5,217,000. The Bank's earnings for the year ended December 31, 1999 increased 29.0% over earnings of $4,043,000 in 1998. On a per share basis, net earnings was $3.07 in 2000 compared with $2.36 in 1999 and $1.83 in 1998. Net earnings for the nine months ended September 30, 2001 was $4,414,000, a decrease of 13.2% compared to $5,086,000 earned for the same period in 2000.
Operating results in 2000 reflected a higher net interest income of $22,670,000, an increase of $2,082,000 or 10.1% over 1999. Interest income increased $3,276,000 or 11.9% over 1999. However, total interest expense in 2000 increased by $1,194,000 or 17.1% over 1999. This was primarily the result of an increase in average interest-bearing deposits of 4.3% together with an increase of 38 basis points in the cost of those deposits. More specifically, during that period, average time deposits increased 3.8% and the cost of those time deposits increased 61 basis points. Average loans increased $13,712,000 or 6.1% from 2000 over 1999 and total average deposits increased $16,599,000 or 5.5% over the same period. Net interest income for nine months ended September 30, 2001 was $17,623,000, an increase of $888,000 or 5.3% over the same period in 2000. Interest income increased by $1,448,000 or 6.4% for the nine months in 2001 over the like period in 2000. Interest expense for nine months ended September 30, 2001 increased by $560,000 or 9.5% over the same period in 2000. For the nine months of 2001, average interest-bearing deposits increased $32,929,000 or 14.4% over the nine months of 2000. The decrease in the cost of these deposits for the nine months of 2001 versus the nine months of 2000 was 15 basis points, as rates offered declined at a slower pace than the change in the prime rate. For the nine-month periods, total average deposits increased $38,639,000, or 12.4%. Average loans for the nine months ended September 30, 2001 compared to the same period in 2000 increased by $27,441,000, or 11.5%, while loan income increased by $1,069,000, or 5.6%, yet loan yields dropped 57 basis points for the nine months of 2001 versus nine months 2000 reflecting the faster pace of prime rate cuts. For all periods, yields on average loans were computed without deducting non-accrual loans from average loans.
Net interest income in 1999 increased $2,726,000 or 15.3% over 1998. Interest income increased $2,847,000 or 11.5% over 1998. During the same period, interest expense increased by only $121,000 or 1.8%. In 1999, total interest-bearing deposits increased by $24,608,000 or 12.5% over 1998. Average demand deposits in 1999 increased by $7,984,000 or 11.5% over 1998.
The 2000 loan loss provision of $425,000 decreased by $325,000 or 43.3% from 1999. The loan loss provision for 1999 did not change from 1998. The amount of loan loss provision is dependent upon the loss risk profile of the loan portfolio as of the reporting date. At year-end 2000, the allowance for loan losses was 1.43% of outstanding loans as compared to 1.22% in 1999 and 1.08% in 1998. At September 30, 2001, the allowance was 1.21% of outstanding loans as compared to 1.32% on September 30, 2000.
NET INTEREST INCOME
Net interest income is the difference between interest yield generated by earning assets and the interest expense associated with the funding of those assets. Net interest income is affected by the interest rate earned or paid and by volume changes in loans, investment securities, deposits and borrowed funds.
The following Tables 1 and 2 reflect an analysis of net interest income and related changes in 2000 compared to 1999 and 1998, and for the nine-month periods ended September 30, 2001 and 2000.
Table I
Net Interest Income and Average Balances
Nine months ended September 30,
2001 2000
------------------------------------------------------------------------------
(in thousands) Interest Average Interest Average
Average Income Yield Average Income Yield
Balance (Expense) (Cost) Balance (Expense) (Cost)
------------------------------------------------------------------------------
INTEREST EARNING ASSETS
Loans, gross $265,442 $20,267 10.21% $238,001 $19,198 10.78%
Investment securities 78,439 3,238 5.52 73,871 3,078 5.57
Federal funds sold 16,851 594 4.71 7,918 375 6.33
------------------------ ---------------------------
Total interest earning assets $360,732 $24,099 8.93 $319,790 $22,651 9.47
------------------------ ---------------------------
NONINTEREST EARNING ASSETS:
Cash and due from banks $22,621 $20,135
Premises and equipment 11,752 10,724
Other assets 5,812 4,790
------------ -------------
Total noninterest earning assets $40,185 $35,649
------------ -------------
TOTAL ASSETS $400,917 $355,439
============ =============
INTEREST BEARING LIABILITIES:
Deposits:
Demand, interest bearing $54,862 ($592) (1.44) $41,028 ($361) (1.18)
Money market 55,420 (1,206) (2.91) 42,528 (1,029) (3.23)
Savings 45,910 (630) (1.83) 43,486 (622) (1.91)
Time deposits 105,514 (4,041) (5.12) 101,735 (3,886) (5.11)
Fed funds purchased & other borrowings 226 (7) (3.95) 291 (18) (8.27)
------------------------ ---------------------------
Total interest bearing liabilities $261,932 ($6,476) (3.31) $229,068 ($5,916) (3.45)
------------------------ ---------------------------
NONINTEREST BEARING LIABILITIES:
Demand deposits $87,825 $82,115
Other liabilities 5,907 4,177
------------ -------------
Total noninterest bearing liabilities $93,732 $86,292
------------ -------------
Total Liabilities $355,664 $315,360
Stockholders' equity $45,253 $40,079
------------ -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $400,917 $355,439
============ =============
----------- -------------
NET INTEREST INCOME / MARGIN $17,623 6.53% $16,735 7.00%
=========== =============
Interest income is reflected on an actual basis, not a fully taxable equivalent
basis.
Yields are annualized equivalents.
|
Table I
Net Interest Income and Average Balances
Year ended December 31
------------------------------------------------------------------------------------------------
2000 1999 1998
------------------------------------------------------------------------------------------------
(in thousands) Interest Average Interest Average Interest Average
Average Income Yield Average Income Yield Average Income Yield
Balance (Expense) (Cost) Balance (Expense) (Cost) Balance (Expense) (Cost)
------------------------------------------------------------------------------------------------
INTEREST EARNING ASSETS
Loans, gross $238,167 $25,811 10.84% $224,455 $23,542 10.49% $198,539 $20,531 10.34%
Investment securities 76,704 4,384 5.72 71,676 3,564 4.97 62,405 3,704 5.94
Federal funds sold 10,368 667 6.43 9,778 480 4.91 9,409 504 5.36
--------------------- --------------------- --------------------
Total interest earning assets $325,239 $30,862 9.49 $305,909 $27,586 9.02 $270,353 $24,739 9.15
--------------------- --------------------- --------------------
NONINTEREST EARNING ASSETS:
Cash and due from banks $20,782 $19,176 $18,791
Premises and equipment 10,730 11,380 11,988
Other assets 5,092 4,472 3,866
------------ ---------- ---------
Total noninterest earning assets $36,604 $35,028 $34,645
------------ ---------- ---------
TOTAL ASSETS $361,843 $340,937 $304,998
============ ========== =========
INTEREST BEARING LIABILITIES:
Deposits:
Demand, interest bearing $42,157 ($527) (1.25) $36,703 ($364) (0.99) (31,548) ($350) (1.11)
Money market 43,599 (1,438) (3.30) 22,933 (869) (3.79) (34,641) (945) (2.73)
Savings 43,689 (851) (1.95) 55,856 (813) (1.46) (39,262) (769) (1.96)
Time deposits 102,214 (5,353) (5.24) 106,279 (4,925) (4.63) (91,712) (4,794) (5.23)
Fed funds purchased & other
other borrowings 289 (23) (7.96) 529 (27) (5.10) (415) (19) (4.58)
--------------------- --------------------- --------------------
Total interest bearing
liabilities $231,948 ($8,192) (3.53) $222,300 ($6,998) (3.15) ($197,578) ($6,877) (3.48)
--------------------- --------------------- --------------------
NONINTEREST BEARING LIABILITIES:
Demand deposits 84,127 77,415 69,431
Other liabilities 4,848 3,857 2,228
------------ ---------
----------
Total noninterest bearing
liabilities $88,975 $81,272 $71,659
------------ ----------
---------
Total Liabilities $320,923 $303,572 -$125,919
Stockholders' equity $40,920 $37,365 $35,761
------------ ---------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $361,843 $340,937 -$90,158
============ ========== =========
--------- --------- ---------
NET INTEREST INCOME / MARGIN $22,670 6.97% $20,588 6.73% $17,862 6.61%
========= ========= =========
|
Interest income is reflected on an actual basis, not on a fully taxable equivalent basis.
The following table analyzes the dollar amount of change in interest income and expense and the changes in dollar amounts attributable to: (a) changes in volume (changes in volume at the current year rate), (b) changes in rate (changes in rate times the prior year's volume) and (c) changes in rate/volume (change in rate times change in volume). In this table, the dollar change in rate/volume is prorated to volume and rate proportionately.
Table 2
Rate/Volume Variance Analysis
(in thousands)
Nine months ended September 30
2001 Compared to 2000 2000 Compared to 1999
----------------------------------------------------------------------------------------
Increase (decrease) Increase (decrease)
Interest Variance Interest Variance
Income/ Attributable To Income/ Attributable To
Expense Variance Rate Volume Expense Variance Rate Volume
---------------- -------- ----------- ---------------- ------- --------
INTEREST EARNING ASSETS:
Loans $1,069 ($1,026) $2,095 $1,825 $464 $1,361
Investments 160 (29) 189 473 328 145
Federal funds sold 219 (96) 315 (45) 129 (174)
--------------- ---------- ----------- --------- --------- -----------
Total $1,448 ($1,151) $2,599 $2,253 $921 $1,332
=============== ========== =========== ========= ========= ===========
INTEREST BEARING LIABILITIES:
Demand deposits $231 $82 $149 $90 $49 $41
Money market 177 (104) 281 382 207 175
Savings deposits 8 (25) 33 17 11 6
Time deposits 155 10 145 225 370 (145)
Federal funds purchased
and other borrowings (11) (9) (2) (3) 15 (18)
Total $560 ($46) $606 $711 $652 $59
--------------- ---------- ----------- --------- --------- -----------
NET INTEREST INCOME $888 ($1,105) $1,993 $1,542 $269 $1,273
=============== ========== =========== ========= ========= ===========
|
Table 2
Rate/Volume Variance Analysis
(in thousands)
Year ended December 31
2000 Compared to 1999 1999 Compared to 1998
------------------------------------------------------------------------------------------------
Increase (decrease) Increase (decrease)
Interest Variance Interest Variance
Income/ Attributable To Income/ Attributable To
Expense Variance Rate Volume Expense Variance Rate Volume
---------------- -------- ----------- ---------------- ------- ----------
INTEREST EARNING ASSETS:
Loans $2,269 $783 $1,486 $3,011 $293 $2,718
Investments 820 533 287 (140) (601) 461
Federal funds sold 187 149 38 (24) (42) 18
----------- ------------ -------------- -------- ------------- -------------
Total $3,276 $1,465 $1,811 $2,847 ($350) $3,197
=========== ============ ============== ======== ============= =============
INTEREST BEARING LIABILITIES:
Demand deposits $163 $95 $68 $14 ($37) $51
Money market 569 (113) 682 (76) 368 (444)
Savings deposits 38 275 (237) 44 (198) 242
Time deposits 428 641 (213) 131 (544) 675
Federal funds purchased
and other borrowings (4) 15 (19) 8 2 6
----------- ------------ -------------- --------- -------------- -------------
Total $1,194 $913 $281 $121 ($409) $530
----------- ------------ -------------- --------- -------------- -------------
NET INTEREST INCOME $2,082 $551 $1,531 $2,726 $59 $2,667
=========== ============ ============== ========= ============== =============
|
In 2000, net interest income represented 85.71% of net revenues (net interest income plus non-interest income), compared to 88.08% in 1999 and 87.06% in 1998. The net yield on average earning assets was 6.97% in 2000 compared to 6.73% in 1999 and 6.61% in 1998. The average rate earned on interest earning assets was 9.49% in 2000 up from an average yield of 9.02% in 1999 and 9.15% in 1998. The average cost for interest-bearing liabilities was 3.53% in 2000 compared to an average cost of 3.15% in 1999 and 3.48% in 1998. For the nine-month periods ended September 30, 2001 and 2000, net interest income was 88.42% versus 84.83%, respectively. For the nine months ended September 30, the
net yield on average earning assets was 6.53% in 2001 and 7.00% in 2000. For the same nine-month periods, the average rate earned on interest-earning assets was 8.93% in 2001 and 9.47% in 2000. The decline in the prime-lending rate during 2001 is reflected in these two earning rates. Average cost for interest-bearing liabilities during the nine-month periods ended September 30 was 3.31% in 2001 and 3.45% in 2000.
The increase in net interest income in 2000 over 1999 was due to an increase in average earning assets of $19,330,000 or 6.3% primarily due to a $13,712,000 increase in average loans outstanding. The average yield on earning assets increased by 47 basis points. During the same period, interest expenses increased by 38 basis points; average interest-bearing liabilities increased by $9,648,000 or 4.3%. Net interest income for 1999 increased $2,726,000 over 1998 or 15.3%, while average interest-bearing assets increased by $35,556,000 or 13.2% as average loans outstanding increased $25,916,000 and investment securities increased $9,271,000. The average yield on earning assets decreased by 13 basis points. At the same time, interest bearing liabilities increased by $24,722,000 or 12.5%, while the cost of those liabilities decreased by 33 basis points for the same period. Comparing nine months ended September 30, 2001 with the same period in 2000, net interest income increased $888,000 or 5.31%; average interest bearing assets were $40,942,000 or 12.8% higher, but the averaged yield on them declined 54 basis points, mainly because of the prime rate drops in 2001, which saw average loans increase $27,441,000 for the period, but yields on these loans declined by 57 basis points. In the same nine-month periods, average interest-bearing liabilities increased $32,864,000 or 14.3%, while their cost decreased by only 14 basis points.
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The Bank has the responsibility of assessing the overall risks in its loan portfolio, assessing the specific loss expectancy, and testing the adequacy of the loan loss reserve. The level of reserves is determined by internally generating credit quality ratings, reviewing economic conditions in the Bank's market area, and considering the Bank's historical loan loss experience. The Bank is committed to maintaining adequate reserves, identifying credit weaknesses by consistent review of loans, and maintaining the ratings and changing those ratings in a timely manner as circumstances change.
The allowance for loan losses totaled $3,332,000, $2,920,000, and $2,224,000 at December 31, 2000, 1999, and 1998, respectively. This represented 1.43%, 1.22%, and 1.08% of outstanding loans on those respective dates. The allowance was $3,492,000 and $3,188,000 at September 30, 2001 and 2000. This represented 1.21% and 1.32% of outstanding loans at those dates. The balances reflect an amount that, in management's judgment, is adequate to provide for potential loan losses based on the considerations listed above. During 2000, the provision for loan losses was $425,000 while write-offs totaled $23,000 compared to a provision for loan losses of $750,000 and total write-offs of $70,000 in 1999 and a provision for loan losses of $750,000 and total write-offs of $207,000 in 1998. Furthermore, for nine months ended September 30, 2001 the provision for loan losses was $225,000 and total write-offs of $70,000, compared to nine months ended September 30, 2000, with a provision for loan losses of $279,000 and total write-offs of $20,000. There was no significant single loan written off in the periods mentioned.
Table 3 presents the relationship of the reserve to the loan portfolio.
Table 3 Allocation of the Allowance for Loan Losses
(in thousands)
September 30, 2001 September 30, 2000
--------------------------- ---------------------------
Percent Percent
in each in each
category category
to total to total
Amount Loans Amount Loans
------------- ------------- -------------- ------------
Real Estate $1,410 59.4 % $852 44.6%
Construction 647 10.1 1,050 19.4
Commercial 327 22.0 279 24.5
Consumer 535 8.5 342 11.5
Overdrafts - - - -
Unfunded commitments 573 - 665 -
------------ ------------ ------------- ------------
Total $3,492 100.0% $3,188 100.0%
============ ============ ============= ============
|
Table 3
Allocation of the Allowance for Loan Losses
(in thousands)
As of December 31,
2000 1999 1998 1997 1996
------------------------------------------------------------------------------------------
Percent Percent Percent Percent Percent
in each in each in each in each in each
category category category category category
to total to total to total to total to total
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
------------------------------------------------------------------------------------------
Real Estate $ 955 49.4% $ 1,025 50.2% $ 795 52.2% $ 581 58.8% $ 508 55.1%
Construction 1,196 17.1 567 17.0 393 7.2 285 4.7 136 6.6
Commercial 264 22.4 416 21.8 416 30.2 624 24.1 491 23.3
Consumer 352 11.1 526 11.0 294 10.4 176 12.4 220 15.0
Overdrafts - 0.0 - - - - - - - -
Unfunded
commitments 565 0.0 389 - 326 - - - - -
-------- ------- ------- ------- ------- ------- ------- ------- ------- ------
Total $ 3,332 100.0% $ 2,923 100.0% $ 2,224 100.0% $ 1,666 100.0% $ 1,355 100.0%
======== ======= ======= ======= ======= ======= ======= ======= ======= ======
|
Table 4 summarizes transactions in the allowance for loan losses and details the charge-offs, recoveries and net loan losses by loan category for the last five fiscal years and the nine month periods ended September 30, 2001 and 2000. The amount added to the provision and charged to operating expense for each period is based on the risk profile of the loan portfolio. No addition was made for 1996, as the amount in the reserve was adequate at that time.
Starting in 1997 and continuing through 1999, there was a change in the portfolio mix, which saw an increase in loan size, and lending in Enterprise Zones, which implies a slightly higher risk. A favorable payment history for these loans indicated that not as much need be added to the reserve, so the provision declined in the year 2000 and for the nine-month period ended September 30, 2001.
Table 4
Allowance for Loan Losses
Historical Analysis
(in thousands)
For the nine months ended
-------------------------------
September 30, 2001 September 30, 2000
--------------------- ---------------------
Balance at Beginning of Period $3,332 $2,920
Provision for Loan Losses 225 279
Charge-offs:
Consumer (70) (20)
--------- --------
Total (70) (20)
Recoveries:
Consumer 5 9
--------- --------
Total 5 9
--------- --------
Balance at End of Period $3,492 $3,188
========= ========
Percentages
Allowance for Loan Losses/ 1.21% 1.32%
Total Loans
Net Charge-offs/Consumer Loans 0.00% 0.00%
|
Table 4
Allowance for Loan Losses
Historical Analysis
(in thousands)
For the year ended December 31,
----------------------------------------------------------------------
2000 1999 1998 1997 1996
----------------------------------------------------------------------
Balance at Beginning of Period $2,920 $2,224 $1,666 $1,355 $1,593
Provision for Loan Losses 425 750 750 340 -
Charge-offs:
Commercial - (51) (169) (58) (229)
Consumer (23) (19) (38) (8) (22)
----------------------------------------------------------------------
Total (23) (70) (207) (66) (251)
Recoveries:
Commercial 1 10 7 4 4
Consumer 9 6 8 33 9
----------------------------------------------------------------------
Total 10 16 15 37 13
----------------------------------------------------------------------
Balance at End of Period $3,332 $2,920 $2,224 $1,666 $1,355
======================================================================
Percentages
Allowance for Loan Losses/Total Loans 1.43% 1.22% 1.08% 0.91% 0.92%
Net Charge-offs-Commercial Loans 0.00% 0.08% 0.26% 0.13% 0.65%
Net Charge-offs-Consumer Loans 0.05% 0.05% 0.14% -0.13% 0.06%
|
NONPERFORMING ASSETS
Non-performing assets consist of nonaccrual loans, foreclosed assets, and loans that are 90 days or more past due but are still accruing interest. Loans are placed on nonaccrual status when, in the judgment of the management of the Bank, serious doubt exists as to the collectibility of additional interest within a reasonable period of time.
Table 5 provides a summary of contractually past due loans for the most recent three years, and at September 30, 2001 and 2000. Nonperforming loans equaled 0.5% of total loans at the end of 2000. Nonperforming loans were 0.1% of outstanding loans at the end of 1999 and 1.6% at the end of 1998. Nonperforming loans were 0.6% of outstanding loans at September 30 2001 and 0.5% of outstanding loans at September 30, 2000. Management believes the current list of past due loans are collectable and does not anticipate any losses. There were no foreclosed assets as of the periods indicated.
Table 5
Analysis of Nonperforming Assets
Nine Months
Ended September 30 Year Ended December 31
--------------------- ---------------------------------------------------------
(in thousands) 2001 2000 2000 1999 1998 1997 1996
--------- --------- --------- --------- --------- --------- ---------
Accruing loans past
due 90 days or more $ 10 $ - $ - $ - $ - $ - $ -
Nonaccrual loans ... 1,862 1,290 1,218 208 3,232 3,072 1,385
--------- --------- --------- --------- --------- --------- ---------
Total ........... $ 1,872 $ 1,290 $ 1,218 $ 208 $ 3,232 $ 3,072 $ 1,385
========= ========= ========= ========= ========= ========= =========
|
For the nine months ended September 30, 2001, the amount of interest income that would have been recorded on nonaccrual loans would have been $263 thousand, had they been current in accordance with original terms.
There was no commitment to lend additional funds to any customer whose loan was classified nonperforming at December 31, 2000, 1999 and 1998, or September 30, 2001 and 2000.
NON-INTEREST INCOME
Non-interest income for the year 2000 increased $996,000 or 35.8% over 1999, primarily due to a gain on sale of bank premises, equipment and leasehold of $701,000. Non-interest income for 1999 increased by only $131,000 over 1998. Non-interest income for the nine months ended September 30, 2001 decreased by $683,000 or 22.8% from the nine months ended September 30, 2000 because the gain on sale of premises, equipment and leasehold of $701,000 took place in the first nine months of 2000.
NON-INTEREST EXPENSE
Non-interest expense increased $1,458,000 or 10.0% in 2000 over 1999 and $304,000 or 2.1% in 1999 over 1998. Most of the 2000 increase was from salaries and employee benefits, which increased by $865,000. In 1999, most of the increase was in salaries and employee benefits, which increased $881,000, while equipment expense decreased $270,000, and professional fees decreased $237,000.
For the nine months ended September 30, 2001, non-interest expense increased $1,668,000 or 14.6% over the same period in 2000. Most of the increase was in salaries and employee benefits, which increased by $1,381,000 or 20.8% over 2000 and occupancy, furniture and equipment expense, which increased by $173,000.
BALANCE SHEET ANALYSIS
Total assets were $379,974,000 at December 31, 2000, which represented a 9.2% increase over 1999. Assets averaged $361.8 million in 2000 as compared to $340.9 million in 1999 and $305.0 million in 1998. Average earning assets increased from $270.4 million in 1998 to $305.9 million in 1999 and $325.2 million in 2000. Average earning assets were 89.9% of total assets in 2000, 89.7% in 1999 and 88.6% in 1998. Total interest-bearing liabilities averaged $231.9 million in 2000, $222.3 million in 1999, and $197.6 million in 1998,
which represented an increase of 4.3% in 2000 over 1999 and 12.5% in 1999 over 1998. Total assets were $403,395,000 at September 30, 2001, a 7.8% increase over September 30, 2000. Assets averaged $400.9 million in on September 30, 2001 compared to $355.4 million the year before. Average earning assets were 90.0% of total assets on September 30, 2001, and 90.0% the previous September. Total interest-bearing liabilities averaged $261.9 for the nine months ended September 30, 2001, and $229,068 for the nine months of 2000. The components of the Bank's average earning assets and interest-bearing liabilities are presented in Table 1.
LOANS
The loan portfolio constitutes the Bank's largest earning asset. Loans outstanding at December 31, 2000 reflect a decrease of $7 million or 2.9% from loans outstanding at December 31, 1999. Commercial loans remained flat at year-end 2000 over 1999. Consumer loans declined slightly by $0.6 million or 2.4% from 1999 to 2000. Construction loans at December 31, 2000 decreased by $1 million or 2.5% from the year ended December 31, 1999 as new construction slowed with the economy in 2000. Real Estate loans, more specifically Commercial Real Estate loans, declined $5.7 million or 4.7% from 1999 to 2000, for the same reason.
Loans outstanding in December 1999 increased by $33.9 million or 16.4% from loans outstanding at December 31, 1998. This increase was due improving economic trends in 1999 versus 1998. Emphasis was placed on developing Construction and Real Estate (mostly Commercial Real Estate) loans. Real Estate and Construction loans combined decreased by $6.7 million or 4.1% from 1999 to 2000. Demand for Commercial loans slowed, as totals dropped from $62.7 million in 1999 to $52.6 million in 2000. Consumer loans increased by $4.9 million or 22.7% from 1999 to 2000. The following are all comparisons of September 30, 2000 to September 30, 2001: total loans increased $46.3 million or 19.1%, Real Estate (mostly Commercial Real Estate) increased $63.4 million or 58.3%, Construction loans decreased by $18.0 million or 38.0%, Commercial loans increased $4.0 million or 6.6% and Consumer loans decreased by $3.3 million or 12.0%.
Table 6 presents a detailed analysis of loans outstanding at December 31, 2000, and at December 31, 1996 through December 31, 2000.
Table 6
Loan Portfolio
September 30
------------
(in thousands)
2001
-----------
Real Estate loans $172,062
Construction loans 29,266
Commercial loans 63,669
Consumer loans 24,501
----------
Sub total 289,498
Net deferred loan fees (1,094)
----------
Total $288,404
==========
|
Table 6
Loan Portfolio
December 31
(in thousands)
2000 1999 1998 1997 1996
--------- --------- --------- --------- ---------
Real Estate loans $ 115,775 $ 121,434 $ 108,527 $ 109,393 $ 81,856
Construction loans 40,021 41,061 14,890 8,829 9,777
Commercial loans 52,454 52,607 62,740 42,752 34,582
Consumer loans 25,987 26,632 21,701 22,974 22,243
--------- --------- --------- --------- ---------
Sub total 234,237 241,734 207,858 183,948 148,458
Net deferred loan fees (1,236) (1,752) (1,750) (1,486) (945)
--------- --------- --------- --------- ---------
Total $ 233,001 $ 239,982 $ 206,108 $ 182,462 $ 147,513
========= ========= ========= ========= =========
|
The following table shows the Bank's loan maturities and sensitivities to changes in interest rates as of September 30, 2001.
Maturing
Maturing After One Maturing
Within One But Within After Five
Year Five Years Years Total
----------- ----------- ----------- -----------
Real Estate loans $ 117,154 $ 46,822 $ 8,086 $ 172,062
Construction loans 19,927 7,964 1,375 29,266
Commercial loans 43,351 17,326 2,992 63,669
Consumer loans 16,683 6,667 1,151 24,501
----------- ----------- ----------- -----------
Subtotal $ 197,115 $ 78,779 $ 13,604 $ 289,498
Net deferred loan fees (745) (298) (51) (1,094)
----------- ----------- ----------- -----------
Total $ 196,370 $ 78,481 $ 13,553 $ 288,404
=========== =========== =========== ===========
With predetermined interest
rates $ 23,299 $ 9,311 $ 1,607 $ 34,217
With floating interest rates 173,071 69,170 11,946 254,187
----------- ----------- ----------- -----------
Total $ 196,370 $ 78,481 $ 13,553 $ 288,404
=========== =========== =========== ===========
|
The following table shows the Bank's loan maturities and sensitivities to changes in interest rates as of December 31, 2000.
Maturing
Maturing After One Maturing
Within One But Within After Five
Year Five Years Years Total
------------ ------------ ------------ ------------
Real Estate loans $ 89,778 $ 18,987 $ 7,010 $ 115,775
Construction loans 31,034 6,563 2,424 40,021
Commercial loans 40,675 8,602 3,177 52,454
Consumer loans 20,151 4,262 1,574 25,987
------------ ------------ ------------ ------------
Sub total 181,638 38,414 14,185 234,237
Net deferred loan fees (958) (203) (75) (1,236)
------------ ------------ ------------ ------------
Total $ 180,680 $ 38,211 $ 14,110 $ 233,001
============ ============ ============ ============
With predetermined interest
rates $ 24,865 $ 5,259 $ 1,942 $ 32,066
With floating interest rates 155,815 32,952 12,168 200,935
------------ ------------ ------------ ------------
Total $ 180,680 $ 38,211 $ 14,110 $ 233,001
============ ============ ============ ============
|
The rate earned on average loans increased to 10.84% in 2000, which is 35 basis points higher than the yield of 10.49% earned in 1999. This increase was primarily attributable to the change of the mix of loans. The loan yield in 1999 was 15 basis points more than the loan yield earned in 1998 also due to the mix of loans. Interest income on loans increased by $2,269,000 in 2000 up 9.6% from the amount earned in 1999. Interest income on loans in 1999 was $3,011,000 or 14.7% higher than in 1998. Average loans totaled $238,167,000 during 2000, an increase of 6.11% from 1999. The average of $224,455,000 in 1999 was an increase of $25,916,000 or 13.1% over 1998. At September 30, 2001, the yield on average loans was 10.21%, down 57 basis points from the yield a year earlier. This decrease was attributable primarily to the many reductions in the prime-lending rate during 2001. Interest income on loans increased by only $1,069,000 or 5.6% for the nine months ended September 30, 2001 compared to the nine months of 2000. This was the direct result of the declines in the prime-lending rate. The average loans for nine months ended September 30, 2001 totaled $265,442,000, an increase of $27,441,000 or 11.5% over the same period in 2000.
INVESTMENT PORTFOLIO
Investments at December 31, 2000 totaled $88,637,000. This represents an increase of $16,756,000 or 23.3% over the same period in 1999. Investments at year-end 1999 decreased by $7,428,000 or 9.4% from 1998. Available funds are first used for Loans, then investments, and the remainder sold as Federal funds. The primary source of funds is the deposit base, and, if needed, Investment maturities, calls and sales, which accounts for the volume variances in investments. The Bank's investment portfolio is concentrated in U. S. Government Agencies and in obligations of States and political subdivisions. The Bank believes this provides for an appropriate liquidity level. Table 7 provides a detailed analysis of the investment portfolio.
Table 7
Investment Securities
(in thousands)
Due After One After Five Due
In One Year Year Through Years Through After Ten Market Maturity Average
Or Less Five Years Ten Years Years Total Value In Years Yield
-------------------------------------------------------------------------------------------------
SEPTEMBER 30, 2001:
U. S. Treasury $1,999 $ - $ - $ - $1,999 $2,041 0.55 6.20%
U. S. Government agencies 13,458 18,995 - - 32,453 33,064 1.42 5.82%
States & political subdivisions 1,270 10,085 13,563 4,256 29,174 29,870 6.00 4.83%
Other securities - 4,006 - 2,371 6,377 6,516 7.03 6.13%
-------------------------------------------------------------------------- ---------
Total $16,727 $33,086 $13,563 $6,627 $70,003 $71,491 5.45%
========================================================================== ---------
|
Federal Reserve Bank Stock - no stated maturity - carried in Other Assets from January 1, 2001. Carrying value $617 Market value at historical cost $617.
Carrying Market
DECEMBER 31, 2000: Value Value
------------------------
U. S. Treasury $3,996 $4,017
U. S. Government agencies 44,690 45,040
States and political subdivisions 36,651 36,537
Other securities 2,426 2,426
Federal Reserve Bank Stock 617 617
------------------------
Total $88,380 $88,637
========================
DECEMBER 31, 1999:
U. S. Treasury $3,985 $3,971
U. S. Government agencies 34,685 34,129
States and political subdivisions 32,893 31,738
Other securities 1,599 1,599
Federal Reserve Bank Stock 444 444
------------------------
Total $73,606 $71,881
========================
DECEMBER 31, 1998
U. S. Treasury $2,493 $2,581
U. S. Government agencies 25,421 25,571
States and political subdivisions 36,022 36,607
Corporate Obligations 13,044 12,976
Other securities 1,135 1,130
Federal Reserve Bank Stock 444 444
------------------------
Total $78,559 $79,309
========================
|
DEPOSITS
The increase in the earning assets in 2000 was funded with the increases in the deposit base. In 2000, average deposits increased by $16.6 million or 5.6% over 1999. In 1999, average deposits increased by $32.6 million or 12.2% over 1998. In 2000, average total interest-bearing deposits increased $9.9 million or 4.5%; interest-bearing demand deposits increased $5.5 million, money market increased $20.7 million, savings decreased $12.2 million, and time deposits decreased $4.1 million At the same time, non-interest bearing demand deposits increased $6.7 million or 8.7%. In 1999, average deposits increased $32.6 million or 12.2% over 1998. For the nine months ended September 30, 2001 compared with the nine months ended September 30, 2000, average deposits increased by $38.6 million or 12.4%, average interest-bearing deposits increased $32.9 million or 14.4%, while interest-bearing demand deposits increased $13.8 million, money market increased $12.9 million, savings increased $2.4 million, total time deposits increased $3.8 million, and non-interest bearing demand deposits increased $5.7 million.
The Bank's average cost on interest-bearing liabilities increased by 38 basis points in 2000 over 1999 due to a higher interest rate environment and an increase of 61 basis points in time deposit costs. 1999 over 1998 showed the reverse, with costs for interest-bearing liabilities decreasing by 33 basis points, and time deposit costs dropping 60 basis points. Comparing average costs for nine months ended September 30, 2001 with those for the same period, 2000, interest-bearing liabilities showed a decrease of 14 basis points as rates declined following the several drops in prime rate, which affected deposit rates more slowly, as time deposits would not re-price until their maturities, and some depositors lengthened the maturities at renewal, anticipating further declines. As a result, time deposit costs actually increased by one basis point.
Table 8
Average Deposits and Average Rates paid for the period ending September 30,
2001 2000
----------------------------------- ------------------------------------
% of % of
Average Average Total Average Average Total
(in thousands) Balance Rate Deposits Balance Rate Deposits
----------------------------------- ------------------------------------
Deposits:
Interest-bearing demand $54,862 1.4% 15.7% $41,028 1.2% 13.2%
Money market 55,420 3.0 15.9 42,528 3.2 13.7
Savings 45,910 1.8 13.1 43,486 1.9 14.0
Time deposits $100,000 or
more 48,554 5.1 13.9 46,040 5.6 14.8
Time deposits under $100,000 56,960 5.1 16.3 55,695 4.7 17.9
--------------------------------- -----------------------------------
Total interest bearing 261,706 3.3 74.9 228,777 3.5 73.6
deposits
Demand deposits 87,825 - 25.1 82,115 - 26.4
---------------------------------- -----------------------------------
Total Deposits $349,531 2.5% 100.0% $310,892 2.5% 100.0%
================================== ===================================
|
Table 8
Average Deposits and Average Rates paid for the period ending December 31,
2000 1999 1998
-------------------------------- -------------------------------- ------------------------------
% of % of % of
Average Average Total Average Average Total Average Average Total
(in thousands) Balance Rate Deposits Balance Rate Deposits Balance Rate Deposits
-------------------------------- -------------------------------- ------------------------------
Deposits:
Interest-bearing demand $42,157 1.3% 13.3% $36,703 1.0% 12.3% $31,548 1.1% 11.8%
Money market 43,599 3.3% 13.8 22,933 3.8 7.7 34,641 2.7 13.0
Savings 43,689 2.0% 13.8 55,856 1.5 18.7 39,262 2.0 14.7
Time deposits $100,000 or more 51,444 5.7% 16.3 52,362 4.6 17.5 43,017 5.2 16.1
Time deposits under $100,000 50,770 4.8% 16.1 53,918 4.7 18.0 48,695 5.2 18.3
------------------------------- ------------------------------- ------------------------------
Total interest bearing deposits $231,659 3.5% 73.3 $221,772 3.2 74.2 $197,163 3.5 73.9
Demand deposits 84,127 0.0% 26.7 77,415 0.0 25.8 69,432 0.0 26.1
------------------------------- ------------------------------- ------------------------------
Total Deposits $315,786 2.6% 100.0% $299,187 2.3% 100.0% $266,595 2.6% 100.0%
=============================== =============================== ==============================
|
Large Time Deposit Maturities Analysis of Time Deposits of $100,000 or more at September 30, 2001
Over Three Over
Three Months to Twelve Twelve
Total Deposits or Less Months Months
-------------- ------------ --------------
$47,723 $24,076 $20,767 $2,880
|
Large Time Deposit Maturities Analysis of Time Deposits of $100,000 or more at December 31, 2000
Over Three Over
Three Months to Twelve Twelve
Total Deposits or Less Months Months
-------------- ------------ --------------
$51,561 $31,462 $17,870 $2,229
|
CAPITAL
At December 31, 2000 shareholders' equity was $42,786,000, an increase of $5,279,000 or 14.1% over 1999. Shareholders' equity was $37,507,000 in 1999, an increase of $1,746,000 or 4.9% over 1998. At September 30, 2001, shareholders' equity was $47,129,000, an increase of $4,343,000 or 10.2% over December 31, 2000. At September 30, 2000, shareholders' equity was $42,418,000, an increase of $4,911,000 or 13.1% over December 31,1999. The increases were primarily attributable to the retention of net income after payment of cash dividends of $2,673,000 in 2000, $2,011,000 in 1999 and $693,000 in 1998. Cash dividends for nine months ended September 30, 2001 and September 30, 2000 were $795,000 and $757,000.
In 1989, the Federal Deposit Insurance Corporation (FDIC) established risk-based capital guidelines requiring banks to maintain certain ratios of "Qualifying capital" to "risk-weighted assets". Under the guidelines, qualifying capital is classified into two tiers, referred to as Tier 1 (core) and Tier 2 (supplementary) capital. See "Supervision and Regulation - Capital Standards" on page 49. Currently, the Bank's Tier 1 capital consists of common shareholders' equity though other instruments such as certain types of preferred stock can also be included in Tier 1 capital. Tier 2 capital consists of eligible reserves for possible loan losses and qualifying subordinated notes and debentures. Total capital is the sum of Tier 1 plus Tier 2 capital. Risk-weighted assets are calculated by applying risk percentages specified by the FDIC to categories of both balance sheet assets and off-balance sheet obligations.
At year-end 1990, the FDIC also adopted a leverage ratio requirement. This ratio supplements the risk-based capital ratios and is defined as Tier 1 capital divided by quarterly average assets during the reporting period. The requirement established a minimum leverage ratio of 3.0% for the highest rated bank and ratios 100 to 200 basis points higher for most banks. Furthermore, as mandated by the FDIC Improvement Act of 1991, in 1993 the FDIC began assessing risk-based deposit insurance assessments based upon financial institutions' capital resources and "management strength". To qualify for the lowest insurance premiums as indicated in the following table, "well-capitalized" financial institutions must maintain risk-based Tier 1 and total capital ratios of at least 6.0% and 10.0% respectively. "Well-capitalized" financial institutions must also maintain a leverage ratio equal to or exceeding 5.0%.
The following table shows the risk-based capital ratios and the leverage ratios at December 31, 2000, 1999 and 1998, as well as at September 30, 2001 and 2000.
Capital Ratios
September 30, December 31, Minimum "Well
------------------- --------------------------- Capitalized"
Risk-Based Capital Ratios 2001 2000 2000 1999 1998 Requirements
------------------------- ------------------- --------------------------- ------------
Tier 1 Capital 12.82% 14.14% 14.27% 13.18% 17.02% > 6.00%
-
Total Capital 13.83% 15.20% 15.38% 14.18% 18.10% > 10.00%
-
Leverage Ratios 11.07% 11.72% 11.21% 11.00% 10.88% > 5.00%
-
|
Liquidity is a measure of the Bank's ability to convert assets into cash with minimum loss. Liquidity consists of cash and accounts and time deposits due from other banks, Federal Funds sold, Available for Sale securities, and Held to Maturity Securities within three months of maturity or most likely call date. The Bank's policy is to maintain a liquidity ratio of 20% or greater of total assets. As of December 31, 2000, the Bank's primary liquidity ratio was 33.95 % as compared to 26.10 % at December 31, 1999. At September 30, 2001 it was 23.99% and September 30, 2000 it was 30.87%. The objective of liquidity management is to ensure that the Bank has available funds to meet all present and future financial obligations and to take advantage of business opportunities as they arise. Financial obligations arise from withdrawals of deposits, repayment on maturity of purchased funds, extension of loans or other forms of credit, payment of operating expenses and payment of dividends.
Core deposits, which consist of all deposits other than time deposits, have provided the Bank with a sizable source of relatively stable and low-cost funds. The Bank's average core deposits funded 59% of average total assets of $361,843,000 for the year ended 2000 and 57% of average total assets of $340,937,000 for the year ended 1999. Average core deposits funded 61% of average total assets of $400,917,000 for nine months ended September 30, 2001 and average core deposits funded 59% of average total assets of $355,439,000. Retained earnings and time deposits provided most of the remaining funding.
Liquidity may also be provided from a variety of other sources, especially federal funds sold. Federal funds sold averaged $10.4 million during 2000 and $9.8 million during 1999. In addition, liquidity may also be provided by securities available for sale. At December 31, 2000, these totaled $87.2 million, and at December 31, 1999 they totaled $70,658,000 or 98.4% and 98.3%, respectively of the Bank's investment portfolio. The Bank purchases investment securities with the intent of holding them as available for sale, to provide a ready source of liquidity.
ASSET AND LIABILITY MANAGEMENT
The largest component of the Bank's earnings is net interest income, which can fluctuate widely when significant interest rate movements occur. The Bank's management is responsible for minimizing the Bank's exposure to interest rate risk and assuring an adequate level of liquidity. This is accomplished by developing objectives, goals and strategies designed to enhance profitability and performance.
Ongoing management of the Bank's interest rate sensitivity limits interest rate risk by controlling the mix and maturity of assets and liabilities. Management regularly reviews the Bank's position and evaluates alternative sources and uses of funds as well as changes in external factors. Various methods are used to achieve and maintain the desired rate sensitivity position including the sale or purchase of assets and product pricing.
In order to ensure that sufficient funds are available for loan growth and deposit withdrawals, as well as to provide for general needs, the Bank must maintain an adequate level of liquidity. Both assets and liabilities provide sources of liquidity. Asset liquidity comes from the Bank's ability to convert short-term investments into cash and from the maturity and repayment of loans and investment securities. Liability liquidity is provided by the Bank's ability to attract deposits, The primary source of liability liquidity is the Bank's
customer base, which provides core deposit growth. The overall liquidity position of the Bank is closely monitored and evaluated regularly. Management believes the Bank's liquidity sources at September 30, 2001 were adequate to meet its operating needs in 2001 and going forward into the foreseeable future.
Table 9
Rate Sensitivity Assets/Liabilities
as of September 30, 2001
Over One
Three Over Three Year Over Not
Months to Twelve Through Five Five Rate-
(Dollars in thousands) or Less Months Years Years Sensitive Total
--------------------------------------------------------------------------------------------------------
Interest earnings assets:
Federal funds sold $725 $ - $ - $ - $ - $725
5,029 11,949 33,875 20,638 - 71,491
Securities
Loans 137,464 58,381 77,179 13,518 - 286,542
--------------------------------------------------------------------------------------------------------
Total interest earning assets 143,218 70,330 111,054 34,156 - 358,758
--------------------------------------------------------------------------------------------------------
Cash and due from banks - - - - 24,559 24,559
Other assets - - - - 20,078 20,078
--------------------------------------------------------------------------------------------------------
Total assets $143,218 $70,330 $111,054 $34,156 $44,637 $403,395
========================================================================================================
Interest bearing liabilities:
Demand, interest bearing $57,736 $ - $ - $ - $ - $57,736
Savings and money market 100,750 - - - - 100,750
Time deposits 105,319 - - - - 105,319
Other borrowed money - - 153 - - 153
--------------------------------------------------------------------------------------------------------
Total interest bearing
liabilities 263,805 - 153 - - 263,958
--------------------------------------------------------------------------------------------------------
Noninterest demand deposits - - - - 87,897 87,897
Other liabilities - - - - 4,411 4,411
Stockholders' equity - - - - 47,129 47,129
--------------------------------------------------------------------------------------------------------
Total liabilities and
stockholders' equity $263,805 $ - $ 153 $ - $ 139,437 $403,395
========================================================================================================
Interest rate sensitivity GAP ($120,587) $70,330 $110,901 $34,156 ($94,800) $ -
========================================================================================================
Cumulative int rate sensit GAP ($120,587) ($50,257) $60,644 $94,800 $ - $ -
Cumulative int rate sensit
GAP ratio (84.20%) (71.46%) 54.61% 277.55% -% -%
|
EFFECT OF CHANGING PRICES
The results of operations and financial conditions presented in this report are based on historical cost information and are unadjusted for the effects of inflation.
Since the assets and liabilities of banks are primarily monetary in nature (payable in fixed, determinable amounts), the performance of the Bank is affected more by changes in interest rates than by inflation. Interest rates generally increase as the rate of inflation increases, but the magnitude of the change in rates may not be the same.
The effect of inflation on banks is normally not as significant as its influence on those businesses that have large investments in plants and inventories. During periods of high inflation, there are normally corresponding increases in the money supply, and banks will normally experience above average growth in assets, loans and deposits. Also, increases in the price of goods and services will result in increased operating expenses.
Table 10
Return on Equity and
Assets
Key Financial Ratios (ratios are computed on average balances)
Nine Months Ended September 30, Year Ended December 31,
------------------------------- -------------------------------
2001 2000 2000 1999 1998
----------- ----------- -------------------------------
Return on average assets 1.47% 1.91% 1.88% 1.53% 1.33%
Return on average equity 13.04% 16.97% 16.58% 13.96% 11.31%
Dividend payout ratio 18.01% 14.88% 39.39% 38.55% 17.14%
Average equity to assets ratio 11.30% 11.28% 11.31% 10.96% 11.72%
|
SUPERVISION AND REGULATION
GENERAL
FNB Bancorp. The common stock of FNB Bancorp 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. FNB Bancorp 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. FNB Bancorp intends to register its securities under Section 12(g) of the Securities Exchange Act of 1934, as amended, following the effectiveness of its registration statement (which includes this proxy statement/prospectus) filed with the Securities and Exchange Commission under the Securities Act of 1933, as amended. Thereafter, FNB Bancorp will be subject to the periodic reporting requirements of Section 13 of the Securities Exchange Act of 1934, as amended.
FNB Bancorp will be a bank holding company within the meaning of the Bank Holding Company Act of 1956, as amended (the "Bank Holding Company Act"), and will be registered as such with, and subject to the supervision of, the Board of Governors of the Federal Reserve System (the "Board of Governors"). FNB Bancorp 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, FNB Bancorp would own or control more than 5% of the voting shares of such bank. The Bank Holding Company Act prohibits FNB Bancorp 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.
FNB Bancorp, and any subsidiaries, which it may acquire or organize, are deemed to be "affiliates" of any bank subsidiary 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 any bank subsidiary to affiliates, and (b) on investments by any bank subsidiary in affiliates' stock as collateral for loans to any borrower. FNB Bancorp and any 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 any bank subsidiary of FNB Bancorp in conjunction with any liability of FNB Bancorp 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 any bank subsidiary for use in its banking business, or to maintain the availability of such funds.
First National Bank As a national banking association licensed under the national banking laws of the United States, First National Bank 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 First National 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. First National Bank is required to file reports with the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation. First National Bank'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, First National Bank is required to maintain (and FNB Bancorp and First National Bank will be 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 minimum 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 September 30, 2001, First National Bank was in compliance with the risk-weighted capital and leverage ratios. Following the merger, FNB Bancorp and First National Bank will be in compliance with the risk-weighted capital and leverage ratios. See "Capital" on page 44.
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 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 such 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. First National Bank has a current rating of "Satisfactory" for CRA compliance.
LIMITATIONS ON DIVIDENDS
FNB Bancorp's 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 FNB Bancorp would be obtained from its investments as well as dividends and/or management fees from First National Bank. First National Bank'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 "Dividends and Dividend Policy" on page 82 for further information regarding the payment of cash dividends by FNB Bancorp and First National Bank
COMPETITION
COMPETITIVE DATA
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 First National Bank is not authorized nor prepared to offer currently. First National 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 First National Bank's legal lending limits, First National 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 September 30, 2001, First National Bank's aggregate legal lending limits to a single borrower and such borrower's related parties were $7,593,000 on an unsecured basis and $12,655,000 on a fully secured basis, based on regulatory capital of $50,621,000.
First National Bank's business is concentrated in its service area, which primarily encompasses San Mateo and San Francisco Counties. The economy of First National Bank's service area is dependent upon government, manufacturing, tourism, retail sales, population growth and smaller service oriented businesses.
Based upon the December 2000 Deposit and Market Share Report prepared by California Banksite Corporation, there were 156 commercial and savings banking offices in San Mateo County with a total of $14,904,430,000 in deposits at December 31, 2000. First National Bank had a total of 12 offices with total deposits of $329,600,000 at the same date, or 2% of the San Mateo County totals. At December 31, 1999, there were 155 commercial and savings banking offices in San Mateo County with total deposits of $12,092,940,000, while First National Bank had $276,220,000, or 2% of the San Mateo County totals.
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, First National Bank's current capital ratios and levels of deposits, First National Bank anticipates no change in the assessment rate applicable to it during 2001 from that in 2000.
GENERAL COMPETITIVE FACTORS
In order to compete with the major financial institutions in their primary service areas, community banks such as First National Bank 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 First National Bank 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 First National Bank itself may not engage.
On November 12, 1999, President Clinton signed into law the Gramm-Leach-Bliley Act (the "Act"), which is potentially the most significant banking legislation in many years. The Act 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 Act 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, among other matters, 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 Act 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 incidental 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 Act.
Prior to the Act, 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 Act 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, among other matters, 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 Act, 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. These regulations 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 an 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 FNB Bancorp or First National Bank have determined whether or when they may seek to acquire and exercise new powers or activities under the Act, and the extent to which competition will change among financial institutions affected by the Act has not yet become clear.
Certain legislative and regulatory proposals that could affect FNB Bancorp, First National Bank, 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 FNB Bancorp and First National Bank 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 FNB Bancorp and First National Bank
THE SPECIAL MEETING OF SHAREHOLDERS
DATE, TIME AND PLACE
First National Bank's special meeting of shareholders will be held at its South San Francisco Branch Office, 211 Airport Boulevard, South San Francisco, California 94080, at 7:30 p.m., local time, on ____________, ________, 2002.
NOTICE OF THE MEETING
Notice given by the Secretary in accordance with the Articles of Association and Bylaws of First National Bank as to the date, time, place and purpose of the special meeting of shareholders, to be held on the call of the Board of Directors of First National Bank, accompanies this proxy statement/prospectus. Additional notice is being sent to each First National Bank shareholder of record by certified or registered mail at least ten (10) days prior to the date of the special meeting, and notice of the date, time, place and purpose of the special meeting is being published in a newspaper of general circulation for four consecutive weeks prior to the date of the special meeting, all as required by 12 U.S. Code, Section 215a under the National Bank Act.
MATTERS TO BE CONSIDERED AT THE MEETING
At First National Bank's special meeting, holders of First National Bank common stock are being asked to approve the plan of reorganization and the transactions covered by the plan of reorganization. No other matters are expected to be presented at the special meeting.
RECORD DATE; STOCK ENTITLED TO VOTE; QUORUM
Only holders of record of First National Bank common stock at the close of business on November 21, 2001, the record date for First National Bank's special meeting, are entitled to receive notice of and to vote at First National Bank's special meeting. On the record date, approximately 2,208,658 shares of First National Bank common stock were issued and outstanding (subject to adjustment for the 5% stock dividend payable December 14, 2001) and held by approximately 465 holders of record. A majority of the shares of First National Bank common stock issued and outstanding and entitled to vote on the record date must be represented in person or by proxy at First National Bank's special meeting in order for a quorum to be present for purposes of transacting business at First National Bank's special meeting. In the event that a quorum is not present at First National Bank's special meeting, it is expected that the special meeting will be adjourned or postponed to solicit additional proxies.
NUMBER OF VOTES; CUMULATIVE VOTING
Holders of record of First National Bank common stock on the record date are each entitled to one vote per share on the proposal to be considered at First National Bank's special meeting. Cumulative voting of shares will not be allowed.
VOTES REQUIRED
Approval of the proposal to be considered by shareholders of First National Bank requires the affirmative vote of two-thirds (2/3) of all shares of First National Bank common stock outstanding on the record date.
VOTING OF PROXIES
Submitting Proxies. First National Bank shareholders may vote their shares in person by attending the special 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 card will be voted "FOR" the proposal at the special meeting. First National Bank 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 card from the record holder to vote at the special meeting. 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 the plan of reorganization.
Revoking Proxies. First National Bank shareholders of record may revoke their proxy cards at any time before the time the proxies vote them at the special meeting. Proxy cards may be revoked by written notice, including by telegram or telecopy, to the Secretary of First National Bank by a later-dated proxy card signed and returned by mail or by attending the special meeting and voting in person. Attendance at the special meeting will not in and of itself constitute a revocation of a proxy card. The shareholder must inform the Secretary at the meeting, prior to the vote, that he or she wants to revoke his or her proxy card and vote in person. Any written notice of a revocation of a proxy card must be sent so as to be received before the taking of the vote at the meeting as follows:
Michael R. Wyman Chairman and Chief Executive Officer First National Bank of Northern California 975 El Camino Real South San Francisco, California 94080
Abstentions and Broker Non-Votes. The presence, in person or by properly executed proxy card, of the holders of a majority of the outstanding shares is necessary to constitute a quorum at the 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 card to vote those shares with respect to the approval of the transactions covered by the plan of reorganization, in the absence of specific instructions from the customers. These are referred to as "broker non-votes". Abstentions and broker non-votes will not be counted as a vote "FOR" or "AGAINST" the proposal at the special meeting, but will have the same effect as a vote "AGAINST" the
proposal. Abstentions and broker non-votes will have no effect on the establishment of dissenters' rights of First National Bank shareholders. See "What About Dissenting Shareholders Rights?" on page 70.
Other Matters. If any other matters are properly presented for consideration at the special meeting, the persons named in the enclosed form of proxy card 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 the special meeting is properly presented, however, the persons named in the enclosed form of proxy card will not have discretion to vote in favor of the adjournment proposal any shares which have been voted against the proposal to be presented at the special meeting. FNB Bancorp and First National Bank are not aware of any matters expected to be presented at the special meeting other than as described in the notice of meeting.
Solicitation of Proxies. First National Bank will bear the cost of the solicitation of proxy cards from its shareholders. In addition to solicitation by mail, the directors, officers and employees of First National Bank may solicit proxy cards from its 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 First National Bank will reimburse those persons for their reasonable out-of-pocket expenses in connection with those solicitations.
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 First National Bank common stock will be mailed by FNB Bancorp to former First National Bank shareholders shortly after the reorganization is completed. See "Will Share Certificates Be Exchanged?" on page 64.
RECOMMENDATION OF THE FIRST NATIONAL BANK BOARD OF DIRECTORS
The First National Bank board of directors has unanimously approved the plan of reorganization and unanimously recommends that shareholders vote "FOR" the plan of reorganization and the transactions covered by the plan of reorganization at the special meeting.
PROPOSAL NO. 1
PROPOSED HOLDING COMPANY FORMATION
First National Bank of Northern California ("First National Bank") proposes that the shareholders approve the formation of a new holding company.
The proposed holding company formation is called the "reorganization" and is governed by the Agreement and Plan of Reorganization dated November 1, 2001, also referred to as the "reorganization agreement." THE FULL TEXT OF THE REORGANIZATION AGREEMENT IS ATTACHED AS ANNEX A TO THIS PROXY STATEMENT/PROSPECTUS. THE MATERIAL TERMS OF THE REORGANIZATION ARE SUMMARIZED BELOW.
Under the terms of the reorganization agreement, First National Bank will become a wholly-owned subsidiary of FNB Bancorp, a California corporation recently formed for the purpose of becoming a holding company for First National Bank. Under the reorganization agreement, each outstanding share of First National Bank common stock (other than shares as to which dissenters' rights of appraisal have been properly exercised) will be converted into one share of FNB Bancorp common stock, and the former holders of First National Bank common stock will become the holders of all of the common stock of FNB Bancorp. FNB Bancorp was incorporated on February 28, 2001, and has no prior operating history. Following the reorganization, it is intended that First National Bank will continue its operations at the same locations, with the same management, and subject to substantially all the rights, obligations and liabilities of First National Bank existing immediately prior to the reorganization.
WHAT IS THE STRUCTURE OF THE REORGANIZATION?
In the reorganization:
- FNB Bancorp will become the parent bank holding company of First National Bank; and
- all of the outstanding shares of First National Bank common stock, except for shares as to which shareholders have exercised dissenters' rights of appraisal, will be converted into and exchanged for shares of FNB Bancorp common stock on a one-for-one basis.
After the reorganization:
- First National Bank will continue its existing business and operations as a wholly-owned subsidiary of FNB Bancorp, under the name of "First National Bank of Northern California."
- the consolidated assets, liabilities, stockholders' equity and income of FNB Bancorp will be substantially identical to those of First National Bank;
- the current members of the board of directors of First National Bank will also be members of the board of directors of FNB Bancorp and the executive officers of First National Bank will also serve as the executive officers of FNB Bancorp;
- the board of directors and executive officers of First National Bank will be unchanged as a result of the reorganization;
- the Comptroller of the Currency will continue as First National Bank's primary federal regulator and the Federal Deposit Insurance Corporation will continue to insure First National Bank's deposit accounts to the maximum extent permitted by law;
- FNB Bancorp will be subject to supervision and regulation by the Board of Governors of the Federal Reserve System and the Federal Reserve Bank of San Francisco;
- shares of FNB Bancorp common stock will be registered with the Securities and Exchange Commission pursuant to Section 12(g) of the Securities Exchange Act of 1934 and will be listed for trading on the Nasdaq National Market;
- shares of First National Bank common stock will no longer be publicly traded, on the OTC Bulletin Board or otherwise; and
- each outstanding option to purchase shares of First National Bank common stock will become an option to purchase shares of FNB Bancorp common stock, on the same terms and conditions, for the same number of shares and at the same price.
If the reorganization is not accomplished, First National Bank common stock will continue to be traded on the OTC Bulletin Board and First National Bank will continue to operate without a bank holding company structure.
WHO ARE THE PARTIES TO THE REORGANIZATION?
The parties to the reorganization are First National Bank and FNB Bancorp.
First National is a national bank. First National Bank commenced operations in 1963, and currently maintains twelve banking offices. The address of its principal administrative office is 975 El Camino Real, South San Francisco, California. At December 31, 2000, Bank had total assets of $380 million, total deposits of $330 million and total shareholder's equity of $43 million. Audited financial statements of First National Bank are attached to this proxy statement/prospectus as Annex C. At September 30, 2001, First National Bank had total assets of $403 million, total deposits of $352 million and total shareholders equity of $47 million, as set forth in the unaudited financial statements attached to this proxy statement/prospectus as Annex D.
FNB Bancorp is a California corporation that was recently formed for the purpose of becoming the parent bank holding company of First National Bank. FNB Bancorp has no operating history. The address of its principal office is 975 El Camino Real, South San Francisco, California 94080.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The directors of First National Bank have unanimously approved the plan of reorganization and unanimously recommend that shareholders of First National Bank approve the reorganization.
WHAT ARE REASONS FOR THE REORGANIZATION?
The board of directors of First National Bank believes that a parent bank holding company will:
- provide greater flexibility in responding to evolving changes in banking and financial services industries and in meeting the competition of other financial institutions. First National Bank's board of directors believes that a bank holding company is an entity which can provide greater operating and financial flexibility and facilitate expansion into a broader range of financial services and other business activities;
- provide flexibility for acquiring or establishing financial institutions and companies engaged in other related activities. For example, the bank holding company will permit an acquired institution to operate autonomously as a separate subsidiary of FNB Bancorp. This will allow the acquired entity to retain its own directors, officers, corporate name and identity, which may be attractive to prospective acquisition candidates;
- provide flexibility for meeting the financing needs of the enterprises, including providing capital to First National Bank, either through stock offerings, debt offerings, or borrowing at terms and conditions otherwise unavailable to First National Bank as a stand-alone entity;
- permit the holding company to engage in other activities that are closely related to banking, either directly, or indirectly through newly formed subsidiaries or by acquiring companies already established in such fields;
- permit the bank holding company to consider whether to elect to become a "financial holding company" under the Gramm-Leach-Bliley Act of 1999 financial modernization legislation, and exercise certain merchant banking and insurance powers which are available to bank holding companies that may elect to become a financial holding company; and
- enhance First National Bank's ability to satisfy ever changing and expanding needs of present customers for banking and banking-related services and to continue to attract new customers for financial services.
There are no current agreements or understandings for either the acquisition of any financial institution or other company or for the diversification of operations through use of FNB Bancorp. First National Bank's board of directors believes, however, that the ability to act promptly to take advantage of any desirable opportunities that may arise in the future could be jeopardized if the reorganization is deferred or terminated.
HOW MANY OF THE BANK'S SHAREHOLDERS NEED TO APPROVE THE REORGANIZATION?
Approval of the reorganization agreement and the reorganization requires the affirmative vote of the holders of not less than two-thirds (2/3) of all issued and outstanding shares of First National Bank Common Stock.
WHAT ARE THE ORGANIZATIONAL TRANSACTIONS?
At the direction of the board of directors of First National Bank, FNB Bancorp was incorporated under the laws of the State of California on February 28, 2001, for the purpose of becoming a bank holding company. Michael R. Wyman, Chairman and Chief Executive Officer of FNB Bancorp and First National Bank, currently owns 100 shares of common stock, representing all of the outstanding capital stock of FNB Bancorp.
WHAT ARE THE TERMS OF THE REORGANIZATION?
Pursuant to the reorganization agreement, among other things,
- the business of First National Bank will continue and will be unaffected and unimpaired by the reorganization;
- each outstanding share of First National Bank common stock will convert into one share of FNB Bancorp common stock;
- all shares of FNB Bancorp common stock outstanding immediately prior to the consummation of the reorganization will be repurchased by FNB Bancorp for the amount paid for such shares;
- FNB Bancorp will assume First National Bank's stock option plan as well as its other employee stock-based plans;
- First National Bank will become a wholly-owned subsidiary of FNB Bancorp;
- the existing holders of First National Bank common stock will own all of the outstanding shares of FNB Bancorp common stock; and
- FNB Bancorp will apply to the Nasdaq Stock Market for approval to list shares of FNB Bancorp common stock for trading on the Nasdaq National Market.
WHEN WILL THE REORGANIZATION BE COMPLETED?
First National Bank expects that the reorganization will be consummated in the first quarter of 2002.
ARE MY RIGHTS AS A SHAREHOLDER GOING TO CHANGE?
If First National Bank completes the reorganization:
- you will receive one share of common stock in FNB Bancorp for each share of First National Bank common stock which you currently own;
- your outstanding stock certificates will no longer represent an interest in First National Bank, but will instead represent an interest in FNB Bancorp;
- you will no longer own stock directly in First National Bank, but will instead own stock in FNB Bancorp;
- you will not be entitled to vote directly on matters affecting First National Bank, such as the election of First National Bank's directors. However, you will be entitled to vote on matters affecting FNB Bancorp, which will own one hundred percent (100%) of the First National Bank common stock; and
- your rights as a shareholder will be governed by FNB Bancorp's Articles of Incorporation and Bylaws and the California General Corporation Law, instead of First National Bank's Articles of Association and Bylaws and the National Bank Act.
WHAT IS THE EFFECT OF THE REORGANIZATION?
As a result of the reorganization:
- FNB Bancorp will become a publicly held corporation and will become subject to the reporting obligations under federal securities laws;
- First National Bank will continue to carry on its business and activities as conducted immediately prior to the reorganization;
- First National Bank will continue to use the name "First National Bank of Northern California";
- The common stock of FNB Bancorp will be listed for trading on the Nasdaq National Market.
WILL SHARE CERTIFICATES BE EXCHANGED?
Upon consummation of the reorganization:
- the outstanding stock certificates which prior thereto represented shares of First National Bank common stock will thereafter for all purposes represent an equal number of shares of FNB Bancorp common stock and the holders of those certificates will have all the rights of shareholders of FNB Bancorp;
- shareholders will be entitled to exchange their present stock certificates for new certificates evidencing shares of FNB Bancorp common stock, although shareholders will not need to make such an exchange in order to have all of the rights of shareholders of FNB Bancorp; and
- FNB Bancorp will notify shareholders of record by mail promptly after the consummation of the reorganization of the procedures to be followed in order to surrender their present share certificates in exchange for new certificates evidencing shares of FNB Bancorp common stock. UNTIL FNB BANCORP NOTIFIES SHAREHOLDERS OF THE EXCHANGE PROCEDURES, EXISTING SHARE CERTIFICATES SHOULD NOT BE RETURNED TO FIRST NATIONAL BANK FOR EXCHANGE AND REISSUANCE.
WILL THE DIRECTORS AND OFFICERS OF FNB BANCORP BE DIFFERENT FROM THE DIRECTORS AND OFFICERS OF FIRST NATIONAL BANK?
No. The reorganization agreement provides that the directors of FNB Bancorp will be the same as the directors of First National Bank, and the directors of First National Bank will continue in that capacity after the reorganization. Additionally, the officers of First National Bank will all be employed in the same capacities after the reorganization.
WHO ARE THE OFFICERS OF FNB BANCORP?
The current officers of FNB Bancorp are:
Michael R. Wyman Chairman and Chief Executive
Officer
Thomas C. McGraw President and Chief Operating
Officer, Secretary
James B. Ramsey Senior Vice President and Chief
Financial Officer
Jim D. Black Senior Vice President and Senior
Loan Officer
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Initially, Messrs. Wyman, McGraw, Ramsey and Black will not receive any direct remuneration from FNB Bancorp. They will continue to serve in their current capacities with First National Bank which, initially, will be solely responsible for their direct remuneration.
It is anticipated that, after the reorganization, FNB Bancorp will add additional officers and employees as necessary or appropriate and that First National Bank and other subsidiaries of FNB Bancorp, if any, will pay cash dividends and management fees to support the expenses of FNB Bancorp. There are presently no specific plans, arrangements or understandings with respect to such matters.
Each of FNB Bancorp's directors is currently a director of First National Bank. It is anticipated that directors of FNB Bancorp initially will not receive fees for their attendance at board meetings or committee meetings. However, these persons will continue to receive directors' fees for attending meetings of the board of directors of First National Bank.
WHAT ABOUT THE FIRST NATIONAL BANK 1997 STOCK OPTION PLAN AND OTHER EMPLOYEE BENEFITS?
At the effective time of the reorganization:
- each share of First National Bank common stock held in trust or otherwise in connection with any and all of First National Bank's employee benefit plans will be converted into one share of FNB Bancorp common stock;
- FNB Bancorp will adopt and assume the First National Bank 1997 Stock Option Plan and any other employee stock plans, subject to compliance with applicable laws and regulations and the mutual agreement of FNB Bancorp and First National Bank. The same terms and conditions will apply to these plans as existed prior to the effective time of the reorganization;
- FNB Bancorp will assume all outstanding options to purchase shares of First National Bank common stock pursuant to the First National Bank 1997 Stock Option Plan and such options will be deemed options to purchase shares of FNB Bancorp common stock on the same terms and conditions and for the same number of shares and at the same price as have been agreed upon and set forth in the 1997 Stock Option Plan and the stock option agreements entered into pursuant thereto; and
- the reorganization will not affect other employee benefits and benefit plans of First National Bank.
With respect to the tax treatment of stock options:
- no gain or loss should be recognized by the holders of outstanding nonstatutory options to acquire First National Bank common stock upon conversion of those options into nonstatutory options to acquire FNB Bancorp common stock, under the same terms and conditions as in effect immediately prior to consummation of the reorganization; and
- the substitution of incentive stock options to acquire FNB Bancorp common stock for the outstanding incentive stock options to acquire First National Bank common stock, under the same terms and conditions as in effect immediately prior to consummation of the reorganization, should not result in the recognition of income, gain or loss to the holders of the outstanding incentive stock options.
The plan of reorganization provides that FNB Bancorp will prepare and file with the Securities and Exchange Commission promptly after the effective date of the reorganization, a registration statement on Form S-8 under and
pursuant to the Securities Act of 1933, as amended, for the purpose of registering the maximum number of shares of FNB Bancorp common stock to which the holders of options outstanding, or to be outstanding, under the 1997 Stock Option Plan may be entitled. First National Bank has not been required to file, and has not filed, a registration statement with the Securities and Exchange Commission or the Office of the Comptroller of the Currency, pursuant to the Securities Act of 1933, as amended, relating to the offer and sale of options and shares of First National Bank common stock pursuant to the 1997 Stock Option Plan. Rather, First National Bank has relied on an exemption from registration under the Securities Act of 1933, as amended, provided by Rule 701 of the Securities and Exchange Commission, as made applicable to national banks by the Securities Offering Disclosure Rules of the Office of the Comptroller of the Currency. Shares of First National Bank common stock acquired pursuant to the exercise of options granted under the 1997 Stock Option Plan are deemed to be "restricted securities" under Rule 144 of the Securities and Exchange Commission and any sale of such shares by an optionee must be in compliance with the registration requirements of the Securities Act of 1933, as amended, or pursuant to an exemption therefrom. Under Rule 144, a minimum period of one year must elapse between the date of acquisition of "restricted securities" from the issuer and any resale of such "restricted securities." After FNB Bancorp assumes the 1997 Stock Option Plan, including the options heretofore granted and outstanding under the 1997 Stock Option Plan, and FNB Bancorp becomes subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, and files a registration statement with the Securities and Exchange Commission on Form S-8 with respect to the 1997 Stock Option Plan, it is anticipated that such "restricted securities" may be resold by optionees without compliance with Rule 144 (except for shares held by directors and officers and any other "affiliates" of FNB Bancorp and First National Bank, the sale of which will remain subject to Rule 144) and such minimum one year holding period.
WHAT ARE THE CONDITIONS TO THE REORGANIZATION?
The reorganization agreement is conditioned upon the following:
- approval and ratification of the reorganization agreement and the reorganization, by the holders of not less than two-thirds (2/3) of all outstanding shares of First National Bank, and by the shareholder(s) of FNB Bancorp, as required by applicable law;
- receipt of all other approvals and consents, and satisfaction of
all other requirements as are prescribed by applicable law in
connection with the reorganization including, but not limited to,
approval of the Office of the Comptroller of the Currency,
pursuant to 12 U.S.C. Section 215a-2 and 12 C.F.R. Section
7.2000, which was received on September 14, 2001, and the
approval of the Board of Governors of the Federal Reserve System,
pursuant to the Bank Holding Company Act of 1956, as amended and
Section 225.17 of Regulation Y promulgated pursuant thereto,
which was obtained from the Federal Reserve Bank of San Francisco
on September 21, 2001;
- the listing of FNB Bancorp common stock for trading on the Nasdaq National Market and termination of trading First National Bank common stock on the OTC Bulletin Board;
- issuance of a favorable opinion from a law firm or accounting firm, in form and substance satisfactory to the parties and their counsel, with respect to the tax consequences to the parties and their shareholders resulting from the reorganization;
- issuance of a favorable legal opinion from a law firm, in form and substance satisfactory to the parties, as required by applicable securities laws; and
- performance by each party to the reorganization of all its obligations under the reorganization agreement.
CAN THE REORGANIZATION AGREEMENT BE TERMINATED?
The reorganization agreement may be terminated as follows:
- by mutual consent of FNB Bancorp and First National Bank for any reason, as determined by their respective boards of directors.
- if, for any reason, consummation of the reorganization is inadvisable, or not in the best interests of First National Bank, or its employees, depositors or shareholders, as determined by the Board of Directors of First National Bank.
Upon termination, the reorganization agreement shall be void and of no further effect. There shall be no liability by reason of the termination on the part of the parties or their respective directors, officers, employees, agents or shareholders.
WHO WILL BEAR THE COSTS OF THE REORGANIZATION?
First National Bank and FNB Bancorp have agreed to pay their own expenses in connection with the plan of reorganization, including filing fees, printing and mailing costs, accountants' fees and legal fees. FNB Bancorp has obtained a line of credit with Pacific Coast Bankers' Bank for this purpose. See "Information About FNB Bancorp - Line of Credit" on page 22. Prior to consummation of the reorganization, certain of such expenses may be suspensed by First National Bank for the account of FNB Bancorp. Upon consummation of the reorganization, First National Bank is expected to pay a special dividend to FNB Bancorp in an amount adequate to repay all outstanding amounts in respect of the line of credit. If the reorganization is abandoned or terminated for any reason, First National Bank will bear all expenses.
WHAT ARE THE INCOME TAX CONSEQUENCES?
The following discussion is limited to certain federal tax consequences of the proposed reorganization and does not discuss other tax consequences that might be relevant to shareholders of First National Bank entitled to different tax treatment.
In the opinion of Coudert Brothers LLP, the proposed reorganization will qualify for tax purposes as a "transfer" within the meaning of Section 351 of the Internal Revenue Code of 1986, as amended. This opinion is conditioned upon the accuracy of various representations made by First National Bank, and FNB Bancorp and certain assumptions. Neither this summary nor the opinion of Coudert Brothers LLP is binding upon the Internal Revenue Service and no ruling has been sought or will be sought with respect to such tax consequences.
Based upon the qualification of the reorganization as a "transfer" within the meaning of Section 351 of the Internal Revenue Code:
- neither First National Bank, nor FNB Bancorp will recognize gain or loss as a result of the reorganization;
- shareholders of First National Bank will not recognize gain or loss upon receipt of FNB Bancorp common stock in exchange for their shares of First National Bank common stock pursuant to the reorganization;
- the basis of FNB Bancorp common stock received by the shareholders of First National Bank pursuant to the reorganization will be the same as the basis of the shares of First National Bank common stock surrendered in exchange thereof; and
- the holding period of FNB Bancorp common stock received by the shareholders of First National Bank pursuant to the reorganization will include the holding period of First National Bank common stock surrendered in exchange therefor, provided that a shareholder holds such First National Bank common stock as a capital asset on the date of consummation of the reorganization.
Shareholders who dissent from the reorganization and receive cash in exchange for their First National Bank common stock will recognize taxable gain or loss in an amount equal to the difference between their basis in the shares and the amount of cash received. The tax treatment of gain or loss will depend on the particular circumstances of each dissenting shareholder.
YOU ARE URGED TO CONSULT WITH YOUR OWN TAX ADVISERS AS TO YOUR SPECIFIC TAX CONSEQUENCES RELATING TO THE REORGANIZATION, INCLUDING TAX RETURN REPORTING REQUIREMENTS AND THE APPLICABILITY AND EFFECT OF TAX LAWS OTHER THAN THOSE OF THE UNITED STATES.
WILL THERE BE A MARKET FOR MY NEWLY ACQUIRED FNB BANCORP COMMON STOCK?
First National Bank's common stock has traded on the OTC Bulletin Board since 1963, under the symbol "FNBD.OB." If the holding company formation proceeds, FNB Bancorp intends to list its shares of common stock for trading on the Nasdaq National Market and will file an application with Nasdaq for such listing.
WHAT ABOUT THE PAYMENT OF DIVIDENDS?
It is anticipated that the dividend policy of FNB Bancorp will be substantially identical to the current policy of First National Bank. So far, First National Bank has paid cash dividends to its shareholders during each of the last 59 consecutive quarters. Also, First National Bank has declared and paid a stock dividend annually for the last 34 years (including the 5% stock dividend payable December 14, 2001). Whether any stock or cash dividends will be paid to shareholders of FNB Bancorp will be determined from time to time by the board of directors of FNB Bancorp.
WILL THE ACCOUNTING TREATMENT CHANGE?
No. Because the transaction is a reorganization with no change in ownership interests, the consolidated financial statements of FNB Bancorp and the financial statements of First National Bank will retain the former basis of accounting of First National Bank and will be substantially identical to First National Bank's financial statements prior to the reorganization.
WHAT ABOUT DISSENTING SHAREHOLDERS' RIGHTS?
Federal law entitles a shareholder of a national bank who does not vote for the reorganization to demand payment by First National Bank of the fair or appraised value for his shares. If you wish to make such a demand, you must deliver to Michael R. Wyman, Chairman and Chief Executive Officer, First National Bank of Northern California, 975 El Camino Real, South San Francisco, California, before voting on the proposal commences, a written notice identifying yourself and stating your intention to demand appraisal of and payment for your shares. This written notice must be separate from and in addition to any proxy or vote against the proposal. A proxy or vote against the reorganization does not, by itself, constitute a demand for appraisal. In addition to making written notice of your demand, you must not vote in favor of the reorganization. If you return a signed proxy but do not specify your vote, you will be deemed to have voted in favor of the reorganization agreement. If you abstain from voting on the reorganization, you will not be deemed to have voted in favor of the reorganization.
Under the terms and conditions of the plan of reorganization, the obligations of First National Bank, and FNB Bancorp to consummate the reorganization are conditioned upon the holders of not more than 5% of the outstanding shares electing to exercise their rights as dissenting shareholders. Although the parties to the reorganization agreement could waive this condition, neither of them presently intends to do so.
If the plan of reorganization is approved and adopted by the shareholders at the special meeting, First National Bank will mail a further notice to all shareholders who timely filed a written notice of intention to demand payment and who refrained from voting in favor of the proposed reorganization. The further notice will include the following:
- information concerning where and when a request for payment must be sent;
- instructions as to where and when a shareholder must deposit the certificates representing his or her shares of First National Bank common stock in order to obtain payment;
- a form to be used for requesting payment which will include a request for certification of the date on which the shareholder or the person on whose behalf the shareholder dissents, acquired beneficial ownership of the shares; and
- a copy of Section 215a of the National Bank Act.
The time set by First National Bank for receipt of the demand for payment and deposit of the certificates by shareholders shall not be less than 30 days from the mailing of the notice. A SHAREHOLDER WHO FAILS TO TIMELY RETURN THE FORM FOR REQUESTING PAYMENT OR FAILS TO DEPOSIT HIS OR HER COMMON STOCK CERTIFICATES, AS REQUIRED BY THE NOTICE, SHALL NOT HAVE ANY RIGHT TO RECEIVE PAYMENT OF THE FAIR VALUE OF HIS OR HER SHARES. A dissenting shareholder shall retain all other rights of a shareholder until those rights are modified by consummation of the reorganization.
A vote against the reorganization agreement, whether cast by proxy or in person at the special meeting, shall not, in itself, constitute the required written request for payment.
You may assert dissenters' rights as to fewer than all of your shares of the First National Bank common stock registered in your name only if you dissent with respect to all the shares beneficially owned by any one person and notify First National Bank of the name and address of the beneficial owner or owners on whose behalf you dissent. You may assert dissenters' rights with respect to shares owned beneficially but not registered in your name if you submit to First National Bank a written consent of the record shareholder prior to commencement of the voting by the shareholders on the reorganization agreement at the special meeting. You may not dissent with respect to some but less than all shares owned beneficially, whether or not the shares so owned are registered in your name.
The discussion in this section is only a summary of the rights and obligations of dissenting shareholders and is qualified in its entirety by reference to the provisions of Section 215a (b), (c) and (d) of the National Bank Act, and OCC Banking Circular No. 259, which are reproduced and set forth in full in Annex B to this proxy statement/prospectus. You should read Annex B carefully since if you fail to follow the procedures set forth in Section 215a of the National Bank Act regarding dissenters' rights, you will waive your appraisal rights. You may wish to consult independent legal counsel before exercising dissenters' rights.
Except as set forth herein, notification of the beginning or end of any statutory period will not be given by First National Bank to any dissenting shareholders.
HOW DO THE RIGHTS OF HOLDERS OF FNB BANCORP COMMON STOCK COMPARE TO THOSE OF FIRST NATIONAL BANK COMMON STOCK?
As a result of the reorganization, the holders of First National Bank common stock will become shareholders of FNB Bancorp, a California corporation. As a holder of FNB Bancorp stock, you will have substantially the same rights that you currently have with your shares of First National Bank common stock, other than as modified by California law. A summary of the various rights of a shareholder of FNB Bancorp common stock, as compared to shares of First National Bank common stock, appears on pages 67 through 73.
WHAT ABOUT RESALES OF FNB BANCORP COMMON STOCK?
The FNB Bancorp common stock issued in the reorganization will be freely transferable under the Securities Act of 1933, as amended, except for shares issued to any First National Bank shareholder who may be deemed to be an "affiliate" of FNB Bancorp or First National Bank for purposes of Rule 145 under the Securities Act of 1933, as amended. Each director and executive officer of First National Bank is deemed to be an "affiliate." Each affiliate who receives shares of FNB Bancorp common stock in the reorganization will receive such shares subject to the condition that such person will not dispose of any shares in violation of the Securities Act of 1933, as amended, or the rules and regulations of the Securities and Exchange Commission promulgated thereunder and, accordingly, that any public offering or sale of such shares will require either registration under the Securities Act of 1933, as amended, or compliance with the resale provisions of Rule 145 (or in the case of an affiliate of First National Bank who becomes an affiliate of FNB Bancorp, Rule 144) or the availability of another exemption from the registration requirements of the Securities Act of 1933, as amended. All shares of FNB Bancorp common stock held by affiliates of FNB Bancorp will be subject to such restrictions, regardless of how or when acquired. A legend will be placed on all certificates evidencing shares issued to affiliates, setting forth the above-described restrictions on transfer, and appropriate stop-transfer instructions will be given to FNB Bancorp's transfer agent with respect to such certificates.
DESCRIPTION OF FNB BANCORP CAPITAL STOCK
The authorized capital stock of FNB Bancorp consists of 10,000,000 shares of common stock, without par value, and 5,000,000 shares of Preferred Stock, without par value. There are 100 shares of FNB Bancorp common stock outstanding, all of which were subscribed for, and are currently held by, Michael R. Wyman, Chairman and Chief Executive Officer of First National Bank, in connection with the organization of FNB Bancorp as the proposed holding company for First National Bank. There are no shares of preferred stock outstanding and there exists no present plan to issue such shares.
COMMON STOCK
Holders of FNB Bancorp 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. Each share of common stock has the same rights, privileges and preferences as every other share and will share equally in the net assets of FNB Bancorp upon liquidation or dissolution. FNB Bancorp common stock has no preemptive, conversion or redemption rights or sinking fund provisions, and all of the issued and outstanding shares of FNB Bancorp common stock, when issued, will be fully paid and nonassessable. Shareholders are entitled to receive ratably dividends as may be legally declared by the FNB Bancorp board of directors. There are legal and regulatory restrictions on the ability of FNB Bancorp to declare and pay dividends. See "Dividends and Dividend Policy" on page 82.
In the event of a liquidation of FNB Bancorp, 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 FNB Bancorp common stock.
The transfer agent and registrar for FNB Bancorp common stock will be U.S. Stock Transfer Corporation.
PREFERRED STOCK
FNB Bancorp preferred stock may be issued from time to time in one or more series, as authorized by the board of directors of FNB Bancorp. The board of directors is authorized to fix the number of shares of any series of preferred stock and to determine the designation of any such series. The board of directors is also authorized to determine or alter the rights, preferences, privileges and restrictions granted to or imposed upon any wholly unissued series of preferred stock and, within the limits and restrictions stated in any board resolution originally fixing the number of shares constituting any series of preferred stock, to increase or decrease (but not below the number of shares of such series then outstanding) the number of shares of any such series subsequent to the issue of shares of that series.
The board of directors of FNB Bancorp has not authorized the issuance of preferred stock and has no present plan to issue preferred stock. If and when any shares of preferred stock are issued, the holders of preferred stock may have a preference over holders of the common stock upon the payment of dividends, upon liquidation of FNB Bancorp, in respect of voting rights, and in the redemption of the capital stock of FNB Bancorp. The issuance of any preferred stock could have the effect of delaying, deferring or preventing a change in control of FNB Bancorp without further action of its shareholders.
Also, the issuance of preferred stock with voting rights and conversion rights may adversely affect the voting power of the holders of common stock.
DESCRIPTION OF FIRST NATIONAL BANK CAPITAL STOCK
The authorized capital stock of First National Bank consists of 10,000,000 shares of common stock, par value $1.25 per share. No shares of preferred stock are authorized by the articles of association of First National Bank. As of September 30, 2001 (subject to adjustment for the 5% stock dividend payable December 14, 2001), there were 2,208,658 shares of common stock outstanding, and an additional 145,861 shares of the authorized First National Bank common stock available for the future grant of options and an additional 97,218 shares of the First National Bank common stock reserved for issuance to the holders of stock options previously granted and still outstanding under the First National Bank 1997 Stock Option Plan.
COMMON STOCK
Holders of First National Bank 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 First National Bank's board of directors. There are legal and regulatory restrictions on the ability of First National Bank to declare and pay dividends. See "Dividends and Dividend Policy" on page 82.
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 First National Bank common
stock. Shareholders of First National Bank common stock have certain pre-emptive
rights, as described under "Comparison of Shareholder Rights." First National
Bank 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 First National Bank common stock is U.S. Stock Transfer Corporation.
COMPARISON OF SHAREHOLDER RIGHTS
GENERAL
FNB Bancorp is incorporated under the laws of the State of California. First National Bank is a national banking association, organized under and subject to the National Bank Act.
Upon consummation of the reorganization, except for those persons, if any, who perfect dissenters' rights under the National Bank Act, the shareholders of First National Bank will become shareholders of FNB Bancorp. See "What About Dissenting Shareholders Rights?" on page 70.
As a California corporation, FNB Bancorp is governed by the California General Corporation Law and by its articles of incorporation and bylaws. First National Bank is chartered by the Office of the Comptroller of the Currency and
is governed by the National Bank Act and by its articles of association and bylaws, which differ in some material respects from the FNB Bancorp articles and bylaws.
The following is a general comparison of similarities and material differences between the rights of FNB Bancorp and First National Bank 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 FNB Bancorp articles of incorporation, FNB Bancorp bylaws, First National Bank articles of association and First National Bank bylaws.
AUTHORIZED CAPITAL STOCK
The authorized capital stock of FNB Bancorp specified in its articles of incorporation consists of 10,000,000 shares of common stock, without par value, and 5,000,000 shares of preferred stock, without par value. The authorized capital stock of First National Bank specified in its articles of association consists of 10,000,000 shares of common stock, par value $1.25 per share, but no shares of preferred stock are authorized. In the reorganization, FNB Bancorp will issue approximately 2,208,658 shares of its common stock (subject to adjustment for the 5% stock dividend payable December 14, 2001) in exchange for all of the outstanding shares of the First National Bank common stock. An additional 243,079 shares of the FNB Bancorp common stock (subject to adjustment for the 5% stock dividend payable December 14, 2001) will be reserved for issuance pursuant to the First National Bank 1997 Stock Option Plan to be assumed by FNB Bancorp. The balance of the authorized shares of FNB Bancorp common stock will be available to be issued when and as the board of directors of FNB Bancorp determines it advisable. Likewise, the authorized shares of FNB Bancorp preferred stock will be available to be issued when and as the board of directors of FNB Bancorp determines it advisable. While there are no present plans, understandings, arrangements or agreements to issue any additional shares of FNB Bancorp common stock, or any shares of FNB preferred stock, such shares could be issued for the purpose of raising additional capital, in connection with acquisitions of other banks or businesses, or for other appropriate purposes. The board of directors of FNB Bancorp will have the authority to issue shares of common stock to the extent of the present number of authorized and unissued shares, without obtaining the approval of existing holders of common stock. The issuance of shares of preferred stock, although authorized by the board of directors, would require an amendment of the articles of incorporation, which amendment must be approved by the requisite vote of the shareholders of FNB Bancorp. If additional shares of FNB Bancorp common stock were to be issued, the existing holders of common stock would own a proportionately smaller portion of the total number of shares of issued and outstanding common stock. Also, if shares of FNB Bancorp preferred stock were to be issued, it is likely that such shares would be made convertible into shares of common stock, in which case the existing holders of common stock would own a proportionately smaller portion of the total outstanding shares of common stock.
SERIAL PREFERRED STOCK
As indicated above, the articles of incorporation of FNB Bancorp authorize the issuance of up to 5,000,000 shares of preferred stock, without par value. The board of directors of FNB Bancorp has the authority to fix the number
of shares of any series of preferred stock and to determine the designation of any such series. The board of directors is also authorized to determine or alter the rights, preferences, privileges and restrictions granted to or imposed upon any wholly unissued series of preferred stock. Holders of serial preferred stock, when issued, may become senior to holders of common stock as to dividends, voting, liquidation or other rights. The board of directors of FNB Bancorp has no present intention to issue shares of preferred stock.
PRE-EMPTIVE RIGHTS
Shareholders of FNB Bancorp common stock will not have pre-emptive rights. The articles of association of First National Bank, on the other hand, provide for certain limited pre-emptive rights. They provide that, if the capital stock of First National Bank is increased by the sale of additional shares, each shareholder shall be entitled to subscribe for such additional shares in proportion to the number of shares of said capital stock owned by him or her at the time the increase in capital stock is authorized by the shareholders.
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 persons 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 person 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 person; (3) any transaction from which a person derived a personal benefit; (4) acts or omissions that show a reckless disregard for the person's duty to the corporation or its shareholders in circumstances in which the person was aware, or should have been aware, in the ordinary course of performing his or her 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 person'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.
FNB Bancorp. The FNB Bancorp articles eliminate the liability of its directors for monetary damages to the fullest extent permissible under California law and authorize FNB Bancorp 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 FNB Bancorp articles and bylaws obligate FNB Bancorp 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.
FNB Bancorp will maintain 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 FNB Bancorp bylaws entitle the directors of FNB Bancorp 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. FNB Bancorp 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 FNB Bancorp in the proceeding. The directors may also bring suit against FNB Bancorp 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 FNB Bancorp.
First National Bank The First National Bank articles of association are similar to the FNB Bancorp 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 First National Bank.
The First National Bank bylaws do not include indemnification provisions as they are exclusively covered in the First National Bank articles of association. First National Bank also maintains a directors' and officers' liability insurance policy that provide for the indemnification of its directors and officers against losses in connection with claims made against them for specified wrongful acts.
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. 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.
QUORUM REQUIREMENTS
Both the FNB Bancorp bylaws and the First National Bank 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. Both the FNB Bancorp bylaws and the First National Bank bylaws provide that a majority of the board of directors will constitute a quorum at meetings of directors.
SHAREHOLDER MEETINGS AND ACTION BY WRITTEN CONSENT
FNB Bancorp. The FNB Bancorp bylaws authorize shareholder action by written consent without a meeting and without prior notice if consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting, except that unanimous written consent is required for election of directors to non-vacant positions.
First National Bank The First National Bank articles of association and bylaws do not authorize shareholder action or action by the board of directors by written consent without a meeting.
CUMULATIVE VOTING
All voting rights with respect to First National Bank, and all voting rights with respect to FNB Bancorp, are vested in the holders of the shares of common stock. Shareholders of First National Bank common stock are entitled, and shareholders of FNB Bancorp common stock will be entitled to one vote for each share held, except that in the election of directors, each shareholder has cumulative voting rights. 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.
AMENDMENT OF ARTICLES AND BYLAWS
FNB Bancorp. The FNB Bancorp articles of corporation 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 FNB Bancorp 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 FNB Bancorp 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.
First National Bank Subject to the laws of the United States, First National Bank'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. First National Bank's bylaws may be amended, altered or repealed, at any duly called meeting of the First National Bank board of directors by a majority vote of the total number of directors, consistent with the requirements of the laws of the United States.
FILLING VACANCIES ON THE BOARD OF DIRECTORS
FNB Bancorp. The FNB Bancorp bylaws provide that vacancies occurring on its board 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 FNB Bancorp 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.
First National Bank The articles of association provide that the board of directors shall consist of not less than five nor more than nine shareholders. Any vacancy on the First National Bank board of directors for any reason, including an increase in the number of directors, may be filled by action of a majority of the full board of directors, provided that an increase in the number of directors may not be more than two directors in any one year. Directors appointed by the First National Bank 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
FNB Bancorp. The FNB Bancorp 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 FNB Bancorp articles provide that action without a meeting can be taken if the board of directors of FNB Bancorp has by resolution first approved any of the action without a meeting.
First National Bank The board of directors and any three or more shareholders owning, in the aggregate, not less than ten percent of the outstanding shares of First National Bank, may call a special meeting of the shareholders at any time. No provision is made in the First National Bank articles of association for the shareholders to take any action in the absence of a duly called meeting.
MARKET PRICE AND DIVIDEND INFORMATION
MARKET QUOTATIONS
FNB Bancorp common stock is not listed on any exchange or the Nasdaq Stock Market and is not quoted on the OTC Bulletin Board. It is contemplated that upon consummation of the reorganization, FNB Bancorp will apply for listing of its common stock on the Nasdaq National Market.
There is limited trading in the shares of common stock of First National Bank. First National Bank common stock is not listed on any exchange, nor is it listed with the Nasdaq Stock Market, but it is quoted on the OTC Bulletin Board under the symbol "FNBD.OB." Management of First National Bank is aware of the
following securities dealers that have executed transactions in the common stock: Sutro & Co.; Wedbush Morgan Securities; and Hoefer & Arnett, Inc.
As of the record date, there were approximately 465 holders of record of First National Bank common stock.
The following table summarizes sales of the common stock of First National Bank during the periods indicated of which management of First National Bank has knowledge, including the approximate high and low bid prices during such periods and the approximate trading volume and the per share cash dividends declared for the periods indicated. All information has been adjusted to reflect stock dividends effected on December 15, 1999 and December 15, 2000 (but not adjusted for the 5% stock dividend payable December 14, 2001). The prices indicated below reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.
Bid Price of Approximate Cash
Common Stock (1) Trading Dividends
High Low Volume Declared
------ ------ ------ --------
1999
First Quarter.................... $28.5781 26.0781 14,330 0.10
Second Quarter................... 26.3125 23.8125 49,608 0.10
Third Quarter.................... 25.4063 23.8125 59,641 1.10
Fourth Quarter................... 26.1875 24.7656 10,281 0.10
0.60 Spec. Div.
2000
First Quarter.................... $26.1875 $22.1406 126,627 0.12
Second Quarter................... 25.2344 22.8594 72,553 0.12
Third Quarter.................... 26.1875 23.8125 38,637 0.12
Fourth Quarter................... 26.7500 25.7188 31,763 0.12
0.75 Spec. Div.
2001
First Quarter.................... $26.7500 25.5000 39,500 0.12
Second Quarter................... 26.6250 25.0000 176,100 0.12
Third Quarter.................... 26.5000 25.0000 59,800 0.12
Fourth Quarter (through
December _____ 2001)......................
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DIVIDENDS AND DIVIDEND POLICY
FNB Bancorp. FNB Bancorp has not paid dividends and any future dividends will be determined after consideration of FNB Bancorp's earnings, financial condition, future capital funds, regulatory requirements and other factors as the board of directors may deem relevant. FNB Bancorp's primary source of funds for payment of dividends to its shareholders will be the receipt of dividends and management fees from First National Bank. The payment of dividends by a national bank is subject to various legal and regulatory restrictions.
It is the intention of FNB Bancorp to pay cash dividends, subject to legal restrictions on the payment of cash dividends and depending upon the level of earnings, management's assessment of future capital needs and other factors to be considered by the FNB Bancorp board of directors.
Holders of FNB Bancorp common stock will be entitled to receive dividends following the reorganization as and when declared by the board of directors of FNB Bancorp 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 Federal Reserve Board 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.
First National Bank First National Bank'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 First National Bank 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 First National Bank's board of directors in any calendar year will exceed First National Bank'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 the 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.
First National Bank has paid cash dividends in during each of the last 59 consecutive quarters. Also, First National Bank has paid a stock dividend annually for the last 34 years (including the 5% stock dividend payable December 14, 2001). First National Bank intends to continue to pay cash and stock dividends in a manner consistent with past practices.
FIRST NATIONAL BANK
AUDITED FINANCIAL STATEMENTS
First National Bank's audited balance sheets as of December 31, 2000 and 1999 and related audited statements of earnings, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2000, prepared in conformity with accounting principles generally accepted in the United States of America, with the report of Grant Thornton LLP, independent certified public accountants, dated January 26, 2001, are set forth at Annex C of this proxy statement/prospectus.
FIRST NATIONAL BANK MANAGEMENT
BACKGROUND AND BUSINESS EXPERIENCE OF MANAGEMENT
The following table sets forth certain information as of the record date with respect to the current directors, as well as all executive officers, of First National Bank, including their respective ages, positions and a brief account of the business experience for a minimum of five years of each director and executive officer listed below.
Information regarding the number of shares of First National Bank common stock owned by the directors and executive officers of First National Bank is set forth on pages 8 through 10 of this proxy statement/prospectus.
Other than the plan of reorganization, First National Bank knows of no arrangements, including any pledge by any person of securities of First National Bank, the operation of which may, at a subsequent date, result in a change in control of First National Bank. There are no arrangements or understandings by which any of the executive officers or directors of First National Bank were selected. There is no family relationship between any of the directors and/or executive officers, except that Director Edward J. Watson is related by marriage to Anthony J. Clifford, Branch Administrator of First National Bank.
Name Age Position
---- --- --------
Michael R. Wyman 64 Chairman of the Board of Directors of First
National Bank since 1999, and Director
(Chairman) of First National Bank since 1983.
Chief Executive Officer of First National Bank
since 1983 and President of First National
Bank from 1983 to 1996.
Thomas C. McGraw 50 Director (Secretary) of First National Bank
since 1989, and President and Chief Operating
Officer of First National Bank since October
2001. Self-employed communications consultant
in San Mateo and Marin Counties since 1987.
His father was a Founding Director of First
National Bank.
Neil J. Vannucci 65 Director of First National Bank since 1989.
Director of U.S. Concrete since 1999.
President of Bay Cities Building Materials
from 1995 to 1999.
Edward J. Watson 54 Director of First National Bank since 1996.
Certified Public Accountant. Attorney and
partner in the law firm of Watson & Lanctot
LLP, formerly known as Dreher, Garfinkle &
Watson.
Daniel J. Modena 67 Director of First National Bank since 1996.
Attorney and partner in the law firm of Modena
& Royce in South San Francisco since 1961.
Lisa Angelot 44 Director of First National Bank since 1999.
Property manager for the Lagomarsino
Properties in Daly City since 1992. Her
grandfather was Ricco Lagomarsino, Founding
Director and Chairman of First National Bank.
84
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James B. Ramsey 60 Senior Vice President and Chief Financial
Officer of First National Bank since 1997.
Formerly, Vice President/Controller of
Mid-Peninsula Bank in Palo Alto since 1994,
Senior Vice President and Chief Financial
Officer of Codding Bank in Rohnert Park,
California, since 1989, and Executive
Vice-President and Chief Financial Officer of
Pajaro Valley Bank since 1982.
Jim D. Black 39 Senior Vice President and Senior Lending
Officer of First National Bank and an employee
since 1981.
Charles R. Key 55 Senior Vice President and Director of
Information Systems of First National Bank and
an employee since 1970.
Anthony J. Clifford 38 Vice President and Branch Administrator of
First National Bank since 1995. Formerly, Vice
President and Branch Manager, since 1990, and
Assistant Vice President and Branch Manager,
since 1983.
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None of the directors of First National Bank 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.
COMMITTEES OF THE BOARD OF DIRECTORS
First National Bank has an Audit Committee, a Loan and Discount Committee (which functions as an executive committee of the Board of Directors) and a Compensation Committee.
First National Bank does not have a nominating committee, but the Loan and Discount Committee functions as the Bank's nominating committee. Shareholders may nominate directors in accordance with the procedures set forth in Section 12 of the First National Bank bylaws.
The current members of the Audit Committee are Edward J. Watson and Neil J. Vannucci. The principal functions of the Audit Committee are (1) to examine and review both internal audit controls and regulatory audit reports and to meet with the First National Bank auditors concerning audit procedures and controls and (2) to monitor the First National Bank investments.
The current members of the Loan and Discount committee are Michael R. Wyman, Thomas C. McGraw, Daniel J. Modena and Lisa Angelot. The principal functions of the Loan and Discount Committee are to oversee loans and investments and the routine operations of First National Bank by delegation from the board of directors and to advise and report to the full board regarding such matters.
The members of the Compensation Committee are Thomas C. McGraw, Neil J. Vannucci and Edward J. Watson. The Compensation Committee investigates and advises the board of directors as to employee benefit arrangements and conducts
executive searches whenever First National Bank proposes to hire executive personnel. The Compensation Committee also reports to the board of directors with regard to executive compensation, including bonus compensation.
The board of directors of First National Bank met a total of 13 times during 2000. During this same period, the Loan and Discount Committee met 25 times, the Audit Committee met 4 times and the Compensation Committee met 1 time. All incumbent directors of the Bank attended at least seventy-five percent (75%) of the meetings of the board of directors and the committees of which they were members during 2000.
COMPENSATION OF DIRECTORS
Each non-officer director of First National Bank was paid $26,400 in fees for attending meetings of the board of directors during 2000. The aggregate amount of such fees paid by First National Bank in 2000 was $132,000. No fees were paid to the directors during 2000 for their attendance at meetings of the committees of the board of directors. During 2000, each non-officer director of First National Bank was granted a non-statutory option for 225 shares of common stock pursuant to the First National Bank 1997 Stock Option Plan.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The compensation of the executive officers of First National Bank is reviewed and approved annually by the board of directors based on the recommendations by the Compensation Committee. During 2000, Thomas C. McGraw (Chairman), Neil J. Vanucci and Edward J. Watson served as members of the Compensation Committee. Executive officers of First National Bank during 2000 were Michael R. Wyman, Chairman and Chief Executive Officer, Paul B. Hogan, (former) President and Chief Operating Officer, James B. Ramsey, Senior Vice President and Chief Financial Officer, Jim D. Black, Senior Vice President and Senior Lending Officer, Charles R. Key, Senior Vice President and Director, Information Systems, and Anthony J. Clifford, Vice President, Branch Administrator.
The Compensation Committee's philosophy is that compensation should be designed to reflect the value created for shareholders while supporting First National Bank's strategic goals. The Compensation Committee reviews the compensation of the executive officers annually to insure that First National Bank's compensation programs are related to financial performance and consistent generally with employers of comparable size in the industry. Other than as described in this report, there are no other employment contracts between First National Bank and any officer of First National Bank. Annual compensation for First National Bank's executive officers includes the components described below.
Base salary is related to the individual executive officer's level of responsibility and comparison with comparable employers in the industry. The board of directors reviews and sets base salaries annually, taking into consideration the recommendations of the Chief Executive Officer (for executive officers other than the Chief Executive Officer). In conducting its review of salaries, the board of directors takes into consideration the overall performance of First National Bank.
The board of directors determines the base salary for the Chief Executive Officer by (a) examining the financial performance of First National Bank against its present goals; (b) examining the financial performance of First National Bank as compared to the banking industry generally; (c) evaluating the overall performance of the Chief Executive Officer; and (d) comparing the base salary of the Chief Executive Officer to that of other chief executive officers in the banking industry in the market area of First National Bank.
On December 13, 2000, effective as of January 1, 2001, the board of directors approved the following base salary increases: Mr. Wyman's annual salary was increased to $245,000; Mr. Hogan's annual salary was increased to $210,000; Mr. Ramsey's annual salary was increased to $140,004; Mr. Black's annual salary was increased to $140,004; Mr. Key's annual salary was increased to $125,004; and Mr. Clifford's annual salary was increased to $120,000. Mr. Hogan resigned as a director and as President and Chief Operating Officer of First National Bank, effective October 31, 2001. The board of directors has appointed Thomas C. McGraw, a Director and the Secretary of First National Bank, as the interim President and Chief Operating Officer, and established his base salary at the annual level of $195,744.
First National Bank does not have a formal bonus plan. The board of directors, at its discretion, awarded bonuses to its executive officers during 2000, including bonuses to Messrs. Wyman, Hogan, Ramsey, Black, Key and Clifford (which are set forth in the Executive Compensation Table below). Bonus compensation is based on the return on beginning shareholder equity for each year and individual performance criteria are established by the Compensation Committee for each executive officer.
The entire board of directors can, at its discretion, grant stock options to key officers of First National Bank who are primarily responsible for the growth and management of its business. On September 30, 1997, the board of directors adopted the First National Bank of Northern California 1997 Stock Option Plan (the "Option Plan"), which provides for the grant of incentive stock options and nonstatutory stock options to eligible officers and directors of First National Bank. The Option Plan was approved by the shareholders of First National Bank at the 1997 Annual Meeting, held on October 15, 1997. The Option Plan was adopted in order to attract and retain the best available personnel for First National Bank and to provide additional incentive to the officers and directors of First National Bank. The aggregate number of shares available for issuance pursuant to the exercise of options granted under the Option Plan may not exceed 243,079 shares of common stock (reflects 200,000 shares originally reserved under the Option Plan, as adjusted for stock dividends paid in 1998, 1999 and 2000, but not adjusted for the 5% stock dividend payable December 14, 2001). As of September 30, 2001, a total of 97,218 shares were reserved for options previously granted and currently outstanding under the Option Plan, including options for an aggregate of 10,797 shares of common stock (as adjusted for stock dividends paid in 1998, 1999 and 2000, but not adjusted for the 5% stock dividend payable December 14, 2001) which have been granted to Messrs. Wyman, Hogan, Ramsey, Black, Key and Clifford. Each option granted to such officers during 1998 is exercisable at a price of $32.00 per share; each option granted during 1999 is exercisable at a price of $28.00 per share; and each option granted during 2000 is exercisable at a price of $25.13 per share. The exercise price of an incentive stock option is set at the fair market value of the shares on the date of grant. All options granted and currently outstanding are incentive stock options, vesting at the rate of 20 percent per year over the period of 5 years from date of grant and are exercisable for a period of 10
years from the grant date. During 2000, Mr. Wyman was granted options for 2,205 shares; Mr. Hogan was granted options for 2,205 shares; and Messrs. Ramsey, Black, Key and Clifford were each granted options for 1,932 shares. In accordance with the stock option agreements between Mr. Hogan and First National Bank, the term of Mr. Hogan's options will expire three months after termination of his status as an employee which was effective on October 31, 2001.
First National Bank has established a Deferred Compensation Plan. Participation in the Plan is open to all officers of First National Bank with the title Vice President or higher. The Deferred Compensation Plan consists of a Deferred Compensation Trust, dated November 1, 1997, with The Mechanics Bank serving as Trustee, and individual Deferred Compensation Agreements between First National Bank and each of the participating officers. The funds contributed to the Plan are those of the individual participant, and represent income earned and/or bonuses granted as an employee of First National Bank. No funds of First National Bank may be contributed to the Plan. Under the Plan, a participant may elect to defer the receipt of a portion of his or her cash salary and/or bonus. First National Bank maintains a record of the deferred compensation for each participant, and at the time of distribution, is obligated to effect the distribution as well as collection of any and all taxes due at such time. Each participant may elect whether he or she will receive distribution of his or her entire account, subject to applicable tax withholding requirements, upon reaching a specified age, or upon passage of at least five years or upon termination of employment. In order to discharge its obligations in respect of such deferred compensation, First National Bank makes contributions of the deferred compensation specified by the participants to the Deferred Compensation Trust, which are then invested in accordance with the instructions of the participants. The principal and any earnings in the Trust are held separate and apart from other funds of First National Bank and are used for the discharge of First National Bank's obligations to the participants. As of September 30, 2000 (subject to adjustment for the 5% stock dividend payable December 14, 2001), the Trust held an aggregate of 11,137 shares of First National Bank common stock for the accounts of Messrs. Wyman, Hogan, Ramsey, Black, Key and Clifford, representing approximately 0.5% of the total shares outstanding on such date (consisting of 4,731 shares for Michael R. Wyman; 2,644 shares for Paul B. Hogan; 3,000 shares for James B. Ramsey; 211 shares for Jim D. Black; no shares for Charles R. Key; and 551 shares for Anthony J. Clifford).
On August 26, 1969, First National Bank established The First National Bank Profit Sharing and 401(k) Plan (the "Plan") under provisions which allow First National Bank to make a contribution on behalf of each eligible employee. Each year, the Board of Directors of First National Bank decides whether to make a profit sharing contribution to the Plan, and the amount of that contribution. The profit sharing contribution to the Plan for 2000 was $750,000. Each participant in the Plan who is employed on the last day of the Plan year receives a share of that contribution based on the amount of his or her compensation relative to the compensation of all other participants. The accounts of the participants vest according to a schedule of years of service with First National Bank. The Mechanics Bank acts as Trustee for the Profit Sharing Plan Trust, and the Trustee invests all the assets of the Plan in four common trust funds maintained by the Trustee. On January 1, 1998, the Plan was amended to allow any eligible employee to make voluntary contributions to the Plan, and to direct the investment of such contributions from a menu of available options. Both the profit sharing provisions and the employee contribution provisions are elements of the 401(k) Plan. The profit sharing element of the Plan is funded by First National Bank. The employee contribution element of the Plan is funded by the employee.
First National Bank purchased life insurance policies on the lives of Michael R. Wyman and Paul B. Hogan on December 21, 1996, and on the life of James B. Ramsey on December 30, 1998. First National Bank also entered into Salary Continuation Agreements with Messrs. Wyman, Hogan and Ramsey in the form proposed by Bank Compensation Strategies Group (the "Agreements"). First National Bank is the sole owner and beneficiary under such life insurance policies, which policies indirectly offset the anticipated costs for certain death, disability and post-employment/retirement benefits for Messrs. Wyman, Hogan and Ramsey. The cash surrender value of each insurance policy, which is expected to increase over the term of the policy, is included among the "other assets" on the balance sheet of First National Bank. The Agreements provide for annual benefits to be paid to Mr. Wyman or his designated beneficiary over a period of 15 years; annual benefits to be paid to Mr. Hogan or his designated beneficiary over a period of 20 years; and annual benefits to be paid to Mr. Ramsey or his designated beneficiary over a period of 20 years. Such benefits are effective in each case upon: (i) attainment of 66 years of age or his death or disability prior to such time if he is actively employed by the Bank at the time; (ii) termination of his employment by First National Bank without "cause" (as defined in the Agreements); and (iii) termination or constructive termination of his employment by First National Bank after the occurrence of a "change in control" in First National Bank (as defined in the Agreements).
SUBMITTED BY THE COMPENSATION COMMITTEE:
/s/ THOMAS C. MCGRAW /s/ NEIL J. VANUCCI /s/ EDWARD J. WATSON -------------------- ------------------- -------------------- Thomas C. McGraw Neil J. Vanucci Edward J. Watson |
EXECUTIVE COMPENSATION
Set forth below is the summary compensation paid during the three years ended December 31, 2000 to the executive officers of First National Bank.
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ANNUAL COMPENSATION
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NAME YEAR SALARY BONUS (1) ALL OTHER
COMPENSATION
(2)(3)
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Michael R. Wyman, Chairman of 1998 $ 191,220 $ 50,000 $ 14,277
the Board, Chief Executive 1999 200,004 70,000 21,240
Officer 2000 215,004 100,000 26,756
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Paul B. Hogan, President, Chief 1998 $ 144,204 $ 50,000 $ 12,834
Operating Officer (4) 1999 160,008 70,000 21,240
2000 180,000 100.000 26,756
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James B. Ramsey, Senior Vice 1998 $ 113,340 $ 30,000 $ 9,668
President, Chief Financial Officer 1999 118,548 40,000 15,731
2000 123,288 50,000 19,404
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Jim D. Black, Senior Vice 1998 $ 107,100 $ 30,000 $ 9,557
President, Senior Lending Officer 1999 111,384 40,000 14,786
2000 115,848 55,000 18,233
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Charles R. Key, Senior Vice 1998 $ 91,032 $ 20,000 $ 8,123
President, Director, Information 1999 93,948 27,500 12,471
Systems 2000 100,000 37,500 15,739
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Anthony J. Clifford, Vice 1998 $ 88,020 $ 25,000 $ 7,855
President, Branch Administrator 1999 93,300 32,500 12,385
2000 97,032 42,500 15,271
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(1) Bonuses are indicated for the years upon which they are based, and are payable in the same year.
(2) Each of Messrs. Hogan, Wyman, Black and Clifford is provided with the use of a Bank-owned automobile. No executive officer received perquisites or other personal benefits in excess of the lesser of $50,000 or 10 percent of each such officer's total annual salary and bonus during 1998, 1999 or 2000.
(3) Amounts shown represent contributions to the First National Bank Profit Sharing Plan for the accounts of the named officers.
(4) Paul B. Hogan resigned as a director and officer of First National Bank, effective October 31, 2001. Previously, Mr. Hogan was President and Chief Operating Officer of First National Bank. On December 5, 2001, Mr.
Hogan entered into a Separation Agreement with First National Bank, in order to confirm the financial terms of his resignation. The Separation Agreement provides for the payment to Mr. Hogan of severance salary for a period of 18 months at Mr. Hogan's existing annual rate of pay plus the continuation of his existing health insurance coverage for the same period, both commencing from November 1, 2001. In addition, the Separation Agreement confirms the early termination benefits payable to Mr. Hogan over 20 years upon his reaching age 66, under the terms of Mr. Hogan's Salary Continuation Agreement with First National Bank, dated December 20, 1996, which benefits will be calculated based on a stipulated accrual of $360,167 for 6 years of service with First National Bank.
The following table sets forth certain information concerning the granting of options under the First National Bank 1997 Stock Option Plan during the year ended December 31, 2000. The share amounts shown in this table are subject to adjustment for the 5% stock dividend payable December 14, 2001.
Option/SAR Grants In Last Fiscal Year
-------------------------------------------------------------------------------------------------
Potential
Realizable Value
at Assumed
Annual Rates of
Stock Price
Appreciation for
Individual Grants Option Term (3)
-------------------------------------------------------------------------------------------------
Number of Percentage of
Securities Total
Underlying Options/SARs Exercise
Option/SARs Granted to or Base
Name Granted Employees in Price Expiration
(#) (1) Fiscal Year ($Sh) (2) Date 5% 10%
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Michael R. Wyman 2,205 6.8% $ 23.93 6-28-10 $33,185 $84,099
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Paul B. Hogan (4) 2,205 6.8% $ 23.93 6-28-10 $33,185 $84,099
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James B. Ramsey 1,932 6.0% $ 23.93 6-28-10 $29,077 $73,686
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Jim D. Black 1,932 6.0% $ 23.93 6-28-10 $29,077 $73,686
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Charles R. Key 1,932 6.0% $ 23.93 6-28-10 $29,077 $73,686
-------------------------------------------------------------------------------------------------
Anthony J. Clifford 1,932 6.0% $ 23.93 6-28-10 $29,077 $73,686
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(1) Options granted under the Stock Option 1997 Plan were either incentive options or nonstatutory options. Options granted under the 1997 Stock Option 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 First National Bank, all outstanding options under the 1997 Plan will become fully vested and exercisable. Options granted under the 1997 Stock Option Plan are adjusted to protect against dilution in the event of certain changes in First National Bank'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 First National Bank common stock on the date of grant.
(2) The exercise price was determined based upon the average of the bid and asked price of First National Bank common stock on the grant date.
(3) In accordance with Securities and Exchange Commission rules, these columns show gains that might exist for the respective options, assuming that the market price of the stock appreciates from the date of grant over the 10 year option term at the annualized rates of 5% and 10%, respectively.
(4) Mr. Hogan resigned as a director and officer of First National Bank, effective October 31, 2001.
The following table sets forth the number of shares of First National Bank common stock acquired by each of the named executive officers upon the exercise of stock options during fiscal 2000, if any, the net value realized upon exercise, the number of shares of First National Bank common stock represented by outstanding stock options held by each of the named executive officers as of December 31, 2000, the value of such options based on the average of the bid and asked price of First National Bank common stock, and certain information concerning unexercised options under the 1997 Stock Option Plan. The share amounts shown in this table are subject to adjustment for the 5% stock dividend payable December 14, 2001.
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 Realized Exercisable/ Exercisable/
on
Name Exercise ($) Unexercisable Unexercisable
(#)
(a) (b) (c) (d) (e) 1/
---------------------------------------------------------------------------------------------
Michael R. Wyman ------ ------ 4,441 975 340 / 1,363
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Paul B. Hogan (2) ------ ------ 4,254 889 317 / 1,264
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James B. Ramsey ------ ------ 3,824 820 292 / 1,167
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Jim D. Black ------ ------ 3,837 830 292 / 1,167
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Charles R. Key ------ ------ 3,694 771 268 / 1,070
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Anthony J. Clifford ------ ------ 3,680 762 268 / 1,070
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(1) The aggregate value has been determined based upon the average of the bid and asked price for First National Bank common stock at year-end, minus the exercise price.
(2) Mr. Hogan resigned as a director and officer of First National Bank, effective October 31, 2001.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL ARRANGEMENTS
Employment Contracts. There are no employment contracts between First National Bank and the executive officers named in the tables above, other than the Salary Continuation Plans, the Management Continuity Agreements, the Deferred Compensation Plan and the 1997 Stock Option Plan, as described below.
Salary Continuation Agreements. First National Bank purchased life insurance policies on the lives of Michael R. Wyman and Paul B. Hogan on December 21, 1996, and on the life of James B. Ramsey on December 30, 1998. First National Bank also entered into Salary Continuation Agreements with Messrs. Wyman, Hogan and Ramsey (the "Agreements"). First National Bank is the sole owner and beneficiary under such life insurance policies, which policies indirectly offset the anticipated costs for certain death, disability and post-employment/retirement benefits for Messrs. Wyman, Hogan and Ramsey. The cash surrender value of each insurance policy, which is expected to increase over the term of the policy, is included among the "other assets" on the balance sheet of First National Bank. The Agreements provide for annual benefits to be paid to Mr. Wyman or his designated beneficiary of up to $60,000 per year over a period of 15 years; annual benefits to be paid to Mr. Hogan or his designated beneficiary of approximately $57,000 per year over a period of 20 years (fixed as of October 31, 2001, the effective of his resignation, based on six years of service); and annual benefits to be paid to Mr. Ramsey or his designated beneficiary of up to $50,000 per year over a period of 20 years. Such benefits are effective in each case upon: (i) attainment of 66 years of age or his death or disability prior to such time if he is actively employed by First National Bank at the time; (ii) termination of his employment by First National Bank without "cause" (as defined in the Agreements); and (iii) termination or constructive termination of his employment by First National Bank after the occurrence of a "change in control" of First National Bank (as defined in the Agreements).
Management Continuity Agreements. On July 20, 2000, First National Bank entered into Management Continuity Agreements with Jim D. Black, Charles R. Key and Anthony J. Clifford. Each Agreement provides for the payment of a severance benefit to the officer upon termination of employment after a "change in control" of First National Bank (as defined in the Agreements). The purpose of the Agreements is to maintain sound and vital management of First National Bank, thereby protecting its best interests, in the event of a proposed change in control of First National Bank. The amount of the benefit payable under each Agreement is two times the "base annual salary" of the relevant officer for the twelve month period immediately preceding a "change in control." In addition, if any payment of the benefit constitutes an "excess parachute payment" that is subject to an excise tax imposed by the Internal Revenue Code of 1986, as amended, First National Bank will increase the amounts payable to the extent necessary to place the officer in the same after-tax position that would have existed had no excise tax been imposed. First National Bank can elect to pay
benefits in a lump sum payment or in monthly installments over a period not exceeding two years following the date of termination of employment. Each Management Continuity Agreement continues for two years from July 20, 2000, and is subject to automatic one year renewals thereafter, unless First National Bank gives written notice of non-renewal.
Deferred Compensation Plan. First National Bank has established a Deferred Compensation Plan. Participation in the Plan is open to all officers of First National Bank with the title Vice President or higher. The Deferred Compensation Plan consists of a Deferred Compensation Trust, dated November 1, 1997, with The Mechanics Bank serving as Trustee, and individual Deferred Compensation Agreements between First National Bank and each of the participating officers. The funds contributed to the Plan are those of the individual participant, and represent income earned and/or bonuses granted as an employee of First National Bank. No funds of First National Bank may be contributed to the Plan. Under the Plan, a participant may elect to defer the receipt of a portion of his or her cash salary and/or bonus. First National Bank maintains a record of the deferred compensation for each participant, and at the time of distribution, is obligated to effect the distribution as well as collection of any and all taxes due at such time. Each participant may elect whether he or she will receive distribution of his or her entire account, subject to applicable tax withholding requirements, upon reaching a specified age, or upon passage of at least five years or upon termination of employment. In order to discharge its obligations in respect of such deferred compensation, First National Bank makes contributions of the deferred compensation specified by the participants to the Deferred Compensation Trust, which are then invested in accordance with the instructions of the participants. The principal and any earnings in the Trust are held separate and apart from other funds of First National Bank and are used for the discharge of First National Bank's obligations to the participants.
Stock Option Plan. On September 30, 1997, the board of directors adopted the First National Bank of Northern California 1997 Stock Option Plan (the "Option Plan"), which provides for the grant of incentive stock options and nonstatutory stock options to eligible officers and directors of First National Bank. The Option Plan was approved by the shareholders of First National Bank at the 1997 Annual Meeting, held on October 15, 1997. The Option Plan was adopted in order to attract and retain the best available personnel for First National Bank and to provide additional incentive to the officers and directors of First National Bank. Options granted to executive officers of First National Bank pursuant to the Option Plan are set forth hereinabove. Upon consummation of any plan of reorganization, merger or consolidation of First National Bank with one or more other banks or corporations as a result of which First National Bank is not the surviving entity, or upon the sale of all or substantially all the assets of First National Bank to another bank or corporation, then all outstanding unexercised options shall become immediately exercisable in accordance with the terms of the Option Plan and the Option Plan shall terminate.
COMPARISON OF FIRST NATIONAL BANK SHAREHOLDER RETURN
Set forth below is a line graph comparing the annual percentage change in the cumulative total return on First National Bank common stock with the cumulative total return of the SNL Securities Index of Pink Banks (asset size of $100 million to $500 million) and the Russell 2000 Index as of the end of each of First National Bank's last five fiscal years.
The following table assumes that $100.00 was invested on December 31, 1996 in First National Bank common stock and each index, and that all dividends were reinvested. Returns have been adjusted for any stock dividends and stock splits declared by First National Bank. Shareholder returns over the indicated period should not be considered indicative of future shareholder returns.
Total Return Performance
[GRAPHIC OMITTED]
Period Ending
----------------------------------------------------------------------
Index 12/31/96 12/31/97 12/31/98 12/31/99 12/31/00 09/30/01
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First National Bank of Northern California 100.00 141.74 170.68 149.59 160.84 159.77
Russell 2000 100.00 122.36 119.25 144.60 140.23 118.69
SNL $100M-$500M Pink Bank Index 100.00 139.11 163.94 149.30 126.20 139.89
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SNL $100M-$500M Pink Bank Index consists of Pink Sheet- and OTC Bulletin Board-traded banks with between $100M and $500M in total assets
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Neither FNB Bancorp nor First National Bank currently has a class of
securities registered under Section 12 of the Securities Exchange Act of 1934,
as amended, nor are they required to file reports with the Securities and
Exchange Commission under Section 13 of the Securities Exchange Act of 1934.
Consequently, First National Bank's directors, executive officers and ten
percent or more shareholders of First National Bank equity securities are not
currently 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 plan of reorganization, FNB Bancorp 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 FNB Bancorp common stock 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 2000, or any currently proposed transaction, or series of similar transactions, to which First National Bank 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 First National Bank, any shareholder owning of record or beneficially 5% or more of First National Bank 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 2000 of the type requiring disclosure under Item 404(b) of Regulation S-K of the Securities and Exchange Commission.
INDEBTEDNESS OF MANAGEMENT
First National Bank has had, and expects in the future to have banking transactions in the ordinary course of its business with many of First National Bank's 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 2000 such transactions comprising loans did not involve more than the normal risk of collectibility or present other unfavorable features. Loans to executive officers of First National Bank are subject to limitations as to amount and purposes prescribed in part by the Federal Reserve Act, as amended, and the regulations of the Office of the Comptroller of the Currency.
EXPERTS
The financial statements of First National Bank included in this proxy statement/prospectus as of December 31, 2000 and 1999 and for the years ended December 31, 2000, 1999 and 1998 have been audited by Grant Thornton 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 FNB Bancorp common stock offered hereby and material legal matters in connection with the plan of reorganization will be passed upon for FNB Bancorp by Coudert Brothers LLP, San Jose, California. Certain federal tax matters will also be passed upon by Coudert Brothers LLP.
SHAREHOLDER PROPOSALS
The 2002 annual meeting of shareholders of First National Bank is currently scheduled to be held on May 15, 2002. Any shareholder desiring to submit a proposal for action and to be included in the proxy statement for the 2002 Annual Meeting of Shareholders, should mail such proposal by certified mail, return receipt requested, to First National Bank, 975 El Camino Real, South San Francisco, California 94080, Attention: Michael R. Wyman, Chairman and Chief Executive Officer. All such proposals must be received not later than January 31, 2002. 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.
ANNUAL DISCLOSURE STATEMENT
A copy of the 2002 Annual Disclosure Statement of First National Bank is available, upon request to the Chairman and Chief Executive Officer, at no cost to you. Additional copies may be obtained for a nominal fee. See "Where You Can Find More Information" below.
ANNUAL REPORT
A copy of the Annual Report to Shareholders of First National Bank for the year ended December 31, 2000, is available, upon request to the Chairman and Chief Executive Officer, at no cost to you. Additional copies may be obtained for a nominal fee. See "Where You Can Find More Information" below.
OTHER MATTERS
Management is not aware of any matters to be presented at the special meeting of shareholders other than those set forth above. However, if other matters properly come before the 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 FNB Bancorp nor First National Bank currently has 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. In connection with the reorganization, FNB Bancorp will register its common stock under Section 12 of the Securities Exchange Act and thereafter will be required to file reports, proxy statements and other information under Section 13 of the Securities Exchange Act with the Securities and Exchange Commission.
FNB Bancorp 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 FNB Bancorp common stock to be issued in connection with the reorganization. This document also constitutes the prospectus of FNB
Bancorp 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 in the future by FNB Bancorp will be available.
IN DECIDING HOW TO VOTE ON THE TRANSACTIONS COVERED BY THE PLAN OF REORGANIZATION, YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS. NEITHER FNB BANCORP NOR FIRST NATIONAL BANK HAS AUTHORIZED ANY PERSON TO PROVIDE YOU WITH ANY INFORMATION THAT IS DIFFERENT FROM WHAT IS CONTAINED IN THIS DOCUMENT. THIS DOCUMENT IS DATED _____________, 2001. YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN THIS DOCUMENT IS ACCURATE AS OF ANY DATE OTHER THAN THE DATE OF THIS DOCUMENT, AND NEITHER THE MAILING TO YOU OF THIS DOCUMENT NOR THE ISSUANCE TO YOU OF SHARES OF FNB BANCORP COMMON STOCK WILL CREATE ANY IMPLICATION TO THE CONTRARY. THIS DOCUMENT 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
THIS AGREEMENT AND PLAN OF REORGANIZATION ("Plan of Reorganization") is made and entered into as of the 1st day of November, 2001, by and between FNB Bancorp, a California corporation (the "Holding Company"), and First National Bank of Northern California, a national banking association (the "Bank").
WHEREAS, the Bank, subject to the approval of the Office of the Comptroller of the Currency (the "OCC") and upon the affirmative vote of the shareholders of the Bank owning at least two-thirds of its capital stock outstanding, desires to reorganize so as to become a subsidiary of a bank holding company, registered under the Bank Holding Company Act of 1956, as amended (the "BHCA"); and
WHEREAS, the Board of Directors of the Bank has caused the incorporation and organization of the Holding Company for the purposes of said reorganization; and
WHEREAS, the Holding Company, subject to the approval of the Board of Governors of the Federal Reserve System (the "Federal Reserve Board"), desires to become the parent holding company of the Bank and to register as a bank holding company under the BHCA; and
WHEREAS, the Bank and the Holding Company desire to have the shareholders of the Bank exchange their shares of common stock, par value $1.25 per share, for shares of the common stock, no par value, of the Holding Company, so that all shareholders of the Bank (except for those who perfect dissenting shareholders' rights) will become shareholders of the Holding Company, on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, and intending to be legally bound hereby, the parties agree as follows:
SECTION 1. REORGANIZATION
1.1. NATIONAL BANK CONSOLIDATION AND MERGER ACT. Subject to the terms and conditions hereinafter set forth, the parties hereto agree to effect a reorganization of the Bank so as to become a subsidiary of the Holding Company (the "Reorganization") pursuant to the provisions of the National Bank Consolidation and Merger Act, 12 U.S.C. Section 215a-2 (the "Bank Merger Act"), and 12 CFR Section 7.2000. The Reorganization shall be carried out in accordance with the provisions of this Plan of Reorganization, which is intended by the parties to constitute a "reorganization plan" within the meaning of the Bank Merger Act.
1.2. INTERNAL REVENUE CODE. The parties hereto intend the Reorganization to qualify as a tax-free transfer within the meaning of Section 351 of the Internal Revenue Code of 1986, as amended.
1.3. EFFECT OF THE REORGANIZATION. By virtue of the Reorganization, and upon consummation of the transactions contemplated by this Plan of Reorganization, each outstanding share of the Common Stock, par value $1.25 per share, of the Bank (other than any shares as to which dissenters' rights have been perfected as provided in Section 2.3 hereof), shall be converted into the right to receive one (1) share of the Common Stock, no par value, of the Holding
Company. The corporate existence of the Bank shall not be deemed to have been affected in any way by reason of the Reorganization. The Bank will continue in existence as a wholly owned subsidiary of the Holding Company with the same name ("First National Bank of Northern California") and the same national bank charter number as currently assigned to the Bank. All assets, liabilities, rights, duties, privileges, immunities, powers, franchises and interests of the Bank, of every kind and description, as existing on the Effective Date of the Reorganization (as defined below), shall continue in the Bank, without any change or interruption by reason of the Reorganization; Directors, officers and employees of the Bank immediately prior to the Effective Date of the Reorganization (as defined below) shall continue to serve as Directors, officers and employees of the Bank, without change by reason of the Reorganization; and neither the rights of creditors nor any liens upon property of the Bank shall be impaired by reason of the Reorganization.
1.4. HOLDING COMPANY COMMON STOCK. Immediately after the Effective Date of the Reorganization (as defined below), the Holding Company shall repurchase all of the shares of the Holding Company's common stock that are issued and outstanding as of the date of this Plan of Reorganization (the "Organizational Shares") in consideration for the payment to the holder(s) thereof of an amount equal to the aggregate capital contribution theretofore made by such holder(s) to the Holding Company with respect to such shares.
SECTION 2. EXCHANGE OF SHARES
2.1. THE CLOSING. The transactions contemplated by this Plan of Reorganization shall become effective on the closing date selected by the Bank and the Holding Company (the "Effective Date"), after satisfaction of the conditions set forth in Section 7 below, including but not limited to the issuance by the OCC of a certificate approving the Reorganization. As of the Effective Date, each share of the Bank's Common Stock, issued and outstanding immediately prior to the Effective Date (other than Dissenting Shares as hereinafter defined) shall, by virtue of the Reorganization and without any action on the part of the holder thereof, be converted into the right to receive one (1) share of Holding Company Common Stock. At said closing, the Bank and the Holding Company shall use their respective best efforts to deliver or cause to be delivered to each other and to third parties any and all opinions, certificates and other documents as required to achieve the exchange of shares contemplated by this Plan of Reorganization.
2.2. EXCHANGE AGENT. On or immediately prior to the Effective Date, in accordance with this Plan of Reorganization, the Holding Company shall make available shares of its Common Stock in sufficient amounts to effect the Reorganization. As soon as practicable after the Effective Date, the Holding Company will cause U.S. Stock Transfer Corporation, or another qualified trust company selected by the Holding Company and the Bank (the "Exchange Agent') to send to each shareholder of the Bank a letter of transmittal for use in exchanging such holder's stock certificate(s) for stock certificates evidencing shares of Holding Company Common Stock. Each shareholder of the Bank shall be entitled to receive shares of Holding Company Common Stock for such holder's shares of Bank Common Stock only upon surrender of the certificates representing such holder's shares of Bank 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 Bank Common Stock certificate will be deemed for all corporate purposes to represent and evidence solely the right to receive the amount of Holding Company Common Stock to be exchanged therefor, pursuant to this Plan of Reorganization.
2.3. DISSENTING SHARES. Each share of Bank Common Stock issued and outstanding immediately prior to the Effective Date, the holder of which has voted against the Reorganization and who has properly perfected his or her dissenter's 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 or her
certificates representing shares of Bank Common Stock for certificates representing shares of Holding Company Common Stock and otherwise has not effectively withdrawn or lost his or her dissenter's rights, shall not be converted into or represent the right to receive Holding Company Common Stock pursuant to Section 2.1 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 or her dissenter's rights under the applicable provisions of the National Bank Act, then such Dissenting Shares shall be converted into the right to receive Holding Company Common Stock in accordance with the provisions of Section 2.1 hereof.
2.4. STOCK OPTIONS. At the close of business on the Effective Date of the Reorganization, the Holding Company will assume all of the Bank's rights and obligations under the First National Bank of Northern California 1997 Stock Option Plan (the "Stock Option Plan") and under each outstanding stock option agreement evidencing an option (whether an incentive stock option or a nonstatutory stock option) previously granted under the Stock Option Plan. The Stock Option Plan shall become the "FNB Bancorp Stock Option Plan" and by virtue of such assumption, all rights of an optionee with respect to the Common Stock of the Bank shall become the same right with respect to the Common Stock of the Holding Company, on a one-for-one basis. Each such option, subject to such modifications as may be appropriate or required, and subject to the requirements of the Securities Act of 1933, as amended, and the California Corporate Securities Law of 1968, shall constitute a continuation of the option, substituting the Holding Company for the Bank. The option vesting period and price per share of Holding Company Common Stock at which such option may be exercised shall be the same vesting period and price as were applicable to the purchase of Bank Common Stock, and all other terms and conditions applicable to the option shall, except as may be otherwise provided herein, be unchanged. Each option granted pursuant to the Stock Option Plan, from and after the close of business on the Effective Date of the Reorganization, shall constitute an option granted by the Holding Company and outstanding pursuant to the FNB Bancorp Stock Option Plan. Promptly after the Effective Date of the Reorganization, the Holding Company will prepare and file with the Securities and Exchange Commission a registration statement on Form S-8 under and pursuant to the Securities Act of 1933, as amended, for the purpose of registering the maximum number of shares of the Common Stock of the Holding Company to which the holders of options granted and outstanding, or to be granted and outstanding, under the Stock Option Plan or the FNB Bancorp Stock Option Plan may be entitled,
2.5. EMPLOYEE BENEFIT PLANS. The Bank and the Holding Company agree that the employee benefit plans of the Bank, existing at the close of business on the Effective Date of the Reorganization, including but not limited to the First National Bank Profit Sharing and 401(k) Plan and the First National Bank Deferred Compensation Plan, shall be continued, terminated, frozen, modified or assumed by the Holding Company in accordance with applicable laws and regulations and the provisions of the Internal Revenue Code of 1986, as amended, as determined by mutual agreement of the parties.
2.6. ADJUSTMENTS. If, between the date of this Plan of Reorganization and the Effective Date, the outstanding shares of Bank Common Stock 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 thereon shall be declared with a record date within such period, the number of shares of Holding Company Common Stock to be issued and delivered in the Reorganization in exchange for the outstanding shares of Bank Common Stock shall be correspondingly adjusted.
2.7. FURTHER TRANSFERS OF BANK STOCK. At the close of business on the Effective Date of the Reorganization, the stock transfer books of the Bank shall be closed and no transfer of shares of Bank Common Stock theretofore outstanding shall thereafter be made.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF HOLDING COMPANY
The Holding Company represents, warrants and agrees as follows:
3.1. ORGANIZATION AND STANDING. The Holding Company is a corporation, duly organized and validly existing under the laws of the State of California.
3.2. CAPITALIZATION. The Holding Company is authorized to issue Ten
Million (10,000,000) shares of Common Stock, no par value, of which one hundred
(100) shares are issued and outstanding. There are no outstanding options,
warrants, calls, convertible securities, subscriptions or other commitments or
rights of any nature with respect to the Common Stock of the Holding Company.
3.3. AUTHORITY RELATIVE TO THIS PLAN OF REORGANIZATION. The execution, delivery and performance of this Plan of Reorganization have been duly authorized by the Board of Directors of the Holding Company. Subject to appropriate shareholder and regulatory approvals, neither the execution and delivery of this Plan of Reorganization nor the consummation of the transactions provided for herein will violate any agreement to which the Holding Company is a party or by which it is bound or any law, order or decree or any provision of its Articles of Incorporation or Bylaws.
3.4. ABSENCE OF LIABILITIES. Prior to the Effective Date of the Reorganization, the Holding Company will have engaged only in the transactions contemplated by this Plan of Reorganization, will have no material liabilities and will have incurred no material obligations except in connection with its performance of the transactions provided for in this Plan of Reorganization.
3.5. HOLDING COMPANY COMMON STOCK. The shares of Holding Company Common Stock, no par value, to be issued pursuant to this Plan of Reorganization will, upon the issuance thereof in accordance with the terms set forth in this Plan of Reorganization, be validly issued, fully paid and nonassessable.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF BANK
The Bank represents, warrants and agrees as follows:
4.1. ORGANIZATION AND STANDING. The Bank is a national banking association, duly organized and validly existing under the laws of the United States of America.
4.2. CAPITALIZATION. The Bank is authorized to issue Ten Million (10,000,000) shares of Common Stock, par value $1.25 per share, of which 2,208,658 shares were issued and outstanding as of June 30, 2001. There are no outstanding options, warrants, calls, convertible securities, subscriptions or other commitments or rights of any nature with respect to the Common Stock of the Bank, except for 99,256 shares under stock option agreements outstanding as of June 30, 2001, pursuant to the First National Bank of Northern California 1997 Stock Option Plan.
4.3. AUTHORITY RELATIVE TO THIS PLAN OF REORGANIZATION. The execution, delivery and performance of this Plan of Reorganization have been duly authorized by the Board of Directors of the Bank. Subject to appropriate shareholder and regulatory approvals, neither the execution and delivery of this Plan of Reorganization, nor the consummation of the transactions provided for
herein, will violate any agreement to which the Bank is a party or by which it is bound or any law, order, or decree or any provision of its Articles of Association or Bylaws.
SECTION 5. COVENANTS OF THE HOLDING COMPANY
The Holding Company agrees that between the date hereof and the Effective Date of the Reorganization:
5.1. REGULATORY APPROVALS. The Holding Company shall file all necessary regulatory applications, shall diligently seek all other required approvals and shall take any and all further action as may be necessary or appropriate, or as may be reasonably requested by the Bank, to permit the timely consummation of the Reorganization provided for in this Plan of Reorganization.
5.2. APPROVAL OF REORGANIZATION. The Board of Directors of the Holding Company shall diligently seek the approval of this Plan of Reorganization by the shareholder(s) of the Holding Company, in accordance with applicable law.
5.3. BEST EFFORTS. The Holding Company will use its best efforts to take, or cause to be taken, all actions or do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated by this Plan of Reorganization, subject, however, to the requisite vote of the shareholders of the Bank in accordance with the requirements of the Bank Merger Act and applicable law.
5.4. NASDAQ NATIONAL MARKET. The Holding Company shall take all necessary action to list the shares of Holding Company Common Stock for trading on the Nasdaq National Market, to be effective as soon as practicable following the Effective Date.
SECTION 6. COVENANTS OF THE BANK
The Bank agrees that between the date hereof and the Effective Date of the Reorganization:
6.1. SHAREHOLDERS MEETING. The Bank shall submit this Plan of Reorganization to the vote of its shareholders as provided by the Bank Merger Act and other applicable laws at a Special Meeting of Shareholders to be called by the Board of Directors of the Bank, including any adjournment or postponement thereof. The Bank will cooperate with the Holding Company in the preparation of a prospectus/proxy statement of the Holding Company and the Bank, to be sent to the shareholders of the Bank in connection with said Special Meeting of Shareholders; and notice of the time, place and object of the Special Meeting of Shareholders shall be published for four (4) consecutive weeks in a local newspaper of general circulation and shall be sent to each shareholder of record by certified or registered mail at least ten (10) days prior to the date of the Special Meeting of Shareholders, as required by 12 U.S.C. Section 215a.
6.2. BEST EFFORTS. The Bank will use its best efforts to take, or cause to be taken, all actions or do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated by this Plan of Reorganization, subject, however, to the requisite vote of the shareholders of the Bank in accordance with the requirements of the Bank Merger Act and applicable law.
SECTION 7. CONDITIONS TO OBLIGATIONS OF THE PARTIES
The obligations of the parties to consummate this Plan of Reorganization shall be subject to the following conditions; provided, however, that any one or more of such conditions may be waived by the Board of Directors of the Holding Company and the Board of Directors of the Bank, by mutual agreement, at any time at or prior to the Effective Date of the Reorganization:
7.1. REPRESENTATIONS, WARRANTIES AND COVENANTS. The representations and warranties and covenants contained in Sections 3, 4, 5 and 6 hereof shall be true as of and at the Effective Date of the Reorganization, and each party shall have performed all obligations required hereby to be performed by it prior to the Effective Date.
7.2. SHAREHOLDER APPROVALS. The shareholders of the Holding Company and the Bank shall have duly approved this Plan of Reorganization in accordance with applicable laws.
7.3. DISSENTING SHARES. Holders of not more than five (5) percent of the outstanding shares of Bank Common Stock shall have perfected dissenters' rights pursuant to 12 U.S.C. Section 215a (by voting against the Plan of Reorganization at the Bank Special Meeting of Shareholders or by giving notice in writing at or prior to the Bank Special Meeting of Shareholders that he or she dissents from the Plan of Reorganization and thereafter submitting a timely request for the value of his or her shares of Bank Common Stock in the manner required by the National Bank Act).
7.4. REGULATORY APPROVALS. The OCC, the Federal Reserve Board and any other federal or state regulatory agency having jurisdiction (banking or otherwise), to the extent that any consent or approval is required by applicable laws or regulations for the consummation of the transactions contemplated by this Plan of Reorganization, shall have granted any necessary consent or approval.
7.5. REGISTRATION STATEMENT. The registration statement (the "Registration Statement") filed by the Holding Company under the Securities Act of 1933, as amended, covering the shares of the Holding Company's Common Stock to be issued pursuant to the Plan of Reorganization, shall have been declared effective by the Securities and Exchange Commission, and no stop order suspending the effectiveness of the Registration Statement shall have been issued and no proceeding for that purpose shall have been initiated or, to the knowledge of the Holding Company, shall be contemplated or threatened by the Securities and Exchange Commission.
7.6. LITIGATION. There shall be no litigation or proceeding pending or threatened for the purpose of enjoining, restraining or preventing the consummation of the Reorganization or this Plan of Reorganization, or otherwise claiming that such consummation is improper.
7.7. CONSENTS. The Holding Company and the Bank shall have received 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 the Bank, and no such consent, license or permit shall have been withdrawn or suspended.
7.8. LEGAL AND TAX OPINIONS. The Holding Company and the Bank shall have received such legal and tax opinions and other assurances in respect of the Reorganization as are customary or usual for the tax-free reorganization of a national bank, or as the Holding Company and the Bank may reasonably require in order to consummate the transactions contemplated by this Plan of Reorganization.
SECTION 8. TERMINATION, WAIVER AND AMENDMENT
8.1. CIRCUMSTANCES OF TERMINATION. Anything herein or elsewhere to the contrary notwithstanding, this Plan of Reorganization may be terminated at any time before the Effective Date of the Reorganization (whether before or after action with respect thereto by the Bank's shareholders) only:
(a) by the mutual consent of the Board of Directors of the Bank and the Board of Directors of the Holding Company, evidenced by an instrument in writing signed on behalf of each by their respective representatives; or
(b) by the Board of Directors of the Bank if, in its sole judgment, the Reorganization would be inadvisable because of the number of shareholders of the Bank who perfect their dissenting shareholders' rights in accordance with applicable law, or if, in the sole judgment of such Board, the Reorganization would not be in the best interests of the Bank or its employees, depositors or shareholders for any reason whatsoever.
8.2. EFFECT OF TERMINATION. In the event of the termination and abandonment hereof, this Plan of Reorganization shall become void and have no effect, without any liability on the part of any of the parties, their directors, officers or shareholders, except as set forth in Section 9 hereof.
8.3. WAIVER. Any of the terms or conditions of this Plan of Reorganization may be waived in writing at any time by the Bank by action taken by its Board of Directors, whether before or after action by the Bank's shareholders; provided, however, that such action shall be taken only if, in the judgment of the Board of Directors, such waiver shall not have a materially adverse effect on the benefits intended to be granted hereunder to the shareholders of the Bank.
8.4. AMENDMENT. Anything herein or elsewhere to the contrary notwithstanding, to the extent permitted by law, this Plan of Reorganization may be amended at any time by the affirmative vote of a majority of the Board of Directors of each of the Bank and the Holding Company, whether before or after action with respect thereto by the Bank's shareholders and without further approval of such amendment by the shareholders of the parties hereto (subject to the shareholder voting requirements of 12 U.S.C. Section 215a); provided, however, that after such approval by the shareholders of the Bank, no such amendment shall be made which shall affect the rights of the shareholders of the Bank in a manner which, in the judgment of the Board of Directors of the Bank, is materially adverse to such shareholders, without the further approval of such shareholders.
SECTION 9. EXPENSES
9.1. GENERAL. Each party hereto will pay its own expenses incurred in connection with this Plan of Reorganization, whether or not the transactions contemplated herein are effected.
9.2. SPECIAL DIVIDEND. Promptly after the Effective Date of the Reorganization, the Bank shall pay a special dividend to the Holding Company in an amount equal to the sum of:
(a) the expenses incurred by the Holding Company in connection with the transactions contemplated herein, and the cost of repurchasing the Organizational Shares as contemplated by Section 1.4 above; and
(b) the principal amount of any loan or line of credit that the Holding Company shall have obtained to carry out this Plan of Reorganization, plus any accrued and unpaid interest and fees with respect thereto.
SECTION 10. MISCELLANEOUS
10.1. RESTRICTIONS ON AFFILIATES. The Holding Company may cause stock certificates representing any shares issued to any shareholder who may be deemed to be an "affiliate" of the Bank, within the meaning of Rule 145 under the Securities Act of 1933, as amended, to bear a legend setting forth any applicable restrictions on transfer thereof under Rule 145 and may cause stop-transfer orders to be entered with its transfer agent with respect to any such certificates.
10.2. NO BROKERS. Each of the parties represents to the other that it has not incurred and will not incur any liability for brokerage fees or agents' commissions in connection with this Plan of Reorganization and the transactions contemplated hereby.
10.3. RIGHT TO WITHHOLD DIVIDENDS. The Board of Directors of the Holding Company reserves the right to withhold dividends or other distributions from any former shareholder of the Bank who fails to exchange certificates representing shares of Bank Common Stock for certificates representing shares of Holding Company Common Stock in accordance with Section 2 of this Plan of Reorganization. Upon surrender of such certificates representing Bank Common Stock, the holder thereof shall be paid, without interest, any dividends or other distributions with respect to the shares of Holding Company Common Stock as to which the record date and payment date occurred on or after the Effective Date of the Reorganization and on or before the date of surrender.
10.4. FAILURE TO SURRENDER CERTIFICATES. Shareholders of the Holding Company may be required, at the option of the Holding Company, to surrender certificates representing the shares of the Bank for certificates representing the shares of the Holding Company within two (2) years of the date of the letter of transmittal as provided in Section 2.2 of this Plan of Reorganization. In the event that any stock certificates are not surrendered for exchange within such two (2) year period, the shares represented by appropriate certificates of the Holding Company that would otherwise have been delivered in exchange for the unsurrendered certificates may be sold and the net proceeds of the sale shall be held for the shareholders of the unsurrendered certificates, to be paid to them upon surrender of their outstanding certificates. From and after such sale, the sole right of the holders of the unsurrendered outstanding certificates (including any dividends or other distributions payable in respect of the shares represented by such certificates) shall be the right to collect the net sales proceeds held for their account.
10.5. ENTIRE AGREEMENT. This Plan of Reorganization contains the entire agreement among the parties with respect to the subject matter hereof and supersedes all prior agreements, written or oral, with respect thereto.
10.6. CAPTIONS. Descriptive headings are for convenience only and shall not control or affect the meaning or construction of any provisions of this Plan of Reorganization.
10.7. APPLICABLE LAW. This Plan of Reorganization shall be governed by the laws of the State of California, applicable to contracts executed in and to be performed exclusively within the State of California, and 12 U.S.C. Section 215a-2 and the other laws of the United States of America applicable to national banking associations.
10.8. COUNTERPARTS. This Plan of Reorganization may be executed in any number of counterparts, and each such counterpart shall be deemed to be an original instrument, but all such counterparts together shall constitute but one agreement.
IN WITNESS WHEREOF, this Plan of Reorganization has been executed as of the day and year first above written.
ATTEST: FIRST NATIONAL BANK OF NORTHERN
CALIFORNIA
/s/ THOMAS C. MCGRAW /s/ MICHAEL R. WYMAN
------------------------------ By: ------------------------------
Thomas C. McGraw, Secretary Michael R. Wyman, Chairman and
Chief Executive Officer
ATTEST: FNB BANCORP
/s/ THOMAS C. MCGRAW /s/ MICHAEL R. WYMAN
------------------------------ By: ------------------------------
Thomas C. McGraw, Secretary Michael R. Wyman, Chairman and
Chief Executive Officer
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ANNEX B
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.
Comptroller of the Currency
Washington, DC 20219
Banking Circular
BC-259
1992 OCC CB LEXIS 21
March 5, 1992
[*1]
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 [*2] 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.
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 [*3] 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 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 [*4] 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 [*5] 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 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 [*6] 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.
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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[*7]
* - The "Appraisal Date" is the consummation date for the conversion, consolidation, or merger.
NA - Not Available
NC - Not Computed
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
--------------------------------------------------------------------------------
|
* - The "Appraisal Date" is the consummation date for the conversion, consolidation, or merger.
NA - Not Available
NC - Not Computed
For more information regarding the OCC's stock appraisal process, contact the Office of the Comptroller of the Currency, Bank Organization and Structure.
Frank Maguire
[*8] Acting Senior Deputy Comptroller
Corporate Policy and Economic Analysis
ANNEX C
FINANCIAL STATEMENTS AND REPORT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
FIRST NATIONAL BANK OF NORTHERN CALIFORNIA
December 31, 2000, 1999 and 1998
Board of Directors
First National Bank of Northern California
We have audited the accompanying balance sheets of First National Bank of Northern California (a National Banking Association) as of December 31, 2000 and 1999, and the related statements of earnings, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2000. 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 auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our 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 First National Bank of Northern California as of December 31, 2000 and 1999, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America.
/s/ GRANT THORNTON LLP San Francisco, California January 26, 2001 |
FIRST NATIONAL BANK OF NORTHERN CALIFORNIA
BALANCE SHEETS
DECEMBER 31,
ASSETS
2000 1999
------------- -------------
Cash and due from banks $ 22,712,702 $ 17,378,891
Federal funds sold 19,040,000 2,795,000
------------- -------------
Cash and cash equivalents 41,752,702 20,173,891
Securities available for sale 87,241,009 70,658,354
Securities held to maturity 1,396,175 1,222,875
Loans, net 229,668,543 237,062,005
Bank premises, equipment and leasehold improvements 11,040,132 11,098,679
Accrued interest receivable and other assets 8,875,166 7,837,892
------------- -------------
$ 379,973,727 $ 348,053,696
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Demand, noninterest bearing $ 89,493,429 $ 77,639,676
Demand, interest bearing 48,840,453 37,871,760
Savings 88,681,533 76,111,085
Time 103,441,559 113,738,758
------------- -------------
Total deposits 330,456,974 305,361,279
Accrued expenses and other liabilities 6,730,519 5,185,780
------------- -------------
Total liabilities 337,187,493 310,547,059
Contingencies and commitments
Stockholders' equity
Common stock, $1.25 par value, authorized 10,000,000
shares; issued and outstanding 2,208,658 shares in
2000 and 2,103,694 shares in 1999 2,760,823 2,629,618
Additional paid-in capital 17,810,267 14,963,154
Retained earnings 22,063,985 20,928,830
Accumulated other comprehensive income (loss) 151,159 (1,014,965)
------------- -------------
Total stockholders' equity 42,786,234 37,506,637
------------- -------------
$ 379,973,727 $ 348,053,696
============= =============
|
See accompanying notes to financial statements.
FIRST NATIONAL BANK OF NORTHERN CALIFORNIA
STATEMENTS OF EARNINGS
YEAR ENDED DECEMBER 31,
2000 1999 1998
------------ ------------ ------------
Interest income
Interest and fees on loans $ 25,811,471 $ 23,542,577 $ 20,530,673
Interest and dividends on securities 2,957,290 2,046,493 1,912,664
Interest on tax exempt securities 1,426,724 1,517,210 1,791,795
Federal funds sold 666,648 480,137 503,656
------------ ------------ ------------
30,862,133 27,586,417 24,738,788
Interest expense
Interest on deposits 8,191,525 6,998,861 6,877,264
------------ ------------ ------------
Net interest income 22,670,608 20,587,556 17,861,524
Provision for loan losses 425,000 750,000 750,000
------------ ------------ ------------
Net interest income after provision for loan losses 22,245,608 19,837,556 17,111,524
Noninterest income
Service charges 1,661,721 1,771,878 1,725,626
Credit card fees 974,645 761,460 582,220
Gain on sale of bank premises, equipment and
leasehold improvements 700,802 11,756 --
Gain (loss) on sales of securities (1,425) (116,651) 60,512
Other 444,817 356,740 285,971
------------ ------------ ------------
3,780,560 2,785,183 2,654,329
Noninterest expense
Salaries and employee benefits 9,453,202 8,588,182 7,706,818
Occupancy expense 1,122,541 1,092,511 1,101,876
Equipment expense 1,452,979 1,419,335 1,689,726
Advertising expense 427,868 412,891 425,416
Data processing expense 360,038 310,194 240,771
Professional fees 467,723 422,866 659,915
Director expense 132,000 120,000 108,000
Surety insurance 308,873 243,813 312,985
Telephone, postage, supplies 972,700 788,904 786,817
Other 1,278,763 1,119,967 1,183,174
------------ ------------ ------------
15,976,687 14,518,663 14,215,498
------------ ------------ ------------
Earnings before income tax expense 10,049,481 8,104,076 5,550,355
Income tax expense 3,263,391 2,886,912 1,507,707
------------ ------------ ------------
NET EARNINGS $ 6,786,090 $ 5,217,164 $ 4,042,648
============ ============ ============
Earnings per share data:
Basic $ 3.07 $ 2.36 $ 1.83
============ ============ ============
Diluted $ 3.07 $ 2.36 $ 1.83
============ ============ ============
Weighted average shares outstanding:
Basic weighted average shares outstanding 2,208,645 2,208,637 2,208,637
============ ============ ============
Diluted weighted average shares outstanding 2,210,338 2,208,637 2,208,637
============ ============ ============
|
See accompanying notes to financial statements.
FIRST NATIONAL BANK OF NORTHERN CALIFORNIA
STATEMENT OF STOCKHOLDERS' EQUITY
THREE YEARS ENDED DECEMBER 31, 2000
Accumulated
Common Stock Additional Other
Comprehensive ------------ Paid-in Retained Comprehensive
Income Shares Amount Capital Earnings Income/(Loss) Total
------ ------ ------ ------- -------- ------------- -----
Balance at January 1, 1998 1,908,541 $ 2,385,676 $ 9,552,375 $ 20,027,757 $ 132,507 $ 32,098,315
Comprehensive income:
Net earnings $ 4,042,648 -- -- -- 4,042,648 -- 4,042,648
Other comprehensive income:
Cumulative effect of
reclassification of
securities, net of
tax of $179,199 257,756 -- -- -- -- 257,756 257,756
Unrealized gain on
securities, net of
tax of $38,522 55,361 -- -- -- -- 55,361 55,361
------------
Other comprehensive
income 313,117
------------
Comprehensive income $ 4,355,765
============
Cash dividends of $.03 per
share quarterly -- -- -- (114,512) -- (114,512)
Cash dividends of $.10 per
share -- -- -- (572,562) -- (572,562)
Stock dividend 95,218 119,023 2,737,518 (2,856,541) -- --
Cash on fractional shares
related to stock dividend -- -- -- (6,266) -- (6,266)
----------- ------------ ------------ ------------ ------------ ------------
Balance at December 31, 1998 2,003,759 2,504,699 12,289,893 20,520,524 445,624 35,760,740
Comprehensive income:
Net earnings $ 5,217,164 -- -- -- 5,217,164 -- 5,217,164
Other comprehensive income:
Unrealized loss on
securities, net of
tax of $1,006,783 (1,460,589) -- -- -- -- (1,460,589) (1,460,589)
------------
Comprehensive income $ 3,756,575
============
Cash dividends of $.10 per
share quarterly -- -- -- (801,504) -- (801,504)
Cash dividends of $.60 per
share -- -- -- (1,202,255) -- (1,202,255)
Stock dividend 99,935 124,919 2,673,261 (2,798,180) -- --
Cash on fractional shares
related to stock dividend -- -- -- (6,919) -- (6,919)
----------- ------------ ------------ ------------ ------------ ------------
Balance at December 31, 1999 2,103,694 2,629,618 14,963,154 20,928,830 (1,014,965) 37,506,637
Comprehensive income:
Net earnings $ 6,786,090 -- -- -- 6,786,090 -- 6,786,090
Other comprehensive income:
Unrealized gain on
securities, net of
tax of $815,483 1,166,124 -- -- -- -- 1,166,124 1,166,124
------------
Comprehensive income $ 7,952,214
============
Cash dividends of $.12 per
share quarterly -- -- -- (1,009,773) -- (1,009,773)
Cash dividends of $.75 per
share -- -- -- (1,656,494) -- (1,656,494)
Stock dividend 104,943 131,179 2,846,579 (2,977,758) -- --
Cash on fractional shares
related to stock dividend -- -- -- (6,910) -- (6,910)
Stock options exercised 21 26 534 -- -- 560
----------- ------------ ------------ ------------ ------------ ------------
Balance at December 31, 2000 2,208,658 $ 2,760,823 $ 17,810,267 $ 22,063,985 $ 151,159 $ 42,786,234
=========== ============ ============ ============ ============ ============
|
See accompanying notes to financial statements.
FIRST NATIONAL BANK OF NORTHERN CALIFORNIA
STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
2000 1999 1998
------------ ------------ ------------
Cash flows from operating activities
Net earnings $ 6,786,090 $ 5,217,164 $ 4,042,648
Adjustments to reconcile net earnings to net cash provided by
operating activities
Depreciation and amortization 1,169,113 1,104,814 1,146,628
(Gain) loss on sale of securities 1,425 116,651 (60,512)
Gains on sale of bank premises, equipment and
leasehold improvements (700,802) (11,756) --
Provision for loan losses 425,000 750,000 750,000
Deferred taxes (365,010) (467,367) (546,326)
Changes in assets and liabilities
Accrued interest receivable and other assets (1,487,660) 263,449 (2,537,357)
Accrued expenses and other liabilities 1,620,682 342,153 1,553,888
------------ ------------ ------------
Total adjustments 662,748 2,097,944 306,321
------------ ------------ ------------
Net cash provided by operating activities 7,448,838 7,315,108 4,348,969
Cash flows from investing activities
Proceeds from matured securities available for sale 16,290,135 34,438,373 24,516,008
Purchases of securities available for sale (30,892,695) (26,920,000) (42,360,000)
Proceeds from matured securities held to maturity -- 142,777 6,372,951
Purchases of securities held to maturity -- (350,025) --
Net decrease (increase) in loans 6,968,462 (33,927,549) (21,696,684)
Proceeds from sales of bank premises, equipment
and leasehold improvements 1,005,604 35,730 --
Purchases of bank premises, equipment and leasehold improvements (1,415,368) (595,465) (512,411)
Purchase of Federal Reserve Bank stock (173,300) -- (85,700)
------------ ------------ ------------
Net cash used in investing activities (8,217,162) (27,176,159) (33,765,836)
Cash flows from financing activities
Net increase in demand and savings deposits 35,392,894 8,460,522 18,559,670
Net (decrease) increase in time deposits (10,297,199) 16,311,649 5,539,138
Net increase (decrease) in federal funds purchased -- (1,000,000) 1,000,000
Proceeds from exercise of stock options 560 -- --
Dividends paid (2,673,177) (2,010,678) (693,340)
Payments on capital note payable (75,943) (65,888) (16,206)
------------ ------------ ------------
Net cash provided by financing activities 22,347,135 21,695,605 24,389,262
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 21,578,811 1,834,554 (5,027,605)
Cash and cash equivalents at beginning of year 20,173,891 18,339,337 23,366,942
------------ ------------ ------------
Cash and cash equivalents at end of year $ 41,752,702 $ 20,173,891 $ 18,339,337
============ ============ ============
Additional cash flow information
Interest paid $ 7,831,528 $ 7,004,664 $ 6,818,238
Income taxes paid $ 3,926,812 $ 2,638,000 $ 2,679,619
|
See accompanying notes to financial statements.
FIRST NATIONAL BANK OF NORTHERN CALIFORNIA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999 AND 1998
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
First National Bank of Northern California (the Bank) provides traditional banking services in San Mateo and San Francisco counties. The accounting and reporting policies of the Bank conform with accounting principles generally accepted in the United States of America and with prevailing practices within the banking industry. The following is a summary of the significant accounting policies.
Cash and cash equivalents include cash on hand, amounts due from banks, and federal funds sold. Generally, federal funds are purchased and sold for one-day periods.
Available-for-sale securities consist of bonds, notes, debentures, and certain equity securities not classified as held-to-maturity securities. Available-for-sale securities are recorded at fair value. Unrealized holding gains and losses, net of tax, on available-for-sale securities are reported as a net amount in accumulated other comprehensive income until realized. Gains and losses on sales of available-for-sale securities are determined using the specific identification method.
Bonds, notes and debentures for which the Bank has the positive intent and ability to hold to maturity are reported at cost, adjusted for premiums and discounts that are recognized in interest income using the interest method over the period to maturity.
Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off are reported at their outstanding principal adjusted for the allowance for loan losses and any deferred fees or costs on originated loans and unamortized premiums or discounts on purchased loans.
A loan is identified as impaired when it is probable that interest and principal will not be collected according to the contractual terms of the loan agreement. The accrual of interest on impaired loans is discontinued when, in management's opinion, the borrower may be unable to meet payments as they become due. When interest accrual is discontinued, all unpaid accrued interest is reversed. Interest income is subsequently recognized only to the extent cash payments are received.
The allowance for loan losses is increased by charges to earnings and decreased by charge-offs (net of recoveries). Management's periodic evaluation of the adequacy of the allowance is based on the Bank's past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower's ability to repay, the estimated value of any underlying collateral, and current economic conditions.
FIRST NATIONAL BANK OF NORTHERN CALIFORNIA
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Depreciation is provided by the straight-line and double declining balance methods in amounts sufficient to relate the cost of depreciable assets to operations over their estimated service lives ranging from 3 to 31 years. Leasehold improvements are amortized over the lives of the respective leases or the service lives of the improvements, whichever is shorter.
Interest is accrued monthly, as earned, on all loans. Interest income is not recognized on loans if collection of the interest is deemed by management to be doubtful. Interest income is recognized using methods which approximate a level yield on principal amounts outstanding.
Loan origination fees and direct loan origination costs are deferred and amortized as a yield adjustment over the contractual life of the related loan.
Payment of dividends is subject to certain restrictions under the National Banking Laws. The payment of cash dividends in any calendar year is generally limited to the Bank's net earnings for the current and two preceding years.
Deferred income taxes are recognized for tax consequences of temporary differences by applying current tax rates to differences between the financial reporting and the tax basis of existing assets and liabilities. Deferred tax assets and liabilities are reflected at currently enacted income tax rates applicable to the period in which the deferred tax assets or liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes.
Statement of Financial Standards (SFAS) No. 123, Accounting for Stock Based Compensation, encourages all entities to adopt a fair value based method of accounting for employee stock compensation plans, where by compensation cost is measured at the grant date based on the value of the award and is recognized over the service period, which is usually the vesting period. However, it also allows an entity to continue to measure compensation cost for those plans using the intrinsic value based method of accounting prescribed by Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, whereby compensation cost is the excess, if any, of the quoted market price of the stock at the grant date (or other measurement date) over the amount an employee must pay to acquire the stock. Stock options issued under the Bank's stock option plan have no intrinsic value at the grant date, and under Opinion No. 25 no compensation cost is recognized for them. The Bank has elected to continue with the accounting methodology in Opinion No. 25 and, as a result, has provided pro forma disclosures of net income and earnings per share and other disclosures, as if the fair value based method of accounting had been applied.
FIRST NATIONAL BANK OF NORTHERN CALIFORNIA
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Earnings per common share (EPS) is computed based on the weighted average number of common shares outstanding during the period. Basic EPS excludes dilution and is computed by dividing net earnings by the weighted average of common shares outstanding. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. Retroactive recognition has been given for all periods presented for the issuance of stock dividends.
Earnings per share have been computed based on the following:
Year Ended December 31,
(in thousands)
----------------------------------
2000 1999 1998
-------- -------- --------
Net income $ 6,786 $ 5,217 $ 4,043
======== ======== ========
Average number of shares outstanding 2,209 2,209 2,209
Effect of dilative options 1 -- --
-------- -------- --------
Average number of shares outstanding
Used to calculate diluted earnings per share 2,210 2,209 2,209
======== ======== ========
|
In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenue and expenses during the reporting period. Actual results could differ from those estimates.
The notes to financial statements include various estimated fair value information as of December 31, 2000 and 1999. Such information, which pertains to the Bank's financial instruments, does not purport to represent the aggregate net fair value of the Bank. Further, the fair value estimates are based on various assumptions, methodologies and subjective considerations, which vary widely among different financial institutions and which are subject to change. The following methods and assumptions were used by the Bank.
Cash and cash equivalents: The carrying amounts reported in the balance sheet for cash and short-term instruments approximate those assets' fair values.
Securities: Fair values for securities are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments.
Loans: For variable-rate loans that reprice frequently and have 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 currently being offered for loans with similar terms to borrowers of similar credit quality.
FIRST NATIONAL BANK OF NORTHERN CALIFORNIA
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Off-balance-sheet instruments: Fair values for the Bank's off-balance-sheet lending commitments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the credit standing of the counterparties.
Deposit liabilities: The fair values estimated for demand deposits (interest and noninterest checking, passbook savings, and certain types of money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). The carrying amounts for variable-rate, fixed-term money market accounts and certificates of deposit approximate their fair values at the reporting date. Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of the aggregate expected monthly maturities on time deposits.
As of October 1, 1998, the Company adopted Statement of Financial Accounting Standards 133, Accounting for Derivative Instruments and Hedging Activities (SFAS 133), which affects the value at which certain investments are recorded in the Bank's balance sheet. This adoption had no effect on the Bank's statement of earnings in 1998. However, as a result of SFAS 133, the Bank reclassified certain investment securities previously classified as held to maturity as securities available for sale. These securities are recorded in the balance sheet at fair value, with net unrealized gains and losses on these securities shown as accumulated other comprehensive (loss) income, net of the related tax effects. At the date of adoption, held-to-maturity securities reclassified to available for sale were approximately $13 million.
Certain prior year information has been reclassified to conform to current year presentation.
NOTE B - RESTRICTED CASH BALANCES
Cash and due from banks include balances with the Federal Reserve Bank (the "FRB"). The Bank is required to maintain specified minimum average balances with the FRB, based primarily upon the Bank's deposit balances. As of December 31, 2000 and 1999, the Bank maintained deposits in excess of the FRB requirement.
FIRST NATIONAL BANK OF NORTHERN CALIFORNIA
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
NOTE C - SECURITIES
The amortized cost and fair value of securities available for sale are as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------ ------------ ------------ ------------
December 31, 2000
U.S. Treasury Bonds $ 3,996,411 $ 21,083 $ (145) $ 4,017,349
Obligations of other U.S.
Government Agencies 44,690,245 420,152 (70,057) 45,040,340
Obligations of states and
political subdivisions 36,650,628 199,522 (313,700) 36,536,450
Other securities 1,646,870 -- -- 1,646,870
------------ ------------ ------------ ------------
$ 86,984,154 $ 640,757 $ (383,902) $ 87,241,009
============ ============ ============ ============
|
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------ ------------ ------------ ------------
December 31, 1999
U.S. Treasury Bonds $ 3,984,587 $ 2,136 $ (15,783) $ 3,970,940
Obligations of other U.S.
Government Agencies 34,685,476 15,793 (571,590) 34,129,679
Obligations of states and
political subdivisions 32,892,956 89,301 (1,244,522) 31,737,735
Other securities 820,000 -- -- 820,000
------------ ------------ ------------ ------------
$ 72,383,019 $ 107,230 $ (1,831,895) $ 70,658,354
============ ============ ============ ============
|
FIRST NATIONAL BANK OF NORTHERN CALIFORNIA
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
The amortized cost and fair value of securities held to maturity are as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------ ------------ ------------ ------------
December 31, 2000
Other securities $ 1,396,175 $ -- $ -- $ 1,396,175
============ ============ ============ ============
December 31, 1999
Other securities $ 1,222,875 $ -- $ -- $ 1,222,875
============ ============ ============ ============
|
The amortized cost and fair value of debt securities at December 31, 2000, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
FIRST NATIONAL BANK OF NORTHERN CALIFORNIA
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
NOTE C - SECURITIES (CONTINUED)
Amortized
Cost Fair Value
----------- -----------
Available for sale
Due in one year or less $ 16,624,516 $ 16,663,915
Due after one year through five years 39,317,476 39,705,834
Due after five years through ten years 22,059,157 21,976,259
Due after ten years 8,983,005 8,895,001
------------ ------------
$ 86,984,154 $ 87,241,009
============ ============
Held to maturity
Due in one year or less $ 429,000 $ 429,000
Due after ten years 967,175 967,175
------------ ------------
$ 1,396,175 $ 1,396,175
============ ============
|
At December 31, 2000 and 1999, securities with an amortized cost and fair value of $39,454,622 and $39,614,400 and $35,877,824 and $42,227,810, respectively, were pledged as collateral for public deposits and for other purposes as required by law.
NOTE D - LOANS
Loans are summarized as follows at December 31:
2000 1999
------------ ------------
Commercial $ 52,453,783 $ 52,607,137
Real estate 115,774,816 121,433,816
Construction 40,020,718 41,061,196
Installment 25,987,516 26,632,341
------------ ------------
234,236,833 241,734,490
Allowance for loan losses (3,331,918) (2,920,294)
Net deferred loan fees (1,236,372) (1,752,191)
------------ ------------
$229,668,543 $237,062,005
============ ============
|
The Bank had impaired loans of $1,209,914 and $0 at December 31, 2000 and 1999, respectively. The average recorded investment in impaired loans during 2000 and 1999 was $1,197,177 and $1,259,820, respectively. There was no specific allowance for loan losses related to these loans because all amounts are deemed fully recoverable. Interest income on impaired loans of $0, $696,984 and $0 was recognized for cash payments received in 2000, 1999 and 1998, respectively.
FIRST NATIONAL BANK OF NORTHERN CALIFORNIA
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
NOTE E - ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses are summarized as follows at December 31:
2000 1999 1998
----------- ----------- -----------
Balance, beginning of year $ 2,920,294 $ 2,223,756 $ 1,665,746
Loans charged off (22,727) (65,996) (207,012)
Recoveries 9,351 12,534 15,022
----------- ----------- -----------
Net loans charged off (13,376) (53,462) (191,990)
Provision for loan losses 425,000 750,000 750,000
----------- ----------- -----------
Balance, end of year $ 3,331,918 $ 2,920,294 $ 2,223,756
=========== =========== ===========
|
NOTE F - RELATED PARTY TRANSACTIONS
In the ordinary course of business, the Bank made loans and advances under lines of credit to directors, officers, and their related interests. At December 31, 2000 and 1999, $798,987 and $432,434, respectively, of such loans were outstanding. The Bank's policies require that all such loans be made at substantially the same terms as those prevailing at the time for comparable transactions with unrelated parties and do not involve more than normal risk or unfavorable features.
NOTE G - BANK PREMISES, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Bank premises, equipment and leasehold improvements are stated at cost, less accumulated depreciation and amortization, and are summarized as follows at December 31:
2000 1999
------------ ------------
Buildings $ 6,703,431 $ 6,897,384
Equipment 7,244,108 6,018,653
Leasehold improvements 202,326 176,410
------------ ------------
14,149,865 13,092,447
Accumulated depreciation and amortization (7,097,436) (6,175,514)
------------ ------------
7,052,429 6,916,933
Land 3,987,703 4,181,746
------------ ------------
$ 11,040,132 $ 11,098,679
============ ============
|
FIRST NATIONAL BANK OF NORTHERN CALIFORNIA
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
NOTE H - DEPOSITS
The aggregate amount of jumbo time certificates, each with a minimum denomination of $100,000, was $51,561,395 and $62,779,239 at December 31, 2000 and 1999, respectively.
At December 31, 2000, the scheduled maturities of time certificates are as follows:
2001 $ 93,390,599
2002 6,295,236
2003 3,680,537
2004 15,187
Thereafter 60,000
------------
$103,441,559
============
|
NOTE I - COMMITMENTS
The Bank leases a portion of its facilities and equipment under noncancellable leases expiring at various dates through 2009.
The minimum rental commitments under the operating leases are as follows:
Year ending December 31,
------------------------
2001 $ 250,736
2002 250,258
2003 255,914
2004 157,917
Thereafter 448,892
------------
$ 1,363,717
============
|
Total rent expense for all operating leases was $242,870, $270,849 and $266,263, in 2000, 1999 and 1998, respectively.
NOTE J - BANK SAVINGS PLAN
The Bank maintains a salary deferral 401(k) plan covering substantially all employees known as the First National Bank Savings Plan (the Plan). The Plan allows employees to make contributions to the Plan up to a maximum allowed by law and the Bank's contribution is discretionary. The Plan expense for the years ended December 31, 2000, 1999 and 1998 was $750,000, $374,490 and $443,185, respectively.
FIRST NATIONAL BANK OF NORTHERN CALIFORNIA
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
NOTE K - SALARY CONTINUATION AND DEFERRED COMPENSATION PLANS
The Bank maintains a Salary Continuation Plan and Deferred Compensation Plan for certain Bank officers. Officers participating in the Salary Continuation Plan are entitled to receive a monthly payment for a period of fifteen to twenty years upon retirement. The Salary Continuation Plan expense for the years ended December 31, 2000, 1999 and 1998 was $220,977, $316,412 and $134,139, respectively.
The Deferred Compensation Plan allows eligible officers to defer annually their compensation up to a maximum 80% of their base salary and 100% of their cash bonus. The officer will be entitled to receive distribution upon reaching a specified age, passage of at least five years or termination of employment.
NOTE L - INCOME TAXES
The provision for income taxes for the years ended December 31, consists of the following:
2000 1999 1998
----------- ----------- -----------
Current
Federal $ 2,985,837 $ 2,663,890 $ 1,548,790
State 642,564 690,389 505,243
Deferred
Federal (368,667) (542,145) (353,541)
State 3,657 74,778 (192,785)
----------- ----------- -----------
$ 3,263,391 $ 2,886,912 $ 1,507,707
=========== =========== ===========
|
The 1998 tax provision includes a refund of approximately $277,000.
The reasons for the differences between the statutory federal income tax rates and the effective tax rates are summarized as follows:
2000 1999 1998
------ ------ ------
Statutory rates 34.0% 34.0% 34.0%
Increase (decrease) resulting from:
Effect of tax-exempt income (4.7)% (6.4)% (8.8)%
State income taxes 4.2% 6.2% 5.6%
Tax refund (0.5)% (1.2)% (5.0)%
Other, net (0.5)% 3.0% 1.4%
------ ------ ------
Effective rate 32.5% 35.6% 27.2%
====== ====== ======
|
FIRST NATIONAL BANK OF NORTHERN CALIFORNIA
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
NOTE L - INCOME TAXES (CONTINUED)
The tax effect of temporary differences giving rise to the Bank's net deferred tax asset is as follows:
December 31,
-----------------------
2000 1999
---------- ----------
Deferred tax asset
Allowance for loan losses $1,218,294 $1,047,935
Unrealized depreciation of available-for-sale
Securities -- 709,776
Capitalized interest on buildings 37,108 39,153
Various accruals 883,253 536,628
---------- ----------
2,138,655 2,333,492
Deferred tax liabilities
State income taxes 157,853 27,554
Unrealized appreciation of available-for-sale
securities 105,707 --
Depreciation 395,197 375,567
---------- ----------
658,757 403,121
---------- ----------
Net deferred tax asset $1,479,898 $1,930,371
========== ==========
|
There was no valuation allowance necessary at December 31, 2000 or December 31, 1999.
NOTE M - FINANCIAL INSTRUMENTS
The Bank is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit in the form of loans or through standby 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 is represented by the contractual amount of those instruments and is usually limited to amounts funded or drawn. The contract or notional amounts of these agreements, which are not included in the balance sheets, are an indicator of the Bank's credit exposure. Commitments to extend credit generally carry variable interest rates and are subject to the same credit standards used in the lending process for on-balance-sheet instruments. Additionally, the Bank periodically reassesses the customer's creditworthiness through ongoing credit reviews. The Bank generally requires collateral or other security to support commitments to extend credit.
FIRST NATIONAL BANK OF NORTHERN CALIFORNIA
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
NOTE M - FINANCIAL INSTRUMENTS (CONTINUED)
Contract
Amount
December 31,
2000
------------
Financial instruments whose contract amounts
represent credit risk:
Undisbursed loan commitments $ 35,817,588
Equity reserve 30,006,417
MasterCard line 3,075,864
Standby letters of credit 586,100
------------
$ 69,485,969
============
|
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment 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. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment, and income-producing commercial and residential properties.
Equity reserve and unused credit card lines are additional commitments to extend credit. Many of these customers are not expected to draw down their total lines of credit, and therefore, the total contract amount of these lines does not necessarily represent future cash requirements.
Standby 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 loan facilities to customers.
FIRST NATIONAL BANK OF NORTHERN CALIFORNIA
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
The following table provides summary information on the estimated fair value of financial instruments at December 31, 2000:
Carrying
Amount Fair Value
------------ ------------
Financial assets
Cash and cash equivalents $ 41,752,702 $ 41,752,702
Securities available for sale 87,241,009 87,241,009
Securities held to maturity 1,396,175 1,396,175
Loans, net 229,668,543 228,919,748
Financial liabilities
Deposits 330,456,974 330,316,219
Off-balance-sheet liabilities
Undisbursed loan commitments, equity reserve,
Mastercard line and standby letters of credit -- 844,654
|
NOTE M - FINANCIAL INSTRUMENTS (CONTINUED)
The following table provides summary information on the estimated fair value of financial instruments at December 31, 1999:
Carrying
Amount Fair Value
------------ ------------
Financial assets
Cash and cash equivalents $ 20,173,891 $ 20,173,891
Securities available for sale 70,658,354 70,658,354
Securities held to maturity 1,222,875 1,222,875
Loans, net 237,062,005 236,642,389
Financial liabilities
Deposits 305,361,279 305,306,693
Off-balance-sheet liabilities
Undisbursed loan commitments, equity reserve,
Mastercard line and standby letters of credit -- 1,031,598
|
The carrying amounts include $1,209,914 of nonaccrual loans (loans that are not accruing interest) at December 31, 2000 only. Management has determined that primarily because of the uncertainty and the difficulty of predicting the timing of such cash flows excessive amounts of time and money would be incurred to estimate the fair values of nonperforming assets. As such,
FIRST NATIONAL BANK OF NORTHERN CALIFORNIA
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
these assets are recorded at their carrying amount in the estimated fair value columns. The following aggregate information is provided at December 31, about the contractual provisions of these assets:
2000 1999
----------- -----------
Aggregate carrying amount $ 1,209,914 $ --
Effective rate 11.10% N/A
Average term to maturity matured N/A
|
NOTE N - SIGNIFICANT GROUP CONCENTRATIONS OF CREDIT RISK
Most of the Bank's business activity is with customers located within San Mateo and San Francisco counties. Generally, the loans are secured by assets or equity securities. The loans are expected to be repaid from cash flows or proceeds from the sale of selected assets of the borrowers. The Bank does not have significant concentrations of loans to any one industry.
The distribution of commitments to extend credit approximates the distribution of loans outstanding. Commercial and standby letters of credit were granted primarily to commercial borrowers.
The contractual amounts of credit-related financial instruments such as commitments to extend credit, credit-card arrangements, and letters of credit represent the amounts of potential accounting loss should the contract be fully drawn upon, the customer default, and the value of any existing collateral become worthless.
NOTE O - REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory--and possibly additional discretionary--actions by regulators that, if undertaken, could have a direct material effect on the Bank's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank's assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital (as defined) to average assets (as defined). Management believes, as of December 31, 2000 and 1999, that the Bank meets all capital adequacy requirements to which it is subject.
As of December 31, 2000, 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 I risk-based, and Tier I leverage ratios as set forth in the following table. There are no conditions or events since that notification that management believes have changed the institution's category.
FIRST NATIONAL BANK OF NORTHERN CALIFORNIA
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
The Bank's actual capital amounts and ratios are also presented in the following table; dollar amounts in thousand's:
To be well
capitalized under
For capital prompt corrective
Actual adequacy purposes: action provisions:
-------------------- -------------------- --------------------
Amount Ratio Amount Ratio Amount Ratio
-------- ------- -------- ------- -------- -------
As of December 31, 2000:
Total risk-based capital
(to Risk Weighted Assets) $ 45,894 15.38% $ 23,867 > 8.0% $ 29,833 > 10.0%
- -
Tier I capital (to Risk
Weighted Assets) $ 42,562 14.27% $ 11,993 > 4.0% $ 17,900 > 6.0%
- -
Tier I capital (to Average
Assets) $ 42,562 11.21% $ 15,191 > 4.0% $ 18,988 > 5.0%
- -
|
To be well
capitalized under
For capital prompt corrective
Actual adequacy purposes: action provisions:
-------------------- -------------------- --------------------
Amount Ratio Amount Ratio Amount Ratio
-------- ------- -------- ------- -------- -------
As of December 31, 1999:
Total risk-based capital
(to Risk Weighted Assets) $ 41,347 14.18% $ 23,322 > 8.0% $ 29,154 > 10.0%
- -
Tier I capital (to Risk
Weighted Assets) $ 38,427 13.18% $ 11,661 > 4.0% $ 17,492 > 6.0%
- -
Tier I capital (to Average
Assets) $ 38,427 11.00% $ 13,978 > 4.0% $ 17,473 > 5.0%
- -
|
FIRST NATIONAL BANK OF NORTHERN CALIFORNIA
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
NOTE P - STOCK OPTION PLAN
In 1997, the Bank adopted an incentive employee stock option plan. The Bank accounts for the plan under APB Opinion 25, "Accounting for Stock Issued to Employees" and related interpretations. The plan allows the Bank to grant options to employees for up to 231,525 shares, which includes effect of stock dividends, of common stock. Options currently outstanding become exercisable in one to five years from the grant date, based on a vesting schedule of 20% per year and expire 10 years after the grant date. The options exercise price is the fair value of the options at the grant date. Had compensation cost for the plan been determined based on the fair value of the options at the grant dates consistent with the method of SFAS 123, the Bank's net earnings and earnings per share would have been reduced to the pro forma amounts indicated below.
2000 1999 1998
----------- ----------- -----------
Net earnings As reported $ 6,786,090 $ 5,217,164 $ 4,042,648
Pro forma $ 6,780,480 $ 5,210,157 $ 4,037,326
Basic earnings per share As reported $ 3.07 $ 2.36 $ 1.83
Pro forma $ 3.07 $ 2.36 $ 1.83
Diluted earnings per share As reported $ 3.07 $ 2.36 $ 1.83
Pro forma $ 3.07 $ 2.36 $ 1.83
|
The fair value of each option granted is estimated on the date of grant using the fair value method with the following weighted-average assumptions used for grants in 2000; dividend yield of 10 percent for the year; risk-free interest rate of 6.1 percent; expected volatility of 11 percent and expected life of 10 years. The assumptions used for grants in 1999; dividend yield of 9 percent for the year; risk-free interest rate of 6.5 percent; expected volatility of 5 percent, and expected life of 10 years. The assumptions used for grants in 1998; dividend yield of 6 percent for the year; risk-free interest rate of 6 percent; expected volatility of 5 percent, and expected life of 10 years.
FIRST NATIONAL BANK OF NORTHERN CALIFORNIA
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
NOTE P - STOCK OPTION PLAN (CONTINUED)
A summary of the status of the Bank's fixed stock option plan as of December 31, 2000, 1999 and 1998, is presented below:
Weighted
Average
Exercise
Shares Price
------- --------
Outstanding January 1, 1998 -- --
Granted (weighted average fair value of $1.33) 22,050 $ 28.96
-------
Outstanding at December 31, 1998 22,050 $ 28.96
Granted (weighted average fair value of $.42) 23,153 $ 24.13
-------
Outstanding at December 31, 1999 45,203 $ 26.59
Granted (weighted average fair value of $.82) 31,499 $ 23.93
Exercised (21) $ 25.40
Expired/forfeited (9,814) $ 26.26
-------
Outstanding at December 31, 2000 66,867 $ 25.36
=======
Options exercisable at December 31, 2000 13,287 $ 26.59
Options exercisable at December 31, 1999 4,410 $ 29.03
Options exercisable at December 31, 1998 -- $ 30.48
|
The following information applies to options outstanding at December 31, 2000:
Range of exercise prices $ 23.93 - 27.64 Options outstanding 66,867 Weighted-average remaining contractual life (years) 8.6 |
ANNEX D
FIRST NATIONAL BANK OF NORTHERN CALIFORNIA
CONDENSED BALANCE SHEET
ASSETS
($ in thousands)
(unaudited)
September 30,
2001
--------
Cash and due from banks $ 24,559
Federal funds sold 725
--------
Cash and cash equivalents 25,284
Securities available for sale 71,491
Securities held to maturity --
Loans, net of allowance for loan losses
of $3,492 at September 30, 2001 284,912
Bank premises, equipment and leasehold improvements 11,826
Accrued interest receivable and other assets 9,882
--------
Total Assets $403,395
========
|
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Demand, noninterest bearing $ 87,897
Demand, interest bearing 57,736
Savings 100,750
Time 105,319
--------
Total deposits 351,702
Accrued expenses and other liabilities 4,564
--------
Total liabilities 356,266
Stockholders' equity
Common stock, $1.25 par value, authorized 10,000,000
Shares; issued and outstanding 2,208,658 shares in
2001 2,761
Additional paid-in capital 17,810
Retained earnings 25,683
Accumulated other comprehensive income 875
--------
Total stockholders' equity 47,129
--------
Total liabilities and stock holders' equity $403,395
========
|
FIRST NATIONAL BANK OF NORTHERN CALIFORNIA
CONDENSED STATEMENTS OF EARNINGS
Nine months ended September 30,
(Unaudited)
(In thousands except share data) 2001 2000
----------- -----------
Interest income
Interest and fees on loans $ 20,267 $ 19,198
Securities 3,238 3,078
Federal funds sold 594 375
----------- -----------
24,099 22,651
Interest expense
Interest on deposits 6,476 5,916
----------- -----------
Net interest income 17,623 16,735
----------- -----------
Provision for loan losses 225 279
----------- -----------
Net interest income after provision for loan losses 17,398 16,456
Noninterest income
Service charges 1,205 1,247
Credit card fees 727 740
Gain on sale of bank premises, equipment and
Leasehold improvements -- 701
Gain (loss) sales of securities 56 (1)
Other 321 305
----------- -----------
2,309 2,992
Noninterest expense
Salaries and employee benefits 8,035 6,654
Occupancy expense 943 831
Equipment expense 1,114 1,053
Advertising expense 288 316
Data processing expense 280 264
Professional fees 378 282
Director expense 112 99
Surety insurance 220 231
Telephone, postage, supplies 761 718
Other 959 974
----------- -----------
13,090 11,422
----------- -----------
Earnings before income taxes 6,617 8,026
Income tax expense 2,203 2,940
----------- -----------
NET EARNINGS $ 4,414 $ 5,086
=========== ===========
Earnings per share
Basic $ 2.00 $ 2.42
Diluted $ 2.00 $ 2.42
Weighted average shares outstanding
Basic 2,208,658 2,103,698
Diluted 2,212,553 2,104,691
|
----------------------------------------------------------------------------------------------------------------------------------
FIRST NATIONAL BANK OF NORTHERN CALIFORNIA
CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
Nine months ended September 30, 2001
(unaudited)
(amounts in thousands except shares)
Accumulated
Additional Other
Comprehensive Common Stock Paid-in Retained Comprehensive
Income Shares Amount Capital Earnings Income/(loss) Total
-------------------------------------------------------------------------------------
Balance at January 1, 2001 -- 2,208,658 $2,761 $17,810 $ 22,064 $ 151 $ 42,786
Comprehensive income:
Net earnings $ 4,414 4,414 4,414
Other comprehensive income:
Unrealized gain on securities,
net of tax of $507 724 724 724
-----------
Comprehensive income $ 5,138
-----------
Cash dividends of $.12 per share quarterly (795) (795)
-------------------------------------------------------------------------------------
Balance at September 30, 2001 -- 2,208,658 $2,761 $17,810 $ 25,683 $ 875 $ 47,129
-------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------------
|
FIRST NATIONAL BANK OF NORTHERN CALIFORNIA
CONDENSED STATEMENTS OF CASH FLOWS
Nine Months
Ended September 30,
(Unaudited)
(In thousands ) 2001 2000
-------- --------
Cash flows from operating activities
Net earnings $ 4,414 $ 5,086
Adjustments to reconcile net earnings to net cash provided by
operating activities
Depreciation and amortization 754 871
(Gain) loss on sale of securities (56) 1
Gains on sale of bank premises, equipment and
leasehold improvements -- (701)
Provision for loan losses 225 279
Changes in assets and liabilities
Accrued interest receivable and other assets (1,514) (727)
Accrued expenses and other liabilities (2,096) 64
-------- --------
Total adjustments (2,687) (213)
-------- --------
Net cash provided by operating activities 1,727 4,873
Cash flows from investing activities
Proceeds from matured securities available for sale 36,139 12,817
Purchases of securities available for sale (18,978) (23,229)
Proceeds from matured securities held to maturity 1,396 --
Net decrease (increase) in loans (55,468) (2,110)
Proceeds from sale of bank premises, equipment
and leasehold improvements 68 1,003
Purchases of bank premises, equipment and
leasehold improvements (1,732) (509)
Purchase of Federal Reserve Bank stock -- (84)
-------- --------
Net cash used in investing activities (38,575) (12,112)
Cash flows from financing activities
Net increase in demand and savings deposits 19,368 30,541
Net (decrease) increase in time deposits 1,877 (9,124)
Proceeds from exercise of stock options -- 1
Dividends paid (795) (757)
Payments on capital note payable (71) (76)
-------- --------
Net cash provided by financing activities 20,379 20,585
-------- --------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (16,469) 13,346
Cash and cash equivalents at beginning of year 41,753 20,174
-------- --------
Cash and cash equivalents at end of year $ 25,284 $ 33,520
======== ========
Additional cash flow information
Interest paid $ 6,405 $ 6,135
Income taxes paid $ 2,486 $ 3,088
|
FIRST NATIONAL BANK OF NORTHERN CALIFORNIA
NOTES TO INTERIM CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
(UNAUDITED)
NOTE A -- BASIS OF PRESENTATION
First National Bank of Northern California (the Bank) provides traditional banking services in San Mateo and San Francisco counties. The financial statements include all adjustments of a normal and recurring nature, which are, in the opinion of management, necessary for a fair presentation of the financial results for the interim periods.
The accompanying unaudited financial statements have been prepared in accordance with the instructions to Form 10-Q and, therefore, do not include all information and footnotes normally included in financial statements prepared in conformity with accounting principles generally accepted in the United States of America. Accordingly, these financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 2000.
Results of operations for interim periods are not necessarily indicative of results for the full year.
RECENT ACCOUNTING PRONOUNCEMENTS
In July 2001, the FASB issued SFAS 141, "Business Combinations," and SFAS 142, "Goodwill and Intangible Assets." SFAS 141 is effective for all business combinations completed after June 30, 2001. SFAS 142 is effective for fiscal years beginning after December 15, 2001; however, certain provisions of this Statement apply to goodwill and other intangible assets acquired between July 1, 2001 and the effective date of SFAS 142. Major provisions of these Statements and their effective dates for the Bank are as follows:
o All business combinations initiated after June 30, 2001 must use the purchase method of accounting. The pooling of interest method of accounting is prohibited except for transactions initiated before July 1, 2001.
o Intangible assets acquired in a business combination must be recorded separately from goodwill if they arise from contractual or other legal rights or are separable from the acquired entity and can be sold, transferred, licensed, rented or exchanged, either individually or as part of a related contract, asset or liability.
o Goodwill, as well as intangible assets with indefinite lives, acquired after June 30, 2001, will not be amortized. Effective January 1, 2002, all previously recognized goodwill and intangible assets with indefinite lives will no longer be subject to amortization.
o Effective January 1, 2002, goodwill and intangible assets with indefinite lives will be tested for impairment annually and whenever there is an impairment indicator.
o All acquired goodwill must be assigned to reporting units for purposes of impairment testing and segment reporting.
Management has reviewed the provisions of these Statements and has assessed that these Statements will not have a material impact on the Bank's results of operations or financial position, as there are no such items on the balance sheet at September 30, 2001 and no pending acquisitions.
In November 2001, the Financial Accounting Standards Board recently issued SFAS 143, Accounting for Asset Retirement Obligations. SFAS 143 applies to all entities, including rate-regulated entities, that have legal obligations associated with the retirement of a tangible long-lived asset that result from acquisition, construction, or development and (or) normal operations of the long-lived asset. The application of this Statement is not limited to certain specialized industries, such as the extractive or nuclear industries. This Statement also applies, for example, to a company that operates a manufacturing facility and has a legal obligation to dismantle its manufacturing plant and restore the underlying land when it ceases operation of that plant.
Statement 143 is effective for financial statements issued for fiscal years beginning after June 15, 2002, with earlier application encouraged. Management does not expect the adoption to have a material effect on the Bank's results of operations and financial position.
FIRST NATIONAL BANK OF NORTHERN CALIFORNIA
NOTES TO INTERIM CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
(UNAUDITED)
NOTE B -- LOANS
The loan portfolio consisted of the following at the dates indicated:
SEPTEMBER 30, December 31,
(In thousands of dollars) 2001 2000
Real Estate $ 172,062 $ 115,775
Construction 29,266 40,021
Commercial 63,669 52,454
Consumer 24,501 25,987
Gross loans 289,498 234,237
Less:
Net deferred loan fees (1,094) (1,236)
Allowance for credit (3,492) (3,332)
losses
Loans, net $ 284,912 $ 229,669
|
NOTE C -- EARNINGS PER SHARE CALCULATION
Basic earnings per share is calculated by dividing net income by the weighted average shares of common stock outstanding during the period. Diluted earnings per share are calculated by dividing net income by the weighted average shares of outstanding common stock and potentially dilutive securities during the period. Potentially dilutive securities consist of shares issuable upon the exercise of outstanding common stock options.
Diluted income per share for the nine-month periods ended September 30, 2001 and 2000 excludes the effect of certain out-of-the-money stock options as their inclusion would be anti-dilutive. The number of options excluded for the nine-month periods ended September 30, 2001 and 2000 was 17,466 and 17,466 respectively.
A summary of the earnings per share calculation for the nine-month periods ended September 30, 2001 and 2000 is as follows (in thousands, except per share amounts).
Nine Months
ended September 30,
2001 2000
---------- ----------
Basic earnings per share:
Net income $ 4,414 $ 5,086
---------- ----------
Weighted average common shares 2,208,658 2,103,698
---------- ----------
Basic earnings per share $ 2.00 $ 2.42
========== ==========
Dilutive earnings per share:
Net income $ 4,414 $ 5,086
---------- ----------
Weighted average common shares 2,208,658 2,103,698
Weighted average shares equivalent: Options 3,895 993
---------- ----------
Dilutive weighted average common shares 2,212,553 2,104,691
---------- ----------
Dilutive earnings per share $ 2.00 $ 2.42
========== ==========
|
NOTE D -- SUBSEQUENT EVENTS
A 5% stock dividend was declared on November 16, 2001 to shareholders of record
on November 30, 2001, at the rate of one share of Common Stock for every twenty
(20) shares of Common Stock owned. The dividend will be payable December 14,
2001.
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 V of the Registrant's articles of incorporation 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 47 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.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) Exhibits.
Exhibit
Number Document Description
------ --------------------
2.1 Agreement and Plan of Reorganization by and between the
Registrant and First National Bank, dated as of November 1,
2001 (included as Annex A to the proxy
statement/prospectus).
3.1 Articles of Incorporation of FNB Bancorp.
3.2 Bylaws of FNB Bancorp.
4.1 Specimen of the Registrant's common stock certificate.
5.1 Opinion of Coudert Brothers LLP.
8.1 Form of Tax Opinion of Coudert Brothers LLP.
10.1 Lease agreement dated April 24, 1995, as amended, for
Eureka Square Branch Office of First National Bank of
Northern California at Eureka Square Shopping Center,
Pacifica, California.
10.2 Lease agreement dated June 8, 1999, as amended, for Linda
Mar Branch Office of First National Bank of Northern
California at Linda Mar Shopping Center, Pacifica,
California.
II-1
|
10.3 Lease agreement dated August 21, 1996, as amended, for
Flower Mart Branch Office of First National Bank of
Northern California at 640 Brannon Street, Suite 102, San
Francisco, California.
10.4 Sublease Agreement dated February 10, 1997, for San Mateo
Branch Office of First National Bank of Northern California
at 491 El Camino Real, Suite B, San Mateo, California.
10.5 Lease agreement dated April 13, 2000, for the Business
Banking Division of First National Bank of Northern
California at 520 South El Camino Real, Suite 430, San
Mateo, California.
*10.6 First National Bank of Northern California 1997 Stock
Option Plan.
*10.7 Form of Nonstatutory Stock Option Agreement under the
First National Bank of Northern California 1997 Stock
Option Plan.
*10.8(a) Form of Incentive Stock Option Agreement under the First
National Bank of Northern California 1997 Stock Option
Plan.
*10.8(b) Form of Incentive Stock Option Agreement (Standard
Provisions) under the First National Bank of Northern
California 1997 Stock Option Plan.
*10.9 First National Bank Profit Sharing and 401(k) Plan dated
August 26, 1969.
*10.10 First National Bank Deferred Compensation Plan dated
November 1, 1997.
*10.11 Salary Continuation Agreement between First National Bank
of Northern California and Michael R. Wyman dated December
20, 1996.
*10.12 Salary Continuation Agreement between First National Bank
of Northern California and Paul B. Hogan dated December 20,
1996.
*10.13 Salary Continuation Agreement between First National Bank
of Northern California and James B. Ramsey dated December
23, 1999.
*10.14 Form of Management Continuity Agreement signed on July 20,
2000, between First National Bank of Northern California
and each of Jim D. Black, Charles R. Key and Anthony J.
Clifford.
10.15 Business Loan Agreement, dated August 15, 2001, between FNB
Bancorp, as Borrower, and Pacific Coast Bankers' Bank, as
Lender, with Promissory Note and related Loan Documents.
10.16 Communications Site Lease Agreement as amended dated March
30, 1999, between First National Bank of Northern
California, as Lessor and Nextel of California, Inc. as
Lessee, with respect to Redwood City Branch Office.
10.17 Note secured by Deed of Trust dated November 26, 1991, and
Modification Agreement dated September 1, 1999, between
First National Bank of Northern California, as borrower,
and Bertha Donati and Julio Donati, as lenders, with
respect to the Colma Branch Office of First National Bank
of Northern California.
II-2
|
*10.18 Separation Agreement between First National Bank of
Northern California and Paul B. Hogan, dated December 5,
2001.
21.1 The Registrant has no subsidiaries.
23.1 Consent of Grant Thornton LLP.
23.2 Consents of Coudert Brothers LLP (included in Exhibit 5.1).
99.1 Form of proxy to be used in soliciting shareholders of
First National Bank for the special meeting.
|
* 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 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 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 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.
(3) The registrant undertakes that every prospectus (i) that is filed pursuant to paragraph (2) 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.
II-3
(4) 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.
(5) 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.
(6) 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.
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 South San Francisco, State of California, on the 7th day of December, 2001.
FNB BANCORP
By /s/ MICHAEL R. WYMAN -------------------------------------- Michael R. Wyman Chairman and Chief Executive Officer |
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.
II-4
Signature Title Date
--------- ----- ----
/s/ MICHAEL R. WYMAN Director, Chairman and Chief December 7, 2001
------------------------------ Executive Officer (Principal
Michael R. Wyman Executive Officer) and Director
/s/ JAMES B. RAMSEY Senior Vice President and Chief December 7, 2001
------------------------------ Financial Officer (Principal
James B. Ramsey Financial Officer and Principal
Accounting Officer)
/s/ THOMAS C. MCGRAW Director, President and Chief December 7, 2001
------------------------------ Operating Officer, Secretary
Thomas C. McGraw
/s/ NEIL J. VANNUCCI Director, Secretary December 7, 2001
------------------------------
Neil J. Vannucci
/s/ EDWARD J. WATSON Director, Secretary December 7, 2001
------------------------------
Edward J. Watson
/s/ DANIEL J. MODENA Director, Secretary December 7, 2001
------------------------------
Daniel J. Modena
/s/ LISA ANGELOT Director, Secretary December 7, 2001
------------------------------
Lisa Angelot
|
II-5
EXHIBIT INDEX
Exhibit
Number Document Description
------ --------------------
2.1 Agreement and Plan of Reorganization by and between the
Registrant and First National Bank, dated as of November 1,
2001 (included as Annex A to the proxy
statement/prospectus).
3.1 Articles of Incorporation of FNB Bancorp.
3.2 Bylaws of FNB Bancorp.
4.1 Specimen of the Registrant's common stock certificate.
5.1 Opinion of Coudert Brothers LLP.
8.1 Form of Tax Opinion of Coudert Brothers LLP.
10.1 Lease agreement dated April 24, 1995, as amended, for
Eureka Square Branch Office of First National Bank of
Northern California at Eureka Square Shopping Center,
Pacifica, California.
10.2 Lease agreement dated June 8, 1999, as amended, for Linda
Mar Branch Office of First National Bank of Northern
California at Linda Mar Shopping Center, Pacifica,
California.
10.3 Lease agreement dated August 21, 1996, as amended, for
Flower Mart Branch Office of First National Bank of
Northern California at 640 Brannon Street, Suite 102, San
Francisco, California.
10.4 Sublease Agreement dated February 10, 1997, for San Mateo
Branch Office of First National Bank of Northern California
at 491 El Camino Real, Suite B, San Mateo, California.
10.5 Lease agreement dated April 13, 2000, for the Business
Banking Division of First National Bank of Northern
California at 520 South El Camino Real, Suite 430, San
Mateo, California.
*10.6 First National Bank of Northern California 1997 Stock
Option Plan.
*10.7 Form of Nonstatutory Stock Option Agreement under the First
National Bank of Northern California 1997 Stock Option
Plan.
*10.8(a) Form of Incentive Stock Option Agreement under the First
National Bank of Northern California 1997 Stock Option
Plan.
*10.8(b) Form of Incentive Stock Option Agreement (Standard
Provisions) under the First National Bank of Northern
California 1997 Stock Option Plan.
104
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Exhibit
Number Document Description
------ --------------------
*10.9 First National Bank Profit Sharing and 401(k) Plan dated
August 26, 1969.
*10.10 First National Bank Deferred Compensation Plan dated
November 1, 1997.
*10.11 Salary Continuation Agreement between First National Bank
of Northern California and Michael R. Wyman dated December
20, 1996.
*10.12 Salary Continuation Agreement between First National Bank
of Northern California and Paul B. Hogan dated December 20,
1996.
*10.13 Salary Continuation Agreement between First National Bank
of Northern California and James B. Ramsey dated December
23, 1999.
*10.14 Form of Management Continuity Agreement signed on July 20,
2000, between First National Bank of Northern California
and each of Jim D. Black, Charles R. Key and Anthony J.
Clifford.
10.15 Business Loan Agreement, dated August 15, 2001, between FNB
Bancorp, as Borrower, and Pacific Coast Bankers' Bank, as
Lender, with Promissory Note and related Loan Documents.
10.16 Communications Site Lease Agreement as amended dated March
30, 1999, between First National Bank of Northern
California, as Lessor and Nextel of California, Inc. as
Lessee, with respect to Redwood City Branch Office.
10.17 Note secured by Deed of Trust dated November 26, 1991, and
Modification Agreement dated September 1, 1999, between
First National Bank of Northern California, as borrower,
and Bertha Donati and Julio Donati, as lenders, with
respect to the Colma Branch Office of First National Bank
of Northern California.
*10.18 Separation Agreement between First National Bank of
Northern California and Paul B. Hogan, dated December 5,
2001.
21.1 The Registrant has no subsidiaries.
23.1 Consent of Grant Thornton LLP.
23.2 Consents of Coudert Brothers LLP (included in Exhibit 5.1).
99.1 Form of proxy to be used in soliciting shareholders of
First National Bank for the special meeting.
|
* Denotes management contracts, compensatory plans or arrangements.
EXHIBIT 3.1
2333990
ENDORSED-FILED
in the Office of the Secretary of State
of the State of California
FEB 28, 2001
BILL JONES, Secretary of State
ARTICLES OF INCORPORATION
of
FNB Bancorp
I
The name of this corporation is FNB Bancorp
II
The purpose of this corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of California other than the banking business, the trust company business or the practice of a profession permitted to be incorporated by the California Corporations Code.
III
The name in the State of California of this corporation's initial agent for service of process is:
Paracorp Incorporated
IV
This corporation is authorized to issue two classes of shares designated "Common Stock" and "Preferred Stock," respectively. The number of shares of Common Stock authorized to be issued is 10,000,000, and the number of shares of Preferred Stock authorized to be issued is 5,000,000. The Preferred Stock may be issued from time to time in one or more series. The Board of Directors is authorized to fix the number of shares of any series of Preferred Stock and to determine the designation of any such series. The Board of Directors is also authorized to determine or alter the rights, preferences, privileges and restrictions granted to or imposed upon any wholly unissued series of Preferred Stock, and, within the limits and restrictions stated in any resolution or resolutions of the Board of Directors originally fixing the number of shares constituting any series, to increase or decrease (but not below the number of shares of such series then outstanding) the number of shares of any such series subsequent to the issue of shares of that series.
V
Section 1. Limitation of Directors' Liability. The liability of the directors of this corporation for monetary damages shall be eliminated to the fullest extent permissible under California law.
Section 2. Indemnification of Directors and Officers. This corporation is authorized to indemnify the directors and officers of the corporation to the fullest extent permissible under California law.
Section 3. Repeal or Modification. Any repeal or modification of the foregoing provisions of this Article V shall not adversely affect any right of indemnification or limitation of liability of a director or officer of this corporation relating to acts or omissions occurring prior to such repeal or modification.
Dated: February 28, 2001. MONICA CORBELLA
/s/ MONICA CORBELLA
------------------------------
Monica Corbella, Incorporator
|
EXHIBIT 3.2
BYLAWS
of
FNB Bancorp
Page
ARTICLE I Offices..........................................................1
Section 1. Principal Office........................................1
Section 2. Other Offices...........................................1
ARTICLE II Meetings of Shareholders.........................................1
Section 3. Place of Meeting........................................1
Section 4. Annual Meeting..........................................1
Section 5. Special Meeting.........................................1
Section 6. Notice of Shareholders' Meeting.........................2
Section 7. Quorum..................................................2
Section 8. Adjourned Meeting.......................................3
Section 9. Waiver or Consent by Shareholders.......................3
Section 10. Action Without Meeting..................................3
Section 11. Voting Rights; Cumulative Voting........................4
Section 12. Proxies.................................................5
Section 13. Inspectors of Election..................................5
ARTICLE III Directors; Management............................................5
Section 14. Powers..................................................5
Section 15. Number and Qualification of Directors...................5
Section 16. Election and Term of Office.............................6
Section 17. Removal of Directors....................................6
Section 18. Vacancies...............................................6
Section 19. Place of Meeting........................................7
Section 20. Organizational Meetings.................................7
Section 22. Special Meeting.........................................7
Section 23. Quorum..................................................7
Section 24. Contents of Notice and Waiver of Notice.................8
Section 25. Adjournment.............................................8
Section 26. Notice of Adjournment...................................8
Section 27. Telephone Participation.................................8
Section 28. Action without Meeting..................................8
Section 29. Fees and Compensation...................................8
i
|
ARTICLE IV Officers.........................................................8
Section 30. Officers................................................8
Section 31. Election................................................9
Section 32. Subordinate Officers....................................9
Section 33. Removal and Resignation.................................9
Section 34. Vacancies...............................................9
Section 35. Chairman of the Board...................................9
Section 36. President...............................................9
Section 37. Vice Presidents.........................................9
Section 38. Secretary..............................................10
Section 39. Chief Financial Officer................................10
ARTICLE V General Corporate Matters.......................................11
Section 40. Record Date and Closing of Stockbooks..................11
Section 41. Corporate Records and Inspection by Shareholders and
Directors..............................................11
Section 42. Checks, Drafts, Evidences of Indebtedness..............12
Section 43. Corporate Contracts and Instruments; How Executed......12
Section 44. Stock Certificates.....................................12
Section 45. Lost Certificates......................................12
Section 46. Reports to Shareholders................................12
Section 47. Indemnity of Officers and Directors....................13
ARTICLE VI Amendments......................................................17
Section 48. Amendments by Shareholders.............................17
Section 49. Amendments by Directors................................17
ARTICLE VII Committees of the Board.........................................17
Section 50. Committees of the Board................................17
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ARTICLE I
Section 1. Principal Office. The principal executive office in the State of California for the transaction of the business of the corporation (called the principal office) shall be fixed from time to time by resolution of the Board of Directors.
Section 2. Other Offices. One or more branches or other subordinate offices may at any time be fixed and located by the Board of Directors at such place or places within or without the State of California as the Board deems appropriate.
ARTICLE II
Section 3. Place of Meeting. Meetings of the shareholders shall be held at any place within or outside the State of California that may be designated either by the Board of Directors in accordance with these Bylaws, or by the written consent of all persons entitled to vote at the meeting, given either before or after the meeting and filed with the Secretary of the corporation. If no such designation is made, the meetings shall be held at the principal office of the corporation designated in accordance with Section 1 of these Bylaws.
Section 4. Annual Meeting.
(a) The annual meeting of the shareholders shall be held on a date and at a time designated by the Board of Directors. The date so designated shall be within fifteen (15) months after the last annual meeting, at South San Francisco, California, if not a legal holiday, and if a legal holiday, then on the next succeeding business day, at which time the shareholders shall elect a Board of Directors, consider reports of the affairs of the corporation, and transact such other business as may properly be brought before the meeting.
(b) If the annual meeting of shareholders shall not be held on the date above specified, the Board of Directors shall cause such a meeting to be held as soon thereafter as convenient, and any business transacted or election held at such meeting shall be as valid as if transacted or held at an annual meeting on the date above specified.
Section 5. Special Meeting. Special meetings of the shareholders, for any purpose or purposes whatsoever, may be called at any time by the Board of Directors, the Chairman of the Board, the President, or by holders of shares entitled to cast not less than ten percent (10%) of the votes at the meeting. At such meetings, no business may be transacted other than as is generally specified in the notice provided to the shareholders pursuant to Section 6 of these Bylaws.
Section 6. Notice of Shareholders' Meeting.
(a) Whenever shareholders are required or permitted to take any action
at a meeting, a written notice of the meeting shall be given not less than ten
(10) nor more than sixty (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 (1) in the case of a special meeting, the general
nature of the business to be transacted, or (2) 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 Section 601(f) of the California Corporations Code (the "Code"),
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 management for
election.
(b) Notice of a shareholders' meeting shall be given either personally or by first class mail or other means of written communication, addressed to the shareholder at the address of such shareholder appearing on the books of the corporation or given by the shareholder to the corporation for the purpose of notice; or if no such address appears or is given, at the place where the principal office of the corporation is located. The notice shall be deemed to have been given at the time when delivered personally or deposited in the mail or sent by other means of written communication.
(c) Notwithstanding the foregoing, whenever the corporation has outstanding shares held of record by five hundred (500) or more persons, notice may be given by third class mail as provided in Sections 601(a) and 601(b) of the Code.
(d) 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 office of the corporation for a period of one year from the date of the giving of the notice to all other shareholders.
(e) Upon request in writing to the Chairman of the Board, President, Vice President or Secretary by any person entitled to call a special meeting of shareholders, the officer forthwith shall cause notice to be given to the shareholders entitled to vote that a meeting will be held at a time requested by the person or persons calling the meeting, not less than thirty-five nor more than sixty days after the receipt of the request.
Section 7. Quorum. The presence at any meeting, in person or by proxy, of the persons entitled to vote a majority of the voting shares of the corporation shall constitute a quorum for the transaction of business. Shareholders present at a valid meeting at which a quorum is initially present may continue to do 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 persons voting more than twenty five percent (25%) of the shares entitled to vote.
Section 8. Adjourned Meeting.
(a) Any annual or special shareholders' meeting may be adjourned from time to time, even though a quorum is not present, by vote of the holders of a majority of the voting shares present at the meeting either in person or by proxy, provided that in the absence of a quorum, no other business may be transacted at the meeting except as provided in Section 7.
(b) Notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting, any business may be transacted which might have been transacted at the original meeting. If the adjournment is for more than forty-five (45) days or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each shareholder of record entitled to vote at the meeting.
Section 9. Waiver or Consent by Shareholders.
(a) 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, one or more of the holders of each of the shares entitled to vote, not present in person or by proxy, signs a written waiver of notice or a consent to the holding of the meeting or an approval of the minutes thereof. All such waivers, consents and approvals shall be filed with the corporate records or made a part of the minutes of the meeting.
(b) 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
Section 6 of these Bylaws or Section 601(f) of 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
thereof, except as provided in Section 601(f) of the Code.
Section 10. Action Without Meeting.
(a) 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, shall be signed by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted, except that unanimous written consent shall be required for election of directors to non-vacant positions.
(b) Unless the consents of all shareholders entitled to vote have been solicited or received in writing, notice shall be given to non-consenting shareholders to the extent required by Section 603(b) of the Code.
(c) Any shareholder giving a written consent, or the shareholder's proxyholders, or a transferee of the shares or a personal representative of the shareholder or their respective proxyholders, may revoke the consent by a writing received by the corporation prior to the time that written consents of the number of shares required to authorize the proposed action have been filed with the Secretary of the corporation, but may not do so thereafter. Such revocation is effective upon its receipt by the Secretary of the corporation.
Section 11. Voting Rights; Cumulative Voting.
(a) Only persons in whose names shares entitled to vote stand on the
stock records of the corporation at the close of business on the record date
fixed by the Board of Directors as provided in Section 40 hereof for the
determination of shareholders of record shall be entitled to notice of and to
vote at such meeting of shareholders. If no record date is fixed, the record
date for determining shareholders entitled to notice of or to vote at a meeting
of shareholders shall be at the close of business on the business day next
preceding the day on which notice is given or, if notice is waived, at the close
of business on the business day next preceding the day on which the meeting is
held; the record date for determining shareholders entitled to give consent to
corporate action in writing without a meeting, when no prior action by the Board
has been taken, shall be the day on which the first written consent is given:
and the record date for determining shareholders for any other purpose shall be
at the close of business on the day on which the Board adopts the resolution
relating thereto, or the sixtieth (60th) day prior to the date of such other
action, whichever is later.
(b) Except as provided in the next following sentence and except as may be otherwise provided in the Articles of Incorporation, each shareholder entitled to vote shall be entitled to one vote for each share held on each matter submitted to a vote of shareholders. In the election of directors, each such shareholder complying with the following paragraph 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 normally entitled, or distribute the shareholder's votes on the same principle among as many candidates as the shareholder thinks fit.
(c) No shareholder shall be entitled to cumulate votes in favor of any candidate or candidates 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 prior to the voting of the shareholder's intention to cumulate the shareholder's votes. If any one shareholder has given such notice, such fact shall be announced to all shareholders and proxies present, who may then cumulate their votes for candidates in nomination.
(d) In any election of directors, the candidates receiving the highest number of votes of the shares entitled to be voted for them, up to the number of directors to be elected by such shares, are elected.
(e) Voting may be by voice or ballot, provided that any election of directors must be by ballot upon the demand of any shareholder made at the meeting and before the voting begins.
Section 12. Proxies. Every person entitled to vote shares may authorize
another person or persons to act by proxy with respect to such shares. All
proxies must be in writing and must be signed by the shareholder confirming the
proxy or his attorney-in-fact. No proxy shall be valid after the expiration of
eleven (11) months from the date thereof unless otherwise provided in the proxy.
Every proxy continues in full force and effect until revoked by the person
executing it prior to the vote pursuant thereto, except as otherwise provided in
Section 705 of the Code. Such revocation may be effected 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, by attendance at such meeting and voting in person by the
person executing the proxy. The dates contained on the forms of proxy
presumptively determine the order of execution, regardless of the postmark dates
on the envelopes in which they are mailed.
Section 13. Inspectors of Election.
(a) In advance of any meeting of shareholders the Board may appoint inspectors of election to act at the meeting and any adjournment thereof. If inspectors of election are not so appointed, or if any persons so appointed fail to appear or refuse to act, the chairman of any meeting of shareholders may, and on the request of any shareholder or a shareholder's proxy shall, appoint inspectors of election for persons to replace those who so fail or refuse) at the meeting. The number of inspectors shall be either one or three. If appointed at a meeting on the request of one or more shareholders or proxies, the majority of shares represented in person or by proxy shall determine whether one or three inspectors are to be appointed. 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.
(b) The inspectors of election shall determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum and the authenticity, validity and effect of proxies, receive votes, ballots or consents, hear and determine all challenges and questions in any way arising in connection with the right to vote, count and tabulate all votes or consents, determine when the polls shall close, determine the result and do such acts as may be proper to conduct the election or vote with fairness to all shareholders.
ARTICLE III
Section 14. Powers. Subject to any provisions of the Articles of Incorporation, of the Bylaws and of law limiting the powers of the Board of Directors or reserving powers to the shareholders, the Board of Directors shall, directly or by delegation, manage the business and affairs of the corporation and exercise all corporate powers permitted by law.
Section 15. Number and Qualification of Directors. The authorized
number of directors shall not, unless and until changed by an amendment to this
Section 15 adopted by the shareholders pursuant to Section 49, be less than five
(5) nor more than nine (9) provided, however, that so long as the corporation
has only one shareholder, the authorized number of directors shall be one, and
so long as the corporation has only two shareholders the number of directors shall be two. The exact number of directors within said range shall be fixed by a resolution adopted by the Board of Directors; and unless and until so fixed, the exact number of directors is hereby fixed at seven (7). A reduction in the authorized number of directors shall not remove any director prior to the expiration of such director's term of office. Directors need not be shareholders of the corporation.
Section 16. Election and Term of Office. The directors shall be elected
annually by the shareholders at the annual meeting of the shareholders;
provided, however, that if for any reason said 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 17, begin immediately after their election and shall continue until
their respective successors are elected and qualified.
Section 17. Removal of Directors.
(a) A director may be removed from office by the Board of Directors if he or she is declared of unsound mind by the order of a court or convicted of a felony. Any or all of the directors may be removed from office without cause by a vote of shareholders holding a majority of the outstanding shares entitled to vote at an election of directors, however, unless the entire Board is removed, an individual director shall not be removed if the votes cast against removal, or not consenting in writing to such removal, would be sufficient to elect such director if voted cumulatively at an election at which the same total number of votes were cast, or, if such 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. A director may also be removed from office by the Superior Court of the county in which the principal office is located, at the suit of shareholders holding at least ten percent (10%) of the number of outstanding shares of any class, in case of fraudulent or dishonest acts or gross abuse of authority or discretion with reference to the corporation, in the manner provided by law.
(b) No reduction of the authorized number of directors shall have the effect of removing any director before his term of office expires.
Section 18. Vacancies.
(a) A vacancy or vacancies on the Board of Directors shall exist when any authorized position of director is not then filled by a duly elected director, whether caused by death, resignation, removal, change in the authorized number (by the Board or the shareholders) or otherwise.
(b) Except for a vacancy created by the removal of a director, vacancies on the Board of Directors may be filled by a majority of the remaining directors although less than a quorum, or by a sole remaining director, and each director elected in this manner shall hold office until his successor is elected at an annual or special shareholders' meeting.
(c) The shareholders may elect a director at any time to fill any vacancy 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.
(d) Any director may resign effective upon giving written notice to the Chairman of the Board, the President, the Secretary or the Board of Directors of the corporation, unless the notice specifies a later time for the effectiveness of such resignation. If the resignation is effective at a future time, a successor may be elected to take office when the resignation becomes effective.
Section 19. Place of Meeting. Regular and special meetings of the Board of Directors shall be held at any place within or outside the State of California that is designated by resolution of the Board or, either before or after the meeting, consented to in writing by all the Board members. If the place of a regular or special meeting is not fixed by resolution or written consents of the Board, it shall be held at the corporation's principal office.
Section 20. Organizational Meetings. Immediately following each annual shareholders' meeting, the Board of Directors shall hold an organizational meeting to organize, elect officers, and transact other business. Notice of this meeting shall not be required.
Section 21. Other Regular Meeting. Other regular meetings of the Board of Directors shall be held on the first day of every month each year; provided, however, if this day falls on a legal holiday, the meeting shall be held at the same time on the next succeeding day that is a full business day. Notice of these regular meetings shall not be required.
Section 22. Special Meeting.
(a) Special meetings of the Board of Directors for any purpose may be called at any time by the Chairman of the Board, the President, any Vice President, the Secretary, or any two directors.
(b) Special meetings of the Board shall be held upon four days' notice by mail or forty-eight (48) hours' notice delivered personally or by telephone or telegraph. If notice is by telephone, it shall be complete when the person calling the meeting believes in good faith that the notified person has heard and acknowledged the notice. If the notice is by mail or telegraph, it shall be complete when deposited in the United States mail or delivered to the telegraph office at the place where the corporation's principal office is located, charges prepaid and addressed to the notified person at such person's address appearing on the corporate records or, if it is not on these records or is not readily ascertainable, at the place where the regular Board meeting is held.
Section 23. Quorum. A majority of the authorized number of directors (unless the authorized number of directors is one) shall constitute a quorum for the transaction of business, except to adjourn a meeting under Section 25. Every act done or decision made by a majority of the directors present at a meeting at which a quorum is present shall be regarded as the act of the Board of Directors, unless the vote of a greater number is required by law, the Articles of Incorporation, or these Bylaws. 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 a majority of the required quorum for such meeting.
Section 24. Contents of Notice and Waiver of Notice. Neither the business to be transacted at, nor the purpose of, any regular or special Board meeting need be specified in the notice or waiver of notice of the meeting. Notice of a meeting need not be given to any director who signs a waiver of notice or a consent to holding the meeting or an approval of the minutes thereof, either before or after the meeting, or who attends the meeting without protesting, prior thereto or at its commencement, the lack of notice to said director. All such waivers, consents, and approvals shall be filed with the corporate records or made a part of the minutes of the meeting.
Section 25. Adjournment. A majority of the directors present, whether or not a quorum is present, may adjourn any meeting to another time and place.
Section 26. Notice of Adjournment. Notice of the time and place of holding an adjourned meeting need not be given to absent directors if the time and place are fixed at the meeting being adjourned, except that if the meeting is adjourned for more than twenty-four (24) hours such notice shall be given prior to the adjourned meeting to the directors who were not present at the time of the adjournment.
Section 27. Telephone Participation. Members of the Board may participate in a meeting through use of conference telephone or similar communications equipment, so long as all members participating in such meetings can hear one another. Such participation constitutes presence in person at such meeting.
Section 28. Action without Meeting. The Board of Directors may take any action without a meeting that may be required or permitted to be taken by the Board at a meeting, if all members of the Board individually or collectively consent in writing to the action. The written consent or consents shall be filed in the minutes of the proceedings of the Board. Such action by written consent shall have the same effect as a unanimous vote of directors.
Section 29. Fees and Compensation. Directors and members of committees shall receive neither compensation for their services nor reimbursement for their expenses unless these payments are fixed by resolution of the Board.
ARTICLE IV
Section 30. 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 of Directors, a Chairman of the Board, one
or more Vice Presidents, one or more Assistant Secretaries, one or more
Assistant Financial Officers, and any other officers who may be appointed under
Section 32 of these Bylaws.
Section 31. Election. The officers of the corporation, except those appointed under Section 32 of these Bylaws, shall be chosen annually by the Board of Directors, and each shall hold his office until he or she resigns or is removed or otherwise disqualified to serve, or his or her successor is elected and qualified.
Section 32. Subordinate Officers. The Board of Directors may appoint, and may authorize the President to appoint, any other officers that the business of the corporation may require, each of whom shall hold office for the period, have the authority, and perform the duties specified in the Bylaws or by the Board of Directors.
Section 33. Removal and Resignation.
(a) Any officer may be removed with or without cause either by the Board of Directors at any regular or special directors' meeting or, except for an officer chosen by the Board, by any officer on whom the power of removal may be conferred by the Board.
(b) Any officer may resign at any time by giving written notice to the Board of Directors, the President or the Secretary of the corporation. An officer's resignation shall take effect when it is received or at any later time specified in the resignation. Unless the resignation specifies otherwise, its acceptance by the corporation shall not be necessary to make it effective.
Section 34. Vacancies. A vacancy in any office because of death, resignation, removal, disqualification, or any other cause shall be filled in the manner prescribed in the ByLaws for regular appointments to the office.
Section 35. Chairman of the Board. The Chairman of the Board, if such office is created and filled by the Board of Directors, shall preside at all meetings of the directors and shareholders at which he or she is present, shall be ex-officio a member of all the standing committees created by the Board, and shall exercise and perform any other powers and duties assigned to him or her by the Board or prescribed by the Bylaws.
Section 36. President. Subject to any supervisory powers that may be given by the Board of Directors or the Bylaws to the Chairman of the Board or any other officer who may be designated the Chief Executive Officer, the President shall be the corporation's chief executive officer, subject to the control of the Board of Directors, and shall have general supervision, direction, and control over the corporation's business and officers. He or she shall preside as chairman at all meetings of the shareholders and directors not presided over by the Chairman of the Board, shall be ex-officio a member of all the standing committees, shall have the general powers and duties that are prescribed by the Board of Directors or the Bylaws, and shall be primarily responsible for carrying out all orders and resolutions of the Board of Directors.
Section 37. Vice Presidents. If the President is absent or is unable or refuses to act, the Vice Presidents in order of their rank as fixed by the Board of Directors, or, if not ranked, the Vice President designated by the Board of Directors, 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 on, the President. Each Vice President shall have any other powers and perform any other duties that are prescribed for him or her by the Board of Directors or their Bylaws.
Section 38. Secretary.
(a) The Secretary shall keep or cause to be kept, and be available at the principal office and any other place that the Board of Directors specifies, a book of minutes of all directors' and shareholders' meetings. The minutes of each meeting shall state the time and place that it was held, whether it was regular or special, if a special meeting, how it was authorized, the notice given the names of those present or represented at shareholders' meetings, and the proceedings of the meetings. A similar minute book shall be kept for any committees, if required by the Board.
(b) The Secretary shall keep, or cause to be kept, at the principal office or at the office of the corporation's transfer agent, a share register, or duplicate share register, showing the shareholders' names and addresses, the number and classes of shares held by each, the number and date of each certificate issued for these shares, and the number and date of cancellation of each certificate surrendered for cancellation.
(c) The Secretary shall give, or cause to be given, notice of all directors' and shareholders' meetings required to be given under these Bylaws or by law, shall keep the corporate seal in safe custody, and shall have any other powers and perform any other duties that are prescribed by the Board of Directors or the Bylaws.
Section 39. Chief Financial Officer.
(a) The Chief Financial Officer shall keep and maintain, or cause to be kept and maintained, adequate and correct accounts of the corporation's properties and business transactions, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, retained earnings, and shares. The books of account shall at all reasonable times be open to inspection by any director.
(b) The Chief Financial Officer shall deposit all money and other valuables in the name and to the credit of the corporation with the depositories designated by the Board of Directors. He or she shall disburse the corporation's funds as ordered by the Board of Directors; shall render to the President and directors, whenever they request it, an account of all his or her transactions as Chief Financial Officer and of the corporation's financial condition; and shall have any other powers and perform any other duties that are prescribed by the Board of Directors or Bylaws.
(c) If required by the Board of Directors, the Chief Financial Officer shall give the corporation a bond in the amount and with the surety or sureties specified by the Board for faithful performance of the duties of his or her office and for restoration to the corporation of all its books, papers, vouchers, money, and other property of every kind in his or her possession or under his or her control on his or her death, resignation, retirement, or removal from office.
ARTICLE V
Section 40. Record Date and Closing of Stockbooks.
(a) The Board of Directors may fix a time in the future as a record date for determining shareholders entitled to notice of and to vote at any shareholders' meeting: to receive any dividend, distribution, or allotment of rights: or to exercise rights in respect of any other lawful action, including change, conversion, or exchange of shares. The record date shall not, however, be more than sixty (60) nor less than ten (10) days prior to the date of such meeting nor more than sixty (60) days prior to any other action. If a record date is fixed for a particular meeting or event, only shareholders of record on that date are entitled to notice and to vote and to receive the dividend, distribution, or allotment of rights or to exercise the rights, as the case may be, notwithstanding any transfer of any shares on the books of the corporation after the record date.
(b) A determination of shareholders of record entitled to notice of or to vote at a meeting of shareholders shall apply to any adjournment of the meeting unless the Board fixes a new record date for the adjourned meeting, but the Board shall fix a new record date if the meeting is adjourned for more than forty-five (45) days.
Section 41. Corporate Records and Inspection by Shareholders and Directors.
(a) Books and records of account and minutes of the proceedings of the shareholders, Board, and committees of the Board shall be kept available for inspection at the principal office. A record of the shareholders, giving the names and addresses of all shareholders and the number and class of shares held by each, shall be kept available for inspection at the principal office or at the office of the corporation's transfer agent or registrar.
(b) A shareholder or shareholders holding at least five percent in the aggregate of the outstanding voting shares of the corporation shall have an absolute right to do either or both of the following: (1) inspect and copy the record of shareholders' names and addresses and shareholdings during the usual business hours upon five business days' prior written demand upon the corporation, or (2) obtain from the transfer agent for the corporation, upon five business days' prior 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 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 interests as a shareholder or holder of a voting trust certificate. Inspection and copying may be made in person or by agent or attorney.
(c) Every director shall have the absolute right at any reasonable time to inspect and copy all books, records and documents of every kind and to inspect the physical properties of the corporation and its subsidiary corporations, domestic or foreign. Such inspection by a director may be made in person or by agent or attorney and includes the right to copy and make extracts.
Section 42. Checks, Drafts, Evidences of Indebtedness. All checks, drafts, or other orders for payment of money, notes, and all mortgages, or other evidences of indebtedness, issued in the name of or payable to the corporation, and all assignments and endorsements of the foregoing, shall be signed or endorsed by the person or persons and in the manner specified by the Board of Directors.
Section 43. Corporate Contracts and Instruments; How Executed. Except as otherwise provided in the Bylaws, officers, agents, or employees must be authorized by the Board of Directors to enter into any contract or execute any instrument in the corporation's name and on its behalf. This authority may be general or confined to specific instances.
Section 44. Stock Certificates. One or more certificates for shares of the corporation's capital stock shall be issued to each shareholder for any of his shares that are fully paid up. The corporate seal or its facsimile may be fixed on certificates. All certificates shall be signed by (a) either the Chairman of the Board, the President, or a Vice President and (b) either the Secretary, the Chief Financial Officer, or an Assistant Secretary. Any or all of the signatures on the certificate may be facsimile signatures.
Section 45. Lost Certificates. No new share certificate that replaces an old one shall be issued unless the old one is surrendered and canceled at the same time, provided, however, that if any share certificate is lost, stolen, mutilated, or destroyed, the Board of Directors may authorize issuance of a new certificate replacing the old one on any terms and conditions, including a reasonable arrangement for indemnification of the corporation, that the Board may specify.
Section 46. Reports to Shareholders.
(a) The requirement for the annual report to shareholders referred to in Section 1501(a) of the Code is hereby expressly waived so long as there are less than 100 holders of records of the corporation's shares. The Board of Directors shall cause to be sent to the shareholders such annual or other periodic reports as they consider appropriate or as otherwise required by law. In the event the corporation has 100 or more holders of its shares, an annual report complying with Section 1501(a) and, when applicable, Section 1501(b) of the Code shall be sent to the shareholders not later than 120 days after the close of the fiscal year and at least fifteen (15) days prior to the annual meeting of shareholders to be held during the next fiscal year.
(b) If no annual report for the last fiscal year has been sent to shareholders, the corporation shall, upon the written request of any shareholder made more than 120 days after the close of such fiscal year, deliver or mail to the person making the request within thirty (30) days thereafter the financial statements referred to in Section 1501(a) of the Code for such year.
(c) A shareholder or shareholders holding at least five percent (5%) of the outstanding shares of any class of a corporation may make a written request to the corporation for an income statement of the corporation for the three-month, six-month, or nine-month period of the current fiscal year ended
more than thirty (30) days prior to the date of the request and a balance sheet of the corporation as of the end of such period and, in addition, if no annual report for the last fiscal year has been sent to shareholders, the statements referred to in Section 1501(a) of the Code for the last fiscal year. The statement shall be delivered or mailed to the person making the request within thirty (30) days thereafter, copy of the statements shall be kept on file in the principal office of the corporation for twelve (12) months and they shall be exhibited at all reasonable times to any shareholder demanding an examination of them or a copy shall be mailed to such shareholder. The income statements and balance sheets referred to shall be accompanied by the report thereon, if any, of any independent accountants engaged by the corporation or the certificate of an authorized officer of the corporation that such financial statements were prepared without audit from the books and records of the corporation.
Section 47. Indemnity of Officers and Directors.
(a) Action, Etc., Other Than by Right of the Corporation. The
corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any proceeding (other than an action by or in the right of
the corporation to procure a judgment in its favor) by reason of the fact that
such person is or was an Agent (as that term is defined in paragraph of this
Section 47, below) of the corporation, against expenses, judgments, fines,
settlements and other amounts actually and reasonably incurred in connection
with such proceedings if such person acted in good faith and in a manner such
person reasonably believed to be in the best interests of the corporation and,
in the case of a criminal proceeding, has no reasonable cause to believe the
conduct of such person was unlawful. The termination of any proceeding by
judgment, order, settlement, conviction or upon a plea of nolo contendere or its
equivalent shall not, of itself, create a presumption that the person did not
act in good faith and in a manner which the person reasonably believed to be in
the best interests of the corporation or that the person had reasonable cause to
believe that the person's conduct was unlawful.
(b) Action, Etc., by or in the Right of the Corporation. The
corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action by or in the
right of the corporation to procure a judgment in its favor by reason of the
fact that such person is or was an Agent of the corporation, against expenses
actually and reasonably incurred by such person in connection with the defense
or settlement of such action if such person acted in good faith, in a manner
such person believed to be in the best interests of the corporation and its
shareholders, except that no indemnification shall be made under this paragraph
(b) of Section 47 for any of the following:
(1) In respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation in the performance of such person's duty to the corporation and its shareholders, unless and only to the extent that the court in which such proceeding is or was pending shall determine upon application that, in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for expenses and then only to the extent that the court shall determine;
(2) Of amounts paid in settling or otherwise disposing of a pending action without court approval: or
(3) Of expenses incurred in defending a threatened or pending action which is settled or otherwise disposed of without court approval.
(c) Determination of Right of Indemnification. Any indemnification under paragraphs (a) or (b) of Section 47, above, shall be made by the corporation only if authorized in the specific case, upon a determination that indemnification of the Agent is proper in the circumstances because the Agent has met the applicable standard of conduct by any of the following:
(1) A majority vote of a quorum consisting of directors who are not parties to such proceedings;
(2) If such a quorum of directors is not obtainable, by independent legal counsel in a written opinions;
(3) Approval of the shareholders by the affirmative 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 shareholders as provided in Section 10, with the shares owned by the person to be indemnified not being entitled to vote thereon; or
(4) The court in which such proceeding is or was pending, upon application made by the corporation, or the Agent, the attorney, or another person rendering services in connection with the defense, whether or not such application by the Agent, the attorney, or such other person is opposed by the corporation.
(d) Advances of Expenses. Expenses (including attorneys' fees), costs, and charges incurred in defending any proceeding shall be advanced by the corporation prior to the final disposition of such proceeding upon receipt of an undertaking by or on behalf of the Agent to repay such amount unless it shall be determined ultimately that the Agent is entitled to be indemnified as authorized in this Section 47.
(e) Indemnification Against Expenses of Successful Party. Notwithstanding the other provisions of this Section 47, to the extent that an Agent has been successful on the merits in a defense of any proceeding, claim, issue or matter referred to in paragraphs (a) and (b), above, such Agent shall be indemnified against all expenses actually and reasonably incurred by the Agent in connection therewith.
(f) Right of Agent to Indemnification Upon Applications Procedure Upon
Application. Any indemnification provided for in paragraphs (a), (b) or (c) of
Section 47 shall be made no later than ninety (90) days after the corporation is
given notice of a request by Agent, provided that such request is made after
final adjudication, dismissal or settlement unless an appeal is filed, in which
case the request is made after the appeal is resolved (hereafter referred to as
"Final Disposition"). Upon such notice, if a quorum of directors who were not
parties to the action, suit or proceeding giving rise to indemnification is
obtainable, the corporation shall within two (2) weeks call a Board of Directors
meeting to be held within four (4) weeks of such notice, to make a determination
as to whether the Agent has met the applicable standard of conduct. Otherwise,
if a quorum consisting of directors who were not parties in the relevant action,
suit or proceeding is not obtainable, the corporation shall retain (at the corporation's expense) independent legal counsel chosen either jointly by the corporation and Agent or else by corporation counsel within two (2) weeks to make such determination. If (1) at such directors meeting, such a quorum is not obtained or, if obtained, refuses to make such determination, or (2) if such legal counsel is not so retained or, if retained, does not make such determination within four (4) weeks, then the Board of Directors shall cause a shareholders meeting to be held within four (4) weeks to make such a determination.
If notice of a request for payment of a claim under these Bylaws, under any statute, under any provision of any agreement with the corporation, or under the corporation's Articles of Incorporation providing for indemnification or advance or expenses has been given to the corporation by Agent, and such claim is not paid in full by the corporation within ninety (90) days of the later occurring of the giving of such notice and Final Disposition in the case of indemnification and twenty (20) days of the giving of such notice in the case of advance of expenses, Agent may, but need not, at any time thereafter bring an action against the corporation to receive the unpaid amount of the claim or the expense advance and, if successful, Agent shall also be paid for the expenses (including attorneys' fees) of bringing such action. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in connection with any action, suit or proceeding in advance of its Final Disposition) that Agent has not met the standards of conduct which make it permissible under applicable law for the corporation to indemnify Agent for the amount claimed, and Agent shall be entitled to receive interim payment of expenses pursuant to paragraph (d) of Section 47 unless and until such defense may be finally adjudicated by court order or judgment from which no further right of appeal exists. Neither the failure of the corporation (including its Board of Directors, independent legal counsel or its shareholders) that Agent has not met such applicable standard of conduct, shall create a presumption that the Agent has or has not met the applicable standard of conduct.
(g) Other Rights and Remedies. The indemnification provided by this
Section 47 shall not be deemed exclusive of, and shall not affect, any other
rights to which an Agent seeking indemnification may be entitled under any law,
other provision of these Bylaws, the corporation's Articles of Incorporation,
agreement, vote of shareholders or disinterested directors or otherwise, both as
to action in his or her official capacity and as to action in another capacity
while holding such office, and 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 a person.
(h) Insurance. The corporation may purchase and maintain insurance on behalf of any person who is or was an Agent against any liability asserted against such person and incurred by him or her in any such capacity, or arising out of his or her status as such, whether or not the corporation would have the power to indemnify such person against such liability under the provisions of this Section 47.
(i) Optional Means of Assuring Payment. Upon request by an Agent certifying that the Agent has reasonable grounds to believe the Agent may be made a party to a proceeding for which the Agent may be entitled to be indemnified under this Section 47, the corporation may but is not required to create a trust fund, grant a security interest or use other means (including, without limitation, a letter of credit) to ensure the payment of such sums as may become necessary to effect indemnification as provided herein.
(j) Savings Clause. If this Section 47 or any portion thereof shall be invalidated on any ground by any court of competent jurisdiction, then the corporation shall nevertheless indemnify each Agent as to expenses (including attorneys' fees), judgments, fines and amounts paid in settlement with respect to any action, suit, proceeding or investigation, whether civil, criminal or administrative, and whether internal or external, including a grand jury proceeding and an action or suit brought by or in the right of the corporation, to the full extent permitted by any applicable portion of this Section that shall not have been invalidated, or by any other applicable law.
(k) Definition of Agent. For the purposes of this Section 47, "Agent" means any person who is or was a director, officer, employee or other agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another foreign or domestic corporation, partnership, joint venture, trust or other enterprise, or was a director, officer, employee or agent of a foreign or domestic corporation which was a predecessor corporation of the corporation or of another enterprises at the request of such predecessor corporation, "proceeding" means any threatened, pending or completed action or proceeding, whether civil, criminal, administrative or investigative; and "expenses" includes without limitation attorneys' fees and any expenses of establishing a right to indemnification.
(l) Indemnification under Section 204(a)(11) of the California
Corporations Code. Subject to the provisions of California Corporations Code
Section 204(a)(11) and any other applicable law, notwithstanding any other
provisions of these Bylaws, the following shall apply to the indemnification of
Agents under these Bylaws:
(1) The corporation shall indemnify a person pursuant to this
paragraph (1) if the corporation would be required to indemnify such
person pursuant to paragraphs (a) and (b) of Section 47, if in
paragraphs (a) and (b) the phrase "in a manner such person reasonably
believed to be in the best interests of the corporation" is replaced
with the phrase "in a manner such person did not believe to be contrary
to the best interests of the corporation." If pursuant to paragraphs
(c) and (f) of Section 47, the person making the paragraphs (a) and/or
(b), above, conduct standard determination determines that such
standard has not been satisfied, such person shall also determine
whether this subsection (1) of paragraph (l) conduct standard has been
satisfied;
(2) There shall be a presumption that the Agent met the
applicable standard of conduct required to be met in paragraph (c) of
Section 47 for indemnification of the Agent, rebuttable by clear and
convincing evidence to the contrary;
(3) The corporation shall have the burden of proving that the Agent did not meet the applicable standard of conduct in paragraph (c) of Section 47;
(4) In addition to the methods provided for in paragraph (c) of
Section 47, a determination that indemnification is proper in the
circumstances because that Agent met the applicable standard of conduct
may also be made by the arbitrator in any arbitration proceeding in
which such matter is or was pending;
(5) Unless otherwise agreed to in writing between an Agent and the corporation in any specific case, indemnification may be made under paragraph (b) of Section 47 for amounts paid in settling or otherwise disposing of a pending action without court approval.
ARTICLE VI
Section 48. Amendments by Shareholders. Bylaws may be adopted, amended
or repealed by the affirmative vote or written consent of a majority of the
outstanding shares entitled to vote; provided, however, that an amendment to
Section 15 reducing the number of directors on a fixed-number board or the
minimum number of directors on a variable-number board to a number less than
five (5) cannot be adopted if the votes cast against its adoption at a meeting
or the shares not consenting, in the case of action by written consent, are
equal to more than sixteen and two-thirds percent (16-2/3%) of the outstanding
shares entitled to vote.
Section 49. Amendments by Directors. Subject to the right of shareholders under the preceding Section 48, Bylaws may be adopted, amended, or repealed by the Board of Directors, except that only the shareholders can adopt a Bylaw or amendment thereto which specifies or changes the number of directors on a fixed-number Board, or the minimum or maximum number of directors on a variable-number Board, or which changes from a fixed-number Board to a variable-number Board or vice versa, or amends this Section 49.
ARTICLE VII
Section 50. Committees of the Board.
(a) The Board of Directors may, by resolution adopted by a majority of the authorized number of directors, designate one or more committees, each consisting of two or more directors, to serve at the pleasure of the Board and with such authority and organization as the Board may from time to time determine. The Board may designate one or more directors as alternate members of any committee, who may replace any absent member at any meeting of the committee. The appointment of members or alternate members of a committee requires the vote of a majority of the authorized number of directors. Any such committee, to the extent provided in the resolution of the Board, shall have all the authority of the Board except with respect to:
(1) The approval of any action for which shareholder approval is also required;
(2) The filling of vacancies on the Board or in any committee;
(3) The fixing of compensation of the directors for serving on the Board or on any committee;
(4) The amendment or repeal of Bylaws or the adoption of new Bylaws;
(5) The amendment or repeal of any resolution of the Board which by its express terms is not so amendable or repealable;
(6) Distribution to the shareholders of the corporation as defined in Section 166 of the Code, except at a rate or in a periodic amount or within a price range determined by the Board; and
(7) The appointment of other committees of the Board or the members thereof.
(b) The Board shall designate a chairman for each committee who shall have the sole power to call any committee meeting other than a meeting set by the Board. Except as otherwise established by the Board, Article III of these Bylaws shall apply to committees of the Board and action by such committees, mutatis mutandis.
CERTIFICATE OF SECRETARY
I, the undersigned, certify that:
1. I am the duly elected and acting Secretary of FNB Bancorp, a California corporation; and
2. The foregoing Bylaws, consisting of 18 pages, is a true and correct copy of the Bylaws as duly adopted for the corporation and approved by the Board of Directors of the corporation as of February 28, 2001.
IN WITNESS WHEREOF, I have subscribed my name as of the 28th day of February, 2001.
/s/ THOMAS C. MCGRAW ------------------------------ Thomas C. McGraw Secretary |
EXHIBIT 4.1
[Front of Specimen Common Stock Certificate]
[GRAPHIC LOGO OMITTED]
[NUMBER] [SHARES]
INCORPORATED UNDER THE LAWS
OF THE STATE OF CALIFORNIA
February 28, 2001
See Reverse for
certain definitions
FNB BANCORP
Total Authorized Issue
10,000,000 Shares Without Par Value
COMMON STOCK
THIS IS TO CERTIFY THAT
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF THE ABOVE CORPORATION TRANSFERABLE ONLY ON THE BOOKS OF THE CORPORATION BY THE HOLDER HEREOF IN PERSON OR BY DULY AUTHORIZED ATTORNEY UPON SURRENDER OF THIS CERTIFICATE PROPERLY ENDORSED.
WITNESS, THE SEAL OF THE CORPORATION AND THE SIGNATURES OF ITS DULY
AUTHORIZED OFFICERS.
Dated:
_______________________, Secretary ___________________, President
[CORPORATE SEAL OF FNB BANCORP ]
[Back of Specimen Stock Certificate]
The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations:
TEN COM -- as tenants in common
UNIF TRANSFERS MIN ACT...............(Cust) CUSTODIAN...............(Minor)
Under Uniform Transfers to Minors Act....................(State)
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with right of
survivorship and not as tenants
in common
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ADDITIONAL ABBREVIATIONS MAY ALSO BE USED THOUGH NOT IN THE ABOVE LIST.
FOR VALUE RECEIVED, ________ HEREBY SELL, ASSIGN AND TRANSFER UNTO
EXHIBIT 5.1
[LETTERHEAD OF COUDERT BROTHERS LLP]
December 12, 2001
FNB Bancorp
975 El Camino Real
South San Francisco, California 94080
Re: FNB Bancorp -- Registration Statement on Form S-4
Ladies and Gentlemen:
With reference to Registration Statement No. 333-______ on Form S-4 filed by FNB Bancorp, a California corporation, with the Securities and Exchange Commission in connection with the registration under the Securities Act of 1933, as amended, of 2,574,346 shares of FNB Bancorp Common Stock, no par value (the "FNB Shares"), to be issued in connection with the plan of reorganization contemplated by the Agreement and Plan of Reorganization dated as of November 1, 2001 (the "Plan of Reorganization"), between First National Bank of Northern California, a national banking association organized under the laws of the United States, and FNB Bancorp, which Agreement is described therein and filed as an exhibit thereto:
We are of the opinion that the FNB Shares have been duly authorized and, when issued in accordance with the Plan of Reorganization, 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 to the filing of the form of our tax opinion as Exhibit 8.1 to the Registration Statement. Further, we hereby consent to the use of our name under the captions "Legal Matters" and "What are the Income Tax Consequences" in the Registration Statement and in the Proxy Statement/ Prospectus included therein.
Very truly yours,
/s/ COUDERT BROTHERS LLP |
EXHIBIT 8.1
Form of Tax Opinion
[LETTERHEAD OF COUDERT BROTHERS LLP]
[Date]
FNB Bancorp
First National Bank of Northern California
975 El Camino Real
South San Francisco, California 94080
Re: Transfer of First National Bank of Northern California stock to FNB Bancorp, a corporation controlled by First National Bank of Northern California
Ladies and Gentlemen:
You have requested our opinion in connection with the proposed transfer in which the shareholders of First National Bank of Northern California, a national banking association (the "Bank") will transfer their stock in the Bank to FNB Bancorp, a California corporation (the "Holding Company") incorporated by the Bank solely for the transfer, in exchange for stock in the Holding Company, resulting in the Bank becoming a wholly owned subsidiary of the Holding Company (the "Transfer"). Specifically, this opinion letter considers whether the Transfer should qualify for U.S. Federal income tax purposes as a tax-free transfer under Section 351 of the Internal Revenue Code of 1986, as amended (the "Code").
Our opinion represents and is based upon our best judgment regarding the application of the Code and the Treasury Regulations applicable thereunder, existing judicial decisions, administrative regulations, published rulings and procedures, and current administrative practice of the U.S. Internal Revenue Service (the "IRS") as of this date and such other laws and facts as we have deemed relevant and necessary. Furthermore, no assurance can be give that future legislative, judicial or administrative changes, on either a prospective or retroactive basis, would not adversely affect the accuracy of the conclusions stated herein. Nevertheless, we undertake no responsibility to advise you of any new developments in the application or interpretation of the U.S. Federal income tax laws.
No ruling will be obtained from the IRS on the issues to which this opinion is addressed. Unlike such a ruling, an opinion of counsel has no binding effect on the IRS or the courts. In the absence of a ruling there can be no assurance that the IRS will not disagree with, or challenge in court, the opinion set forth herein, or that such challenge will not prevail. If the IRS were successful in challenging the conclusions reached in this opinion, certain tax consequences expected by the Bank and the Holding Company or any other party to the Transfer may not be achieved.
This opinion is provided solely for your benefit and is not to be used, circulated, quoted, or otherwise referred to for any purpose without our express written permission. Without exception, this opinion is not being provided as legal or tax advice to any person, and does not create an attorney-client relationship with any person, other than the Bank and the Holding Company.
Based on the representations contained in the letters dated ___________, delivered to us by the Bank and the Holding Company, and subject to the assumptions, exceptions, limitations and qualifications set forth herein, we are of the opinion that:
a. The Transfer should qualify as a tax-free transfer under Section 351.
b. If the Transfer qualifies as a tax-free transfer, (i) the Bank shareholders will recognize no gain or loss upon the transfer of their Bank stock to the Holding Company in exchange for the Holding Company stock, (ii) the Bank will recognize no gain or loss upon the transfer of the Bank stock by the Bank shareholders to the Holding Company in exchange for the Holding Company stock, (iii) the Holding Company will recognize no gain or loss upon receipt of the Bank stock transferred to it by the Bank shareholders in exchange for the Holding Company stock, (iv) following the Transfer, the Bank shareholders will hold the Holding Company stock with the same basis and holding period they had in the Bank stock immediately prior to the Transfer; and the Holding Company will hold the Bank stock with the same basis and holding period the Bank shareholders had immediately prior to the Transfer.
c. No gain or loss will be recognized by the holder of nonstatutory options to acquire Bank stock upon conversion of those options into nonstatutory options to acquire Holding Company stock under the same terms and conditions as in effect immediately prior to the Transfer.
d. The substitution of incentive stock options to acquire Holding Company stock for incentive stock options to acquire Bank stock will not be a modification as defined in Section 424(h)(3) of the Code, and will not result in the recognition of income, gain, or loss to the holders of the incentive stock options to acquire Bank stock. Such options to acquire Holding Company stock will be incentive stock options as defined in Section 422(b) of the Code.
For the purpose of rendering this opinion, we have examined (or will examine on or prior to the Effective Date of the Transfer) and are relying (or will rely) upon (without any independent investigation or review thereof) the truth and accuracy, at all relevant times, of the statements, covenants, representations and warranties contained in the following documents:
1. The Agreement and Plan of Reorganization and any other agreements associated therewith;
2. Representations made to us by the Bank and the Holding Company in letters dated ___________________; and
3. Such other instruments and documents related to the formation, organization and operation of the Bank and the Holding Company or consummation of the Transfer as we have deemed necessary or appropriate.
In connection with rendering this opinion, we have assumed or obtained representations (and are relying thereon, without any independent investigation or review thereof) that each of the representations made by the Bank and the Holding Company in the Agreement and Plan of Reorganization and any other documents or agreements associated therewith is and will be true and accurate.
Our opinion addresses only the tax-free status of the Transfer under
Section 351 of the Code and does not address any other Federal, state, local or
foreign legal or tax implications that might be raised from the Transfer or any
other activities and transactions relating to the parties of the Transfer.
No opinion is expressed as to the Transfer if the Transfer is not consummated in accordance with the terms of the Agreement and Plan of Reorganization and without waiver or breach of any provision thereof or if all the representations, warranties, statements or assumptions upon which we relied are not true and accurate at all relevant times.
Very truly yours,
COUDERT BROTHERS LLP
EXHIBIT 10.1
TABLE OF CONTENTS
1. Fundamental Lease Providers ..................................... 1
2. Premises ........................................................ 1
3. Term ............................................................ 2
4. Base Rent ....................................................... 3
5. Percentage Rent ................................................. 3
6. Condition of Improvements ....................................... 6
7. Parking and Common Areas ........................................ 6
8. Operating Costs and Taxes ....................................... 6
9. Security Deposit ................................................ 9
10. Use ............................................................. 9
11. Compliance With Law ............................................. 11
12. Alterations and Additions ....................................... 12
13. Repairs ......................................................... 12
14. Liens ........................................................... 13
15. Assignment and Subletting ....................................... 13
16. Hold Harmless ................................................... 16
17. Insurance ....................................................... 16
18. Utilities ....................................................... 17
19. Personal Property Taxes ......................................... 17
20. Competitive Business ............................................ 17
21. Holding Over .................................................... 18
22. Entry By Landlord ............................................... 18
23. Tenant's Default ................................................ 18
24. Default By Landlord ............................................. 22
25. Reconstruction .................................................. 22
26. Eminent Domain .................................................. 25
27. Signs ........................................................... 25
28. Displays ........................................................ 25
29. Auctions ........................................................ 25
i
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30. Surrender of Premises ........................................... 26
31. Relocation ...................................................... 26
32. Sale of Premises By Landlord; Exculpation ....................... 27
33. Subordination ................................................... 27
34. Tenant's Offset Statements ...................................... 28
35. Authority of Tenant ............................................. 28
36. Brokers ......................................................... 28
37. Merchant's Association .......................................... 28
38. General Provisions .............................................. 29
Exhibit "A" Site Plan
Exhibit "B" Legal Description of Shopping Center
Exhibit "C" Construction Exhibit
Exhibit "D" Confirmation of Commencement Date
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This Lease, dated as of this 24 day of April, 1995, is made by and between JOSEPH A SORCI and ELDIVA SORCI (herein called "Landlord") and FIRST NATIONAL BANK OF DALY CITY (herein called "Tenant")
1. FUNDAMENTAL LEASE PROVISIONS
(a) Trade Name - DBA: FIRST NATIONAL BANK OF DALY CITY
210 EUREKA SQUARE, PACIFICA, CA 94044
(b) Guarantor: CORP OFFICERS: M.R. WYMAN, PRES. & E. PATRICK RYAN, VICE PRES.
(c) Use of Premises: BANKING
(d) Term of Lease: 60 MONTHS + TWO 5-YEAR OPTIONS
(e) Commencement JANUARY 1, 1995
(f) Expiration: DECEMBER 31, 1999
(g) Size of Premises: Approximately 3,000 SQUARE FEET
(h) Base Rent:
Period Amount
------ ------
A. 01-01-95 TO 12-31-95 $3,400.00
---------------
B. 01-01-96 TO 12-31-96 $3,500.00
---------------
C. 01-01-97 TO 12-31-97 $3,600.00
---------------
D. 01-01-98 TO 12-31-98 $3,700.00
---------------
E. 01-01-99 TO 12-31-99 $3,800.00
---------------
(i) Percentage Rent: none percent (0%) of Gross Sales (less Base Rent)
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(j) Security Deposit none
(k) Merchant's Association or Marketing Fund: $25.00 per month
(l) Radius Restriction: -0-
(m) Notices to Tenant: 245 El Camino Real, Daly City CA, 94017
2. PREMISES
(a) Landlord does hereby lease to Tenant and Tenant hereby leases from Landlord that certain space (herein called "Premises"), containing approximately the area set forth in Section 1(g) of this Lease. The location and dimensions of said Premises are delineated and cross-batched on the site plan attached hereto as Exhibit "A". Said Premises are located in the City of Pacifica, County of San Mateo, State of California, and are part of
the Shopping Center (the "Shopping Center") commonly known as Eureka Square Shopping Center, at the northeast corner of Oceana Boulevard and Eureka Drive in Pacifica, California, as legally described in Exhibit "B." Copies of the aforesaid Exhibits "A" and "B" are attached hereto, incorporated herein, and by this reference made a part of this Lease. Landlord makes no representation or warranties of any kind or nature as to the size, location, or time of construction of any of the structures (other than the Premises) shown on Exhibit "A". It is understood and agreed upon that the depiction of the Shopping Center, and the location of the Premises in the Shopping Center as shown on Exhibit "A" hereof, are subject to change. Any such change shall not invalidate this Lease, and the depiction and location of the Premises shall be deemed to have been expressly modified and amended herein in accordance with such changes.
(b) Landlord hereby reserves the right at any time, and from lime to time to make alterations or additions to the Premises, to build additional stores on the building in which the Premises are contained, and to build adjoining the same, and to install, maintain, use, repair and replace, pipes, ducts, conduits and wires, leading through, under and over the Premises, in locations serving other parts of the Shopping Center, from time to time, to make alterations thereof or additions thereto, to build additional stores on any such building or buildings, to build adjoining same, and to construct doubledeck, subterranean or elevated parking facilities.
3. TERM
(a) The term of this Lease shall be for a period specified in Section 1(d) hereof, commencing on the date (herein referred to as the "Commencement Date") specified in Section l(e) constructed or unfinished improvements, the date of the occurrence of either of the following events, whichever shall first occur:
(1) Thirty (30) days after the date Landlord notified Tenant in writing that the Premises are ready for occupancy or should have been ready for occupancy as provided in Section 3(e) hereof. The Premises shall be deemed ready for occupancy when all work of construction or improvement required hereunder on the part of Landlord in connection therewith, if any, has been substantially complete, and the Premises are in such condition as to permit Tenant to enter thereon for the purpose of installing therein Tenant's trade fixtures and equipment; or
(2) Upon the date Tenant actually commences to do business in, upon or from the Premises.
(b) If the Commencement Date is other than the first day of a calendar month, said Lease term shall be computed from the first day of the calendar month next succeeding the Commencement Date.
(c) When the Commencement Date is not specified in Section 1(e) hereof, and, as a consequence, has been determined as hereinabove set forth, the parties shall execute a written memorandum in the form attached hereto as Exhibit "D" expressly confirming said Commencement Date and the expiration date of the term, and such memorandum shall thereupon be deemed attached hereto incorporated herein, and by this reference made a part of this Lease.
(d) The work required to be performed by Landlord under the terms and provisions of this Lease in order to make the Premises ready for occupancy, if any, depends in whole or in part upon work to be performed in connection therewith by Tenant. Then, in such event, the Premises shall be "ready for occupancy" on the date they would have been ready for occupancy a Tenant had performed the work required of Tenant in a diligent and timely manner and in accordance with the schedule for the performance of such work established by Landlord's architect. The determination by Landlord's architect as to the date the Premises are "ready for occupancy" taking into consideration delays, if any, caused by Tenant, as aforesaid, shall be conclusive upon the parties hereto.
(e) Notwithstanding the Commencement Date, if for any reason Lessor
cannot deliver possession of the Premises to Leasee on said 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 be obligated to pay rent until possession of the Premises
is tendered to Lessee; provided, however, that it Lessor shall not
have delivered possession of the Premises within one-hundred eighty
(180) days from said Commencement Date, 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, 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 and
effect. If for any reason whatsoever, the term of this Lease shall
not have commenced on or before two (2) years after the date hereof,
this Lease shall thereupon be and become entirely canceled, and of
no further force and effect
4. BASE RENT
(a) Base Rent Subject to increases as set forth in Section 4(b), Tenant agrees to pay the Landlord as rent for Tenant's use of the Premises and Tenant's rights hereunder ("Base Rent"), without notice or demand, the sum set forth in Section 1(h) hereof, which Base Rent shall be paid, in advance, on or before the first day of each and every successive calendar month during the term hereof, except that the first month's rent shall be paid upon the execution hereof. Rent for any period which is for less than one (1) month shall be a prorated portion of the monthly installment herein based upon a thirty (30) day month Said rental shall be paid to Landlord, without deduction or offset, in lawful money of the United States of America and at such place as Landlord may from time to time designate in writing.
(b) Periodic Rent Increase The Base Rent payable hereunder by Tenant to Landlord shall be increased during the term hereof in increments as set forth in Section 1(h) hereof. No delay or failure by Landlord to enforce this provision or any part thereof as to Tenant, or to enforce similar or dissimilar provisions in other leases in use as to any other tenants in the Shopping Center, shall be deemed to be a waiver hereof, or prevent any subsequent or other enforcement hereof.
5. PERCENTAGE RENT
(a) Percentage Rent In addition to the Base Rent set forth in Section 4, Tenant shall pay to Landlord, at the times and in the manner herein set forth, Percentage Rent equal to the percentage set forth
in Section 1(i) hereof times Tenant's Gross Sales (as the term "Gross Sales" is herein defined), minus the Base Rent.
(b) Time and Manner of Payment Percentage Rent shall be paid on or before the fifteenth(15th) day of each calendar month during the term (including the calendar month next succeeding the last month of the term hereof), and shall be determined on the basis of a written statement, signed and certified by Tenant or an officer of Tenant as being true and correct, setting forth the amount of Tenant's Gross Sales during the calendar month immediately preceding. Monthly Percentage Rent shall be the product of the percentage set forth in Section 1(i) times the Gross Sales from the Premises for such month, minus the Base Rent paid for such month (but in no event less than zero). Within thirty (30) days after the end of each Lease Year during the term (including the thirty-day period next succeeding the end of the last Lease Year of the term hereof), Tenant shall deliver to Landlord a written statement, signed and certified by a certified public accountant to be true and correct, setting forth the total amount of Tenant's Gross Sales made during the immediately preceding Lease Year, and the Percentage Rent paid for such year shall be adjusted to a lease yearly basis (including a proportionate adjustment for Lease Years that are shorter than 12 months) and Tenant agrees to pay Landlord, and Landlord agrees to credit Tenant, such amount as may be necessary to effectuate such adjustment. It is agreed that the computation of the Percentage Rent shall be made separately for each Lease Year throughout the term of this Lease, without regard to Tenant's Gross Sales or Percentage Rent in any other Lease Year.
(c) Gross Sales The term "Gross Sales" as used herein means the total amount in dollars of the actual sales price, whether for cash or credit or partly for cash and partly for credit, of all sales of merchandise and services and all other receipts of business sales of merchandise and services and all other receipts of business conducted in or from the Premises, including all mail or telephone orders received or filled at the Premises, and including all deposits not refunded to purchasers, orders taken (although said orders may be filled elsewhere), receipts from any coin operated machines, and sales by any subleasee, concessionaire or licensee or otherwise in said Premises. No deduction shall be allowed for uncollected and uncollectible credit accounts. Gross Sales shall not, however, include any sums collected and paid out for any sales or excise tax imposed by any duly constituted governmental authority, nor shall it include the exchange of merchandise between authority or the exchange of merchandise between the stores of Tenant, if any, where such exchange of goods or merchandise is made solely for the convenient operation of the business of Tenant and not for the purpose of consummating a sale which has theretofore been made at, originated in or from the Premises, or for the purpose of depriving Landlord of the benefit of a sale which otherwise would be made at, in or from the Premises, nor any amount of returns to shippers or manufacturers, nor the amount of any cash or credit refunds made upon any sale where the merchandise sold or some part thereof, is thereafter returned by the merchandise sold or some part thereof, is thereafter returned by the purchaser and accepted by Tenant, nor sales of fixtures which are not a part of Tenant's stock in trade, nor receipts from sales of lottery tickets. Any "Gross Sales" resulting from Tenant's sale of California State Lottery Tickets shall be treated in the manner set forth in Section 5(d) hereof. Each sale upon installment or credit shall be treated as a sale for the full price in the month during which such sale shall be made, irrespective of the time when Tenant shall receive payment from its customers.
(d) Lottery Rent Should Tenant sell California State Lottery tickets from the Premises, in addition to Base Rent and Percentage Rent, Tenant shall pay Landlord, as additional rent, one and one-half percent (1 1/2 %) of the gross revenue from sales of lottery tickets sold in, on or from the Premises ("Lottery Rent"). Said payment shall be made to Landlord monthly, within ten (10) days after the end of each calendar month. Tenant's monthly payment of Lottery Rent shall be accompanied by a statement signed by Tenant setting forth the amount of Tenant's Gross Sales of lottery tickets from the Premises or the preceding month, and attaching a copy of the customary monthly or weekly reports furnished to the California State Lottery commission or such other agency to which such reports are required to be made.
(e) Maintenance of Records Tenant shall install upon the Premises a cash register equipped with a cumulative totaling device which shall be sealed and a daily continuous tape on which all Gross Sales shall be recorded and imprinted. Tenant shall keep in the Premises a permanent accurate set of books and records of all Sales of merchandise and all revenue derived from business conducted in the Premises during each day of the term hereof, and all supporting records, including excise tax, business and occupation tax and gross income tax reports; and such pertinent records will be kept, retained and preserved for al least three (3) years after the expiration date of each Lease Year. Tenant shall keep, retain and preserve for at least three (3) years after the expiration of each Lease Year all original cash register tapes, sales records and sales slips or sales checks and any other pertinent original sales. records. All such records, including sales tax reports and excise tax reports, shall be open to inspection and audit of Landlord and its agents at all reasonable times during ordinary business hours.
(f) Audit or Reports In the event Landlord is not satisfied with any statement submitted by Tenant, Landlord shall have the rights to make a special audit, by auditors selected by Landlord, of the books and records of Tenant its subtenants, concessionaires and licensees, hereinbefore required to be kept and preserved. Landlord's right to examine Tenant's books and records and those of its subtenants, concessionaires and licensees, as hereinbefore set forth, or to make an audit thereof in respect to any monthly or annual statement for such monthly or full lease year period, shall be available to Landlord only for a period of three (3) years after the applicable monthly or annual statements for such periods shall have been furnished to Landlord. If such audit shall show a deficiency in percentage rent for the period covered, the amount thereof together with interest thereon shall be paid promptly by Tenant; if such audit shall show percentage rent to have been overpaid, the excess shall be applied on any amounts then due to Landlord by Tenant, and the balance, if any, shall be credited to Tenant's next payment or Base Rent. If any such statement is round to be incorrect to an extent of more than one percent (1%) over the figures submitted by Tenant. Tenant shall pay for such special audit and if such special audit verifies Tenant's statements to be correct or to vary not more than one percent (1%) over the figures submitted by Tenant, the expense of such audit shall be borne by Landlord. The provisions of Sections 5(e) and 5(f) hereof shall apply in all respects to partial Lease Years.
(g) Lease Year Defined For the purpose of this Lease, a "Lease Year" shall be taken to mean each consecutive twelve-month period commencing January 1 and ending on December 31, provided.
however, should the commencement date occur on a date other than January 1, the first Lease Year shall be the period between the commencement date and the next succeeding December 31, and the last Lease Year shall be the period between the last January 1st of the term and ending at the end of the term hereof.
6. CONDITION OF IMPROVEMENTS
Landlord has furnished to Tenant the building shell and the items set forth in Exhibit "C," entitled "Construction Exhibit." attached hereto and hereby made a part hereof. Except as therein provided, all interior, nonstructural improvements to the Premises, including fixturization and other work on the front or interior of the Premises, shall be performed by Tenant at Tenant's sole cost and expense, and shall be performed in accordance with Exhibit "C." Tenant acknowledges that it is accepting the Premises in their "as-is" condition and that Landlord is not furnishing any improvements, alterations, or additions to the Premises other than those set forth in Exhibit "C" hereto. By entry hereunder. Tenant shall be deemed to have accepted the Premises as being in good, sanitary order, condition and repair.
7. PARKING AND COMMON AREAS
Landlord covenants that an area approximately equal to the common and parking areas as shown on the attached Exhibit "A" shall be at all times available for the non-exclusive use of Tenant during the full term of this Lease or any extension of the term hereof, provided that the condemnation or other taking by any public authority, or sale in lieu of condemnation, of ally or all of such common and parking areas shall not constitute a violation of this covenant. Landlord reserves the right to change the entrances, exits, traffic lanes and the boundaries and locations of such parking area The Landlord shall keep said automobile parking and common areas in a neat, clean and orderly condition and shall repair any damage to the facilities thereof, but all expenses in connection with said automobile parking and common areas shall be charged to Tenant and prorated in the manner set forth in Section 8 hereof. So long as Tenant is riot in default hereunder, Tenant, for the use and benefit of Tenant and its customers, shall have the non-exclusive right in common with Landlord. and other present and future owners, tenants and their customers, to use said common and parking areas during the entire term of this Lease, or any extension thereof, for ingress and egress, and automobile parking; provided, however, that Tenant shall not be permitted use of parking areas for employee parking. Tenant, in this use of said common and parking areas, agrees to comply with such reasonable roles, regulations and charges for parking as the Landlord may adopt from time to lime for the orderly and proper operation of said common and parking areas. Such rules may include but shall not be limited to the regulation of the removal, storage aid disposal of Tenant's refuse and other rubbish at the sole cost and expense of Tenant.
8. OPERATING COSTS AND TAXES
(a) Operating Costs and Taxes There shall be payable as additional rent during the term of this Lease an amount equal to Tenant's proportional share of the combined amount of Landlord's "Property Tax Costs" and Landlord's "Operating Costs" (both as hereinafter defined) for each calendar year. For purposes of this Section 8(a), the following definitions shall be applicable: (i) "Property tax Costs" shall be the total of all real and personal property taxes, assessments, license fees, commercial rental taxes, liens, penalties or "in lieu" real property taxes (as defined in power to tax, including any city, county, state and federal government. and any fire protection, police, sidewalk and road maintenance, refuse removal, school,
agricultural. lighting, drainage and other improvement district thereof). As against any legal or equitable interest of Landlord in the Premises or in the building of which the Premises are a part. or the Shopping Center and its common areas (including land, building, improvements and personalty), as against Landlord's right to rent or other income therefrom, or as against Landlord's business of leasing the Premises, any tax increases arising out of a change of ownership of the Premises or the Shopping Center, and any and all reasonable costs, including legal fees, incurred in contesting such taxes or in seeking a reduction in such taxes; (ii) "Operating Costs" shall be the total of all costs and expenses paid or incurred by Landlord in connection with the operation, maintenance, repair and replacement of the Premises (including the roof and building shell), the building of which the Premises are a part, other Shopping Center improvements, and the parking and common areas of the Shopping Center (including land, building, improvements and personalty) including but not limited to maintenance contracts, water and sewage charges, insurance premiums, utilities, janitorial services, labor, supplies, materials, equipment, tools, repairs, replacements, resurfacing, repainting, re-striping, cleaning. sweeping, janitorial, replanting, re-landscaping, directional signs and markers, car stops, security lighting and other utilities. reasonable deprecation on expenditures for items customarily allocable to Landlord's capital account (excluding capital expenditures for structural items which are customarily part of original construction), and expenditures for owned machinery and equipment used in connection therewith, professional services, a management fee equal to fifteen percent (15%) of all the foregoing Operating Costs to cover Landlord's administrative and overhead costs, and adequate public liability and property damage insurance on all improvements in the therewith, professional services, a management fee equal to fifteen percent (159b) of all the foregoing Operating Costs to cover Landlord's administrative and overhead costs, and adequate public liability and property damage insurance on all improvements in the Shopping Center and the common and parking areas, in an amount to be determined by Landlord, and all other things necessary in Landlord's sole and absolute discretion for the operation and maintenance in a state of good and sanitary order, condition and repair Depreciation on machinery and equipment shall be computed over a period of at least five (5) years on a straight line basis, and depreciation on motor vehicles shall be computed over a period of al least three (3) years on a straight line basis. Al arty time hereafter, Landlord shall have the right to select and license or lease to any person, firm or corporation the operation and maintenance of the common and parking areas on such terms and conditions and for such time as Landlord shall, in its sole judgment, deem reasonable and proper. Any such lease, license agreement, or contract shall require the lessee, licensee or operator to be bound by and to perform all of the obligations of Landlord relative to the maintenance and operation of the Shopping Center, and shall make the lessee, licensee or operator responsible to Tenant and all other tenants in the Shopping Center. In the event this Lease shall commence or terminate on any date other than the last day of a calendar year, the additional rent payable hereunder by Tenant for the calendar year in which this I ease commences or terminates shall be prorated on the ratio that the number of days of the lease term falling within said calendar years bears to 365 days Tenant's proportionate share of Landlord's property tax costs and operating costs shall be determined by dividing the total area of the Premises by the total leasable area of retail floor space in the Shopping Center, and multiplying said quotient by the total property tax costs and operating costs for the Shopping Center.
(b) Payment Procedure
On or before the first day of April of each calendar year, Landlord
shall furnish to Tenant a written notice advising Tenant of the
total "Property Tax Costs" and "Operating Costs" for the immediately
preceding calendar year of portion thereof and Tenant's share of
such costs as provided in Section 8(a). On the first occasion when
Tenant is so notified of Tenant's share of such costs for the
preceding year, Tenant shall pay to Landlord the full amount of such
costs within ten (10) days after such written notice, together with
the amount of such costs incurred for each calendar month during the
then current calendar year, including the calendar month in which
the written notice described in this Section 8(b) is received by
Tenant. The amount due for each calendar month during the then
current calendar year shall be a fraction, the numerator being one
(1) and the denominator being the number of months (any partial
month being considered a full month for purposes of this Section
8(b) during the preceding calendar year in which Tenant Occupied the
Premises Commencing with the next monthly installment of rent
payable by Tenant after such notice, Tenant shall, together with
each of the next twelve (12) monthly installments of rent, pay to
Landlord as an estimate of the current year's anticipated costs, an
amount equal to Tenant's share of the costs for the preceding year
prorated to a monthly amount based on the portion of the term
falling within the immediately preceding calendar year. Thereafter
the same procedure shall be followed as of the first day of April of
each succeeding year except that after the first year in which
Tenant is required to pay such costs, Tenant shall be required to
pay to Landlord within ten (10) days after such annual notice only
the difference between the total amount of the costs payable by
Tenant for the preceding calendar year and the total of the twelve
monthly estimated amounts theretofore paid by Tenant. If for any
calendar year the amount of the costs payable by Tenant shaft be
less than the total of the twelve monthly estimated amounts paid by
Tenant as aforesaid, then the difference shall, at Landlord's
option, either be refunded by Landlord to Tenant or deducted from
the next installment or installments of rent due hereunder. The
failure of Landlord in any year to supply to Tenant the written
notice, above provided, shall not constitute a waiver by Landlord of
its right to collect Tenant's share of the costs for the preceding
calendar year No delay or failure by Landlord to enforce this
Section 8(b), or any part thereof as to Tenant, or to enforce
similar or dissimilar provisions in other leases in use as to any
other tenant in this Shopping Center, shall be deemed to be a waiver
hereof, or prevent any subsequent or other enforcement hereof. All
costs payable by Tenant hereunder shall constitute additional rent,
and upon Tenant's failure to pay such amounts, Landlord shall have
the same rights and remedies as otherwise provided in this lease for
the failure of Tenant to pay rent.
(c) In Lieu Real Property Taxes If at any time during the term of this Lease, any authority having the power to tax, including without limitation any Federal, State, County, City government or any political subdivision thereof, hereinafter collectively referred to as "taxing authority" for purposes of this paragraph only, shall alter the methods and/or standards of taxation and assessment, hereinafter referred to as the "tax plan" for purposes of this article only, against the legal or equitable interests of Landlord in the Premises or the remainder of the Shopping Center or the underlying realty, in whole or in part, so as to impose a tax plan in lieu of or in addition to the tax plan in existence as of the date of this Lease, such taxes or assessments based upon such other tax plan, including without limitation: (i) a tax, assessment, excise, surcharge, fee, levy, penalty, bond or similar imposition, hereinafter collectively referred to as "impositions, of this Section only, on Landlord's right to rental
or other income from the Premises or as against Landlord's business of leasing the Premises; (ii) any impositions in substitution or in lieu, partially or totally, of any impositions assessed upon real property prior to any such alteration in the tax plan (iii) any impositions allocable to or measured by the area of the Premises or the rental payable hereunder, including without limitation any impositions levied by any taxing authority with respect to the receipt of such rental or with respect to the possession, leasing, operation, management, maintenance, alteration, repair, use or occupancy by Tenant of the Premises or any portion thereof; (iv) any impositions upon the Lease transaction or any document to which Tenant is a party which creates or transfers any interest or estate in or to the Premises; or (v) any special, unforeseen or extraordinary impositions however described, shall be considered as "property tax costs" for the purposes of this Lease, excluding, however, all general income taxes, gift taxes, inheritance taxes and estate taxes.
9. SECURITY DEPOSIT
Concurrently with Tenant's execution of this Lease Tenant has deposited
with Landlord a sum equivalent to the sum set forth in Section 1j)
hereof. Said sum shall be held by Landlord as security for the faithful
performance by Tenant of all the terms, covenants, and conditions of this
Lease to be kept and performed by Tenant during the term hereof. If
Tenant defaults with respect to any provision of this Lease, including,
but not limited to the provisions relating to the payment of rent
Landlord may (but shall not be required to) use, apply, or retain all or
any part of this security deposit for the payment of any rent or any
other sum in default, or for the payment of any amount which Landlord may
spend or become obligated to spend by reason of Tenant's default. If any
portion of said deposit is so used or applied Tenant shall, within five
(5) days after written demand therefor, deposit cash with Landlord in an
amount sufficient to restore the security deposit to its original amount,
and Tenant's failure to do so shall be a default under this Lease. If the
monthly Base Rent shall, from time to time, increase during the time of
this Lease, Tenant shall, within five (5) days after written demand
therefor, deposit with Landlord additional security so that the amount of
security deposit held by Landlord shall at all times bear the same
proportion to current Base Rent as Section 1(h) Landlord shall not be
required to keep this security deposit separate from its general funds.
and tenant shall not be entitled to interest on such deposit. If Tenant
shall fully and faithfully perform every provision of this Lease to be
performed by it, the security deposit or any balance thereof shall be
credited against rent and other charges then unpaid, and the balance
shall be returned to Tenant (or, at Landlord's option, to the last
assignee of Tenant's interest hereunder) within thirty (30) days
following expiration of the Lease term. In the event of termination of
Landlord's interest in this Lease, Landlord shall transfer said deposit
to Landlord's successor in Interest.
10. Use
(a) Use Tenant shall use the Premises solely for the purpose of conducting the retail business described in Section I(c) of this Lease, and under the trade name set forth in Section 1(a) of this Lease Tenant shall not use, or permit the Premises to be used, for any other purpose or under any other trade name, whatsoever.
(b) Rule and Regulations Tenant shall at all times during the term of this Lease, at its sole cost and expense:
1. Furnish, install and maintain in the Premises all of Tenant's merchandise, furniture, trade fixtures, and equipment (which, together with Tenant's leasehold improvements, are referred to herein as "Tenant's Properly") necessary for the operation of Tenant's business;
2. Maintain the Premises in a clean, neat, sanitary and orderly condition, it being understood that no use shall be made or permitted of the Premises, the common and parking areas, or any part thereof, nor any acts done, which will violate, make inoperative, or increase the existing rate of any insurance policy at any time held by or in any way for the benefit of Landlord pursuant to any provision of this Lease;
3. Tenant shall not sell, or suffer or permit to be kept, used or sold in, upon or about the Premises any gasoline, distillate or other petroleum products or any other substance or material of an explosive, inflammable, noxious, toxic, caustic or radiological nature which may endanger any part of the Premises or its occupants, business patrons or invitees, or present any unusual fire, explosion or other damaging or dangerous hazard or possibility of contamination;
4. Refrain from committing or suffering to be committed any strip of waste upon, or any unlawful, improper or offensive use of, the Premises, or any public or private nuisance or act or thing which may disturb the quiet enjoyment of any other tenant, concessionaire, licensee or occupant of the Shopping Center or the customers or business invitees thereof;
5. Keep all merchandise display windows in the Premises suitably lighted during such hours as Landlord may reasonably require, including periods other than or in addition to the business hours of Tenant:
6. Refrain from dumping, disposal, reduction, incineration or other burning of any trash, papers, refuse or garbage in or about the Premises or the common and parking areas;
7. Store all trash and garbage within the Premises in metal containers so located as not to be visible to customers and business invitees in the Shopping Center and so as not to create or permit any health or fire hazard, and arrange for the regular removal thereof;
8. Refrain from using or permitting the use of the Premises or any portion thereof as living quarters, sleeping quarters or lodging rooms;
9. Refrain from keeping, displaying or selling any merchandise or any object outside the interior of the premises, or on any portion of any sidewalks, walkway or other portion of the parking and common area except during special sales promotions
10. 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 Shopping Center, 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 allow to be committed any waste in, or upon the Premises;
11. Tenant shall not permit any of Tenant's servants, employees, agents or sublessees, to park any vehicles in the common and parking areas of the Shopping Center. In the event of any violation of the immediately preceding sentence, Tenant shall pay to Landlord a penalty of twenty dollars ($20.00) per day per violation.
In addition to the foregoing, Tenant shall at all times during the term hereof comply with all the reasonable rules and regulations which Landlord may at any time or from time to time establish concerning the use of the Premises and common and parking areas for shipping, receiving, loading and unloading merchandise; provided, however, that any such rule or regulation so made shall not be inconsistent with any part of this Lease, shall not unreasonably interfere with Tenant's use and enjoyment of the Premises, and shall be enforced without discrimination among tenants similarly affected.
(c) Prohibited Operations No use or operation will be made, conducted or permitted on or with respect to all or any parts of the Shopping Center, which use or operation is obnoxious to or out of harmony with the operations of a first-class shopping center, including (but not limited to) the following: any noise or sound that is objectionable due to intermittence, beat, frequency, shrillness or loudness; any obnoxious odor; any warehouse (but any area for the storage of goods intended to be sold at any retail establishment in the Shopping Center shall not be deemed to be a warehouse), assembly, manufacture or distillation and "second hand" store, Army, Navy or Government "surplus" store, or a store commonly referred to as a "discount house, any trailer court, labor camp, junk yard, stock yard, or animal raising (other than pet shop); any drilling for and/or removal of subsurface substances; and any fire or bankruptcy sale or auction house operation.
(d) Continuous Operation Tenant expressly covenants to, and it is of the essence of this Lease that Tenant shall open for business on the Commencement Date (as herein defined), and shall continuously and uninterruptedly throughout the term hereof keep the Premises open for business during all hours established by the Landlord for the Shopping Center and, at Tenant's option, during any additional hours. In the event the hours during which the Shopping Center is legally permitted to be open for business are regulated by any authority claiming jurisdiction, then Landlord shall be the sole judge of which hours and days shall be the Shopping Center business hours. Tenant further agrees that all such times it shall have upon the Premises a sufficient number of employees and a sufficient stock of merchandise adequately to serve the patrons thereof, and will in general employ its best judgment, efforts and abilities to produce the maximum volume of sales from the Premises.
11. Compliance with Law
Tenant shall not use the Premises, or permit anything to be done in or about the Premises or the common and parking areas, 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 and requirements now in force or which may hereafter be in force, and with the requirements of any board of fire underwriters or other similar bodies now or hereafter constituted, relating to or affecting the condition, use or occupant of the Premises, excluding structural charges rot 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 be a party thereto or not, that Tenant has violated any law, statute, ordinance or governmental rule, regulation or requirement, shall be conclusive of that fact as between the Landlord and Tenant.
12. Alterations and Additions
Tenant shall not make or allow to be made any alterations, additions, or improvements to the Premises or any part thereof (except non-structural and non-systemic, i.e., HVAC, plumbing or electrical, interior alterations costing no more than $2,500 in any calendar year) without first obtaining the written consent of Landlord, which consent shall not unreasonably be withheld. Any alterations, additions or improvements to or of said Premises including, but not limited to, wall coverings, paneling and built-in cabinet work (but excepting movable furniture and trade fixtures), shall upon expiration or sooner termination of the Lease become a pad of the realty and belong to the Landlord and shall be surrendered with the Premises All alterations and additions to the Premises shall conform to applicable local building, health, and safety codes, and Tenant shall obtain all necessary and applicable building permits prior to commencement of construction. In the event Landlord consents to the making of any alterations, additions or improvements to the Premises by Tenant, the same shall be made by Tenant at Tenant's sole cost and expense Upon the expiration or sooner termination of the term hereof, Tenant shall, upon written demand by Landlord, given at least thirty (30) days prior to the end of the term, at Tenant's sole cost and expense, repair any damage to the Premises caused by such removal.
13. REPAIRS
(a) Tenant's Responsibilities Tenant shall, at Tenant's sole cost and expense, keep the Premises and every part thereof in good condition and repair (except as hereinafter provided with respect to Landlord's obligations) including without limitation, the maintenance, replacement and repair of any storefront, doors, window casements, glazing, plumbing, pipes, electrical wiring and conduits, heating and air conditioning system (when there is an air conditioning system). Tenant shall obtain a service contract for repairs and maintenance contract to conform to the requirements under the warranty, if any, on said system. If this Lease covers premises in which food is prepared, sold or consumed, Tenant covenants regularly to inspect and maintain in good order and repair all grease traps, vent hoods and pans, to provide a minimum monthly cleaning of all hood filters and grease traps by a contractor approved by Landlord in writing. All vent hoods are to be equipped with a UL approved automatic extinguisher system satisfactory to Landlord's architect. Any damage to adjacent premises caused by Tenant's use of the Premises shall be repaired by Tenant at the sole cost of Tenant.
(b) Landlord's Responsibility Notwithstanding the provisions of Section 13(a) hereinabove, Landlord shall repair and maintain the structural portions of the building of which the Premises are a part, including the exterior walls and roof, unless such maintenance and repairs are caused in part or in whole by the act, neglect, fault or omission of any duty by the Tenant, its agents, servants, employees, invitees, or any damage caused by breaking and entering, in which case
Tenant shall reimburse Landlord for the actual cost of such maintenance and repairs. Landlord shall not be liable for any failure to make 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 Section 25 hereof, there shall be no abatement of rent and no liability of Landlord by reason of any injury or interference with Tenant's business arising from the making of any repairs alterations or improvements in or to any portion of the Shopping Center or the Premises, or in or to fixtures, appurtenances and equipment therein. tenant waives the right to make repairs at Landlord's expense under any law, statute or ordinance now or hereafter in effect.
14. LIENS
Tenant shall keep the Premises and the property in which the Premises are situated free from any liens arising out of any work performed, materials furnished or obligations incurred by or on behalf of Tenant. Landlord may require, at Landlord's sole option, that Tenant shall provide to Landlord, at Tenant's sale cost and expense, a lien and completion bond in an amount equal to one and one- half (1 1/2) limes the estimated cost of any improvements, additions or alterations in the Premises which the Tenant desires to make, to insure Landlords against any liability for mechanics' or materialmen's liens and to insure completion of the work. If Tenant desires to contest any claim of lien, it shall within fifteen (15) days after the filing of the lien for record, furnish Landlord with cash security in the amount of the claim of lien, plus estimated costs and interest, or shall furnish Landlord with a bond of a discharge of the lien. Nothing contained herein shall prevent Landlord, at the cost and for the account of Tenant, from obtaining and filing a bond conditioned upon the discharge of such lien, in the event Tenant fails or refuses to furnish the same within said fifteen (15) day period Immediately upon entry of final judgment in any such action in which Tenant contests any such claim of lien, any pad thereof, and within fifteen (15) days after the filing of any lien for record which Tenant does not contest, Tenant shall fully pay and discharge such judgment or lien, as the case may be, and Tenant shall reimburse Landlord upon demand for any and all loss, damage and expense, including reasonable attorneys' fees, which Landlord may suffer or be put to by reason thereof. Nothing contained herein shall prevent Landlord, at the cost and for the account of Tenant, from satisfying any such judgment or lien, as the case may be, in the event Tenant fails or refuses to satisfy the same as herein provided.
15. ASSIGNMENT AND SUBLETTING
(a) Limitations Tenant shall not either voluntarily, or by operation of law, assign, transfer, mortgage, pledge, hypothecate or encumber this Lease or any interest therein, and shall not sublet the said Premises or any part thereof, or any right or privilege appurtenant thereto, to allow any other person (employees, agents, servants and invitees of Tenant excepted), to occupy or use the said Premises, or any portion thereof, without first obtaining the written consent of Landlord. A consent to one assignment, subletting, occupation or use by any other person shall not be deemed to be consent to any subsequent assignment, subletting, occupation or use by another person. Consent to any such assignment or subletting shall in no way relieve Tenant of any liability under this Lease. Any such assignment or subletting without such consent shall be void, and shall, at the option of the Landlord, constitute a default under the terms of this Lease.
(b) Reimbursement In the event that Landlord shall consent to a sublease or assignment hereunder, Tenant shall reimburse Landlord is reasonable attorneys' fees, not to exceed Five Hundred and No/100ths ($500.00) Dollars, incurred in connection with the processing of documents necessary to effectuate the same in accordance with this Lease.
(c) No Unreasonable Withholding of Consent
Landlord shall not unreasonably withhold its consent to an
assignment or subletting for a permitted use and under the same
trade name as provided in Section 1(c). The foregoing Is not
intended to imply any waiver of Landlord's reservation of the
absolute right to disapprove assignments of subleases for uses that
diner in any material respect from the use expressly permitted in
Section l(c) of this Lease, or of Landlord's right to withhold
consent on any other commercially reasonable basis. In determining
whether or not to consent to the proposed assignment or subleasing,
Landlord may consider, among other factors, the experience and
business reputation for the proposed sublease or assignee in
operating a business for the use set forth in Section l(c), whether
the existing level of sales volume is likely to be sustained by the
prospective assignee or subtenant, whether Landlord's consent will
result in a breach of any other lease or agreement to which Landlord
is a party affecting the Shopping Center, the effect on the "tenant
mix" or "balance" in the Shopping Center that Landlord is trying to
maintain or to achieve, and whether the proposed sublessee or
assignee has a net worth equal to or greater than Tenant. If
Landlord does not consent to Tenant's assignment or subleasing of
all or any portion of the Premises, the Base Rent set forth in
Section 1(h) of this Lease shall be deemed to be changed to equal
the sum of the Base Rent plus one-twelfth (1112) the Percentage Rent
required to be paid by Tenant pursuant to this Lease during the
twelve (12) month period immediately preceding such assignment or
subletting. No consent by Landlord to any assignment or subletting
by Tenant shall relieve Tenant of any obligation to be performed by
Tenant under this Lease, whether occurring before or after such
consent, assignment or subletting. The acceptance of rent by
Landlord from any other person shall not be deemed a waiver by
Landlord of any provision of this Lease, or to be a consent to any
assignment, subletting or other transfer, or to be a release of
Tenant from any obligation under this Lease Each assignee or
subtenant shall jointly assume all obligations of the Tenant under
this Lease, and shall be and remain liable jointly with Tenant for
the payment of rent, and for the due performance of all the terms,
covenants, conditions and agreements herein contained on Tenant's
part to be performed for the term of this Lease. No assignment shall
be binding on Landlord unless such assignee or sublessee shall
deliver to Landlord a counterpart of such assignment or sublease
(and any related collateral agreements) and an instrument in
recordable form which contains a covenant of assumption by the
assignee or sublessee. Such an instrument of assumption shall not
waive, release or discharge the assignee or sublessee from its
liability. If Tenant is a partnership, a transfer of any interest of
a general partner, a withdrawal of any general partner from the
partnership, or the dissolution of the partnership, shall be deemed
to be an assignment of this Lease. If Tenant is a corporation,
unless Tenant is a public corporation, viz., whose stock is
regularly traded on a national stock exchange, or is regularly
traded in the over-the-counter market and quoted on NASDAQ, any
dissolution, merger, consolidation, or other reorganization of
Tenant or sale or other transfer of a percentage of capital stock of
Tenant which results in a change of controlling persons, or the sale
or other transfer of substantially all of the assets of Tenant,
shall be deemed to be an assignment of this Lease.
(d) Assignment as a Result of Tenant's Bankruptcy
(i) In the event this Lease is assigned to any person or entity
pursuant to provisions of the Bankruptcy Code, 11 USC 1101, et seq.
(the "Bankruptcy Code"), any and all monies or other consideration
payable or otherwise to be delivered in connection with such
assignment shall be paid or delivered to Landlord, shall remain the
exclusive property of Landlord, and shall not constitute property of
Tenant or of the estate of Tenant within the meaning of the
Bankruptcy Code. Any and all monies or other consideration
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 to or turned over to Landlord; (ii)
If Tenant, pursuant to this Lease, proposes to assign the same
pursuant to the provision of the Bankruptcy Code, any person or
entity who shall have made a bona fide offer to accept an assignment
of this Lease on terms acceptable to Tenant, then notice of the
proposed assignment setting forth (a) the name and address of such
person, (b) all of the terms and conditions of such offer, and (c)
the assurances referred to in Section 365 (b)(3) of the Bankruptcy
Code, shall be given to the Landlord by the Tenant no later than
twenty (20) days after receipt of such offer by the Tenant, but in
any event no later than ten (10) days prior to the date that Tenant
shall make application to a court of competent jurisdiction for
authority and approval to enter into such assignment and assumption,
and Landlord shall thereupon have the prior right and option, to be
exercised by notice to the Tenant given at any time prior to the
effective date of such proposed assignment, to accept an assignment
of this Lease upon the same terms and conditions and for the same
consideration, if any, as the bona tide offer made by such person,
less any brokerage commissions which may be payable out of the
consideration to be paid such person for the assignment of this
Lease; (iii) 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 or after the date of such assignment.
Any such assignee shall, upon demand, execute and deliver to
Landlord an instrument confirming such assumption; (iv) The
following factors may be considered by the Landlord as necessary in
order to Determine whether or not the proposed assignee has
furnished Landlord with adequate assurances of its ability to
perform the obligations of this Lease:
1. The adequacy of a security deposit.
2. Net worth and other financial elements of the proposed assignee.
3. Demonstration that percentage rent will not decline substantially and that assumption or assignment will not disrupt substantially the tenant mix or balance in the Shopping Center;
(v) It is hereby acknowledged that this is a lease within a shopping center within the meaning of Section 365(b)(3) of the Bankruptcy Code; (vi) In the event Landlord rejects the proposed assignee, the rights and obligations of the parties hereto shall continue to be governed by the terms of this Lease, and Tenant shall have all the rights of a Tenant under applicable California law.
(e) Effect of Violation Any purported assignment, mortgage, pledge, hypothecation, encumbrance, subletting or license of this Lease, the leasehold estate hereby created, or the Premises or any portion thereof, either voluntarily or involuntarily, whether by operation of law or otherwise, or any other action by Tenant in violation of the restrictions set forth in this Section, shall be null and void and shall, at the option of Landlord, terminate this Lease.
16. HOLD HARMLESS
Tenant shall indemnify and hold harmless Landlord against and from any and all claims arising from Tenant's use of the Premises, common and parking areas, or from the conduct of its business or from any activity, work, or other things done, permitted or suffered by the Tenant in or about the Premises, common and parking areas, and shall further indemnify and hold harmless Landlord against and from any and all claims arising from any breach or default in the performance of any obligation on Tenant's part to be performed under the terms of this Lease, or arising from any act or negligence of the Tenant, or any officer, agent, employee, guest, or invitee of Tenant, and from all costs, attorneys' fees, and liabilities incurred in or about the defense of any such claim or any action or proceeding brought thereon, and in case any action or proceeding be brought against Landlord by reason of such claim, Tenant upon notice from Landlord shall defend the same at Tenant's expense by counsel reasonably satisfactory to Landlord 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, common and parking areas and Tenant hereby waives all claims in respect thereof against Landlord, except for personal injuries caused solely by Landlord's negligence. Tenant shall give prompt notice to Landlord in case of casualty or accidents in the Premises.
17. INSURANCE
(a) Liability Insurance Tenant agrees, at Tenant's sole cost and expense, to procure and maintain throughout the term of this Lease, a policy or policies of insurance insuring Landlord and Tenant from all claims, demands or actions for injury to or death of any person or persons, howsoever occasioned, and property damage, with liability limits of not less that $2,000,000 combined single limit per occurrence for personal Injury or death and/or property damage claims made by or on behalf of any person or persons, firm or corporation arising from, related to, or made by or on behalf of any person or persons, firm or corporation arising from, related to or connected with the conduct and operation of Tenant's business in the Shopping Center Landlord may require Tenant to increase said insurance liability limit, not more than once per Lease Year, as reasonably necessary Landlord (and at Landlord's option. any other persons, firms, or corporations designated by Landlord) shall be named as an additional insured on any such policy of insurance Tenant shall carry like coverage against loss or damage by boiler or internal explosion by boilers, if there is a boiler in the Premises Said insurance shall not be subject to cancellation except after at least ten days' prior written notice to Landlord, and the policy or policies, or duly executed certificates for the same, together with satisfactory evidence of the payment of the premiums thereon, shall be deposited with Landlord at the commencement of the term and any renewals thereof not less than thirty (30) days prior to the expiration of the term of such coverage if Tenant fails to comply with such requirement, Landlord may obtain such insurance and keep the same in effect, and Tenant shall pay to Landlord the premium cost thereof upon demand, together with interest at the maximum legal rate on all sums advanced by Landlord, plus a 25% handling charge.
(b) Property insurance Tenant agrees to procure and maintain fire and extended coverage insurance in an amount equal to at least one hundred percent (100%) of the replacement cost of Tenant's furniture, fixtures, merchandise, inventory, signs, equipment and personal property located in, on or about the Premises. Tenant does hereby agree that is shall not make any
claim against or see to recover from Landlord any loss or damage to its property or the property of others, resulting from any hazard insurable against by such policy
(c) Generally
If Tenant shall fail to procure and maintain any of the above
described insurance coverage, Landlord may, but shall not be
required to, procure and maintain same, but at the expense of
Tenant. All insurance required hereunder shall be in companies rated
AAA or better in Best's Insurance Reports. Tenant shall deliver to
Landlord, poor to right of entry, copies of policies of liability
and property damage insurance required herein of certificates
evidencing the existence and amounts of such insurance with loss
payable clauses satisfactory to Landlord. No policy shall be
cancellable or subject to reduction of coverage, except upon thirty
(30) days prior written notice to Landlord. All such policies shall
be written as primary policies not contributing with and not in
excess of coverage which Landlord may carry.
(d) Subrogation Landlord and Tenant hereby mutually waive their respective rights of recovery against each other for any loss insured by fire, extended coverage and other property any special endorsements, if required by their insurer to evidence compliance with the aforementioned waiver.
18. UTILITIES
Tenant shall pay for all water, gas, heat, light, power, sewer charges, telephone service and all other services and utilities supplied to the Premises, together with any taxes thereon. If any such serviced are not separately metered to Tenant, Tenant shall pay a reasonable proportion to be determined by Landlord of all charged jointly metered with other premises
19. PERSONAL PROPERTY
Tenant shall pay, or cause to be paid, before delinquency any and all taxes levied or assessed and which become payable during the term hereof upon all Tenant's leasehold improvements, equipment, furniture, fixtures, and any other personal property located in the Premises. In the event any or all of the Tenant's leasehold improvements, equipment, furniture, fixtures and other personal property shall be assessed and taxed with the real property Tenant shall pay to Landlord its share of such taxes within ten (10) days after delivery to Tenant by Landlord of a statement in writing setting forth the amount of such taxes applicable to Tenant's property.
20. COMPETITIVE BUSINESS
Tenant agrees that if Tenant or Tenant's franchiser or licensor, either directly or indirectly, as an individual or as a member of a partnership or as a stockholder, director, officer or employee of a corporation, or pursuant to a franchise or license agreement, owns, operates, manages or engages in any similar or competing business within the radius set forth in Paragraph 1(l), Tenant's gross sales (as the term "gross sales" is defined herein) in, upon or from said similar or competing business shall be added to, included in and deemed to be a part of Tenant's gross sales hereunder, and the same shall be computed and accounted for to Landlord in the same manner herein provided for the computation and accounting of Tenant's gross sales in, upon or from the Premises.
21. HOLDING OVER
If Tenant remains in possession of the premises or any part thereof after the expiration of the term hereof without the express written consent of Landlord, such occupancy shall be a tenancy from month to month at a monthly rental in the amount of twice the last monthly Base Rent, plus all other charges payable hereunder, and upon all the terms hereof applicable to a month to month tenancy.
22. ENTRY BY LANDLORD
Landlord reserves and shall have the right, at any and all limes during the customary business hours, to enter the Premises to inspect the same, to submit said Premises to prospective purchasers of tenants, to post notices of non-responsibility, to repair the Premises and any portion of the Shopping Center of which the Premises are a part that Landlord may deem necessary and desirable, without abatement of rent, and may for that purpose erect scaffolding and other necessary structures where reasonably required by the character of the work to be performed, always providing that the entrance to the Premises shall not be unreasonably blocked thereby, and further providing that the business of the Tenant shall not be interfered with unreasonably. Tenant hereby waives any claim for damages, or for any injury or inconvenience to or interference with Tenant's business, or for 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 key with which to unlock all of the doors in, upon and about the Premises, excluding Tenant's vaults, safes and files, 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 without liability to Tenant except for any failure to exercise due care for Tenant's property, 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.
23. TENANT'S DEFAULT
(a) Any of the following events shall constitute a default under this Lease by Tenant:
(i) Failure by Tenant to make any payment of rent or other payment required by this Lease when the same is due, and the continuance of such failure for a period of three (3) days after written notice thereof from Landlord to Tenant;
(ii) The vacating (except as may be necessary to facilitate the reoccupancy of the Premises for a permitted use pursuant to an assignment or subletting authorized under the terms hereof) or the abandoning (which is deemed to include absence from the Premises for more than ten (10) days while in default of any material provision of this Lease) of the Premises by Tenant;
(iii) Except as expressly permitted under this Lease, any attempted conveyance, assignment, mortgage or subletting of this Lease;
(iv) The making by Tenant of any general assignment or general arrangement for the benefit of creditors; 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 related to bankruptcy (unless, in the case of a petition filed against Tenant, the same is dismissed within sixty (60) days); the taking of any action at the
corporate or partnership level by Tenant to authorize any of
the foregoing actions on behalf of Tenant; 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 unless possession is restored to Tenant
within thirty (30) days; or the attachment, execution or other
judicial seizure of substantially all of Tenant's interest in
this Lease, where such seizure is not discharged within thirty
(30) days;
(v) The failure by Tenant to observe or perform any material covenant, condition, or provision in this Lease not already specifically mentioned in this Section 23(a), where such failure continues for thirty (30) days after written notice from Landlord notifying Tenant of such failure; provided, however, that if the nature of Tenant's failure is such that more than thirty (30) days are reasonably required for its cure, then Tenant shall not be in default if it begins such cure within the thirty (30) day period described above and thereafter diligently prosecutes such cure to completion.
(b) In the event of any default by Tenant, Landlord may promptly or at any lime thereafter, upon notice and demand and without limiting Landlord in the exercise of any other right or remedy which Landlord may have by reason of such default or breech:
(i) Terminate Tenant's right to possession of the Premises by any lawful means, in which case this Lease shall terminate and Tenant shall immediately surrender possession of the Premises to Landlord. In such event, Landlord shall be entitled to recover from Tenant:
(A) The worth at the time of award of the unpaid rent which had been earned at the time of termination:
(B) 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 the award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided;
(C) 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 the Tenant proves can reasonably be avoided; and
(D) Any other amount necessary to compensate Landlord for all detriment proximately caused by Tenant's failure to perform its obligations under this Lease of 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 advertising), brokerage commissions and fees, costs of putting the Premises in good order, condition and repair, including necessary renovation and alteration or the Premises, reasonable attorneys' fees, court costs, all costs for maintaining the Premises, all costs incurred in the appointment of and performance by a receiver to protect the Premises or Landlord's interest under the Lease, and any other cost.
The "worth at the time of award" of the amounts referred to in subsections (A)
and (B) above shall be computed by allowing interest at the rate of twelve
percent (12%) per annum. The "worth at the time of award" of the amount referred
to in subsection (C) above shall be computed by discounting such amount at one
(1) percentage point above the discount rate of the Federal Reserve Bank of San
Francisco at the time of award; or
(ii) Pursue any other remedy now or hereafter available to Landlord under the laws judicial decisions of the State of California.
(c) Even though Tenant has breached this Lease and abandoned the Premises, at Landlord's option this lease shall continue in effect for so long as Landlord does not terminate Tenant's right to possession, and Landlord may enforce all of its rights and remedies hereunder, including the right of recover rent as it comes due under this Lease, and in such event Landlord will permit Tenant to sublet the Premises or to assign his interest in the Lease, or both, with the consent of Landlord, which consent will not unreasonably be withheld provided the proposed assignee or sublessee is reasonably satisfactory to Landlord as to credit and will occupy the Premises for the same purposes specified herein, and such tenancy is not inconsistent with Landlord's commitments to other tenants in the Building. For purposes of this subsection (c), the following shall not constitute a termination of Tenant's right to possession: (i) acts of maintenance or preservation or efforts to relet the Premises; or (ii) the appointment of a receiver under the initiative of Landlord to protect Landlord's interest under this Lease.
(d) Should Landlord at any time terminate this Lease for any default, breach or failure of Tenant hereunder, then, in addition to any other rights or remedies available to Landlord hereunder or by law provided, Landlord may have and recover from Tenant all damages Landlord may incur by reason of such default, breach or failure including, without limitation, damages for loss of Percentage Rent determined in accordance with Section 23(e) hereof, all costs of recovering possession, all costs and expenses of any re-letting including, without limitation all costs alterations and repairs, dividing and subdividing, of the Premises in connection therewith, all brokerage commissions or other similar expenses of Landlord in connection with such re-letting, or, at the option of Landlord, Landlord may have and recover from Tenant the worth at the time of termination of this Lease, of the excess, if any, of the total Base Rent and Percentage Rent and other charges reserved in this Lease for the remainder of the ten hereof, over the then reasonable rental value of the Premises for the same period, all of which amounts, including attorneys' fees of Landlord, shall be immediately due and payable by Tenant to Landlord.
(e) Should Landlord at any time terminate this Lease for any default, breach or failure of Tenant to satisfy its obligations, hereunder, the rent for each month of the balance of the Lease term hereof shall be deemed to be an amount equal to the average (computed on and adjusted to a monthly basis) of the total Base Rent, Percentage Rent and other charges paid or payable by Tenant to Landlord hereunder annually during the three (3) full Lease Years immediately preceding the date of the default. It is agreed that, if there shall rot have been three (3) full Lease Years immediately preceding the date of default, it would be impracticable or extremely difficult to prove what amount of Percentage Rent hereunder would have been paid or payable hereunder by Tenant throughout the balance of the term of this Lease if Tenant had not defaulted, and no other remedy would be adequate, convenient or feasible. Accordingly, the parties agree that, in such event, the amount of the Percentage Rent which would have been paid or payable by Tenant each
month throughout the term of this Lease if Tenant had not defaulted shall be whichever of the following sums is the greater:
(i) A sum equal to twenty-five percent (25%) of the Base Rent, or
(ii) An amount equal to the average, computed on and adjusted to a monthly basis, of the total Percentage Rentals paid by Tenant from the period from the Commencement Date to the date of default.
(f) Tenant hereby acknowledges that late payment by Tenant to Landlord of rent and other charges due under this Lease will cause Landlord 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 Landlord by the terms of any mortgage or trust deed covering the Premises. Accordingly, if any installment of rent or any charge due from Tenant is not received by Landlord or Landlord's designee within ten (10) days after such amount shall be due, then, at Landlord's election and upon Landlord's demand, Tenant shall pay to Landlord a late charge equal to fifteen percent (15%) of such overdue amount, and in such event the parties hereby agree that such late charge represents a fair and reasonable estimate of the costs Landlord will incur by reason of the late payment by Tenant. No late charge may be imposed more than once for the same late rental payment. Acceptance of such late charge by Landlord shall in no event constitute a waiver of Tenant's default with respect to such overdue amount, nor prevent Landlord from exercising any other rights and remedies granted to it hereunder.
(g) In the event of the occurrence of any of the events specified in
Section 23(a)(iv), if Landlord shall not choose to exercise, or by
law shall not be able to exercise, its rights hereunder to terminate
this Lease upon the occurrence of such events, then, in addition to
any other rights of Landlord hereunder or by law, neither Tenant, as
debtor-in- possession, nor any trustee or other person (hereinafter
collectively called the "Assuming Tenant") shall be entitled to
assume this Lease unless, on or before the date of such assumption,
the Assuming Tenant cures or provides adequate assurance that the
latter will promptly cure any existing default under this Lease and
will promptly compensate Landlord for any pecuniary loss (including,
without limitation, attorneys' fees and disbursements) resulting
from such default, and provides adequate assurance of future
performance under this Lease, it being covenanted and agreed by the
parties that, for such purposes, any cure or compensation shall be
effected by the immediate correction or bonding of any non-monetary
default; and "adequate assurance" of such cure or compensation shall
be effected by the establishment of an escrow fund for the amount at
issue or by bonding, it being covenanted and agreed by Landlord and
Tenant and the foregoing provision has a material part of the
consideration for this Lease.
(h) All covenants and agreements to be performed by Tenant under any of the terms of the Lease shall be at its sole cost and expense and, except as otherwise specifically provided herein, without any abatement of rent. If Tenant shall fail to pay any sum of money, other than 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 thirty (30) days after notice thereof by Landlord, Landlord may, but shall not be obligated so to do, and without waiving any rights of Landlord or releasing Tenant from any obligations of Tenant hereunder, make such payment or perform such other ad at Tenant's cost. All sums so paid by Landlord and all such necessary incidental costs together with interest
thereon from the date of such payment by Landlord in connection with the performance of any such payment by Landlord in connection with the performance of any such act by Landlord shall be considered rent hereunder. Except as otherwise in this Lease expressly provided, such rent shall be payable to Landlord on demand, or at the option I Landlord, in such installments as Landlord may elect and may be added to any other rent then due or thereafter becoming due under this Lease, and Landlord shall have (in addition to any other right or remedy of Landlord) the same rights and remedies in the event of the nonpayment thereof by Tenant as in the case of default by Tenant in the payment of any other rent due hereunder.
24. DEFAULT BY LANDLORD
(a) Landlord shall not be in default unless Landlord fails to perform obligations required of Landlord within a reasonable time, but in no event later than thirty (30) days after written notice by Tenant to Landlord specifying wherein Landlord has failed to perform such obligation: provided, however, that if the nature of Landlord's obligation is such that more than thirty (30) days are required for performance then Landlord shall not be in default in Landlord commences performance within such thirty (30) day period and thereafter diligently prosecutes the same to completion, in no event shall Tenant have the right to terminate this Lease as a result of Landlord's default, and Tenant's remedies shall be limited to damages.
(b) Should Landlord fail to observe or perform any of the covenants or conditions contained in the Lease, Tenant shall give written notice to all beneficiaries of deeds of trust recorded against the real property of which the Premises are a part, setting forth the nature of Landlord's default. Such lenders shall have a reasonable period of time to cure the default and perform any act which may be necessary to prevent the forfeiture of the rights of Landlord under this Lease and a termination of this Lease as if the payments and acts were performed by Landlord instead of by the lenders. If the lenders cannot reasonably lake the action required to cure Landlord's default without foreclosing Landlord's interest and being in possession of the Building, the time within which the default must be cured to avoid a termination of forfeiture of the Lease shall be extended to include the period of time required for such lenders to obtain possession and to effect a cure with due diligence if such lender gives Tenant a written agreement to cure the default. In the absence of title lenders' express written consent, such an agreement by the lenders shall not be considered an assumption by the lenders of Landlord's other obligations under the Lease and Landlord shall remain solely liable for the performance of all terms, covenants and conditions of the Lease both prior and subsequent to the lenders' exercise of any right to cure or waiver of a breach or default under the r7ote, deed of trust, or any other instrument given as security.
25. RECONSTRUCTION
(a) If, at any time after the execution of this Lease, the Premises, or any portion thereof, should be damaged or destroyed by any casualty insured under any fire and extended coverage insurance policy or policies, the following provisions shall govern the rights and obligations of Landlord and Tenant:
(i) If such damage or destruction occurs during the last two (2) years of the term of this Lease and is to the extent of twenty-five percent (25%) or more of the then current actual cash value of the improvements so damaged (whether or not
Tenant elects to pay for such repair or restoration), either party may elect to terminate this Lease by giving at least fifteen (15) days written notice of its said election to the other patty, such notice to be given within thirty (30) days after the date of such damage or destruction. If neither party shall so elect to terminate this Lease, the parties shall repair, reconstruct or restore the Premises in accordance with the provisions of subparagraph (iii), below.
(ii) Irrespective of the extent of such damage or destruction, if the proceeds received or to be received by Landlord by reason of such damage or destruction under any such fire and extended coverage insurance policy or policies fire and extended coverage insurance policy or policies required on the part of the Landlord to be maintained hereunder are, in the judgment of Landlord, inadequate to repair, construct or restore the shell and structural portions of the Premises to the condition in which the shell and structural portions of the Premises were immediately prior to such damage or destruction (unless Tenant elects to reimburse Landlord for such deficiency), Landlord may elect to terminate this Lease by giving at least fifteen (15) days written notice of its said election to Tenant, such notice to be given within thirty (30) days after Landlord ascertains that such proceeds are inadequate for that purpose. If Landlord shall not so elect to terminate this Lease, then Landlord shall repair, reconstruct or restore the shell and structural portions of the Premises in accordance with the provisions of subparagraph (iii), below The repair and restoration of items not provided at Landlord's expense shall be the obligation of Tenant. Tenant understands that Landlord will not carry insurance of any kind of Tenant's interior, nonstructural improvements, storefront, furniture, furnishings, fixtures, equipment or other personal property, and that Landlord shall not be obligated to repair any damage thereto or replace the same.
(b) If at any time after the execution of this Lease the improvements on the Premises or any portion thereof should be damaged or destroyed by any casualty not required on the part of the Landlord to be insured against hereunder, and the cost of repair exceeds one month's Base Rent, then Landlord may, but shall have no obligations to, elect and repair, reconstruct or restore the Premises after any such damage or destruction thereto by giving at least fifteen (15) day; written notice of its said election to Tenant. such notice to be given within thirty (30) days after the date of such damage or destruction if Landlord elects to repair, reconstruct or restore the Premises after such damage or destruction thereto, or if the cost of repair is less than one month's Base Rent, or if Tenant shall, within fifteen (15) days after the date of the casualty, deliver written notice to Landlord that Tenant agrees to pay in advance all funds necessary for the repair of the damaged improvements this Lease shall continue in full force and effect (except as otherwise herein provided) and Landlord shall promptly commence and with due diligence complete the repair, reconstruction or restoration of the Premises so far as practicable to the condition to which the Premises were immediately prior to such damage or destruction. If Landlord fails to make such election, then this Lease shall be deemed terminated as of the date of such damage or destruction, and all amounts paid or payable by Tenant to Landlord shall, where applicable, be prorated between Landlord and Tenant.
(c) In the event Landlord elects or is required hereunder to repair, reconstruct, or restore the shell and structural portions of the Premises after any damage of destruction thereto, Tenant shall, at its own expense, as soon as reasonably practicable replace or fully repair, reconstruct or restore its interior leasehold improvements, exterior signs, storefront,
merchandise and Tenant's Property Landlord's obligation under this
Section 25 shall, however, in no event exceed the scope of the work
that was done by Landlord in the original construction and
improvement of the Premises, nor shall Landlord be required to
expend sums therefor in excess of such damage or destruction. Tenant
shall have no interest in or claim to any portion of the proceeds of
any insurance maintained by Landlord hereunder.
(d) Tenant agrees at all times after any damage to or destruction of the improvements on the Premises, or any portion thereof, to continue the operation of its business therein to the extent practicable from the standpoint of good business, and in the event Landlord is required or elects to make any repairs, reconstruction or restoration of any damage or destruction to the Premises under any of the provisions of the Section 25, Tenant shall not be entitled to any damages by reason of inconvenience or loss sustained by Tenant as a result thereof. Unless the damage or destruction is caused by the negligence of Tenant, or ifs employees or agents, during the period commencing with the date of any such damage or destruction which Landlord is required or elects hereunder to repair, reconstruct or restore, and ending with the completion of such repairs, reconstruction or restoration, or through the date of termination of this Lease, as the case may be, the Base Rent shall be proportionately abated in an amount equal to the proportion thereof which the number of square feet of gross floor area in the Premises rendered untenantable thereby bears to the total number of square feet of gross floor area in the Premises immediately prior to such damage or destruction. The full amount of said Base Rent and all other charges shall again become payable immediately upon the completion of such work of repair, reconstruction or restoration. Except as expressly hereinabove any rental or other charge payable on the part of Tenant to Landlord hereunder, or in the method of computing, accounting for or paying the same.
(e) Notwithstanding any destruction or damage to the Premises or the Shopping Center, 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 Section 25. Notwithstanding anything to the contrary contained in this Section 25, should Landlord be delayed or prevented from repairing or restoring said damaged Premises for 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, the Landlord and the Tenant shall each have the right to terminate this Lease, effective upon thirty (30) days poor written notice, so long as said damaged Premises shall still have not substantially been repaired or restored.
(f) Notwithstanding anything provided herein to the contrary, if the Shopping Center or any part thereof (not necessarily including the Premises) is damaged or destroyed by casualty (insured or uninsured) to the extent that the cost of restoring the damaged portions exceeds fifteen percent (15%) of the replacement cost of all "Landlord Improvements" comprising the Shopping Center, Landlord may elect to terminate this Lease by giving at least fifteen (15) days notice of its said election to Tenant, such notice to be given within thirty (30) days after the date of such damage or destruction. For the purposes hereof, "Landlord improvements" shall mean any and all improvements comprising the Shopping Center, other than interior, nonstructural improvements furnished by tenants of the Shopping Center.
(g) In the event this Lease is terminated under any of the provisions of this Article 25, such termination shall become effective at the time and in accordance with the respective
provisions herein contained for the termination of this Lease; provided, however, that all tenants and other charged on the part of Tenant to be paid hereunder shall be prorated and paid either as of the date of such damage or destruction, or as of the date Tenant ceases doing business in, upon or from the Premises, whichever last occurs
(h) Tenant hereby waives the provisions of Section 1932(s) and Section 1933(4) of the California Civil code or any other law which may hereafter be in force during the term of this Lease which authorizes the termination of the Lease upon the partial or complete destruction of the Premises.
26. EMINENT DOMAIN
If more that twenty-five percent (25%) of the Premises shall be taken or appropriated by any public or quasi-public authority under the power of eminent domain, either party hereto shall have the right, at its option, within sixty (60) days after said taking, to terminate this Lease upon thirty (30) days written notice. If more than twenty-five percent (25%) of the Premises are taken and neither party elects to terminate as herein provided, or if less than twenty-five percent (25%) of the Premises are taken, the Lease shall continue but the Base Rent thereafter to be paid shall be equitably reduced. If more than fifteen percent (15%) of the Shopping Center, the common and parking areas, or the building of which the Premises are a part may be so taken or appropriated, Landlord shall within sixty (60) days of said taking have the right, at its option, to terminate this Lease upon written notice to Tenant. In the event of any taking or appropriation whatsoever, Landlord shall be entitled to any and all awards and/or settlements which may be given (except for any separately stated award for Tenant's personal property, goodwill or moving expenses), and Tenant shall have no claim against Landlord for the value of any unexpired term of this Lease
27. SIGNS
Tenant shall not affix or maintain any signs upon the Premises or the building in which the Premises are located, except in accordance with the sign criteria established by Landlord. Tenant shall erect one sign on the front of the Premises, not later than the date Tenant opens for business, in accordance with the sign criteria promulgated by Landlord Furthermore, all signs to be installed by Tenant shall conform to the style of the other signs in the Shopping Center, and shall conform to applicable local government codes.
28. DISPLAYS
The Tenant may not display or sell merchandise or allow grocery carts or other similar devices within the control of Tenant to be stored or to remain outside the defined exterior walls and permanent doorways of the Premises. Tenant further agrees not to install any exterior lighting, amplifiers or similar devices, or use in or about the Premises any advertising medium which may be heard or seen outside the Premises, such as flashing lights, searchlights, loudspeakers, phonographs or radio broadcasts.
29. AUCTIONS
Tenant shall not conduct or permit to be conducted any sale by auction in, upon or from the Premises whether said auction be voluntary, involuntary, pursuant to any assignment for the payment of creditor; or pursuant to any bankruptcy or other insolvency proceeding.
30. SURRENDER OF PREMISES
Upon the expiration or sooner termination of the term of this Lease (and whenever reference is made to the term of this Lease or the term hereof, such reference shall include any extension or renewal of the term of this Lease), if Tenant has fully and faithfully performed all of the terms, conditions and covenants of this Lease to be performed by Tenant, but not otherwise, Tenant shall, at its sole costs and expense, remove from the Premises its interior and exterior signs and all of its moveable trade fixtures and equipment, Tenant's Property, and such other items Tenant has installed or placed on the Premises, and Tenant shall repair all damage thereto resulting from such removal. Tenant shall thereupon surrender the Premises, broom clean, in good condition and repair, reasonable wear and tear (including damage thereto which Tenant is not required to repair) excepted. If Tenant has not fully and faithfully performed all of the terms, conditions and covenants of this Lease to be performed by Tenant, Tenant shall nevertheless remove Tenant's Property from the Premises in the manner aforesaid within fifteen (15) days after receipt of written direction to do so from Landlord. Notwithstanding the foregoing, Tenant shall remove the floor coverings in the Premises only if directed to do so by Landlord in which event it shall do so, and shall repair all damage to the Premises resulting from such removal. In the event Tenant shall fail to remove any of Tenant's Property or floor coverings as provided herein, Landlord may, but is not obligated to, at Tenant's expense and with interest, remove all Tenant's Property and floor coverings not so removed and repair all damage to the Premises resulting from such removal and may, but is not obligated to, at Tenant's expense, store the same in any public or private warehouse, and Landlord shall have no liability to Tenant for any loss or damage to Tenant's Property or floor coverings caused by or resulting from such removal or otherwise.
31. RELOCATION
During the term, Landlord shall have the right, at any time, upon at least
thirty (30) days prior written notice to Tenant, to relocate the Tenant to
other space in the Shopping Center, which new space shall have at least
ninety-five percent (95%) of the square footage set forth in Section 1(g)
hereof. Notwithstanding the foregoing, should the term have less than one
(1) year remaining as of the effective date of relocation set forth in
said notice, and should Landlord and Tenant be unable after a good faith
effort to reach agreement on the terms of a renewal or extension of this
Lease, Tenant shall have the option to terminate this Lease as of the
effective date of relocation, provided such notice is given in writing to
Landlord within thirty (30) days after the date of Landlord's notice.
Absent such termination, Tenant shall, not later than the date specified
in Landlord's notice, vacate and surrender the Premises, relocate to the
new premises, and prepare the new premises for occupancy in substantially
the same manner and condition of the Premises. Upon the request of
Landlord, Tenant shall execute a supplemental agreement specifying the
location of the new premises and the new Base Rent to be payable pursuant
to this Lease. The "Base Rent, "property tax costs and "operating costs"
payable under this Lease shall be the same on a "per square foot" basis,
except that they shall be adjusted based upon the differential, if any, in
the size of the old Premises and the new premises. Landlord shall
reimburse Tenant for the actual expenses of moving Tenant's trade fixtures
and merchandise from the Premises to the new space, upon written receipt
of written verification of payment by Tenant. Except as hereinafter
provided, all other expenses incurred by Tenant as a consequence of such
move shall be absorbed by Tenant. Within thirty (30) days after the date
Tenant shall have completed renovation of the new premises and opened for
business. Landlord shall reimburse Tenant for the unamortized cost of the
leasehold improvements made by Tenant to the old Premises, based upon cost
or costs as set forth in an affidavit to be submitted to Landlord,
assuming a useful life of 10 years, and accelerated amortization at the
rate of 150%, and subject to Landlord's inspection of Tenant's books as
set forth below. In the event Tenant shall have amortized the cost of said
improvements
(or any parts or components thereof) for tax purposes based on either a shorter useful life or at a more accelerated rate, then such life or rate shall prevail. Landlord shall not be required to reimburse Tenant for any fixtures, inventory or items of personal property which pursuant to the terms of this Lease may be removed by Tenant al the end of the term. Landlord shall have the right to inspect such of Tenant's books and records as Landlord may reasonably request in order to verify the amount which Landlord is required to pay pursuant to this Section.
32. sale of the Premises by LAndlorD; ECULPATION
In the event of any sale of the Premises by Landlord, Landlord shall be and is hereby entirely freed and relieved of all liability under any and all of its covenants and obligations contained in or derived from this Lease arising out of any ad, occurrence or omission occurring after the consummation of such sale; and the purchaser, at such sale or subsequent sale of the Premises shall be deemed, without any further agreement between the parties and any such purchaser, to have assumed and agreed to carry out any and all of the covenants and obligations of the Landlord under this Lease, and Tenant agrees to attorn to Land lord's successor(s)-in-interest. Tenant agrees to look solely to Landlord's interest in the Premises and the real property of which it is a part (or the proceeds thereof) for the satisfaction of any remedy of Tenant, for the collection of a judgment (or other judicial process) requiring the payment of money by Landlord in the event of default by Landlord hereunder, and no other property or assets of Landlord shall be subject to levy, execution, or other enforcement procedure for the satisfaction of Tenant's remedies under or with respect to this Lease, the relationship of Landlord and Tenant hereunder, or Tenant's use or occupancy of the Premises.
33. SUBORDINATION
Tenant agrees upon request of Landlord to subordinate this Lease and its rights hereunder to the lien of any mortgage, deed of trust or other encumbrance, together with any conditions, renewals, extensions, or replacements thereof, now or hereafter placed, charged or enforced against the Landlord's interest in this Lease and the leasehold estate thereby created, the Premises or the land, building or improvements included therein or of which the Premises are a part, and deliver (but without the cost to Tenant) at any time and from time to time upon demand by Landlord such documents as may be required to effectuate such subordination, and in the event that Tenant shall fail, neglect or refuse to execute and deliver any such document within ten (10) days after receipt of written notice so to do and the receipt by Tenant of the document to be executed by it, Tenant hereby appoints Landlord, its successors and assigns, the attorney-in-fact of Tenant irrevocably to execute and deliver any and all such documents for and on behalf of Tenant, provided, however, that Tenant shall not be required to effectuate such subordination, nor shall Landlord be authorized to effect such subordination on behalf of Tenant, unless the mortgagee or beneficiary named in such mortgage, deed of trust of other encumbrance shall first agree in writing, for the benefit of Tenant, that so long as Tenant is not in default under any of the provisions, covenants or conditions of this Lease on the part of Tenant to be kept and performed, that Tenant's quiet enjoyment of the Premises will not be disturbed or interfered with, by any trustee's sale or by any action or proceeding to foreclose said mortgage, deed of trust or other encumbrance. In the event that the mortgage or beneficiary of any such mortgage or deed of trust elects to have this Lease a prior lien to its mortgage or deed of trust, then and in such event upon such mortgage or beneficiary giving written notice to Tenant to that effect, this Lease shall be deemed prior in lien to such mortgage or deed of trust whether this Lease is dated or recorded prior or subsequent to the date of recordation of such mortgage or deed of trust.
34. TENANT'S OFFSET STATEMENTS
Tenant shall at any time and from time to time, upon rot less than ten
(10) days prior written notice from Landlord, execute, acknowledge and
deliver to Landlord a statement in writing, certifying to such matters as
Landlord may reasonably request, including (a) that this Lease is
unmodified and is in full force and effect (or, if modified, stating the
nature of such modification and certifying that this Lease as so modified
is in full force and effect), and the date to which the rental and other
charges are paid in advance, if any, and (b) acknowledging that there are
not, to Tenant's knowledge, any uncured defaults on the part or the
Landlord hereunder, or specifying such defaults if any are claimed, and
(c) setting forth the date of commencement of rents and expiration of the
term hereof. Any such statement may be relied upon a prospective purchaser
or encumbrancer of all or any portion of the Shopping Center of which the
Premises are a part.
35. AUTHORITY OF TENANT
If Tenant is a corporation or a partnership, each individual executing this Lease on behalf of said corporation or partnership represents and warrants that he is duly authorized to execute and deliver this Lease on behalf of said corporation or partnership, as the case may be, in accordance with the bylaws of Said corporation or of the articles of said partnership, and that this Lease is binding upon said corporation or partnership
36. BROKERS
Tenant warrants that it has had no dealings with any real estate broker or agents in connection with the negotiation of this Lease and it knows of no other real estate broker or agent who is entitled to a commission in connection with this Lease.
37. Merchants' Association and marketing fund
(a) At Landlord's option, Tenant shall throughout the term or any extension of renewal of the term of this Lease become a member of, participate fully in, and remain in good standing in the Merchants' Association formed for tenants occupying Premises in the Shopping Center, and shall abide by the bylaws, ruled and regulations of such Association. The objectives of such Association shall be to encourage its members to deal fairly and courteously with their customers, to sell their merchandise or services at fair prices, to follow ethical business practices, to assist the business of the Center by sales promotions and advertising, and in particular to help the interests of the members of said Association. So long as such a Merchants' Association is in existence. Tenant agrees to Pay, as additional rent, dues to the Merchants' Association in the amount specified in Article 1(k) hereof. The terms hereof shall be deemed to be covenants for the benefit of And enforceable by said Merchants' Association, as well as by said Landlord.
(b) At Landlord's option, Landlord may create a Marketing Fund, and may require Tenant to participate in the Marketing Fund in lieu of Tenant's participating in the Merchants' Association. The Marketing Fund shall be operated by a professional marketing director Hired by the Landlord for the purpose of assisting the business of the Shopping Center. Should Landlord form a Marketing Fund, Tenant agrees to pay as additional rent, dues to The Marketing Fund in the amount specified in Article 1(k) hereof, in lieu of Tenant's contribution to the Merchants' Association.
38. GENERAL PROVISIONS
(i) Plats and Riders Clauses, plats, riders, exhibits, and addendum, if any, affixed to this Lease are a part hereof.
(ii) Waiver The waver by Landlord 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 herein contained. The subsequent acceptance of rent hereunder by Landlord shall not be deemed to be a waiver of any preceding default by Tenant of any term, covenant or condition of this Lease, other than the failure of the Tenant to pay the particular rental so accepted, regardless of Landlord's knowledge of such preceding default at the time of the acceptance of such rent.
(iii) Joint Obligation If there is more than one Tenant, the obligations hereunder imposed shall be joint and several.
(iv) Marginal Headings The marginal headings and article titles to the articles of this Lease are not a part of the Lease and shall have no effect upon the construction or interpretation of any part hereof.
(v) Time Time is of the essence of this Lease and each and all of its provisions in which performance is a factor.
(vi) Successors and Assigns The covenants and conditions herein contained, subject to the provisions as to assignment, apply to and bind the heirs, successors, executors, administrators and assigns of the parties hereto.
(vii) Quiet Possession Upon Tenant paying the rent reserved hereunder and observing and performing all of the covenants, conditions and provisions on Tenant's part to he observed and performed hereunder. Tenant shall have quiet possession of the Premises for the entire term hereof, subject to all the provisions of this Lease.
(viii) Interest Any amount due from Tenant to Landlord hereunder which is not paid when due shall bear interest at the highest rate then allowed under the usury laws of the State of California from the date due until paid.
(ix) Prior Agreements 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 agreements or understanding pertaining to any such matters 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.
This Lease shall not be effective or binding on any party until fully executed by both parties hereto.
(x) Inability to Perform This lease and the obligations of the Tenant hereunder shall not be affected or impaired because the Landlord is unable to fulfill any of its obligations hereunder or is delayed in doing so, if such inability or delay is caused by reason of strike, labor troubles, acts of God, or any other cause beyond the reasonable control of the Landlord.
(xi) Partial Invalidity Any provision of this Lease which shall prove to be invalid, void, or illegal shall in no way affect, impair or invalidate any other provision hereof and such other provisions shall remain in full force and effect.
(xii) Cumulative Remedies No remedy or election hereunder shall be deemed exclusive but shall, whenever possible, be cumulative with all other remedies at law or in equity.
(xiii) Choice of Law This Lease shall be governed by the laws of the State of California.
(xiv) Attorneys' Fees In the event of any action or proceeding brought by either party against the other under this Lease, the prevailing party shall be entitled to recover for the fees of its attorneys in such action or proceeding, including costs of appeal, if any, in such amount as the court may adjudge reasonable as attorneys' fees. In addition, should it be necessary for Landlord to employ legal counsel to enforce any of the provisions herein contained, Tenant agrees to reimburse Landlord for all attorneys' fees and expenses incurred even if suit is not instituted.
(xv) Accord and Satisfaction Payment by Tenant or receipt by Landlord of a lessor amount than the rent or other charges herein stipulated shall be deemed to be on account of the earliest due stipulated rent or other charged, and no endorsement or statement on any check or any letter accompanying any check payment as rent or other charges shall be deemed an accord and satisfaction, and Landlord shall accept such check or payment without prejudice to Landlord's right to recover the balance of such rent or other charges or pursue any other remedy in this Lease to the Tenant.
(xvi) Financial Statements At any time during the term of this Lease, Tenant shall, upon ten (10) days prior written notice from Landlord, provide Landlord with a current financial statement and financial statements of the two (2) years prior to the current financial statement year. Such statements shall be prepared in accordance with generally accepted accounting principals and, if such is the normal practice of Tenant shall be audited by an independent certified public accountant.
(xvii) Notices All notices and demands which may or are to be required or permitted to be given by either party on the other hereunder shall be in writing. All notices and
demands by the Landlord to the Tenant shall be sent by certified mail, postage prepaid, addressed to the Tenant of the Premises, and to the address set forth in Section 1(l) hereof, or to such other place as Tenant may from time to time designate in a written notice to Tenant.
To Landlord at: Eureka Square Shopping Center Property Management Office 80 Eureka Square, Suite 120 Pacifica, CA 94044
(xviii) Covenants by Tenant This Lease is subject to the terms, covenants and conditions herein set forth, and The 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 on its part to be kept and performed.
IN WITNESS WHEREOF, the parties hereto have entered into this Agreement as of the day and year first above written.
("Landlord")
By: /s/ Joseph A. Sorci
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Joseph A. Sorci
By: /s/ Eldiva Sorci
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Eldiva Sorci
|
("Tenant")
By: /s/ Michael R. Wyman
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Michael R. Wyman
|
ADDENDUM
5-YEAR OPTION
RENT FOR THE FIRST 5-YEAR OPTION ON THE LEASE DATED 24 APRIL 1995 BETWEEN FIRST NATIONAL BANK OF DALY CITY AND EUREKA SQUARE SHOPPING CENTER LP. FOR SPACE 210 EUREKA SQUARE IS AS FOLLOWS:
YR 1 JANUARY 1, 2000 TO DECEMBER 31, 2000 $3900 YR 2 JANUARY 1, 2001 TO DECEMBER 31, 2001 $4000 YR 3 JANUARY 1, 2002 TO DECEMBER 31, 2002 $4100 YR 4 JANUARY 1, 2003 TO DECEMBER 31, 2003 $4200 YR 5 JANUARY 1, 2004 TO DECEMBER 31, 2004 $4300 |
COMMON AREA MAINTENANCE WILL BE COLLECTED IN ADDITION TO THE RENT EACH MONTH. CAM COSTS ARE $240 PER MONTH FOR THE YEAR 2000. THIS WILL BE ADJUSTED AT THE BEGINNING OF EACH ONE-YEAR PERIOD.
("TENANT") ("LANDLORD")
/s/ M.R. WYMAN /s/ ANNETTE SANCHEZ ------------------------------ ------------------------------ M.R. Wyman Eureka Square Shopping Center L.P. ------------------------------ ------------------------------ Title Title /s/ PAUL B. HOGAN ------------------------------ ------------------------------ Paul Hogan Date |
EXHIBIT 10.2
LEASE AGREEMENT
THIS LEASE, made and entered into this 8TH day of June, 1999, between FIFTY ASSOCIATES, a Massachusetts Corporation, and DEMARTINI/LINDA MAR, LLC, a California Limited Liability Company, hereinafter collectively referred to as "Landlord" and First National Bank of Northern California, a National Banking Association, hereinafter collectively referred to as "Tenant".
WITNESSETH:
1. PREMISES. Landlord hereby leases to Tenant, and Tenant hereby hires from Landlord, the premises hereinafter called the "Premises" in the LINDA MAR SHOPPING CENTER, hereinafter called the "Shopping Center", in the City of Pacifica, County of San Mateo, State of California, consisting of the area known as 1450 Linda Mar Shopping Center, as shown on Exhibit "A" attached hereto, containing approximately 4,100 square feet of building area. Exhibit "A" is for the purpose of identification only. This Lease provides no rights for Tenant to any part of the Shopping Center, other than the Premises. Landlord may change the shape, size, location, number and extent of the improvements or tenancies now existing or presently contemplated and eliminate or add any improvements to any portion of the Shopping Center.
2. TERM. Commencement of Term, Commencement of Rent, and Termination Date of Term.
a. Commencement of Term: This Lease shall be binding when executed and the term of this Lease shall commence on September 1, 1999.
b. Commencement of Rent: Tenant's obligation for the payment of rent and additional rent shall commence upon September 1, 1999, hereinafter called "Rent Commencement Date".
c. Termination of Term: This Lease shall terminate on the last day of the one hundred and twentieth (120th) complete calendar month following the Rent Commencement Date.
3. CONDITION OF PREMISES. Tenant agrees and acknowledges that it has completely inspected the Premises and accepts the same in the condition in which they are now. Tenant currently occupies the Premises under an existing Lease and shall continue in possession when the term of this new Lease commences.
4. RENT.
A. Fixed Rent. For each and every calendar month during the term of this Lease, commencing on the Rent Commencement Date, without offset or deduction, Tenant shall pay to Landlord, on or before the first day of each month, without notice or demand, fixed rent as follows:
MONTHS:
1-12 Eight Thousand Two Hundred Dollars and No Cents ($8,200.00)
13-120 During the following monthly periods:
13-24, 25-36, 37-48, 49-60, 61-72, 73-84, 85-96, 97-108, and 109-120
the Fixed Rent payable for the Premises shall be subject to adjustment in proportion to the changes in the Consumer Price Index. Such adjustment shall be made by multiplying the Fixed Rent due during the
previous period by a fraction, the numerator of which is the value of the Consumer Price Index for the calendar month two (2) months preceding the calendar month for which such adjustment is to be made or in the case of bi-monthly publication, three (3) months preceding. and the denominator of which is the value of such index for the calendar month one (1) year prior to the index month used for the numerator. The Consumer Price Index to be used is the Consumer price index, San Francisco-Oakland-San Jose, All Urban Consumers-All Items, published monthly or bi-monthly by the United States Department of Labor, in which 1982-84 equals 100. In no event shall the Fixed Rent due in any year be less than the Fixed Rent due during the prior year.
If the obligation to pay rent shall commence upon a day other than the first day of the calendar month, then the Tenant shall pay, upon such commencement date, a pro-rata portion of the base rent on a per diem basis (based upon a 30-day month) with respect to the fractional part of the calendar month preceding the commencement of the first full calendar month of the obligation to pay rent hereunder.
B. Past Due Payments. Every installment of rent and every other payment due hereunder from Tenant to Landlord which shall not be paid within ten (10) days after the same shall have become due and payable shall bear interest at the rate of one percent (l%) per month, or at such other maximum rate as shall be allowed by California law, or any successor or substitute law, from the date that the same shall have become due and payable, until paid. It is also agreed that since collection of any amount past due will impose an administrative cost on Landlord, in addition to any fees of collection agents or attorneys, or other out-of-pocket costs, Tenant will pay to Landlord, a sum to reimburse Landlord for such administrative cost equal to five cents ($.05) for every dollar past due as set forth in each billing or other written demand rendered or made by Landlord, computed on the total amount of each such billing or demand, but not to exceed one such billing or demand per month. Said interest and administrative cost shall be considered as additional rent.
5. USE. Tenant agrees to use the Premises solely for the operation of a Federally licensed retail banking financial institution. Tenant shall keep the Premises open for business at all times when a majority of Tenant's branches, as such may exist from time to time, in the nine San Francisco bay area counties are open for business. Tenant currently conducts business in only San Mateo and San Francisco Counties. Tenant will not use, or permit or suffer the use of the Premises for any other business or purpose. Tenant shall conduct its business on the Premises under the trade name of:
"First National Bank of Northern California"
Tenant shall employ sufficient personnel for the efficient service of its customers and, generally, employ its reasonable judgment and efforts to operate the business on the Premises. Tenant shall keep all signs and lighting on the Premises turned on at all times when a majority of the stores in the Shopping Center are open for business. Tenant shall keep its Premises clean, and free of rubbish. Tenant agrees to abide by rules established by Landlord for general cleanliness of, and collection of rubbish in, the Shopping Center. Tenant shall not commit or suffer to be committed any waste upon the Premises or any nuisance or other act or thing which may disturb the quite enjoyment of any person within five hundred (500) feet of the boundary of the Shopping Center. Tenant shall make no changes in Tenant's use of the Premises, as permitted herein, without Landlord's prior written consent. Landlord's consent shall be at their sole discretion.
Tenant shall not perform any act or carry on any practice which may injure any of the improvements in the Shopping Center or be a nuisance or menace to other tenants of the Shopping Center. Tenant shall neither own nor operate any underground storage tank or keep any Hazardous Materials, as defined below (including without limitation, vehicle fuel, petroleum, or other petroleum product). No auction, fire or bankruptcy sales may be conducted on the Premises without the prior written consent of Landlord. Tenant
will not, without the prior written consent of Landlord, install any exterior decorations or painting or install any radio or television antennae, loud-speakers, sound amplifiers, or any device on the roof or exterior walls of any of the buildings in the Shopping Center. No loud-speakers, radios or other means of broadcasting to be heard outside the Premises shall be used by Tenant. Tenant shall not use any false or misleading advertising, or engage in any unfair trade practices injurious to other tenants of the Shopping Center. Tenant shall not install or permit the installation of any coin or token operated vending, amusement, or gambling machines in or about the Premises without the prior written consent of Landlord.
Tenant shall, at Tenant's sole cost and expense, comply with all statutes, ordinances and requirements of all county, state and federal authorities now in force, or which may hereafter be in force, pertaining to the Premises. Without limiting the generality of the foregoing, Tenant shall keep and maintain the Premises, including without limitation, the groundwater on or under the Premises, in compliance with, and shall not cause or permit the same to be in violation of, any federal, state or local laws, ordinances or regulations, now or hereafter in effect relating to environmental conditions, industrial hygiene or Hazardous Materials, as hereinafter defined, on, under, or about the Premises, including without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. Section 9601,et seq., the Resource Conservation and Recovery Act, 42 U.S.C., 6901, et seq., the Hazardous Materials Transportation Act, 49 U.S.C., Section 6901, et seq., The Clean Water Act, 33 U.S.C., Section 1251, et seq., The Clean Air Act, 42 U.S.C., Section 7401, et seq., The Toxic Substances Control Act, 15 U.S.C., Sections 300f through 300j, and any similar state and local laws and ordinances and the regulations now or hereafter adopted, published, and/or promulgated pursuant thereto (collectively, the "Hazardous Materials Laws").
Tenant shall not use, generate, manufacture, treat, handle, refine, produce, process, store, discharge, release, dispose of or allow to exist on., under or about the Premises, any flammable explosives, radioactive materials, asbestos, organic compounds known as polychlorinated biphenyls, chemicals known to cause cancer or reproductive toxicity, pollutants, contaminants, hazardous wastes, hazardous or toxic substances or related materials, vehicle fuel, petroleum or other related petroleum products including without limitation, any substances defined as or included in the definition of "Hazardous Substances", "Hazardous Waste", "Hazardous Materials", or "Toxic Substances" under the Hazardous Materials Law (collectively, "Hazardous Materials") except in compliance with all applicable laws.
If after receiving written notice from a county, state or federal authority or Landlord of infractions of or failure to meet any requirement of such authority, Tenant refuses or neglects to comply with the requirement, Landlord may, at its sole discretion, enter the Premises and make such repairs or take any other action necessary, to achieve such compliance on Tenants behalf, and Tenant hereby waives any right to claim or bring an action at law against Landlord based upon any injury or loss resulting from Landlord's action hereunder. Tenant further agrees to pay Landlord's costs for making such repairs or taking any other action, any penalties, liabilities, response costs (including all out of pocket litigation costs and reasonable attorney's fees), plus a surcharge of ten percent (10%) for administrative costs and overhead, as additional rent, upon receipt of a bill therefor from Landlord. Tenant's obligations to comply with all statutes, ordinances and requirements of all county, state and federal authorities to the extent applicable and to pay Landlord's costs, any penalties, and response costs plus a surcharge, as set forth herein, shall survive the termination of this Lease or the transfer of any real property contained in the Shopping Center.
Tenant shall immediately notify Landlord in writing of (i) any and all enforcement, clean-up, removal, mitigation or other governmental or regulatory actions instituted, contemplated or threatened pursuant to any Hazardous Materials Laws affecting the Premises; (ii) all claims made or threatened by any third party against Tenant, the Premises, or the Shopping Center relating to damage, contribution, cost
recovery, compensation, loss or injury resulting from any Hazardous Materials (the matters set forth in clauses (i) and (ii) above are hereinafter referred to as "Hazardous Materials Claims") and (iii) Tenant's discovery of any occurrences or conditions on the Premises, Shopping Center or any real property adjoining or in the vicinity of the Premises which could subject Tenant, the Premises, or the Shopping Center to any restrictions on ownership, occupancy, transferability or use of the Premises of Shopping Center under any Hazardous Materials Laws.
6. UTILITY CHARGES. All charges, including assessments or environmental quality charges, for electricity, water, gas, telephone, sewer service, garbage and any other utility services used by Tenant in connection with its occupancy or use of the Premises, together with connection and service charges and all costs of operating and maintaining the equipment therefor, shall be paid by Tenant.
7. REPAIRS. During the entire term of this Lease, Tenant shall at its sole cost and expense keep, maintain, repair and replace the Premises and every part thereof, including but not limited to, all plate glass and other glazing, show windows and entrance doors, signs, fixtures, equipment and appurtenances thereof (including lighting and plumbing fixtures, and any air conditioning system) and floor covering, in good and sanitary order, condition and repair fit for occupancy (including reasonably periodic painting and termite and other pest treatment of the interior), and cause the Premises to conform to the requirements of any governmental authority by reason of the use to which Tenant may put the Premises, and engage a responsible maintenance contractor to keep all mechanical equipment operating at a maximum efficiency at all times; upon the expiration or any earlier termination of this Lease, Tenant shall deliver the Premises to Landlord in good and sanitary order, condition and repair, reasonable wear excepted, and put all such equipment in as good working order and condition as the same was in at the start of the Lease or any subsequent installation date, reasonable wear excepted. Without limiting the generality of the foregoing, Tenant shall at its sole cost and expense perform each and every obligation set forth in this Lease. Tenant shall not make any changes, or additions to the Premises without the prior written consent of the Landlord, which consent shall not be unreasonably withheld. All additions made by Tenant shall become part of the Premises and shall be the property of Landlord. Tenant shall not permit any lien to stand against the Premises for labor or material furnished or claim to have been furnished to Tenant or at its discretion or sufferance. If any such lien shall be filed against the Premises, Tenant shall cause the same to be discharged within the ten (10) days after actual notice of such filing, by payment, deposit or bond. Landlord shall have the right to post and keep posted on the Premises any notices which Landlord may deem to be proper for protection from liens. The right to approve and control all signs and advertising devices on or visible from the exterior of the Premises is reserved by Landlord.
8. INSURANCE AND CASUALTY. All risk of damage to property in or about the Premises from any cause and to whomever belonging, and all risk of injury to or death of a person or persons in or about the Premises from any cause is hereby assumed by Tenant. Tenant agrees to waive and to indemnify and defend Landlord and agent of Landlord against all claims arising out of any such damage, injury or death and hold Landlord harmless from, any liability and expense whatsoever, including but not limited to, reasonable attorney's fees, arising out of such damage, injury or death. Tenant shall during the term of this Lease maintain in force a policy of insurance, issued by insurance companies with general policyholder's rating of not less than A and a financing rating of IX as rated in the most current available "Best Insurance Reports" and qualified to do business in California, insuring Tenant against liability for the injury to, or death of a person or persons and damage to property occurring in or about the Premises. The liability of the insurer under such policy or policies shall not be less than Two Million Dollars ($2,000,000.00) for combined single limits each occurrence, bodily injury and property damage liability. Such policy shall name Landlord as defined herein above, Louis W. Demartini & Associates, Inc., a California Corporation, Gabrielsen & Company, property managers, and agent of Landlord. if any, as additionally insured parties. The adequacy of the coverage afforded by said public liability insurance and property damage liability insurance shall be subject to review by the Landlord from time to time, and if it
appears in such a review that a prudent businessman in California operating a similar business to that operated by Tenant on the Premises, would increase the limits of his public liability insurance and/or property damage liability insurance, Tenant shall, to that extent, forthwith increase such limits. All public liability and property damage policies shall contain a provision that the Landlord, although named as an insured, shall nevertheless be entitled to recovery under said policies for any loss occasioned to it, its agents and employees, by reason of the negligence of the Tenant. As often as any such policy shall expire or terminate, renewal or additional policies shall be procured and maintained by Tenant in like manner and to like extent. All policies of insurance delivered to Landlord must contain a provision that the company writing said policy will give to Landlord no less than thirty (30) days notice in writing in advance of any cancellation or lapse or the effective date of any reduction in the amounts or change in coverage of such insurance. All public liability, property damage and other causality policies shall be written as primary policies. not contributing with and not in excess of coverage which Landlord may carry. Tenant shall also maintain in force during the term of this Lease all insurance required under the California Labor Code, Sections 3200 through 6208, and under any other similar law, ordinance or regulation which may be necessary to protect Landlord against any liability under such law, ordinance or regulation arising from occupancy of Tenant on the Premises.
Landlord shall keep that part of the Center in which Tenant's Premises are located insured against loss or damage by fire, with an all risk coverage endorsement, in an amount equal to at least eighty per cent (80%) of the insurable value thereof, plus such other insurance (e.g., against vandalism, malicious mischief, loss of rents, sprinkler leakage, etc.) as Landlord may deem appropriate. Tenant shall pay to Landlord as additional rent hereunder its proportionate share of the fire, all risk coverage and other insurance coverage in which the Premises are located within ten (10) days after Tenant's receipt of Landlord's invoice therefor. Such portion shall be determined as follows: Tenant shall pay that portion as shall be equal to the product obtained by multiplying the total amount due by a fraction, the numerator of which shall be the gross floor area of the Premises and the denominator, the gross floor area of all stores in the Shopping Center so insured. All insurance policies insuring property of Tenant located on the Premises shall, if obtainable without additional expense, provide that the insurer shall not acquire by subrogation any right of recovery which Tenant has expressly waived prior to the occurrence of the loss. Without limiting the generality of the foregoing above, Tenant hereby waives any right of recovery against Landlord for any loss or damage to such property of Tenant. Any insurance policy carried by Landlord insuring the Premises against loss or damage by fire or other hazards shall, if obtainable without additional expense to Landlord, provide that the insurer shall not acquire by subrogation any right of recovery which Landlord has expressly waived prior to the occurrence of the loss. Landlord hereby waives any right of recovery against Tenant to the extent of actual recovery under any such policy for any such loss or damage to the Premises.
Should the Premises be partially destroyed during the term of this Lease from any insured cause, Landlord shall forthwith repair the same if such repairs can be made, under applicable laws and regulations, within sixty (60) days after the date of such partial destruction, but such partial destruction shall in no way affect this Lease except that, (unless the damage is the result of the negligence or misconduct of Tenant or Tenant's employees, licensees, concessionaires, sublessee, assignees, agents or invitees of Tenant), Tenant shall be entitled to a proportionate reduction of the fixed rent until such repairs have been substantially completed. If such repairs cannot, for any reason, be made within a sixty (60) day period, Landlord may nevertheless, at its option make the same within a reasonable time, with this Lease to continue in full force and effect with the fixed rent to be proportionately reduced as above. If Landlord does not elect to make repairs which cannot be made within said sixty (60) day period, or if the required repairs cannot be made under applicable laws and regulations, this Lease may be terminated by either party by giving written notice to the other. Any provisions given herein notwithstanding, if the building of which the Premises are a part is destroyed to the extent of at least thirty three per cent (33%) of the replacement cost, Landlord may elect to terminate this Lease, whether the Premises are injured or
not; further, Landlord shall not be required to make any repairs hereunder during the last one (1) year of the term of this Lease, and that if during that one (1) year Landlord decides not to make repairs, this Lease shall terminate, and Landlord shall not be obligated to restore, repair or replace any property of Tenant.
9. TAXES. All property taxes levied against the Premises during the term of this Lease will be paid by Tenant. For each tax year during the term hereof, Tenant shall pay Landlord as additional rent hereunder the total dollar amount of real property taxes levied with respect to the Premises. If the Premises are assessed with other property as part of one or more parcels, Tenant shall pay that portion of the tax which is reasonably allocated to the Premises. "Real Property Taxes" are defined as: real property taxes and general and special assessments; sewer and water bonds; charges levied or assessed by any governmental agency with respect to the Premises; taxes of every kind and nature whatsoever (other than state and federal income taxes measured by the net income of Landlord from all sources) levied or assessed entirely or partly in lieu of existing or additional real property ad valorem taxes on the land and building in which the Premises are situated or upon or measured by rental payable hereunder; and the cost of contesting by appropriate proceedings the amount or validity of any such tax, assessment or charge. The additional rent payable in respect of each tax year shall be paid to Landlord within fifteen (15) days from receipt of billing by Tenant. Before delinquency, Tenant shall pay all taxes and similar charges levied upon or assessed against equipment, furniture, fixtures, inventory, and other property of Tenant situated on the Premises during the term of this Lease, and upon demand shall reimburse Landlord for any and all taxes payable by Landlord attributable to the cost of value of equipment, furniture, fixtures and other property of Tenant located on the Premises or by the cost of value of any leasehold improvements made in or to the Premises by or for Tenant, other than work by Landlord, if any, regardless of whether title to such improvements shall be in Landlord or Tenant.
10. COMMON AREAS. The common areas in the Shopping Center shall be for the non-
exclusive use of customers of Tenant in common with the customers of other
tenants of the Shopping Center and others and Landlord shall keep such areas
landscaped, paved, marked, lighted and cleaned, Tenant agrees to pay to
Landlord, as additional rental, upon demand, a proportionate share of all costs
and expenses of operating. managing and maintaining the Shopping Center,
determined by multiplying such costs and expenses by a fraction, the numerator
of which is the total building area of the Premises as per paragraph one (1)
above, and the denominator of which is the total occupied building area of all
tenants, as such may exist from time to time in the Shopping Center. The cast of
common area maintenance and operation of the Shopping Center shall mean, without
limitation, the total cost and expense incurred by Landlord in operating and
maintaining the Shopping Center, specifically including without limitation:
taxes levied with respect to the common areas; the cost of water and
electricity; gardening and landscaping; the cost of public liability, property
damage, and all risk casualty and hazard insurance (including standard fire and
extended coverage with a loss of rents endorsement), providing such coverage and
in such amounts of coverage as Landlords shall determine or otherwise be
required to carry; re-striping, repairing and otherwise resurfacing parking
areas; maintenance and repairs of all exterior walls (excluding storefronts),
all roofs (except if such maintenance is required by a structural fault),
directional signs and markers, lighting fixtures (including equipment and bulb
replacement) water, electrical, sewer and storm drain and other utility lines;
refuse and garbage removal; janitorial services and supplies; all billing,
bookkeeping, auditing, management and legal expenses; the cost of supplies and
small tools to accomplish all maintenance services; the reasonable cost of
services contracted out, such as but not limited to security, fire sprinkler
system monitoring and maintenance, direction or controlling of parking, grounds
keeping, tree trimming or termite or other pest treatment service. governmental
and other inspection fees; plus ten per cent (10Sb) of the cost of the foregoing
items to cover Landlord's administrative costs and overhead in connection with
the operation. management and maintenance of the Shopping Center, excluding only
capital expenditures for the original construction, the cost of remedying
structural faults of the buildings, principal and interest on mortgage
indebtedness. In addition, Landlord may establish and maintain a
reserve fund for major expenses such as repaving of parking areas or re- roofing of building. The term "taxes levied with respect to the common areas" as used in the foregoing sentence shall mean real property taxes, general and special assessments and charges levied or assessed by any governmental agency with respect to the common areas, personal property taxes on personal property of Landlord used in the operation of the Shopping Center, taxes of every kind and nature whatsoever, other than state and federal income taxes measured by the net income of Landlord from all sources, levied or assesses wholly or partly in lieu of existing or additional real or personal property ad valorem taxes on the common areas of such personal property, and parking surcharge or similar imposition now or hereafter imposed by any governmental agency, and the cost of contesting by appropriate proceedings the amount of validity of any of the aforementioned taxes, assessments or charges. The share for Tenant of such costs and expenses of maintaining and operating such common areas may be estimated by Landlord, subject to adjustment in future billing to Tenant. After the end of each year, Landlord shall compute the costs and expenses of maintaining the areas referred to in this paragraph during the preceding year. If the share for Tenant of such costs and expenses is greater or less than the sum previously billed to and paid by Tenant during said year, the difference shall be paid by or credited to Tenant. Tenant shall insure that no employees, licensees, suppliers, concessionaires, sublessees, or assignees of Tenant park their vehicles in the Shopping Center except in areas designated by Landlord for employee parking. The right is reserved by Landlord to promulgate reasonable regulations for use of the common areas including, but not limited to, the making of reasonable charges for the use thereof, as Landlord may solely deem to be in the best interest of the Shopping Center (See Exhibit "E" for current rules and regulations). Tenant agrees to be bound by such regulations. By definition, "common areas" shall mean all parts and facilities in the Shopping Center designated from time to time by Landlord for the common use and benefit of tenants of the Shopping Center and their customers, employees, and invitees. The common areas shall include to the extent the same designated, but are not limited to, parking areas, mail areas, roof areas, and landscaped areas. At all times, exclusive control of the common areas shall be by Landlord and at any time, Landlord may make any changes in the best interest of the Shopping Center.
11. MODIFICATION OF COMMON AREAS. Tenant shall make no changes in the common areas and shall make no changes to the Premises which may cause or result in the need to make any changes in the common areas, or result in the Shopping Center, including its on-site and off- site improvements, not being in full compliance with all municipal, county, state, federal, or other governmental ordinances, codes, statutes, regulations or other regulatory requirements, (referred to in this Lease as "Governmental Requirements"). Landlord makes no warranty that Tenant's intended use and occupancy of the Premises shall be in compliance with or permitted by applicable Governmental Requirements, and Tenant shall be responsible and pay for the cost of complying with all Governmental Requirements which arise from Tenant's use and occupancy of the premises.
12. CONDEMNATION. In the event that all or any part of the Premises shall be condemned and taken by eminent domain or be conveyed to any entity having such power under threat of exercise thereof, this Lease shall automatically terminate as to the portion of the Premises which is condemned. The entire compensation payable in respect of such condemnation shall be paid to Landlord, and Tenant hereby irrevocably assigns to Landlord any right to such compensation to which Tenant may become entitled, except as to any part thereof attributable to the taking of property of Tenant. If a part of the Premises is condemned and the portion of the Premises remaining will not be reasonably suitable for the operation of Tenant, this Lease may be terminated by either Landlord or Tenant at any time within forty-five (45) days after the date of possession by condemnor. If this Lease is not so terminated or if the remaining part of the Premises will be reasonably suitable for the operation of Tenant, this Lease shall continue in full force and effect as to such remaining part; provided, however, that the fixed rent shall be reduced in the same proportion that the floor area included in the Premises is reduced by such condemnation.
13. DEFAULT. In the event that at any time Tenant shall fail to perform or comply with any covenant or condition required under this Lease, Landlord may, without prior notice or demand cure such breach for the account and at the expense of Tenant, with or without exercising any other right available. If, because of such breach, Landlord incurs any expense whatsoever, all such costs and damages incurred by Landlord, together with interest thereon at the rate of twelve percent (12%) per annum shall be immediately due and payable by Tenant to Landlord. Tenant shall be in default under this Lease if Tenant fails or omits to pay any rent or other sum payable hereunder for a period of ten (10) days after the same is due; or if Tenant shall make a transfer contrary to the provisions of this Lease or shall abandon or vacate the Premises; or fails to observe, keep or perform any of the other terms, covenants, agreements or conditions contained herein after thirty (30) days written notice of such failure by Landlord, or if Tenant shall file a petition in any court having for its purpose the adjudication of Tenant as bankrupt or insolvent, or the reorganization or liquidation of its assets; or any such petition shall be filed against Tenant and the proceedings not be dismissed within sixty (60) days after the filing of the same; or if a receiver shall be appointed with authority to take possession of the premises; or a writ or process of attachment or execution shall be levied on the leasehold estate created hereby and not be released or satisfied within sixty (60) days thereafter; or if Tenant shall make a transfer in fraud of creditors or an assignment of its property for the benefit of its creditors In the event of any default, Landlord may, at its option, terminate this Lease by giving written notice to Tenant. Landlord may then or at anytime thereafter, re-enter the Premises and remove therefrom all persons and property and repossess the Premises, without prejudice to any other remedies that Landlord may have. Landlord shall also have the rights provided by the California Code of Civil Procedure. Sections 1161 & 1161.1. In the event that the Landlord elects to terminate this Lease, Tenant shall be liable for the payments and rents unpaid prior to the termination and for all expenses and other damages, both direct and consequential, suffered by Landlord as a result of the early termination of this Lease, irrespective of whether they were incurred before or after terminating the Lease. If Tenant breaches this Lease and abandons the Premises and Landlord does not elect to terminate this Lease for such breach and abandonment, this Lease shall continue in full force and effect and Landlord shall have all of the rights provided by California Code of Civil Procedure Section 1161. Landlord may also relet Premises as attorney-in-fact for Tenant for such term, which may extend beyond the term of this Lease, and upon such other terms and conditions as Landlord may deem appropriate without any obligation to Tenant. Landlord may do all things reasonably necessary for such reletting, including repair and renovation, and Tenant shall reimburse Landlord on demand for all costs incurred by Landlord in connection therewith. The foregoing, notwithstanding, Landlord may at any time elect to terminate this Lease for any previous breach or default hereunder by Tenant which remains uncured or for any subsequent breach or default. In order to establish the rent due under a termination of this Lease, or if Tenant abandons the Premises, the monthly rent shall be the sum of the fixed rent plus common area, insurance, and tax charges during the twelve (12) preceding months.
14. ASSIGNMENT AND SUBLETTING.
A. Restriction on Assignment and Subletting. Tenant shall not assign this Lease, or any interest herein, and shall not sublet the Premises or any part thereof, or any right or privilege appurtenant thereto, or suffer any other person (the agents and servants of Tenant excepted) to occupy or use the said Premises, or any portion thereof, without the prior written consent of Landlord; and a consent to one assignment, subletting, occupation or use by any other person, shall 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 Landlord, terminate this Lease. Tenant shall pay the reasonable charges of Landlord and/or Landlord's agent incurred in reviewing each requested assignment but not less than fifty percent (50%) of rental for one (1) month. This Lease shall not, nor shall any, interest herein, be assignable, as to the interest of Tenant, by operation of law, without the written consent of Landlord. Landlord may, in addition to any other reason supportive of refusal to
consent, refuse to consent to an assignment, subletting, occupation or use because of an honest belief reasonably formed:
1) That the proposed assignee is financially unable to perform in accordance with the terms of this Lease; or
2) That the use to be made of the Premises by the proposed assignee, subtenant or other person is not within the scope of use as specified in paragraph five (5); or
3) That the proposed subletting, occupation or use would increase the possibility of default by Tenant hereunder.
B. Change of Control. If Tenant is a corporation, partnership or other entity, the consent of Landlord shall be required prior to any change in the operating control of Tenant's business, whether as a result of any sale of assets, transfer of stack or other ownership interest, merger, consolidation, spinoff or otherwise, and whether by operation of law or any other disposition. Any such change in the present operating control of Tenant's business shall be deemed to be an assignment, and Landlord shall have the right, at its option, to terminate this Lease in the event of any such assignment without Landlord's consent. Landlord may, in addition to any other reason supportive or refusal to consent, refuse to consent to any such change in the operating control of Tenant's business because of an honest belief reasonably formed that the proposed transfer would increase the possibility of default by Tenant hereunder.
C. No Release of Tenant. If this Lease is assigned, Landlord may collect rent from the assignee and apply the net amount collected to the rent herein reserved, but no such assignment shall be construed as a release of Tenant from the further performance by Tenant of covenants on the part of tenant herein contained. Notwithstanding any assignment or sublease, Tenant shall remain fully liable on this Lease and shall not be released from performing any of its terms, covenants and conditions of this Lease.
15. RELOCATION. At any time during the term of this Lease, Landlord may relocate Tenant to other similar space within the Shopping Center upon giving Tenant ninety (90) days' advance written notice of said intention. Said space shall be approximately e9ual in size, dimensions, and interior finish to that demised under this Lease. Landlord shall, at its sole cost and expense, bear the cost of said relocation including, but not limited to, the cost of moving and relocating of Tenant's personal inventory and trade fixtures.
16. SUCCESSORS. All rights and duties of Tenant and Landlord hereunder shall inure to the benefit of and be binding upon their respective heirs, executors, administrators, successors in interest and assigns, subject, however, to the provisions of paragraph 14 and 21 hereof.
17. PROMOTION FUND. Landlord may, but shall not be obligated to establish a promotion fund for the promotion or benefit of the Shopping Center (the "Promotion Fund"). Tenant shall pay monthly to Landlord, as additional rent during the Lease term in which there is a Promotion Fund, for the purpose of creation and maintenance of the Promotion Fund, an amount equal to $50.00 per month (the "Promotion Fund Charge"). The Promotion Fund Charge shall be payable monthly in advance during each lease year. The Promotion Fund Charge shall be subject to annual adjustment on each anniversary of the date of establishment of the Promotion Fund in proportion to changes in the Consumer Price index. Such adjustment shall be made by multiplying the Promotion Fund Charge by a fraction, the numerator of which is the value of the Consumer Price index for the calendar month three (3) months preceding the calendar month for which such adjustment is to be made, and the denominator of which is the value of
such index for the calendar month one (1) year prior to the index month used for the numerator. The Consumer Price Index to be used is the Consumer Price Index, United States City Average, All Urban Consumer-All Items, published monthly by the United States Department of Labor, in which 1967 equals 1DO. Tenant agrees to advertise Tenant's business in the Premises in advertising designated or sponsored by Landlord and/or the Linda Mar Merchant's Association. Tenant agrees to purchase during each lease year newspaper advertising space of not less than the following, on the basis of the number of square feet of floor area in the Premises: (i) Fifteen Hundred (1,500) square feet or less of floor area-one-fourth (1/4) page; (ii) Between fifteen and one (1,501) square feet and three thousand (3,000) square feet of floor area-one-half (1/2) page; and (iii) three thousand and one (3,001) square feet or more of floor area one full page. Upon request therefor by Landlord and/o the Promotion Fund Director, Tenant shall promptly submit its copy for such advertising. In the vent Tenant fails or refuses to submit its copy for such advertising in a timely manner, then and in addition to any other remedies resulting from such default by Tenant, Landlord or the Linda Mar Merchant's Association may do so, and any amounts expended by Landlord or the Linda Mar Merchant's Association in connection therewith shall be deemed to be additional rent and shall be paid by Tenant to Landlord on demand. All advertising pursuant to this Section shall, at the option of Landlord and/or the Linda Mar Merchant's Association, refer to the location of the Premises and shall include the name of the Shopping Center.
18. NON-COMPETITION. Tenant agrees not to operate, directly or indirectly, in any way, any business similar to that conducted on the Premises during the term of this Lease which is located or to be located within a radius of one and one half (1.5) miles from the Premises. The parties hereto agree that in the event of a breach of this paragraph, as sole remedy of Landlord for such breach, the Tenant's annual Fixed Rent shall be increased by Two Dollars ($2.00) per square foot effective the date of Tenant's opening of any business in violation of the foregoing. Notwithstanding the above, Tenant shall be permitted to operate one automated teller machine in the Rockaway Beach area.
19. ENTRY RIGHT. Landlord or its duly authorized agents may enter the Premises at all reasonable times during business hours or at any time in the event of an emergency. Tenant hereby waives any claim for damages for any loss occasioned by any such entry.
20. NOTICES. All notices and rentals required hereunder shall be sent by first class mail addressed as follows: If to the Landlord, to GABRIELSEN & COMPANY, 711 GRAND AVENUE, SUITE 250, SAN RAFAEL, CA 94901, and Fifty Associates, 50 Congress Street, Suite 543, Boston, MA 02109, and if to Tenant, at the Premises or at such other addresses as may be from time to time as specified by notice.
21. MERGER. Should this Lease be surrendered by Tenant or mutually canceled, this shall not cause a merger, but shall, at the option of the Landlord, operate as an assignment to Landlord of any or all such subtenancies.
22. SALE. If Landlord shall sell or transfer or terminate the interest of Landlord in the Premises at any time hereafter, regardless of cause, Landlord shall be released from any further Liability to Tenant except any claim that has accrued on or before the date of such transfer or termination.
23. SURRENDER. At the expiration of this Lease term, or any earlier termination, Tenant shall immediately surrender and deliver up the Premises to Landlord and remove from the Premises all personal property of Tenant and repair all damage to the Premises resulting from such removal. Any holding over by Tenant after the expiration of the term shall not constitute a renewal or extension hereof or give Tenant any rights to the Premises. It is understood and agreed that Landlord will not renew or extend the term of this Lease, unless Landlord hereafter agrees in writing to do so.
24. NON-WAIVER. No failure by Landlord to demand performance by Tenant of any covenant of this Lease, shall be construed as a waiver thereof, nor shall any practice between the parties hereto be construed to waive the right of Landlord to enforce performance by Tenant of all terms of this Lease. No acceptance of rent with knowledge of any breach shall be deemed a waiver thereof.
25. SECURITY DEPOSIT. This Paragraph is intentionally deleted.
26. NO PARTNERSHIP. By entering into this Lease, there is no intention to create a partnership and the parties state specifically that they are not partners.
27. SEVERABILITY CLAUSE. If any term or provision of this Lease or the applicability thereof to any person or circumstance shall, to any extent be invalid or unenforceable, the remainder of this Lease or the application of such term or provisions to persons other to those as to which it is held invalid or unenforceable shall not be affected thereby, and each term and provision of this Lease shall be valid and be enforced to the fullest extent permitted by law, and this Lease shall remain in full force and effect.
28. TIME. Time is of the essence of this agreement and of each and every provision hereof.
29. SUBORDINATION. Tenant shall, when requested by Landlord, promptly execute and deliver such written instruments as shall be deemed necessary to subordinate this Lease to all mortgages or other instruments in the nature of a mortgage, provided that the holder of such mortgage or other secured party agrees in writing with Tenant, in the event of a foreclosure or similar action, to recognize Tenant, so long as Tenant is not in default hereunder, pursuant to the terms of this Lease.
30. ESTOPPEL CERTIFICATES AND FINANCIAL STATEMENTS. Tenant shall, upon not less than fifteen (15) days prior written request by Landlord, execute, acknowledge and deliver to Landlord a statement in writing, certifying that this Lease is unmodified and in full force and effect; that Tenant has no defenses, offsets or counterclaims against its obligations to pay the fixed annual rent and additional rent or to perform its other covenants under this Lease; that there are no uncured defaults of Landlord or Tenant under this Lease (or, if there have been any modifications, that this Lease is in full force and effect as modified and stating the modifications and, if there are any defenses, offsets, counterclaims or defaults, setting them forth in reasonable detail); and the dates to which the annual fixed rent, additional rent and other charges have been paid. Any such statement delivered pursuant to this paragraph 30, may be relied upon by any prospective purchaser or mortgagee of the Premises or any prospective assignee of any such mortgagee. At any time during the term of this lease, Tenant shall, upon fifteen (15) days prior written notice from Landlord, provide Landlord with a current financial statement and financial statements of the two (2) years prior to the current financial statement year. Such statement shall be prepared in accordance with generally accepted accounting principles and, if such is the normal practice of Tenant, shall be audited by an independent certified public accountant.
31. ATTORNEYS' FEES. In case Landlord shall, without fault on its part, be made a party to any litigation commenced by or against Tenant arising out of Tenants occupancy of the Premises or any act of Tenant concerning the Premises of this Lease, or in case suit shall be brought for recovery of possession of said Premises, for the recovery of rent or any other amount due under the provisions of this Lease, or because of the breach of any other covenant herein contained, on the part of Tenant to be kept or performed, and a breach shall be established, Tenant shall pay to Landlord all expenses incurred in connection therewith, including a reasonable attorneys' fee. In case suit shall be brought by Tenant against Landlord for breach of any of Landlord's covenants herein contained and a breach shall be established, Landlord shall pay to Tenant all expenses incurred therefor, including a reasonable attorney's fee.
32. LICENSES. Immediately after execution of this Lease, Tenant at its sole cost and expense shall petition all appropriate governmental agencies for the purpose of obtaining all variances, appropriate licenses, and zoning, rezoning, use, building and other permits ("variances, licenses, and permits") necessary for Tenant's intended use of the Premises. Tenant at its sole cost and expense shall comply with all conditions and requirements imposed by such governmental agencies as conditions for the granting of such variances, licenses, and permits. Tenant shall notify Landlord in writing when all the necessary variances, licenses, and permits have been obtained. If Tenant is unable to obtain such variances, licenses, and permits, or any of them, within sixty (60) days after the date of this Lease, or if Tenant does not fully comply with the terms and conditions imposed upon such variances, licenses, and permits, or any of them, within thirty (30) days after obtaining such variances, licenses, and permits, then Landlord may at any time prior to Tenant's obtaining all such variances, licenses, and permits and full compliance with the terms and conditions thereof, elect to terminate this Lease by giving written notice of termination to the other party.
33. REMODELING. Tenant to remodel and complete the Premises at its sole cost and expense.
(a) Prior to construction, Tenant shall furnish to Landlord plans and specifications for all work to be performed, which plans and specifications shall be attached hereto as Exhibit D and made a part of this Lease.
(b) All such plans and specifications shall fully comply with all governmental requirements of the City of Pacifica, County of San Mateo, State of California, and shall not result in Landlord incurring any cost or expense in connection with the Shopping Center, the common areas, or the Premises.
(c) Tenant shall not commence the work to be performed or installation of any tenant improvements without Landlord's prior written approval of Tenant's final plans and specifications.
(d) SIGNS: Tenant shall erect a sign over Tenant's storefront sixty (60) days from Tenant's opening for business in the Premises, securely attached to and parallel to said walls. Such sign shall be no larger than permitted by Landlord and shall be subject to Landlord's prior written approval, which approval Landlord shall not be unreasonably withheld. Tenant shall not erect any signs other than customary trade signs identifying its business. Tenant shall, at Tenant's sole cost and expense, obtain all approvals required by the local governing authority(ies) prior to installing any such sign and shall maintain said signs in good working order at all times consistent with a first class shopping center. Should Landlord or the City of Pacifica give Tenant notice that repairs to said signs are needed. then Tenant shall perform such repairs within ten (10) days after receipt of such notice. If Tenant fails to repair or maintain its signs within the period imposed herein, Landlord may perform the repairs and Tenant shall reimburse Landlord for any and all expenses incurred by Landlord to complete said repairs.
Tenant shall remove all exterior Tenant signs prior to the termination of this Lease and shall repair any damage caused by such removal, unless Landlord provides a written notice to Tenant prior to the termination of this Lease instructing Tenant to leave all or a part of the exterior Tenant signs in place.
In the event Landlord elects to remodel the exterior of the Shopping Center and/or revise the general sign program of the Shopping Center after September I, 1999, and such event requires Tenant to remodel or replace the above referenced Tenant sign, Tenant and Landlord shall each bear half the expenses in connection with the removal of Tenant's signs and the reinstallation of same, or if required the cost of a new sign and the installation of same, in accordance with the revised general sign program of the Shopping Center.
34. COMMENCEMENT OF REMODELING. Tenant shall commence construction of Tenant's improvements not later than thirty (30) days after receiving all said variances, licenses, and permits, including governmental approval of Tenant's signage. Landlord has the right to approve Tenant's signs; however, such approval shall not be unreasonably withheld.
35. CONSTRUCTION AND ALTERATION OF IMPROVEMENTS TO THE SHOPPING CENTER. Landlord hereby reserves the right at any time to make alterations or additions to and to build additional stories on the building in which the Premises are situated. Landlord also reserves the right to construct other buildings or improvements in the Shopping Center, including parking and other common area, from time to time, and to make alterations thereof or additions thereto and to build additional stories on any such building or buildings and to build adjoining the same and to construct double-deck or elevated parking facilities.
Tenant agrees that it shall not in any way prevent, interfere with or obstruct the undertaking of any changes to the Shopping Center, as provided herein above, and hereby waives any claim for damages which may result therefrom, including but not limited to, any damages from noise, dirt, dust, vibration and restrictions of light, air and access during any demolition of existing improvements or erection of new improvements or thereafter from any other cause whatsoever. It is expressly understood and agreed that any diminution of light, air or access by any structure which may be erected adjacent or attached to or above the building in which the Premises are located shall not affect this Lease or impose any liability on Landlord or be construed as a constructive eviction or grounds for reduction or abatement of rent or additional rent.
36. AIR CONDITIONING. Tenant agrees at its sole cost and expense to maintain its heating, ventilating, and air conditioning (HVAC) unit and to have said unit serviced under a maintenance contract by a licensed HVAC contractor. Copies of said maintenance contract will be sent to Landlord upon receipt by Tenant.
37. LANDLORD'S RIGHT TO RECAPTURE. Landlord shall have the right to recapture up to One Thousand Three Hundred Sixty Seven (1,367) square feet of the southern end of the Premises as marked in orange on Exhibit "A" (the "Recapture Area") and construct an adjacent expansion area. Landlord may give notice in writing to Tenant of its election to recapture said Recapture Area at any time. ninety (90) days after the date of Landlord's notice (the "Recapture Effective Date") Tenant shall immediately surrender and deliver up the Recapture Area to Landlord. Failure of Tenant to deliver the Recapture Area to Landlord within the above ninety (90) days shall be a material default of this Lease.
If Landlord recaptures the Recapture Area, Landlord shall reimburse Tenant for the unamortized cost, amortized on a straight line basis over the ten year term of the Lease, of the new metal roof facade that was installed over the Recapture Area in accordance with Exhibit B, "Work by Tenant in Premises".
The square footage of the Premises as defined in paragraph 1 of this Lease shall be amended as of the Recapture Effective Date to be the "Remaining Premises" which shall be computed as follows: the original square footage (4,100 s.f.) minus the Recapture Area square footage equals the new square footage "Remaining Premises". Commencing on the Recapture Effective Date, the monthly Fixed Rent defined in Paragraph 4 of this Lease shall be re-computed by multiplying the Fixed Rent defined in Paragraph 4 by a fraction the numerator of which is the Remaining Premises and the denominator of which is 4,100, with the resultant being the Fixed Rent from the Recapture Effective Date which shall be adjusted annually in accordance with Paragraph 4.
38. OBLIGATIONS. The obligations of each of the parties signing hereinafter under this Lease shall be joint and several.
39. GOVERNING LAW. This Lease shall be interpreted and construed under the laws of the State in which the Premises are situated.
40. COMPLETE AGREEMENT. No oral agreements exist between Landlord and Tenant affecting this Lease, and this Lease supersedes and cancels any previous understandings. There are no representations between Landlord and Tenant other than those contained in this Lease, and Tenant has not relied on representations not set forth in this Lease. Time is of the essence hereof. If any of the provisions contained in this Lease shall for any reason be held to be invalid, illegal or unenforceable in any way, such invalidity, or unenforceability shall not affect any other provisions of this Lease, and this Lease shall be construed as if such said provisions had not been contained herein.
IN WITNESS WHEREOF, The parties have executed this Lease in duplicate as of the day and year first written above.
TENANT: LANDLORD:
FIRST NATIONAL BANK FIFTY ASSOCIATES,
OF NORTHERN CALIFORNIA, a Massachusetts Corporation
a National Banking Association
/s/ Paul B. Hogan /s/ George M. Lovejoy, Jr.
----------------------------------- --------------------------------------
George M. Lovejoy, Jr.,
President
----------------------------------- --------------------------------------
Date Date
/s/ James B. Ramsey DEMARTINI/LINDA MAR, LLC,
----------------------------------- a California Limited Liability Company
BY: LOUIS W. DEMARTINI & ASSOCIATES,
----------------------------------- INC., A Corporation, General Manager
Date
/s/ Louis W. Demartini
--------------------------------------
Louis W. Demartini
President
--------------------------------------
Date
/s/ Stephen W. Demartini
--------------------------------------
Stephen W. Demartini
Vice President
--------------------------------------
|
Date
EXHIBIT "A"
LINDA MAR SHOPPING CENTER
[GRAPHIC OF PREMISES, RECAPTURE AREA, EXPANSION AREA OMITTED]
EXHIBIT "B"
WORK BY LANDLORD
1. Landlord shall install a new flat roof on the Premises in the following manner:
(a) remove all roofing and roof related sheet metal down to wood board decks and haul away.
(b) block all drain openings with rags or paper to prevent debris from dropping onto them.
(c) install fiberboard cant strip in all wall angles prior to roofing.
(d) apply a complete 4-ply built up roof system consisting of 1-ply of 28 pound fiberglass base sheet, nailed, and 3-plies of 12 pound fiberglass ply sheet over area, solid mopped between plies with hot asphalt at a rate of 23 pounds per square 100 square feet.
(e) furnish and install new sheet metal vents, pipe collars, and outlets set in a full bed of industrial roofing cement and sealed with irish flax and hot asphalt.
(f) install metal gravel stop at all roof edges, sealed on top with webbing and hot asphalt.
(g) flood coat entire roof area with 60 pounds per 100 square feet of hot asphalt and embed gravel at a rate of 400 pounds per 100 square feet.
Tenant, at their sole cost and expense, shall lift all mechanical equipment and electrical conduits off the roof to allow for this work.
WORK BY TENANT IN PREMISES
1. Tenant's work is defined as ALL work necessary to complete the construction of the premises in accordance with the approved plans (defined to be such plans and specifications prepared by Tenant and finally approved by Landlord in writing in the manner hereafter provided).
2. Tenant shall install a new blue roof mansard using the same materials as used in the 1998 remodel of the Shopping Center. Said mansard shall be approved by Landlord's architect for design and appearance prior to installation.
3. All Tenant's work shall be strictly in accordance with the requirements of all governing codes and ordinances, all underwriters, Landlord's insurance carrier or rating organization, any standard or general design specification set forth by Landlord, all public utility companies serving the Shopping Center, and Landlord's mortgage lender(s), if any. Tenant shall obtain permits and approvals from all authorities for its work and shall obtain a Certificate of Occupancy at completion. Tenant shall make arrangements for separate metering of all utilities not supplied by Landlord and, at Landlord's option, re-registering meter(s) for utilities supplied by Landlord (or Landlord may make such arrangements on behalf of Tenant) and Tenant shall pay all charges, cost of meters and connection fees for same. All fire protection equipment, required by any governmental entity, shall be the sole responsibility of Tenant.
4. Tenant' s work shall specifically conform to the following general criteria:
a) All tenant signing shall be in conformity with Landlord's standard specifications and criteria to be issued.
b) The premises shall have a Heating, Ventilating and Air Conditioning (HVAC) system adequate to heat and cool the premises so as not to draw off adjacent HVAC unit systems. (All roof-mounted equipment must be placed and installed to Landlord's specifications, including properly waterproofing any roof openings that pierce the built-up roofing surface).
c) Tenant shall have fully operating restrooms.
d) The customer area shall have suitable finished flooring material approved by Landlord's architect.
e) No mezzanine space (for either selling or storage purposes) may be constructed without Landlord's specific approval, In the event of an approval, Landlord shall be entitled to rent for any such mezzanine space in an amount to be agreed upon.
f) Tenant shall not use or install during construction any Hazardous Materials in the premises.
g) Tenant, at its cost, shall be responsible that the Premises and all improvements in or on the Premises and Tenant's use and occupancy of the Premises comply with the requirements of Title III of the Americans with Disabilities Act of 1992 (42 U.S.C. 12181, et seq., The Provisions Governing Public Accommodations and Services operated by Private Entities, and all amendments thereto or statutes substituted, therefor, now hereafter adopted or in effect.
Gabrielsen & Company 711 Grand Avenue, Suite 250 San Rafael. CA 94901 (415) 454-1600 Fax (415) 256-2888
EXHIBIT "E"
LINDA MAR SHOPPING CENTER
EMPLOYEE AND TENANT PARKING RULES AND REGULATIONS
The following rules and regulations are specifically designed for the Linda Mar Shopping Center located at Highway 1 and Linda Mar Boulevard.
1. All tenants and employees of tenants are required to park in the areas specifically designated as "Employee Parking" on the following page.
2 All spaces designated as "Handicapped" may be subject to any and all laws applicable within the City of Pacifica for similarly designated Public Parking. The Pacifica Police may issue citations for violations of these Zones.
3. All other specially designated areas, such as red, yellow, green, or white zones, may be subject to any and all laws applicable within the City of Pacifica for similarly designated Public Parking. The Pacifica Police may issue citations for violations of these zones
4. All areas not designated as "Employee Parking" or as one on the zones indicated in number three (3) above will be considered Public Parking Areas, intended for the use of customers only. Public Parking is limited to three (3) hours. Vehicles exceeding the limit may be removed at the vehicle owner's expense.
5. Tenants or tenant employees parking in the Public Parking Areas are considered to be in default of the Common Area clause of their Lease.
The above rules and regulations may be amended or changed From time to time by Landlord.
94-050 Farrington Highway o Waipahu. Hawaii 96797
(808) 677-6700 o Fax (808) 677-2427
EXHIBIT "E"
LINDA MAR SHOPPING CENTER
[GRAPHIC OF EMPLOYEE PARKING LOT OMITTED]
EXHIBIT 10.3
LEASE
Table of Contents
1. Term
2. Basic Rent
3. Rent increased by Operating Expense increases
4. Use of Premises and Security
5. Prohibited Uses
6. Tenant Improvements
7. Mechanics' Liens
8. Maintenance and Repairs
9. Inspection by Landlord
10. Common Areas of Building
11. Utilities Furnished by Landlord
12. Tenant's Liability Insurance
13. Insurance for Tenant's Personal Property
14. Indemnification
15. Destruction of Leased Space or Building
16. Sale or Condemnation
17. Assignment and Subletting
18. Acts Constituting Breach by Tenant
19. Landlord's Remedies
20. Termination Notice
21. Waiver of Breach
22. Notices
23. Attorneys' Fees
24. Binding on Heirs and Successors
25. Time of Essence
26. Sole and Only Agreement
27. Limitation of Landlord's Liability
Exhibit "A": Building Rules and Regulations Exhibit "B": Leased Space
LEASE
This lease is entered into on August 21, 1996, by and between CALIFORNIA FLOWER MARKET, INC., 640 Brannan Street, San Francisco, California, a California corporation, referred to in this lease as "Landlord," and FIRST NATIONAL BANK, 975 El Camino Real, South San Francisco, California, a California corporation, referred to in this lease as "Tenant."
Subject to the terms and conditions set forth in this lease, Landlord hereby leases to Tenant that certain space outlined in red on the plat map attached and marked "Exhibit B" on the first floor of the building located at 640 Brannan Street, San Francisco, California, ("the Building"). The leased space outlined in red on the attached marked Exhibit "8" is referred to in this lease as the "Leased Space".
Term
1. The term of this lease shall commence at 12:01 a.m. on the date the Tenant has received both (I) the approval of the architectural drawings by the San Francisco Planning Department for the Tenant improvements referred to herein below and (ii) the regulatory approval required by the U.S. Comptroller of the Currency (the "Commencement Date"), and shall terminate at 12:01 a.m. on the date five years from the aforesaid Commencement Date.
Tenant shall have the option to extend Lease for two (2) additional terms of five (5) years each by giving Landlord written notice of its intent to exercise any such option six (6) months prior to the expiration of the then current term. The option to extend shall be at an increased rental rate of $2.70 per , rentable square foot, per month for the first option term, and $2.86 per square foot per month for the second term.
Basic Rent
2. Tenant agrees to pay to Landlord as basic rent, to be adjusted as provided in Paragraph 3 of this lease, for the use and occupancy of the Leased Space, the sum of $765 per month payable on the first day of each and every month commencing on the Commencement Date, and continuing through the term of this lease. All rent shall be paid by Tenant at the office of Landlord in the Building or any other place or places that Landlord may from time to time designate by written notice given to Tenant.
Rent Increased by Operating Expense Increases
3. The basic rent specified in Paragraph 2 of this lease for each calendar year subsequent to the calendar year in which this lease is made shall be increased by Tenant's proportionate share of any increase in Operating Expenses incurred by Landlord for that year over the Operating Expenses incurred by Landlord for the calendar year in which this lease is made. The amount of the increase for the preceding calendar year shall be specified in a notice given to Tenant by Landlord on or before March 1 of the succeeding year and shall be payable by Tenant to Landlord at the place where the basic rent is then payable on or before March 31 of the year in which the notice is given. For the purposes of this paragraph:
(a) The term "Operating Expenses" shall mean all expenses incurred by Landlord each calendar year for the administration, operation, and maintenance of the Building, including but not limited to (1) personal property taxes and real property taxes and assessments (including general and special assessments) levied on the Building; (2) the costs of all utilities required, by leases or otherwise, to be furnished by Landlord to the Building; (3) insurance premiums on insurance policies insuring the Building; (4) the costs of janitorial services for the Building; (5) labor and costs incurred in managing the Building and maintaining its elevators, hallways, exterior walls, roof, and other parts, facilities, and appurtenances; and (6) capital improvements to the Building required by governmental authority.
(b) Tenant's proportionate share of any increase in Operating Expenses incurred by Landlord for any calendar year shall be determined by dividing the amount of floor space in the Leased Space by the total amount of rentable floor space in the Building and multiplying the total increase in Operating Expenses for the year by the resulting percentage figure. The total amount of rentable floor space in the Building shall be determined by excluding from the total interior floor space of the Building the area occupied by common hallways, rest rooms, the building lobby, and other common areas; the area required for the Building's heating and air conditioning equipment; the area required for storage of maintenance and janitorial supplies; and the basement of the Building but including the area occupied by Landlord's offices in the Building.
Use of Premises and Security
4. The Leased Space shall be used for operation of a financial services center, including the installation and operation of an Automatic Teller Machine ("ATM") and for no other use or uses without the prior express written consent of Landlord. Tenant shall provide mutually acceptable security for the ATM facility and its surrounds.
Prohibited Uses
5. Tenant shall not commit or permit the commission of any acts on the Leased Space nor use or permit the use of the Leased Space in any way that:
(a) Increases the existing rates for or causes cancellation of any fire, casualty, liability, or other insurance policy insuring the Building 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 the Leased Space or the Building;
(c) Obstructs or interferes with the rights of other tenants or occupants of the Building or injures or annoys them; or
(d) Constitutes the commission of waste on the Leased Space or the commission or maintenance of a nuisance as defined by the laws of California.
Tenant Improvements
6. Landlord shall deliver the Premises to Tenant "as is", in its current condition with no further improvements. Tenant shall improve the Premises, at its sole cost and expense, using building standard materials and building standard finishes where applicable. All Tenant's improvements shall be in accordance with final working drawings prepared by a mutually-approved architect. Said architect shall be familiar with the building and shall develop space plans for the review of both Landlord and Tenant. Tenant shall be solely responsible for obtaining, at its expense, all necessary building and use permits, together with any and all additional permits, licenses and the like required for operating and conducting its intended uses on the Premises. Within 60 days following any termination of the Lease, the Tenant shall remove all such Tenant improvements and restore the Premises to its original condition, at the Tenant's sole cost and expense.
If in connection with the above-mentioned tenant improvements, any governmental agency requires additional renovations to the restrooms or any other areas of the Building outside of the Leased Space, then the cost of such renovations shall be paid as follows:
(i) Landlord shall pay one hundred percent (1000/6) of the cost of such renovations up to a total cost of $10,000, and
(ii) Landlord and Tenant agree to each pay 50% of such costs exceeding $10,000. and
No other alteration, addition, or improvement to the Leased Space shall be made by Tenant without the written consent of Landlord. Concurrently with requesting Landlord's consent to the proposed alteration, addition, or improvement, Tenant shall submit to Landlord preliminary plans for the alteration, addition, or improvement. Landlord shall, in its sole discretion, approve or disapprove the proposed alteration, addition, or improvement, within 30 days after its receipt of Tenant's written request for approval. If Landlord fails to affirmatively approve or disapprove the proposed alteration, addition, or improvement within the same 30 day period, the proposed alteration, addition or improvement shall be deemed disapproved. Tenant shall obtain all necessary governmental permits required for any alteration, addition, or improvement approved by Landlord and shall comply with all applicable governmental law, regulations, ordinances, and codes. Any alteration, addition, or improvement made by Tenant after consent has been given, and any fixtures installed as part of the construction, shall at Landlord's option become the property of Landlord on the expiration or other earlier termination of this lease; provided, however, that Landlord shall have the right to require Tenant to remove the fixtures at Tenant's cost on termination of this lease. If Tenant is required by Landlord to remove the fixtures on termination of this lease, Tenant shall repair and restore any damages to the leased premises caused by such removal.
Mechanics' Liens
7. When Tenant causes any alterations, additions, or improvements to be made to the Leased Space, Tenant agrees to keep the Leased Space free of liens for both labor and materials. If a lien is placed on the Leased Space in connection with any construction, repair, or replacement work that Tenant may or must cause to be performed under this lease, which results in a final judgment, Landlord may pay the amount of that judgment. Tenant shall reimburse Landlord for the full amount paid within 30 days after that amount is paid by Landlord; otherwise tenant shall be in default under this lease.
Maintenance and Repairs
8. (a) Subject to the duty of the Landlord under this lease to perform maintenance and repairs for the Leased Space as needed, Tenant shall during the term of this lease provide its own janitorial service and maintain the Leased Space in a good, clean, and safe condition, and shall on expiration or earlier termination of this lease surrender the Leased Space to Landlord in as good condition and repair as existed on the date of this lease, reasonable wear and tear and damage by the elements excepted. Tenant, at Tenant's own expense, shall repair all deteriorations or injuries to the Leased Space or to the Building occasioned by Tenant's lack of ordinary care.
(b) Except as otherwise provided in this lease, Landlord shall perform, at Landlord's sole expense, all repairs and maintenance for the Leased Space and the Building. Any repairs by Landlord shall be made promptly with first-class materials, in a good and workmanlike manner, in compliance with all applicable laws of all governmental authorities, and in a style, character, and quality conforming to the existing construction. Except in the case of an emergency, Landlord shall not enter the Leased Space for the purpose of effecting the repairs, alterations, or improvements other than during normal business hours, and shall give Tenant 24-hours' notice of the intention to enter for those purposes.
Except for cases of emergency, Landlord shall make all repairs required hereunder as soon as is practical. In the event Landlord has not made a repair referred to in a written notice from Tenant to Landlord within 30 days after the date of that notice, Tenant shall have the right to have the repair performed and be reimbursed by Landlord. If the full amount of reimbursement is not delivered by Landlord to Tenant within 10 days after Tenant's delivery to Landlord of a written statement or bill evidencing the cost of the repair, Tenant shall have the right to deduct the cost of the repair from the next monthly rent payable to Landlord.
Inspection by Landlord
9. Tenant shall permit Landlord or Landlord's agents, representatives, or employees to enter the Leased Space at all reasonable times for the purpose of inspecting the Leased Space to determine whether Tenant is complying with the terms of this lease and for the purpose of doing other lawful acts that may be necessary to protect Landlord's interest in the Leased Space under this lease.
Common Areas of Building
10. (a) Landlord shall make available at all times during the term of this lease in any portion of the Building that Landlord from time to time designates or relocates, automobile parking and common areas (jointly referred to as "common areas," as that term is defined below) as Landlord shall from time to time deem appropriate. Tenant shall have the nonexclusive right during the term of this lease to use the common areas for itself, its employees, agents, customers, clients, invitees, and licensees.
(b) The term "common areas" means the portions of the Building that, at the time in question, have been designated and improved for common use by or for the benefit of more than one tenant of the Building, including the parking areas; access and perimeter roads; landscaped areas; exterior walks, roofs, stairways, elevators, escalators and/or ramps; interior corridors, elevators, stairs, and balconies; directory equipment; the main entry lobby; restrooms; and drinking fountains. Landlord reserves the right to redesignate a common area for a noncommon use or to designate as a common area a portion of the Building not previously designated a common area.
(c) All common areas shall be subject to the exclusive control and management of Landlord or any other persons or nominees that Landlord may have delegated or assigned to exercise management or control, in whole or in part, in Landlord's place and stead. Landlord shall have the right to close, if necessary, all or any portion of the common areas as is deemed necessary by Landlord in order to effect necessary repairs, maintenance, or construction, or to maintain the safety of tenants or the general public. Landlord will maintain the common areas in a clean, orderly, and sanitary manner. Landlord is responsible for all repairs of the common areas, except those required by the negligence of Tenant.
(d) Rules and Regulations. Landlord and Landlord's nominees and assignees shall have the right to establish, modify, amend, and enforce reasonable rules and regulations with respect to the common areas and the Building. Tenant shall fully and faithfully comply with and observe the rules and regulations for the common areas and the Building ("the Building Rules and Regulations"), of which the Leased Space is a part, including any additions or amendments to the Building Rules and Regulations that may be hereafter enacted by Landlord in Landlord's sole discretion. Tenant acknowledges receipt of a copy of the Building Rules and Regulations, which are attached to and made a part of this lease as Exhibit C. Landlord shall not be liable in any way for failure of any other occupant of the Building of which the Leased Space is a part to comply with and observe these rules and regulations.
Utilities Furnished by Landlord
11. Landlord shall provide gas, power and water, and access to restrooms, for normal office purposes. Electricity for normal lighting and normal office business purpose does not include equipment using excess amounts of electrical power.
Tenant's Liability Insurance
12. Tenant agrees to purchase at its own expense and to keep in force during the Term of the Lease a comprehensive public liability and property damage insurance policy to protect against any liability to the public or to any invitee of Tenant or Landlord incident to the use of, or resulting from any injury or accident occurring in or upon, the Premises, with a comprehensive single limit of not less $1,000,000 for injury to or death of one person, and at least or more than $5,000,000 for injury to or death of more than one person in any one accident. This insurance coverage is to include a fire liability policy listing Landlord as a first party insured. Said policy or policies shall: (a) name Landlord as an additional insured and insure Landlord's contingent liability under the Lease (b) be issued by an insurance company which is acceptable to the Landlord; and (c) provide that said insurance shall not be canceled unless thirty days (30) prior written notice shall have been given to Landlord. Said policy or policies, or certificates thereof, shall be delivered to Landlord by Tenant upon the Commencement Date of the Lease and upon each renewal of said insurance.
Insurance for Tenant's Personal Property
13. Tenant agrees at all times during the term of this Lease to keep, at Tenant's sole expense, all of Tenant's personal property, including trade fixtures and equipment of Tenant that may be on or in the Leased Space from time to time, insured against loss or damage by fire and by any peril included within fire and extended coverage insurance for an amount that will insure the ability of Tenant to fully replace the personal property, trade fixtures, and equipment.
Indemnification
14. Landlord shall not be liable and Tenant shall waive all claims against Landlord for any damage to any property or any injury to any person in or about the Premises or Property by or from any cause whatsoever (including, without limiting the forgoing, rain or water leakage of any character from the roof, windows, walls, pipes, plumbing works or appliances, the building not being in good condition or repair, gas, fire, oil, electricity or theft); except that Landlord will indemnify and hold Tenant harmless from any such claims to the extent caused by the negligence or willful act of Landlord, or its agents, employees or contractors. Tenant shall indemnify and hold Landlord harmless from and defend Landlord against any and all claims, liability or costs, (including court costs and attorneys' fees) for any damage to any property or any injury to any person incurring in, on, or about Premises or Property when such injury or damage shall be caused by or arise from in part or in whole, (a) any act, neglect, fault or omission to meet the standards imposed by any duty with respect to the injury or damage, by Tenant, its agents, servants, employees or invitees; (b) the conduct or management of any work or thing whatsoever done by Tenant in or about the Premises or from transactions in or concerning the Premises, including, without limitation, any such claims of property loss or injury caused by or arising from the existence and operation of the ATM and the cash located therein or in the Premises; or (c) any breach or default on the part of Tenant in the performance of any covenant or agreement under the Lease. All such indemnification provisions shall survive the termination o~ the Lease with respect to any claims or liability occurring prior to such termination.
Destruction of Leased Space or Building
15. If the Leased Space or the Building of which it is a part is damaged or destroyed by any cause not the fault of Tenant, Landlord shall at Landlord's sole cost and expense promptly repair it, and the rant payable under this lease shall be abated for the time and to the extent Tenant is prevented from occupying the Leased Space in its entirety. Notwithstanding the foregoing, if the Leased Space or the Building is damaged or destroyed and repair of the damage or destruction cannot be completed within 180 days. Landlord may, in lieu of making the repairs required by this paragraph, terminate this lease by giving Tenant 30 days' written notice of termination. A notice of termination must be given by Tenant not later than 30 days after the event causing the destruction or damage.
Sale or Condemnation
16. If the Property, or any portion thereof affecting the Premises, is sold or appropriated under the power of Eminent Domain, Landlord shall give Tenant twelve months (12) notice of termination of the Lease. Tenant shall not be entitled to receive any portion of the sales proceeds or any award for Tenant's loss of its leasehold interest, and any right to such proceeds or award shall be assigned by Tenant to Landlord under the Lease.
Assignment and Subletting
17. Tenant shall not encumber, assign, or otherwise transfer this lease, any right or interest in this lease, or any right or interest in the Leased Space without first obtaining the express written consent of Landlord. Furthermore, Tenant shall not sublet the Leased Space or any part of it or allow any other persons, other than Tenant's employees and agents, to occupy or use the Leased Space or any part of it without the prior written consent of Landlord. A consent by Landlord to one assignment, subletting, or occupation and use by another person shall not be deemed to be a consent to any subsequent assignment, subletting, or occupation and use by another person. Any encumbrance, assignment, transfer, or subletting without the prior written consent of Landlord, whether voluntary or involuntary, by operation of law or otherwise, is void and shall, at the option of Landlord, terminate this lease. The consent of Landlord to any assignment of Tenant's interest in this lease or the subletting by Tenant of the Leased Space shall not be unreasonably withheld.
Acts Constituting Breach by Tenant
18. The following shall constitute a default under and a breach of this lease by Tenant:
(a) The nonpayment of rent when due, when the nonpayment continues for 10 days after written notice to pay rent or surrender possession of the Leased Space has been given by Landlord to Tenant;
(b) A failure to perform any provision, covenant, or condition of this lease other than one for the payment of rent, when that failure is not cured within 30 days after written notice of the specific failure is given by Landlord to Tenant;
(c) The breach of this lease and abandonment of the Leased Space before expiration of the term of this lease;
(d) A receiver is appointed to take possession of all or substantially all of Tenant's property located at the Leased Space or of Tenant's interest in this lease, when possession is not restored to Tenant within 30 days.
(e) Tenant makes a general assignment for the benefit of creditors;
(f) The execution, attachment, or other judicial seizure of substantially all of Tenant's assets located at the Leased Space or of Tenant's interest in this Lease, when the seizure is not discharged within 15 days; or
(g) The filing by or against Tenant of a petition to have Tenant adjudged a bankrupt or of a petition for reorganization or arrangement under the federal bankruptcy law (unless, in the case of a petition filed against Tenant, it is dismissed within 60 days.
Landlord's Remedies
19. If Tenant breaches or is in default under this Lease, Landlord, in addition to any other remedies given Landlord by law or equity, may:
(a) Continue this lease in effect by not terminating Tenant's right to possession of the Leased Space and thereby be entitled to enforce all Landlord'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 this lease and all rights of Tenant under the lease and recover from Tenant:
(1) The worth at the time of award of the unpaid rent that 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 that would have been earned after termination of the lease until the time of award exceeds the amount of rental 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 for the balance of the term after the time of award exceeds the amount of rental loss that Tenant proves could be reasonably avoided; and
(4) Any other amount necessary to compensate Landlord for all detriment proximately caused by Tenant's failure to perform Tenant's obligations under this lease; or
(c) In lieu of, or in addition to, bringing an action for any or all of the recoveries described in subparagraph (b) of this paragraph, bring an action to recover and regain possession of the Leased Space in the manner provided by the California law of unlawful detainer then in effect.
Termination Notice
20. No act of Landlord, including but not limited to Landlord's entry on the Leased Space or efforts to relet the Leased Space, or the giving by Landlord to Tenant of a notice of default, shall be construed as an election to terminate this lease unless a written notice of the Landlord's election to terminate this lease is given to Tenant.
Waiver of Breach
21. The waiver by Landlord of any breach by Tenant of any of the provisions of this lease shall not constitute a continuing waiver or a waiver of any subsequent default or breach by Tenant either of the same or a different provision of this lease.
Notices
22. 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 to this lease by the other party shall be in writing, and shall be deemed duly served and given when personally delivered to the party to whom it is directed or any managing employee of that party or, in lieu of personal service, when deposited in the United States mail, first-class postage prepaid, addressed to Landlord at 640 Brannan Street, San Francisco, California, 94107, or to Tenant at 6600 Mission Street, South San Francisco, California, 94014. Either party may change its address for purposes of this paragraph by giving written notice of the change to the other party in the manner provided in this paragraph.
Attorneys' Fees
23. If any litigation is commenced between the parties to this lease concerning the Leased Space, this lease, or the rights and duties of either in relation to the Leased Space or the lease, the party prevailing in that litigation shall be entitled, in addition to any other relief granted, to a reasonable sum as and for its attorneys' fees in the litigation, which shall be determined by the court in that litigation or in a separate action brought for that purpose.
Binding on Heirs and Successors
24. This lease shall be binding on and shall inure to the benefit of the heirs, executors, administrators, successors, and assigns of the parties, but nothing in this paragraph shall be construed as a consent by Landlord to any
assignment of this lease or any interest therein by Tenant except as provided in Paragraph 9 of this lease.
Time of Essence
25. Time is expressly declared to be of the essence in this lease.
Sole and Only Agreement
26. This instrument constitutes the sole and only agreement between Landlord and Tenant respecting the Leased Space or the leasing of the Leased Space to Tenant, and correctly sets forth the obligations of Landlord and Tenant to each other as of its date. Any agreements or representations respecting the Leased Space or their leasing by Landlord to Tenant not expressly set forth in this instrument are null and void.
Limitation of Landlord's Liability
27. Redress for any claims against Landlord under this Lease shall only be made against Landlord to the extent of Landlord's interest in the property to which the Premises are a part. The obligations of the Landlord under this Lease shall not be personally binding on, nor shall any resort be had to the private properties of, any of the shareholders, members of the Board of Directors, officers, employees or agents of Landlord.
EXECUTED on August 21, 1996 at San Francisco, California.
CALIFORNIA FLOWER MARKET, INC.
FIRST NATIONAL BANK
EXHIBIT A
BUILDING RULES AND REGULATIONS
Halls and Stairways
1. Tenants shall not loiter in the halls and entryways, nor permit their employees or patrons to loiter in the halls and entryways, and shall not obstruct in any way the entryways, passages, stairways, elevators, and halls of the building or use them for any other purpose than ingress and egress to and from their respective offices.
Signs
(2) No sign, placard, picture, name, advertisement, or notice visible from outside a Tenant's premises shall be displayed in or on the Building without the express written consent of Landlord, and Landlord may remove, at the expense of the offending Tenant, any sign, placard, picture, name, advertisement, or notice so displayed.
Locks and Keys
3. No additional lock or locks shall be placed on any door in the Leased Space by any Tenant without the express written consent of Landlord. Each Tenant shall receive, without cost, two keys to each door having a lock in the Tenant's Leased Space. If any Tenant desires extra keys to any door, Tenant must obtain them from Landlord and Landlord may impose a charge for them. Wiring and Electricity
4. Wiring of any kind shall be introduced in the Building and connected only as directed by Landlord, and no boring or cutting for wires will be allowed except with the prior consent of Landlord. The location of all telephones and call boxes affixed to the Building shall be prescribed by Landlord.
Connection of Machinery
5. Tenant shall not connect any apparatus, machinery, or device with the electric wires, water, or air pipes of the Building without the consent of Landlord.
Moving Furniture and Equipment
6. Landlord shall prescribe the permissible times for moving equipment and furniture into the Building and Tenant's Leased Space. Tenant shall give the Building Manager at least 24-hours' advance notice of the time Tenant intends to move furniture or equipment into Tenant's Leased Space. Landlord shall not be liable for any damage or loss caused by the moving of the furniture or equipment, and any damage to Building or Leased Space caused by the moving of furniture or equipment shall be repaired at Tenant's expense.
Obstructing Light
7. The glass dears, windows, lights, and skylights admitting light into the halls and other common areas of the Building shall not at any time be covered or obstructed by Landlord or any Tenant.
Landlord's Office and Employees
8. Any request of a Tenant for service or any other matter connected with the Building must be made to and at the office of the Manager for the Building in. Employees of Landlord shall perform no work or do anything outside their regular daily duties except on order of the Manager for the Building. No employee of Landlord shall admit any person, Tenant or otherwise, to any office in the Building without specific instructions from the Manager of the Building.
Entry After Building Closed
9. Any person entering or leaving the Building at any time when its entrance and exit doors are closed and locked may be questioned about his or her business in entering or leaving the Building, and may be required to sign the Building register by the security personnel. Any person not satisfying the security personnel that he or she has a right to enter the Building may be excluded from the Building.
Removal of Persons
10. Landlord reserves the right to exclude and expel from the Building any person who, in the judgment of Landlord, is intoxicated or under the influence of any intoxicating beverage or drug or who in any manner violates any of these rules and regulations or creates, in the judgment of Landlord, a disturbance in the Building.
No Canvassing or Soliciting
11. Canvassing, soliciting, and peddling in the Building are prohibited and each Tenant shall promptly report to the Building Manager any person found by him or her to be canvassing, soliciting, or peddling in the Building.
Further Rules and Regulations
12. Landlord reserves the right to amend these rules and regulations and to make any other and further rules and regulations for the Building that, from time to time in the judgment of Landlord, are required for the orderly and safe conduct of Building operations.
[graphic omitted]
[graphic omitted]
California Flower Market, Inc.
July 17, 2001
Mr. Paul B. Hogan, President & Chief Operating Officer
First National Bank of Northern California
975 El Camino Real
South San Francisco, CA 94080
Dear Paul:
Pursuant to our phone conversation last week and your letter dated January 24, 2001, the California Flower Market, Inc. will exercise the option to extend on our lease agreement dated August 21, 1996. Terms of the option will be as follows:
Length of Option: 5 years Rental Rate: $2.70 per square foot Monthly Rent $810.00 per month Commencement: September 1, 2001 |
We will include in your next monthly rent statement the requirement of an additional lease deposit to coincide with the increased rental rate.
If you should have any questions please do not hesitate to call.
Sincerely,
CALIFORNIA FLOWER MARKET, INC
/SS/ BOB OTSUKA
Robert H. Otsuka
Executive Vice President & General Manager
640 Brannan St. San Francisco, CA 94107 Tel:(415)392-7944 Fax:(415)392-1298
EXHIBIT 10.4
SUBLEASE AGREEMENT
THIS SUBLEASE AGREEMENT (THE "SUBLEASE") dated as of February 10, 1997 is between Union Bank of California, N.A. a national banking association ("Sublandlord"), whose address is 475 Sansome Street 16th Floor, San Francisco. CA 941111 and FIRST NATIONAL BANK OF NORTHERN CALIFORNIA, a national banking association, ("Subtenant") whose address is 975 El Camino Real, South San Francisco, CA 94080.
1. Recitals. This Sublease is made with reference to the following facts and objectives:
(a) Nikko Capital Corp., a California Corporation. ("Master Landlord") and Sublandlord. As tenant, entered into a written lease executed as of September 1, 1993, and amended by amendment dated October 7, 1993 (collectively, the "Master Lease"), for master lease premises consisting of 5,753 rentable square feet of a building (the "Building") at 491 South El Camino Real, San Mateo, California. located within a shopping center (the "Center") owned by Master Landlord. Sublandlord's share of taxes and common area expenses for the Building is 30.83%. .A copy of the Master Lease is attached hereto as Exhibit "A" and. except as the provisions of this Sublease differ, is incorporated by reference herein.
(b) Subtenant desires to sublet a portion of the master lease premises (described below) from Sublandlord on the terms contained in this Sublease. Sublandlord desires to sublet such premises to Subtenant and to sublet the remaining portion of the master lease premises to another tenant.
(c) Defined terms not otherwise defined in this Sublease shall have the same meanings as in the Master Lease.
2. Sublease: Premises: Condition to Sublease. Subject to the condition stated in the next paragraph, Sublandlord leases to Subtenant and Subtenant leases from Sublandlord the approximately 3,349 rentable square foot of the Building as shown (as Suite B) in Exhibit "B" attached hereto and made a part hereof (the " Subleased premises"). The lunch room portion of the Subleased Premises is to be merely co-sublet to Subtenant at such times as Suite A at Exhibit "B" (i.e., that part of the master lease premises that is not being sublet to Subtenant) is either sublet to another subtenant or is occupied by Sublandlord. In that event the subtenant of Suite A or Sublandlord will be the other cotenant of the lunch Room.
This sublease is conditioned on Sublandlord's concurrently subletting Suite A at Exhibit "B" to another subtenant. As of the date of this Sublease the proposed subtenant for Suite A is North American Title Company.
3.1. Sublease Term The term ("Sublease Term") of this Sublease
(and Subtenant's obligation to pay base rent pursuant to paragraph 4 below)
shall commence on the earlier to occur of (i) the date that the Sublease
improvements are substantially complete and a certificate of occupancy (if
required) is issued for the Subleased Premises. and (ii) April 1, 1997. The
Sublease Term shall expire January 31, 2004. Sublandlord has no obligation to
exercise the option to extend. at Rider No. 1 of the Master Lease. If for any
reason Sublandlord cannot deliver possession of the Subleased Premises to
Subtenant by the Sublease Term commencement date, this Sublease shall not be
void or voidable, nor shall Sublandlord be liable for any resulting loss or
damages; however rent shall be waived until Sublandlord can deliver possession.
No delay in delivery of possession shall operate to extend the Sublease Term.
3.2 Early Occupancy. Upon execution of this Sublease and Master Landlord's and Sublandlord's approval of Subtenant's plans for Sublease improvements. Subtenant and its contractors may enter the Subleased Premises to construct the Sublease improvements. subject to tile provisions of this Sublease, except that Subtenant is not obligated to pay Base Rent (paragraph 4.1) or Additional Rent (paragraph 5.3) until the commencement of the Sublease Term.
4.1 Rent. Subtenant shall pay to Sublandlord as monthly minimum rent ("Base Rent") the following rents for the periods shown:
o April 1, 1997 - December 31, 1997 $7,032.90/month
o January 1. 1998 - December 31, 1998 $7,267.33/month
o January 1, 1999 - December 31, 1999 $7,468.27/month
o January 1, 2000 - December 31, 2000 $7,702.70/month
o January 1, 2001 - December 31, 2001 $7,937.13/month
o January 1, 2002 - December 31, 2002 $8,171.56/month
o January 1, 2003 - January 31, 2004 $8,405.99/month
An advance payment of S7,032.92 for the first month's Base Rent has been paid on the date of this Sublease. All base Rent payments shall be made without deduction, setoff, prior notice, or demand. Base Rent shall be payable monthly in advance on the Sublease commencement date and on the first day of each subsequent month. Subtenant's responsibility for additional Rent (under paragraph 5.3 below) shall begin on the Sublease commencement date. shall continue during the Sublease term, and shall be payable according to the Master Lease and paragraph 5.3. below. Until Subtenant is directed otherwise all rent shall be paid to Sublandlord at the following address: Union Bank of California, N.A., Corporate Real Estate Division, 475 Sansome St., San Francisco, CA 94111. Attn. Lucrecia Cruz.
4.2 Security Deposit. Subtenant has deposited $7032.90 (the "Deposit) with Sublandlord on The date of this Sublease. Sublandlord will hold the deposit as security for Subtenant's faithful performance of Subtenant's obligations under this Sublease. If Subtenant defaults on any such obligations,
Sublandlord may (but need not) apply all or part of the Deposit to remedy the default. In That event Sublandlord may require Subtenant to promptly restore the Deposit to its original amount. Upon termination of the Sublease, Sublandlord shall return to Subtenant any remaining portion of the Deposit.
5.1 Excluded Provisions. Subtenant and Sublandlord agree that
the following provisions ("Excluded Provisions") of the Master Lease do not
apply to this sublease: Article I (premises); Article II (term); Section 3.01
(minimum monthly rent); Section 17.05 (relocation during renewal term); Section
17.36 (payment for initial tenant improvements): and Section 17.36 (initial
lease contingencies).
5.2 Incorporated Provisions. Subtenant agrees that all other terms, conditions and covenants of this Sublease shall be those contained in the Master Lease or as amended herein, except for the Excluded Provisions and provisions which are superseded by this Sublease. Subtenant shall assume and perform, on Sublandlord's behalf, the non-excluded Tenant's obligations under the Master Lease. including, without limitation. Subtenant's obligation to pay Additional Rent under the Sublease, as provided in Paragraph 5.3 below.
5.3 Additional Rent. Subtenant shall be responsible to pay for all Additional Rent obligations under the terms of the Master Lease. Section 3.04 of the Master Lease provides that every payment required to be made by Tenant under the Master Lease shall be Additional Rent. Such payments include taxes (article 5), certain maintenance and repairs (section 7.01), insurance costs (section 8.01). utility charges (article XII), common area charges (articles XIV and XV), late charges (section 17.10), and all other payments required under the Master Lease. Subtenant understands that this Sublease is a fully net lease and no costs of any kind (other than the Base Rent under the Master Lease) shall be payable under the Master Lease by Sublandlord.
When Sublandlord is billed for an item of additional rent under the Master Lease, it shall promptly forward a copy to Subtenant together with a statement indicating Subtenant's proportionate share of the item. On additional rent items relating to the entire master lease premises. Subtenant's proportionate share shall be 58.21% (3349 sq.ft./5753 sq.ft.). of the charges billed to Sublandlord. (Sublandlord 's share of taxes (section 15.01), HVAC (section 12.04), common area charges (section 14.05) and certain other items is 30.83% of such charges for the Building.) If a bill for Master Lease additional rent covers a period that began before the Sublease commencement date. Sublandlord shall make an additional apportionment to determine the amount of additional rent allocable to the time from the Sublease commencement date until the end of the additional rent period. Subtenant shall remit its proportionate share of the item to Sublandlord within ten (10) days after Subtenant's receipt of' the statement.
In addition if, under the terms of the Master Lease or otherwise, any of the above referred to charges are charged directly; to Sublandlord (rather than to Master Landlord), Sublandlord may bill Subtenant for Subtenant's proportionate share, and Subtenant shall pay that share, in the same manner as set out above. Subtenant shall have the obligation and responsibility to (on or before the commencement date) change the billing name and address for the Subleased Premises on all utilities, telephone and other expenses, which may
have been billed directly to Sublandlord, from Sublandlord's name to subtenant's name, provided, however, that if it is not reasonably possible to have any such charges changed to Subtenant's name prior to Sublease commencement, until such time as the billing is in Subtenant's name, Sublandlord may allocate the charges between Subtenant and the subtenant of Suite A in the same proportion as set out above.
5.4 Performance of Master Landlord. Sublandlord does not assume the obligations of the Master Landlord under the Master Lease, but shall exercise reasonable efforts in attempting to cause the Master Landlord to perform its obligations under the Master Lease.
5.5 Subordination of Sublease to Master Lease. Subtenant acknowledges that it has read and is familiar with the terms of the Master Lease, and agrees that this Sublease is subordinate and subject to the Master Lease. and that upon any termination of the Master Lease (i) this Sublease shall terminate, (ii) the parties shall be relieved form all liabilities and obligations under this Sublease, except that (iii) if this Sublease terminates as a result of a default of one of the parties under this Sublease or the Master Lease, or both, the defaulting party shall be liable to the non-defaulting party for all damages suffered by the non-defaulting party as a result of termination. In the event of any inconsistencies between any of the provisions of this Sublease and of the Master Lease, the terms of this Sublease shall govern.
5.6 Master Lease. This Sublease is subject to all applicable provisions of the Master Lease and Subtenant shall not permit any act or omission to act that will violate any of the provisions of the Master Lease.
5.7 Negotiations with Master Landlord. Subtenant agrees that Sublandlord shall have the right to negotiate directly with the Master Landlord for (i) the termination of the Master Lease. and or (ii) the assignment of this Sublease to Master Landlord, or (iii) some other form of agreement which results in the termination of Sublandlord's obligations under the Master Lease and this Sublease ("ML Agreement"). Should Sublandlord enter into an ML Agreement with the Master Landlord Subtenant agrees (subject to the following conditions) to attorn to the Master Landlord, sign any related documentation, release Sublandlord from any obligation under this Sublease and in general cooperate with both Sublandlord and Master Landlord in completing the ML Agreement.
o The terms of any ML Agreement shall not materially modify the
basic terms and conditions contained in the Sublease.
o Subtenant shall not incur any additional facility related cost as
a result of the ML Agreement.
o Any related documentation which Subtenant is obligated to execute
hereunder shall be no more favorable to Landlord than the
documentation that Master Landlord and other landlords use for
leases of properties similar to the Premises.
6. Subtenant's Performance Under Master Lease. At any time and on prior notice to Subtenant, Sublandlord can elect to require Subtenant to perform its obligations under this Sublease which are Applicable to the Subleased Premises directly to Master Landlord, and Subtenant shall send to Sublandlord
from time to time copies of all notices and other communications it shall send to and receive from Master Landlord.
7. Covenant of Quiet Enjoyment. Sublandlord represents that the Master Lease is in full force and effect and that there are no defaults on Sublandlord's part under it as of the commencement of the Sublease Term. Subject to this Sublease terminating under any provision of this Sublease or the Master Lease, or an ML Agreement, Sublandlord represents that, if Subtenant performs all the provisions in this Sublease to be performed by Subtenant, Subtenant shall have and enjoy throughout the Sublease Term the quiet and undisturbed
8. Condition of Subleased Premises. Subtenant agrees to sublease the Subleased Premises in an "as is" condition.
9. Alteration of Subleased Premises. Prior to [After (initialed PBH 2/10/97] commencement Of the Sublease term, Subtenant shall submit to Sublandlord and Master Landlord for their approval, which approval shall not unreasonably be withheld or delayed by Sublandlord (and similar requirements apply to Master Landlord under Master Lease section 7.02), plans and specification for any alterations or improvements to be made by Subtenant ("Subtenant Alterations"). Upon receiving Sublandlord's and Master Landlord's consent, Subtenant shall have the right to commence Subtenant Alterations at any time after such approval. All Subtenant Alterations shall be completed in a good and workmanlike manner, and in accordance with the approved plans and specifications. Subtenant shall not make any other alterations or structural changes to the Subleased Premises without Sublandlord's prior written consent. Except for the demising wall (dealt with at paragraph 10), all Subtenant Alterations, including signage, installation of security measures. and any required reconfiguration of utilities, HVAC, or sprinklers, shall be at Subtenant's expense. and Sublandlord shall have no obligation to construct or pay for the Subtenant Alterations.
10. Demising Wall; Sublandlord's Contribution. Sublandlord shall have its contractor(s) build a demising wall between the Subleased Premises (Suite B on attached Exhibit "B") and Suite A at Exhibit "B" (i.e., that part of the master lease premises that is not being sublet to Subtenant). Subtenant shall cooperate with the subtenant of Suite A to the extent necessary to have the demising wall constructed.
For construction of the demising wall Sublandlord shall contribute in total the sum of (i) $12,000, or (ii) the total cost of construction of the demising wall, whichever is less. If the demising wall costs more than $12,000 to construct. Subtenant shall promptly pay Sublandlord upon request, one-half of the cost in excess of $12,000.
11. Restoration of Subleased Premises at Termination. On or before Sublease expiration or earlier termination, Subtenant shall, if required by Master Landlord under section 17.30 of the Master Lease, remove the Subtenant Alterations, and restore the Subleased premises to their pre-Subtenant Alteration configuration and shall surrender the Subleased Premises to Sublandlord in good condition. Such restoration shall be in accordance with restoration plans and specifications approved by Sublandlord or Master Landlord.
12. Use of Premises. Subtenant shall use and occupy the Subleased Premises solely for general banking purposes and in a manner consistent with the limitations of the Master Lease.
13. Liability Insurance. Subtenant shall maintain at all times, during the term of the Sublease, the amount and types of insurance as called for under Article VIII of the Master Lease.
A. Subtenant shall indemnify, protect and save harmless Sublandlord and its partners, officers, agents and employees from and against any and all claims, liabilities, obligations, costs and expenses (including but not limited to reasonable attorney's fees and costs) relating to death of or injury to persons or damage to property including, without limitation, property owned or controlled by or in possession of Sublandlord, that may, in whole or in part, arise from or be caused by Sublessee's use of the Premises or from any activity or condition permitted or sustained by Sublessee on the Premises except for claims resulting primarily from Sublandlord's gross negligence or willful misconduct.
B. Sublandlord shall indemnify, protect and save harmless Subtenant its partners, officers, agents and employees from and against any and all claims, liabilities, obligations, costs aid expenses (including but not limited to reasonable attorney's fees and cost) relating to death of or injury to persons or damage to property including, without limitation, property owned or controlled by or in possession of Subtenant, that are caused primarily by Sublandlord's gross negligence or willful misconduct.
A. As of the date of this Sublease the pre-existing exterior bank sign (which related to the banking business formerly carried on at the Subleased Premises, and at Suite A as shown on Exhibit "B") has been covered. That sign shall remain covered; and shall not be removed until Subtenant is ready to begin the installation of it's own sign. (D. below).
B. Subtenant's exterior sign shall occupy one-half of the space occupied by the pre-existing exterior bank sign. The other one-half of the space shall be occupied by the sign for the subtenant of Suite A.
C. Subtenant's exterior sign shall be in accordance with all applicable municipal codes and ordinances, and shall be subject to Sublandlord's reasonable written consent (and subject to Master Landlord's consent pursuant to section 16.01 of the Master Lease). Subtenant shall coordinate with the City of San Mateo as applicable, and with Sublandlord, Master Landlord, and the subtenant of Suite A in the design, construction. and installation of its sign.
D. When all necessary approvals have been obtained, Subtenant shall cause the pre-existing Exterior bank sign to be removed and shall cause Subtenant's sign to be installed. All the signage requirements of this paragraph 15 are to be at Subtenant's sole cost and expense, and at no cost to
Sublandlord. Subtenant may make such arrangements as it desires with the subtenant of Suite A for that subtenant's contribution to signage costs.
16. Notices. Whenever this Sublease or the Master Lease requires notice, request or other communication to be given by either party to the other, such notice request or other communication must be in writing and may be delivered either personally or sent by US mail or private mail carrier and shall be deemed to have been given and received when actually received unless such mail is "certified" or "registered" with postage prepaid and the envelope properly addressed, in which even; it shall be deemed to have been given and received when deposited in the mail. For purposes of this Sublease, the addresses of the parties hereto (until notice of a change thereof is given as provided in this Section) shall be as follows:
Sublandlord: Union Bank of California
Corporate Real Estate Division
475 Sansome St., Suite 1600
San Francisco, CA 94111
Attention Jeffrey J. Vines
Subtenant: First National Bank
975 El Camino Real
South San Francisco, CA 94080
17. Brokerage.
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17.1 Commission. Sublandlord will pay Cornish & Carey
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Commercial, 901 Mariners Island Boulevard, San Mateo, California 94404, a commission as specified in the Sublease Listing Agreement, dated May 31, 1996 between Cornish & Carey Commercial and Sublandlord.
17.2 Dual Respresentation. Sublandlord and Subtenant acknowledge that Cornish & Carey Commercial represents both Sublandlord and Subtenant, and Sublandlord and Subtenant consent to the dual representation.
18. Sublease Contingent Upon Master Landlord's Consent. This Sublease is contingent upon consent of Master Landlord. which consent Sublandlord will use its best efforts to obtain without delay. This Sublease shall not be effective or binding on either party until Master Landlord's consent is obtained and evidenced by signature below.
19. Environmental/ADA. As between Sublandlord and Sublessee,
Sublessee shall have full responsibility during the Sublease term, for the
Premises' compliance with federal and state laws and regulations concerning:
hazardous materials and environmental matters; and the Americans with
Disabilities Act and its State counterpart (Title 24).
20. Assignment/Subletting. Sublessee shall not assign, transfer or encumber its interest in this Sublease or in the premises, or sublease all or any part of the premises, without obtaining Sublandlord's written consent, which shall not be unreasonably withheld, in addition to Master Landlord's written
consent. Any assignment, transfer, encumbrance or sublease without Sublandlord's prior written consent shall be voidable and, at Sublandlord's election, shall constitute a default under 21 below and under sections 10.01 and 13.01 of the Master Lease.
21. Defualt. Sublessee shall be in default under the Sublease: if Subtenant fails to pay any amount due or to perform any obligation under this Sublease; or if an event or condition occurs with respect to the Sublessee that would be a tenant default under Article XIII of the Master Lease (if the event or condition had occurred with respect to the Master Lease tenant). If a default occurs, Sublandlord shall have the landlord remedies provided for by California law, including. Civil Code section 1951.2 (landlord may terminate lease after tenant's breach and recover damages including the worth at the time of award of the amount by which the unpaid rent for the balance of the term exceeds the amount of rent loss that tenant proves could reasonably be avoided); and Civil Code section 1951.6 (landlord may continue lease in effect after tenant's breach and abandonment and recover rent as it becomes due if tenant has reasonable right to sublet or assign, subject only to reasonable limitations.). In addition to Sublandlord's other rights and remedies, Sublandlord shall have the same rights and remedies against Subtenant as the Landlord has against Sublandlord as tenant under the Master Lease.
22. Late Payments. If Sublessee fails to pay rent or any other monetary amount owing under the Sublease when due, and if the delinquency continues for a period of ten (10) days after the date the amount was due, Sublessee shall also pay to Sublessor (without additional notice or demand), with the delinquent amount, a late charge equal to five percent (5%) of the delinquent amount, to defray administrative expenses involved in handling the delinquency. The late charge shall be considered additional rent and the right to require it is in addition to Sublandlord's other rights and remedies.
23. Attorney's Fees. If Sublessee or Sublandlord brings any legal action for any relief against the other arising out of this Sublease, including any suit by Sublandlord to recover rent or possession of the Premises, the losing party shall pay the successful party its costs of suit, including a reasonable sum for attorney's fees in the action.
If Sublandlord or Subtenant, without its fault, is made a party to any litigation brought by the other party or brought by any third party against the other party, or for the foreclosure of any lien for labor or material furnished to Subtenant or Sublandlord, Subtenant and Sublandlord hereby agree to indemnify, defend, protect and hold the other harmless from any judgment against the other party, and all costs and expense, including reasonable attorney's fees, incurred by the other party in connection with the litigation.
SUBLANDLORD SUBTENANT
Union Bank of California, N.A First National Bank of Northern
a National Banking Association California
a National Banking Association
By: /S/ JEFFREY J. VINES By: /S/ PAUL B. HOGAN
------------------------------- -------------------------------------
Jeffrey J. Vines Paul B. Hogan
Its: Vice President Its: President & Chief Operating Officer
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CONSENT OF MASTER LANDLORD TO THE FOREGOING SUBLEASE:
NIKKO CAPITAL CORP.,
a California corporation
By: /S/ NOBUO OKUMURA
------------------------------------
Its: Vice President
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Master Lease
[graphic omitted]
Floor plan
EXHIBIT 10.5
AGREEMENT OF LEASE
SCHEDULE OF TERMS
LANDLORD WESTLAKE DEVELOPMENT COMPANY, INC.
520 South El Camino Real, Suite 900
San Mateo, CA 94402
Phone: (650) 579-1010
TENANT: FIRST NATIONAL BANK OF NORTHERN CALIFORNIA
TENANT ADDRESS: 975 El Camino Real
South San Francsico, CA 94080
Phone: (650) 875-4864
PREMISES: 520 S. El Camino Real, Suite 430, San Mateo, CA 94402
SQUARE FOOTAGE: Approximately 2,242 rentable square feet
Percentage of rentable square feet: 2.68%
USE: General Office
LEASE TERM: Three (3) Years
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Term commences: June 16, 2000 Term Expires: June 15, 2003
BASE RENT: Refer to Rent Schedule set forth below
SECURITY DEPOSIT: $8,071.20
DATE: April 13, 2000
The provisions set forth above in the Schedule of Terms are part of the Lease Agreement between Landlord and Tenant, and subject to the covenants, terms and conditions of lease which are hereinafter set forth. Each reference hereafter to any of tilt provisions contained in the Schedule of Terms shall be construed to incorporate all of the terms provided under each such provision to the extent the context shall so require. In the event more than one person is identified as "Tenant" in the Schedule of Terms, references to "Tenant" hereinafter shall refer, jointly and severally to each of them.
RENT SCHEDULE: Months 06/16/00 - 05/31/01: $7,622.80 Monthly
Months 06/01/01 - 05/31/02: $7,847.00 Monthly
Months 06/01/02 - 06/15/03: $8,071.20 Monthly
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INITIAL: Landlord /si/ SS Tenant /si/ PBH
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ARTICLE SECTION DESCRIPTION PAGE NO.
SCHEDULE OF TERMS i
I GRANT PREMISES AND TERM 1
1.01 Description 1
1.02 Term 1
1.03 Delivery of Possession 1
1.03.5 Nondelivery of Possession 1
1.04 Condition and Care of Premises 1
II RENT 1
2.01 Monthly Rent 1
2.02 Rental Adjustment 1
2.03 Late Charge 2
2.04 Operating Costs 2
2.05 Security Deposit 3
2.06 Interest on Delayed Payments 3
II SERVICES AND UTILITIES 3
3.01 Services and Utilities 3
IV ALTERATIONS AND IMPROVEMENTS 4
4.01 Alterations 4
4.02 Mechanics' Liens 4
4.03 Signs 4
4.04 Identity 4
V CONDUCT OF BUSINESS 5
5.01 Use of Premises 5
5.02 Common Areas 5
5.03 Insurance Prohibition 5
5.04 Waste or Nuisance 5
5.05 Personal Property Taxes 5
VI INDEMNITY AND INSURANCE 5
6.01 Indemnity 5
6.02 Liability Insurance 5
6.03 Personal Property Insurance 5
6.04 Other Insurance Matters 6
6.05 Waiver of Subrogation 6
VII DAMAGE AND DESTRUCTION 6
7.01 Destruction of Premises 6
7.02 Abatement of Rent 6
7.03 Other Damage and Destruction Matters 6
7.04 Waiver 7
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VIII ASSIGNMENT, SUBLETTING AND SUCCESSORS 7
8.01 Assignment & Subletting 7-8
8.02 Estoppel Certificate 9
8.03 Subordination 9
8.04 Transfers by Landlord 9
8.05 Attorney-in-Fact 9
8.06 Successors 9
IX DEFAULT AND REMEDIES 9
9.01 Events and Default By Tenant 9
9.02 Remedies of Default 9-10
9.03 Waiver 10
9.04 Attorney's Fees 10
9.05 Holding Over 11
9.06 Expenditures by Landlord 11
X CONDEMNATION 11
10.01 Taking of Premises 11
10.02 Waiver 11
10.03 Sale In Lieu of Condemnation 11
XI SURRENDER 11
11.01 Surrender at End of Term 11
11.02 Voluntary Surrender 11
XII MISCELLANEOUS 12
12.01 Access by Landlord 12
12.02 Rules and Regulations 12
12.03 Time 12
12.04 Entire Agreement 12
12.05 Notices 12
12.06 Captions 12
12.07 Brokers Commissions 12
12.08 Applicable Law 12
12.09 Force Majeure 12
12.10 Partial Invalidity 12
12.11 Tense, Number & Gender 12
12.12 Tenant Improvements 13
12.13 Parking 13
12.14 Square Footage 13
12.15 Attachments 12
Rider A 14-15
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INITIAL: Landlord /si/ SS Tenant /si/ PBH
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OFFICE LEASE
THIS LEASE is made of the date specified in the Schedule of Terms between WESTLAKE DEVELOPMENT COMPANY, INC., a California Corporation. ("Landlord'), and the tenant specified in the Schedule of Terms, ("Tenant"), upon the following terms and conditions:
COVENANTS, TERMS AND CONDITIONS OF LEASE
ARTICLE 1
GRANT OF PREMISES AND TERM
SECTION 1.01 DESCRIPTION: Landlord leases to Tenant, and Tenant hires from Landlord, subject to the terms. covenants, and conditions herein set forth. that certain office space described in the Schedule of Terms above ("Premises"). The parties agree that the Premises contain the approximate number of square feet set forth in the Schedule of Terms, and are commonly known by the Office or Suite Number entered in the Schedule of Terms. The entire area of which the Premises are a part is the building known as The Westlake Building, 520 South El Camino Real, San Mateo, CA 9440~ and is referred to in this Lease as the " Building."
SECTION 1.02 TERM: The term of this lease shall be for the period sec forth in the Schedule of Terms (Unless sooner terminated pursuant to ally provision hereof). The dare on which the term commences, as set forth in the Schedule of Terms, is referred to herein as the "Commencement Date."
SECTION 1.03 DELIVERY OF POSSESSION: Tenant agrees that in the event of the
inability of Landlord for any reason to deliver possession of the Premises to
Tenant on the scheduled commencement date set forth above, Landlord shall not be
liable for any damage thereby nor shall such inability affect the validity of
this Lease or the obligations of Tenant hereunder, but in such case Tenant shall
not be obligated to pay rent or other monetary sums until possession of the
Premises is rendered to Tenant; provided, that if the delay in delivery of
possession exceeds sixty (60) days, then the expiration date of the term of the
Lease shall be extended by the period of time computed from the scheduled
Commencement Date to the date possession is tendered. In the event Landlord
shall not have delivered possession of the Premises within six (6) months from
the scheduled Commencement Date, then Tenant al its option, to he exercised
within thirty (30) days after the end of said six (6) month period, may
terminate this Lease and upon Landlord's return of any monies previously
deposited by Tenant, the parties shall have no further rights or liabilities
toward each other. Tenant's election to terminate may be exercised only by
written notice pursuant to Section 12.05. The provisions of Subdivision (1) of
Section 1932 of the California Civil Code shall not apply to this Lease, and the
Tenant waives the benefit of such provisions.
SECTION 1.03.5 NONDELIVERY OF POSSESSION: If for any reason Lessor cannot deliver possession of the premises to Lessee, Lessor shall not be subject to any liability therefor.
SECTION 1.04 CONDITION AND CARE OF THE PREMISES: Tenant's taking possession of the Premises shall constitute Tenant's acknowledgment that the Premises are in good condition, are as represented, and are satisfactory to Tenant in all material Respects. The Tenant will take good care of the premises, fixtures and appurtenances, and all alterations. additions, and improvement To either; will suffer no waste or injury, will execute and comply with all laws, rules, orders, ordinances and regulations at any time issued or in force (except those requiring structural alterations), applicable to the premises or to the Tenant's occupation thereof, of any lawful authority and/or the Board of Fire Underwriters of the Landlord's insurer; will repair at or before the end of the
term, all injury done by the installation or removal of furniture and property and at the end of the term will quit and surrender (he premises in good order and condition, subject to normal wear and tear.
ARTICLE II
RENT
SECTION 2.01 MONTHLY RENT: Tenant agrees to pay Landlord, Westlake Development Company, Inc., at 520 South El Camino, Real. Suite 900, San Mateo. California or at such other place as may be designated from time to time in writing by Landlord, without any prior demand therefor. in advance on the first day of each calendar month of the term hereof, without reduction or offset. and subject to adjustment as provided in Section 2.02, the sum set forth in the Schedule of Terms as monthly rent. Monthly rent shall be paid on the execution of this Lease. Monthly rent for any portion of a month in which the Commencement Date occurs shall be paid on the Commencement Date, Monthly rent for any partial month shall be prorated at the rate of one-thirtieth (1/30) of the monthly rent per day. Landlord shall have the right to accept all rent and other payments and to negotiate checks in payment thereof without any waiver of Rights, irrespective of any conditions to the contrary sought to be imposed by Tenant. Rent hereunder shall be deemed paid to Landlord when received by Landlord, or its designee, at Landlord's address. or at such other address as Landlord shall have designated.
SECTION 2.02 RENTAL ADJUSTMENT: Base Rent shall be increased as of the third
(3rd) anniversary of the commencement of the term of this Lease and every other
three (3) years thereafter during the term hereof by the percentage of increase,
if any, shown by The "Consumer Price Index for the U.S. and Selected Areas for
Urban Wage Earners and Clerical Worker, All items (1967 - 100)," Published by
the United States Department of Labor, Bureau of Labor Statistic, for the San
Francisco, Oakland area (the "Adjusting Index") as compared with the Consumer
Price Index for the calendar month immediately preceding the commencement of the
term Hereof: (The monthly rent for the following three years shall be set by
multiplying the monthly rent for the calendar month Immediately preceding the
effective date of the adjustment by a fraction, the numerator of which is the
Extension Index and the Denominator of which is the Beginning Index) provided,
however, that in no event shall the then current Base Rent be decreased.
If any adjustment date shall occur on other than the first (1st) day of any calendar month, the current Base Rent as the first (1st) day of Such month shall be paid on such a day, and Base Rent due on the first (1st) day of the following calendar month shall be adjusted Accordingly for adjustment applicable to the portion of the prior calendar month commencing on such adjustment date. If the Adjusting Index is unavailable on the date on which the first installment of Base Rent as adjusted shall become due, Tenant shall pay The same Base Rent for such installment as the Base Rent for the preceding month, and any adjustment for the change in such installment shall be paid with Base Rent for the following month. If the Bureau of Labor Statistics ceases to use the 1967 average if 100 as the basis of calculation for the Consumer Price Index, then the Consumer Price Index shall be adjusted in accordance with the conversion formula published by the Bureau of Labor Statistics. If at the time required for the determination of the amount of any adjustment in Base Rent, the Consumer Price Index is no longer published or issued, a reliable government or other non partisan publication evaluating the information therefore used in determining the Consumer Price Index shall be used.
SECTION 2.03 LATE CHARGE: Tenant hereby acknowledges that late payment by Tenant to Landlord of rent or other sums due hereunder will cause Landlord to incur costs not contemplated by this Lease, the exact amount of which is extremely difficult and economically impractical to ascertain. Such costs include, but are not limited to, administrative expenses, processing and accounting charges, loss of interest income, and tare charges that may be imposed upon Landlord by the terms of any deed of trust covering the Premises. Tenant therefore agrees that if any installment of rent or any other payment due hereunder from Tenant to Landlord shall not be received by Landlord, or Landlord's designee, within five (5) business days after said amount is due, then Tenant shall pay to Landlord a late charge equal to ten (10%) percent of the amount of the delinquent rent or other payment. The amount of each late charge to be paid by Landlord by Tenant shall he assessed and added to the next successive monthly installment of rent due hereunder. The parties agree that such late charge represents a fair and reasonable estimate of the loss and expense to be suffered by Landlord by reason of late payment by tenant and that such late charge may lie assessed and collected by Landlord to ameliorate such loss and expense. Acceptance of such late charge by Landlord shall not constitute a waiver of Tenant's default and shall not relieve Tenant of the obligation to rent and other payments on or before the dare on which they are due, nor shall the provisions of this paragraph in any way prevent Landlord from exercising any of its other rights and remedies in the event (hat rent or other payments are not received buy Landlord on or before the date due. If a late charge is payable hereunder, whether or not collected, for any four (4) installments of Base Rent during any twelve (12) month period, then all further Base rent shall automatically become due and payable quarterly in advance, rather than monthly, not withstanding any provision of this Lease to the contrary.
SECTION 2.04 ADDITIONAL RENT: If, in any calendar year during the term of this Lease, operating costs, as hereinafter defined, shall be increased above those in effect during the base year, the rent shall be increased by Tenant's proportionate share of the Operating Costs. Tenant's proportionate share of the Operating Costs shall be the ratio of the total Operating Costs that the total Number of square feet in the Premises hears to the total number of leasable square feet in the Building. The parties agree that the Premises constitute the percentage of the leasable square feel in the Building that is specified in the Schedule of Terms.
(A) OPERATING COSTS DEFINED: The term "Operating Costs" as used in this Lease shall mean all costs of any kind paid or incurred by Landlord in operating, cleaning, equipping, protecting, insuring, lighting, repairing, replacing, heating, air conditioning, maintaining, and managing the improvements, building, land, parking facility, and other areas constituting the Building. The Operating Costs shall include, without limitation, all real property (axes and general and special assessments levied and assessed against the Building, utilities, supplies, janitorial services, employees' wages, Social Security and unemployment insurance contributions, union benefits, rubbish removal, maintenance and replacement of landscaping, premiums for public liability and property damage and Fire and extended coverage insurance, and property management costs. Operating Costs shall also include without limitation all costs of maintenance, repair and replacement to buildings and improvements (other than Tenant improvement costs incurred by Landlord directly pursuant to and in connection with the making of a new lease agreement), and to equipment used in maintenance and operation; provided however, that those costs which are properly charged as capital expense shall be amortized over the period of title for which the cost is capitalized in accordance with Landlord's normal accounting practices. Should any governmental authority having jurisdiction impose a lax and/or an assessment upon or against Landlord, the Premises, or the Building, based on ownership, use, operation, rentals, income, or in any other manner, as a substitution in whole or part for, or in addition to, existing real property taxes, the same shall be included in Operating Coals as defined herein; provided, however, that Operating Costs shall not include ally net income tax assessed against Landlord.
(B) BASE YEAR: Base year shall mean the calendar year in which the term of this Lease commences (provided, however, that the base year shall in no event be earlier than the first full calendar year following the date of initial occupancy by the first occupant of the Building).
(C) SUBSEQUENT YEAR: Subsequent year shall mean the calendar year following the base year, falling wholly or partly within the term of this Lease.
(D) TENANT STATEMENT: On or before the 1st day of April of the calendar year following the base year, and on or before that day in each subsequent year, Landlord will furnish a comparative statement which shall show a comparison of all pertinent items and information applicable to the base year and to die calendar year preceding the year in which the comparative statement is submitted, and the amount, if any, of the increase in rent to be enforced as hereinafter set forth. The failure of Landlord to furnish a comparative statement for any year in accordance with this Section 2.04 shall be without prejudice to the right of Landlord to furnish comparative statements in subsequent years. In the event that Landlord shall. for any reason, be unable to furnish a comparative statement on before April 1st of any year, Landlord may, on or before such date furnish Tenant with a notice to the effect that Landlord is entitled to an increase in rent and that the provisions of this paragraph will be invoked with respect thereto. In such event, Landlord shall furnish Tenant with a comparative statement on or before the following August 1st, with the same force and effect as a comparative statement would have had, if delivered on or before April 1st of such year.
(E) PAYMENT OF INCREASE IN RENT: The payment of any increase in rent pursuant to the provisions of this Article II, Section 2.04. shall be made as follows: On the first day of the month following the furnishing of a comparative statement, Tenant shall forthwith pay to Landlord a sum equal to one-twelfth (1/12) of Tenant's share of such increase multiplied by the number of months then elapsed commencing with January 1st of the preceding calendar year, and, in advance, one-twelfth of such share with respect tot he then current month, and thereafter, until a different comparative statement shall be submitted as above provided, the monthly installments of rent payable under this lease shall be increased by an amount equal to one-twelfth (1/12) of Tenant's share of such increase.
In the event that a comparative statement shall show, or in the event that a comparative statement. if submitted, would have shown an Increase in rent which shall be different from the rent herein reserved or from that shown by the last previous comparative statement. then the rent payable by Tenant shall he adjusted proportionately consistent with the foregoing provisions.
SECTION 2.05 SECURITY DEPOSIT: On execution of this Lease, Tenant shall provide Landlord the sum specified in the Schedule of Terms as a security deposit. That sum shall be held by Landlord as security for the faithful performance by Tenant of all the terms, covenants and conditions of this Lease to be kept and performed by Tenant during the term hereof. Landlord may claim out of the security deposit such amounts as are reasonably necessary to remedy the default of Tenant in the payment of rent, to repair damages to the Premises caused by Tenant, to remedy the default of Tenant with respect to any other provision of this Lease, or to pay any amount which Landlord may spend or become obligated to spend by reason of Tenant's default. If any portion of the security deposit is so used or applied. Tenant shall within five (5) days after written demand therefore, deposit cash with Landlord in an amount sufficient to restore the security deposit to its original amount, and Tenant's failure to do so shall be a material breach of this Lease. Any remaining portion of the security deposit which is not applied in the manner hereinabove described shall be returned to Tenant. or at Landlord's option to the last assignee of Tenant's interest hereunder. no later than two weeks after the termination of the lease term. In the event of the termination of Landlord's interest in (his Lease. Landlord shall either transfer the portion of the security deposit remaining after any
lawful deductions are made to Landlord's successor in interest, or return such portion of the security deposit to Tenant, at the option of Landlord, and in accordance with Civil Code Section 1950.7.
SECTION 2.06 INTEREST ON DELAYED PAYMENTS: If Tenant shall fail to pay, when the same is due and payable, any rent, additional rent, amounts or charges payable hereunder, such unpaid amount shall bear interest from the due date to the date of Payment at the maximum rate allowable by applicable usury law. or if there be no such rate at eighteen percent (18%) per annum.
ARTICLE III
SERVICES AND UTILIT1ES
SECTION 3.01 SERVICES ANU UTILITIES: Subject to the provision of Article II, (all sections) Landlord shall maintain the Public and common areas of the Building including, but not limited to the lobbies, stairs, elevators (which shall provide full-time Automatic unattended (or al Landlord's option, attended) service), corridors and rest rooms in the Building, the windows in the building, the mechanical, plumbing and electrical equipment serving the Building, and the structure itself, in reasonably good order and condition, except for damage caused by the negligent, reckless or intentional act or omission of Tenant or any of its agents. Contractors, employees or invitees, which damage shall be repaired by Tenant at its sole cost and expense Landlord reserves the right To make such changes to the public and common areas of the Project as Landlord shall determine (including, but not limited to, changes of the size, use, shape and nature thereof).
Provided that Tenant shall not be in default hereunder. and subject to the provisions contained elsewhere herein and to the rules and regulations of the Building, and provided that Landlord shall receive the additional rent provided for in Article II above, Landlord shall furnish to the Premises during ordinary business hours or generally recognized business days, to be determined by Landlord, water and electricity suitable for the intended use of the premises, heat and air conditioning required in Landlord's judgment for the comfortable use and occupation of the premises, and 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. Landlord shall be under no obligation to provide additional or after hours hear, air conditioning or any of the other utilities or services referred to above, but it Landlord elects in provide any of same at Tenant's request, Tenant shall pay to Landlord a reasonable charge therefore as determined by Landlord. Tenant agrees to keep and cause to be kept closed all window coverings when necessary because of the sun's position, and Tenant also agrees at all times to cooperate fully with Landlord and to abide by all the regulations and requirements which Landlord may prescribe for the proper functioning and protection of (he healing, ventilating and air conditioning system.
When Tenant makes any use of the Premises, including without limitation thereto. additional employees, guests or other users, installation or movement of furniture, partitions, freestanding shelving and files or other alterations, additions or improvements of the Premises (Whether or not Landlord has consented pursuant to Section 4.01 of this Lease), and installation or movement of hear generating machines or equipment, which use affects the temperature otherwise maintained by the HEATING, VENTILATION AND AIR CONDITIONING system, Landlord reserves the right to modify the system, move the thermostats, rebalance the air flows and/or Install supplementary air conditioning or heating units in the Premises and the reasonable cost thereof, including the cost of installation. operation and maintenance thereof, shall be paid by Tenant to Landlord upon demand by Landlord. Landlord, in Landlord's sole discretion, shall determine
whether Tenant's use of the Premises has affected the temperature otherwise maintained by the HEATING, VENTILATION, AND AIR CONDITIONING system.
Landlord shall not be in default hereunder or be liable for any damages directly or indirectly resulting from, nor shall the rent he 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.
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.
ARTICLE IV
ALTERATIONS AND IMPROVEMENTS
SECTION 4.01 ALTERATIONS: Without the prior written consent of Landlord, Tenant shall not make or permit to be made any alterations, additions, or improvements in, on or to the Premises or any part thereof. Upon the expiration or sooner termination of the term hereof, any alterations, additions or improvements by Tenant in, on or to the Premises, except for Tenant's movable furniture, equipment and other personal property, shall become Landlord's property and shall remain on the Premises without compensation to Tenant. In the event Landlord consents to the making of any alterations, additions or improvements by Tenant, same shall be made by Tenant, at Tenant's sole cost and expense, in accordance with plans and specifications approved in advance by Landlord, and any contractor or person selected by Tenant to make same must be approved in advance by Landlord. Upon completion of any alterations, additions or improvements, Tenant shall furnish to Landlord a set of "as built" plans and specifications therefor. Tenant shall cause all such alterations, additions or improvements to be completed in a good workmanlike, diligent, prompt and expeditious manner. Notwithstanding the second sentence of this Paragraph 4.01, upon the expiration or sooner termination of the term hereof, Tenant shall, upon demand by Landlord and at Tenant's sole cost and expense, forthwith and with all due diligence remove any alterations. Additions or improvements made by or for the account of Tenant, all movable furniture, equipment and other personal property of Tenant, designated by Landlord to be so removed, and tenant shall immediately, at its sole cost and expense, repair any damage caused by such removal.
SECTION 4.02 MECHANICS' LIENS: Tenant shall keep the Premises free from any and all liens arising out of any work performed, materials furnished, or obligations incurred by Tenant. Tenant shall indemnify, defend and hold Landlord harmless against any claim, demand, liability or expense on account of claims for work done or materials supplied for Tenant or persons claiming under it.
In the event 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 or a proper bond, Landlord shall have, in addition to all other remedies provided herein and at law or in equity, the right, but no obligation, to cause same to he released by such means as it shall deem proper including, but not limited to, payment of the claim giving rise to such lien. All such sums paid by Landlord and all expense incurred by it in connection therewith shall be considered
additional rent and shall be payable to it by Tenant on demand with interest at the maximum rate permitted by law. Landlord may require, at Landlord's sole option, that Tenant provide to Landlord, at Tenant's sole cost and expense, a lien and Completion bond in an amount equal to one and one-half (1-1/2) times any and all estimated costs of any improvements, additions or alterations to the premises to insure Landlord and the Building from and against any liability for mechanic's or materialmen's liens and to insure completion of the work. 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 Building and any other party having an interest therein from mechanic's and materialmen's liens, and Tenant shall give to Landlord at least five (5) business days' prior notice of commencement of any work on the Premises.
SECTION 4.03 SIGNS: Tenant shall not, permit or suffer any signs, advertisements or notices to be displayed, inscribed upon or affixed on any part of the outside or inside of the building of which they are a part, except on the directory board to be provided by Landlord and by the entrance doors of the premises, and then only of such size, color and style as Landlord may approve. Landlord may, without liability. remove any such sign, advertisement or notice or other attachment affixed in violation of this paragraph, and Tenant agrees to pay the cost of removal.
SECTION 4.04 IDENTITY: Landlord at its cost shall place, construct and maintain (1) a directory(ies) to be located in the lobby of the Building and in such other locations. if any, as Landlord, in its sole discretion, may determine, which directory(ies) shall be for the display of the business of tenants in the Building and their respective suite numbers, and (2) if the Premises are located an a multi-tenant poor. a sign is to be located in the common area hallway at the main entrance to the Premises in such specific location as Landlord shall determine, which sign shall be for the display of Tenant's business name and suite number; provided, however, that Tenant shall notify Landlord of its business name and shall. upon demand by Landlord, pay the cost of directory sign strips bearing Tenant's business name. Landlord shall have the sole right to determine and change from time to time the type of such directory(ies) and such sign and all common Project signage, and the contents thereof including, but not limited to, size of letters, style, color and placement.
ARTICLE V
CONDUCT OF BUSINESS
SECTION 5.01 USE OF PREMISES: Tenant shall use the Premises solely for the business or professional office purposes Identified as the Premises use in the Schedule of Terms. Tenant shall not use or permit the Premises to be used for any other purpose Whatsoever without the prior written consent of Landlord.
SECTION 5.02 COMMON AREAS: Landlord grants to Tenant, its customers, patrons, suppliers and invitees, a nonexclusive license to use those portions of the common areas of the Building which are open to the public at all times during the term, jointly and in common areas of the Building which are open to the public al all times during the term, jointly and in common with all others entitled to the use thereof. The right to use the common areas as herein provided is subject to the rules and regulations of Landlord regarding such use.
SECTION 5.03 INSURANCE PROHIBITION: No use shall be made or permitted to be made of the Premises or acts done Thereon which will increase the existing rate of insurance on the Building or cause the cancellation of any insurance policy
covering the Building or any part thereof. If any act on the pan of Tenant or use of the Premises made or permitted by Tenant shall cause, directly or indirectly, any cost increase for Landlord's insurance, such additional expense shall be paid by Tenant to Landlord upon demand as additional rent. Tenant shall not permit to be kept or used in or about the Premises any article which may be prohibited by the standard form of fire and extended coverage insurance policy.
SECTION 5.04 WASTE OR NUISANCE: Tenant shall not commit or suffer to be committed any waste upon the Premises, or any public or private nuisance, or any other act or thing which may disturb the quiet enjoyment of any other tenant in the Building.
SECTION 5.05 PERSONAL PROPERTY TAXES: Tenant shall pay, before delinquency, any and all taxes and assessments, licenses, fees, and public charges levied, assessed. imposed or payable during the term of this Lease upon all Tenant's fixtures, furniture, equipment, appliances or personal property installed or located in, upon or about the Premises or any part thereof.
ARTICLE VI
INDEMNITY AND INSURANCE
SECTION 6.01 INDEMNITY: Tenant agrees to indemnify and save harmless Landlord against and from any and all claims, Demands, actions, damages, liability and expense in connection with or for loss of or damage to property or injury or death to any Person from any cause whatsoever while in, upon or about the Premises. or any such claim, demand or the like arising from or out of any occurrence in, upon or at the premises, by or on behalf of any person or persons. firm or firms, corporation or corporations. arising from 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, and will further indemnify and save Landlord harmless against and from any and all claims arising from any breach of default on Tenant's part in the performance of any covenant or agreement on Tenant's part to be performed, pursuant to the terms of this lease, or arising from any act or negligence of Tenant, or any of it's agents, contractors. Servants, employees or licensees, and front and against all costs. counsel fees, expenses and liabilities incurred in or about any such claim or 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 covenants to resist or defend at Tenant's expense such action or proceeding by counsel reasonably satisfactory to Landlord. Tenant. as a material part of the consideration to Landlord, hereby assumes all risk of damage to property in, upon or about the premises from any source and to whomever belonging. and Tenant hereby waives all claims in respect thereof against Landlord and agrees to defend and save Landlord harmless from and against any such claims by others.
SECTION 6.02 LIABILITY INSURANCE: Tenant shall. at all times. during the term hereof. and at its own cost and expense, keep in full force and effect a policy or policies of public liability and property damage insurance with a company or companies satisfactory to Landlord with respect to the Premises and business conducted thereon by Tenant in which both Landlord and Tenant shall be named as insureds, and in which the limits of liability shall be not less than One Million Dollars ($1,000,000.00) combined single limit of liability.
Not more frequently than each three (3) years if, in the reasonable business judgment of Landlord, (he amount of public liability and Property damage insurance coverage maintained by Tenant is at that time not adequate. Tenant shall increase the insurance coverage to an amount which is determined to be adequate by Landlord in the exercise of reasonable business judgment.
SECTION 6.03 PERSONAL PROPERTY INSURANCE: Tenant shall. at its sole cost and expense. maintain on all of its personal property tenant improvements and alterations in, upon or about the Premises an insurance policy written on an "all risk" perils basis. This policy shall be written for one hundred (100%) percent of the replacement value. The proceeds from any such policy shall he used by Tenant for the replacement of such personal property and the restoration of Tenant's improvements or alterations.
SECTION 6.04 OTHER INSURANCE MATTERS: All the insurance required under this Lease shall:
(a) Be issued by insurance companies authorized to do business in the State of California and approved by Landlord.
(b) Be issued as a primary policy.
(c) Contain an endorsement requiring thirty (30) days written notice from the insurance company to both parties, before cancellation or change in the coverage, scope, or amount of any policy. Each policy, or a certificate of the policy, together with evidence of payment of premiums, shall be deposited with the Landlord at the commencement of the term and on renewal of the policy not less than twenty (20) days before expiration of the term of the policy.
(d) Landlord shall be named as additional insured under die above noted policies.
SECTION 6.05 WAIVER OF SUBROGATION: The parties release each other and their respective authorized representatives from any claims for damage to any person or to the Premises and to the fixtures, personal property, tenant improvements and alterations by Landlord or Tenant in or on the Premises that are caused by or result from risks insured against under ally insurance policy carried by either party and in force at the time of any such damage, to the extent of the insurance proceeds received from such policy. Each party shall cause each insurance policy obtained by it to provide that the insurance company waives all right or recovery by way of subrogation against either party in connection with any damage covered by any policy. Neither party shall be liable to the other for any damage caused by fire or any of the risks insured against under any insurance policy required by this Lease to the extent of the insurance proceeds obtained from said policy.
The provisions of this Article VI, all sections, shall survive the expiration or termination of this Lease with respect to ally claims or liability arising from events occurring prior to such expiration or termination.
ARTICLE VII
DAMAGE AND DESTRUCTION
SECTION 7.01 DESTRUCTION OF PREMISES: In the event the building of which the premises are a part of is damaged by fire or other perils covered by extended coverage insurance the 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 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, in which event, Landlord shall give Tenant written notice of its intention within said ninety (90) days period. In the Event Landlord elects not
to restore said Building, 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 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 may be repaired, reconstructed or restored within a period of ninety (90) days from the date of the happening of such casually and Landlord will receive insurance proceeds sufficient to cover the cost of such repairs, the Landlord shall commence to proceed diligently with the work of repair, reconstruction and restoration and the Lease shall continue in full force and effect; or if such work of repair, reconstruction and restoration is such as to require a period longer than (90) days or exceed twenty five percent (25%) of the full insurable value thereof or if said proceeds will not he sufficient to cover the cost of such repairs, the Landlord may either 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 no event terminate. Under any of the conditions, the Landlord shall give written notice to Tenant of its intention within the period of ninety (90) days. In the event Landlord elects not to restore said Building, this lease shall be deemed to have terminated as of the date of such partial destruction.
Upon any termination of this Lease under this Article VII, all Sections, 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 the items which have therefore accrued and are then unpaid.
SECTION 7.02 ABATEMENT OF RENT: In the event of repair, reconstruction and restoration as herein provided, the rental provided to be paid under this lease shall he abated proportionately in the ratio which the Tenant's use of said premises is impaired during the period of such repair, reconstruction or restoration. The Tenant shall not be entitled to any compensation or damages for loss in the use of the whole or any part of said premises and/or any inconvenience or annoyance occasioned by such repair, damage. reconstruction or restoration.
SECTION 7.03 OTHER DAMAGE AND DESTRUCTION MATTERS: Tenant shall not be
released from any of its obligations under this Least except to the extent and
upon the conditions expressly slated in this section. Notwithstanding anything
to the contrary contained in this Article VII, all sections, should Landlord be
delayed or prevented from repairing or restoring said damaged premises within
(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 Tenant shall
be released from its obligations under this Lease as of the end of said one (1)
year period.
In the event that damage is due to any cause other than those perils covered by the personal property policy referred to in Paragraph 6.03, Landlord my elect to terminate this Lease.
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 to those portions of said Building and said premises which were originally provided at Landlord's expense; and the repair and restoration of items not provided al Landlord's expense shall be Tenant's obligation.
Notwithstanding anything to the contrary contained in this section, Landlord shall not have any obligation whatsoever to repair, Reconstruct or restore the premises when the damage resulting from any casualty covered under this section occurs during the last twelve (12) months of the last extended term.
SECTION 7.04 WAIVER : Tenant hereby waives any rights it may have under the provisions of California Civil Code Section 1932, subdivision 2 and Section 1933, Subdivision 4 or any successor statute thereto, regarding repair and termination after destruction of part or all of the Premises.
ARTICLE VIII
ASSIGNMENT, SUBLETTING AND SUCCESSORS
SECTION 8.01 ASSIGNMENT AND SUBLETTING: A. Without Landlord's prior written consent, Tenant (including without Limitation any subsequent assignee or subtenant) shall not, either voluntarily or by operation of law, assign, mortgage, hypothecate or encumber this lease, or any interest in this lease, permit the use of the Premises by any person or persons other than Tenant, or sublet the Premises or any part of the Premises. Any transfer of this Lease from tenant by merger, consolidation, or liquidation, or the sale, conveyance, transfer by bequest or inheritance, or other transfer of a controlling interest in Tenant shall constitute an assignment for the purposes of this Lease. The transfer in the aggregate during the term of this Lease of more than thirty percent (30%) interest in the profits of or voting rights in Tenant shall constitute the transfer of a controlling interest. Landlord's consent to one assignment or subletting shall not constitute a waiver of the necessity for such consent to a subsequent assignment or subletting, whether by Tenant or any subsequent assignee of subtenant. Landlord's acceptance of rent or any other payment in the nature of rent from Tenant's assignee or subtenant shall not constitute or be construed as Landlord's consent to such assignment or subletting.
B. Should Tenant (including any subsequent assignee or subtenant) request Landlord's consent to an assignment of this lease, or the subleasing of any portion of the Premises, Tenant shall submit in writing to Landlord:
(1) the name and address of the proposed assignee or sublessee and its relationship, if any with Tenant.
(2) the terms and conditions of die proposed assignment or subleasing.
(3) the nature and character of the business of the proposed assignee or sublessee;
(4) banking, financial and other credit information relating to the proposed assignee or sublessee reasonably sufficient to enable Landlord to determine the proposed assignee's or sublessee's financial responsibility; and
(5) The sum of One Thousand ($ 1.000.00) Dollars as a transfer fee to reimburse Landlord for its expense incurred in reviewing Tenant's request.
(6) In the event that Tenant sells, sublets, assigns or transfers this Lease and at any time receives periodic rent and/or other consideration which exceeds that tenant at that rime is obligated to pay to Landlord, Tenant shall pay to Landlord, 100% of the gross increase in such rent as such rent is received by Tenant and 100% of any other consideration received by Tenant from such subtenant or assignee in connection with such sublease or assignment and Landlord shall receive 100% of any such consideration with such assignment.
C. Landlord shall not unreasonably withhold its consent to the proposed assignment or subletting referred to in Tenant's request pursuant to said Article, provided that the following further conditions shall be fulfilled.
(1) The Demised Premises shall nut. without Landlord's prior consent. have been listed or otherwise publicly advertised for assignment or subletting at a rental rate less than the prevailing rental rate for new space in the Building. However, this shall not be deemed to prohibit Tenant from negotiating or consummating a sublease al a lower rental rate, if and only if Tenant shall first have offered to sublet the space involved to Landlord for the same rents and term by notice given with or after Tenant's request for consent to the subletting or assignment. Landlord may accept such offer within thirty (30) days from receipt of such request for consent or twenty (20) days after receipt of the offer. whichever is later;
(2) Tenant shall not then he in default hereunder beyond the lime herein provided, if any, to cure such default;
(3) The proposed assignee or subtenant shall have a financial standing, be of character, be engaged in a business, and Proposed to use the Demised Premises in a manner in keeping with the standard in such respect of the other Tenancies in the Building;
(4) The proposed sublessee or assignee shall not be a department or agency of the United States or the City or State of California, or an employment agency, photographic studio or public stenographer;
(5) The character of the business to be conducted or the proposed use of the Demised Premises by the proposed assignee or subtenant shall not (a) be likely to increase Landlord's operating expenses beyond that which would he incurred for use by Tenant or for use in accordance with the standards of by Tenant or for use in accordance with the standards of use of other tenancies in the Building, (b) increase the burden of existing cleaning services or elevators over the burden prior to such proposed subletting or assignment; or (c) violate or be likely to violate any provisions or restrictions herein relating to the use or occupancy of the Demised Premises;
(6) In case of a Subletting, it shall be expressly subject to all of the obligations of Tenant under this Lease and the further condition and restriction that the sublease shall not be assigned, encumbered or otherwise transferred or the subleased premises further sublet by the sublessee in whole or in pan, or any part thereof suffered or permitted by' the sublessee to be used or occupied by others, without the prior written consent of Landlord in each instance;
(7) No subletting shall end later than the Expiration Date of this Lease.
D. Every subletting hereunder is subject to the express conditions and by accepting a sublease hereunder each subtenant shall he conclusively deemed to have agreed, that if this Lease should be terminated prior to the Expiration Date or if Landlord should succeed to Tenant's estate in the Demised Premises, then at Landlord's election the subtenant shall either surrender the Demised Premises to Landlord within sixty (60) days of Landlord's request therefor, or attorn to and recognize Landlord as the subtenant's landlord under The sublease and the subtenant shall promptly execute and deliver any instrument Landlord may reasonably request to evidence such attornment.
E. Tenant shall furnish Landlord with a counterpart (which may be a reproduced copy) of each sublease or assignment made hereunder within ten (10) days after the date of its execution. Tenant shall remain fully liable for the
performance of all of Tenant's obligations hereunder notwithstanding any subletting or assignment provided for herein, and without limiting the generality of the foregoing, shall remain fully responsible and liable to Landlord for all acts and omissions of any subtenant or assignee which shall he in violation of any the obligations of this Lease and any such violation shall be deemed to be a violation by Tenant.
F. Notwithstanding any assignment and assumption by the assignee of the obligations of Tenant hereunder, Tenant herein named, and Each immediate or remote successor in interest of Tenant herein named, shall remain liable jointly and severally (as a primary obligor) with its assignee and all subsequent assignees for the performance of Tenant's obligations hereunder, and, without limiting the generality of the foregoing, shall remain fully and directly responsible and liable to Landlord for all acts and omissions on the part of any assignee subsequent to it in violation of any of the obligations of this Lease.
G. Notwithstanding anything to the contrary contained in this Lease, no assignment of Tenant's interest in this Lease shall be binding upon Landlord unless the assignee, and if the assignee is a partnership, the individual partners, shall execute and deliver to Landlord an agreement, in recordable form, whereby such assignee agrees unconditionally to be personally bound by and to perform all of the obligations of Tenant hereunder and further expressly agrees that notwithstanding such assignment the provisions of this Article shall continue to be binding upon such assignee with respect to all future assignments and transfers. A failure or refusal of such assignee to execute or deliver such an agreement in recordable form shall not release the assignee from its liability for the obligations of Tenant hereunder assumed by acceptance of the assignment of this Lease.
H. If Landlord shall decline to give its consent to any proposed assignment or sublease, or if Landlord shall exercise any of its options under this Article. Tenant shall indemnify, defend and hold harmless Landlord against and from any and all loss, liability. damages, costs and expenses (including attorneys' fees and costs) resulting from any claims that may be made against Landlord by the proposed assignee or sublessee or by any brokers or other persons claiming a commission or similar compensation in connection with the proposed assignment or sublease.
I. In the event that (i) Tenant fails to execute and deliver the assignment or sublease to which Landlord consented within forty-five (45) days after the giving of such consent, then, Tenant shall again comply with all of the provisions and conditions of this Article before assigning its interest in this Lease or subletting die Demised Premises.
J. The consent by Landlord to an assignment, or to a subletting shall nor relieve Tenant from obtaining the express consent in writing of Landlord to any further assignment or subletting.
K. If Tenant's interest in this Lease be assigned, or if the Demised Premises or any part thereof be sublet or occupied by anyone other than Tenant. Landlord may collect rent from die assignee, subtenant or occupant and apply the net amount collected to the fixed annual rent and additional rent herein reserved, but no such assignment, subletting, occupancy or collection shall be deemed a waiver of the provisions of this Paragraph or of any default hereunder or the acceptance of the assignee, subtenant or occupant as Tenant, or a release of Tenant from the further observance or performance by Tenant of all of the covenants, conditions, terms and provisions on the part of Tenant to be performed or observed.
SECTION 8.02 ESTOPPEL CERTIFICATE: Tenant agrees at any time and from time to time during the term of this Lease, within ten (10) days after demand therefore by Landlord to execute and deliver to Landlord or to any proposed mortgagee, trustee, beneficiary or purchaser, a certificate in recordable form certifying
that this Lease is in full force and effect, that the Lease is unmodified or if modified stating any such modifications, that there are no defenses or offsets thereto or stating such defenses or offsets as are claimed by Tenant, that Landlord has fulfilled all obligations to Tenant theretofore accruing or stating which obligations have not been fulfilled if any are claims by Tenant, that Tenant has no notice of a prior assignment, hypothecation or pledge of rents of the Lease or stating what notices have been received, and the date to which all rents have been paid.
SECTION 8.03 SUBORDINATION: Tenant agrees upon request of Landlord to subordinate this Lease and Tenant's rights hereunder to the lien of any mortgage, deed of trust or other encumbrance, together with any conditions, renewals, extensions, or replacement thereof, now or hereafter placed. charged or enforced against any interest of Landlord in this Lease, in the leasehold estate thereby created or in the Premises or the land, building or improvements included therein or the Building, and deliver, at Landlord's cost, at any time or from time to time upon demand by Landlord, such documents as may be required to effectuate such subordination.
SECTION 8.04 TRANSFERS BY LANDLORD: In the event of any transfer of interest hereunder by Landlord, whether by sale, foreclosure, exercise of a power of sale under a deed of trust or otherwise, Tenant shall attorn to such transferee of Landlord and recognize such transferee as Landlord under this Lease. In die event of such a transfer of Landlord's interest hereunder, then from and after the effective date of such transfer, Landlord shall be released and discharged from any and all obligations under this Lease except those already accrued.
SECTION 8.05 ATTORNEY-IN-FACT: Tenant, upon request of any party in interest, shall promptly execute such instruments and certificates to carry out the intent of Sections 8.02, 8.03 and 8.04 hereof as shall be requested by Landlord. Tenant hereby irrevocably appoints Landlord as Attorney-in-Fact for Tenant with full power and authority to execute and deliver in the name of Tenant any such instruments or certificates , if, in fifteen (15) days after the date of a written request by Landlord to execute such instruments, Tenant shall not have executed the same.
SECTION 8.06 SUCCESSORS: All of the terms covenants and conditions hereof shall be binding upon and inure to the benefit of The heirs, executors, administrator, successors and assigns of die parties hereto, provided that nothing in this Section 8.06 shall be Deemed to permit any assignment, subletting, occupancy or use contrary to the provisions of this Article VIII.
ARTICLE IX
DEFAULT AND REMEDIES
SECTION 8.06 EVENTS OF DEFAULT BY TENANT: Each of the following events shall be an event of default hereunder by Tenant and a breach of this Lease.
(a) The failure by Tenant to pay Landlord any rent or other charges pursuant to any provision of this Lease, as and when the same shall become due and payable: or
(b) The failure by Tenant to perform or observe any of the other agreements, terms, covenants or conditions hereof if such nonperformance or nonobservance continues for a period of (15) days after notice thereof by Landlord to Tenant or, if such performance or observance cannot be had within such fifteen (15) day period then if Tenant has not in good faith commenced such performance within fifteen (15) day period and does not diligently proceed therewith to completion; or
(c) The filing by or against Tenant in any court pursuant to any statute of the United States or of any slate a petition in bankruptcy; or
(d) The transfer of Tenant's interest in this Lease to any person, firm, or corporation other than Tenant, whether voluntarily or By operation of law, except in the manner expressly permitted in this Lease or any subsequent amendment thereto; or
(e) Except for takings contemplated by Article X hereof, the taking by any person of the leasehold created hereby, or any part thereof, by execution, attachment or other process of law; or
(f) Vacating or abandoning the Premises by Tenant at any time during the term hereof for a period in excess of fourteen (14) consecutive days.
SECTION 9.02 REMEDIES ON DEFAULT: Landlord shall have the following remedies if Tenant commits a default. These remedies are not exclusive; they are cumulative in addition to any remedies now or later allowed by law. These remedies are subject to the provisions of the Bankruptcy Code of the United States and any other law in effect at the time of default to the extent required by such law.
Landlord can continue this Lease in full force and effect in such case, the Lease will continue in effect so 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, broker's 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 date the rent is due, less the rent Landlord receives from any reletting. No act by Landlord allowed by this Paragraph shall terminate this Lease unless Landlord notifies tenant that landlord elects to terminate this lease. After Tenant's default and for as long as Landlord does nor terminate Tenant's right to possession of the Premises if Tenant obtains Landlord's consent Tenant shall have the right to assign or sublet its interest in this lease, but Tenant shall not be released from liability. Landlord can terminate Tenant's right to possession of the premises at any time. No act by Landlord other than giving notice to Tenant shall terminate this Lease. Acts of maintenance, efforts to relet the Premises or the appointment of a receiver on Landlord's initiative to protect Landlord's interest under this lease shall not constitute a termination of Tenant's right to possession. On termination, Landlord has the right to recover from Tenant: The worth, at the time of the award, of the unpaid rent that had been earned at the time of termination of this lease: The worth, at the time of the award of the amount by which the unpaid rent that would have been earned after the date of termination of this Lease until the time of the award exceeds the amount of the loss of rent that Tenant proves could have been reasonably avoided: The worth, at the rime of the award, of the amount by which the unpaid rent for the balance of the rent after the time of the award exceeds the amount of the loss of rent that Tenant proves could have been reasonably avoided. Any other amount, and court costs, necessary to compensate Landlord for all detriment proximately caused by Tenant's default. "The worth, at the time of the award", as used in Subdivisions (I) and (2) of this subparagraph @) is to be computed by allowing interest at the maximum rate allowed by applicable usury law at that rime, or if there is not such maximum, at eighteen percent (18%) per annum. The worth at the time of the award", as referred to in Subdivision (3) of subparagraph (b) is to be computed by discounting the amount at the discount
rate of the Federal Reserve Bank of San Francisco at the time of the award, plus one percent (1 %). For purposes of this clause, the rent due for any calendar month after reentry by Landlord shall be deemed to be the highest average monthly rent, including any additional rent and other charges, which shall have been payable for any consecutive twelve month period prior to such reentry.
(a) Landlord shall have the right to have a receiver appointed to collect rent and conduct Tenant's business. Neither the filing of a petition for the appointment of a receiver nor the appointment itself shall constitute an election by Landlord to terminate this lease.
(d) In the event of Tenant's default and Landlord's reentering of the Premises. Tenant agrees to pay to Landlord, as an additional item of damages, the cost of repairs, alterations, redecorating, lease commissions and Landlord's other expenses incurred in reletting the Premises to a new Tenant.
(e) Tenant hereby waives any right of redemption or relief from forfeiture under California Code of Civil Procedure Sections 1174 or 1179, or under any other present or future law, if Tenant is evicted or Landlord takes possession of the Premises by reason of any default by Tenant hereunder.
SECTION 9.03 WAIVER: No act of Landlord shall be a waiver by Landlord of any breach of any term, covenant or condition herein contained except an express, written waiver, or as otherwise specifically stated herein. Any such waiver shall not be deemed to be a waiver of such term, covenant or condition itself or any subsequent breach of the same or of any other term, covenant or condition herein contained. The subsequent acceptance of rent hereunder by Landlord shall not be deemed to be a waiver of any preceding breach by' Tenant of any term, covenant or condition of the Lease other than the failure of Tenant to pay particular rental so accepted, regardless of Landlord's knowledge of such preceding breach at the time of acceptance of such rent. No act or conduct of Landlord, including, without limitation, the acceptance of the keys to the Premises, shall constitute an 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.
SECTION 9.04 ATTORNEY'S FEES: (a) In the event of any action at law or in equity (including but not limited to specific performance) between Landlord and Tenant arising out of this Lease or to enforce any of the provisions or rights hereunder, the unsuccessful party to such litigation covenants and agrees to pay to the successful party all costs, including investigation costs and similar expenses and including reasonable attorney's fees incurred therein by such successful party, and if such successful party shall Recover judgment in any such action or proceeding, such costs, expenses and attorney's fees shall be included in and as part of such judgment.
If either party to this Lease becomes a party to any litigation concerning this Lease, the Premises, or the Building, by Reason of any act or omission of the other party or its authorized representatives, and not by any act or omission of the party that Becomes a party to that litigation or any act or omission of its authorized representatives, the party that causes the other party to Become involved in the litigation shall be liable to that party for reasonable attorney's fees and court costs incurred by it in the litigation.
SECTION 9.05 HOLDING OVER: If Tenant continues in possession of the Premises after the expiration or any sooner termination of the lease term, said holding over shall, at Landlord's option be construed to be a tenancy from day to day.
Tenant agrees to pay Landlord for each day Tenant holds over rent equal to 150% of the total rent and other charges which Tenant was obligated to pay during the twelve (12) months preceding such termination or expiration prorated on the basis of a 360 day year, plus all damages sustained by Landlord by reason for such retention. In the event of any unauthorized holding over, tenant shall indemnify Landlord against all claims for damages by any other tenant to whom Landlord may have leased all or any part of the Leased Premises covered hereby effective upon the termination of this Lease. Such tenancy shall be under the terms and conditions specified in this Lease, so far as applicable. Nothing contained herein shall constitute a consent by Landlord to Tenant's continued possession following the expiration or other terminations of this Lease, and nothing contained in this Section shall limit Landlord's rights and remedies as provided by law or elsewhere in this Lease.
SECTION 9.06 EXPENDITURES BY LANDLORD: Whenever, under any provision of this Lease, Tenant is obligated to make any payment or expenditure, or to do any act or thing, or to incur any liability whatsoever, and Tenant fails, refuses or neglects to perform as required and such failure, refusal or neglect continues for a period of ten (10) days (or such shorter time as may elsewhere be provided for in this lease) after written notice thereof from Landlord to Tenant, Landlord shall be entitled but shall not be obligated to make any such payment or expenditure, or do any such act or thing or to incur any such liability, all on behalf of, at the cost and/or the account of Tenant, and in such event the amount thereof, reasonable attorneys' fees and expenses incurred by Landlord, and interest at the maximum rate allowable by applicable usury law (or if there is no such maximum al eighteen percent (18%) per annum) shall be deemed additional rent hereunder and shall be immediately due and payable upon notice to Tenant in writing.
ARTICLE X
CONDEMNATION
SECTION 10.01 TAKING OF PREMISES: If the whole or any part of the premises hereby demised shall be taken or Condemned by any competent authority under power of eminent domain for public or quasi public use or purpose, then, at the Landlord's option to be exercised by written notice to be given by the Landlord to the Tenant, the term hereby granted shall cease from time to time when possession of the part so taken shall he required for public or quasi public use or purpose, and any condemnation award shall be apportioned between Landlord and Tenant in accordance with their interest. The current rent in such case shall be apportioned.
SECTION 10.02 WAIVER: Each party hereby waives the provisions of California Code of Civil Procedure Section 1265.130 or any similar statute allowing either party to petition the Superior Court to terminate this Lease in the event of a partial taking of the Premises.
SECTION 10.03 SALE IN LIEU OF CONDEMNATION: For the purposes of this Article X the voluntary sale or conveyance in lieu of condemnation, or transfer of all or a portion of the Building in avoidance of condemnation, hut under a threat of condemnation, shall be deemed an appropriate caking under the power of eminent domain.
ARTICLE XI
SURRENDER
SECTION 11.01 SURRENDER AT END OF TERM: At the expiration or sooner termination of the Lease, Tenant shall surrender the Premises and all improvements and alterations made thereto in good condition, reasonable use and wear thereof and damage by the elements, by fire or by earthquake excepted, except for alterations and improvements that Tenant is obligated to remove under the provision of this Lease. Tenant shall remove all of its trade fixtures and personal property before surrendering the Premises as aforesaid and shall repair any damage to the Premises caused thereby. Tenant's obligation to observe or perform this covenant shall Survive the expiration or sooner termination of this lease.
SECTION 11.02 VOLUNTARY SURRENDER: The voluntary or other surrender of this Lease by Tenant, or mutual cancellation thereof shall not work as a merger but shall, at the option of Landlord, terminate any or all existing subleases or subtenancies or operate as an assignment to Landlord of any or all such subleases or subtenancies.
ARTICLE XII
MISCELLANEOUS
SECTION 12.01 ACCESS BY LANDLORD: Landlord shall have the right at all reasonable times during the term of this Lease enter the premises for any appropriate purpose, including without limitation, the purpose of examining or inspecting the same, providing services or maintenance, or making such repairs or alterations thereon as Landlord shall deem necessary, post notices of non-responsibility for alterations, additions or repairs, show the Premises to prospective purchasers or tenants. Landlord shall have such right of entry and the right to fulfill the purpose thereof without any rebate of rent to Tenant for ally loss of Occupancy or quiet enjoyment of the Premises thereby occasioned.
SECTION 12.02 RULES AND REGULATIONS: Any rules and regulations which have been or may be promulgated by Landlord are hereby made a part of this Lease, and Tenant agrees to comply with and observe the same after notice thereof. Tenant's failure to keep and observe said rules and regulations shall constitute a breach of the terms of this Lease in like manner as if the same were contained herein as covenants and conditions. Landlord reserves the right from time to time to amend or supplement said rules or regulations and to adopt additional rules and regulations applicable to the Premises and to the Building. Landlord shall have no obligation to Tenant as a result of the violation of any such rules by any other person.
SECTION 12.03 TIME: Time is of the essence of this lease and of each and every one of the provisions herein contained except in respect to delivery of possession of the Premises to Tenant.
SECTION 12.04 ENTIRE AGREEMENT: This Lease, the attachments thereto, and Landlord's rules and regulations made pursuant to Section 12.02 hereof set forth all the covenants, agreements and conditions between Landlord and Tenant concerning the Premises and there are no other covenants. promises, agreements, conditions or understandings either oral or written between them. No subsequent alteration, amendment, change or addition to the Lease (other than revisions to rules and regulations pursuant to Section 12.02) shall be binding upon Landlord or Tenant unless reduced to writing and signed by each of them.
This Lease shall not be binding and in effect until a counterpart hereof has been executed and delivered by the parties each to the other.
This Lease shall bind and inure to the benefit of the parties hereto and their respective heirs, representative, successors or assigns, provided that this lease shall not inure to the benefit of any assignee pursuant to an assignment which is not in compliance with the terms of this Lease.
SECTION 12.05 NOTICES: Any and all notices or demands by or from Landlord to
Tenant or Tenant to Landlord, shall be in Writing. They shall be served either
personally or by first class mail. If served personally, service shall be
conclusively deemed to he Made at the time of service. If service is by first
class mail, service shall be conclusively deemed to have been made forty-eight
(48) hours after tire deposit thereof in the United States Mail, postage
prepaid, addressed to the party to whom such notice or demand is to he given, as
hereinafter provided. Any notice or demand shall be addressed to Tenant at the
address set forth for Tenant in the Schedule of Terms, and to landlord at such
address as Landlord may from time to time designate by written notice to Tenant,
or in the absence of such designation, at the following address: 520 SOUTH EL
CAMINO REAL, SUITE 900, SAN MATEO, CA 94402.
SECTION 12.06 CAPTIONS: The headings and 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 of this Lease.
SECTION 12.07 BROKERS' COMMISSIONS: Tenant represents and warrants that there are no claims for brokerage Commissions or finders fees arising from Tenant's activities in connection with Tenant's execution of this Lease, and Tenant agrees to Indemnify and defend Landlord against, and hold him harmless from, all liabilities arising from any such claim.
SECTION 12.08 APPLICABLE LAW: The Laws of the State of California shall govern the validity, performance and enforcement of this Lease.
SECTION 12.09 FORCE MAJEURE: Any prevention, delay or stoppage due to strikes, walkouts, labor disputes, acts of God, inability to obtain labor or materials or reasonable substance therefore, governmental restrictions, governmental regulations, governmental controls, enemy or hostile governmental action, civil commotion, fire or other casualty, and other causes beyond the reasonable control of (he party obligated to perform. shall excuse the performance by such party for a period equal to any such prevention, delay or stoppage, except the obligations imposed with regard to rental and other charge to be paid by Tenant pursuant to the Lease.
SECTION 12.10 PARTIAL INVALIDITY: If any term, covenant or condition of this Lease or the application thereof to any person or circumstance shall, to any extent be invalid or unenforceable, the remainder of this Lease shall not be effected thereby and each term, covenant and condition shall be valid and enforced to the fullest extent possible permitted by law.
SECTION 12.11 TENSE, NUMBER AND GENDER: Each number, tense and gender used in this Lease shall include any other tense, number or gender where the context and the parties hereto or this context and references therein shall require. If Tenant shall consist of more than one person, all of the terms, covenants and conditions of the Lease shall be joint and several as to Tenant.
SECTION 12.12 TENANT IMPROVEMENTS: Tenant agrees to move into the Premises in its "as is" condition with no Tenant improvement work required.
SECTION 12.13 PARKING: Eight (8) non-reserve parking permits will be provided to Tenant for the full term of the Lease at the parking rate of $65 per month each permit. The non-reserve parking spaces are available on a first-come basis in the lower level garage or the street level parking lot.
SECTION 12.14 SQUARE FOOTAGE: Any statement of square footage set forth in this lease that may have been used in calculating rent or Tenant's other monetary obligations is an approximation. Landlord and Tenant agree that said approximation and reasonable and the rent based thereon is not subject to revision whether or not the actual square footage is more or less.
SECTION 12.15 ATTACHMENTS: The following are attachments to this Lease and are hereby incorporated by reference herein.
Rider "A" Rules and Regulations
IN WITNESS WHEREOF, the parties hereto have, executed this Lease or, as the case may be, have caused their officers or agents thereunto duly authorized to execute this Lease, in duplicate as of the day and year set forth in (he Schedule of Terms.
LANDLORD: WESTLAKE DEVELOPMENT CO., INC. TENANT: FIRST NATIONAL BANK OF
NORTHERN CALIFORNIA
By: /SS/ STEVE SHU By: /SS/ PAUL B. HOGAN
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Steve Shu-General Manager Paul B. Hogan-President & C.O.O.
Date: 4/28/00 Date: 4/24/00
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Rider A
RULES AND REGULATIONS
ATTACHED TO AND MADE A PART OF THIS LEASE
1. Except with prior written consent of the Landlord, no Tenant shall sell, or permit the sale at retail of newspapers, magazines, periodicals, or theater tickets, in or from the demised premises, nor shall any Tenant carry on, or permit or allow any employee or person to carry on, the business of stenography, typewriting or any similar business in or from the demised premises for the service or accommodation of occupants of any other portion of the building, or any manufacturing of any kind, or the business of a public barber shop, beauty parlor, or a manicuring and chiropodist business, or any business other than that specifically provided for in the Tenant's lease.
2. No Tenant shall obtain for use upon the demised premises ice, drinking water, towel and other similar services. or accept barbering or bootlacking services in the demised premises, except from persons authorized by the Landlord, and at hours and under regulations fixed by the Landlord.
3. The sidewalks, halls, passages, elevators and stairways shall not be obstructed by any of the Tenants or used by them for any purpose other than for ingress to and egress from their respective demised premises. The halls, passages, entrances, elevators, stairways, balconies and roof are not for the use of the general public, and the Landlord shall in all cases retain the right to control and prevent access thereto of all persons whose presence in the judgment of the Landlord shall be prejudicial to the safety, character, reputation and interests of the building and its Tenants, provided, that nothing herein contained shall be construed to prevent such access to persons with whom the Tenant normally deals in the ordinary course of its business unless such persons are engaged in illegal activities. No Tenant and no employees of any Tenant shall go upon the roof of the building without the written consent of the Landlord.
4. The sashes, sash doors, windows, glass lights, and any lights, or skylights that reflect or admit light into the halls or other places of the building shall not be covered or obstructed. The toilet rooms, water and wash closets and other water 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 he borne by the Tenant who, or whose clerks, agents, servants, or visitors. shall have caused it.
5. No sign, advertisement or notice, visible from the exterior of the demised premises shall be inscribed, painted or affixed by the Tenant on any part of the building or the demised premises without the prior written consent of the Landlord. If the Landlord shall have given such consent at any time, whether before or after the execution of this Lease, such consent shall in no way as a waiver or release of any of the provisions hereof or of this Lease and shall be deemed to relate only to the particular sign, advertisement or notice so consented to by the Landlord and shall not be construed as dispensing with the necessity of obtaining the specific written consent of the Landlord with respect to each and every such sign, advertisement or notice other than the particular sign, advertisement or notice, as the case may be, so consented to by the Landlord. If the Landlord. by a notice in writing to the Tenant, shall object to any curtain, blind, shade or screen attached to, or hung in, or used in connection with any window or door of the demised premises, such use of such curtain. Blind, shade or screen shall be forthwith discontinued by the Tenant. No awnings shall be permitted on any part of the demised premises.
6. The Tenant shall not do or permit anything to be done in the demised premises, or bring or keep anything therein, which shall in any way increase the rate of fire insurance on the building or on the property kept therein, or obstruct or interfere with the rights of other Tenants, or in any way injure or
annoy them; or conflict with the regulations of the Fire Department or fire laws, or with any insurance policy upon the building, or any part thereof; or with ally rules and ordinances established by the Board of Health or other governmental authority.
7. No safes or other objects larger or heavier than the freight elevators of the building are limited to carry shall be brought into or installed on the demised premises. The Landlord shall have power to prescribe the weight and position of such safes or other objects, which shall, if considered necessary by the Landlord, stand on three-inch thick wood strips to distribute the weight, The moving of safes shall occur only between such hours as may be designated by, and only upon previous notice to, the manager of the building and the persons employed to move safes in or out of the building must he acceptable to the Landlord. No freight, furniture or bulky matter of any description shall be received into the building or carried into the elevators except during hours and in a manner approved by the Landlord.
8. The Landlord shall clean the demised premises and. except with the written consent of the Landlord, no person or persons other than those approved by the Landlord will be permitted to enter the building for such purpose, but the Tenant shall not cause unnecessary labor by reason of the Tenant's carelessness and indifference in the preservation of good order and cleanliness.
9. No Tenant shall sweep or throw or permit to be swept or thrown from the demised premises any dirt or other substance into any of the corridors or halls, elevators, or out of the doors or stairways of the building. and the Tenant shall nor use, keep or permit to be used or kept any foul or noxious gas or substance in the demised premises, or permit or suffer the demised premises to be occupied or used in a manner offensive or objectionable to 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 therein, no shall any animals or birds be kept in or about the building.
10. No cooking shall be done or permitted by any Tenant on the demised premises, nor shall offices in the building be used fur the storage of merchandise or for lodging.
11. The Tenant shall not use or keep in the building any kerosene, gasoline, or inflammable fluid or any other illuminating material or use any method of heating other than that supplied by the Landlord.
12. If the Tenant desire telephone or telegraph connections, the Landlord will direct electricians as to where and how the wires are to be introduced. No boring or cutting for wires or otherwise shall be made without directions from the Landlord.
13. Each Tenant upon the termination of the tenancy, shall deliver to the Landlord all the keys of offices, rooms and toilet rooms which shall have been furnished the Tenant or which the Tenant shall have had made, and in the event of loss of any keys so furnished shall pay the Landlord therefor.
14. No Tenant shall lay linoleum or other similar floor covering so that the same shall be affixed to the floor of the demised premises in any manner except by a paste, or other material, which may easily be removed with water, the use of cement or other similar adhesive materials being expressly prohibited. The method of affixing any such linoleum or other similar floor covering to the floor, as well as the method of affixing carpets or rugs to the demised premises. shall be subject to approval by the Landlord. The expense of repairing any damage resulting from a violation of this rule shall be borne by the Tenant whom, or by whose agents, clerks, employees, or visitors, the damage shall have been caused.
15. No furniture, packages or merchandise will be received in the building or carried up or down in the elevators, except between such hours and in such elevators as shall be designated by the Landlord.
16. On Sundays and legal holidays, and on other days between the hours of 6
p.m. and 8 a.m. access to the building, or to the halls, corridors, elevators or
stairways in the building, or to the demised premises may be refused unless the
person seeking access is known and has a pass or is properly identified. The
Landlord shall in no case be liable for damages for the admission to or
exclusion from the building of any person whom the Landlord has the right to
exclude under Rule 3 above.
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 the doors or otherwise, for the safety of the Tenants and the protection of property in the building.
17. Tenant shall see that the doors of the suite are closed and securely locked before leaving the building and Tenant shall exercise extraordinary care and caution that all water faucets or water apparatus are entirely shut off before Tenant or Tenant's employees leave the building and that all electricity, gas or air in Tenant's suite shall likewise be carefully shut off, so as to prevent waste or damage, and for any default or carelessness Tenant shall make good all injuries sustained by other tenants or occupants of the building or Landlord.
18. The Tenant shall not alter any lock or install a new or additional lock or any bolt on any door of the demised premises without prior written consent of the Landlord. If the Landlord shall give its consent, the Tenant shall in each case furnish the Landlord with a key for any such lock.
EXHIBIT 10.6
FIRST NATIONAL BANK OF NORTHERN CALIFORNIA
1997 STOCK OPTION PLAN
1. Purposes of the Plan. The purposes of the First National Bank of Northern California 1997 Stock Option Plan are to attract and retain the best available personnel for positions of substantial responsibility and to provide additional incentive to the key Officers and Directors of First National Bank of Northern California and its Affiliates (hereinafter collectively referred to as the "Bank") by encouraging them to acquire a proprietary interest in the Bank, and, in general, to promote the success of the Bank's business.
Options granted hereunder to Officers may be either Incentive Stock Options or Nonstatutory Stock Options, at the discretion of the Committee and as reflected in the terms of the particular option agreements. Options granted hereunder to Nonemployee Directors may be Nonstatutory Stock Options only.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Affiliates" shall mean any parent corporation or bank, or subsidiary corporation or bank, as defined in Sections 424(e) and (f), respectively, of the Code.
(b) "Board of Directors" shall mean the Board of Directors of First National Bank of Northern California, as constituted from time to time.
(c) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(d) "Committee" shall mean the Board of Directors and any
committee(s) appointed by the Board of Directors in accordance with paragraphs
(a) and (b) of Section 4 of the Plan, except where otherwise expressly provided
or where the context requires otherwise.
(e) "Common Stock" shall mean shares of the Bank's Common Stock, par value $1.25 per share.
(f) "Bank" shall mean First National Bank of Northern California and its Affiliates.
(g) "Director" shall mean a member of the Board of Directors.
(h) "Incentive Stock Option" shall mean an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code.
(i) "Nonemployee Director" shall mean a Director who is not also an employee of the Bank, and who meets the definition of "nonemployee director" as stipulated in Rule 16b-3 of the Securities and Exchange Commission (the "SEC"), promulgated under Section 16(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as said Rule 16b-3 may be amended from time to time and as interpreted by the SEC ("Rule 16b-3").
(j) "Nonstatutory Stock Option" shall mean an Option not intended to qualify as an Incentive Stock Option within the meaning of Section 422 of the Code.
(k) "Officer" shall mean any person employed by the Bank or any Affiliate of the Bank as an officer, including an employee of the Bank who is also a Director. The payment of a director's fee by the Bank or any of its Affiliates shall not alone be sufficient to constitute "employment" by the Bank or any of its Affiliates.
(l) "Option" shall mean a stock option granted pursuant to the Plan.
(m) "Optioned Stock" shall mean the Common Stock subject to an Option.
(n) "Optionee" shall mean an Officer or Director who receives an Option.
(o) "Plan" shall mean the First National Bank of Northern California 1997 Stock Option Plan.
(p) "Share" shall mean a share of Common Stock, as adjusted in accordance with Section 10 of the Plan.
3. Stock Subject to the Plan. Subject to the provisions of Section 10 of the Plan, the maximum aggregate number of Shares which may be optioned and sold under the Plan is 200,000 Shares. If an Option should expire, terminate, or become unexercisable for any reason without having been exercised in full, the unpurchased Shares which were subject thereto shall, unless the Plan shall have been terminated, become available for future grant under the Plan. Any Shares which are withheld by the Bank upon exercise of an Option at the direction of an Optionee or which are delivered by an Optionee to pay the exercise price of an Option, as permitted by Section 6(c), shall become available for future grant under the Plan to Officers who are not subject to Section 16 of the Exchange Act.
4. Administration of the Plan. The following provisions shall govern the administration of the Plan:
(a) Subject to paragraph (b) below, the Plan shall be administered by the Board of Directors or by one or more committees of the Board of Directors duly appointed for this purpose by the Board of Directors. Once appointed, a committee shall administer the Plan on behalf of the Board of Directors, subject to such terms and conditions as the Board of Directors may
prescribe and shall continue to serve until otherwise directed by the Board of Directors. Subject to the foregoing, from time to time the Board of Directors may increase the size of the committee and appoint new members to the committee, remove members of the committee, and fill vacancies however caused. The Board of Directors may designate a Chairman and Vice-Chairman of the committee from among the committee members. Acts of the committee (i) at a meeting, held at a time and place and in accordance with rules adopted by the committee, at which a quorum of the committee is present and acting, or (ii) reduced to and approved in writing by a majority of the members of the committee, shall be the valid acts of the committee.
(b) Discretionary grants of Options to Officers and Directors, including Nonemployee Directors, may be made by, and all discretion with respect to the material terms of such Options may be exercised by, either (i) the Board of Directors or (ii) a duly appointed committee of the Board of Directors composed solely of three (3) or more Nonemployee Directors having full authority to act in the matter.
(c) The Bank shall effect the grant of options under the Plan
by execution of instruments in writing in a form approved by the Committee.
Subject to the express terms and conditions of the Plan, and the terms of any
Option outstanding under the Plan, the Committee shall have full power to
construe the Plan and the terms of any Option granted under the Plan, to
prescribe, amend and rescind rules and regulations relating to the Plan or such
Options and to make all other determinations necessary or advisable for the
Plan's administration, including, without limitation, the power to (i) determine
which persons meet the requirements of Section 5 hereof for selection as
participants in the Plan and which persons are considered to be "employees" for
purposes of the Code, and therefore eligible to receive Incentive Stock Options
under the Plan; (ii) determine to whom of the eligible persons, if any, Options
shall be granted under the 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 thereunder shall be Incentive
Stock Options, or Nonstatutory Stock Options; (iv) specify the number of Shares
to be covered by each Option; (v) in the event a particular Option is to be an
Incentive Stock Option, determine and incorporate such terms and provisions, as
well as amendments thereto, as shall be required in the judgment of the
Committee, so as to provide for or conform such Option to any change in any law,
regulation, ruling or interpretation applicable thereto; (vi) determine the fair
market value of Common Stock used by an Optionee to exercise Options pursuant to
Section 7(c) hereof; (vii) to accelerate or defer (with the consent of the
Optionee) the exercise date of any Option, consistent with the provisions of
Section 6; (viii) to cancel Options outstanding under the Plan with the consent
of the affected Optionee and to issue replacement Options therefor; provided
however, that if the exercise price of such replacement Options is lower than
the exercise price of the Options which were canceled in exchange therefor, then
such replacement Options shall not become exercisable unless and until
shareholder approval of such replacement Options is obtained within twelve (12)
months of the date of grant of such options, such shareholder approval to
consist of the affirmative vote of a majority of the shares represented and
voting at a duly held meeting at which a quorum is present (which shares voting
affirmatively also constitute at least a majority of the required quorum) or in
such other manner as may be required by law, (ix) to amend or modify any Option outstanding under the Plan with the consent of the affected Optionee; and (x) to make all other determinations deemed necessary or advisable for administering the Plan. The Committee's determination on the foregoing matters shall be conclusive.
(a) Options may be granted to Officers and Directors and an Officer or Director who has been granted an Option may, if he or she is otherwise eligible, be granted an additional Option or Options. Officers shall be eligible for the grant of Incentive Stock Options and Nonstatutory Stock Options. Nonemployee Directors shall be eligible for the grant of Nonstatutory Stock Options only.
(b) No Incentive Stock Option may be granted to an Officer which, when aggregated with all other Incentive Stock Options granted to such Officer by the Bank or any of its Affiliates, would result in Shares having an aggregate fair market value (determined for each Share as of the date of grant of the Option covering such Share) in excess of $100,000 becoming first available for purchase upon exercise of one or more Incentive Stock Options during any calendar year. Any excess amount which may be granted shall be treated as a Nonstatutory Stock Option to the extent of such excess.
(c) Section 5(b) of the Plan shall apply only to an Incentive Stock Option evidenced by an "Incentive Stock Option Agreement" which sets forth the intention of the Bank and the Optionee that such Option shall qualify as an Incentive Stock Option. Section 5(b) of the Plan shall not apply to an Option evidenced by a "Nonstatutory Stock Option Agreement" which sets forth the intention of the Company and the Optionee that such Option shall be a Nonstatutory Stock Option.
(d) The Plan shall not confer upon any Officer Optionee any right with respect to continuation of employment with the Bank nor any of its Affiliates, nor shall it interfere in any way with his or her right or the right of the Bank or its Affiliates to terminate his or her employment at any time.
6. Term of Option. The term of each Option granted to an Officer or Director shall be up to ten (10) years from the date of grant thereof or such shorter term as may be determined by the Committee and as provided in the Option agreement. However, in the case of an Incentive Stock Option granted to an Optionee who, at the time the Option is granted, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Bank or any of its Affiliates, the term of the Option shall be five (5) years from the date of grant thereof or such shorter time as may be provided in the Option agreement.
(a) The purchase price for the Shares to be issued pursuant to the exercise of an Option shall be determined by the Committee; provided, however, that the exercise price of a Nonstatutory Stock Option shall not be
less than one hundred percent (100%) of the fair market value of the Shares subject thereto on the date the Nonstatutory Stock Option is granted and the exercise price of an Incentive Stock Option shall not be less than one hundred percent (100%) of the fair market value of the Shares on the date the Incentive Stock Option is granted; and further provided, however, that no Incentive Stock Option shall be granted to an Optionee who, at the time of the grant of such Option, owns securities representing more than ten percent (10%) of the voting power of all classes of stock of the Bank or any of its Affiliates, at a per Share exercise price less than one hundred ten percent 110%) of the fair market value per Share on the date of grant.
(b) For the purpose of determining the exercise price of an Option, fair market value per Share shall be determined by the Committee in the good faith exercise of its discretion in accordance with any reasonable valuation method, including the valuation methods described in Treasury Regulation Section 20.2031-2; provided, however, that where there is a public market for the Common Stock, the Committee shall consider, as evidence of fair market value, the mean of the bid and asked prices (or the closing price if listed on a stock exchange or the National Association of Securities Dealers Automated Quotation ("NASDAQ") National Market System) of the Common Stock for the date of grant, as reported in the Wall Street Journal (or, if not so reported, as otherwise reported by NASDAQ 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 evidence of fair market value.
(c) The consideration to be paid for the Shares to be issued upon exercise of an Option, including the method of payment, shall be determined by the Committee and may consist entirely of (i) cash, (ii) check (bank, cashier's or certified), (iii) other Shares of Common Stock (held for the requisite period necessary to avoid a charge to the Bank's reported earnings) having a fair market value on the date of surrender equal to the aggregate exercise price of the Shares as to which said Option shall be exercised, (iv) delivery of an election to the Bank to withhold a sufficient number of Shares from the Shares otherwise due upon exercise of the Option having an aggregate fair market value on the date of exercise equal to the exercise price, (v) by any combination of such methods of payment, or (vi) any other consideration and method of payment for the issuance of Shares permitted under applicable law. In addition, full payment for the purchased Shares may be effected through a broker-dealer sale and remittance procedure pursuant to which the Optionee (i) shall provide irrevocable written instructions to a designated brokerage firm to effect the immediate sale of the purchased Shares and remit to the Bank, 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 Bank by reason of such purchase and (ii) shall provide written directives to the Bank to deliver the certificates for the purchased Shares directly to such brokerage firm in order to complete the sale transaction. An Optionee's election to deliver Shares or to have the Bank withhold Shares from the Shares otherwise due upon exercise of the Option to satisfy the exercise price is subject to approval by the Committee and must be made in accordance with rules and procedures established by the Committee, including the time within which such an election must be made.
(a) Procedure for Exercise; Rights as a Shareholder. Any Option granted hereunder shall be exercisable at such times and under such conditions as determined by the Committee. The vesting of any Option shall be determined by the Committee in its sole discretion provided , however, that each Option shall vest at the rate of at least 20 percent per year over the five years from the date such Option is granted. An Option may not be exercised for less than ten (10) Shares or for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of such exercise has been given to the Bank in accordance with the terms of the Option by the person entitled to exercise the Option and full payment for the Shares with respect to which the Option is exercised has been received by the Bank. Full payment may, as authorized by the Committee, consist of any consideration and method of payment allowable under Section 6(c) of the Plan. Until the issuance (as evidenced by the appropriate entry on the books of the Bank or of a duly authorized transfer agent of the Bank) of the stock certificate evidencing such Shares, no right to vote or receive dividends or any other rights as a shareholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. No adjustment will be made for a dividend or other right for which the record date is prior to the date the stock certificate is issued, except as provided in Section 10 of the Plan.
(b) Termination of Employment or Officer Status. Unless the Committee determines otherwise, upon the termination of an Officer Optionee's status as an employee, including the termination of the status as an employee of an Officer who is also a Director, his or her rights to exercise an Option then held shall be only as follows:
(i) Termination of Status as an Employee For Any Reason Other Than Cause. If an Officer ceases to serve as an employee for any reason other than Cause (as such term is defined below), Disability or Death, he or she may, within three (3) months after the date he or she ceases to be an employee of the Bank or any of its Affiliates, exercise his or her Option to the extent that he or she was entitled to exercise it at the date of such termination, provided the date of exercise is in no event after the expiration of the term of the Option. To the extent that he or she was not entitled to exercise the Option at the date of such termination, or if he or she does not exercise such Option (which he or she was entitled to exercise) within the time specified herein, the Option shall terminate.
(ii) Termination of Status as an Employee For Cause. If an Officer is determined by the Board of Directors to have committed an act of embezzlement, fraud, dishonesty, breach of fiduciary duty to the Bank, or to have deliberately disregarded the rules of the Bank which resulted in loss, damage or injury to the Bank, or if an Officer Optionee makes any unauthorized disclosure of any of the secrets or confidential information of the Bank, induces any client or customer of
the Bank to break any contract with the Bank or induces any principal for whom the Bank acts as agent to terminate such agency relations, or engages in any conduct which constitutes unfair competition with the Bank, or if an Officer Optionee is removed from any office of the Bank by any bank regulatory agency, his or her Options shall terminate on the date of termination of his or her employment for Cause. In making such determination, the Board of Directors shall act fairly and shall give the Officer Optionee an opportunity to appear and be heard at a hearing before the Board of Directors and present evidence on the Officer Optionee's behalf. For the purpose of this Section 7(c), termination of employment shall be deemed to occur when the Bank dispatches notice or advice to the Officer Optionee that the Officer Optionee's employment is terminated and not at the time of the Officer Optionee's receipt thereof, whether or not after termination of employment, the Officer Optionee may receive payment from the Bank for vacation pay, for services rendered prior to termination, for services for the day on which termination occurred, for salary in lieu of notice, or for other benefits. As used in this Section 7(c), the term "Bank" also includes any Affiliates of the Bank.
(iii) Disability of Officer Optionee. In the event an Officer is unable to continue his or her employment with the Bank or any of its Affiliates as a result of his or her total and permanent disability (as defined in Section 22(e)(3) of the Code), he or she may, within twelve (12) months following the date of termination, exercise his or her Option to the extent he or she was entitled to exercise it at the date of such termination; provided the date of exercise is in no event after the expiration of the term of the Option. To the extent that he or she was not entitled to exercise the Option at the date of termination, or if he or she does not exercise such Option (which he or she was entitled to exercise) within the time specified herein, the Option shall terminate.
(iv) Death of Officer Optionee. In the event of the death of an Officer Optionee while such Optionee is an employee of the Bank or any of its Affiliates, or during the three-month period referred to in Section 7(b)(i) hereof, the Option may be exercised at any time within twelve (12) months following the date of death, by the Officer Optionee's estate or by a person who acquired the right to exercise the Option by bequest or inheritance, but only to the extent of the right to exercise that had accrued at the date of death and provided that the date of exercise is in no event after the date of expiration of the Option.
(v) Termination of Nonemployee Director Status. Unless the Committee determines otherwise, upon the termination of a Nonemployee Director Optionee's status as a member of the Board of Directors, his or her rights to exercise an Option then held shall be only as follows:
(vi) Death or Disability. If a Nonemployee Director Optionee's tenure on the Board is terminated by death or disability, such Optionee or such Optionee's qualified representative (in the event of such Optionee's mental disability) or such Optionee's estate (in the
event of such Optionee's death) shall have the right for a period of twelve (12) months 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. 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.
(vii) Other Reasons. If a Nonemployee Director Optionee's tenure on the Board is terminated for any reason other than those mentioned above under "Death or Disability," the Optionee may, within three (3) months following such termination, exercise the Option to the extent such Option was exercisable by the Optionee on the date of such termination: provided the date of exercise is in no event after the expiration of the term of the Option.
9. Non-Transferability of Options. Options may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Optionee, only by the Optionee; provided, however, that Nonstatutory Stock Options may be transferred pursuant to a "qualified domestic relations order," and may be exercised by the transferee of such a transfer, to the extent allowed under Rule 16b-3, as it may be amended from time to time, or any successor rule.
10. Tax Withholding. Where the Bank deems that it is appropriate to withhold taxes relating to the exercise of any Option, the Committee may, in its discretion, require that such taxes be paid in a manner satisfactory to the Bank. The Bank may require the payment of such taxes before Shares of the Bank's Common Stock deliverable pursuant to such exercise are transferred to the Optionee.
11. Adjustments Upon Changes in Capitalization. Subject to any required action by the shareholders of the Bank, the number of shares of Common Stock covered by each outstanding Option, and the number of shares of Common Stock which have been authorized for issuance under the Plan but as to which no Options have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Option, as well as the price per share of Common Stock covered by each such outstanding Option, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of issued shares of Common Stock effected without receipt of consideration by the Bank; provided, however, that conversion of any convertible securities of the Bank shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Board of Directors, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Bank of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an Option.
12. Dissolution, Merger or Similar Event; Acceleration. Upon consummation of a plan of dissolution or liquidation of the Bank, or upon consummation of a plan of reorganization, merger or consolidation of the Bank with one or more banks or corporations as a result of which the Bank is not the surviving entity, or upon the sale of all or substantially all the assets of the Bank to another bank or corporation, the Plan shall automatically terminate and all Options theretofore granted shall be terminated, unless provision is made in connection with such transaction for assumption of Options theretofore granted, or substitution for such Options with new stock options or rights covering stock of a successor bank or corporation, or a parent or subsidiary corporation thereof, solely at the discretion of such successor bank or corporation, or parent or subsidiary corporation, with appropriate adjustments as to number and kind of shares and prices.
Notwithstanding any provisions in any Option agreement pertaining to the time of exercise of an Option, or part thereof, upon adoption by the requisite holders of the outstanding shares of Common Stock of any plan of dissolution, liquidation, reorganization, merger, consolidation or sale of all or substantially all of the assets of the Bank to another bank or corporation which would, upon consummation, result in termination of an Option as described above, all outstanding Options shall become immediately exercisable as to all unexercised Optioned Stock for such period of time as may be determined by the Committee, but in any event not more than fifteen (15) days, on the condition that the terminating event described above is consummated. If such terminating event is not consummated, Options granted pursuant to the Plan shall be exercisable in accordance with their respective terms as in existence prior to acceleration, except with respect to any Option exercised within the period of accelerated exercisability.
13. Term of Plan. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Bank as described in Section 16 of the Plan. It shall
continue in effect for a term of ten (10) years unless sooner terminated under
Section 13 of the Plan.
(a) The Board of Directors may amend or terminate the Plan from time to time in such respects as the Board of Directors may deem advisable. The Bank shall (only to the extent required, and in the manner required, by the Code and Rule 16b-3, as amended from time to time, or by any successor rule or other applicable law or regulation) obtain shareholder approval of any amendment to the Plan which would (i) materially increase the benefits accruing to participants under the Plan, (ii) materially increase the number of Shares which may be issued under the Plan; or (iii) materially modify the requirements as to eligibility for participation in the Plan.
(b) Except as provided in Section 11 of the Plan, any such amendment or termination of the Plan shall not affect Options already granted
and such Options shall remain in full force and effect as if this Plan had not been amended or terminated, unless mutually agreed otherwise between the Optionee and the Bank, which agreement must be in writing and signed by the Optionee and the Bank.
15. Conditions Upon Issuance of Shares. Shares shall not be issued pursuant to the exercise of an Option unless and until the exercise of such Option and the issuance and delivery of such Shares pursuant thereto shall comply with all the then applicable requirements of all regulatory agencies having jurisdiction, and the requirements of any stock exchange or inter-dealer quotation system upon which the Shares may then be listed, and shall be further subject to the approval of legal counsel for the Bank with respect to such compliance.
16. Reservation of Shares. The Bank, during the term of this Plan, shall take all necessary action, and if required, submit such action for shareholder approval, to reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan. Inability of the Bank to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Bank's legal counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Bank of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained.
17. Shareholder Approval of the Plan. Continuance of the Plan shall be subject to approval by the shareholders of the Bank within twelve (12) months after the date the Plan is adopted by the Board of Directors. Such shareholder approval shall consist of approval by the affirmative votes of the holders of a majority of the securities of the Bank present, or represented, and entitled to vote at a meeting duly held in accordance with applicable law, or by the written consent of the holders of a majority of the outstanding securities of the Bank entitled to vote.
18. Severability. If any provision of this Plan as applied to any person or to any circumstance shall be adjudged by a court of competent jurisdiction to be void, invalid, or unenforceable, the same shall in no way affect any other provision hereof, the application of any such provision in any other circumstances, or the validity or enforceability hereof.
19. Construction. Where the context or construction requires, all words applied in the plural herein shall be deemed to have been used in the singular and vice versa, and the masculine gender shall include the feminine and the neuter and vice versa.
20. Headings. The headings of the several paragraphs herein are inserted solely for convenience of reference and are not intended to form a part of and are not intended to govern, limit or aid in the construction of any term or provision hereof.
21. Governing Law. This Plan shall be governed by and construed in accordance with the laws of the State of California.
22. Conflict. In the event of any conflict between the terms and provisions of this Plan, and any other document, agreement or instrument,
including, without meaning any limitation, any written Option agreement, the terms and provision of this Plan shall control.
EXHIBIT 10.7
FIRST NATIONAL BANK OF NORTHERN CALIFORNIA
NONSTATUTORY STOCK OPTION AGREEMENT
1. Grant. First National Bank of Northern California, a national banking association (the "Bank"), hereby grants to _____________________________ (the "Optionee"), an option (the "Option") to purchase a total of ____________ shares of common stock, par value $1.25 per share, of the Bank, at the price determined as provided herein, and in all respects subject to the terms, definitions and provisions of the First National Bank of Northern California 1997 Stock Option Plan (the "Plan"). The Optionee has been provided with a copy of the Plan. Capitalized terms defined in the Plan shall have the same defined meanings herein.
2. Nature of the Option. This Option is intended by the Bank 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 Internal Revenue Code of 1986, as amended.
3. Exercise Price. The Exercise Price is $_______________ for each share of common stock, which price is not less than one hundred percent (100%) of the fair market value per share of the common stock of the Bank on the date of grant, being the date hereof (the "Grant Date").
4. Term of Option. Subject to earlier termination as provided in the Plan, this Option shall terminate on ______________________, and may be exercised during such term only in accordance with the Plan and the terms of this Option.
5. Exercise of Option. This Option shall be exercisable during its term in accordance with the provisions of Sections 7 and 8 of the Plan as follows:
(a) Right to Exercise. This Option shall vest cumulatively from the date of grant of the Option, exercisable during a period of __________ months after the Grant Date as follows:
(1) This Option may be exercised immediately to the extent of not more than ____ percent (__%) of the Shares;
(2) Upon or after the expiration of _________ (__) months from the Grant Date, this Option may be exercised to the extent of an additional ____ percent (__%) of the Shares;
(3) Upon or after the expiration of _________ (__) months from the Grant Date, this Option may be exercised to the extent of an additional ____ percent (__%) of the Shares;
(4) Upon or after the expiration of _________ (__) months from the Grant Date, this Option may be exercised to the extent of an additional ____ percent (__%) of the Shares; and
(5) Upon or after the expiration of _________ (__) months from the Grant Date, this Option may be exercised to the extent of an additional ____ percent (__%) of the Shares.
Any portion of the Option not exercised shall accumulate and can be exercised any time prior to or upon the expiration of _________ (__) months from the Grant Date.
(b) Minimum Exercise. This Option may not be exercised for less than ten (10) Shares nor for a fraction of a Share.
(c) Method of Exercise. This Option shall be exercisable by written notice which shall state the election to exercise the Option and specify the number of whole Shares in respect of which the Option is being exercised. Such written notice shall be signed by the Optionee and shall be delivered, in person or by certified mail, to the Secretary of the Bank accompanied by payment of the Exercise Price as specified below.
No Shares will be issued pursuant to the exercise of the 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 of the Bank's common stock 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 Bank with respect to any Shares until the issuance of a stock certificate to the Optionee for such Shares.
(d) Method of Payment. The entire Exercise Price of Shares issued under this Option shall be payable in cash or by certified check, official bank check, or the equivalent thereof acceptable to the Bank at the time when such Shares are purchased. Such payment also shall include the amount of any withholding tax obligation which may arise in connection with the exercise, as determined by the Bank. In addition, subject to Section 9 below, payment may be made in any of the following forms as indicated by an "x" in the relevant parenthesis:
( ) Surrender of Stock. Payment of all or part of the Exercise Price and any withholding taxes may be made all or in part with Shares which have already been owned by the Optionee or Optionee's representative for more than six (6) months and which are surrendered to the Bank in good form for
transfer. Such Shares shall be valued at their Fair Market Value on the date when the new Shares are purchased pursuant to exercise of the Option.
( ) Exercise/Sale. Payment may be made by the delivery (on a form prescribed by the Bank) of an irrevocable direction to a securities broker approved by the Bank to sell Shares and to deliver all or part of the sales proceeds to the Bank in payment of all or part of the Exercise Price and any withholding taxes.
( ) Exercise/Pledge. Payment may be made by the delivery (on a form prescribed by the Bank) of an irrevocable direction to pledge Shares to a securities broker or lender approved by the Bank, as security for a loan, and to deliver all or part of the loan proceeds to the Bank in payment of all or part of the Exercise Price and any withholding taxes.
(e) Termination of Service. In the event that the Optionee's status as an employee of the Bank terminates:
(i) As a result of such Optionee's death or total and permanent disability, the term of the Option shall expire twelve (12) months after such death or total and permanent disability but not later than the expiration date specified in Section 4 above.
(ii) As a result of termination by the Bank for cause, the
term of the Option shall expire as of the date on which the Bank's notice or
advice of such termination is dispatched to Optionee, but not later than the
expiration date specified in Section 4 above. For purposes of this paragraph
(ii), "cause" shall mean an act of embezzlement, fraud, dishonesty, breach of
fiduciary duty to the Bank, or the deliberate disregard of rules of the Bank
which results in loss, damage or injury to the Bank, the unauthorized disclosure
of any of the secrets or confidential information of the Bank, the inducement of
any client or customer of the Bank to break any contract with the Bank, or the
inducement of any principal for whom the Bank acts as agent to terminate such
agency relationship, the engagement in any conduct which constitutes unfair
competition with the Bank, the removal of Optionee from office by any court or
bank regulatory agency, or such other similar acts which the Committee in its
discretion determines to constitute good cause for termination of Optionee's
employment. As used in this paragraph (ii), Bank includes Affiliates of the
Bank.
(iii) As a result of termination for any reason other than total and permanent disability, death or cause, the term of the Option shall expire three (3) months after such termination, but not later than the original expiration date specified in Section 4 above.
Neither the Plan nor this Option shall be deemed to give Optionee a right to remain an employee of the Bank or an Affiliate. The Bank and its Affiliates reserve the right to terminate the employment of any employee at any time, with or without cause, subject to applicable laws and the terms of any written employment agreement.
6. Non-Transferability of Option. This Option may not be transferred in any manner otherwise than by will, by written beneficiary designation or by the laws of descent and distribution, and may be exercised during the lifetime of Optionee only by Optionee. The terms of this Option shall be binding upon the executors, administrators, heirs, successors and assigns of the Optionee.
7. Adjustment of Shares. In the event of a subdivision of the outstanding shares of common stock of the Bank, a declaration of a dividend payable in Shares, a declaration of a dividend payable in a form other than Shares in an amount that has a material effect on the value of Shares, a combination or consolidation of the outstanding shares of common stock (by reclassification or otherwise) into a lesser number of Shares, a recapitalization, a spin-off or a similar occurrence, the Bank shall make appropriate adjustments in the number of Shares covered by the Option and in the Exercise Price of the Option.
In the event that the Bank is a party to a merger or other reorganization, the Option shall be subject to the agreement of merger or reorganization. Subject to the provisions of Section 12 of the Plan, such agreement may provide, without limitation, for the assumption of all outstanding options by the surviving corporation or its parent, for their continuation by the Bank (if the Bank is a surviving corporation), for payment of a per-Share cash settlement equal to the difference between the amount to be paid for one Share under such agreement and the Exercise Price, or for the acceleration of the exercisability followed by the cancellation of any option not exercised, in all cases without the optionees' consent. Any cancellation shall not occur until after such acceleration is effective and optionees have been notified of such acceleration and have had reasonable opportunity to exercise their options.
Except as provided in this Section, Optionee shall have no rights by reason of any subdivision or consolidation of shares of stock of any class, the payment of any dividend or any other increase or decrease in the number of shares of stock of any class. Any issuance by the Bank of shares of stock of any class, or securities convertible into shares of stock of any class, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number or Exercise Price of Shares subject to the Option. The grant of this Option pursuant to the Plan shall not affect in any way the right or power of the Bank to make adjustments, reclassifications, reorganizations or changes of its capital or business structure, to merge or consolidate or to dissolve, liquidate, sell or transfer all or any part of its business or assets.
8. 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 Bank 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 Bank 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 Bank 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 Bank's common stock which have been previously held by the Optionee for such period of time as the Committee may require. The aggregate value of the shares withheld or delivered, as determined by the Committee must be sufficient to satisfy all such applicable taxes, except as otherwise permitted by the 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.
9. Resale of Shares. Optionee understands that the Bank is not currently subject to the periodic reporting and other requirements of the Securities Exchange Act of 1934, as amended; that the Bank can give no assurance regarding the possibility that the Bank will, at some point in the future, become subject to such requirements; that the Shares have not been registered under the Securities Act of 1933, as amended; that unless so registered, the Shares may not be offered or sold by the Bank except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act of 1933, as amended, and applicable state or other securities laws; and that the Bank intends that its offer and sale of the Shares will satisfy the conditions of, and therefore qualify for the exemption from registration under the Securities Act of 1933, as amended, provided by SEC Rule 701, made applicable to national banks by the Securities Offering Disclosure Rules of the OCC, and the exemption from qualification under the California Corporate Securities Law of 1968 provided by Section 25100 of the California Corporations Code.
Optionee further understands and agrees that, as a consequence of the exemption from registration provided by SEC Rule 701, the Shares will be subject to certain resale limitations, as follows: (a) the Shares will be deemed to be "restricted securities" as defined in SEC Rule 144; (b) resale of the Shares by Optionee must be in compliance with the registration requirements of the Securities Act of 1933, as amended, or an exemption therefrom; and (c) under SEC Rule 144, a minimum period of one year must elapse between the date of acquisition of "restricted securities" and any resale of such "restricted securities." That is, upon any exercise of the Option and transfer of the Shares to Optionee, unless the Bank has become subject to the periodic reporting and other requirements of the Securities Exchange Act of 1934, as amended, the resale of such Shares will be subject to the one year holding period required under SEC Rule 144. Ninety (90) days after the Bank becomes subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (if ever), such Shares (the "restricted securities") will be eligible to be resold by Optionee in reliance upon SEC Rule 144, without compliance with the minimum one year holding period.
Optionee further understands and agrees that the Bank may cause an appropriate restrictive legend or legends to be placed upon any certificate(s) evidencing the Shares, and may issue appropriate "stop-transfer" instructions to the Bank's transfer agent, U.S. Stock Transfer Corporation, in order to ensure compliance with relevant federal and state securities laws, as described hereinabove.
GRANT DATE: ________________________
FIRST NATIONAL BANK OF
NORTHERN CALIFORNIA
By: _______________________________
Title ______________________________
Duly Authorized on Behalf of
First National Bank of
Northern California
Optionee represents that Optionee is familiar with the terms and provisions of this Option and hereby accepts the same subject to all the terms and provisions hereof. Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Board of Directors or its duly appointed Committee upon any questions arising under the Plan.
Dated: ____________________ ______________________________ Optionee
EXHIBIT 10.8(a)
FIRST NATIONAL BANK OF NORTHERN CALIFORNIA
INCENTIVE STOCK OPTION AGREEMENT
1. Grant. First National Bank of Northern California, a national banking association (the "Bank"), hereby grants to ___________________________ (the "Optionee"), an option (the "Option") to purchase a total of _______ shares of common stock, par value $1.25 per share, of the Bank (the "Shares"), at the price determined as provided herein, and in all respects subject to the terms, definitions and provisions of the First National Bank of Northern California 1997 Stock Option Plan (the "Plan"). The Optionee has been provided with a copy of the Plan. Capitalized terms defined in the Plan shall have the same defined meanings herein.
2. Nature of the Option. This Option is intended to qualify as an incentive stock option as defined in Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). However, the Bank does not represent or warrant that this Option qualifies as an incentive stock option. Optionee acknowledges that Optionee is responsible to consult with Optionee's own tax advisor regarding the tax effects of the Option and the requirements necessary to obtain income tax treatment under Section 422 of the Code, including, but not limited to, holding period requirements.
Optionee further understands that, if Optionee disposes of any Shares received under this Option within two (2) years after the Grant Date of the Option specified below or within one (1) year after such Shares are transferred to Optionee, then Optionee 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 understands that, if Optionee disposes of such Shares at any time after the expiration of such two-year and one-year holding periods, any gain on such sale will be taxed as long-term capital gain. Optionee further understands that, under the provisions of the Taxpayer Relief Act of 1997, the maximum tax rate on net capital gains has been reduced for assets held longer than eighteen (18) months, as compared to the one year holding period. Optionee agrees to notify the Bank in writing within five (5) days after the date of any such disposition.
Optionee further understands that: (a) if Optionee is unable to continue employment with the Bank as a result of a total and permanent disability (as defined in Section 22(e)(3) of the Code), and if the other requirements for incentive stock option treatment contained in Section 422 of the Code are satisfied, Optionee will be entitled to exercise the Option within twelve (12) months of such termination without defeating incentive stock option treatment; but (b) if Optionee is unable to continue employment with the Bank as a result of disability which is not total and permanent (as defined in Section
22(e)(3) of the Code), the Option will not qualify as an incentive stock option unless it is exercised within three (3) months of the date of termination (i.e., while the Option may be exercised for a period of twelve (12) months after such termination, an exercise more than three (3) months following termination will result in the Option being taxed as a nonstatutory stock option).
Optionee acknowledges, and the Bank affirms, that the methodology by which the fair market value of the Shares has been determined by the Bank represents a good faith attempt, as defined in the Code and the regulations thereunder, at reaching an accurate appraisal of the fair market value of the Shares; and the Bank 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.
3. 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 of the Bank on the date of grant, being the date hereof (the "Grant Date").
4. Exercise of Option. This Option shall be exercisable during its term in accordance with the provisions of Sections 7 and 8 of the Plan as follows:
(a) Right to Exercise. This Option shall vest cumulatively from the date of grant of the Option, exercisable during a period of ________ months after the Grant Date as follows:
(1) This Option may be exercised immediately to the extent of not more than ____ percent (__%) of the Shares;
(2) Upon or after the expiration of _________ (__) months from the Grant Date, this Option may be exercised to the extent of an additional ____ percent (__%) of the Shares;
(3) Upon or after the expiration of _________ (__) months from the Grant Date, this Option may be exercised to the extent of an additional ____ percent (__%) of the Shares;
(4) Upon or after the expiration of _________ (__) months from the Grant Date, this Option may be exercised to the extent of an additional ____ percent (__%) of the Shares; and
(5) Upon or after the expiration of _________ (__) months from the Grant Date, this Option may be exercised to the extent of an additional ____ percent (__%) of the Shares.
Any portion of the Option not exercised shall accumulate and can be exercised any time prior to or upon the expiration of _________ (__) months from the Grant Date.
(b) Minimum Exercise. This Option may not be exercised for less than ten (10) Shares nor for a fraction of a Share.
(c) Method of Exercise. This Option shall be exercisable by written notice which shall state the election to exercise the Option and specify the number of Shares in respect of which the Option is being exercised. Such written notice shall be signed by the Optionee and shall be delivered in person or by certified mail to the Secretary of the Bank accompanied by payment of the Exercise Price specified in Section 3 above.
No Shares will be issued pursuant to the exercise of the 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 of the Bank's common stock 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 Bank with respect to any Shares until the issuance of a stock certificate to the Optionee for such Shares.
(d) Method of Payment. The entire Exercise Price of Shares issued under this Option shall be payable in cash or by certified check, official bank check, or the equivalent thereof acceptable to the Bank at the time when such Shares are purchased. Such payment also shall include the amount of any withholding tax obligation which may arise in connection with the exercise, as determined by the Bank. In addition, subject to Section 8 below, payment may be made in any of the following forms as indicated by an "x" in the relevant parenthesis:
( ) Surrender of Stock. Payment of all or part of the Exercise Price and any withholding taxes may be made all or in part with Shares which have already been owned by the Optionee or Optionee's representative for more than six (6) months and which are surrendered to the Bank in good form for transfer. Such Shares shall be valued at their fair market value on the date when the new Shares are purchased pursuant to the exercise of the Option.
( ) Exercise/Sale. Payment may be made by the delivery (on a form prescribed by the Bank) of an irrevocable direction to a securities broker approved by the Bank to sell Shares and to deliver all or part of the sales proceeds to the Bank in payment of all or part of the Exercise Price and any withholding taxes.
( ) Exercise/Pledge. Payment may be made by the delivery (on a form prescribed by the Bank) of an irrevocable direction to pledge Shares to a securities broker or lender approved by the Bank, as security for a loan, and to deliver all or part of the loan proceeds to the Bank in payment of all or part of the Exercise Price and any withholding taxes.
(e) Termination of Service. In the event that the Optionee's status as an employee of the Bank terminates:
(i) As a result of such Optionee's death or total and permanent disability, the term of the Option shall expire twelve (12) months after such death or total and permanent disability but not later than the original expiration date specified in Section 5 below.
(ii) As a result of termination by the Bank for cause, the term of the Option shall expire as of the date on which the Bank's notice or advice of such termination is dispatched to Optionee, but not later than the original expiration date specified in Section 5 below. For purposes of this paragraph (ii), "cause" shall mean an act of embezzlement, fraud, dishonesty, breach of fiduciary duty to the Bank, or the deliberate disregard of rules of the Bank which results in loss, damage or injury to the Bank, the unauthorized disclosure of any of the secrets or confidential information of the Bank, the inducement of any client or customer of the Bank to break any contract with the Bank, or the inducement of any principal for whom the Bank acts as agent to terminate such agency relationship, the engagement in any conduct which constitutes unfair competition with the Bank, the removal of Optionee from office by any court or bank regulatory agency, or such other similar acts which the Committee in its discretion determines to constitute good cause for termination of Optionee's employment. As used in this paragraph (ii), Bank includes Affiliates of the Bank.
(iii) As a result of termination for any reason other than total and permanent disability, death or cause, the term of the Option shall expire three (3) months after such termination, but not later than the original expiration date specified in Section 5 below.
Neither the Plan nor this Option shall be deemed to give Optionee a right to remain an employee of the Bank or an Affiliate. The Bank and its Affiliates reserve the right to terminate the employment of any employee at any time, with or without cause, subject to applicable laws and the terms of any written employment agreement.
5. Term of Option. Subject to earlier termination as provided in the Plan, this Option shall terminate __ years from the Grant Date of this Option, and may be exercised during such term only in accordance with the Plan and the terms of this Option.
6. Non-Transferability of Option. This Option may not be transferred in any manner otherwise than by will, by written beneficiary designation or by the laws of descent and distribution, and may be exercised during the lifetime of Optionee only by Optionee. The terms of this Option shall be binding upon the executors, administrators, heirs, successors and assigns of the Optionee.
7. Adjustment of Shares. In the event of a subdivision of the outstanding shares of common stock of the Bank, a declaration of a dividend payable in Shares, a declaration of a dividend payable in a form other than Shares in an amount that has a material effect on the value of Shares, a combination or consolidation of the outstanding shares of common stock (by reclassification or otherwise) into a lesser number of Shares, a recapitalization, a spin-off or a similar occurrence, the Bank shall make
appropriate adjustments in the number of Shares covered by the Option and in the Exercise Price of the Option.
In the event that the Bank is a party to a merger or other reorganization, the Option shall be subject to the agreement of merger or reorganization. Subject to the provisions of Section 12 of the Plan, such agreement may provide, without limitation, for the assumption of all outstanding options by the surviving corporation or its parent, for their continuation by the Bank (if the Bank is a surviving corporation), for payment of a per-Share cash settlement equal to the difference between the amount to be paid for one Share under such agreement and the Exercise Price, or for the acceleration of the exercisability followed by the cancellation of any option not exercised, in all cases without the optionees' consent. Any cancellation shall not occur until after such acceleration is effective and optionees have been notified of such acceleration and have had reasonable opportunity to exercise their options.
Except as provided in this Section 7, Optionee shall have no rights by reason of any subdivision or consolidation of shares of stock of any class, the payment of any dividend or any other increase or decrease in the number of shares of stock of any class. Any issuance by the Bank of shares of stock of any class, or securities convertible into shares of stock of any class, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number or Exercise Price of Shares subject to the Option. The grant of this Option pursuant to the Plan shall not affect in any way the right or power of the Bank to make adjustments, reclassifications, reorganizations or changes of its capital or business structure, to merge or consolidate or to dissolve, liquidate, sell or transfer all or any part of its business or assets.
8. Resale of Shares. Optionee understands that the Bank is not currently subject to the periodic reporting and other requirements of the Securities Exchange Act of 1934, as amended; that the Bank can give no assurance regarding the possibility that the Bank will, at some point in the future, become subject to such requirements; that the Shares have not been registered under the Securities Act of 1933, as amended; that unless so registered, the Shares may not be offered or sold by the Bank except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act of 1933, as amended, and applicable state or other securities laws; and that the Bank intends that its offer and sale of the Shares will satisfy the conditions of, and therefore qualify for the exemption from registration under the Securities Act of 1933, as amended, provided by SEC Rule 701, made applicable to national banks by the Securities Offering Disclosure Rules of the OCC, and the exemption from qualification under the California Corporate Securities Law of 1968 provided by Section 25100 of the California Corporations Code.
Optionee further understands and agrees that, as a consequence of the exemption from registration provided by SEC Rule 701, the Shares will be subject to certain resale limitations, as follows: (a) the Shares will be deemed to be "restricted securities" as defined in SEC Rule 144; (b) resale of the Shares by Optionee must be in compliance with the registration requirements of the Securities Act of 1933, as amended, or an exemption therefrom; and (c) under SEC Rule 144, a minimum period of one year must elapse between the date of acquisition of "restricted securities" and any resale of such "restricted
securities." That is, upon any exercise of the Option and transfer of the Shares to Optionee, unless the Bank has become subject to the periodic reporting and other requirements of the Securities Exchange Act of 1934, as amended, the resale of such Shares will be subject to the one year holding period required under SEC Rule 144. Ninety (90) days after the Bank becomes subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (if ever), such Shares (the "restricted securities") will be eligible to be resold by Optionee in reliance upon SEC Rule 144, without compliance with the minimum one year holding period.
Optionee further understands and agrees that the Bank may cause an appropriate restrictive legend or legends to be placed upon any certificate(s) evidencing the Shares, and may issue appropriate "stop-transfer" instructions to the Bank's transfer agent, U.S. Stock Transfer Corporation, in order to ensure compliance with relevant federal and state securities laws, as described hereinabove.
GRANT DATE: _________________
FIRST NATIONAL BANK OF
NORTHERN CALIFORNIA
By:_________________________________
Title ______________________________
Duly Authorized on Behalf of
First National Bank of
Northern California
Optionee represents that Optionee is familiar with the terms and provisions of this Option and hereby accepts the same subject to all the terms and provisions hereof. Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Board of Directors or its duly appointed Committee upon any questions arising under the Plan.
Dated: ____________________ ________________________________ Optionee
EXHIBIT 10.8(b)
FIRST NATIONAL BANK OF NORTHERN CALIFORNIA
INCENTIVE STOCK OPTION AGREEMENT
STANDARD PROVISIONS
[Dated as of November 1, 1997]
1. Grant. First National Bank of Northern California, a national banking association (the "Bank"), grants to the named employee (the "Optionee"), an option (the "Option") to purchase the specified number of shares of common stock, par value $1.25 per share, of the Bank (the "Shares"), at the stipulated exercise price, and in all respects subject to the terms, definitions and provisions of the First National Bank of Northern California 1997 Stock Option Plan (the "Plan"). The Optionee has been provided with a copy of the Plan. Capitalized terms defined in the Plan shall have the same defined meanings herein.
2. Nature of the Option. The Option is intended to qualify as an incentive stock option as defined in Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). However, the Bank does not represent or warrant that the Option qualifies as an incentive stock option. Optionee acknowledges that Optionee is responsible to consult with Optionee's own tax advisor regarding the tax effects of the Option and the requirements necessary to obtain income tax treatment under Section 422 of the Code, including, but not limited to, holding period requirements.
Optionee further understands that, if Optionee disposes of any Shares
received under the Option within two (2) years after the Grant Date of the
Option or within one (1) year after such Shares are transferred to Optionee,
then Optionee 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 understands that, if Optionee
disposes of such Shares at any time after the expiration of such two-year and
one-year holding periods, any gain on such sale will be taxed as long-term
capital gain. Optionee further understands that, under the provisions of the
Taxpayer Relief Act of 1997, the maximum tax rate on net capital gains has been
reduced for assets held longer than eighteen (18) months, as compared to the one
year holding period. Optionee agrees to notify the Bank in writing within five
(5) days after the date of any such disposition.
Optionee further understands that: (a) if Optionee is unable to continue employment with the Bank as a result of a total and permanent disability (as defined in Section 22(e)(3) of the Code), and if the other requirements for incentive stock option treatment contained in Section 422 of the Code are satisfied, Optionee will be entitled to exercise the Option within twelve (12) months of such termination without defeating incentive stock option
treatment; but (b) if Optionee is unable to continue employment with the Bank as a result of disability which is not total and permanent (as defined in Section 22(e)(3) of the Code), the Option will not qualify as an incentive stock option unless it is exercised within three (3) months of the date of termination (i.e., while the Option may be exercised for a period of twelve (12) months after such termination, an exercise more than three (3) months following termination will result in the Option being taxed as a nonstatutory stock option).
Optionee acknowledges, and the Bank affirms, that the methodology by which the fair market value of the Shares has been determined by the Bank represents a good faith attempt, as defined in the Code and the regulations thereunder, at reaching an accurate appraisal of the fair market value of the Shares; and the Bank 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.
3. Exercise Price. The Exercise Price is the stipulated dollar amount for each share of Common Stock, which price is not less than the fair market value per share of the common stock of the Bank on the date of grant (the "Grant Date").
4. Exercise of Option. The Option shall be exercisable during its term in accordance with the provisions of Sections 7 and 8 of the Plan as follows:
(a) Right to Exercise. The Option shall vest cumulatively from the date of grant of the Option, exercisable during a period of 120 months after the Grant Date, as follows:
(1) The Option may not be exercised for the period of 12 months immediately following the Grant Date;
(2) Upon or after the expiration of 12 months from the Grant Date, the Option may be exercised to the extent of the relevant stipulated percentage of the Shares;
(3) Upon or after the expiration of 24 months from the Grant Date, the Option may be exercised to the extent of the relevant stipulated additional percentage of the Shares;
(4) Upon or after the expiration of 36 months from the Grant Date, the Option may be exercised to the extent of the relevant stipulated additional percentage of the Shares;
(5) Upon or after the expiration of 48 months from the Grant Date, the Option may be exercised to the extent of the relevant stipulated additional percentage of the Shares; and
(6) Upon or after the expiration of 60 months from the Grant Date, the Option may be exercised to the extent of one hundred percent (100%) of the Shares.
Any portion of the Option not exercised shall accumulate and can be exercised any time prior to or upon the expiration of 120 months from the Grant Date.
(b) Minimum Exercise. The Option may not be exercised for less than ten (10) Shares nor for a fraction of a Share.
(c) Method of Exercise. The Option shall be exercisable by written notice which shall state the election to exercise the Option and specify the number of Shares in respect of which the Option is being exercised. Such written notice shall be signed by the Optionee and shall be delivered in person or by certified mail to the Secretary of the Bank accompanied by payment of the Exercise Price.
No Shares will be issued pursuant to the exercise of the 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 of the Bank's common stock 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 Bank with respect to any Shares until the issuance of a stock certificate to the Optionee for such Shares.
(d) Method of Payment. The entire Exercise Price of Shares issued under the Option shall be payable in cash or by certified check, official bank check, or the equivalent thereof acceptable to the Bank at the time when such Shares are purchased. Such payment also shall include the amount of any withholding tax obligation which may arise in connection with the exercise, as determined by the Bank. In addition, subject to Section 8 below, payment may be made in any of the following forms as indicated by an "x" in the relevant parenthesis:
( ) Surrender of Stock. Payment of all or part of the Exercise Price and any withholding taxes may be made all or in part with Shares which have already been owned by the Optionee or Optionee's representative for more than six (6) months and which are surrendered to the Bank in good form for transfer. Such Shares shall be valued at their fair market value on the date when the new Shares are purchased pursuant to the exercise of the Option.
( ) Exercise/Sale. Payment may be made by the delivery (on a form prescribed by the Bank) of an irrevocable direction to a securities broker approved by the Bank to sell Shares and to deliver all or part of the sales proceeds to the Bank in payment of all or part of the Exercise Price and any withholding taxes.
( ) Exercise/Pledge. Payment may be made by the delivery (on a form prescribed by the Bank) of an irrevocable direction to pledge Shares
to a securities broker or lender approved by the Bank, as security for a loan, and to deliver all or part of the loan proceeds to the Bank in payment of all or part of the Exercise Price and any withholding taxes.
(e) Termination of Service. In the event that the Optionee's status as an employee of the Bank terminates:
(i) As a result of such Optionee's death or total and permanent disability, the term of the Option shall expire twelve (12) months after such death or total and permanent disability but not later than the original expiration date specified in Section 5 below.
(ii) As a result of termination by the Bank for cause, the term of the Option shall expire as of the date on which the Bank's notice or advice of such termination is dispatched to Optionee, but not later than the original expiration date specified in Section 5 below. For purposes of this paragraph (ii), "cause" shall mean an act of embezzlement, fraud, dishonesty, breach of fiduciary duty to the Bank, or the deliberate disregard of rules of the Bank which results in loss, damage or injury to the Bank, the unauthorized disclosure of any of the secrets or confidential information of the Bank, the inducement of any client or customer of the Bank to break any contract with the Bank, the inducement of any principal for whom the Bank acts as agent to terminate such agency relationship, the engagement in any conduct which constitutes unfair competition with the Bank, the removal of Optionee from office by any court or bank regulatory agency, or such other similar acts which the Committee in its discretion determines to constitute good cause for termination of Optionee's employment. As used in this paragraph (ii), Bank includes Affiliates of the Bank.
(iii) As a result of termination for any reason other than total and permanent disability, death or cause, the term of the Option shall expire three (3) months after such termination, but not later than the original expiration date specified in Section 5 below.
Neither the Plan nor the Option shall be deemed to give Optionee a right to remain an employee of the Bank or an Affiliate. The Bank and its Affiliates reserve the right to terminate the employment of any employee at any time, with or without cause, subject to applicable laws and the terms of any written employment agreement.
5. Term of Option. Subject to earlier termination as provided in the Plan, the Option shall terminate ten (10) years from the Grant Date of the Option, and may be exercised during such term only in accordance with the Plan and the terms of the Option.
6. Non-Transferability of Option. The Option may not be transferred in any manner otherwise than by will, by written beneficiary designation or by the laws of descent and distribution, and may be exercised during the lifetime of Optionee only by Optionee. The terms of the Option shall be binding upon the executors, administrators, heirs, successors and assigns of the Optionee.
7. Adjustment of Shares. In the event of a subdivision of the outstanding shares of common stock of the Bank, a declaration of a dividend payable in Shares, a declaration of a dividend payable in a form other than Shares in an amount that has a material effect on the value of Shares, a combination or consolidation of the outstanding shares of common stock (by reclassification or otherwise) into a lesser number of Shares, a recapitalization, a spin-off or a similar occurrence, then the Bank shall make appropriate adjustments in the number of Shares covered by the Option and in the Exercise Price of the Option.
In the event that the Bank is a party to a merger or other reorganization, the Option shall be subject to the agreement of merger or reorganization. Subject to the provisions of Section 12 of the Plan, such agreement may provide, without limitation, for the assumption of all outstanding options by the surviving corporation or its parent, for their continuation by the Bank (if the Bank is a surviving corporation), for payment of a per-Share cash settlement equal to the difference between the amount to be paid for one Share under such agreement and the Exercise Price, or for the acceleration of the exercisability followed by the cancellation of any option not exercised, and in all cases without the optionees' consent. Any cancellation shall not occur until after such acceleration is effective and optionees have been notified of such acceleration and have had reasonable opportunity to exercise their options.
Except as provided in this Section 7, Optionee shall have no rights by reason of any subdivision or consolidation of shares of stock of any class, the payment of any dividend or any other increase or decrease in the number of shares of stock of any class. Any issuance by the Bank of shares of stock of any class, or securities convertible into shares of stock of any class, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number or Exercise Price of Shares subject to the Option. The grant of this Option pursuant to the Plan shall not affect in any way the right or power of the Bank to make adjustments, reclassifications, reorganizations or changes of its capital or business structure, to merge or consolidate or to dissolve, liquidate, sell or transfer all or any part of its business or assets.
8. Resale of Shares. Optionee understands that the Bank is not currently subject to the periodic reporting and other requirements of the Securities Exchange Act of 1934, as amended; that the Bank can give no assurance regarding the possibility that the Bank will, at some point in the future, become subject to such requirements; that the Shares have not been registered under the Securities Act of 1933, as amended; that unless so registered, the Shares may not be offered or sold by the Bank except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act of 1933, as amended, and applicable state or other securities laws; and that the Bank intends that its offer and sale of the Shares will satisfy the conditions of, and therefore qualify for the exemption from registration under the Securities Act of 1933, as amended, provided by SEC Rule 701, made applicable to national banks by the Securities Offering Disclosure Rules of the OCC, and the exemption from qualification under the California Corporate Securities Law of 1968 provided by Section 25100 of the California Corporations Code.
Optionee further understands and agrees that, as a consequence of the exemption from registration provided by SEC Rule 701, the Shares will be subject
to certain resale limitations, as follows: (a) the Shares will be deemed to be "restricted securities" as defined in SEC Rule 144; (b) resale of the Shares by Optionee must be in compliance with the registration requirements of the Securities Act of 1933, as amended, or an exemption therefrom; and (c) under SEC Rule 144, a minimum period of one year must elapse between the date of acquisition of "restricted securities" and any resale of such "restricted securities." That is, upon any exercise of the Option and transfer of the Shares to Optionee, unless the Bank has become subject to the periodic reporting and other requirements of the Securities Exchange Act of 1934, as amended, the resale of such Shares will be subject to the one year holding period required under SEC Rule 144. Ninety (90) days after the Bank becomes subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (if ever), such Shares (the "restricted securities") will be eligible to be resold by Optionee in reliance upon SEC Rule 144, without compliance with the minimum one year holding period.
Optionee further understands and agrees that the Bank may cause an appropriate restrictive legend or legends to be placed upon any certificate(s) evidencing the Shares, and may issue appropriate "stop-transfer" instructions to the Bank's transfer agent, U.S. Stock Transfer Corporation, in order to ensure compliance with relevant federal and state securities laws, as described hereinabove.
.........................................................End
EXHIBIT 10.9
THE FIRST NATIONAL BANK
SAVINGS PLAN
TABLE OF CONTENTS
ARTICLE I - DEFINITIONS........................................................1
ARTICLE II - ADMINISTRATION...................................................15
2.1 POWERS AND RESPONSIBILITIES OF THE EMPLOYER.........................15
2.2 DESIGNATION OF ADMINISTRATIVE AUTHORITY.............................15
2.3 POWERS AND DUTIES OF THE ADMINISTRATOR..............................15
2.4 RECORDS AND REPORTS.................................................17
2.5 APPOINTMENT OF ADVISERS.............................................17
2.6 PAYMENT OF EXPENSES.................................................17
2.7 CLAIMS PROCEDURE....................................................17
2.8 CLAIMS REVIEW PROCEDURE.............................................17
ARTICLE III - ELIGIBILITY.....................................................18
3.1 CONDITIONS OF ELIGIBILITY...........................................18
3.2 EFFECTIVE DATE OF PARTICIPATION.....................................18
3.3 DETERMINATION OF ELIGIBILITY........................................18
3.4 TERMINATION OF ELIGIBILITY..........................................18
3.5 OMISSION OF ELIGIBLE EMPLOYEE.......................................19
3.6 INCLUSION OF INELIGIBLE EMPLOYEE....................................19
3.7 ELECTION NOT TO PARTICIPATE.........................................19
ARTICLE IV - CONTRIBUTION AND ALLOCATION......................................19
4.l FORMULA FOR DETERMINING EMPLOYER CONTRIBUTION.......................19
4.2 PARTICIPANT'S SALARY REDUCTION ELECTION.............................20
4.3 TIME OF PAYMENT OF EMPLOYER CONTRIBUTION............................23
4.4 ALLOCATION OF CONTRIBUTION. FORFEITURES AND EARNINGS................23
4.5 ACTUAL DEFERRAL PERCENTAGE TESTS....................................26
4.6 ADJUSTMENT TO ACTUAL DEFERRAL PERCENTAGE TESTS......................28
4.7 ACTUAL CONTRIBUTION PERCENTAGE TESTS................................29
4.8 ADJUSTMENT TD ACTUAL CONTRIBUTION PERCENTAGE TESTS..................31
4.9 MAXIMUM ANNUAL ADDITIONS............................................33
4.10 ADJUSTMENT FOR EXCESSIVE ANNUAL ADDITIONS...........................34
4.11 TRANSFERS FROM QUALIFIED PLANS......................................35
4.12 DIRECTED INVESTMENT ACCOUNT.........................................36
ARTICLE V - VALUATIONS........................................................37
5.1 VALUATION OF THE TRUST FUND.........................................37
5.2 METHOD OF VALUATION.................................................37
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ARTICLE VI - DETERMINATION AND DISTRIBUTION OF BENEFITS.......................37
6.1 DETERMINATION OF BENEFITS UPON RETIREMENT...........................38
6.2 DETERMINATION OF BENEFITS UPON DEATH................................38
6.3 DISABILITY RETIREMENT BENEFITS......................................39
6.4 DETERMINATION OF BENEFITS UPON TERMINATION..........................39
6.5. DISTRIBUTION OF BENEFITS............................................42
6.6 DISTRIBUTION OF BENEFITS UPON DEATH.................................44
6.7 TIME OF SEGREGATION OR DISTRIBUTION.................................44
6.8 DISTRIBUTION FOR MINOR BENEFICIARY..................................45
6.9 LOCATION OF PARTICIPANT OR BENEFICIARY UNKNOWN......................45
6.10 ADVANCE DISTRIBUTION FOR HARDSHIP...................................45
6.11 QUALIFIED DOMESTIC RELATIONS ORDER DISTRIBUTION.....................46
ARTICLE VII - TRUSTEE.........................................................47
7.1 BASIC RESPONSIBILITIES OF THE TRUSTEE...............................47
7.2 INVESTMENT POWERS AND DUTIES OF THE TRUSTEE.........................48
7.3 OTHER POWERS OF THE TRUSTEE.........................................48
7.4 DUTIES OF THE TRUSTEE REGARDING PAYMENTS............................50
7.5 TRUSTEE'S COMPENSATION AND EXPENSES AND TAXES.......................51
7.6 ANNUAL REPORT OF THE TRUSTEE........................................51
7.7 AUDIT...............................................................51
7.8 RESIGNATION, REMOVAL OR SUCCESSION OF TRUSTEE.......................52
7.9 TRANSFER OF INTEREST................................................53
7.10 DIRECT ROLLOVER.....................................................53
ARTICLE VIII - AMENDMENT, TERMINATION AND MERGERS.............................54
8.1 AMENDMENT...........................................................54
8.2 TERMINATION.........................................................54
8.3 MERGER OR CONSOLIDATION.............................................54
ARTICLE IX - TOP HEAVY........................................................55
9.1 TOP HEAVY PLAN REQUIREMENTS.........................................55
9.2 DETERMINATION OF TOP HEAVY STATUS...................................55
ARTICLE X - MISCELLANEOUS.....................................................57
10.1 PARTICIPANT'S RIGHTS................................................58
10.2 ALIENATION..........................................................58
10.3 CONSTRUCTION OF PLAN................................................58
10.4 GENDER AND NUMBER...................................................58
10.5 LEGAL ACTION........................................................58
10.6 PROHIBITION AGAINST DIVERSION OF FUNDS..............................59
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10.7 BONDING.............................................................59
10.8 EMPLOYER'S AND TRUSTEE'S PROTECTIVE CLAUSE..........................59
10.9 INSURER'S PROTECTIVE CLAUSE.........................................59
10.10 RECEIPT AND RELEASE FOR PAINTS......................................60
10.11 ACTION BY THE EMPLOYER..............................................60
10.12 NAMED FIDUCIARIES AND ALLOCATION OF RESPONSIBILITY..................60
10.13 HEADINGS............................................................61
10.14 APPROVAL BY INTERNAL REVENUE SERVICE................................61
10.15 UNIFORMITY..........................................................61
AMENDMENT NUMBER ONE TO FIRST NATIONAL BANK SAVINGS PLAN......................63
SUMMARY PLAN DESCRIPTION......................................................64
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THE FIRST NATIONAL BANK SAVINGS PLAN
THIS AGREEMENT, hereby made and entered into this ________ day of ______________________, 20______, by and between First National Bank (herein referred to as the "Employer") and The Mechanics Bank (herein referred to as the "Trustee")
W I T N E S S E T H:
WHEREAS, the Employer heretofore established a Profit Sharing Plan and
Trust effective January 1, 1976, (hereinafter called the "Effective Date" known
as California Bankers Association Prototype Profit Sharing and Salary Deferral
401(k) Plan and which plan shall hereinafter be known as The First National Bank
Savings Plan (herein referred to as the "Plan") in recognition of the
contribution made to its successful operation by its employees and for the
exclusive benefit of its eligible employees; and
WHEREAS, under the terms of the Plan, the Employer has the ability to amend the Plan, provided the Trustee joins in such amendment if the provisions of the Plan affecting the Trustee are amended;
NOW, THEREFORE, effective January 1, 1998, except as otherwise provided, the Employer and the Trustee in accordance with the provisions of the Plan pertaining to amendments thereof hereby amend the Plan in its entirety and restate the Plan to provide as follows:
ARTICLE I - DEFINITIONS
1.1 "Act" means the Employee Retirement Income Security Act of 1974, as it may be amended from time to time.
1.2 "Administrator" means the Employer unless another person or entity has been designated by the Employer pursuant to Section 2.2 to administer the Plan on behalf of the Employer.
1.3 "Affiliated Employer" means any corporation which is a member of a controlled group of corporations (as defined in Code Section 414(b)) which includes the Employer; any trade or business (whether or not incorporated) which is under common control (as defined in Code Section 414(c)) with the Employer; any organization (whether or not incorporated) which is a member of an affiliated service group (as defined in Code Section 414(m)) which includes the Employer; and any other entity required to be aggregated with the Employer pursuant to Regulations under Code Section 414(o).
1.4 "Aggregate Account" means, with respect to each Participant, the
value of all accounts maintained on behalf of a Participant, whether
attributable to Employer or Employee contributions, subject to the provisions of
Section 9.2.
1.5 "Anniversary Date" means December 31st.
1.6 "Beneficiary" means the person to whom the share of a deceased Participant's total account is payable, subject to the restrictions of Sections 6.2 and 6.6.
1.7 "Code" means the Internal Revenue Code of 1986, as amended or replaced from time to time.
1.8 "Compensation" with respect to any Participant means such Participant's wages as defined in Code Section 3401(a) and all other payments of compensation by the Employer (in the course of the Employer's trade or business) for a Plan Year for which the Employer is required to furnish the Participant a written statement under Code Sections 6041(d), 6051(a)(3) and 6052. Compensation must be determined without regard to any rules under Code Section 3401(a) that limit the remuneration included in wages based on the nature or location of the employment or the services performed (such as the exception for agricultural labor in Code Section 3401(a)(2))
For purposes of this Section, the determination of Compensation shall be made by:
(a) excluding overtime.
(b) excluding commissions.
(c) excluding bonuses.
(d) including amounts which are contributed by
the Employer pursuant to a salary reduction agreement and which are not
includible in the gross income of the Participant under Code Sections 125,
402(e)(3), 402 (h)(1)(B), 403(b) or 457(b), and Employee contributions described
in Code Section 414(h)(2) that are treated, as Employer contributions.
For a Participant's initial year of participation, Compensation shall be recognized for the entire Plan Year.
Compensation in excess of $150,000 shall be disregarded. Such amount
shall be adjusted for increases in the cost of living in accordance with Code
Section 401(a)(17) except that the dollar increase in effect on January 1 of any
calendar year shall be effective for the Plan Year beginning with or within such
calendar year. For any short Plan Year the Compensation limit shall be an amount
equal to the Compensation limit for the calendar year in which the Plan Year
begins multiplied by the ratio obtained by dividing the number of full months in
the short Plan Year by twelve (12). In applying this limitation, the family
group of a Highly Compensated Participant who is subject to the Family Member
aggregation rules of Code Section 414(q)(6) because such Participant is either a
"five percent owner" of the Employer or one of the ten (10) Highly Compensated
Employees paid the greatest "415 Compensation" during the year, shall be treated
as a single Participant, except that for this purpose Family Members shall
include only the affected Participant's spouse and any lineal descendants who
have not attained age nineteen (19) before the close of the year. If, as result
of the application of such rules the adjusted limitation is exceeded, then the
limitation shall be prorated among the affected Family Members in proportion to
each such Family Member's Compensation prior to the application of this
limitation, or the limitation shall be adjusted in accordance with any other
method permitted by Regulation.
If, as a result of such rules, the maximum "annual addition" limit of
Section 4.9(a) would be exceeded for one or more of the affected Family Members,
the prorated Compensation of all affected Family Members shall be adjusted to
avoid or reduce any excess. The prorated Compensation of any affected Family
Member whose allocation would exceed the limit shall be adjusted downward to the
level needed to provide an allocation equal to such limit. The prorated
Compensation of affected Family Members not affected by such limit shall then be
adjusted upward on a pro rata basis not to exceed each such affected Family
Member's Compensation as determined prior to application of the Family Member
rule. The resulting allocation shall not exceed such individual's maximum
"annual addition" limit. If, after these adjustments, an "excess amount" still
results, such "excess amount" shall be disposed of in the manner described in
Section 4.10(a) pro rata among all affected Family Members.
If, in connection with the adoption of this amendment and restatement, the definition of Compensation has been modified, then, for Plan Years prior to the Plan Year which includes the adoption date of this amendment and restatement, Compensation means compensation determined pursuant to the Plan then in effect.
1.9 "Contract" or "Policy" means any life insurance policy, retirement income or annuity policy, or annuity contract (group or individual) issued pursuant to the terms of the plan.
1.10 "Deferred Compensation" with respect to any Participant means the amount of the Participant's total Compensation which has been contributed to the Plan in accordance with the Participant's deferral election pursuant to Section 4.2 excluding any such amounts distributed as excess "annual additions" pursuant to Section 4.10(a)
1.11 "Early Retirement Date." This Plan does not provide for a retirement date prior to Normal Retirement Date.
1.12 "Elective Contribution" means the Employer contributions to the Plan of Deferred Compensation excluding any such amounts distributed as excess "annual additions" pursuant to Section 410(a). In addition, any Employer Qualified Non-Elective Contribution made pursuant to Section 4.l(c) and Section 4.6(b) which is used to satisfy the "Actual Deferral Percentage" tests shall be considered an Elective Contribution for purposes of the Plan. Any contributions deemed to be Elective Contributions (whether or not used to satisfy the "Actual Deferral Percentage" tests) shall be subject to the requirements of Sections 4.2(b) and 4.2(c) and shall further be required to satisfy the nondiscrimination requirements of Regulation 1.40l(k)-l(b)(5), the provisions of which are specifically incorporated herein by reference.
1.13 "Eligible Employee" means any Employee, except Employees who are compensated on a commission only basis.
Employees who are Leased Employees within the meaning of Code Sections 414(n)(2) and 414(0)(2) shall not be eligible to participate in this Plan.
Employees of Affiliated Employers shall not be eligible to participate in this Plan unless such Affiliated Employers have specifically adopted this Plan in writing.
1.14 "Employee" means any person who is employed by the Employer or Affiliated Employer. Employee shall include Leased Employees within the meaning of Code Sections 414(n)(2) and 414(0)(2) unless such Leased Employees are covered by a plan described in Code Section 414(n)(5) and such Leased Employees do not constitute more than 20% of the recipient's non-highly compensated work force.
1.15 "Employer" means First National Bank and any successor which shall maintain this Plan; and any predecessor which has maintained this Plan. The Employer is a corporation, with principal offices in the State of California.
1.16 "Excess Aggregate Contributions" means, with respect to any Plan Year, the excess of the aggregate amount of the Employer matching contributions made pursuant to Section 4.l(b) and any qualified non-elective contributions or elective deferrals taken into account pursuant to Section 4.7(C) On behalf of Highly Compensated Participants for such Plan Year, over the maximum amount of such contributions permitted under the limitations of Section 4.7(a)
1.17 "Excess Contributions" means with respect to a Plan Year, the
excess of Elective Contributions used to satisfy the "Actual Deferral
Percentage" tests made on behalf of Highly Compensated Participants for the Plan
Year over the maximum amount of such contributions permitted under Section
4.5(a) Excess Contributions shall be treated as an "annual addition" pursuant to
Section 4.9(b)
1.18 "Excess Deferred Compensation" means, with respect to any taxable
year of a Participant, the excess of the aggregate amount of such Participant's
Deferred Compensation and the elective deferrals pursuant to Section 4.2(f)
actually made on behalf of such Participant for such taxable year, over the
dollar limitation provided for in Code Section 402(g), which is incorporated
herein by reference. Excess Deferred Compensation shall be treated as an "annual
addition" pursuant to Section 4 9(b) when contributed to the Plan unless
distributed to the affected Participant not later than the first April 15th
following the close of the Participant's taxable year. Additionally, for
purposes of Sections 9.2 and 4.4(f), Excess Deferred Compensation shall continue
to be treated as Employer contributions even if distributed pursuant to Section
4.2(f) However, Excess Deferred Compensation of Non-Highly Compensated
Participants is not taken into account for purposes of Section 4.5(a) to the
extent such Excess Deferred Compensation occurs pursuant to Section 4.2(d)
1.19 "Family Member" means, with respect to an affected Participant, such Participant's spouse and such Participant's lineal descendants and ascendants and their spouses, all as described in Code Section 414(q)(6)(B)
1.20 "Fiduciary" means any person who(a) exercises any discretionary authority or discretionary control respecting management of the Plan or exercises any authority or control respecting management or disposition of its assets, (b) renders investment advice for a fee or other compensation, direct or indirect, with respect to any monies or other property of the Plan or has any authority or responsibility to do so: or (c) has any discretionary authority or discretionary responsibility in the administration of the plan, including, but not limited to, the Trustee, the Employer and its representative body, and the Administrator .
1.21 "Fiscal Year" means the Employer's accounting year of 12 months commencing on January 1st of each year and ending the following December 31st.
1.22 "Forfeiture" means that portion of a Participant's Account that is not Vested, and occurs on the earlier of:
(a) the distribution of the entire Vested portion of a Terminated Participant's Account, or
(b) the last day of the Plan Year in which the Participant incurs five (5) consecutive 1-Year Breaks in Service.
Furthermore, for purposes of paragraph (a) above, in the case of a
Terminated Participant whose Vested benefit is zero such Terminated Participant
shall be deemed to have received a distribution of his Vested benefit upon his
termination of employment. Restoration of such amounts shall occur pursuant to
Section 6.4(9)(2) In addition, the term Forfeiture shall also include amounts
deemed to be Forfeitures pursuant to any other provision of this Plan.
1.23 "Former Participant" means a person who has been a participant, but who has ceased to be a Participant for any reason.
1.24 "415 Compensation" with respect to any Participant means such Participant's wages as defined in Code Section 3401(a) and all other payments of compensation by the Employer (in the course of the Employer's trade or business) for a Plan Year for which the Employer is required to furnish the Participant a written statement under Code Sections 6041(d): 6051(a)(3) and 6052. "415 Compensation" must be determined without regard to any rules under Code Section 3401(a) that limit the remuneration included in wages based on the nature or location of the employment or the services performed (such as the exception for agricultural labor in Code Section 3401(a)(2)).
If, in connection with the adoption of this amendment and restatement, the definition of "415 Compensation" has been modified, then, for Plan Years prior to the Plan Year which includes the adoption date of this amendment and restatement, "415 Compensation" means compensation determined pursuant to the Plan then in effect.
1.25 "414(s) Compensation" with respect to any Participant means such Participant's "415 Compensation" paid during a Plan Year. The amount of "414(s) Compensation" with respect to any Participant shall include "414(s) Compensation" for the entire twelve (12) month period ending on the last day of such Plan Year.
For purposes of this Section, the determination of "414(s) Compensation " shall be made by including amounts which are contributed by the Employer pursuant to a salary reduction agreement and which are not includible in the gross income of the Participant under Code Sections 125,402(e)(3), 402(h)(1)(B), 403(b) or 457(b) and Employee contributions described in Code Section 414(h)(2) that are treated as Employer contributions.
"414(s) Compensation" in excess of $150,000 shall be disregarded. Such amount shall be adjusted for increases in the cost of living in accordance with Code Section 401(a)(17), except that the dollar increase in effect on January 1 of any calendar year shall be effective for the Plan Year beginning with or within such calendar year. For any short Plan Year the "414(s) Compensation" limit shall be an amount equal to the "414(s) Compensation" limit for the calendar year in which the Plan Year begins multiplied by the ratio obtained by dividing the number of full months in the short Plan Year by twelve (12). In applying this limitation, the family group of a Highly Compensated Participant who is subject to the Family Member aggregation rules of Code Section 414(q)(6) because such Participant is either a "five percent owner" of the Employer or one of the ten (10) Highly Compensated Employees paid the greatest "415 Compensation" during the year, shall be treated as a single Participant, except that for this purpose Family Members shall include only the affected Participant's spouse and any lineal descendants who have not attained age nineteen (19) before the close of the year.
If, in connection with the adoption of this amendment and restatement, the definition of "414(s) Compensation" has been modified, then, for Plan Years prior to the Plan Year which includes the adoption date of this amendment and restatement, "414(s) Compensation" means compensation determined pursuant to the Plan then in effect.
1.26 "Highly Compensated Employee" means an Employee described in Code
Section 414(q) and the Regulations thereunder, and generally means an Employee
who performed services for the Employer during the "determination year" and is
in one or more of the following groups:
(a) Employees who at any time during the "determination year" or "look-back year" were "five percent owners" as defined in Section 1.329 (c)
(b) Employees who received "415 Compensation" during the "look-back year" from the Employer in excess of $75,000.
(c) Employees who received "415 Compensation" during the "look-back year" from the Employer in excess of $50,000 and were in the Top Paid Group of Employees for the Plan Year.
(d) Employees who during the "look-back year" were officers of the Employer (as that term is defined within the meaning of the Regulations under Code Section 416) and received "415 Compensation" during the "look-back year" from the Employer greater than 50 percent of the limit in effect under Code Section 415(b)(l)(A) for any such Plan Year. The number of officers shall be limited to the lesser of (i) 50 employees; or (ii) the greater of 3 employees or 10 percent of all employees. For the purpose of determining the number of officers, Employees described in Section 1.57(a), (b), (c) and (d) shall be excluded, but such Employees shall still be considered for the purpose of identifying the particular Employees who are officers. If the Employer does not have at least one officer whose annual "415 Compensation" is in excess of 50 percent of the Code Section 415(b)(l)(A) limit, then the highest paid officer of the Employer will be treated as a Highly Compensated Employee.
(e) Employees who are in the group consisting of the 100 Employees paid the greatest "415 Compensation during the "determination year" and are also described in (b), (c) or (d) above when these paragraphs are modified to substitute "determination year" for "look-back year."
The "determination year" shall be the Plan Year for which testing is being performed, and the "look-back year" shall be the immediately preceding twelve-month period.
If an Employee is, during a "determination year" or "look-back year", a Family Member of either a "five percent owner" (whether active or former) or a Highly Compensated Employee who is one of the 10 most Highly Compensated Employees ranked on the basis of "415 Compensation" paid by the Employer during such year, then the Family Member and the "five percent owner" or top-ten Highly Compensated Employee shall be aggregated. In such case, the Family Member and "five percent owner" or top-ten Highly Compensated Employee shall be treated as a single Employee receiving "415 Compensation" and Plan contributions or benefits equal to the sum of such "415 Compensation" and contributions or benefits of the Family Member and "five percent owner" or top-ten Highly Compensated Employee.
For purposes of this Section, the determination of "415 Compensation" shall be made by including amounts which are contributed by the Employer pursuant to a salary reduction agreement and which are not includible in the gross income of the Participant under Code Sections 125, 402 (e)(3), 402(h) (1) (B) 403 (b) or 457(b), and Employee contributions described in Code Section 414(h)(2) that are treated as Employer contributions. Additionally, the dollar threshold amounts specified in (b) and (c) above shall be adjusted at such time and in such manner as is provided in Regulations. In the case of such an adjustment, the dollar limits which shall be applied are those for the calendar year in which the "determination year" or "look-back year" begins.
In determining who is a Highly Compensated Employee, Employees who are non-resident aliens and who received no earned income (within the meaning of Code Section 911 (d)(2)) from the Employer constituting United States source income within the meaning of Code Section 861(a)(3) shall not be treated as Employees. Additionally, all Affiliated Employers shall be taken into account as a single employer and Leased Employees within the meaning of Code Sections 414(n)(2) and 414(0)(2) shall be considered Employees unless such Leased Employees are covered by a plan described in Code Section 414(n)(5) and are not covered in any qualified plan maintained by the Employer. The exclusion of Leased Employees for this purpose shall be applied on a uniform and consistent basis for all of the Employer's retirement plans. Highly Compensated Farmer Employees shall be treated as Highly Compensated Employees without regard to whether they performed services during the "determination year."
1.27 "Highly Compensated Former Employee" means a former Employee who had a separation year prior to the "determination year" and was a Highly Compensated Employee in the year of separation from service or in any "determination year" after attaining age 55. Notwithstanding the foregoing, an Employee who separated from service prior to 1987 will be treated as a Highly Compensated Former employee only if during the separation year (Or year preceding the separation year) or any year after the Employee attains age 55 (or the last year ending before the Employee's 55th birthday), the Employee either received "a15 Compensation" in excess of $50,000 or was a "five percent owner." For purposes of this Section, "determination year, " "415 Compensation" and "five percent owner" shall be determined in accordance with Section 1.26. Highly Compensated Former Employees shall be treated as Highly Compensated Employees. The method set forth in this Section for determining who is a "Highly Compensated Former Employee" shall be applied on a uniform and consistent basis for all purposes for which the Code Section 414(q) definition is applicable.
1.28 "Highly Compensated Participant" means any highly Compensated Employee who is eligible to participate in the Plan.
1.29 "Hour of Service" means (1) each hour for which an Employee is directly or indirectly compensated or entitled to compensation by the Employer for the performance of duties (these hours will be credited to the employee for the computation period in which the duties are performed); (2) each hour for which an Employee is directly or indirectly compensated or entitled to compensation by the Employer (irrespective of whether the employment relationship has terminated) for reasons other than performance of duties (such as vacation, holidays, sickness, jury duty, disability, lay-off, military duty or leave of absence) during the applicable computation period (these hours will be calculated and credited pursuant to Department of Labor regulation 2530.200b-2 which is incorporated herein by reference); (3) each hour for which back pay is awarded or agreed to by the Employer without regard to mitigation of damages (these hours will be credited to the Employee for the computation period or periods to which the award or agreement pertains rather than the computation
period in which the award, agreement or payment is made) The same Hours of Service shall not be credited both under (1) or (2), as the case may be, and under (3)
Notwithstanding the above, (i) no more than 501 Hours of Service are required to be credited to an Employee on account of any single continuous period during which the Employee performs no duties (whether or not such period occurs in a single computation period); (ii) an hour for which an Employee is directly or indirectly paid, or entitled to payment, on account of a period during which no duties are performed is not required to be credited to the Employee if such payment is made or due under a plan maintained solely for the purpose of complying with applicable worker's compensation: or unemployment compensation or disability insurance laws; and (iii) Hours of Service are not required to be credited for a payment which solely reimburses an Employee for medical or medically related expenses incurred by the Employee.
For purposes of this Section, a payment shall be deemed to be made by or due from the Employer regardless of whether such payment is made by or due from the Employer directly, or indirectly through, among others, a trust fund, or insurer, to which the Employer contributes or pays premiums and regardless of whether contributions made or due to the trust fund, insurer, or other entity are for the benefit of particular Employees or are on behalf of a group of Employees in the aggregate.
For purposes of this Section, Hours of Service will be credited for employment with other Affiliated Employers. The provisions of Department of Labor regulations 2530.200b-2(b) and (c) are incorporated herein by reference.
1.30 "Income" means the income or losses allocable to "excess amounts"
which shall equal the sum of the allocable gain or loss for the "applicable
computation period" and the allocable gain or loss for the period between the
end of the "applicable computation period" and the date of distribution ("gap
period") The income allocable to "excess amounts" for the "applicable
computation period" and the "gap period" is calculated separately and is
determined by multiplying the income for the "applicable computation period" or
the "gap period" by a fraction. The numerator of the fraction is the "excess
amount" for the "applicable computation period." The denominator of the fraction
is the total "account balance" attributable to "Employer contributions" as of
the end of the "applicable computation period" or the "gap period", reduced by
the gain allocable to such total amount for the "applicable computation period"
or the "gap period" and increased by the loss allocable to such total amount for
the "applicable computation period" or the "gap period". The provisions of this
Section shall be applied:
(a) For purposes of Section 4.2(f), by substituting:
(1) "Excess Deferred Compensation" for "excess amounts";
(2) "taxable year of the Participant" for "applicable computation period";
(3) "Deferred Compensation" for "Employer contributions"; and
(4) "Participant's Elective Account" for "account balance."
(b) For purposes of Section 4.6(a). by substituting:
(1) "Excess Contributions" for "excess amounts";
(2) "Plan Year" for "applicable computation period";
(3) Elective "Elective Contributions" for "Employer; contributions; and
(4) "Participant's Elective Account" for "account balance."
(c) For purposes of Section 4.8(a), by substituting:
(1) "Excess Aggregate Contributions" for "excess amounts";
(2) "Plan Year" for "applicable computation period";
(3) "Employer matching contributions made pursuant to
Section 4.l(b) and any qualified non-elective contributions or elective
deferrals taken into account pursuant to Section 4.7(c)" for "Employer
contributions"; and
(4) "Participant's Account" for `account balance."
In lieu of the "fractional method" described above, a "safe harbor method" may be used to calculate the allocable Income for the "gap period." Under the "safe harbor method," allocable Income for the "gap period" shall be deemed to equal ten percent (10%) of the Income allocable to "excess amounts" for the "applicable computation period" multiplied by the number of calendar months in the "gap period." For purposes of determining the number of calendar months in the "gap period," a distribution occurring on or before the fifteenth day of the month shall be treated as having been made on the last day of the preceding month and a distribution occurring after such fifteenth day shall be treated as having been made on the first day of the next subsequent month.
Income allocable to any distribution of Excess Deferred Compensation on or before the last day of the taxable year of the Participant shall be calculated from the first day of the taxable year of the Participant to the date on which the distribution is made pursuant to either the "fractional method" or the "safe harbor method." Under such "safe harbor method," allocable Income for such period shall be deemed to equal ten percent (10%) of the Income allocable to such Excess Deferred Compensation multiplied by he number of calendar months in such period. For purposes or determining the number of calendar months in such period, a distribution occurring on or before the fifteenth day of the month shall be treated as having been made on the last day of tie preceding month and a distribution occurring after such fifteenth day shall be treated as having been made on the first day of the next subsequent month. 1.31 "Investment Manager" means an entity that (a) has the power to manage, acquire, or dispose of Plan assets and (b) acknowledges fiduciary responsibility to the Plan in writing. Such entity must be a person, firm, or corporation registered as an investment adviser under the Investment Advisers Act of 1940, a bank, or an insurance company.
1.32 "Key Employee" means an Employee as defined in Code Section 416(i) and the Regulations thereunder Generally, any Employee or former Employee (as well as each of his Beneficiaries is considered a Key Employee if he, at any time during the Plan Year that contains the "Determination Date" or any of the preceding four (4) Plan Years, has been included in one of the following categories:
(a) an officer of the Employer (as that term is defined within
the meaning of the Regulations under Code Section a16) having annual "415
Compensation" greater than 50 percent of the amount in effect under Code Section
415(b) (1) (A) for any such Plan Year.
(b) one of the ten employees having annual "415 Compensation " from the Employer for a Plan Year greater than the dollar limitation in effect under Code Section 615(c) (1)(A) for the calendar year in which such Plan Year ends and owning (or considered as owning within the meaning of Code Section 318) both more than one-half percent interest and the largest interests in the Employer.
(c) a "five percent owner" of the Employer. "Five percent
owner" means any person who owns (or is considered as owning within the meaning
of Code Section 318) more than five percent (5%) of the outstanding stock of the
Employer or stock possessing more than five percent (5%) of the total combined
voting power of all stock of the Employer or, in the case of an unincorporated
business, any person who owns more than five percent (5%) of the capital or
profits interest in the Employer. In determining percentage ownership hereunder,
employers that would otherwise be aggregated under Code Sections 414(b), (c).
(m) and (o) shall be treated as separate employers
(d) a "one percent owner" of the Employer having an annual "415
Compensation" from the Employer of more than $150: 000. "One percent owner"
means any person who owns (or is considered as owning within the meaning of Code
Section 318) more than one percent (1%) of the outstanding stock of the Employer
or stock possessing more than one percent (1%) of the total combined voting
power of all stock of the Employer or, in the case of an unincorporated
business, any person who owns more than one percent (1%) of the capital or
profits interest in the Employer. In determining percentage ownership
hereunder;, employers that would otherwise be aggregated under Code Sections
41d(b), (c) (m) and (o) shall be treated as separate employers. However, in
determining whether an individual has "415 Compensation" of more than $150,000,
"415 Compensation" from each employer required to be aggregated under Code
Sections 41a(b), (c), (m) and (o) shall be taken into account.
For purposes of this Section, the determination of "415 Compensation"
shall be made by including amounts which are contributed by the Employer
pursuant to a salary reduction agreement and which are not includible in the
gross income or the Participant under Code Sections 121, 402(e)(3), 402(h)(1)
(B) 403(b) or 457(b), and Employee contributions described in Code Section
414(h) (2) that are treated as Employer contributions.
1.33 "Late Retirement Date" means the first day of the month coinciding with or next following a Participant's actual Retirement Date after having reached his Normal Retirement; Date.
l.34 "Leased Employee" means any person (other than an Employee of the
recipient) who pursuant to an agreement between the recipient and any other
person ("leasing organization") has performed services for the recipient (or for
the recipient and related persons determined in accordance with Code Section
414(n)(6)) on a substantially full time basis for a period of at least one year,
and such services are of a type historically performed by employees in the
business field of the recipient employer. Contributions or benefits provided a
Leased Employee by the leasing organization which are attributable to services
performed for the recipient employer shall be treated as provided by the
recipient employer. A Leased Employee shall not be considered an Employee of the
recipient:
(a) if such employee is covered by a money purchase pension plan providing:
(1) a non-integrated employer contribution rate of at least 10% of compensation, as defined in Code Section 415(c)(3), but including amounts which are contributed by the Employer pursuant to a salary reduction agreement and which are not includible in the gross income of the Participant under Code Sections 125, 402(e) (3). 402(h)(l)(B), 403(b) or 457(b). and Employee contributions described in Code Section 414(h)(2) that ire treated as Employer contributions.
(2) immediate participation; and
(3) full and immediate vesting; and
(b) if Leased Employees do not constitute more than 20% of the recipient's non-highly compensated work force.
1.35 "Non-Elective Contribution" means the Employer contributions to the Plan excluding, however: contributions made pursuant to the Participant's deferral election provided for in Section 4.2 and any Qualified Non-Elective Contribution used in the "Actual Deferral Percentage" tests.
1.36 "Non-Highly Compensated Participant" means any Participant who is neither a Highly Compensated Employee nor a Family Member.
1.37 "Non-Key Employee" means any Employee or former Employee (and his Beneficiaries) who is not a Key Employee.
1.38 "Normal Retirement Age" means the Participant's 65th birthday. A Participant shall become fully Vested in his Participant's Account upon attaining his Normal Retirement Age.
1.39 "Normal Retirement Date" means the first day of the month coinciding with or next following the Participant's Normal Retirement Age.
1.40 "1-Year Break in Service' means the applicable computation period during which an Employee has not completed more than 500 Hours of Service with the Employer. Further: solely for the purpose of determining whether a Participant has incurred a 1-Year Break in Service, Hours of Service shall be recognized for "authorized leaves of absence" and "maternity and paternity leaves of absence." Years of Service and 1-Year Breaks in Service shall be measured on the same computation period.
"Authorized leave of absence" means an unpaid, temporary cessation from active employment with the Employer pursuant to an established nondiscriminatory policy, whether occasioned by illness, military service, or any other reason.
A "maternity or paternity leave of absence" means, for Plan Years beginning after December 31, 1984, an absence from work for any period by reason of the Employee's pregnancy, birth of the Employee's child, placement of a child with the Employee in connection with the adoption of such child, or any absence
for the purpose of caring for such child for a period immediately following such birth or placement. For this purpose, Hours of Service shall be credited for the computation period in which the absence from work begins, only if credit therefore is necessary to prevent the Employee from incurring a 1-Year Break in Service, or, in any other case, in the immediately following computation period. The Hours of Service credited for a "maternity or paternity leave of absence" shall be those which would normally have been credited but for such absence, or, in any case in which the Administrator is unable to determine such hours normally credited, eight (8) Hours of Service per day. The total Hours of Service required to be credited for a "maternity or paternity leave of absence" shall not exceed 501.
1.41 "Participant" means any Eligible Employee who participates in the Plan and has not for any reason become ineligible to participate further in the Plan.
1.42 "Participant Direction Procedures" means such instructions, guidelines or policies, the terms of which are incorporated herein, as shall be established pursuant to Section 4.12 and observed by the Administrator and applied to Participants who have Participant Directed Accounts.
1.43 "Participant's Account" means the account established and maintained by the Administrator for each Participant with respect to his total interest in the Plan and Trust resulting from the Employer Non-Elective Contributions. A separate accounting shall be maintained with respect to that portion of the Participant's Account attributable to Employer matching contributions made pursuant to Section 4.l(b), Employer discretionary contributions made pursuant to Section 4.l(d) and any Employer Qualified Non-Elective Contributions.
1.44 "Participant's Combined Account" means the total aggregate amount of each Participant's Elective Account and Participant's Account.
1.45 "Participant's Directed Account" means that portion of a Participant's interest in the Plan with respect to which the Participant has directed the investment in accordance with the Participant Direction Procedure.
1.46 "Participant's Elective Account" means the account established and maintained by the Administrator for each Participant with respect to his total interest in the Plan and Trust resulting from the Employer Elective Contributions used to satisfy the "Actual Deferral Percentage" tests. A separate accounting shall be maintained with respect to that portion of the Participant's Elective Account attributable to such Elective Contributions pursuant to Section 4.2 and any Employer Qualified Non-Elective Contributions.
1.47 "Plan" means this instrument, including all amendments thereto.
1.48 "Plan Year" means the plan's accounting year of twelve (12) months commencing on January 1st of each year and ending the following December 31st.
1.49 "Qualified Non-Elective Contribution" means any Employer
contributions made pursuant to Section 4.l(c) and Section 4.6(b) and Section
4.8(h). Such contributions shall be considered an Elective Contribution for the
purposes of the plan and may be used to satisfy tie "Actual Deferral Percentage"
tests or the "Actual Contribution Percentage" tests.
1.50 "Regulation" means the Income Tax Regulations as promulgated by the Secretary of the Treasury or his delegate, and as amended from time to time.
1.51 "Retired Participant" means a person who has been a Participant, but who has become entitled to retirement benefits under the Plan.
1.52 "Retirement Date" means the date as of which a Participant retires whether such retirement occurs on a Participant's Normal Retirement Date or Late Retirement Date (see Section 6.1)
1.53 "Super Top Heavy Plan" means a plan described in Section 9.2(b)
1.54 "Terminated Participant" means a person who has been a Participant, but whose employment has been terminated other than by death or retirement.
1.55 "Top Heavy Plan" means a plan described in Section 9.2(a)
1.56 "Top Heavy Plan Year" means a Plan Year during which the Plan is a Top Heavy Plan.
1.57 "Top Paid Group" means the top 20 percent of Employees who
performed services for the Employer during the applicable year, ranked according
to the amount of "415 Compensation" (determined for this purpose in accordance
with Section 1.26) received from the Employer during such year. All Affiliated
Employers shall be taken into account as a single employer, and Leased Employees
within the meaning of Code Sections 414(n)(2) and 414(0)(2) shall be considered
Employees unless such Leased Employees are covered by a plan described in Code
Section 414(n)(5) and are not covered in any qualified plan maintained by the
Employer. Employees who are non-resident aliens and who received no earned
income (within the meaning of Code Section 911(d)(2)) from the Employer
constituting United States source income within the meaning of Code Section
861(a)(3) shall not be treated as Employees. Additionally, for the purpose of
determining the number of active Employees in any year, the following additional
Employees shall also be excluded; however, such Employees shall still be
considered for the purpose of identifying the particular Employees in the Top
Paid Group:
(a) Employees with less than six (6) months of service;
(b) Employees who normally work less than 17 1/2 hours per week;
(c) Employees who normally work less than six (6) months during a year; and
(d) Employees who have not yet attained age 21.
In addition, if 90 percent or more of the Employees of the Employer are covered under agreements the Secretary of Labor finds to be collective bargaining agreements between Employee representatives and the Employer, and the Plan covers only Employees who are not covered under such agreements, then Employees covered by such agreements shall be excluded from both the total number of active Employees as well as from the identification of particular Employees in the Top Paid Group.
The foregoing exclusions set forth in this Section shall be applied on a uniform and consistent basis for all purposes for which the Code Section 414(q) definition is applicable.
1.58 "Trustee" means the person or entity named as trustee herein or in any separate trust forming a part of this Plan, and any successors.
1.59 "Trust Fund" means the assets of the Plan and Trust as the same shall exist from time to time.
1.60 "USERRA" means the Uniformed Services Employment and Reemployment Rights Act of 1994. Notwithstanding any provision of this Plan to the contrary, contributions, benefits and service credit with respect to qualified military service will be provided in accordance with Code Section 414(u)
1.61 "Valuation Date" means the Anniversary Date and such other date or dates deemed necessary by the Administrator. The Valuation Date may include any day during the Plan Year that the Trustee, any transfer agent appointed by the Trustee or the Employer and any stock exchange used by such agent are open for business.
1.62 "Vested" means the nonforfeitable portion of any account maintained on behalf of a Participant.
1.63 "Year of Service" means the computation period of twelve (12) consecutive months, herein set forth, during which an Employee has at least 1000 Hours of Service.
For purposes of eligibility for participation, the initial computation period shall begin with the date on which the Employee first performs an Hour of Service. The participation computation period beginning after a 1-Year Break in Service shall be measured from the date on which an Employee again performs an Hour of Service. The participation computation period shall shift to the Plan Year which includes the anniversary of the date on which the Employee first performed an Hour of Service. An Employee who is credited with the required Hours of Service in both the initial computation period (or the computation period beginning after a 1-Year Break in Service) and the Plan Year which includes the anniversary of the date on which the Employee first performed an Hour of Service, shall be credited with two (2) Years of Service for purposes of eligibility to participate.
For vesting purposes, the computation periods shall be the Plan Year, including periods prior to the Effective Date of the Plan.
The computation period shall be the Plan Year if not otherwise set forth herein.
Notwithstanding the foregoing, for any short Plan Year, the determination of whether an Employee has completed a Year of Service shall be made in accordance with Department of Labor regulation 2530.203-2(c). However, in determining whether an Employee has completed a Year of Service for benefit accrual purposes in the short Plan Year, the number of the Hours of Service required shall be proportionately reduced based on the number of full months in the short Plan Year.
Years of Service with any Affiliated Employer shall be recognized.
ARTICLE II - ADMINISTRATION
2.1 POWERS AND RESPONSIBILITIES OF THE EMPLOYER
(a) In addition to the general powers and responsibilities otherwise provided for in this Plan, the Employer shall be empowered to appoint and remove the Trustee and the Administrator from time to time as it deems necessary for the proper administration of the Plan to ensure that the Plan is being operated for the exclusive benefit of the participants and their Beneficiaries in accordance with the terms of the Plan, the Code, and the Act. The Employer may appoint counsel, specialists, advisers, agents (including any nonfiduciary agent) and other persons as the Employer deems necessary or desirable in connection with the exercise of its fiduciary duties under this Plan. The Employer may compensate such agents or advisers from the assets of the Plan as fiduciary expenses (but not including any business (settlor) expenses of the Employer), to the extent not paid by the Employer.
(b) The Employer may, by written agreement or designation, appoint at its option an Investment Manager (qualified under the Investment Company Act of 1940 as amended), investment adviser, or other agent to provide direction to the Trustee with respect to any or all of the Plan assets. Such appointment shall be given by the Employer in writing in a form acceptable to the Trustee and shall specifically identify the Plan assets with respect to which the Investment Manager or other agent shall have authority to direct the investment.
(c) The Employer shall establish a "funding policy and method,"
i.e., it shall determine whether the Plan has a short run need for liquidity
(e.g., to pay benefits) or whether liquidity is a long run goal and investment
growth (and stability of same) is a more current need, or shall appoint a
qualified person to do so. The Employer or its delegate shall communicate such
needs and goals to the Trustee, who shall coordinate such Plan needs with its
investment policy. The communication of such a "funding policy and method" shall
not, however, constitute a directive to the Trustee as to investment of the
Trust Funds. Such "funding policy and method" shall be consistent with the
objectives of this Plan and with the requirements of Title I of the Act.
(d) The Employer shall periodically review the performance of any Fiduciary or other person to whom duties have been delegated or allocated by it under the provisions of this Plan or pursuant to procedures established hereunder. This requirement may be satisfied by formal periodic review by the Employer or by a qualified person specifically designated by the Employer, through day-to-day conduct and evaluation, or through other appropriate ways.
2.2 DESIGNATION OF ADMINISTRATIVE AUTHORITY
The Employer shall be the Administrator. The Employer may appoint any person, including, but not limited to, the Employees of the Employer, to perform the duties of the Administrator. Any person so appointed shall signify his acceptance by filing written acceptance with the Employer. Upon the resignation or removal of any individual performing the duties of the Administrator, the Employer may designate a successor.
2.3 POWERS AND DUTIES OF THE ADMINISTRATOR
The primary responsibility of the Administrator is to administer the Plan for the exclusive benefit of the Participants and their Beneficiaries, subject to the specific terms of the Plan. The Administrator shall administer
the Plan in accordance with its terms and shall have the power and discretion to construe the terms of the Plan and to determine all questions arising in connection with the administration, interpretation, and application of the plan. Any such determination by the Administrator shall be conclusive and binding upon all persons. The Administrator may establish procedures, correct any defect, supply any information, or reconcile any inconsistency in such manner and to such extent as shall be deemed necessary or advisable to carry out the purpose of the Plan; provided, however, that any procedure: discretionary act, interpretation or construction shall be done in a nondiscriminatory manner based upon uniform principles consistently applied and shall be consistent with the intent that the Plan shall continue to be deemed a qualified plan under the terms of Code Section 401(a), and shall comely with the terms of the Act and ail regulations issued pursuant thereto. The Administrator shall have all powers necessary or appropriate to accomplish his duties under this Plan.
The Administrator shall be charged with the duties of the general administration of the Plan, including, but not limited to, the following:
(a) the discretion to determine all questions relating to the eligibility of Employees to participate or remain a Participant hereunder and to receive benefits under the Plan;
(b) to compute, certify, and direct the Trustee with respect to the amount and the kind of benefits to which any Participant shall be entitled hereunder;
(c) to authorize and direct the Trustee with respect to all nondiscretionary or otherwise directed disbursements from the Trust;
(d) to maintain all necessary records for the administration of the Plan;
(e) to interpret the provisions of the Plan and to make and publish such rules for regulation of the Plan as are consistent with the terms hereof;
(f) to determine the size and type of any Contract to be purchased from any insurer, and to designate the insurer from which such Contract shall be purchased;
(g) to compute and certify to the Employer and to the Trustee from time to time the sums of money necessary or desirable to be contributed to the Plan;
(h) to consult with the Employer and the Trustee regarding the short and long-term liquidity needs of the Plan in order that the Trustee can exercise any investment discretion in a manner designed to accomplish specific objectives;
(i) to prepare and implement a procedure to notify Eligible Employees that they may elect to have a portion of their Compensation deferred or paid to them in cash;
(j) to assist any Participant regarding his rights, benefits, or elections available under the Plan.
2.4 RECORDS AND REPORTS
The Administrator shall keep a record of all actions taken and shall keep all other books of account, records, policies, and other data that may be necessary for proper administration of the Plan and shall be responsible for supplying all information and reports to the Internal Revenue Service, Department of Labor, Participants, Beneficiaries and others as required by law.
2.5 APPOINTMENT OF ADVISERS
The Administrator, or the Trustee with the consent of the Administrator, may appoint counsel, specialists, advisers, agents (including nonfiduciary agents) and other persons as the Administrator or the Trustee deems necessary or desirable in connection with the administration of this Plan, including but not limited to agents and advisers to assist with the administration and management of the Plan, and thereby to provide, among such other duties as the Administrator may appoint, assistance with maintaining Plan records and the providing of investment information to the Plan's investment fiduciaries and to Plan Participants.
2.6 PAYMENT OF EXPENSES
All expenses of administration may be paid out of the Trust Fund unless paid by the Employer. Such expenses shall include any expenses incident to the functioning of the Administrator, or any person or persons retained or appointed by any Named Fiduciary incident to the exercise of their duties under the Plan, including, but not limited to, fees of accountants, counsel, Investment Managers, agents (including nonfiduciary agents) appointed for the purpose of assisting the Administrator or the Trustee in carrying out the instructions of Participants as to the directed investment of their accounts and other specialists and their agents, and other costs of administering the Plan. Until paid, the expenses shall constitute a liability of the Trust Fund.
2.7 CLAIMS PROCEDURE
Claims for benefits under the Plan may be filed in writing with the Administrator. Written notice of the disposition of a claim shall be furnished to the claimant within 90 days after the application is filed. In the event the claim is denied, the reasons for the denial shall be specifically set forth in the notice in language calculated to be understood by the claimant, pertinent provisions of the Plan shall be cited, and, where appropriate: an explanation as to how the claimant can perfect the claim will be provided. In addition, the claimant shall be furnished with an explanation of the Plan's claims review procedure.
2.8 CLAIMS REVIEW PROCEDURE
Any Employee, former Employee, or Beneficiary of either, who has been denied a benefit by a decision of the Administrator pursuant to Section 2.7 shall be entitled to request the Administrator to give further consideration to his claim by filing with the Administrator (on a form which may be obtained from the Administrator) a request for a hearing. Such request, together with a written statement of the reasons why the claimant believes his claim should be allowed, shall be filed with the Administrator no later than 60 days after receipt of the written notification provided for in Section 2.7. The Administrator shall then conduct a hearing within the next 60 days, at which the claimant may be represented by an attorney or any other representative of his choosing and at which the claimant shall have an opportunity to submit written and oral evidence and arguments in support of his claim. At the hearing (Or
prior thereto upon 5 business days written notice to the Administrator) the claimant or his representative shall have an opportunity to review all documents in the possession of the Administrator which are pertinent to the claim at issue and its disallowance. Either the claimant or the Administrator may cause a court reporter to attend the hearing and record the proceedings. In such event, a complete written transcript of the proceedings shall be furnished to both parties by the court reporter. The full expense of any such court reporter and such transcripts shall be borne by the party causing the court reporter to attend the hearing. A final decision as to the allowance of the claim shall be made by the Administrator within 60 days of receipt of the appeal (unless there has been an extension of 60 days due to special circumstances, provided the delay and the special circumstances occasioning it are communicated to the claimant within the 60 day period). Such communication shall be written in a manner calculated to be understood by the claimant and shall include specific reasons for the decision and specific references to the pertinent Plan provisions on which the decision is based.
ARTICLE III - ELIGIBILITY
3.1 CONDITIONS OF ELIGIBILITY
Any Eligible Employee who has completed one (1) Year of Service and has attained age 21 shall be eligible to participate hereunder as of the date he has satisfied such requirements. However, any Employee who was a Participant in the Plan prior to the effective date of this amendment and restatement shall continue to participate in the Plan.
3.2 EFFECTIVE DATE OF PARTICIPATION
An Eligible Employee shall become a Participant effective as of the first day of the calendar quarter following the date such Employee met the eligibility requirements of Section 3.1, provided said Employee was still employed as of such date (or if not employed on such date, as of the date of rehire if a 1-Year Break in Service has not occurred)
In the event an Employee who is not a member of an eligible class of Employees becomes a member of an eligible class, such Employee will participate immediately if such Employee has satisfied the minimum age and service requirements and would have otherwise previously become a Participant.
3.3 DETERMINATION OF ELIGIBILITY
The Administrator shall determine the eligibility of each Employee for participation in the Plan based upon information furnished by the Employer. Such determination shall be conclusive and binding upon all persons, as long as the same is made pursuant to the Plan and the Act. Such determination shall be subject to review per Section 2.8.
3.4 TERMINATION OF ELIGIBILITY
(a) In the event a Participant shall go from a classification of an Eligible Employee to an ineligible Employee, such Former Participant shall continue to vest in his interest in the Plan for each Year of Service completed while a noneligible Employee, until such time as his Participant's Account shall be forfeited or distributed pursuant to the terms of the Plan. Additionally, his interest in the Plan shall continue to share in the earnings of the Trust Fund.
(b) In the event a Participant is no longer a member of an eligible class of Employees and, becomes ineligible to participate but has not incurred a 1-Year Break in Service, such Employee will participate immediately upon returning to an eligible class of Employees. If such Participant incurs a 1-Year Break in Service: eligibility will be determined under the break in service rules of the Plan.
3.5 OMISSION OF ELIGIBLE EMPLOYEE
If, in any Plan Year, any Employee who should be included as a Participant in the Plan is erroneously omitted and discovery of such omission is not made until after a contribution by his Employer for the year has been made, the Employer shall make a subsequent contribution with respect to the omitted Employee in the amount which the said Employer would have contributed with respect to him had he not been omitted. Such contribution shall be made regardless of whether or not it is deductible in whole or in part in any taxable year under applicable provisions of the Code.
3.6 INCLUSION OF INELIGIBLE EMPLOYEE
If, in any Plan Year, any person who should not have been included as a Participant in the Plan is erroneously included and discovery of such incorrect inclusion is not made until after a contribution for the year has been made, the Employer shall not be entitled to recover the contribution made with respect to the ineligible person regardless of whether or not a deduction is allowable with respect to such contribution. In such event, the amount contributed with respect to the ineligible person shall constitute a Forfeiture (except for Deferred Compensation which shall be distributed to the ineligible person) for the Plan Year in which the discovery is made.
3.7 ELECTION NOT TO PARTICIPATE
An Employee may, subject to the approval of the Employer, elect voluntarily not to participate in the Plan. The election not to participate must be communicated to the Employer, in writing, at least thirty (30) days before the beginning of a Plan Year.
ARTICLE IV - CONTRIBUTION AND ALLOCATION
4.l FORMULA FOR DETERMINING EMPLOYER CONTRIBUTION
For each Plan Year, the Employer shall contribute to the Plan:
(a) The amount of the total salary reduction elections of all Participants made pursuant to Section 4.2(a), which amount shall be deemed an Employer Elective Contribution.
(b) On behalf of each Participant who is eligible to share in matching contributions for the Plan Year, a discretionary matching contribution equal to a uniform percentage of each such Participant's Deferred Compensation, the exact percentage, if any, to be determined each year by the Employer, which amount, if any, shall be deemed an Employer Non-Elective Contribution.
(c) On behalf of each Non-Highly Compensated Participant and Non-Key Employee who is eligible to share in the Qualified Non-Elective Contribution for the Plan Year, a discretionary Qualified Non-Elective
Contribution equal to a uniform percentage of each eligible individual's Compensation, the exact percentage, if any, to be determined each year by the Employer. Any Employer Qualified Non-Elective Contribution shall be deemed an Employer Elective Contribution.
(d) A discretionary amount, which amount, if any, shall be deemed an Employer Non-Elective Contribution.
(e) Additionally, to the extent necessary, the Employer shall contribute to the Plan the amount necessary to provide the top heavy minimum contribution. All contributions by the Employer shall be made in cash.
4.2 PARTICIPANT'S SALARY REDUCTION ELECTION
(a) Each Participant may elect to defer a portion of his
Compensation which would have been received in the Plan Year (except for the
deferral election) by up to the maximum amount which will not cause the Plan to
violate the provisions of Sections 4.5(a) and 4.9. A deferral election (or
modification of an earlier election) may not be made with respect to
Compensation which is currently available on or before the date the participant
executed such election. For purposes of this Section, Compensation shall be
determined prior to any reductions made pursuant to Code Sections 125,
402(e)(3), 402(h)(l)(B), 403(b) or 457(b), and Employee contributions described
in Code Section 414(h) (2) that are treated as Employer contributions .
The amount by which Compensation is reduced shall be that Participant's Deferred Compensation and be treated as an Employer Elective Contribution and allocated to that Participant's Elective Account.
(b) The balance in each Participant's Elective Account shall be fully Vested at all times and shall not be subject to Forfeiture for any reason.
(c) Notwithstanding anything in the Plan to the contrary, amounts held in the Participant's Elective Account may not be distributable earlier than:
(1) a Participant's separation from service, or death;
(2) a Participant's attainment of age 59 1/2;
(3) the termination of the Plan without the establishment or existence of a "successor plan." as that term is described in Regulation
(4) the date of disposition by the Employer to an entity that is not an Affiliated Employer of substantially all of the assets (within the meaning of Code Section 409~d)(21) used in a trade or business of such corporation if such corporation continues to maintain this Plan after the disposition with respect to a Participant who continues employment with the corporation acquiring such assets;
(5) the date of disposition by the Employer or an Affiliated Employer who maintains the Plan of its interest in a subsidiary (within the meaning of Code Section 409(d)(3)) to an entity which is not an Affiliated Employer but only with respect to a Participant who continues employment with such subsidiary; or
(6) the proven financial hardship of a Participant, subject to the limitations of Section 6.10.
(d) For each Plan Year, a Participant's Deferred Compensation made under this Plan and all other plans, contracts or arrangements of the Employer maintaining this Plan shall not exceed, during any taxable year of the Participant, the limitation imposed by Code Section 402(g), as in effect at the beginning of such taxable year. If such dollar limitation is exceeded, a Participant will be deemed to have notified the Administrator of such excess amount which shall be distributed in a manner consistent with Section 4.2(f) The dollar limitation shall be adjusted annually pursuant to the method provided in Code Section 415(d) in accordance with Regulations.
(e) In the event a Participant has received a hardship distribution from his Participant's Elective Account pursuant to Section 6.10(b) or pursuant to Regulation 1.401(k)-l(d)(2) (iv)(B) from any other plan maintained by the Employer, then such Participant shall not be permitted to elect to have Deferred Compensation contributed to the Plan on his behalf for a period of twelve (12) months following the receipt of the distribution. Furthermore, the dollar limitation under Code Section 402(g) shall be reduced, with respect to the Participant's taxable year following the taxable year in which the hardship distribution was made, by the amount of such Participant's Deferred Compensation, if any, pursuant to this Plan (and any other plan maintained by the Employer) for the taxable year of the hardship distribution.
(f) If a Participant's Deferred Compensation under this Plan
together with any elective deferrals (as defined in Regulation 1.402(g)-l(b))
under another qualified cash or deferred arrangement (as defined in Code Section
401(k)): a simplified employee pension (as defined in Code Section 408(k)) a
salary reduction arrangement (within the meaning of Code section 3121(a)(5)(D)),
a deferred compensation plan under Code Section 457(b), or a trust described in
Code Section 501(c)(18) cumulatively exceed the limitation imposed by Code
Section 402(g) (as adjusted annually in accordance with the method provided in
Code Section 415(d) pursuant to Regulations) for such Participant's taxable
year, the Participant may, not later than March 1 following the close of the
Participant's taxable year, notify the Administrator in writing of such excess
and request that his Deferred Compensation under this Plan be reduced by an
amount specified by the Participant. In such event, the Administrator may direct
the Trustee to distribute such excess amount (and any Income allocable to such
excess amount) to the Participant not later than the first April 15th following
the close of the Participant's taxable year. Any distribution of less than the
entire amount of Excess Deferred Compensation and Income shall be treated as a
pro rata distribution of Excess Deferred Compensation and Income. The amount
distributed shall not exceed the Participant's Deferred Compensation under the
plan for the taxable year (and any Income allocable to such excess amount). Any
distribution on or before the last day of the Participant's taxable year must
satisfy each of the following conditions:
(1) the distribution must be made after the date on which the Plan received the Excess Deferred Compensation;
(2) the Participant shall designate the distribution as Excess Deferred Compensation; and
(3) the plan must designate the distribution as a distribution of Excess Deferred Compensation.
Matching contributions which relate to Excess Deferred Compensation which is distributed pursuant to this Section 4.2(f) shall be forfeited.
(g) Notwithstanding Section 4.2(f) above, a Participant's Excess Deferred Compensation shall be reduced, but not below zero, by any distribution of Excess Contributions pursuant to Section 4.6(a) for the Plan Year beginning with or within the taxable year of the Participant.
(h) At Normal Retirement Date, or such other date when the Participant shall be entitled to receive benefits, the fair market value of the Participant's Elective Account shall be used to provide additional benefits to the Participant or his Beneficiary.
(i) Employer Elective Contributions made pursuant to this
Section may be segregated into a separate account for each Participant in a
federally insured savings account, certificate of deposit in a bank or savings
and loan association, money market certificate, or other short-term debt
security acceptable to the Trustee until such time as the allocations pursuant
to Section 4.4 have been made.
(j) The Employer and the Administrator shall implement the salary reduction elections provided for herein in accordance with the following:
(1) A Participant must make his initial salary deferral election within a reasonable time, not to exceed thirty (30) days, after entering the Plan pursuant to Section 3.2. If the Participant fails to make an initial salary deferral election within such time, then such Participant may thereafter make an election in accordance with the rules governing modifications. The Participant shall make such an election by entering into a written salary reduction agreement with the Employer and filing such agreement with the Administrator. Such election shall initially be effective beginning with the pay period following the acceptance of the salary reduction agreement by the Administrator, shall not have retroactive effect and shall remain in force until revoked.
(2) A Participant may modify a prior election during the Plan Year and concurrently make a new election by filing a written notice with the Administrator within a reasonable time before the pay period for which such modification is to be effective. However, modifications to a salary deferral election shall only be permitted quarterly, during election periods established by the Administrator prior to the first day of each Plan Year quarter. Any modification shall not have retroactive effect and shall remain in force until revoked.
(3) A Participant may elect to prospectively revoke his salary reduction agreement in its entirety at any time during the Plan Year by providing the Administrator with thirty (30) days written notice of such revocation (or upon such shorter notice period as may be acceptable to the Administrator). Such revocation shall become effective as of the beginning of the first pay period coincident with or next following the expiration of the notice period. Furthermore, the termination of the Participant's employment, or the cessation of participation for any reason, shall be deemed to revoke any salary reduction agreement then in effect, effective immediately following the close of the pay period within which such termination or cessation occurs.
4.3 TIME OF PAYMENT OF EMPLOYER CONTRIBUTION
The Employer shall generally pay to the Trustee its contribution to the Plan for each Plan Year within the time prescribed by law, including extensions of time, for the filing of the Employer federal income tax return for the Fiscal Year.
However, Employer Elective Contributions accumulated through payroll deductions shall be paid to the Trustee as of the earliest date on which such contributions can reasonably be segregated from the Employer general assets, hut in any event within ninety (90) days from the date on which such amounts would otherwise have been payable to the Participant in cash. The provisions of Department of Labor regulations 2510.3-102 are incorporated herein by reference. Furthermore, any additional Employer contributions which are allocable to the Participant's Elective Account for a Plan Year shall be paid to the Plan no later than the twelve-month period immediately following the close of such Plan Year.
4.4 ALLOCATION OF CONTRIBUTION. FORFEITURES AND EARNINGS
(a) The Administrator shall establish and maintain an account in the name of each Participant to which the Administrator shall credit as of each Anniversary Date all amounts allocated to each such Participant as set forth herein.
(b) The Employer shall provide the Administrator with all information required by the Administrator to make a proper allocation of the Employer contributions for each Plan Year. Within a reasonable period of time after the date of receipt by the Administrator of such information, the Administrator shall allocate such contribution as follows:
(1) With respect to the Employer Elective Contribution made pursuant to Section 4.l(a), to each Participant's Elective Account in an amount equal to each such Participant's Deferred Compensation for the year.
(2) With respect to the Employer Non-Elective Contribution made pursuant to Section 4.l(b), to each Participant's Account in accordance with Section 4.l(b)
Only Participants who have completed a Year of Service during the Plan Year and are actively employed on the last day of the Plan Year shall be eligible to share in the matching contribution for the year.
(3) with respect to the Employer Qualified Non-Elective Contribution made pursuant to Section 4.l(c), to each Participant's Elective Account when used to satisfy the "Actual Deferral Percentage" tests or Participant's Account in accordance with Section 4.l(c)
Only Non-Highly Compensated Participants and Non-Key Employees who have completed a Year of Service during the Plan Year and are actively employed on the last day of the Plan Year shall be eligible to share in the Qualified Non-Elective Contribution for the year.
(4) With respect to the Employer Non-Elective Contribution made pursuant to Section 4.lid), to each Participant's Account; in the same proportion that each such Participant's Compensation for the year bears to the total Compensation of all Participants for such year.
Only Participants who have completed a Year of Service during the Plan Year and are actively employed on the last day of the Plan Year shall be eligible to share in the discretionary contribution for the year.
(c) As of each Anniversary Date any amounts which became Forfeitures since the last Anniversary Date shall first be made available to reinstate previously forfeited account balances of Former Participants, if any, in accordance with Section 6.4(g)(2) The remaining Forfeitures, if any, shall be allocated to Participants' Accounts in the following manner :
(1) Forfeitures attributable to Employer matching contributions made pursuant to Section 4.l(b) shall be allocated among the Participants' Accounts in the same proportion that each such Participant's Compensation for the year bears to the total Compensation of all Participants :or the year.
Except, however, Participants who are not eligible to share in matching contributions (whether or not a deferral election was made or suspended pursuant to Section 4.2(e) for a plan Year shall not share in Plan Forfeitures attributable to Employer matching contributions for that year.
(2) Forfeitures attributable to Employer discretionary contributions made pursuant to Section 4.l(b) shall be allocated among the Participants' Accounts of Participants otherwise eligible to share in the allocation or discretionary contributions for the year in the same proportion that each such Participant's Compensation for the year bears to the total Compensation of all such Participants for the year.
Provided, however, that in the event the allocation of Forfeitures provided herein shall cause the "annual addition" (as defined in Section 4.9) to any Participant's Account to exceed the amount allowable by the Code, the excess shall be reallocated in accordance with Section 4.10.
(d) For any Top Heavy Plan Year, Non-Key Employees not otherwise eligible to share in the allocation of contributions and Forfeitures as provided above, shall receive the minimum allocation provided for in Section 4.4(f) if eligible pursuant to the provisions of Section 4.4(h)
(e) As of each Valuation Date, before allocation of one-half of the employer contributions for the entire Plan Year and after allocation of Forfeitures, any earnings or losses (net appreciation or net depreciation) of the Trust Fund shall be allocated in the same proportion that each Participant's and Former Participant's nonsegregated accounts bear to the total of all Participants' and Former Participants' nonsegregated accounts as of such date. Earnings or losses which respect to a Participant's Directed Account shall be allocated in accordance with Section 4.12.
Participants' transfers from other qualified plans deposited in the general Trust Fund shall share in any earnings and losses (net appreciation or net depreciation) of the Trust Fund in the same manner provided above. Each segregated account maintained on behalf of a Participant shall be credited or charged with its separate earnings and losses.
(f) Minimum Allocations Required for Top Heavy Plan Years:
Notwithstanding the foregoing, for any Top Heavy Plan Year, the sum of the
Employer contributions and Forfeitures allocated to the Participant's Combined
Account of each Non-Key Employee shall be equal to at least three percent (3%)
of such Non-Key Employee's "415 Compensation" (reduced by contributions and
forfeitures, if any, allocated to each Non-Key Employee in any defined
contribution plan included with this plan in a Required Aggregation Group). However, if (1) the sum of the Employer contributions and Forfeitures allocated to the Participant's Combined Account of each Key Employee for such Top Heavy Plan Year is less than three percent (3%) of each Key Employee's "415 Compensation" and (2) this Plan is not required to be included in an Aggregation Group to enable a defined benefit plan to meet the requirements of Code Section 401(a)(4) or 410 the sum of the Employer contributions and Forfeitures allocated to the Participant's Combined Account of each Non-Key Employee shall be equal to the largest percentage allocated to the Participant's Combined Account of any Key Employee. However, in determining whether a Non-Key Employee has received the required minimum allocation, such Non-Key Employee's Deferred Compensation and matching contributions needed to satisfy the "Actual Contribution Percentage" tests pursuant to Section 4.7(a) shall not be taken into account.
However, no such minimum allocation shall be required in this Plan for any Non-Key Employee who participates in another defined contribution plan subject to Code Section 412 included with this Plan in a Required Aggregation Group.
(g) For purposes of the minimum allocations set forth above, the percentage allocated to the Participant's Combined Account of any Key employee shall be equal to the ratio of the sum of the Employer contributions and Forfeitures allocated on behalf of such Key Employee divided by the "415 Compensation" for such Key Employee.
(h) For any Top Heavy Plan Year, the minimum allocations set forth above shall be allocated to the Participant's Combined Account of all Non-Key Employees who are Participants and who are employed by the Employer on the last day of the Plan Year, including Non-Key Employees who have (1) failed to complete a Year of Service; and (2) declined to make mandatory contributions (If required) or, in the case of a cash or deferred arrangement, elective contributions to the Plan.
(i) For the purposes of this Section, "415 Compensation" shall be limited to $150.000. Such amount shall be adjusted for increases in the cost of living in accordance with Code Section 401(a)(17), except that the dollar increase in effect on January 1 of any calendar year shall be effective for the Plan Year beginning with or within such calendar year. For any short Plan Year the "415 Compensation" limit shall be an amount equal to the "415 Compensation" limit for the calendar year in which the Plan Year begins multiplied by the ratio obtained by dividing the number of full months in the short Plan Year by twelve (12).
(j) Notwithstanding anything herein to the contrary, Participants who terminated employment for any reason during the Plan Year shall share in the salary reduction contributions made by the Employer for the year of termination without regard to the Hours of Service credited.
(k) If a Former Participant is reemployed after five(5) consecutive i-Year Breaks in Service, then separate accounts shall be maintained as follows:
(1) one account for nonforfeitable benefits attributable to pre-break service; and
(2) one account representing his status in the Plan attributable to post-break service.
4.5 ACTUAL DEFERRAL PERCENTAGE TESTS
(a) Maximum Annual Allocation: For each Plan Year, the annual allocation derived from Employer Elective Contributions to a Particioant's Elective Account shall satisfy one of the following tests:
(1) The "Actual Deferral Percentage" for the Highly Compensated Participant group shall not be more than the "Actual Deferral Percentage" of the Non-Highly Compensated Participant group multiplied by 1.25, or
(2) The excess of the "Actual Deferral Percentage" for the Highly Compensated Participant group over the "Actual Deferral Percentage" for the Non-Highly Compensated Participant group shall not be more than two percentage points. Additionally, the "Actual Deferral Percentage" for the Highly Compensated Participant group shall not exceed the "Actual Deferral Percentage" for the Non-Highly Compensated Participant group multiplied by 2. The provisions of Code Section 401(k)(3) and Regulation l.a0l(k)-l(b) are incorporated herein by reference.
However, in order to prevent the multiple use of the alternative method described in (2) above and in Code Section 401(m)(9)(A), any Highly Compensated Participant eligible to make elective deferrals pursuant to Section 4.2 and to make Employee contributions or to receive matching contributions under this Plan or under any other plan maintained by the Employer or an Affiliated Employer shall have a combination of his actual deferral ratio and his actual contribution ratio reduced pursuant to Section 4.6(a) and Regulation 1.401(n)-2, the provisions of which are incorporated herein by reference.
(b) For the purposes of this Section "Actual Deferral Percentage" means, with respect to the Highly Compensated Participant group and Non-Highly Compensated Participant group for a Plan Year, the average of the ratios, calculated separately for each Participant in such group, of the amount of Employer Elective Contributions allocated to each Participant's Elective Account for such Plan Year, to such Participant's "414(s) Compensation" for such Plan Year. The actual deferral ratio for each Participant and the "Actual Deferral Percentage" for each group shall be calculated to the nearest one-hundredth of one percent Employer Elective Contributions allocated to each Non-Highly Compensated Participant's Elective Account shall be reduced by Excess Deferred Compensation to the extent such excess amounts are made under this Plan or any other plan maintained by the Employer.
(c) For the purpose of determining the actual deferral ratio of a Highly Compensated Employee who is subject to the Family Member aggregation rules of Code Section 414(q)(6) because such Participant is either a "five percent owner" of the Employer or one of the ten (10) Highly Compensated Employees paid the greatest "415 Compensation" during the year, the following shall apply:
(1) The combined actual deferral ratio for the family group (which shall be treated as one Highly Compensated Participant) shall be determined by aggregating Employer Elective Contributions and "414(s) Compensation" of all eligible Family Members (including Highly Compensated Participants). However, in applying the $150,000 limit to "414(s) Compensation," Family Members shall include only the affected Employee's spouse and any lineal descendants who have not attained age 19 before the close of the Plan Year.
(2) The Employer Elective Contributions and "414(s) Compensation" of all Family Members shall be disregarded for purposes of determining the "Actual Deferral Percentage" of the Non-Highly Compensated Participant group except to the extent taken into account in paragraph (1) above.
(3) If a Participant is required, to be aggregated as a member of more than one family group in a plan, all Participants who are members of those family groups that include the Participant are aggregated as one family group in accordance with paragraphs (1) and (2) above.
(d) For the purposes of Sections 4.5(a) and 4.6, a Highly Compensated Participant and a Non-Highly Compensated Participant shall include any Employee eligible to make a deferral election pursuant to Section 4.2, whether or not such deferral election was made or suspended pursuant to Section 4.2.
(e) For the purposes of this Section and Code Sections
401(a)(4), 410(b) and 401(k), if two or more plans which include cash or
deferred arrangements are considered one plan for the purposes of Code Section
401(a)(4) or 410(b) (other than Code Section 410(b)(2)(A)(ii)), the cash or
deferred arrangements included in such plans shall be treated as one
arrangement. In addition: two or more cash or deferred arrangements may be
considered as a single arrangement for purposes of determining whether or not
such arrangements satisfy Code Sections 401(a)(4), 410(b) and 401(k). In such a
case, the cash or deferred arrangements included in such plans and the plans
including such arrangements shall be treated as one arrangement and as one plan
for purposes of this Section and Code Sections 401(a)(4), 410(b) and 401(k)
Plans may be aggregated under this paragraph (e) only if they have the same plan
year.
Notwithstanding the above, an employee stock ownership plan described in Code Section 9975(e)(7) or 409 may not be combined with this Plan for purposes of determining whether the employee stock ownership plan or this Plan satisfies this Section and Code Sections 401(a) (4), 410 (b) and 401(k)
(f) For the purposes of this Section, if a Highly Compensated Participant is a participant under two or more cash or deferred arrangements (other than a cash or deferred arrangement which is part of an employee stock ownership plan as defined in Code Section a975(e)(7) or 409) of the Employer or an Affiliated Employer, all such cash or deferred arrangements shall be treated as one cash or deferred arrangement for the purpose of determining the actual deferral ratio with respect to such Highly Compensated Participant. However, if the cash or deferred arrangements have different plan years, this paragraph shall be applied by treating all cash or deferred arrangements ending with or within the same calendar year as a single arrangement.
4.6 ADJUSTMENT TO ACTUAL DEFERRAL PERCENTAGE TESTS
In the event that the initial allocations of the Employer Elective Contributions made pursuant to Section 4.4 do not satisfy one of the tests set forth in Section 4.5(a), the Administrator shall adjust Excess Contributions pursuant to the options set forth below:
(a) On or before the fifteenth day of the third month following the end of each Plan Year, the Highly Compensated Participant having the highest actual deferral ratio shall have his portion of Excess Contributions distributed to him until one of the tests set forth in Section 4.5(a) is satisfied, or until
his actual deferral ratio equals the actual deferral ratio of the Highly Compensated Participant having the second highest actual deferral ratio. This process shall continue until one of the tests set forth in Section 4.5(a) is satisfied. For each Highly Compensated Participant, the amount of Excess Contributions is equal to the Elective Contributions used to satisfy the "Actual Deferral Percentage" tests on behalf of such Highly Compensated Participant (determined prior to the application of this paragraph) minus the amount determined by multiplying the Highly Compensated Participant's actual deferral ratio (determined after application of this paragraph) by his "414(s) Compensation. " However, in determining the amount of Excess Contributions to be distributed with respect to an affected Highly Compensated Participant as determined herein, such amount shall be reduced pursuant to Section 4.2(f) by any Excess Deferred Compensation previously distributed to such affected Highly Compensated Participant for his taxable year ending with or within such Plan Year.
(1) with respect to the distribution of Excess Contributions pursuant to (a) above, such Distribution:
(i) may be postponed but not later than the close of the Plan Year following the Plan Year to which they are allocable;
(ii) shall be adjusted for Income; and
(iii) shall be designated by the Employer as a distribution of Excess Contributions (and Income)
(2) Any distribution of less than the entire amount of Excess Contributions shall be treated as a pro rata distribution of Excess Contributions and Income.
(3) The determination and correction of Excess Contributions of a Highly Compensated Participant whose actual deferral ratio is determined under the family aggregation rules shall be accomplished by reducing the actual deferral ratio as required herein, and the Excess Contributions for the family unit shall then be allocated among the Family Members in proportion to the Elective Contributions of each Family Member that were combined to determine the group actual deferral ratio.
(4) Matching contributions which relate to Excess Contributions shall be forfeited unless the related matching contribution is distributed as an Excess Aggregate Contribution pursuant to Section 4.8.
(b) Within twelve (12) months after the end of the Plan Year,
the Employer may make a special Qualified Non-Elective Contribution On behalf of
Non-Highly Compensated Participants electing salary reductions pursuant to
Section 4.2 in an amount sufficient to satisfy one of the tests set forth in
Section 4.5(a). Such contribution shall be allocated to the Participant's
Elective Account of each Non-Highly Compensated Participant electing salary
reductions pursuant to Section 4.2 in the same proportion that each such
Non-Highly Compensated Participant's Deferred Compensation for the year bears to
the total Deferred Compensation of all such Non-Highly Compensated Participants.
(c) If during a Plan Year the projected aggregate amount of Elective Contributions to be allocated to all Highly Compensated Participants under this Plan would, by virtue of the tests set forth in Section 4.5(a), cause the Plan to fail such tests, then the Administrator may automatically reduce
proportionately or in the order provided in Section 4.6(a) each affected Highly Compensated Participant's deferral election made pursuant to Section 4.2 by an amount necessary to satisfy one of the tests set forth in Section 4.5(a)
4.7 ACTUAL CONTRIBUTION PERCENTAGE TESTS
(a) The "Actual Contribution Percentage" for the Highly Compensated Participant group shall not exceed the greater of:
(1) 125 percent of such percentage for the Non-Highly Compensated Participant group; or
(2) the lesser of 200 percent of such percentage for the
Non-Highly Compensated Participant group, or such percentage for the Non-Highly
Compensated Participant group plus 2 percentage points. However, to prevent the
multiple use of the alternative method described in this paragraph and Code
Section 401(m)(9)(A), any Highly Compensated Participant eligible to make
elective deferrals pursuant to Section 4.2 or any other cash or deferred
arrangement maintained by the Employer or an Affiliated Employer and to make
Employee contributions or to receive matching contributions under this Plan or
under any plan maintained by the Employer or an Affiliated Employer shall have a
combination of his actual deferral ratio and his actual contribution ratio
reduced pursuant to Regulation 1.401(m)-2 and Section 4.8(a). The provisions of
Code Section 40l(m) and Regulations 1.401(m)-l(b) and 1.401(m)-2 are
incorporated herein by reference.
(b) For the purposes of this Section and Section 4.8, "Actual Contribution Percentage" for a Plan Year means, with respect to the Highly Compensated Participant group and Non-Highly Compensated Participant group, the average of the ratios (calculated separately for each Participant in each group) of:
(1) the sum of Employer matching contributions made pursuant to Section 4.l(b) on behalf of each such Participant for such Plan Year; to
(2) the Participant's "414(s) Compensation" for such Plan Year.
(c) For purposes of determining the "Actual Contribution Percentage" and the amount of Excess Aggregate Contributions pursuant to Section 4.8(d), only Employer matching contributions contributed to the Plan prior to the end of the succeeding Plan Year shall be considered. In addition, the Administrator may elect to take into account, with respect to Employees eligible to have Employer matching contributions pursuant to Section 4.l(b) allocated to their accounts, elective deferrals (as defined in Regulation 1.402(g)-l(b)) and qualified non-elective contribution (as defined in Code Section 401(m)(4)(C)) contributed to any plan maintained by the Employer. Such elective deferrals and qualified non-elective contributions shall be treated as Employer matching contributions subject to Regulation 1.401(m)-l(b)(5) which is incorporated herein by reference. However, the Plan Year must be the same as the plan year of the plan to which the elective deferrals and the qualified non-elective contributions are made.
(d) For the purpose of determining the actual contribution ratio of a Highly Compensated Employee who is subject to the Family Member aggregation rules of Code Section 414(q)(6) because such Employee is either a "five percent owner" of the Employer or one of the ten (10) Highly Compensated Employees paid the greatest "415 Compensation" during the year, the following shall apply:
(1) The combined actual contribution ratio for the family
group (which shall be treated as one Highly Compensated Participant) shall be
determined by aggregating Employer matching contributions made pursuant to
Section 4.l(b) and "414(s) Compensation" of all eligible Family Members
(including Highly Compensated Participants). However, in applying the $150,000
limit to "414(s) Compensation", Family Members shall include only the affected
Employee's spouse and any lineal descendants who have not attained age 19 before
the close of the Plan Year.
(2) The Employer matching contributions made pursuant to
Section 4.l(b) and "414(s) Compensation" of all Family Members shall be
disregarded for purposes of determining the "Actual Contribution Percentage" of
the Non-Highly Compensated Participant group except to the extent taken into
account in paragraph (1)above.
(3) If a Participant is required to be aggregated as a member of more than one family group in a plan, all Participants who are members of those family groups that include the Participant are aggregated as one family group in accordance with paragraphs (ii and (2) above.
(e) For purposes of this Section and Code Sections 40l(a)(4), 410(b) and 401(m), if two or more plans of the Employer to which matching contributions, Employee contributions, or both, are made are treated as one plan for purposes of Code Sections 401(a)(4) or 410(b) (other than the average benefits test under Code Section 410(b)(2)(A)(ii)), such plans shall be treated as one plan. In addition, two or more plans of the Employer to which matching contributions, Employee contributions, or both, are made may be considered as a single plan for purposes of determining whether or not such plans satisfy Code Sections 401(a)(4), 410(b) and 401(m). In such a case, the aggregated plans must satisfy this Section and Code Sections 401(a)(4), 410(b) and 401(m) as though such aggregated plans were a single plan. Plans may be aggregated under this paragraph (e) only if they have the same plan year.
Notwithstanding the above, an employee stock ownership plan described in Code Section 4975(e)(7) or 409 may not be aggregated with this Plan for purposes of determining whether the employee stock ownership plan or this Plan satisfies this Section and Code Sections 401(a)(4), 410(b) and 401(m).
(f) If a Highly Compensated Participant is a Participant under two or more plans (other than an employee stock ownership plan as defined in Code Section 4975(e)(7) or 409) which are maintained by the Employer or an Affiliated Employer to which matching contributions, Employee contributions, or both, are made, all such contributions on behalf of such Highly Compensated Participant shall be aggregated for purposes of determining such Highly Compensated Participant's actual contribution ratio. However, if the plans have different plan years, this paragraph shall be applied by treating all plans ending with or within the same calendar year as a single plan.
(g) For purposes of Sections 4.7(a) and 4.8, a Highly
Compensated Participant and Non-Highly Compensated Participant shall include any
Employee eligible to have Employer matching contributions pursuant to Section
4.l(b) (whether or not a deferral election was made or suspended pursuant to
Section 4.2(e)) allocated to his account for the Plan Year.
4.8 ADJUSTMENT TD ACTUAL CONTRIBUTION PERCENTAGE TESTS
(a) In the event that the "Actual Contribution Percentage" for
the Highly Compensated Participant group exceeds the "Actual Contribution
Percentage" for the Non-Highly Compensated Participant group pursuant to Section
4.7(a), the Administrator (on or before the fifteenth day of the third month
following the end of the Plan Year, but in no event later than the close of the
following Plan Year) shall direct the Trustee to distribute to the Highly
Compensated Participant having the highest actual contribution ratio: his Vested
portion of Excess Aggregate Contributions (and income allocable to such
contributions) and, if forfeitable, forfeit such non-vested Excess Aggregate
Contributions attributable to Employer matching contributions (and Income
allocable to such forfeitures) until either one of the tests set forth in
Section 4.7(a) is satisfied, or until his actual contribution ratio equals the
actual contribution ratio of the Highly Compensated Participant having the
second highest actual contribution ratio. This process shall continue until one
of the tests set forth in Section n_.7(a) is satisfied.
If the correction of Excess Aggregate Contributions attributable to Employer matching contributions is not in proportion to the Vested and non-Vested portion of such contributions, then the Vested portion of the Participant's Account attributable to Employer matching contributions after the correction shall be subject to Section 6.5(q)
(b) Any distribution and/or forfeiture of less than the entire amount of Excess Aggregate Contributions (and Income) shall be treated as a pro rata distribution and/or forfeiture of Excess Aggregate Contributions and Income. Distribution of Excess Aggregate Contributions shall be designated by the employer as a distribution of Excess Aggregate Contributions (and Income). Forfeitures of Excess Aggregate Contributions shall be treated in accordance with Section 4.4. However, no such forfeiture may be allocated to a Highly Compensated Participant whose contributions are reduced pursuant to this Section.
(c) Excess Aggregate Contributions, including forfeited matching contributions, shall be treated as Employer contributions for purposes of Code Sections 404 and 415 even if distributed from the Plan.
Forfeited matching contributions that are reallocated to Participants' Accounts for the Plan Year in which the forfeiture occurs shall be treated as an "annual addition" pursuant to Section 4.9(b) for the Participants to whose Accounts they are reallocated and for the Participants from whose Accounts they are forfeited.
(d) For each Highly Compensated Participant, the amount of Excess Aggregate Contributions is equal to the Employer matching contributions made pursuant to Section 4.l(b) and any qualified non-elective contributions or elective deferrals taken into account pursuant to Section 4.7(c) on behalf of the Highly Compensated Participant (determined prior to the application of this paragraph) minus the amount determined by multiplying the Highly Compensated Participant's actual contribution ratio (determined after application of this paragraph) by his "414(s) Compensation." The actual contribution ratio must be rounded to the nearest one-hundredth of one percent. In no case shall the amount of Excess Aggregate Contribution with respect to any Highly Compensated Participant exceed the amount of Employer matching contributions made pursuant to Section 4.l(b) and any qualified non-elective contributions or elective deferrals taken into account pursuant to Section 4.7(c) on behalf of such Highly Compensated Participant for such Plan Year.
(e) The determination of the amount of Excess Aggregate Contributions with respect to any Plan Year shall be made after first determining the Excess Contributions, if any, to be treated as voluntary Employee contributions due to recharacterization for the plan year of any other qualified cash or deferred arrangement (as defined in Code Section 401(k)) maintained by the Employer that ends with or within the Plan Year.
(f) If the determination and correction of Excess Aggregate Contributions of a Highly Compensated Participant whose actual contribution ratio is determined under the family aggregation rules, then the actual contribution ratio shall be reduced and the Excess Aggregate Contributions for the family unit shall be allocated among the Family Members in proportion to the sum of Employer matching contributions made pursuant to Section 4.l(b) and any qualified non-elective contributions or elective deferrals taken into account pursuant to Section 6.7(c) of each Family Member that were combined to determine the group actual contribution ratio.
(g) If during a Plan Year the projected aggregate amount of
Employer matching contributions to be allocated to all Highly Compensated
Participants under this Plan would, by virtue of the tests set forth in Section
4.7(a), cause the Plan to fail such tests, then the Administrator may
automatically reduce proportionately or in the order provided in Section 4.8(a)
each effected Highly Compensated Participant's projected share of such
contributions by an amount necessary to satisfy one of the tests set forth in
Section 4.7(a)
(h) Notwithstanding the above, within twelve (12) months after the end of the Plan Year, the Employer may make a special Qualified Non-Elective Contribution on behalf of Non-Highly Compensated Participants in an amount sufficient to satisfy one of the tests set forth in Section 4.7(a). Such contribution shall be allocated to the Participant's Account of each Non-Highly Compensated Participant in the same proportion that each Non-Highly Compensated Participant's Compensation for the year bears to the total Compensation of all Non-Highly Compensated Participants. A separate accounting of any special Qualified Non-Elective Contribution shall be maintained in the Participant's Account.
4.9 MAXIMUM ANNUAL ADDITIONS
(a) Notwithstanding the foregoing, the maximum "annual additions" credited to a Participant's accounts for any "limitation year" shall equal the lesser of: (1) $30,000 adjusted annually as provided in Code Section 415(d) pursuant to the Regulations, or (2) twenty-five percent (25%) of the Participant's "415 Compensation" for such "limitation year." For any short "limitation year," the dollar limitation in (1) above shall be reduced by a fraction, the numerator of which is the number of full months in the short "limitation year" and the denominator of which is twelve (12)
(b) For purposes of applying the limitations of Code Section
415, "annual additions" means the sum credited to a Participant's accounts for
any "limitation year" of (1) Employer contributions. (2) Employee contributions,
(3) forfeitures, (4) amounts allocated, after March 31, 1984, to an individual
medical account, as defined in Code Section 415(1)(2) which is part of a pension
or annuity plan maintained by the Employer and (5) amounts derived from
contributions paid or accrued after December 31, 1985, in taxable years ending
after such date, which are attributable to post-retirement medical benefits
allocated to the separate account of a key employee (as defined in Code Section
419A(d)(3)) under a welfare benefit plan (as defined in Code Section 419(e))
maintained by the employer. Except however, the "415 Compensation" percentage
limitation referred to in paragraph (a)(2) above shall not apply to: (1) any
contribution for medical benefits (within the meaning of Code Section
419A(f)(2)) after separation from service which is otherwise treated as an "annual addition," or (2) any amount otherwise treated as an "annual addition" under Code Section 415(1)(1)
(c) For purposes of applying the limitations of Code Section
415, the transfer of funds from one qualified plan to another is not an "annual
addition." In addition, the following are not Employee contributions for the
purposes of Section 4.9(b)(2): (1) rollover contributions (as defined in Code
Sections 402(f) (6), 403(a) (4), 403(b)(8) and 408(d)(3)); (2) repayments of
loans made to a Participant from the Plan; (3) repayments of distributions
received by an Employee pursuant to Code Section 411(a)(7)(B) (cash-outs); (4)
repayments of distributions received by an Employee pursuant to Code Section
411(a)(3)(D) (mandatory contributions); and (5) Employee contributions to a
simplified employee pension excludable from gross income under Code Section
408(k)(6)
(d) For purposes of applying the limitations of Code Section 415, the "limitation year" shall be the Plan Year.
(e) For the purpose of this Section, all qualified defined contribution plans (whether terminated or not) ever maintained by the Employer shall be treated as one defined contribution plan.
(f) For the purpose of this Section, if the Employer is a member of a controlled group of corporations, trades or businesses under common control (as defined by Code Section 1563(a) or Code Section 414(b) and (c) as modified by Code Section 415(h)), is a member of an affiliated service group (as defined by Code Section 414(m)), or is a member of a group of entities required to be aggregated pursuant to Regulations under Code Section 414(o), all Employees of such Employers shall be considered to be employed by a single Employer.
(g) For the purpose of this Section, if this Plan is a Code
Section 413(c) plan, each Employer who maintains this Plan will be considered to
be a separate Employer.
(h) (l) If a Participant participates in more than one defined contribution plan maintained by the Employer which have different Anniversary Dates, the maximum "annual additions" under this Plan shall equal the maximum "annual additions" for the "limitation year" minus any "annual additions" previously credited to such Participant's accounts during the "limitation year."
(2) If a Participant participates in both a defined contribution plan subject to Code Section 412 end a defined contribution plan not subject to Code Section 412 maintained by the Employer which have the same Anniversary Date, "annual additions" will be credited to the Participant's accounts under the defined contribution plan subject to Code Section 412 prior to crediting "annual additions" to the Participant's accounts under the defined contribution plan not subject to Code Section 412.
(3) If a Participant participates in more than one defined contribution plan not subject to Code Section 412 maintained by the Employer which have the same Anniversary Date, the maximum "annual additions" under this Plan shall equal the product of 1A) the maximum "annual additions" for the "limitation year" minus any "annual additions" previously credited under subparagraphs (1) or (2) above, multiplied by (B) a fraction (i) the numerator
of which is the "annual additions" which would be credited to such Participant's accounts under this Plan without regard to the limitations of Code Section 415 and (ii) the denominator of which is such "annual additions" for all plans described in this subparagraph.
(i) Notwithstanding anything contained in this Section to the
contrary, the limitations, adjustments and other requirements prescribed in this
Section shall at all times comply with the provisions of Code Section 415 and
the Regulations thereunder, the terms of which are specifically incorporated
herein by reference.
4.10 ADJUSTMENT FOR EXCESSIVE ANNUAL ADDITIONS
(a) If, as a result of the allocation of Forfeitures, a
reasonable error in estimating a Participant's Compensation, a reasonable error
in determining the amount of elective deferrals (within the meaning of Code
Section 402(g)(3)1 that may be made with respect to any Participant under the
limits of Section 4.9 or other facts and circumstances to which Regulation
1.415-6(b)(6) shall be applicable, the "annual additions" under this Plan would
cause the maximum "annual additions" to be exceeded for any Participant, the
Administrator shall (1) distribute any elective deferrals (within the meaning of
Code Section 402(g)(3)) or return any Employee contributions (whether voluntary
or mandatory), and for the distribution of gains attributable to those elective
deferrals and Employee contributions, to the extent that the distribution or
return would reduce the "excess amount" in the Participant's accounts (2) hold
any "excess amount" remaining after the return of any elective deferrals or
voluntary Employee contributions in a "Section 415 suspense account" (3) use the
"Section 415 suspense account" in the next "limitation year" (and succeeding
"limitation years" if necessary) to reduce Employer contributions for that
Participant if that Participant is covered by the Plan as of the end of the
"limitation year," or if the Participant is not so covered, allocate and
reallocate the "Section 415 suspense account" in the next "limitation year" (and
succeeding "limitation years" if necessary) to all Participants in the Plan
before any Employer or Employee contributions which would constitute "annual
additions" are made to the Plan for such "limitation year" (4) reduce Employer
contributions to the Plan for such "limitation year" by the amount of the
"Section 415 suspense account" allocated and reallocated during such "limitation
year."
(b) For purposes of this Article, "excess amount" for any Participant for a "limitation year" shall mean the excess, if any, of (1) the "annual additions" which would be credited to his account under the terms of the Plan without regard to the limitations of Code Section 415 over (2) the maximum "annual additions" determined pursuant to Section 4.9.
(c) For purposes Of this Section, "Section 415 suspense account" shall mean an unallocated account equal to the sum of "excess amounts" for all Participants in the Plan during the "limitation year." The "Section 415 suspense account" shall not share in any earnings or losses of the Trust Fund.
4.11 TRANSFERS FROM QUALIFIED PLANS
(a) With the consent of the Administrator, amounts may be transferred from other qualified plans by Eligible Employees, provided that the trust from which such funds are transferred permits the transfer to be made and the transfer will not jeopardize the tax exempt status of the Plan or Trust or create adverse tax consequences for the Employer. The amounts transferred shall
be set up in a separate account herein referred to as a "Participant's Rollover Account." Such account shall be fully Vested at all times and shall not be subject to Forfeiture for any reason.
(b) Amounts in a Participant's Rollover Account shall be held by the Trustee pursuant to the provisions of this Plan and may not be withdrawn by, or distributed to the Participant, in whole or in part, except as provided in paragraphs (c) and (d) of this Section.
(c) Except as permitted by Regulations (including Regulation 1.411(d)-4), amounts attributable to elective contributions (as defined in Regulation 1.401(k)-l(g) (3)), including amounts treated as elective contributions, which are transferred from another qualified plan in a plan-to-plan transfer shall be subject to the distribution limitations provided for in Regulation 1.401(k)-l(d)
(d) The Administrator, at the election of the Participant, shall direct the Trustee to distribute all or a portion of the amount credited to the Participant's Rollover Account. Any distributions of amounts held in a Participant's Rollover Account shall be made in a manner which is consistent with and satisfies the provisions of Section 6.5, including, but not limited to, all notice and consent requirements of Code Section 411(a)(11) and the Regulations thereunder Furthermore, such amounts shall be considered as part of a Participant's benefit in determining whether an involuntary cash-out of benefits without Participant consent may be made.
(e) The Administrator may direct that employee transfers made after a valuation date be segregated into a separate account for each Participant in a federally insured savings account, certificate of deposit in a bank or savings and loan association, money market certificate, or other short term debt security acceptable to the Trustee until such time as the allocations pursuant to this Plan have been made, at which time they may remain segregated or be invested as part of the general Trust Fund, to be determined by the Administrator.
(f) For purposes of this Section, the term "qualified plan" shall mean any tax qualified plan under Code Section 401(a). The term "amounts transferred from other qualified plans" shall mean: (i) amounts transferred to this Plan directly from another qualified plan; (ii) distributions from another qualified plan which are eligible rollover distributions and which are either transferred by the Employee to this Plan within sixty (60) days following his receipt thereof or are transferred pursuant to a direct rollover; (iii) amounts transferred to this Plan from a conduit individual retirement account provided that the conduit individual retirement account has no assets other than assets which (A) were previously distributed to the Employee by another qualified plan as a lump-sum distribution (B) were eligible for tax-free rollover to a qualified plan and (C) were deposited in such conduit individual retirement account within sixty (60) days of receipt thereof and other than earnings on said assets; and (iv) amounts distributed to the Employee from a conduit individual retirement account meeting the requirements of clause (iii) above, and transferred by the Employee to this Plan within sixty (60) days of his receipt thereof from such conduit individual retirement account.
(g) Prior to accepting any transfers to which this Section applies, the Administrator may require the Employee to establish that the amounts to be transferred to this Plan meet the requirements of this Section and may also require the Employee to provide an opinion of counsel satisfactory to the Employer that the amounts to be transferred meet the requirements of this Section.
(h) This Plan shall not accept any direct or indirect transfers (as that term is defined and interpreted under Code Section 401(a)(11) and the Regulations thereunder) from a defined benefit plan, money purchase plan (including a target benefit plan) stock bonus or profit sharing plan which would otherwise have provided for a life annuity form of payment to the Participant.
(i) Notwithstanding anything herein to the contrary, a transfer directly to this Plan from another qualified plan (or a transaction having the effect of such a transfer) shall only be permitted if it will not result in the elimination or reduction of any "Section all(d)(6) protected benefit" as described in Section 8.1.
4.12 DIRECTED INVESTMENT ACCOUNT
(a) Participants may, subject to a procedure established by the Administrator (the Participant Direction Procedures) and applied in a uniform nondiscriminatory manner, direct the Trustee to invest the accounts specified below in specific assets, specific funds or other investments permitted under the Plan and the Participant Direction Procedures. That portion of the interest of any Participant so directing will thereupon be considered a Participant's Directed Account.
(b) As of each Valuation Date, all Participant Directed Accounts shall be charged or credited with the net earnings, gains, losses and expenses as well as any appreciation or depreciation in the market value using publicly listed fair market values when available or appropriate.
(1) To the extent that the assets in a Participant's Directed Account are accounted for as pooled assets or investments, the allocation of earnings, gains and losses of each Participant's Directed Account shall be based upon the total amount of funds so invested, in a manner proportionate to the Participant's share of such pooled investment.
(2) To the extent that the assets in the Participant's Directed Account are accounted for as segregated assets, the allocation of earnings, gains and losses from such assets shall be made on a separate and distinct basis.
(c) The amounts which may be directed by a Participant are the following:
(1) The portion of the Elective Account attributable to Deferred Compensation.
(2) Amounts in a Participant's Rollover Account.
ARTICLE V - VALUATIONS
5.1 VALUATION OF THE TRUST FUND
The Administrator shall direct the Trustee, as of each Valuation Date, to determine the net worth of the assets comprising the Trust Fund as it exists on the Valuation Date. In determining such net worth, the Trustee shall value the assets comprising the Trust Fund at their fair market value as of the Valuation Date and shall deduct all expenses for which the Trustee has not yet obtained reimbursement from the Employer or the Trust Fund. The Trustee may update the value of any shares held in the Participant Directed Account by reference to the number of shares held by that Participant, priced at the market value as of the Valuation Date.
5.2 METHOD OF VALUATION
In determining the fair market value of securities held in the Trust Fund which are listed on a registered stock exchange, the Administrator shall direct the Trustee to value the same at the prices they were last traded on such exchange preceding the close of business on the Valuation Date. If such securities were not traded on the Valuation Date, or if the exchange on which they are traded was not open for business on the Valuation Date, then the securities shall be valued at the prices at which they were last traded prior to the Valuation Date. Any unlisted security held in the Trust Fund shall be valued at its bid price next preceding the close of business on the Valuation Date, which bid price shall be obtained from a registered broker or an investment banker. In determining the fair market value of assets other than securities for which trading or bid prices can be obtained, the Trustee may appraise such assets itself, or in its discretion, employ one or more appraisers for that purpose and rely on the values established by such appraiser or appraisers.
ARTICLE VI - DETERMINATION AND DISTRIBUTION OF BENEFITS
6.1 DETERMINATION OF BENEFITS UPON RETIREMENT
Every participant may terminate his employment with the Employer and retire for, the purposes hereof on his Normal Retirement Date. However, a participant may postpone the termination of his employment with the Employer to a later date, in which event the participation of such Participant in the Plan, including the right to receive allocations pursuant to Section 4.4 shall continue until his Late Retirement Date. Upon a participant's Retirement Date, or as soon thereafter as is practicable, the Trustee shall distribute, at the election of the participant, all amounts credited to such participant's Combined Account in accordance with Section 6.5.
6.2 DETERMINATION OF BENEFITS UPON DEATH
(a) Upon the death of a participant before his Retirement Date or other termination of his employment, all amounts credited to such participant's Combined Account shall become fully Vested. The Administrator shall direct the Trustee, in accordance with the provisions of Sections 6.6 and 6.7, to distribute the value of the deceased participant's accounts to the participant's Beneficiary
(b) Upon the death of a Former participant, the Administrator shall direct the Trustee, in accordance with the provisions of Sections 6.6 and 6.7, to distribute any remaining Vested amounts credited to the accounts of a deceased Former participant to such Former participant's Beneficiary.
(c) The Administrator may require such proper proof of death and such evidence of the right of any person to receive payment of the value of the account of a deceased participant or Former participant as the Administrator may deem desirable. The Administrator's determination of death and of the right of any person to receive payment shall be conclusive.
(d) The Beneficiary of the death benefit payable pursuant to this Section shall be the participant's spouse. Except, however, the participant may designate a beneficiary other than his spouse if:
(1) the spouse has waived the right to be the Participant's Beneficiary, or
(2) the Participant is legally separated or has been abandoned (within the meaning of local law) and the Participant has a court order to such effect (and there is no "qualified domestic relations order" as defined in Code Section 414(p) which provides otherwise), or
(3) the Participant has no spouse, or
(4) the spouse cannot be located.
In such event, the designation of a Beneficiary shall be made on a form satisfactory to the Administrator. A Participant may at any time revoke his designation of a Beneficiary or change his Beneficiary by filing written notice of such revocation or change with the Administrator. However: the Participant's spouse must again consent in writing to any change in Beneficiary unless the original consent acknowledged that the spouse had the right to limit consent only to a specific Beneficiary and that the spouse voluntarily elected to relinquish such right. In the event no valid designation of Beneficiary exists at the time of the Participant's death, the death benefit shall be payable to his estate.
(e) Any consent by the Participant's spouse to waive any rights to the death benefit must be in writing, must acknowledge the effect of such waiver, and be witnessed by a Plan representative or a notary public. Further, the spouse's consent must be irrevocable and must acknowledge the specific nonspouse Beneficiary.
6.3 DISABILITY RETIREMENT BENEFITS
No disability benefits, other than those payable upon termination of employment, are provided in this plan.
6.4 DETERMINATION OF BENEFITS UPON TERMINATION
(a) If a Participant's employment with the Employer is
terminated for any reason other than death or retirement, such Participant shall
be entitled to such benefits as are provided hereinafter pursuant to this
Section 6.4.
Distribution of the funds due to a Terminated Participant shall be made
on the occurrence of an event which would result in the distribution had the
Terminated Participant remained in the employ of the Employer (upon the
Participant's death or Normal Retirement). However at the election of the
Participant, the Administrator shall direct the Trustee to cause the entire
Vested portion of the Terminated Participant's Combined Account to be payable to
such Terminated Participant. Any distribution under this paragraph shall be made
in a manner which is consistent with and satisfies the provisions of Section
6.5, including, but not limited to, all notice and consent requirements of Code
Section 411(a)(ll) and the Regulations thereunder.
If the value of a Terminated Participant's Vested benefit derived from Employer and Employee contributions does not exceed $3,500 and has never exceeded $3,500 at the time of any prior distribution. the Administrator shall direct the Trustee to cause the entire Vested benefit to be paid to such Participant in a single lump sum.
For purposes of this Section 6.4, if the value of a Terminated Participant's Vested benefit is zero, the Terminated Participant shall be deemed to have received a distribution of such Vested benefit.
(b) The Vested portion of any Participant's Account shall be a percentage of the total amount credited to his Participant's Account determined on the basis of the Participant's number of Years of Service according to the following schedule:
Vesting Schedule
Years of Service Percentage
---------------- ----------
Less than 3 0%
3 20%
4 40%
5 60%
6 80%
7 100%
|
(c) Notwithstanding the vesting attributable to Employer matching and discretionary contributions provided for in paragraph 6.4(b) above, for any Top Heavy Plan Year, the Vested portion of the Participant's Account attributable to Employer matching and discretionary contributions of any Participant who has an Hour of Service after the Plan becomes top heavy shall be a percentage of the amount credited to his Participant's Account attributable to Employer matching and discretionary contributions determined on the basis of the Participant's number of Years of Service according to the following schedule:
Vesting Schedule
Years of Service Percentage
---------------- ----------
Less than 2 0%
2 20%
3 40%
4 60%
5 80%
6 100%
|
If in any subsequent Plan Year, the Plan ceases to be a Top Heavy Plan, the Administrator shall revert to the vesting schedule in effect before this Plan became a Top Heavy Plan. Any such reversion shall be treated as a Plan amendment pursuant to the terms of the Plan.
(d) Notwithstanding the vesting schedule above, the Vested percentage of a Participant's Account shall not be less than the Vested percentage attained as of the later of the effective date or adoption date of this amendment and restatement.
(e) Notwithstanding the vesting schedule above, upon the complete discontinuance of the Employer contributions to the Plan or upon any full or partial termination of the Plan, all amounts credited to the account of any affected Participant shall become 100% Vested and shall not thereafter be subject to Forfeiture.
(f) The computation of a Participant's nonforfeitable percentage of his interest in the Plan shall not be reduced as the result of any direct or indirect amendment to this Plan. For this purpose, the Plan shall be treated as having been amended if the Plan provides for an automatic change in vesting due to a change in top heavy status. In the event that the Plan is amended to change or modify any vesting schedule, a Participant with at least three (3) Years of Service as of the expiration date of the election period may elect to have his nonforfeitable percentage computed under the Plan without regard to such amendment. If a Participant fails to make such election, then such Participant shall be subject to the new vesting schedule. The Participant's election period shall commence on the adoption date of the amendment and shall end 60 days after the latest of:
(1) the adoption date of the amendment,
(2) the effective date of the amendment, or
(3) the date the Participant receives written notice of the amendment from the Employer or Administrator.
(g) (1) If any Former Participant shall be reemployed by the employer before a 1-Year Break in Service occurs, he shall continue to participate in the Plan in the same manner as if such termination had not occurred.
(2) If any Former Participant shall be reemployed by the Employer before five (5) consecutive 1-Year Breaks in Service, and such Former Participant had received, or was deemed to have received, a distribution of his entire Vested interest prior to his reemployment, his forfeited account shall be reinstated only if he repays the full amount distributed to him before the earlier of five (5) years after the first date on which the Participant is subsequently. reemployed by the employer or the close of the first period of five (5) consecutive 1-Year Breaks in Service commencing after the distribution, or in the event of a deemed distribution, upon the reemployment of such Former Participant. In the event the Former Participant does repay the full amount distributed to him, or in the event of a deemed distribution, the undistributed portion of the Participant's Account must be restored in full, unadjusted by any gains or losses occurring subsequent to the valuation Date coinciding with or preceding his termination. The source for such reinstatement shall first be any Forfeitures occurring during the year. If such source is insufficient then the employer shall contribute an amount which is sufficient to restore any such forfeited Accounts provided, however, that if a discretionary contribution is made for such year pursuant to Section 4.ltd), such contribution shall first be applied to restore any such Accounts and the remainder shall be allocated in accordance with Section 4.4.
(3) If any Former Participant is reemployed after a 1-Year Break in Service has occurred. Years of Service shall include Years of Service Drier to his 1-Year Break in Service subject to the following rules:
(i) If a Former Participant has a 1 Year Break in Service, his pre-break and post-break service shall be used for computing Years of Service for eligibility and for vesting purposes only after he has been employed for one (1) Year of Service following the date of his reemployment with the Employer;
(ii) Any Former Participant who under the Plan does
not have a nonforfeitable right to any interest in the Plan resulting from
Employer contributions shall lose credits otherwise allowable under (i) above if
his consecutive 1-Year Breaks in Service equal or exceed the greater of (A) five
(5) or (B) the aggregate number of his pre-break years of Service;
(iii) After five (5) consecutive 1-Year Breaks in Service, a Former participant's Vested Account balance attributable to pre-break service shall not be increased as a result of post-break service;
(iv) If a Former Participant who has not had his Years of Service before a 1-Year Break in Service disregarded pursuant to (ii) above completes a Year of Service for eligibility purposes following his reemployment with the Employer, he shall participate in the Plan retroactively from his date of reemployment;
(v) If a Former Participant who has not had his Years of Service before a 1-Year Break in Service disregarded pursuant to (ii) above completes a Year of Service (a 1-Year Break in Service previously occurred, but employment had not terminated), he shall participate in the Plan retroactively from the first day on which he is credited with an Hour of Service after the first eligibility computation period in which he incurs a 1-Year Break in Service.
(h) In determining Years of Service for purposes of vesting under the Plan, Years of Service prior to the vesting computation period in which an Employee attained his eighteenth birthday shall be excluded.
6.5 DISTRIBUTION OF BENEFITS
(a) The Administrator, pursuant to the election of the Participant, shall direct the Trustee to distribute to a Participant or his Beneficiary any amount to which he is entitled under the Plan in one lump-sum payment in cash.
(b) Any distribution to a Participant who has a benefit which exceeds, or has ever exceeded, $3.500 at the time of any prior distribution shall require such participant's consent if such distribution occurs prior to the later of his Normal Retirement Age or age 62. With regard to this required consent:
(1) The Participant must be informed of his right to defer receipt of the distribution. If a Participant fails to consent, it shall be deemed an election to defer the distribution of any benefit. However, any election to defer the receipt of benefits shall not apply with respect to distributions which are required under Section 6.5(c).
(2) Notice of the rights specified under this paragraph shall be provided no less than 30 days and no more than 90 days before the date the distribution commences.
(3) Written consent of the Participant to the distribution must not be made before the Participant receives the notice and must not be made more than 90 days before the date the distribution commences.
(4) No consent shall be valid if a significant detriment is imposed under the Plan on any Participant who does not consent to the distribution.
Any such distribution may commence less than 30 days after the notice required under Regulation 1.411(a)-ll(c) is given, provided that: (1) the Administrator clearly informs the Participant that the Participant has a right to a period of at least 30 days after receiving the notice to consider the decision of whether or not to elect a distribution (and, if applicable, a particular distribution option), and (2) the Participant, after receiving the notice, affirmatively elects a distribution.
(c) Notwithstanding any provision in the Plan to the contrary, the distribution of a Participant's benefits shall be made in accordance with the following requirements and shall otherwise comply with Code Section 401(a)(9) and the Regulations thereunder (including Regulation 1.401(a)(9)-2), the provisions of which are incorporated herein by reference:
(1) A Participant's benefits shall be distributed or must begin to be distributed to him not later than April 1st of the calendar year following the later of (i) the calendar year in which the Participant attains age 70 1/2 or (ii) the calendar year in which the Participant retires, provided, however, that this clause (ii) shall not apply in the case of a Participant who is a "five (5) percent owner" at any time during the five (5) Plan Year period ending in the calendar year in which he attains age 70 1/2 or, in the case of a Participant who becomes a "five (5) percent owner" during any subsequent Plan Year clause (ii) shall no longer apply and the required beginning date shall be the April 1st of the calendar year following the calendar year in which such subsequent Plan Year ends. Such distributions shall be equal to or greater than any required distribution. Notwithstanding the foregoing, clause (ii) above shall not apply to any Participant unless the Participant had attained age 70 1/2 before January 1, 1988 and was not a "five (5) percent owner" at any time during the Plan Year ending with or within the calendar year in which tie Participant attained age 66 1/2 or any subsequent Plan Year.
(2) Distributions to a Participant and his Beneficiaries shall only be made in accordance with the incidental death benefit requirements of Code Section 401(a)(9)(G) and the Regulations thereunder.
(d) For purposes of this Section, the life expectancy of a Participant and a Participant's spouse may, at the election of the Participant or the Participant's spouse, be redetermined in accordance with Regulations. The election, once made, shall be irrevocable. If no election is made by the time distributions must commence, then the life expectancy of the Participant and the Participant's spouse shall not be subject to recalculation. Life expectancy and joint and last survivor expectancy shall be computed using the return multiples in Tables V and VI of Regulation 1.72-9.
(e) The restrictions imposed by this Section shall not apply if
a Participant has, prior to January 1, 1984, made a written designation to have
his retirement benefit paid in an alternative method acceptable under Code
Section 401(a) as in effect prior to the enactment of the Tax Equity and Fiscal
Responsibility Act of 1982. Any such written designation made by a Participant
shall be binding upon the Plan Administrator notwithstanding any contrary
Provision of Section 6.5.
(f) All annuity Contracts under this Plan shall be non-transferable when distributed. Furthermore, the terms of any annuity Contract purchased and distributed to a Participant or spouse shall comply with all of the requirements of the Plan.
(g) If a distribution is made at a time when a Participant is not fully Vested in his Participant's Account and the Participant may increase the Vested percentage in such account:
(1) a separate account shall be established for the Participant's interest in the Plan as of the time of the distribution; and
(2) at any relevant time, the Participant's Vested portion of the separate account shall be equal to an amount ("X") determined by the formula:
X equals P(AB plus (R x D)) - (R x D)
For purposes of applying the formula: P is the Vested percentage at the relevant time, AB is the account balance at the relevant time, D is the amount of distribution, and R is the ratio of the account balance at the relevant time to the account balance after distribution.
6.6 DISTRIBUTION OF BENEFITS UPON DEATH
(a) The death benefit payable pursuant to Section 6.2 shall be paid to the Participant's Beneficiary in one lump-sum payment in cash subject to the rules of Section 6.6(b).
(b) Notwithstanding any provision in the Plan to the contrary, distributions upon the death of a Participant shall be made in accordance with the following requirements and shall otherwise comply with Code Section 401(a)(9) and the Regulations thereunder. If it is determined pursuant to Regulations that the distribution of a Participant's interest has begun and the Participant dies before his entire interest has been distributed to him, the remaining portion of such interest shall be distributed at least as rapidly as under the method of distribution selected pursuant to Section 6.5 as of his date of death. If a Participant dies before he has begun to receive any distributions of his interest under the Plan or before distributions are deemed to have begun pursuant to Regulations, then his death benefit shall be distributed to his Beneficiaries by December 31st of the calendar year in which the fifth anniversary of his date of death occurs.
However, the 5-year distribution retirement of the preceding paragraph shall not apply to any portion of the deceased Participant's interest which is payable to or for the benefit of a designated Beneficiary. In such event, such portion may, at the election of the Participant (or the participant's designated Beneficiary), be distributed over a period not extending beyond the life expectancy of such designated Beneficiary provided such distribution begins not later than December 31st of the calendar year immediately following the calendar year in which the Participant died. However, in the event the participant's spouse (determined as of the date of the Participant's death) is his Beneficiary, the requirement that distributions commence within one year of a Participant's death shall not apply. In lieu thereof, distributions must commence on or before the later of: (1) December 31st of the calendar year immediately following the calendar year in which the participant died; or (2) December 31st of the calendar year in which the Participant would have attained age 70 1/2. If the surviving spouse dies before distributions to such spouse begin, then the 5-year distribution requirement of this Section shall apply as if the spouse was the Participant.
(c) Subject to the spouse's right of consent afforded under the Plan, the restrictions imposed by this Section shall not apply if a participant has, prior to January 1, 1984, made a written designation to have his death benefits paid in an alternative method acceptable under Code Section 401(a) as in effect prior to the enactment of the Tax Equity and Fiscal Responsibility Act of 1982.
6.7 TIME OF SEGREGATION OR DISTRIBUTION
Except as limited by Sections 6.5 and 6.6, whenever the Trustee is to make a distribution the distribution may be made as soon as is practicable- However, unless a Former participant elects in writing to defer the receipt of benefits (such election. may not result in a death benefit that is more than incidental), the payment of benefits shall occur not later than the 60th day after the close of the Plan Year in which the latest of the following events occurs: (a) the date on which the Participant attains the earlier of age 65 or the Normal retirement Age specified herein; (b) the 10th anniversary of the year in which the Participant commenced participation in the plan; or (c) the date the Participant terminates his service with the Employer.
6.8 DISTRIBUTION FOR MINOR BENEFICIARY
In the event a distribution is to be made to a minor then the Administrator may direct that such distribution be paid to the legal guardian, or if none, to a parent of such Beneficiary or a responsible adult with whom the Beneficiary maintains his residence, or to the custodian for such Beneficiary under the Uniform Gift to Miners Act or Gift to Miners Act, if such is permitted by the laws of the state in which said Beneficiary resides. Such a payment to the legal guardian, custodian or parent of a minor Beneficiary shall fully discharge the Trustee, Employer, and. plan from further liability on account thereof.
6.9 LOCATION OF PARTICIPANT OR BENEFICIARY UNKNOWN
In the event that all, or any portion, of the distribution payable to a participant or his Beneficiary hereunder shall, at the later of the Participant's attainment of age 62 or his Normal Retirement Age, remain unpaid solely by reason of the inability of the Administrator, after sending a registered letter, return receipt requested, to the last known address, and after further diligent effort, to ascertain the whereabouts of such Participant or his Beneficiary, the amount so distributable shall be treated as a Forfeiture pursuant to the Plan. In the event a Participant or Beneficiary is located subsequent to his benefit being reallocated, such benefit shall be restored unadjusted for earnings or losses.
6.10 ADVANCE DISTRIBUTION FOR HARDSHIP
(a) The Administrator, at the election of the Participant,
shall direct the Trustee to distribute to any Participant in any one Plan Year
up to the lesser of 100% of his Participant's Elective Account valued as of the
last Valuation Date or the amount necessary to satisfy the immediate and heavy
financial need of the Participant. Any distribution made pursuant to this
Section shall be deemed to be made as of the first day of the Plan Year or, if
later, the Valuation Date immediately preceding the date of distribution, and
the Participant's Elective Account shall be reduced accordingly. Withdrawal
under this Section shall be authorized only if the distribution is on account
of:
(1) Expenses for medical care described in Code Section 213(d) previously incurred by the Participant, his spouse, or any of his dependents (as defined in Code Section 152) or necessary for these persons to obtain medical care;
(2) The costs directly related to the purchase of a principal residence for the Participant (excluding mortgage payments);
(3) Payment of tuition, related educational fees, and room and board expenses for the next twelve (12) months of post-secondary education for the Participant, his spouse, children, or dependents; or
(4) Payments necessary to prevent the eviction of the Participant from his principal residence or foreclosure on the mortgage of the Participant's principal residence.
(b) No distribution shall be made pursuant to this Section unless the Administrator, based upon the Participant's representation and such other facts as are known to the Administrator, determines that all of the following conditions are satisfied:
(1) The distribution is not in excess of the amount of the immediate and heavy financial need of the Participant. The amount of the immediate and heavy financial need may include ally amounts necessary to pay any federal, state, or local income taxes or penalties reasonably anticipated to result from the distribution;
(2) The Participant has obtained all distributions, other than hardship distributions, and all nontaxable (at the time of the loan) loans currently available under all plans maintained by the Employer;
(3) The Plan, and all other plans maintained by the Employer, provide that the participant's elective deferrals and voluntary Employee contributions will be suspended for at least twelve (12) months after receipt of the hardship distribution or, the Participant, pursuant to a legally enforceable agreement, will suspend his elective deferrals and voluntary Employee contributions to the Plan and all other plans maintained by the Employer for at least twelve (12) months after receipt of the hardship distribution; and
(4) The Plan, and all other plans maintained by the Employer, provide that the Participant may not make elective deferrals for the Participant's taxable year immediately following the taxable year of the hardship distribution in excess of the applicable limit under Code Section 402(g) for such next taxable year less the amount of such Participant's elective deferrals for the taxable year of the hardship distribution.
(c) Notwithstanding the above, distributions from the Participant's Elective Account pursuant to this Section shall be limited, as of the date of distribution, to the Participant's Elective Account as of the end of the last Plan Year ending before July 1. 1989, plus the total Participant's Deferred Compensation after such date, reduced by the amount of any previous distributions pursuant to this Section.
(d) Any distribution made pursuant to this Section shall be
made in a manner which is consistent with and satisfies the provisions of
Section 6.5, including, but not limited to, all notice and consent requirements
of Code Section 411(a)(ll) and the Regulations thereunder.
6.11 QUALIFIED DOMESTIC RELATIONS ORDER DISTRIBUTION
All rights and benefits, including elections. provided to a Participant in this Plan shall be subject to the rights afforded to any "alternate payee" under a "qualified domestic relations order." Furthermore, a distribution to an "alternate payee" shall be permitted if such distribution is authorized by a "qualified domestic relations order." even if the affected Participant has not separated from service and has not reached the "earliest retirement age" under the Plan. For the purposes of this Section, "alternate payee, " "qualified domestic relations order" and "earliest retirement age" shall have the meaning set forth under Code Section 414(p).
ARTICLE VII - TRUSTEE
7.1 BASIC RESPONSIBILITIES OF THE TRUSTEE
(a) The Trustee shall have the following categories of responsibilities:
(1) Consistent with the "funding policy and method" determined by the Employer, to invest. manage, and control the Plan assets subject, however, to the direction of a Participant with respect to his Participant Directed Accounts, the Employer or an Investment Manager appointed by the Employer or any agent of the Employer;
(2) At the direction of the Administrator, to pay benefits required under the plan to be paid to Participants, or: in the event of their death, to their Beneficiaries; and
(3) To maintain records of receipts and disbursements and furnish to the Employer and/or Administrator for each Plan Year a written annual report per Section 7.6.
(b) In the event that the Trustee shall be directed by a
Participant (pursuant to the Participant Direction Procedures), or the Employer:
or an Investment Manager or other agent appointed by the Employer with respect
to the investment of any or all Plan assets, the Trustee shall have no liability
with respect to the investment of such assets, but shall be responsible only to
execute such investment instructions as so directed.
(1) The Trustee shall be entitled to rely fully on the written instructions of a Participant (pursuant to the participant Direction Procedures), or the Employer, or any Fiduciary or nonfiduciary agent of the Employer, in the discharge of such duties, and shall not be liable for any loss or other liability, resulting from such direction (or lack of direction) of the investment of any part of the Plan assets.
(2) The Trustee may delegate the duty to execute such instructions to any nonfiduciary agent, which may be an affiliate of the Trustee or any Plan representative.
(3) The Trustee may refuse to comply with any direction from the Participant in the event the Trustee, in its sole and absolute discretion, deems such directions improper by virtue of applicable law. The Trustee shall not be responsible or liable for any loss or expense which may result from the Trustee's refusal or failure to comply with any directions from the Participant.
(4) Any costs and. expenses related to compliance with the Participant's directions shall be borne by the participant's Directed Account, unless paid by the Employer.
(c) If there shall be more than one Trustee, they shall act by a majority of their number, but may authorize one or more of them to sign papers on their behalf.
7.2 INVESTMENT POWERS AND DUTIES OF THE TRUSTEE
(a) The Trustee shall invest and reinvest the Trust Fund to keep the Trust Fund invested without distinction between principal and income and in such securities or property, real or personal, wherever situated, as the Trustee shall deem advisable, including, but not limited to stocks, common or preferred, bonds and other evidences of indebtedness or ownership, and real estate or any interest therein. The Trustee shall at all times in making investments of the Trust Fund consider, among other factors, the short and long-term financial needs of the Plan on the basis of information furnished by the Employer. In making such investments, the Trustee shall not be restricted to securities or other property of the character expressly authorized by the applicable law for trust investments; however, the Trustee shall give due regard to any limitations imposed by the Code or the Act so that at all times the Plan may qualify as a qualified Profit Sharing Plan and Trust.
(b) The Trustee may employ a bank or trust company pursuant to the terms of its usual and customary bank agency agreement, under which the duties of such bank or trust company shall be of a custodial, clerical and record-keeping nature.
(c) The Trustee may from time to time transfer to a common, collective, pooled trust fund or money market fund maintained by any corporate Trustee or affiliate thereof hereunder, all or such pert of the Trust Fund as the Trustee may deem advisable, and such part or all of the Trust Fund so transferred shall be subject to all the terms and provisions of the common, collective, pooled trust fund or money market fund which contemplate the commingling for investment purposes of such trust assets with trust assets of other trusts. The Trustee may transfer any part of the Trust Fund intended for temporary investment of cash balances to a money market fund maintained by The Mechanics Bank or its affiliates. The Trustee may, from time to time, withdraw from such common, collective, pooled trust fund or money market fund all or such par' of the Trust Fund as the Trustee may deem advisable.
7.3 OTHER POWERS OF THE TRUSTEE
The Trustee, in addition to all powers and authorities under common law, statutory authority, including the Act, and other provisions of the Plan, shall have the following powers and authorities, to be exercised in the Trustee's sole discretion:
(a) To purchase, or subscribe for: any securities or other property and to retain the same. In conjunction with the purchase of securities, margin accounts may be opened and maintained;
(b) To sell, exchange, convey, transfer, grant or otherwise dispose of any options to purchase, securities or other property held by the Trustee. by private contract or at public auction. No person dealing with the Trustee shall be bound to see to the application of the purchase money or to inquire into the validity, expediency, or propriety of any such sale or other disposition, with or without advertisement;
(c) To vote upon any stocks, bonds, or other securities; to give general or special proxies or powers of attorney with or without power or substitution; to exercise any conversion privileges, subscription rights or other options. and to make any payments incidental thereto; to oppose, or to consent to, or otherwise participate Fn. corporate reorganizations or other changes affecting corporate securities, and to delegate discretionary powers, and to pay any assessments or charges in connection therewith; and generally to exercise any of the powers of an owner with respect to stocks, bonds, securities, or other property. However, the Trustee shall not vote proxies relating to securities for which it has not been assigned full investment management responsibilities. In those cases where another party has such investment authority or discretion, the Trustee will deliver all proxies to said party who will then have full responsibility for voting those proxies;
(d) To cause any securities or other property to be registered in the Trustee's own name or in the name of one or more of the Trustee's nominees, and to hold any investments in bearer form, but the books and records of the Trustee shall at all times show that all such investments are part of the Trust Fund;
(e) To borrow or raise money for the purposes or the Plan in such amount, and upon such terms and conditions, as the Trustee shall deem advisable; and for any sum so borrowed, to issue a promissory note as Trustee, and to secure the repayment thereof by pledging all, or any part, of the Trust Fund; and no person lending money to the Trustee shall be bound to see to the application of the money lent or to inquire into the validity, expediency. or propriety of any borrowing;
(f) To keep such portion of the Trust fund in cash or cash balances as the Trustee may. from time to time, deem to be in the best interests of the Plan. without liability for interest thereon;
(g) To accept and retain for such time as the Trustee may deem advisable any securities or other property received or acquired as Trustee hereunder. whether or not such securities or other property would normally be purchased as investments hereunder;
(h) To make, execute, acknowledge, and deliver any and all documents of transfer and conveyance and any and all other instruments that may be necessary or appropriate to carry out the powers herein granted;
(i) To settle, compromise, or submit to arbitration any claims, debts, or damages due or owing to or from the Plan, to commence or defend suits or legal or administrative proceedings, and to represent the plan in all suits and legal and administrative proceedings;
(j) To employ suitable agents and counsel and to pay their reasonable expenses and compensation, and such agent or counsel may or may not be agent or counsel for the Employer;
(k) To apply for and procure from responsible insurance companies, to be selected by the Administrator, as an investment of the Trust Fund such annuity, or other Contracts (on the life of any Participant) as the Administrator shall deem proper; to exercise, at any time or from time to time, whatever rights and privileges may be granted under such annuity, or other Contracts; to collect, receive, and settle for the proceeds of all such annuity or other Contracts as and when entitled to do so under the provisions thereof;
(l) To invest funds of the Trust in time deposits or savings accounts bearing a reasonable rate of interest in the Trustee's bank;
(m) To invest in Treasury Bills and other forms of United States government obligations;
(n) To invest in shares of investment companies registered under the Investment Company Act of 1940, including any money market fund advised by or offered through The Mechanics Bank;
(o) To sell, purchase and acquire put or call options if the options are traded on and purchased through a national securities exchange registered under the Securities Exchange Act of 1934: as amended, or, if the options are not traded on a national securities exchange, are guaranteed by a member firm of the New York Stock Exchange;
(p) To deposit monies in federally insured savings accounts or certificates of deposit in banks or savings and loan associations;
(q) To pool all or any of the Trust Fund, from time to time, with assets belonging to any other qualified employee pension benefit trust created by the Employer or an affiliated company of the Employer, and to commingle such assets and make joint or common investments and carry joint accounts on behalf of this Plan and such other trust or trusts, allocating undivided shares or interests in such investments or accounts or any pooled assets of the two or more trusts in accordance with their respective interests;
(r) To appoint a nonfiduciary agent or agents to assist the Trustee in carrying out any investment instructions of Participants and of any Investment Manager or Fiduciary, and to compensate such agent(s) from the assets of the Plan, to the extent not paid by the Employer;
(s) To do all such acts and exercise all such rights and privileges, although not specifically mentioned herein, as the Trustee may deem necessary to carry out the purposes of the Plan.
7.4 DUTIES OF THE TRUSTEE REGARDING PAYMENTS
At the direction of the Administrator, the Trustee shall, from time to time, in accordance with the terms of the Plan, make payments out of the Trust Fund. The Trustee shall not be responsible in any way for the application of such payments.
7.5 TRUSTEE'S COMPENSATION AND EXPENSES AND TAXES
The Trustee shall be paid such reasonable compensation as shall from time to time be agreed upon in writing by the Employer and the Trustee. An individual serving as Trustee who already receives full-time pay from the Employer shall not receive compensation from the Plan. In addition, the Trustee shall be reimbursed for any reasonable expenses, including reasonable counsel fees incurred by it as Trustee. Such compensation and expenses shall be paid from the Trust Fund unless paid or advanced by the Employer. All taxes of any kind and all kinds whatsoever that may be levied or assessed under existing or future laws upon, or in respect of, the Trust Fund or the income thereof, shall be paid from the Trust Fund.
7.6 ANNUAL REPORT OF THE TRUSTEE
Within a reasonable period of time after the later of the Anniversary Date or receipt of the Employer contribution for each Plan Year, the Trustee shall furnish to the Employer and Administrator a written statement of account with respect to the Plan Year for which such contribution was made setting forth:
(a) the net income, or loss, of the Trust Fund;
(b) the gains, or losses: realized by the Trust Fund upon sales or other disposition of the assets;
(c) the increase, or decrease, in the value of the Trust Fund;
(d) all payments end distributions made from the Trust Fund; and
(e) such further information as the Trustee and/or Administrator deems appropriate. The Employer, forthwith upon its receipt of each such statement of account shall acknowledge receipt thereof in writing and advise the Trustee and/or Administrator of its approval or disapproval thereof. Failure by the Employer to disapprove any such statement of account within thirty (30) days after its receipt thereof shall be deemed an approval thereof. The approval by the Employer of any statement of account shall be binding as to all matters embraced therein as between the Employer and the Trustee to the same extent as if the account of the Trustee had been settled by judgment or decree in an action for a judicial settlement of its account in a court of competent jurisdiction in which the Trustee, the Employer and all persons having or claiming an interest in the Plan were parties; provided, however, that nothing herein contained shall deprive the Trustee of its right to have its accounts judicially settled if the Trustee so desires.
7.7 AUDIT
(a) if an audit of the Plan's records shall be required by the Act and the regulations thereunder for any Plan Year, the Administrator shall direct the Trustee to engage on behalf of all participants an independent qualified public accountant for that purpose. Such accountant shall, after an audit of the books and records of the plan in accordance with generally accepted auditing standards, within a reasonable period after the close of the Plan Year, furnish to the Administrator and the Trustee a report of his audit setting forth his opinion as to whether any statements, schedules or lists that are required by Act Section 103 or the Secretary of Labor to be filed with the Plan's annual report, are presented fairly in conformity with generally accepted accounting
principles applied consistently. All auditing and accounting fees shall be an expense of and may, at the election of the Administrator, be paid from the Trust Fund.
(b) If some or all of the information necessary to enable the Administrator to comply with Act Section 103 is maintained by a bank, insurance company, or similar institution, regulated and supervised and subject to periodic examination by a state or federal agency, it shall transmit and certify the accuracy of that information to the Administrator as provided in Act Section 103(b) within one hundred twenty (120) days after the end of the Plan Year or by such other date as may be prescribed under regulations of the Secretary of Labor.
7.8 RESIGNATION, REMOVAL OR SUCCESSION OF TRUSTEE
(a) The Trustee may resign at any time by delivering to the Employer. at least thirty (30) days before it's effective date, a written notice of his resignation.
(b) The Employer may remove the Trustee by mailing by registered or certified mail, addressed to such Trustee at his last known address, at least thirty (30) days before it's effective date, a written notice of his removal.
(c) Upon the death, resignation, incapacity, or removal of any Trustee, a successor may be appointed by the Employer; and such successor, upon accepting such appointment in writing and delivering same to the Employer, shall, without further act, become vested with all the estate, rights: powers, discretions, and duties of his predecessor with like respect as if he were originally named as a Trustee herein. Until such a successor is appointed, the remaining Trustee or Trustees shall have full authority to act under the terms of the Plan.
(d) The Employer may designate one or more successors prior to the death, resignation, incapacity, or removal of a Trustee. In the event a successor is so designated by the Employer and accepts such designation, the successor shall, without further act, become vested with all the estate, rights, powers, discretions, and duties of his predecessor with the like effect as if he were originally named as Trustee herein immediately upon the death, resignation, incapacity, or removal of his predecessor.
(e) Whenever any Trustee hereunder ceases to serve as such, he shall furnish to the Employer and Administrator a written statement of account with respect to the portion of the Plan Year during which he served as Trustee. This statement shall be either (i) Included as part of the annual statement of account for the Plan Year required under Section 7.6 or (ii) set forth in a special statement. Any such special statement of account should be rendered to the Employer no later than the due date of the annual statement of account for the plan Year. The procedures set forth in Section 7.6 for the approval by the Employer of annual statements of account shall apply to any special statement of account rendered hereunder and approval by the Employer of any such special statement in the manner provided in Section 7.6 shall have the same effect upon the statement as the Employer's approval of an annual statement of account. No successor to the Trustee shall have any duty or responsibility to investigate the acts or transactions of any predecessor who has rendered all statements of account required by Section 7.6 and this subparagraph.
7.9 TRANSFER OF INTEREST
Notwithstanding any other provision contained in this Plan, the Trustee at the direction of the Administrator shall transfer the Vested interest, if any, of such participant in his account to another trust forming part of a pension, profit sharing or stock bonus plan maintained by such Participant's new employer and represented by said employer in writing as meeting the requirements of Code Section 401(a) provided that the trust to which such transfers are made permits the transfer to be made.
7.10 DIRECT ROLLOVER
(a) Notwithstanding any provision of the Plan to the contrary that would otherwise limit a distributee's election under this Section, a distributee may elect, at the time and in the manner prescribed by the Administrator, to have any portion of an eligible rollover distribution that is equal to at least $500 paid directly to an eligible retirement Plan specified by the distributee in a direct rollover.
(b) For purposes of this Section the following definitions shall apply:
(1) An eligible rollover distribution is any distribution
of all or any portion of the balance to the credit of the distributee, except
that an eligible rollover distribution does not include: any distribution that
is one of a series of substantially equal periodic payments (not less frequently
than annually made for the life (or life expectancy) of the distributee or the
joint lives (or joint life expectancies) of the distributee and the
distributee's designated beneficiary, or for a specified period of ten years or
more; any distribution to the extent such distribution is required under Code
Section 401(a)(9); the portion of any other distribution that is not includible
in gross income (determined. without regard to the exclusion for net unrealized
appreciation with respect to employer securities); and any other distribution
that is reasonably expected to total less than $200 during a year.
(2) An eligible retirement plan is an individual
retirement account described in Code Section 408(a), an individual retirement
annuity described in Code Section 408(b), an annuity plan described in Code
Section 403(a), or a qualified trust described in Code Section 401(a), that
accepts the distributee's eligible rollover distribution. However, in the case
of an eligible rollover distribution to the surviving spouse, an eligible
retirement plan is an individual retirement account or individual retirement
annuity.
(3) A distributee includes an Employee or former
Employee. In addition, the employee's or former Employee's surviving spouse and
the Employee's or former Employee's spouse or former spouse who is the alternate
payee under a qualified domestic relations order, as defined in Code Section
414(p), are distributees with regard to the interest of the spouse or former
spouse.
(4) A direct rollover is a payment by the Plan to the eligible retirement plan specified by the distributee.
ARTICLE VIII - AMENDMENT, TERMINATION AND MERGERS
8.1 AMENDMENT
(a) The Employer shall, have the right at any time to amend the Plan, subject to the limitations of this Section. However, any amendment which affects the rights, duties or responsibilities of the Trustee an Administrator, other than an amendment to remove the Trustee or Administrator, may only be made with the Trustee's and Administrator's written consent. Any such amendment shall become effective as provided therein upon its execution. The Trustee shall not be required to execute any such amendment unless the Trust provisions contained herein are a part of the Plan and the amendment affects the duties of the Trustee hereunder.
(b) No amendment to the plan shall be effective if it authorizes or permits any part of the Trust Fund (other than such part as is required to pay taxes and administration expenses) to be used for or diverted to any purpose other than for the exclusive benefit of the Participants or their Beneficiaries or estates; or causes any reduction in the amount credited to the account of any Participant; or causes or permits any portion of the Trust Fund to revert to or become property of the Employer.
(c) Except as permitted by Regulations, no Plan amendment or transaction having the effect of a Plan amendment (such as a merger, plan transfer or similar transaction) shall be effective to the extent it eliminates or reduces any "Section 411(d)(6) protected benefit" or adds or modifies conditions relating to "Section 411(d)(6) protected benefits" the result of which is a further restriction on such benefit unless such protected benefits are preserved with respect to benefits accrued as of the later of the adoption dace or effective date of the amendment. "Section 411(d)(6) protected benefits" are benefits described in Code Section 411(d)(6)(A), early retirement benefits and retirement-type subsidies, and optional forms of benefit.
8.2 TERMINATION
(a) The Employer shall have the right at any time to terminate
the Plan by delivering to the Trustee and Administrator written notice of such
termination. Upon any full or partial termination, all amounts credited to the
affected Participants' Combined Accounts shall become 100% Vested as provided in
Section 6.4 and shall not thereafter be subject to forfeiture, and all
unallocated amounts shall be allocated to the accounts of all Participants in
accordance with the provisions hereof.
(b) Upon the full termination of the Plan, the Employer shall direct the distribution of the assets of the Trust Fund to Participants in a manner which is consistent with and satisfies the provisions of Section 6.5. Distributions to a Participant shall be made in cash or through the purchase of irrevocable nontransferable deferred commitments from an insurer. Except as permitted by Regulations, the termination of the Plan shall not result in the reduction of "Section 411(d)(6) protected benefits" in accordance with Section 8.l(c)
8.3 MERGER OR CONSOLIDATION
This Plan and Trust may be merged or consolidated with, or its assets and/or liabilities may be transferred to any other plan and trust only if the benefits which would be received by a Participant of this Plan, in the event of a termination of the plan immediately after such transfer, merger or
consolidation, are at least equal to the benefits the Participant would have received if the Plan had terminated immediately before the transfer, merger or consolidation, and such transfer, merger or consolidation does not otherwise result in the elimination or reduction of any "Section 411(d) (6) protected benefits" in accordance with Section 8.l(c)
ARTICLE IX - TOP HEAVY
9.1 TOP HEAVY PLAN REQUIREMENTS
For any Top Heavy Plan Year, the Plan shall provide the special vesting
requirements of Code Section 416(b) pursuant to Section 6.4 of the Plan and the
special minimum allocation requirements of Code Section a16(c) pursuant to
Section 4.4 of the plan.
9.2 DETERMINATION OF TOP HEAVY STATUS
(a) This Plan shall be a Top Heavy Plan for any Plan Year in which, as of the Determination Date, (1) the Present Value of Accrued Benefits of Key Employees and (2) the sum of the Aggregate Accounts of Key Employees under this Plan and all plans of an Aggregation Group, exceeds sixty percent (60%) of the Present Value of Accrued Benefits and the Aggregate Accounts of all Key and Non-Key Employees under this Plan and all plans of an-Aggregation Group.
If any Participant is a Non-Key Employee for any Plan Year, but such Participant was a Key Employee for any prior Plan Year, such Participant's Present Value of Accrued Benefit and/or Aggregate Account balance shall not be taken into account for purposes of determining whether this Plan is a Top Heavy or Super Top Heavy Plan (or whether any Aggregation Group, which includes this Plan is a Top Heavy Group) In addition, if a Participant or Former Participant has not performed any services for any Employer maintaining the Plan at any time during the five year period ending on the Determination Date, any accrued benefit for such Participant or Former Participant shall not be taken into account for the purposes of determining whether this Plan is a Top Heavy or Super Top Heavy Plan.
(b) This Plan shall be a Super Top Heavy Plan for any Plan Year in which, as of the Determination Date, (1) the Present Value of Accrued Benefits of Key Employees and (2) the sum of the Aggregate Accounts of Key Employees under this Plan and all plans of an Aggregation Group, exceeds ninety percent (90%) of the Present Value of Accrued Benefits and the Aggregate Accounts of all Key and Non-Key Employees under this Plan and all plans of an Aggregation Group.
(c) Aggregate Account: A Participant's Aggregate Account as of the Determination Date is the sum of:
(1) his participant's Combined Account balance as of the most recent valuation occurring within a twelve (12) month period ending on the Determination Date;
(2) an adjustment for any contributions due as of the Determination Date. Such adjustment shall be the amount of any contributions actually made after the Valuation Date but due on or before the Determination Date, except for the first plan Year when such adjustment shall also reflect the amount of any contributions made after the Determination Date that are allocated as of a date in that first Plan Year.
(3) any Plan distributions made within the plan Year that includes the Determination Date or within the four (4) preceding Plan Years. However, in the case of distributions made after the Valuation Date and prior to the Determination Date, such distributions are not included as distributions for top heavy purposes to the extent that such distributions are already included in the Participant's Aggregate Account. balance as of the Valuation Date. Notwithstanding anything herein to the contrary, all distributions, including distributions made prior to January 1, 1984: and distributions under a terminated plan which if it had not been terminated would have been required to be included in an Aggregation Group, will be counted. Further, distributions from the Plan (including the cash value of life insurance policies) of a Participant's account balance because of death shall be treated as a distribution for the purposes of this paragraph.
(4) any Employee contributions, whether voluntary or mandatory. However, amounts attributable to tax deductible qualified voluntary employee contributions shall not be considered to be a part of the participant's Aggregate Account balance.
(5) with respect to unrelated rollovers and plan-to-plan transfers (ones which are both initiated by the Employee and made from a plan maintained by one employer to a plan maintained by another employer), if this Plan provides the rollovers or plan-to-plan transfers, it shall always consider such rollovers or plan-to-plan transfers as a distribution for the purposes of this Section. If this Plan is the plan accepting such rollovers or plan-to-plan transfers, it shall not consider such rollovers or plan-to-plan transfers as part of the participant's Aggregate Account balance. However, rollovers or plan-to-plan transfers accepted prior to January 1, 1984 shall be considered as part of the participant's Aggregate Account balance.
(6) with respect to related rollovers and plan-to-plan transfers (ones either not initiated by the Employee or made to a plan maintained by the same employer), if this Plan provides the rollover or plan-to-plan transfer, it shall not be counted as a distribution for purposes of this Section. If this Plan is the plan accepting such rollover or plan-to-plan transfer, it shall consider such rollover or plan-to-plan transfer as part of the Participant's Aggregate Account balance, irrespective of the date on which such rollover or plan-to-plan transfer is accepted.
(7) For the purposes of determining whether two employers are to be treated as the same employer in (5) and (6) above, all employers aggregated under Code Section 414(b), (c), (m) and to) are treated as the same employer.
(d) "Aggregation Group" means either a Required Aggregation Group or a Permissive Aggregation Group as hereinafter determined.
(1) Required Aggregation Group: In determining a Required Aggregation Group hereunder, each plan of the Employer in which a Key Employee is a participant in the Plan Year containing the Determination Date or any of the four preceding Plan Years, and each other plan of the Employer which enables any plan in which a Key Employee participates to meet the requirements of Code Sections 401ia)(4) or 410, will be required to be aggregated. Such group shall be known as a Required Aggregation Group.
In the case of a Required Aggregation Group, each plan in the group will be considered a Top Heavy Plan if the Required Aggregation Group is a Top Heavy Group. No plan in the Required Aggregation Group will be considered a Top Heavy Plan if the Required Aggregation Group is not a Top Heavy Group.
(2) Permissive Aggregation Group: The Employer may also include any other plan not required to be included in the Required Aggregation Group. provided the resulting group, taken as a whole. would continue to satisfy the provisions of Code Sections 401(a)(4) and 410. Such group shall be known as a Permissive Aggregation Group.
In the case of a Permissive Aggregation Group, only a plan that is part of the Required Aggregation Group will be considered a Top Heavy Plan if the Permissive Aggregation Group is a Top Heavy Group. No plan in the Permissive Aggregation Group will be considered a Top Heavy Plan if the permissive Aggregation Group is not a Top Heavy Group.
(3) Only those plans of the Employer in which the Determination Dates fall within the same calendar year shall be aggregated in order to determine whether such plans are Top Heavy Plans.
(4) An Aggregation Group shall include any terminated plan of he Employer if it was maintained within the last five (5) years ending on the Determination Date.
(e) "Determination Date" means (a) the last day of the preceding Plan Year, or (b) in the case of the first plan Year, the last day of such Plan Year.
(f) Present Value of Accrued Benefit: In the case of a defined benefit plan, the Present value of Accrued Benefit for a Participant other than a Key Employee, shall be as determined using the single accrual method used for all plans of the Employer and Affiliated Employers, or if no such single method exists, using a method which results in benefits accruing not more rapidly than the slowest accrual rate permitted under Code Section 411(b)(l)(C) The determination of the Present Value of Accrued Benefit shall be determined as of the most recent Valuation Date that falls within or ends with the 12-month period ending on the Determination Date except as provided in Code Section 416 and the Regulations thereunder for the first and second plan years of a defined benefit plan.
(g) "Top Heavy Group" means an Aggregation Group in which, as of the Determination Date, the sum of:
(1) the Present Value of Accrued Benefits of Key Employees under all defined benefit plans included in the group, and
(2) the Aggregate Accounts of Key Employees under all defined contribution plans included in the group, exceeds sixty percent (60%) of a similar sum determined for all Participants.
ARTICLE X - MISCELLANEOUS
10.1 PARTICIPANT'S RIGHTS
This Plan shall not be deemed to constitute a contract between the Employer and any Participant or to be a consideration or an inducement for the employment of any Participant or Employee. Nothing contained in this Plan shall be deemed to give any Participant or Employee the right to be retained in the service of the Employer or to interfere with the right of the Employer to discharge any Participant or Employee at any time regardless of the effect which such discharge shall have upon him as a Participant of this Plan.
10.2 ALIENATION
(a) Subject to the exceptions provided below, no benefit which shall be payable out of the Trust Fund to any person (including a Participant or his Beneficiary) shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, or charge, and any attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber, or charge the same shall be void; and no such benefit shall in any manner be liable for, or subject to, the debts, contracts, liabilities, engagements, or torts of any such person, nor shall it be subject to attachment or legal process for or against such person, and the same shall not be recognized. by the Trustee, except to such extent as may be required by law.
(b) This provision shall not apply to a "qualified domestic relations order" defined in Code Section 414(p), and those other domestic relations orders permitted to be so treated by the Administrator under the provisions of the Retirement Equity Act of 1984. The Administrator shall establish a written procedure to determine the qualified status of domestic relations orders and to administer distributions under such qualified orders. Further, to the extent provided under a "qualified domestic relations order." a former spouse of a Participant shall be treated as the spouse or surviving spouse for all purposes under the Plan.
10.3 CONSTRUCTION OF PLAN
This Plan and Trust shall be construed and enforced according to the Act and the laws of the State of California, other than its laws respecting choice of law, to the extent not preempted by the Act.
10.4 GENDER AND NUMBER
Wherever any words are used herein in the masculine, feminine or neuter gender, they shall be construed as though they were also used in another gender in all cases where they would so apply, and whenever any words are used herein in the singular or plural form, `they shall be construed as though they were also used in the other form in all cases where they would so apply.
10.5 LEGAL ACTION
In the event any claim, suit, or proceeding is brought regarding the Trust and/or Plan established hereunder to which the Trustee, the Employer or the Administrator may be a party, and such claim, suit, or proceeding is resolved in favor of the Trustee, the Employer or the Administrator, they shall be entitled to be reimbursed from the Trust Fund for any and all costs, attorney's fees, and other expenses pertaining thereto incurred by them for which they shall have become liable.
10.6 PROHIBITION AGAINST DIVERSION OF FUNDS
(a) Except as provided below and otherwise specifically permitted by law, it shall be impossible by operation of the Plan or of the Trust, by termination of either, by power of revocation or amendment, by the happening of any contingency, by collateral arrangement or by any other means, for any part of the corpus or income of any trust fund maintained pursuant to
the Plan or any funds contributed thereto to be used for, or diverted to, purposes other than the exclusive benefit of Participants, Retired Participants, or their Beneficiaries.
(b) In the event the Employer shall make an excessive contribution under a mistake of fact pursuant to Act Section 403(c)(2)(A), the Employer may demand repayment of such excessive contribution at any time within one (1) year following the time of payment and the Trustees shall return such amount to the Employer within the one (1) year period. Earnings of the Plan attributable to the excess contributions may not be returned to the Employer but any losses attributable thereto must reduce the amount so returned.
10.7 BONDING
Every Fiduciary, except a bank or an insurance company, unless exempted by the Act and regulations thereunder, shall be bonded in an amount not less than 10% of the amount of the funds such Fiduciary handles; provided, however, that the minimum bond shall be $1,000 and the maximum bond, $500,000. The amount of funds handled shall be determined at the beginning of each Plan Year by the amount of funds handled by such person, group, or class to be covered and their predecessors, if any, during the preceding Plan Year, or if there is no preceding Plan Year, then by the amount of the funds to be handled during the then current year. The bond shall provide protection to the plan against any loss by reason of acts of fraud or dishonesty by the Fiduciary alone or in connivance with others. The surety shall be a corporate surety company (as such term is used in Act Section 412(a)(2)), and the bond shall be in a form approved by the Secretary of Labor. Notwithstanding anything in the Plan to the contrary, the cost of such bonds shall be an expense of and may, at the election of the Administrator, be paid from the Trust Fund or by the Employer.
10.8 EMPLOYER'S AND TRUSTEE'S PROTECTIVE CLAUSE
Neither the Employer, the Administrator, nor the Trustee, nor their successors shall be responsible for the validity of any Contract issued hereunder or for the failure on the part of the insurer to make payments provided by any such Contract, or for the action or any person which may delay payment or render a Contract null and void or unenforceable in whole or in part.
10.9 INSURER'S PROTECTIVE CLAUSE
Any insurer who shall issue Contracts hereunder shall not have any responsibility for the validity of this Plan or for the tax or legal aspects of this Plan. The insurer shall be protected and held harmless in acting in accordance with any written direction of the Trustee, and shall have no duty to see to the application of any funds paid to the Trustee, nor be required to question any actions directed by the Trustee. Regardless of any provision of this Plan, the insurer shall not be required to take or permit any action or allow any benefit or privilege contrary to the terms of any Contract which it issues hereunder, or the rules of the insurer.
10.10 RECEIPT AND RELEASE FOR PAINTS
Any payment to any Participant, his legal representative, Beneficiary, or to any guardian or committee appointed for such Participant or Beneficiary in accordance with the provisions of the Plan, shall, to the extent thereof, be in full-satisfaction of all claims hereunder against the Trustee and the Employer, either of whom may require such Participant, legal representative, Beneficiary.
guardian or committee, as a condition precedent to such payment, to execute a receipt and release thereof in such form as shall be determined by the Trustee or Employer.
10.11 ACTION BY THE EMPLOYER
Whenever the Employer under the terms of the plan is permitted or required to do or perform any act or matter or thing, it shall be done and performed by a person duly authorized by its legally constituted authority.
10.12 NAMED FIDUCIARIES AND ALLOCATION OF RESPONSIBILITY
The "named Fiduciaries" of this Plan are (1) the Employer (2) the Administrator and (3) the Trustee. The named Fiduciaries shall have only those specific powers, duties, responsibilities, and obligations as are specifically given them under the Plan or as accepted by or assigned to them pursuant to any procedure provided under the Plan, including but not limited to any agreement allocating or delegating their responsibilities, the terms of which are incorporated herein by reference. In general, unless otherwise indicated herein or pursuant to such agreements, the Employer shall have the duties specified in Article II hereof, as the same may be allocated or delegated thereunder, including but not limited to the responsibility for making the contributions provided for under Section 4.1; and shall have the authority to appoint and remove the Trustee and the Administrator; to formulate the Plan's "funding policy and method"; and to amend or terminate, in whole or in part, the Plan. The Administrator shall have the responsibility for the administration of the Plan, including but not limited to the items specified in Article II of the Plan, as the same may be allocated or delegated thereunder. The Trustee shall have the responsibility of management and control of the assets held under the Trust, except to the extent directed pursuant to Article II or with respect to those assets, the management of which has been assigned to an Investment Manager, who shall be solely responsible for the management of the assets assigned to it, all as specifically provided in the Plan and any agreement with the Trustee. Each named Fiduciary warrants that any directions given, information furnished, or action taken by it shall be in accordance with the provisions of the Plan, authorizing or providing for such direction, information or action. Furthermore, each named Fiduciary may rely upon any such direction, information or action of another named Fiduciary as being proper under the Plan, and is not required under the plan to inquire into the propriety of any such direction, information or action. It is intended under the Plan that each named Fiduciary shall be responsible for the proper exercise of its own powers, duties, responsibilities and obligations under the Plan as specified or allocated herein. No named Fiduciary shall guarantee the Trust Fund in any manner against investment loss or depreciation in asset value. Any person or group may serve in more than one Fiduciary capacity. In the furtherance of their responsibilities hereunder, the "named Fiduciaries" shall be empowered to interpret the Plan and Trust and to resolve ambiguities, inconsistencies and omissions, which findings shall be binding, final and conclusive.
10.13 HEADINGS
The headings and subheadings of this Plan have been inserted for convenience of reference and are to be ignored in any construction of the provisions hereof.
10.14 APPROVAL BY INTERNAL REVENUE SERVICE
(a) Notwithstanding anything herein to the contrary, contributions to this plan are conditioned upon the initial qualification of the Plan under Code Section 401. If the Plan receives an adverse Determination with
respect to its initial qualification, then the Plan may return such contributions to the Employer within one year after such determination, provided the application for the determination is made by the time prescribed by law for filing the Employer's return for the taxable year in which the plan was adopted, or such later date as the Secretary of the Treasury may prescribe.
(b) Notwithstanding any provisions to the contrary, except Sections 3.5, 3.6, and 4.lie), any contribution by the Employer to the Trust Fund is conditioned upon the deductibility of the contribution by the Employer under the Code and, to the extent any such deduction is disallowed, the Employer may, within one (1) year following the disallowance of the deduction, demand repayment of such disallowed contribution and the Trustee shall return such contribution within one (1) year following the disallowance. Earnings of the plan attributable to the excess contribution may not be returned to the Employer, but any losses attributable thereto must reduce the amount so returned.
10.15 UNIFORMITY
All provisions of this Plan shall be interpreted and applied in a uniform, nondiscriminatory manner. In the event of any conflict between the terms of this Plan and any Contract purchased hereunder, the Plan Provisions shall control.
IN WITNESS WHEREOF, this Plan has been executed the day and year first above written.
First National Bank
By /s/ PAUL B. HOGAN -------------------------------------- Paul B. Hogan EMPLOYER |
The Mechanics Bank
By /s/ CHARLES RUHL -------------------------------------- Charles Ruhl TRUSTEE |
AMENDMENT NUMBER ONE
TO FIRST NATIONAL BANK
SAVINGS PLAN
SUMMARY PLAN DESCRIPTION
MATERIAL MODIFICATIONS
FIRST NATIONAL BANK
SAVINGS PLAN
SUMMARY PLAN DESCRIPTION
MATERIAL MODIFICATIONS
I. INTRODUCTION
First National Bank of Northern California has amended your 401(k) Profit Sharing Plan as of March 15, 1998.
This is merely a summary of the most important changes to the Plan. It is presented to you as an addition to the Summary Plan Description. If you have any questions, contact your Plan's Administrator. A copy of the Plan, including this amendment, is available for your inspection. If there is any discrepancy between the terms of the Plan or the amendment itself and this summary of material modifications, the provisions of the plan, as amended, will control.
II. GENERAL INFORMATION ABOUT YOUR PLAN
There is certain general information which you may need to know about Amendment Number ONE to your Plan. This information has been summarized for you in this Section.
1. General Plan Information
The amended provisions of your Plan become effective on March 15, 1998, unless otherwise provided.
2. Employer Information
Your Employer's name, address and identification number are:
First National Bank of Northern California
975 El Camino Real
South San Francisco, California 94080
94-6064034
3. Plan Administrator Information
The name, address and business telephone number of your Plan's Administrator are:
First National Bank of Northern California
975 El Camino Real
South San Francisco, California 94080
(415) 875-4860
Your Plan's Administrator keeps the records for the Plan and is responsible for the administration of the Plan. The Administrator has discretionary authority to construe the terms of the Plan and make determinations on questions which may affect your eligibility for benefits. Your Plan's Administrator will also answer any questions you may have about your Plan.
III. SUMMARY OF CHANGES
1. Years of Service With Other Employers If you worked for Mid-Peninsula Bank, you will receive credit for all Plan purposes for your Years of Service with Mid-Peninsula.
If you worked for the branch of Bank of America that your Employer acquired on March 15, 1998, you will receive credit for all Plan purposes for your Years of Service with Bank of America.
AMENDMENT NUMBER ONE TO
FIRST NATIONAL BANK
SAVINGS PLAN
AMENDMENT NUMBER ONE TO
FIRST NATIONAL BANK
SAVINGS PLAN
BY THIS AGREEMENT, First National Bank Savings Plan (herein referred to as the "Plan") is hereby amended as follows, effective as of March 15, 1998, except as otherwise provided:
1. The definition of "Year of Service" is amended by the addition of the following paragraphs:
Years of Service with Mid-Peninsula Bank shall be recognized. Years of Service with Bank of America shall be recognized for those employees of the branch bank purchased by the employer from Bank of America on March 15, 1998.
IN WITNESS WHEREOF, this Amendment has been executed this Thirteenth day of May, 1998 Signed, sealed, and delivered in the presence of:
First National Bank of Northern California
By /s/ PAUL B. HOGAN -------------------------------------- Paul B. Hogan EMPLOYER |
The Mechanics Bank
By /s/ CHARLES RUHL -------------------------------------- Charles Ruhl TRUSTEE |
ATTEST
EXHIBIT 10.10
DEFERRED COMPENSATION PLAN
DEFERRED COMPENSATION TRUST
FIRST NATIONAL BANK OF NORTHERN CALIFORNIA
THIS TRUST AGREEMENT entered into as of this 30th day of November, 1997, by and between FIRST NATIONAL BANK OF NORTHERN CALIFORNIA, a national banking association having its principal place of business at South San Francisco, California, and any successor thereto (hereinafter collectively referred to as the "Bank"), and THE MECHANICS BANK, a California State banking and trust corporation with its principal place of business at Richmond, California (hereinafter referred to as the "Trustee").
WITNESSETH:
WHEREAS, from time to time, the Bank expects to enter into deferred compensation agreements (hereinafter referred to as "Deferred Compensation Agreements") with certain officers of the Bank, substantially in the form attached hereto as Exhibit A; and
WHEREAS, the Bank has incurred or expects to incur liabilities under the terms of the Deferred Compensation Agreements with respect to the officers participating thereunder (hereinafter referred to as the "Participant" or the "Participants"); and
WHEREAS, the Bank wishes to establish a trust (hereinafter referred to as the "Trust") and to contribute to the Trust certain assets that shall be held therein, subject to the claims of the Bank's creditors in the event of the Bank's Insolvency (as hereinafter defined) until paid to such officer(s) and their beneficiaries in such manner and at such times as specified in the Deferred Compensation Agreements; and
WHEREAS, it is the intention of the Bank that this Trust shall constitute an unfunded arrangement and shall not affect the status of the Deferred Compensation Agreements as unfunded arrangements maintained for the purpose of providing deferred compensation for a select group of management or highly compensated employees, for purposes of Title I of the Employee Retirement Income Security Act of 1974, as amended; and
WHEREAS, it is the intention of the Bank to make contributions of cash or other property to the Trust to provide itself with a source of funds to assist it in meeting its liabilities under the Deferred Compensation Agreements (hereinafter referred to as "Contributions");
NOW, THEREFORE, the parties do hereby establish the Trust and agree that the Trust shall be comprised, held and disposed of as follows:
SECTION I
ESTABLISHMENT OF TRUST
(a) The Trust is hereby established as the "Deferred Compensation Trust for First National Bank of Northern California."
(b) The Bank hereby deposits certain assets with the Trust, and the Trustee hereby acknowledges receipt of such assets, which assets shall become the principal of the Trust, to be held, administered and disposed of by the Trustee as provided in this Trust Agreement. The Bank, in its sole discretion, may at any time, or from time to time, make Contributions to augment the principal of the Trust, to be held, administered and disposed of by the Trustee as provided in this Trust Agreement. Neither the Trustee nor any Participant or beneficiary of a Participant shall have the right to compel such Contributions.
(c) The Trust hereby established shall be irrevocable, but may be amended as provided under (and only as provided under) Section XII.
(d) The Trust is intended to be a grantor trust, of which the Bank is the grantor, within the meaning of subpart E, part I, subchapter J, chapter 1, subtitle A of the Internal Revenue Code of 1986, as amended, and shall be construed accordingly.
(e) The principal of the Trust, and any earnings thereon, shall be held separate and apart from other funds of the Bank and shall be used exclusively for the uses and purposes of the Participants and general creditors as herein set forth. The Participants and their beneficiaries shall have no preferred claim on, or any beneficial ownership interest in, any assets of the Trust. Any rights created under the Deferred Compensation Agreements and this Trust Agreement shall be mere unsecured contractual rights of the Participants and their beneficiaries against the Bank. Any assets held by the Trust will be subject to the claims of the Bank's general creditors under federal and state law in the event of Insolvency, as defined in Section III(a) herein.
(f) The Trustee shall be accountable for all Contributions received, but the Trustee shall have no duty to see that the Contributions received are sufficient to provide for retirement, disability, or death benefits, nor shall the Trustee be obligated to enforce or collect any Contribution from the Bank. Notwithstanding the foregoing, in the event of a Change in Control, the Trustee shall have the right, duty and obligation to monitor, enforce and/or collect any Contributions due and owing from the Bank or to give notice of any default in making Contributions to or for the benefit of any person.
SECTION II
PAYMENTS TO PARTICIPANTS AND THEIR BENEFICIARIES
(a) The Bank shall deliver to the Trustee a schedule (the "Payment Schedule") that indicates the amounts payable in respect of each Participant (and his or her beneficiaries), and that provides a formula or other instructions acceptable to the Trustee for determining the amounts so payable, the form in which such amount is to be paid (as provided for or available under the Deferred Compensation Agreements), and the time of commencement for payment of such amounts. The Bank shall be deemed to be in default if it fails to fulfill its payment obligations required under the Deferred Compensation Agreements and shall fail to cure any such failure within thirty (30) days after receiving written notice of such failure from any affected Participant or beneficiary. Upon the Trustee's receipt of a written certification of such default from the affected Participant or beneficiary, the Trustee shall make payments to such Participant or beneficiary in accordance with the relevant Payment Schedule. Unless such certification shall have been provided by the Bank, the Trustee shall provide to the Bank a copy of such certification and notice of its commencement of such payments. The Trustee shall then continue to make such payments until such time, if any, as it may receive written instructions to the contrary signed by both the Bank and the affected Participant or beneficiary.
(b) The Trustee shall, in accordance with the written instructions of the Bank, withhold and report any federal, state or local taxes that may be required to be withheld and reported with respect to the payment of the benefits pursuant to the terms of the Deferred Compensation Agreements and shall pay amounts withheld to the appropriate taxing authorities. In addition, the Trustee shall be authorized to pay any federal, state or local taxes to any governmental body that presents a tax deficiency notice to the Trustee with respect to income or asserts of the Trust The Bank shall deliver to the Trustee each year a
certificate which specifies the amount of taxes to be withheld, if any, with respect to benefit payments to be made hereunder. The Trustee shall be entitled to rely conclusively on the written instructions of the Bank as to all tax reporting and withholding requirements.
(c) The entitlement of a Participant or his or her beneficiaries to benefits under a Deferred Compensation Agreement shall be determined by the Bank or such party (other than the Trustee) as the Bank shall designate under the Deferred Compensation Agreements, and any claim for such benefits shall be considered and reviewed under the procedures set out in the Deferred Compensation Agreements.
(d) The Bank may make payment of benefits directly to the Participants or their beneficiaries, if they become so payable under the Deferred Compensation Agreements to such Participants or beneficiaries. The Bank shall notify the Trustee of its decision to make payment of benefits directly, prior to the time amounts are payable to the Participants or their beneficiaries. In addition, if the principal of the Trust, and any earnings thereon, are not sufficient to make payments of benefits in accordance with the terms of the Deferred Compensation Agreements, the Bank shall make the balance of each such payment as it falls due. The Trustee shall notify the Bank if and when such principal and earnings are not sufficient to discharge obligations currently due under the Payment Schedule and shall have no further obligation hereunder to anyone interested in the Trust.
SECTION III
TRUSTEE RESPONSIBILITY REGARDING PAYMENTS
IF THE BANK IS INSOLVENT
(a) The Trustee shall cease payment of benefits to the Participants
and their beneficiaries if the Bank is Insolvent. The Bank shall be considered
"Insolvent" for purposes of this Trust Agreement if (i) the Bank confirms in
writing that it is unable to pay its debts as they become due; (ii) the Bank is
subject to a pending proceeding as a debtor under the United States Bankruptcy
Code; (iii) a state or federal banking regulatory agency determines that the
Bank is insolvent, or that the payments of benefits would be unsafe or unsound;
(iv) the Bank is subject to a liquidation proceeding or other action by a state
or federal banking regulatory agency to assume control of the Bank including the
appointment of a receiver or conservator; or (v) a state or federal banking
regulatory agency directs the Trustee to cease payments.
(b) At all times during the continuance of this Trust, as provided in
Section I(e) hereof, the principal and income of the Trust shall be subject to
claims of general creditors of the Bank under federal and state law as set forth
below.
(1) The Board of Directors and the Chief Executive Officer of the Bank shall have the duty to inform the Trustee in writing of the Bank's Insolvency. If a person claiming to be a creditor of the Bank alleges in writing to the Trustee that the Bank has become Insolvent, the Trustee shall provide a copy of such writing to the Bank and shall request the Bank to inform the Trustee in writing whether or not the Bank is, in fact, Insolvent. Upon such request, the Bank shall inform the Trustee of its Insolvency or shall establish by court action for declaratory relief that the Bank is not Insolvent. An action for declaratory relief in this situation may also be brought by a Participant.
Until such time as a court has issued a declaration that the Bank is not Insolvent, the Trustee shall discontinue payment of benefits to the Participants or their beneficiaries.
(2) The Trustee shall have no duty to determine whether or not the Bank is Insolvent. Unless the Trustee has received written notice from a person claiming to be a creditor alleging that the Bank is Insolvent, the Trustee shall have no duty to inquire whether the Bank is Insolvent. If, under paragraph (b)(l) above, the Bank has been determined to be Insolvent, the Trustee shall discontinue payments to the Participants or their beneficiaries and shall hold the assets of the Trust for the benefit of the Bank's general creditors. Nothing in this Trust Agreement shall in any way diminish any rights of the Participants or their beneficiaries to pursue their rights as general creditors of the Bank with respect to benefits due under the Deferred Compensation Agreements or otherwise.
(3) The Trustee shall resume the payment of benefits to Participants or their beneficiaries in accordance with Section II of this Agreement only after a court has issued a declaration that the Bank is not (or is no longer) Insolvent Provided that there are sufficient assets, if the Trustee discontinues the payment of benefits from the Trust pursuant to Section III(b) hereof and subsequently resumes such payments, the first payment following such discontinuance shall include the aggregate amount of all payments due to the Participants or their beneficiaries under the terms of the Deferred Compensation Agreements for the period of such discontinuance, less the aggregate amount of any payments made to the participants or their beneficiaries by the Bank in lieu of the payments provided for hereunder during any such period of discontinuance.
SECTION IV
PAYMENTS TO THE BANK
Except as provided in Section III or XII hereof, the Bank shall have no right or power to direct the Trustee to return to the Bank or to divert to others any of the assets of the Trust before all payment of benefits have been made to the Participants and their beneficiaries pursuant to the terms of the Deferred Compensation Agreements.
SECTION V
TRUSTEE'S POWERS
(a) All rights associated with assets of the Trust shall be exercised by the Trustee, as hereinafter set forth and shall in no event be exercisable by or rest with the Participants. The Bank shall have the right at any time, and from time to time in its sole discretion, to substitute assets of equal fair market value for any asset held by the Trust, provided that any such assets are acceptable to the Trustee. This right is exercisable by the Bank in a nonfiduciary capacity without the approval or consent of any person in a fiduciary capacity.
(b) Subject to the foregoing, the Trustee shall have the following discretion, powers and authority in the administration and investment of the assets of the Trust, in addition to those vested in the Trustee elsewhere in this Trust Agreement or by applicable law:
(i) Subject to any written investment guidelines provided to the Trustee by the Bank from time to time, to invest and reinvest the assets of the Trust, without distinction between principal and income, in any kind of property, real, personal or mixed, tangible or intangible and in any kind of investment, security or obligation suitable for the investment of Trust assets, including federal, state and municipal tax-free obligations and other tax-free investment vehicles, insurance policies and annuity contracts, and any common bust fund, group trust, pooled fund, or other commingled investment fund
maintained by the Trustee or any other bank or entity for trust investment purposes in which the Trust is eligible to invest and the provisions governing such funds shall be part of the Trust Agreement as though fully restated herein; and to have all the rights, powers and privileges of an owner with respect to the securities held in the Trust, including, but not limited to, the powers to vote, give proxies, and pay assessments, to participate in voting busts, pooling agreements, foreclosures, reorganizations, consolidations, mergers and liquidations, and transfer title to any protective or other committee on such terms as the Trustee may deem advisable, and to exercise or sell stock subscription or conversion rights;
(ii) To purchase, and maintain as owner, a life insurance policy or policies with respect to Participants; provided however, that the Trustee shall not be required to purchase or take any action under a life insurance policy or policies with respect to the Participants unless directed to do so by the Bank, which shall designate the face amount of said policy or policies, the terms of the policy or policies and the insurance company;
(iii) To sell for cash or on credit, to grant options, convert, redeem, exchange for other securities or other property, or otherwise to dispose of, any security or other property at any time held except that the Trustee shall have no right or obligation to take any action with respect to any insurance contract or policy unless so directed by the Bank;
(iv) At the direction of the Bank, to settle, compromise or submit to arbitration, any claims, debts or damages, due to or owning to or from the Trust, to commence or defend suits or legal proceedings and to represent the Trust in all suits or legal proceedings provided, however, the Trustee shall not be expected or required to undertake any of the foregoing unless there are sufficient assets in the Trust with which to do so, or the Trustee has received assurances by a party to this Trust, satisfactory to the Trustee, of the payment or reimbursement of the expenses connected therewith;
(v) To exercise any conversion privilege (other than conversion privileges with respect to any insurance policy, which shall be exercised only upon direction of the Bank) and/or subscription right available in connection with securities or other property at any time held, to oppose or to consent to the reorganization, consolidation, merger or readjustment of the finances of any corporation, bank or association or to the sale, mortgage, pledge or lease of the property of any corporation, bank or association any of the securities of which may at any time be held and to do any act with reference thereto, including the exercise of options, making of agreement or subscription, which may be deemed necessary or advisable in connection herewith, and to hold and retain any securities or other properties so acquired;
(vi) To hold cash uninvested for a reasonable period of time under the circumstances without liability for interest, pending investment thereof or the payment of expenses or making distribution therewith;
(vii) To form corporations and to create trusts to hold title to any securities or other property, all upon such terms and conditions as may be deemed advisable;
(viii) To employ suitable agents and counsel and to pay their reasonable expenses and compensation;
(ix) To register any securities held hereunder in the name of the Trustee or in the name of a nominee with or without the addition of welds indicating that such securities are held in a fiduciary capacity and to hold any securities in bearer form and to combine certificates representing such securities with certificates of the same issue held by the Trustee in other fiduciary or representative capacities, or to deposit securities in any qualified central depository where such securities may be held in bulk in the
name of the nominee of such depository with securities deposited by other depositors, or deposit securities issued by the United States Government, or any agency or instrumentalities thereof, with a Federal Reserve Bank;
(x) To make, execute and deliver, as the Trustee, any and all conveyances, contracts, waivers, releases or other instruments in writing necessary or proper for the accomplishment of any of the foregoing powers;
(xi) To have any and all other powers or authority, under the laws of the state in which the Trustee's principal executive offices are located, relevant to performance in the capacity as the Trustee; and
(xii) To settle, compromise or submit to arbitration, any claims, debts or damages, due or owing to or from the Trust, to commence or defend suits or legal proceedings and to represent the Trust in all suits or legal proceedings; provided, however, the Trustee shall not be expected or required to undertake any of the foregoing unless there are sufficient assets in the Trust with which to do so, or the Trustee has received assurances by the Bank or other party, satisfactory to the Trustee, of the payment or reimbursement of the expenses connected therewith.
SECTION VI
DISPOSITION OF INCOME
During the term of this Trust, all income received by the Trust, net of distributions, expenses and taxes, shall be accumulated and reinvested.
SECTION VII
ACCOUNTING BY THE TRUSTEE
The Trustee shall keep accurate and detailed records of all investments, receipts, disbursements, and all other transactions required to be made, including such specific records as shall be agreed upon in writing between the Bank and the Trustee. Within ninety (90) days following the close of each calendar year and within sixty (60) days after the removal or resignation of the Trustee, the Trustee shall deliver to the Bank a written account of its administration of the Trust during such year or during the period from the close of the last preceding year to the date of such removal or resignation, setting forth all investments, receipts, disbursements and other transactions effected by it, including a description of all securities and investments purchased and sold with the cost or net proceeds of such purchases or sales (accrued interest paid or receivable being shown separately), and showing all cash, securities and other property held in the Trust at the end of each year or as of the date of such removal or resignation, as the case may be.
SECTION VIII
RESPONSIBILITY OF THE TRUSTEE
(a) The Trustee shall act with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent person acting in like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims, provided, however, that the Trustee shall incur no liability to any person for any action taken pursuant to a direction, request or approval given by the Bank which is contemplated by, and in conformity with, the terms of the Deferred Compensation Agreements or this Trust Agreement and is given in writing by the Bank. In the event of a dispute
between the Bank and any other party, the Trustee may apply, at the expense of the Trust to a court of competent jurisdiction located in San Mateo County, California, to resolve the dispute.
(b) If the Trustee undertakes or defends any litigation arising in connection with this Trust except where it is finally determined by a court of competent jurisdiction that the Trustee breached its duties under this Trust Agreement the Bank agrees to indemnify the Trustee against the Trustee's costs, expenses and liabilities (including, without limitation, attorneys' fees and expenses) relating thereto and to be primarily liable for such payments. If the Bank does not pay such costs , expenses and liabilities in a reasonably timely manner, the Trustee may obtain payment from the Trust.
(c) The Trustee may consult with legal counsel (who may also be counsel for the Bank generally) with respect to any of its duties or obligations hereunder and charge counsel fees to the Trust if they are not paid in a timely manner by the Bank.
(d) The Trustee may hire agents. accountants, actuaries, investment advisors, financial consultants or other professionals to assist it in performing any of the duties or obligations of the Trustee hereunder.
(e) The Trustee shall have, without exclusion, all powers conferred on trustees by applicable law, unless expressly provided otherwise herein; provided, however, that if an insurance policy is acquired or held at the direction of the Bank as an asset of the Trust, the Trustee shall have no power to name a beneficiary of the policy other than the Trust, or to assign the policy other than to a successor trustee, or to loan any person (including the Bank) the proceeds of any borrowing against such policy.
(f) Notwithstanding any powers granted to the Trustee pursuant to this Trust Agreement or under applicable law, the Trustee shall not have any power that could give this Trust the objective or carrying on a business and dividing the gains therefrom, within the meaning of Section 301.7701-2 of the Procedure and Administrative Regulations promulgated pursuant to the Internal Revenue Code.
(g) The Trustee shall be entitled to conclusively rely upon any written notice, direction, instruction, certificate or other communication delivered to the Trustee and believed by the Trustee to be genuine and to have been signed by the proper person or persons.
(h) Nothing contained in this Trust Agreement shall require the Trustee to risk or expend its own funds in the performance of its duties hereunder. In the acceptance and performance of its duties hereunder, the Trustee acts solely as the Trustee of the Trust and not in its individual capacity, and all persons, other than the Bank, having any claim against the Trustee related to this Trust Agreement or the actions or agreements of the Trustee contemplated hereby shall look solely to the Trustee for the payment or satisfaction thereof, except to the extent that the Trustee has engaged in willful misconduct or gross negligence, or the Trustee has willfully breached its obligation under this Trust Agreement.
(i) The Trustee shall not be responsible for determining whether a Change in Control (as defined herein) has occurred. The Bank will notify the Trustee of the occurrence of a Change in Control, and the Trustee shall be entitled to rely conclusively upon such notification for all purposes of a Change in Control hereunder without any liability or further duty with respect thereto.
(j) Any amendment or amendments that are or may be made to the Deferred Compensation Agreements shall not increase the Trustee's duties hereunder without the express written consent of the Trustee.
SECTION IX
COMPENSATION AND EXPENSES OF THE TRUSTEE
The Bank shall pay all administrative costs and the Trustee's fees and expenses. If not paid by the Bank, the fees and expenses shall be paid from the Trust.
SECTION X
RESIGNATION AND REMOVAL OF THE TRUSTEE
(a) The Trustee may resign at any time by written notice to the Bank, which shall be effective thirty (30) days after receipt of such notice unless the Bank and the Trustee agree otherwise, whether or not a successor has been appointed and qualifies. The Trustee shall pay or deliver the assets of the Trust to the successor trustee or bank (in further trust, pending the appointment of a successor) as the case may be, at the end of such period. If the Bank has not appointed a successor by the end of such period, the Trustee may, at its election, apply to a court of competent jurisdiction for the appointment of a successor.
(b) The Trustee may be removed by the Bank on sixty (60) days notice to the Trustee or upon shorter notice accepted by the Trustee. Any successor trustee may be removed by the Bank on ninety (90) days notice to such successor trustee or upon shorter notice accepted by the successor trustee.
(c) (l) If, at the time of a Change in Control (as defined herein), the then acting trustee is not independent of the Bank, the Board of Directors of the Bank, as in existence immediately prior to the Change in Control, shall designate an independent third party with corporate trustee powers to act as a successor trustee and upon such appointment, the trustee acting prior to such Change in Control shall resign. The successor trustee appointed by the Board of Directors may not be removed by the Bank for two (2) years following the date of such Change in Control.
(2) If, at the time of a Change in Control (as defined herein), the then acting trustee is, other than serving as the trustee hereunder, an independent party with respect to the Bank, such trustee may not be removed by the Bank for the two (2) years following the date of such Change in Control. Such trustee also may not be removed by the Bank in anticipation of a Change of Control.
(d) If a successor trustee resigns at any time following a Change in Control, or if a successor trustee is removed by the Bank at any time following the expiration of the two (2) year period (as described in subpart (c) above) following a Change in Control, the Chief Executive Officer of the Bank, as in existence immediately prior to a Change in Control, shall select and cause the appointment of a successor trustee in accordance with the provisions of Section XI(a) hereof, and such appointment shall be accepted by the successor trustee and effective on or before the effective date of such trustee's resignation or removal. In all other instances of resignation or removal, the Bank shall appoint a successor trustee in accordance with the provisions of Section XI(a) hereof, with such appointment made on or before the effective date of a trustee's resignation or removal.
(e) Upon resignation or removal of a Trustee and appointment of a successor trustee, all assets of the Trust shall subsequently be promptly transferred to the successor trustee, in accordance with sub-section (a) hereof,
(f) If a Trustee resigns or is removed under paragraph (a), (b), or
(d) of this Section X, a successor shall be appointed in accordance with Section
XI hereof, with such appointment being effective on or before the effective date
of resignation or removal. If no such appointment has been made, the Bank or
such trustee (as applicable) may apply to a court of competent jurisdiction for
appointment of a successor or for instructions. Should such trustee be required
to apply to a court of competent jurisdiction for such purpose, all expenses of
such trustee in connection with the proceeding shall be allowed as
administrative expenses of the Trust.
SECTION XI
APPOINTMENT OF SUCCESSOR
(a) If the Trustee resigns or is removed pursuant to the provisions of Section X hereof, the Bank may appoint any independent third party, such as a bank trust department or other entity that may be wanted corporate trustee powers under applicable state law, to serve as successor trustee hereunder. The appointment of a successor trustee shall be effective when accepted in writing by the new trustee. The new trustee shall have shall of the rights and powers of the former trustee, including ownership rights in the Trust assets. The former trustee shall execute any instrument necessary or reasonably requested by the successor trustee to evidence the transfer.
(b) The successor trustee need not examine the records and acts of any prior Trustee and may retain or dispose of existing Trust assets, subject to Sections VII and VIII hereof. The successor trustee shall not be responsible for and the Bank shall indemnify and defend the successor trustee from any claim or
liability resulting from any action or inaction of any prior trustee from any other past event, or any condition existing at the time it becomes successor trustee.
SECTION XII
AMENDMENT OR TERMINATION
(a) This Trust Agreement may be amended by a written instrument executed by the Trustee and the Bank. Notwithstanding the foregoing, no such amendment shall conflict with the terms of the Deferred Compensation Agreements or shall make the Trust revocable.
(b) The Trust shall not terminate until the Participants and their beneficiaries are no longer entitled to any benefits pursuant to the terms of the Deferred Compensation Agreements. Upon termination of the Trust, any assets remaining in the Trust shall be returned to the Bank. Notwithstanding the foregoing, if at any time prior to the termination of the Trust, pursuant to the provisions set forth herein, the Trust has distributed its entire corpus, the Trust shall terminate unless, within sixty (60) days of notification to the Bank by the Trustee that all assets of the Trust have been distributed, the Bank makes Contributions to the Trust for purposes of paying the benefits described herein.
(c) Upon written approval of the Participants or their beneficiaries entitled to payment of benefits pursuant to the terms of the Deferred Compensation Agreements, the Bank may terminate this Trust prior to the time such benefit payments have been made. All assets in the Trust at such termination shall, after payment of all amounts due to the Trustee and all fees, taxes, expenses chargeable to the Trust, be returned to the Bank.
(d) Section(s) I (one), II (two), VI (six), X (ten) and XII (twelve) of this Trust Agreement may not be amended by the Bank (i) in anticipation of a Change in Control or (ii) for two (2) years following a Change of Control, as defined herein.
SECTION XIII
MISCELLANEOUS
(a) Any provision of this Trust Agreement prohibited by law shall be ineffective to the extent of any such prohibition, without invalidating the remaining provisions hereof.
(b) Benefits payable to the Participants and their beneficiaries under the Deferred Compensation Agreements and this Trust Agreement may not be anticipated, assigned (either at law or in equity), alienated, pledged, encumbered or subjected to attachment, garnishment, levy, execution or other legal or equitable process.
(c) This Trust Agreement shall be governed by and constructed in accordance with the laws of the State of California. Nothing in this Trust Agreement shall be construed to subject the Trust to the Employee Retirement Security Act of 1974, as amended.
(d) For purposes of this Trust, the term "Change in Control" shall
mean and include with respect to the Bank or any successor thereto (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 the Bank or any stock exchange on which the Bank's shares are
listed which requires the reporting of a change in control; (ii) any merger,
consolidation or reorganization of the Bank in which the Bank 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 the Bank having an aggregate fair market value of fifty percent (50%) of the total value of the assets of the Bank, reflected in the most recent balance sheet of the Bank; (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) becomes the beneficial owner, directly or indirectly, of securities of the Bank representing twenty-five percent (25%) or more of the combined voting power of the Bank's then outstanding securities; or (v) a situation where, in any one-year period, individuals who at the beginning of such period constitute the Board of Directors of the Bank cease for any reason to constitute at least a majority thereof, unless the election, or the nomination for election by the Bank's shareholders, of each new director is approved by a vote of at least three-quarters (3/4) of the directors then still in office who were directors at the beginning of the period. Notwithstanding the foregoing or anything else contained herein to the contrary, there shall not be a "Change of Control" for purposes of this Agreement if the event which would otherwise come within the meaning of the term "Change of Control" involves (i) a reorganization solely to form a parent bank holding company at the direction of the Bank which owns 100% of the Bank's voting securities following the reorganization, or (ii) an employee stock ownership plan sponsored by the Bank or its parent holding company which is the party that acquires "control" or is the principal participant in the transaction constituting a "Change in Control," as described above.
(e) The Bank shall be required to notify the Trustee of a Change in Control or imminent Change in Control (for these purposes, a Change in Control shall be imminent if it shall occur within sixty (60) days from the date of said notice). The Trustee shall not be charged with actual knowledge of a Change in Control until it has received notice, in writing, of such Change in Control or imminent Change in Control.
(f) Every direction or notice authorized hereunder shall be deemed delivered to the Bank or the Trustee as the case may be:
(i) on the date it is personally delivered to the Bank or the Trustee at its respective principal executive office, or
(ii) three (3) business days after it is sent by registered or certified mail, postage prepaid, addressed to the Bank or the Trustee at its respective principal executive office.
(g) The Trustee shall be fully protected in relying upon a certificate of an authorized representative of the Bank with respect to any instruction, direction or approval of the Bank required or permitted hereunder, and protected also in relying upon any such certification until any subsequent certification is delivered to the Trustee.
The Trustee shall be fully protected in acting upon any instrument, certificate, or paper believed by it to be genuine and to be signed or presented by the proper person or persons, and the Trustee shall be under no duty to make any investigation or inquiry as to any statement contained in any such writing, but may accept the same as conclusive evidence of the trust and accuracy contained therein. Communications under this Agreement shall be in writing and shall be sent to the following address:
Trustee: 3170 Hilltop Mall Road
Richmond, CA 94806-0047
Bank: 975 El Camino Real
South San Francisco, CA 94080
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(h) This Trust Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but all of which shall together constitute only one agreement.
SECTION XIV
EFFECTIVE DATE
The effective date of this Trust Agreement shall be the first day of November, 1997.
IN WITNESS WHEREOF, this instrument has been executed in the City of South San Francisco, County of San Mateo, State of California, as of the day and year first above written.
ATTEST: FIRST NATIONAL BANK OF
NORTHERN CALIFORNIA
/s/ JAMES B. RAMSEY By: /s/ MICHAEL R. WYMAN
------------------------------ ------------------------------
James B. Ramsey Michael R. Wyman
------------------------------ ------------------------------
(Title)
ATTEST: THE MECHANICS BANK, as Trustee
By: /s/ CHARLES RUHL
------------------------------ ------------------------------
Charles Ruhl
Vice President
------------------------------
(Title)
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EXHIBIT A
TO DEFERRED COMPENSATION TRUST DATED NOVEMBER 1, 1997
DEFERRED COMPENSATION AGREEMENT
THIS DEFERRED COMPENSATION AGREEMENT is entered into by and between FIRST NATIONAL BANK OF NORTHERN CALIFORNIA, a national banking association (hereinafter "Employer") and (hereinafter "Employee") as of the date set forth on the signature page hereto.
RECITALS
1. From time to time, Employer may establish individual unfunded plans for the purpose of providing deferred compensation for persons in a select group of its highly compensated employees, and Employer has designated Employee as eligible to participate in such a plan.
2. Employee desires Employer to pay deferred compensation to or for the benefit of Employee, or a designated beneficiary, or both.
3. Employer hereby establishes an individual plan for Employee (hereinafter the "Plan") and Employee hereby accepts the terms and conditions set forth herein to govern Employee's participation in the Plan.
NOW, THEREFORE, in consideration of the foregoing, Employer and Employee agree as follows:
SECTION 1 DEFINITIONS
1.1 "Account" shall mean the separate account(s) established under the Plan for Employee. Employer shall furnish Employee with a statement of his or her account balance at least annually.
1.2 "Beneficiary" shall mean the Beneficiary designated by 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 Loan and Discount Committee of the Board of Directors of Employer or any other committee designated by the Board of Directors of 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 the date hereof, unless otherwise specified by the Committee.
1.8 "Eligible Compensation "shall mean projected annual compensation from Employer, determined on an annual basis by 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 Employer and excluding any special or non-recurring compensatory payments such as moving or relocation bonuses or automobile allowances.
1.9 "Hardship" shall have the meaning set forth in Section 3.5 of the Plan.
1.10 "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, 1997.
1.11 "Permanent Disability" shall mean that 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. Employee will not be considered to have a Permanent Disability unless he or she furnishes proof of such condition sufficient to satisfy Employer, in its sole discretion.
1.12 "Trustee" shall mean the designated "Trustee" acting at any time under the Trust described in Section 3.7.
SECTION 2 ELIGIBILITY
2.1 Eligibility. Participation in the Plan shall commence as of the
Effective Date, provided that deferral of compensation under the Plan shall not
commence until Employee has complied with the election procedures set forth in
Section 3.3. Nothing in the Plan or in this Agreement shall be construed to
require any contributions by Employer to the Plan on behalf of Employee.
SECTION 3 DEFERRED COMPENSATION
3.1 Deferred Compensation. (a) Employee may elect, in accordance with
Section 3.3, 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 Employee shall be employed by Employer. Any Compensation
deferred by Employee pursuant to Section 3.3 shall be recorded by Employer in
the Account, maintained in the name of 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 any earnings thereon credited in accordance with Section 3.8, less any 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 shall not be subject to change during such year; and 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 Employer by Employee in accordance with Section 3.3. That is, the most recent election shall supersede and replace any and all prior elections. 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 $ ______ which shall be withheld from Employee's "base salary" or "cash bonus", and (ii) the maximum deferral percentage amount is 80% of Employee's "base salary" and 100% of Employee's "cash bonus". For purposes of this Section and Appendix 2 hereto, "base salary" means 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 Employer and other special compensation. For purposes of this Section and Appendix 2 hereto, "cash bonus" shall mean amounts (if any) awarded under the bonus policies maintained by Employer.
(b) Amounts deferred under the Plan shall be calculated and withheld
from 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) Employee shall elect whether he or she will receive distribution of his or her entire Account, subject to applicable tax withholding requirements, (i) upon reaching a specified age; (ii) upon passage of at least five (5) 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 1. A designation of the date of distribution shall be required as a condition of participation under this Plan. 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 Employee for each year of participation in the Plan. This election shall be made in accordance with Section 3.4.
(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 Employee to be
nondeductible by Employer under Code Section 162(m)(l). 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 Employee until
Employee's Account has been fully liquidated. If Employee elects 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 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, Employer shall pay
to Employee's designated beneficiary the balance in Employee's Account. The
balance in Employee's Account shall be payable pursuant to the provisions of
Section 3.2(e), over the number of years specified in the election by Employee
described in Section 3.4, in equal monthly installments, beginning on the last
day of the month following the month during which Employee dies. 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) 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 shall 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 Employee's distribution election. Each such installment, if any, shall take into account earnings credited to the balance of the Account remaining unpaid. Employee's distribution election shall be in the form attached hereto as Appendix 1.
(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), Employer may, in the sole discretion of the Committee, distribute to Employee or Employee's designated Beneficiary all amounts credited to 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 Employee to defer compensation as provided in Section 3.1 shall be in writing, signed by Employee, and delivered to Employer, together with all other documents required under the
provisions of the Plan, within thirty (30) days after the Effective Date for the initial Plan Year and at least twenty (20) days prior to the beginning of each Plan Year thereafter with respect to which the compensation to be deferred is otherwise payable to Employee. 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. 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 Employee. The election to defer compensation shall be in the form attached as Appendix 2.
3.4 Distribution Election. Each distribution election of Employee as provided in Section 3.2 shall be in writing, signed by Employee and delivered to Employer, together with all documents required under the provisions of the Plan, at least ten (10) days prior to the beginning of the Plan year with respect to which the distribution election is to apply. 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 1.
3.5 Payment Upon Change in Control. Notwithstanding any other provisions of the Plan, the aggregate balances credited to and held in Employee's Account shall be distributed to Employee in a lump sum within thirty (30) days of a Change in Control, as defined in Section 5.1. Alternatively, Employee may elect to continue to participate in the Plan following a Change in Control if the Plan remains in effect thereafter and Employee notifies 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) Employee may apply for distributions from his or her Account to the extent that 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 Employee and is necessary to satisfy that financial need. Whether 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, 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 Employee, nor shall a Hardship distribution be made if the need may be satisfied from other resources reasonably available to Employee. For purposes of this paragraph, Employee's resources shall be deemed to include those assets of Employee's spouse and minor children that are reasonably available to Employee. Prior to approving a Hardship distribution, Employer shall require Employee to certify in writing that 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 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) If Employee receives a Hardship distribution under this Section 3.6, Employee shall be ineligible to defer any additional compensation under the Plan until the first day of the Plan Year following the first anniversary of the date of the distribution. In addition, a new Election of Deferral must be submitted to Employer as a condition of participation in the Plan.
3.7 Employee's Rights Unsecured. The right of Employee or his or her designated Beneficiary to receive a distribution hereunder shall be an unsecured claim against the general assets of Employer, and neither 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 Employer. This Plan constitutes a mere promise by Employer to make benefit payments in the future. 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 Employer or any other person. Notwithstanding, Employer and Employee acknowledge and agree that a Deferred Compensation Trust for First National Bank of Northern California ("Trust") has been established upon terms and conditions acceptable to Employer and Employee. It is the intention of Employer to make contributions and/or transfer assets to the Trust in order to discharge Employer's obligations pursuant to this Agreement. The principal of the Trust and any earnings thereon shall be held separate and apart from other funds of Employer, to be used exclusively for discharge of Employer's obligations pursuant to this Agreement, and shall continue to be subject to the claims of Employer's general creditors until paid to the Employee or his or her designated Beneficiary in such manner and at such times as specified in this Agreement. Employer and Employee intend that the arrangements contained in this Agreement be unfunded for tax purposes and for purposes of Title I of the Employee Retirement Income Security Act of 1974, as amended.
3.8 Investment of Trust Contributions. (a) The investment options available to Employee shall be determined by Employer and set forth in a separate written document, a copy of which shall be attached hereto and by this reference is incorporated herein. Employee shall have the right to designate the investment option or options applicable to his or her Account, subject to the policies and procedures implemented by the Trustee. Employer shall not be liable for any investment decision made by Employee while such funds are held by the Trustee.
(b) The Account shall be credited with the actual financial performance or earnings generated by such investments directed by Employee and made by the Trustee, until the Account has been fully distributed to Employee or to Employee's designated Beneficiary.
(c) Notwithstanding anything in this Section 3.8 to the contrary, the Committee may determine not to take account of Employee's designated investments and determine to have Employee's Account invested in any other manner as the Committee shall determine.
3.9 Designation of Beneficiary. Employee may designate a Beneficiary or Beneficiaries to receive any amount due hereunder by 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 Employee's spouse and Employee may designate a Beneficiary or Beneficiaries to receive only 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 3.
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 Employer representing fifty percent (50%) or more of the combined voting power of Employer's then outstanding securities, where such person's beneficial ownership of Employer's securities was not initiated by Employer or approved by 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 Employer or the merger of Employer with or into another corporation, where such merger was not initiated by Employer and in which Employer is not the surviving entity; or
(iii) A change in the composition of the Board of Directors of 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 Employer as of the date hereof, or (B) are elected, or nominated for election, to the Board of Directors of 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 Employer); or
(iv) Any liquidation or dissolution of 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 Employer in the event Employer becomes insolvent. The obligations of Employer to pay benefits under the Plan constitute an unfunded, unsecured general obligation and promise to pay and Employee shall have no greater rights than a general creditor of Employer.
SECTION 7 AMENDMENT AND TERMINATION
7.1 Amendment. The Committee shall have the right to amend this Agreement and 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 the Office of the Comptroller of the Currency. Any such amendment shall become effective upon the date stated therein, and shall be binding on Employee, except as otherwise provided in such amendment; provided, however, that said amendment shall not affect adversely benefits payable to Employee without 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 Employee and all other 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 Employee or any other 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 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 addresses 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 addresses set forth below, or such changed addresses as may be designated in writing by either party to the other from time to time.
If to Employer: If to Employee: First National Bank of Northern ______________________________ California ______________________________ 975 El Camino Real ______________________________ South San Francisco, CA 94080 ______________________________ |
9.2 Rights Against Employer. Except as expressly provided by the Plan, the establishment of this Plan shall not be construed as giving to Employee or to any person whomsoever, any legal, equitable or other rights against Employer, or against its officers, directors, agents or shareholders, or as giving to Employee or Beneficiary any equity or other interest in the assets, business or shares of Employer stock or giving Employee the right to be retained in the employment of 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 Employer or as affecting the right of Employer to dismiss 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 Employee.
9.3 Assignment or Transfer. No right, title or interest of any kind in the Plan shall be transferable or assignable by 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 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 Agreement and 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 and to the extent superseded by federal law.
9.7 Payment Due to Incompetence. If the Committee receives evidence that 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 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 Employer may deem proper. Any such payment shall be in complete discharge of Employer's obligations under this Plan.
9.8 Taxes. 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 governnental 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, including such attorneys fees and costs as may be deemed appropriate by the court. 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 Employer and its successors and assigns and Employee and Employee's Beneficiary designee, their respective heirs, personal representatives, executors, administrators and legatees.
IN WITNESS WHEREOF, the parties hereto have entered into this Deferred Compensation Agreement as of the ____ day of ________________, 20 ___.
FIRST NATIONAL BANK OF NORTHERN CALIFORNIA
APPENDIX 1
DISTRIBUTION ELECTION
Pursuant to Section 3.3 of my Deferred Compensation Agreement (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 at least five (5) years
_____ upon termination of employment
_____ upon the earlier to occur of termination of employment
or passage of at least five (5) years
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_____ upon the later to occur of termination of employment or passage of at least five (5) 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: ________________________, 20___
Signed: _________________________
_________________________
Type/Print Name and Title
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APPENDIX 2
DEFERRAL ELECTION
I understand that, under Section 3.1 of my Deferred Compensation Agreement (the "Plan"), the minimum annual deferral amount is $ ______ 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 , 20__ and ending December 31, 20 ___:
_________% 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 = $_______], 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
= $-------],
and
_________% of any cash bonus payable to me by Employer, or
$_________ of any cash bonus payable to me by Employer, or
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all of any cash bonus payable to me by Employer except for $____________
This election shall take effect for the Plan Year beginning ____________, 20___. 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 understand.
Dated: _________________________, 20___
Signed: ________________________________
________________________________
Type/Print Name and Title
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APPENDIX 3
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):
100% to my spouse ____________________________________
_____ %
_____ %
Dated: ____________________________, 20 ___
Signed: _____________________________________
CONSENT OF SPOUSE (if not 10096 to spouse)
Dated: ____________________________, 20 ___
Signed: _____________________________________
AMENDMENT NO. 1 TO
FIRST NATIONAL BANK OF NORTHERN CALIFORNIA
DEFERRED COMPENSATION AGREEMENT
This Amendment No. I to the First National Bank of Northern California (the "Bank") Deferred Compensation Agreement dated __________________, between the Bank and its employee, _____________, (the "Agreement"), is entered into as of _______________, 2001.
WHEREAS, defined terms hereinafter set forth shall, unless otherwise specified, have the meanings given such terms in the Agreement, including the references to Bank and ______________________________ as the "Employer" and the "Employee", respectively;
WHEREAS, the purpose of this Amendment No. 1 is to change certain provisions of the distribution election set forth in the Agreement to reduce the administrative burden associated with installment distribution payments by establishing minimum Account balance requirements for installment distributions as set forth hereinafter;
WHEREAS, the Agreement constitutes a separate plan in which participation is limited to the Employee; and
WHEREAS, the Employee has signed a separate consent of even date herewith to the amendment of the Agreement as set forth in this Amendment No. 1.
NOW, THEREFORE, the Employer hereby amends the Agreement and the Employee hereby approves the amendment of the Agreement as follows:
1. Distribution Election. A new subsection (g) shall be added to Section 3.2 of the Agreement to read as follows:
"(f) Notwithstanding any other provision of this Plan, any distribution election made to receive installment payments as described in this Section 3.2 and as set forth in the form attached hereto as Appendix 1, shall be subject to the following limitations: (i) if the Account balance at the time of commencement of the payment of distributions is Twelve Thousand Dollars ($12,000) or less, the entire amount of such Account balance shall be distributed only in lump sum, and (ii) if the Account balance at the time of commencement of the payment of distributions is more than Twelve Thousand Dollars ($12,000), the Employee can elect to receive distribution payments monthly in an amount not less that One Thousand Dollars ($1,000) per month or annual distribution payments in an amount not less than Twelve Thousand Dollars ($12,000), in each case until the balance in the Account has been fully distributed and with such adjustments in the amount of each such distribution as the Employer deems appropriate to minimize administrative expense."
2. Appendix 1. The provisions for installment distribution payments set forth in Appendix I are hereby amended to add the following paragraph immediately prior to the date and signature blocks:
"Notwithstanding the foregoing provisions for election of installment
distribution payments of the Account balance, the limitations set forth in
Section 3.2 (g) of the Plan shall control and take precedence over any such
installment election."
IN WITNESS THEREOF, the parties hereto have executed this Amendment No. 1 to the Agreement, effective as of the date first above written.
EMPLOYER: EMPLOYEE: FIRST NATIONAL BANK OF NORTHERN CALIFORNIA By: _________________________ ________________________________ _____________________________ ________________________________ Name and Title Name and Title |
CONSENT TO AMENDMENT NO. 1 TO
FIRST NATIONAL BANK OF NORTHERN CALIFORNIA
DEFERRED COMPENSATION AGREEMENT
The undersigned participant in the First National Bank of Northern California Deferred Compensation Agreement dated _______________________, hereby consents to Amendment No. I thereto, a copy of which is attached hereto as Exhibit A and incorporated herein by this reference.
Dated: __________________________, 2001 _________________________
EXHIBIT 10.11
This document is provided to assist your legal counsel in documenting your specific arrangement. It is not a form to be signed, nor is it to be construed as legal advice. Failure to accurately document your arrangement could result in significant losses, whether from claims of those participating in the arrangement, from the heirs and beneficiaries of participants, or from regulatory agencies such as the Internal Revenue Service and the Department of Labor. License is hereby granted to your legal counsel to use these materials in documenting solely your arrangement.
FIRST NATIONAL BANK OF NORTHERN CALIFORNIA
SALARY CONTINUATION AGREEMENT
THIS AGREEMENT is made this 20th day of December, 1996 by and between the FIRST NATIONAL BANK OF NORTHERN CALIFORNIA, a national banking association located in South San Francisco, California (hereinafter referred to as the "Company'), and MIKE WYMAN (hereinafter referred to as the "Executive").
WITNESSETH:
WHEREAS, the Executive is in the employ of the Company, serving as its Chief Executive Officer, and
WHEREAS, the experience, knowledge of the affairs of the Company, and reputation and contacts in the industry of the Executive are so valuable that assurance of the Executive's continued service is essential for the future growth and profits of the Company, and it is in the best interest of the Company to arrange terms of continued employment for the Executive so as to reasonably assure the Executive's remaining in the Company's employment during the Executive's lifetime or until the age of retirement; and
WHEREAS, it is the desire of the Company that the Executive's services be retained as herein provided: and
WHEREAS, the Executive is willing to continue in the employ of the Company provided the Company agrees to pay to the Executive or the Executive's beneficiaries certain benefits in accordance with the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the services to be performed in the future, as well as the mutual promises and covenants herein contained, it is agreed as follows:
Article 1
Definitions
1.1 Definitions. Whenever used in this Agreement, the following words and phrases shall have the meanings specified:
1.1.1 "Beneficiary" means the person or persons whom the Executive shall designate in a valid Beneficiary Designation to receive the benefits provided hereunder.
A Beneficiary Designation shall be valid only if: (1) it is in the form attached hereto and made a part hereof; and (2) it is received by the named Fiduciary and Plan Administrator prior to the Executive's death.
1.1.2 "Change of Control" means: (a) any merger or consolidation of the Company in which the Company is not the surviving corporation; or (b) any sale, lease. exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions) of any assets of the Company having an aggregate fair market value of 50% or more of the total value of the assets of the Company and its consolidated subsidiaries reflected in the most recent
balance sheet of the Company; or (c) any person (as such term is used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934) becomes a beneficial owner, directly or indirectly, of securities of the Company representing 25% or more of the combined voting power of the Company's then outstanding securities.
1.1.3 "Code" means the Internal Revenue Code of 1986, as
amended.
1.1.4 "Disability" means that the Executive is permanently
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disabled, due to an illness or injury, so that the Executive is unable to perform to a material degree his or her, current or later designated, duties as an Executive Officer of the Company. Such disability shall be determined by an independent physician in the event of physical disability or by an independent psychiatrist in the event of mental disability selected with the approval of the Company and the Executive; if they cannot agree on the selection, each shall submit a list of three physicians or psychiatrist as applicable, each shall strike two from the other's list, and the final choice shall be selected by lot (coin flip).
1.1.5 "Involuntary Termination " means the Executive, during active service and prior to attaining Normal Retirement Age, has been notified by the Company, in writing, that he or she is being terminated as an employee of the Company for reasons other than an approved leave of absence, Termination for Cause, Voluntary Termination or Disability.
1.1.6 "Named Fiduciary and Plan Administrator" means the
Company.
1.1.7 "Normal Retirement Age" means the Executive's 66th
birthday.
1.1.8 "Normal Retirement Date" means the later of the
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Executive's Normal Retirement Age or the date of Termination of Employment.
1.1.9 "Plan Year" means the Company's fiscal year.
1.1.10 "Surviving Spouse" means the person (if any) who is legally married to the Executive on the date of the Executive's death.
1.1.11 "Termination for Cause" means the Company's termination of the Executive's employment for reasons related to any of the following: (a) the Executive's willful breach of duty in the course of employment, unless waived by the Company: (b) dishonest or illegal conduct of the Executive; or (c) the habitual neglect by the Executive of the Executive's employment duties, unless waived by the Company.
1.1.12 "Termination of Employment" means the Executive's ceasing to be employed by the Company for any reason whatsoever except for reason of an approved leave of absence.
1.1.13 "Voluntary Termination" means the Executive, during active service and prior to attaining Normal Retirement Age, notifies the Company, in writing, that he or she is terminating his or her employment for any reason except: (a) an approved leave of absence: (b) Disability; (c) Termination for Cause; or (d) Involuntary Termination. If the Company does not receive written notice from the Executive, the Company in its sole and absolute discretion may make the determination of whether the termination was voluntary or involuntary.
1.1.14 "Years of Service" means the total number of Plan Years during which the Executive is employed on a full-time basis by the Company, inclusive of any approved leaves of absence. Employed on a full-time basis means that the Executive is considered by the Company to be employed to work at minimum 40 hours a week which is determined on the first and last days of the Plan Year.
Article 2
Lifetime Benefits
2.1 Normal Retirement Benefit. Upon a Termination of Employment on or after the Normal Retirement Age for reasons other than death, the Company shall pay to the Executive the benefit described in this Section 2.1.
2.1.1 Amount of Benefit. The annual benefit under this
Section 2.1 is $100,000. The Company in its sole and absolute
discretion may increase the benefit under this Section 2.I, however,
the annual increase shall not exceed the federally determined cost of
living index (U.S. Department of Labor Consumer Price Index) which is
announced in the calendar year immediately preceding the year in which
the change is to be made. Any increase in the annual benefit shall
require the recalculation of the Vested Accrued Liability in Schedule A
attached hereto. The annual benefit amount is calculated using the
interest method of accounting, a 7.5% discount rate, annual compounding
and annual payments .
2.1.2 Payment of Benefit. The Company shall pay the annual benefit to the Executive in 12 equal monthly installments payable on the first day of each month commencing on the month following the Normal Retirement Date and continuing to be paid on the first day of the month for the next 239 months.
2.1.3 Benefit Increases. Commencing on the first anniversary of the first benefit payment, and continuing on each subsequent anniversary, the Company's Board of Directors. in its sole and absolute discretion, may increase the benefit.
2.2 Early Termination Benefit. Upon a Termination of Employment before the Normal Retirement Age, and for reasons other than Voluntary Termination, Termination for Cause, death, Disability or Change of Control, the Company shall pay to the Executive the benefit described in this Section 2.2. Voluntary Termination and Termination for Cause shall result in the Executive receiving no benefits under this Agreement (see Sections 5.2 and 5.3).
2.2.1 Amount of Benefit. If the Executive has completed at least one year of Service, the benefit under this Section 2.2 is the Vested Accrued Liability amount set forth in Schedule A determined in the plan year immediately preceding the Plan Year in which the Termination of Employment occurred. Schedule A shall be adjusted to reflect any benefit level increases determined by the Board of Directors under Section 2.1.1 prior to the Executive's Termination of Employment.
2.2.2 Payment of Benefit. The Company shall pay a monthly benefit to the Executive in 240 equal monthly installments payable on the first day of each month commencing on the month following the Normal Retirement Date. The benefit amount is calculated using the interest method of accounting, a 7.5% discount rate, monthly compounding and monthly payments.
2.2.3 Benefit Increases. Benefit payments shall be increased as provided in Section 2.1.3.
2.3 Disability Benefit. If the Executive terminates employment for Disability prior to the Normal Retirement Age, the Company shall pay to the Executive the benefit described in this Section 2.3.
2.3.1 Amount of Benefit. The lump sum benefit under this
Section 2.3 is 100% of the Vested Accrued Liability amount set forth in
Schedule A for the Plan Year immediately preceding the Plan Year in
which the Executive's Termination of Employment occurred. Schedule A
shall be adjusted to reflect any benefit level increases determined by
the Board of Directors under Section 2.1.1 prior to the Executive's
Termination of Employment.
2.3.2 Payment of Benefit. The Company shall pay the annual benefit to the Executive in 12 equal monthly installments payable on the first day of each month commencing on the month following the Executive's Termination of Employment and continuing for 239 additional months. The annual benefit amount is calculated using the interest method of accounting, a 7.5% discount rate, annual compounding and annual payments.
2.3.3 Benefit Increases. Benefit payments shall be increased as provided in Section 2.1.3.
2.4 Change of Control Benefit. Upon a Termination of Employment within 12 months of a Change of Control, the Company shall pay to the Executive the benefit described in this Section 2.4 in lieu of any other benefit under this Agreement.
2.4.1 Amount of Benefit. The annual benefit under this
Section 2.3 is the Normal Retirement Benefit that would have been paid
under Section 2.1 calculated as if the date of Termination of
Employment were the Normal Retirement Date.
2.4.2 Payment of Benefit. The Company shall pay the annual benefit to the Executive in 12 equal monthly installments payable on the first day of each month commencing on the month following the Termination of Employment and continuing to be paid on the first day of the month for the next 239 months.
2.4.3 Benefit increases. Benefit payments shall be increased as provided in Section 2.1.3.
Article 3
Death Benefits
3.1 Death During Active Service. If the Executive dies while in the active service of the Company. the Company shall pay to the Executive's beneficiary the benefit described in this Section 3.1. If payable, the death benefit under this Section 3.1 shall be in lieu of any benefits under Article 2.
3.1.1 Amount of Benefit. The annual benefit under Section 3.1 is the lifetime benefit amount that would have been paid to the Executive under Section 2.1 calculated as if the date of the Executive's death were the Normal Retirement Date.
3.1.2 Payment of Benefit. The Company shall pay the annual benefit to the Beneficiary in 12 equal monthly installments payable on the first day of each month commencing on the month following the Executive's death and continuing for 239 additional months.
3.2 Death During Benefit Period. If the Executive dies after benefit payments have commenced under this Agreement but before receiving all such payments, the Company shall pay the remaining benefits to the Beneficiary at the same time and in the same amounts they would have been paid to the Executive had the Executive survived.
Article 4
Beneficiaries
4.1 Beneficiary Designations. The Executive shall designate a beneficiary by filing a written designation with the Company. The Executive may revoke or modify the designation at any time by filing a new designation. However, designations will only be effective if signed by the Executive and accepted by the Company during the Executive's lifetime. The Executive's beneficiary designation shall be deemed automatically revoked if the Beneficiary predeceases the Executive, or if the Executive names a spouse as beneficiary and the marriage is subsequently dissolved. If the Executive dies without a valid beneficiary designation, all payments shall be made to the Executive's Surviving Spouse, if any, and if none, to the Executive's surviving children and the descendants of any deceased child by right of representation, and if no children or descendants survive, to the Executive's estate.
4.2 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 Company 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 Company may require proof of incompetence, minority or guardianship as it may deem appropriate prior to distribution of the benefit. Such distribution shall completely discharge the Company from all liability with respect to such benefit.
Article 5
General Limitations
Notwithstanding any other provision of this Agreement to the contrary, the Company's obligation to pay any benefit under this Agreement shall be limited by the following:
5.1 Excess Parachute Payment. Benefits shall not be payable under this Agreement to the extent the benefit would be an excess parachute payment under Section 280G of the Code.
5.2 Termination for Cause. No benefits shall be payable under this Agreement, upon the Executive's Termination for Cause.
5.3 Suicide. No benefits shall be payable under this Agreement, if the Executive commits suicide within two years after the date of this Agreement.
5.4 Misstatement. No benefits shall be payable under this Agreement, if the Executive has made any material misstatement of fact on any application for life insurance purchased by the Company which results in the Company being denied its death benefit.
Article 6
Claims and Review Procedures
6.1 Claims Procedure. The Company shall notify the Executive or the Beneficiary in writing, within ninety (90) days of his or her written application for benefits, of his or her eligibility or ineligibility for benefits under the Agreement. If the Company determines that the Executive or the Beneficiary is not eligible for benefits or full benefits, the notice shall set forth (1) the specific reasons for such denial, (2) a specific reference to the provisions of the Agreement on which the denial is based, (3) 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 (4) an explanation of the Agreement's claims review procedure and other appropriate information as to the steps to be taken if the Executive or the Beneficiary wishes to have the claim reviewed. If the Company determines that there are special circumstances requiring additional time to make a decision, the Company shall notify the Executive or 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-day period.
6.2 Review Procedure. If the Executive or the Beneficiary is determined by the Company not to be eligible for benefits, or if the Executive or the Beneficiary believes that he or she is entitled to greater or different benefits, the Executive or the Beneficiary shall have the opportunity to have such claim reviewed by the Company by filing a petition for review with the Company within sixty (60) days after receipt of the notice issued by the Company. Said petition shall state the specific reasons which the Executive or the Beneficiary believes entitle him or her to benefits or to greater or different benefits. Within sixty (60) days after receipt by the Company of the petition, the Company shall afford the Executive or the Beneficiary (and counsel, if any) an opportunity to present his or her position to the Company orally or in writing, and the Executive or the Beneficiary (or counsel) shall have the right to review the pertinent documents. The Company shall notify the Executive or the Beneficiary of its decision in writing within the sixty-day period, stating specifically the basis of its decision. written in a manner calculated to be understood by the Executive or 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-day period is not sufficient, the decision may be deferred for up to another sixty-day period at the election of the Company, but notice of this deferral shall be given to the Executive or the Beneficiary.
Article 7
Amendments and Termination
7.1 Generally. This Agreement may be amended or terminated only by a written agreement signed by the Company and the Executive.
7.2 Exception. Notwithstanding Section 7.1, the Company may amend or terminate this Agreement at any time provided that, pursuant to legislative, judicial or regulatory action, continuation of this Agreement would:
7.2.1 Cause benefits to be taxable to the Executive prior to actual receipt; or
7.2.2 Result in significant financial penalties or other material detrimental financial impact on the Company (other than the financial impact of paying the benefits)
Article 8
Miscellaneous
8.1 Binding Effect. This Agreement shall bind the Executive and the Company, and their beneficiaries, survivors, executors, administrators and transferees.
8.2 No Guaranty of Employment. This Agreement is not an employment policy or contract. It does not give the Executive the right to remain an employee of the Company, not does it interfere with the Company's right to discharge the Executive. It also does not, require the Executive to remain an employee nor interfere with the Executive's right to terminate employment 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 Reorganization. The Company shall not merge or consolidate into or with another corporation, or reorganize, or sell substantially all of its assets to another corporation, entity or person, unless and until such succeeding or continuing corporation, entity or person agrees to assume and discharge the obligations of the Company under this Agreement. Upon the occurrence of such event, the term "Company", as used in this Agreement, shall be deemed to refer to such successor or survivor corporation, entity or person.
8.5 Tax Withholding. The Company shall withhold any taxes that are required to be withheld from the benefits provided under this Agreement.
8.6 Applicable Law. The Agreement and all rights hereunder shall be governed by the laws of the State of California, except to the extent preempted by the laws of the United States of America.
8.7 Unfunded Arrangement. The Executive and beneficiary are general unsecured creditors of the Company for the payment of benefits under this Agreement. The benefits represent the mere promise by the Company to pay such benefits. The rights to benefits are not subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment, or garnishment by creditors. Any insurance on the Executive's life is a general asset of the Company to which the Executive and beneficiary have no preferred or secured claim.
8.8 Entire Agreement. This Agreement constitutes the entire agreement between the Company and the Executive as to the subject matter hereof. No rights are granted to the Executive by virtue of this Agreement other than those specifically set forth herein.
8.9 Administration. The Company shall have powers which are necessary to administer this Agreement, including but not limited to:
8.9.1 Interpreting the provisions of the Agreement;
8.9.2 Establishing and revising the method of accounting
for the Agreement;
8.9.3 Maintaining a record of benefit payments; and
13
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8.9.4 Establishing rules and prescribing any forms
|
necessary or desirable to administer the Agreement.
IN WITNESS WHEREOF, the Executive and a duly authorized Company officer have signed this Agreement.
EXECUTIVE: COMPANY:
FIRST NATIONAL BANK OF
NORTHERN CALIFORNIA
/s/ MICHAEL R. WYMAN By: /s/ THOMAS MCGRAW
----------------------------------- -----------------------------------
Michael R. Wyman Thomas McGraw
Title: Secretary of the Board of Directors
-----------------------------------
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Mike Wyman Salary Continuation Plan
Vested
Plan Year Accrued Liability
--------- -----------------
1 $ 67,764
2 $141,518
3 $221,792
4 $309,161
5 $404,252
6 $507,748
|
Beneficiary Designation
I designate the following as beneficiary of the benefits under the Salary Continuation Agreement following my death:
Primary: XXXXXXXXXXXXXXXXXXXXXXX
Contingent: XXXXXXXXXXXXXXXXXXXX
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 the Company. 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.
Signature: /s/ MICHAEL R. WYMAN
------------------------------
Michael R. Wyman
Date: 2/4/97
-----------------------------------
1/23/97
|
EXHIBIT 10.12
This document is provided to assist your legal counsel in documenting your specific arrangement. It is not a form to be signed, nor is it to be construed as legal advice. Failure to accurately document your arrangement could result in significant losses, whether from claims of those participating in the arrangement, from the heirs and beneficiaries of participants, or from regulatory agencies such as the Internal Revenue Service and the Department of Labor. License is hereby granted to your legal counsel to use these materials in documenting solely your arrangement.
FIRST NATIONAL BANK OF NORTHERN CALIFORNIA
SALARY CONTINUATION AGREEMENT
THIS AGREEMENT is made this 20th day of December, 1996 by and between the FIRST NATIONAL BANK OF NORTHERN CALIFORNIA, a national banking association located in South San Francisco, California (hereinafter referred to as the "Company'), and PAUL HOGAN (hereinafter referred to as the "Executive").
WITNESSETH:
WHEREAS, the Executive is in the employ of the Company, serving as its President & Chief Operating Officer, and
WHEREAS, the experience, knowledge of the affairs of the Company, and reputation and contacts in the industry of the Executive are so valuable that assurance of the Executive's continued service is essential for the future growth and profits of the Company, and it is in the best interest of the Company to arrange terms of continued employment for the Executive so as to reasonably assure the Executive's remaining in the Company's employment during the Executive's lifetime or until the age of retirement; and
WHEREAS, it is the desire of the Company that the Executive's services be retained as herein provided: and
WHEREAS, the Executive is willing to continue in the employ of the Company provided the Company agrees to pay to the Executive or the Executive's beneficiaries certain benefits in accordance with the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the services to be performed in the future, as well as the mutual promises and covenants herein contained, it is agreed as follows:
Article 1 Definitions
1.1 Definitions. Whenever used in this Agreement, the following words and phrases shall have the meanings specified:
1.1.1 "Beneficiary" means the person or persons whom the Executive shall designate in a valid Beneficiary Designation to receive the benefits provided hereunder.
A Beneficiary Designation shall be valid only if: (1) it is in the form attached hereto and made a part hereof; and (2) it is received by the named Fiduciary and Plan Administrator prior to the Executive's death.
1.1.2 "Change of Control" means: (a) any merger or consolidation of the Company in which the Company is not the surviving corporation; or (b) any sale, lease. exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions) of any assets of the Company having an aggregate fair market value of 50% or more of the total value of the assets of the Company and its consolidated
subsidiaries reflected in the most recent balance sheet of the Company; or
(c) any person (as such term is used in Sections 13(d) and 14(d)(2) of the
Securities Exchange Act of 1934) becomes a beneficial owner, directly or
indirectly, of securities of the Company representing 25% or more of the
combined voting power of the Company's then outstanding securities.
1.1.3 "Code" means the Internal Revenue Code of 1986, as amended.
1.1.4 "Disability" means that the Executive is permanently disabled, due to an illness or injury, so that the Executive is unable to perform to a material degree his or her, current or later designated, duties as an Executive Officer of the Company. Such disability shall be determined by an independent physician in the event of physical disability or by an independent psychiatrist in the event of mental disability selected with the approval of the Company and the Executive; if they cannot agree on the selection, each shall submit a list of three physicians or psychiatrist as applicable, each shall strike two from the other's list, and the final choice shall be selected by lot (coin flip).
1.1.5 "Involuntary Termination " means the Executive, during active service and prior to attaining Normal Retirement Age, has been notified by the Company, in writing, that he or she is being terminated as an employee of the Company for reasons other than an approved leave of absence, Termination for Cause, Voluntary Termination or Disability.
1.1.6 "Named Fiduciary and Plan Administrator" means the Company.
1.1.7 "Normal Retirement Age" means the Executive's 66th birthday.
1.1.8 "Normal Retirement Date" means the later of the Executive's Normal Retirement Age or the date of Termination of Employment.
1.1.9 "Plan Year" means the Company's fiscal year.
1.1.10 "Surviving Spouse" means the person (if any) who is legally married to the Executive on the date of the Executive's death.
1.1.11 "Termination for Cause" means the Company's termination of
the Executive's employment for reasons related to any of the following:
(a) the Executive's willful breach of duty in the course of employment,
unless waived by the Company: (b) dishonest or illegal conduct of the
Executive; or (c) the habitual neglect by the Executive of the Executive's
employment duties, unless waived by the Company.
1.1.12 "Termination of Employment" means the Executive's ceasing to be employed by the Company for any reason whatsoever except for reason of an approved leave of absence.
1.1.13 "Voluntary Termination" means the Executive, during active
service and prior to attaining Normal Retirement Age, notifies the
Company, in writing, that he or she is terminating his or her employment
for any reason except: (a) an approved leave of absence: (b) Disability;
(c) Termination for Cause; or (d) Involuntary Termination. If the Company
does not receive written notice from the Executive, the Company in its
sole and absolute discretion may make the determination of whether the
termination was voluntary or involuntary.
1.1.14 "Years of Service" means the total number of Plan Years during which the Executive is employed on a full-time basis by the Company, inclusive of any approved leaves of absence. Employed on a full-time basis means that the Executive is considered by the Company to be employed to work at minimum 40 hours a week which is determined on the first and last days of the Plan Year.
Article 2 Lifetime Benefits
2.1 Normal Retirement Benefit. Upon a Termination of Employment on or after the Normal Retirement Age for reasons other than death, the Company shall pay to the Executive the benefit described in this Section 2.1.
2.1.1 Amount of Benefit. The annual benefit under this Section 2.1 is $100,000. The Company in its sole and absolute discretion may increase the benefit under this Section 2.I, however, the annual increase shall not exceed the federally determined cost of living index (U.S. Department of Labor Consumer Price Index) which is announced in the calendar year immediately preceding the year in which the change is to be made. Any increase in the annual benefit shall require the recalculation of the Vested Accrued Liability in Schedule A attached hereto. The annual benefit amount is calculated using the interest method of accounting, a 7.5% discount rate, annual compounding and annual payments .
2.1.2 Payment of Benefit. The Company shall pay the annual benefit to the Executive in 12 equal monthly installments payable on the first day of each month commencing on the month following the Normal Retirement Date and continuing to be paid on the first day of the month for the next 239 months.
21.3 Benefit Increases. Commencing on the first anniversary of the first benefit payment, and continuing on each subsequent anniversary, the Company's Board of Directors. in its sole and absolute discretion, may increase the benefit.
2.2 Early Termination Benefit. Upon a Termination of Employment before the Normal Retirement Age, and for reasons other than Voluntary Termination, Termination for Cause, death, Disability or Change of Control, the Company shall pay to the Executive the benefit described in this Section 2.2. Voluntary Termination and Termination for Cause shall result in the Executive receiving no benefits under this Agreement (see Sections 5.2 and 5.3).
2.2.1 Amount of Benefit. If the Executive has completed at least one year of Service, the benefit under this Section 2.2 is the Vested Accrued Liability amount set forth in Schedule A determined in the plan year immediately preceding the Plan Year in which the Termination of Employment occurred. Schedule A shall be adjusted to reflect any benefit level increases determined by the Board of Directors under Section 2.1.1 prior to the Executive's Termination of Employment.
2.2.2 Payment of Benefit. The Company shall pay a monthly benefit to the Executive in 240 equal monthly installments payable on the first day of each month commencing on the month following the Normal Retirement Date. The benefit amount is calculated using the interest method of accounting, a 7.5% discount rate, monthly compounding and monthly payments.
2.2.3 Benefit Increases. Benefit payments shall be increased as provided in Section 2.1.3.
2.3 Disability Benefit. If the Executive terminates employment for Disability prior to the Normal Retirement Age, the Company shall pay to the Executive the benefit described in this Section 2.3.
2.3.1 Amount of Benefit. The lump sum benefit under this Section 2.3 is 100% of the Vested Accrued Liability amount set forth in Schedule A for the Plan Year immediately preceding the Plan Year in which the Executive's Termination of Employment occurred. Schedule A shall be adjusted to reflect any benefit level increases determined by the Board of Directors under Section 2.1.1 prior to the Executive's Termination of Employment.
2.3.2 Payment of Benefit. The Company shall pay the annual benefit to the Executive in 12 equal monthly installments payable on the first day of each month commencing on the month following the Executive's Termination of Employment and continuing for 239 additional months. The annual benefit amount is calculated using the interest method of accounting, a 7.5% discount rate, annual compounding and annual payments.
2.3.3 Benefit Increases. Benefit payments shall be increased as provided in Section 2.1.3.
2.4 Change of Control Benefit. Upon a Termination of Employment within 12 months of a Change of Control, the Company shall pay to the Executive the benefit described in this Section 2.4 in lieu of any other benefit under this Agreement.
2.4.1 Amount of Benefit. The annual benefit under this Section 2.3 is the Normal Retirement Benefit that would have been paid under Section 2.1 calculated as if the date of Termination of Employment were the Normal Retirement Date.
2.4.2 Payment of Benefit. The Company shall pay the annual benefit to the Executive in 12 equal monthly installments payable on the first day of each month commencing on the month following the Termination of Employment and continuing to
be paid on the first day of the month for the next 239 months.
2.4.3 Benefit increases. Benefit payments shall be increased as provided in Section 2.1.3.
Article 3 Death Benefits
3.1 Death During Active Service. If the Executive dies while in the active
service of the Company. the Company shall pay to the Executive's beneficiary the
benefit described in this Section 3.1. If payable, the death benefit under this
Section 3.1 shall be in lieu of any benefits under Article 2.
3.1.1 Amount of Benefit. The annual benefit under Section 3.1 is the
lifetime benefit amount that would have been paid to the Executive under
Section 2.1 calculated as if the date of the Executive's death were the
Normal Retirement Date.
3.1.2 Payment of Benefit. The Company shall pay the annual benefit to the Beneficiary in 12 equal monthly installments payable on the first day of each month commencing on the month following the Executive's death and continuing for 239 additional months.
3.2 Death During Benefit Period. If the Executive dies after benefit payments have commenced under this Agreement but before receiving all such payments, the Company shall pay the remaining benefits to the Beneficiary at the same time and in the same amounts they would have been paid to the Executive had the Executive survived.
Article 4 Beneficiaries
4.1 Beneficiary Designations. The Executive shall designate a beneficiary by filing a written designation with the Company. The Executive may revoke or modify the designation at any time by filing a new designation. However, designations will only be effective if signed by the Executive and accepted by the Company during the Executive's lifetime. The Executive's beneficiary designation shall be deemed automatically revoked if the Beneficiary predeceases the Executive, or if the Executive names a spouse as beneficiary and the marriage is subsequently dissolved. If the Executive dies without a valid beneficiary designation, all payments shall be made to the Executive's Surviving Spouse, if any, and if none, to the Executive's surviving children and the descendants of any deceased child by right of representation, and if no children or descendants survive, to the Executive's estate.
4.2 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 Company 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 Company may require proof of incompetence, minority or guardianship as it may deem appropriate prior to distribution of the benefit. Such distribution shall completely discharge the Company from all liability with respect to such benefit.
Article 5 General Limitations
Notwithstanding any other provision of this Agreement to the contrary, the Company's obligation to pay any benefit under this Agreement shall be limited by the following:
5.1 Excess Parachute Payment. Benefits shall not be payable under this
Agreement to the extent the benefit would be an excess parachute payment under
Section 280G of the Code.
5.2 Termination for Cause. No benefits shall be payable under this Agreement, upon the Executive's Termination for Cause.
5.3 Suicide. No benefits shall be payable under this Agreement, if the Executive commits suicide within two years after the date of this Agreement.
5.4 Misstatement. No benefits shall be payable under this Agreement, if the Executive has made any material misstatement of fact on any application for life insurance purchased by the Company which results in the Company being denied its death benefit.
Article 6 Claims and Review Procedures
6.1 Claims Procedure. The Company shall notify the Executive or the Beneficiary in writing, within ninety (90) days of his or her written application for benefits, of his or her eligibility or ineligibility for benefits under the Agreement. If the Company determines that the Executive or the Beneficiary is not eligible for benefits or full benefits, the notice shall set forth (1) the specific reasons for such denial, (2) a specific reference to the provisions of the Agreement on which the denial is based, (3) 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 (4) an explanation of the Agreement's claims review procedure and other appropriate information as to the steps to be taken if the Executive or the Beneficiary wishes to have the claim reviewed. If the Company determines that there are special circumstances requiring additional time to make a decision, the Company shall notify the Executive or 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-day period.
6.2 Review Procedure. If the Executive or the Beneficiary is determined by the Company not to be eligible for benefits, or if the Executive or the Beneficiary believes that he or she is entitled to greater or different benefits, the Executive or the Beneficiary shall have the opportunity to have such claim reviewed by the Company by filing a petition for review with the Company within sixty (60) days after receipt of the notice issued by the Company. Said petition shall state the specific reasons which the Executive or the Beneficiary believes entitle him or her to benefits or to greater or different benefits. Within sixty (60) days after receipt by the Company of the petition, the Company shall afford the Executive or the Beneficiary (and counsel, if any) an opportunity to present his or her position to the Company orally or in writing, and the Executive or the Beneficiary (or counsel) shall have the right to review the pertinent documents. The Company shall notify the Executive or the Beneficiary of its decision in writing within the sixty-day period, stating specifically the basis of its decision. written in a manner calculated to be understood by the Executive or 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-day period is not sufficient, the decision may be deferred for up to another sixty-day period at the election of the Company, but notice of this deferral shall be given to the Executive or the Beneficiary.
Article 7 Amendments and Termination
7.1 Generally. This Agreement may be amended or terminated only by a written agreement signed by the Company and the Executive.
7.2 Exception. Notwithstanding Section 7.1, the Company may amend or terminate this Agreement at any time provided that, pursuant to legislative, judicial or regulatory action,
continuation of this Agreement would:
7.2.1 Cause benefits to be taxable to the Executive prior to actual receipt; or
7.2.2 Result in significant financial penalties or other material detrimental financial impact on the Company (other than the financial impact of paying the benefits)
Article 8 Miscellaneous
8.1 Binding Effect. This Agreement shall bind the Executive and the Company, and their beneficiaries, survivors, executors, administrators and transferees.
8.2 No Guaranty of Employment. This Agreement is not an employment policy or contract. It does not give the Executive the right to remain an employee of the Company, not does it interfere with the Company's right to discharge the Executive. It also does not, require the Executive to remain an employee nor interfere with the Executive's right to terminate employment 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 Reorganization. The Company shall not merge or consolidate into or with another corporation, or reorganize, or sell substantially all of its assets to another corporation, entity or person, unless and until such succeeding or continuing corporation, entity or person agrees to assume and discharge the obligations of the Company under this Agreement. Upon the occurrence of such event, the term "Company", as used in this Agreement, shall be deemed to refer to such successor or survivor corporation, entity or person.
8.5 Tax Withholding. The Company shall withhold any taxes that are required to be withheld from the benefits provided under this Agreement.
8.6 Applicable Law. The Agreement and all rights hereunder shall be governed by the laws of the State of California, except to the extent preempted by the laws of the United States of America.
8.7 Unfunded Arrangement. The Executive and beneficiary are general unsecured creditors of the Company for the payment of benefits under this Agreement. The benefits represent the mere promise by the Company to pay such benefits. The rights to benefits are not subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment, or garnishment by creditors. Any insurance on the Executive's life is a general asset of the Company to which the Executive and beneficiary have no preferred or secured claim.
8.8 Entire Agreement. This Agreement constitutes the entire agreement between the Company and the Executive as to the subject matter hereof. No rights are granted to the Executive by virtue of this Agreement other than those specifically set forth herein.
8.9 Administration. The Company shall have powers which are necessary to administer this Agreement, including but not limited to:
8.9.1 Interpreting the provisions of the Agreement;
8.9.2 Establishing and revising the method of accounting for the Agreement;
8.9.3 Maintaining a record of benefit payments; and
8.9.4 Establishing rules and prescribing any forms necessary or desirable to administer the Agreement.
IN WITNESS WHEREOF, the Executive and a duly authorized Company officer have signed this Agreement.
EXECUTIVE: COMPANY:
FIRST NATIONAL BANK OF
NORTHERN CALIFORNIA
/s/ Paul B. Hogan By /s/ Thomas McGraw
---------------------------- ---------------------------------------
Paul Hogan Title Secretary of the Board of Directors
-----------------------------------
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SCHEDULE A
Paul Hogan
Salary Continuation Plan
Plan Year Accrued Liability
--------- -----------------
1 $37,337
2 $77,973
3 $122,202
4 $170,340
5 $222,733
6 $279,757
7 $341,822
8 $409,372
9 $482,894
10 $562,914
11 $650,007
12 $744,798
13 $847,968
14 $960,257
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Beneficiary Designation
I designate the following as beneficiary of the benefits under the Salary Continuation Agreement following my death:
Primary: XXXXXXXXXXXXXXXXXXXXXXXXXXXXX
Contingent: XXXXXXXXXXXXXXXXXXXXXXXXXX
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 the Company. 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.
Signature: /s/ Paul B. Hogan
-------------------------------
Date: 2/4/97
------------------------------------
1/23/97
|
EXHIBIT 10.13
This document is provided to assist your legal counsel in documenting your specific arrangement. It is not a form to be signed, nor is it to be construed as legal advice. Failure to accurately document your arrangement could result in significant losses, whether from claims of those participating in the arrangement, from the heirs and beneficiaries of participants, or from regulatory agencies such as the Internal Revenue Service and the Department of Labor. License is hereby granted to your legal counsel to use these materials in documenting solely your arrangement.
FIRST NATIONAL BANK OF NORTHERN CALIFORNIA
SALARY CONTINUATION AGREEMENT
THIS AGREEMENT is made this 23rd day of December, 1999 by and between the FIRST NATIONAL BANK OF NORTHERN CALIFORNIA, a national banking association located in South San Francisco, California (hereinafter referred to as the "Company'), and JAMES B. RAMSEY (hereinafter referred to as the "Executive"). This Agreement shall be effective as of December 30, 1998. 1999
WITNESSETH:
WHEREAS, the Executive is in the employ of the Company, serving as its Senior Vice President & Chief Financial Officer; and
WHEREAS, the experience, knowledge of the affairs of the Company, and reputation and contacts in the industry of the Executive are so valuable that assurance of the Executive's continued service is essential for the future growth and profits of the Company, and it is in the best interest of the Company to arrange terms of continued employment for the Executive so as to reasonably assure the Executive's remaining in the Company's employment during the Executive's lifetime or until the age of retirement; and
WHEREAS, it is the desire of the Company that the Executive's services be retained as herein provided: and
WHEREAS, the Executive is willing to continue in the employ of the Company provided the Company agrees to pay to the Executive or the Executive's beneficiaries certain benefits in accordance with the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the services to be performed in the future, as well as the mutual promises and covenants herein contained, it is agreed as follows:
Article 1 Definitions
1.1 Definitions. Whenever used in this Agreement, the following words and phrases shall have the meanings specified:
1.1.1 "Beneficiary" means the person or persons whom the Executive shall designate in a valid Beneficiary Designation to receive the benefits provided hereunder.
A Beneficiary Designation shall be valid only if: (1) it is in the form attached hereto and made a part hereof; and (2) it is received by the named Fiduciary and Plan Administrator prior to the Executive's death.
1.1.2 "Change of Control" means: (a) any merger or consolidation of the Company in which the Company is not the surviving corporation; or (b) any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions) of any assets of the Company having an aggregate fair market value of 50 percent or more of the total value of the assets of the Company and its consolidated subsidiaries reflected in the most recent balance sheet of the Company; or (c) any person (as such term is used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934) becomes a beneficial owner, directly or indirectly, of securities of the Company representing 25 percent or more of the combined voting power of the Company's then outstanding securities.
1.1.3 "Code" means the Internal Revenue Code of 1986, as amended.
1.1.4 "Disability" means that the Executive is permanently disabled, due to an illness or injury, so that the Executive is unable to perform to a material degree his or her, current or later designated, duties as an Executive Officer of the Company. Such disability shall be determined by an independent physician in the event of physical disability or by an independent psychiatrist in the event of mental disability selected with the approval of the Company and the Executive; if they cannot agree on the selection, each shall submit a list of three physicians or psychiatrist as applicable, each shall strike two from the other's list, and the final choice shall be selected by lot (coin flip).
1.1.5 "Involuntary Termination " means the Executive, during active service and prior to attaining Normal Retirement Age, has been notified by the Company, in writing, that he or she is being terminated as an employee of the Company for reasons other than an approved leave of absence, Termination for Cause, Voluntary Termination or Disability.
1.1.6 "Named Fiduciary and Plan Administrator" means the Company.
1.1.7 "Normal Retirement Age" means the Executive's 66th birthday.
1.1.8 "Normal Retirement Date" means the later of the Executive's Normal Retirement Age or the date of Termination of Employment.
1.1.9 "Plan Year" means the Company's fiscal year.
1.1.10 "Surviving Spouse" means the person (if any) who is legally married to the Executive on the date of the Executive's death.
1.1.11 "Termination for Cause" means the Company's termination of
the Executive's employment for reasons related to any of the following:
(a) the Executive's willful breach of duty in the course of employment,
unless waived by the Company: (b)dishonest or illegal conduct of the
Executive; or (c) the habitual neglect by the Executive of the Executive's
employment duties, unless waived by the Company.
1.1.12 "Termination of Employment" means the Executive's ceasing to be employed by the Company for any reason whatsoever except for reason of an approved leave of absence.
1.1.13 "Voluntary Termination" means the Executive, during active
service and prior to attaining Normal Retirement Age, notifies the
Company, in writing, that he or she is terminating his or her employment
for any reason except: (a) an approved leave of absence: (b) Disability;
(c) Termination for Cause; or (d) Involuntary Termination. If the Company
does not receive written notice from the Executive, the Company in its
sole and absolute discretion may make the determination of whether the
termination was voluntary or involuntary.
1.1.14 "Years of Service" means the total number of Plan Years during which the Executive is employed on a full-time basis by the Company, inclusive of any approved leaves of absence. Employed on a full-time basis means that the Executive is considered by the Company to be employed to work at minimum 40 hours a week which is determined on the first and last days of the Plan Year.
Article 2 Lifetime Benefits
2.1 Normal Retirement Benefit. Upon a Termination of Employment on or after the Normal Retirement Age for reasons other than death, the Company shall pay to the Executive the benefit described in this Section 2.1. in lieu of any other benefit under this Agreement.
2.1.1 Amount of Benefit. The annual benefit under this Section 2.1 is $50,000. The Company in its sole and absolute discretion may increase the benefit under this Section 2.1, however, the annual increase shall not exceed the federally determined cost of living index (U.S. Department of Labor Consumer Price Index) which is announced in the calendar year immediately preceding the year in which the change is to be made. Any increase in the annual benefit shall require the recalculation of Schedule A attached hereto.
2.1.2 Payment of Benefit. The Company shall pay the annual benefit to the Executive in 12 equal monthly installments payable on the first day of each month commencing with the month following the Normal Retirement Date. The annual benefit shall be paid to the Executive for 20 years.
21.3 Benefit Increases. Commencing on the first anniversary of the first benefit payment, and continuing on each subsequent anniversary, the Company's Board of Directors. in its sole and absolute discretion, may increase the benefit.
2.2 Early Termination Benefit. Upon Termination of Employment before
Normal Retirement Age, and for reasons other than Voluntary Termination,
Termination for Cause, death, Disability or Change of Control, and after
completing at least one Year of Service, the Company shall pay to the Executive
the benefit described in this Section 2.2. in lieu of any other benefit under
this agreement. If the executive has completed less than one Year of Service
pursuant to The above terms, the Executive will receive no benefit under this
Section 2.2. Voluntary Termination and Termination for Cause shall result in the
Executive receiving no benefits under this Agreement (see Sections 5.2 and 5.3).
2.2.1 Amount of Benefit. The benefit under this Section 2.2 is the Early Termination Annual Benefit set forth in Schedule A for the Plan Year ending immediately prior to the date in which Termination of Employment occurs. This benefit is determined by vesting the Executive in 100 percent of the Accrual Balance. Schedule A shall be adjusted to reflect any benefit level increases determined by the Board of Directors under Section 2.1.1 prior to the Executive's Termination of Employment. The Early Termination Annual Benefit is determined by calculating a fixed annuity which is payable in 20 annual equal installments, crediting interest on the unpaid balance of the Accrual Balance at an annual rate of 8.5 percent and monthly compounding.
2.2.2 Payment of Benefit. The Company shall pay the annual benefit to the Executive in 12 equal monthly installments payable on the first day of each month commencing with the month following Normal Retirement Age. The annual benefit shall be paid to the Executive for 20 years.
2.2.3 Benefit Increases. Benefit payments shall be increased as provided in Section 2.1.3.
2.3 Disability Benefit. If the Executive terminates employment due to Disability prior to the Normal Retirement Age, the Company shall pay to the Executive the benefit described in this Section 2.3. in lieu of any other benefit under this Agreement.
2.3.1 Amount of Benefit. The benefit under this Section 2.3 is the Disability Annual Benefit set forth in Schedule A for the Plan Year ending immediately prior to the date in which Termination of Employment occurs. This benefit is determined by vesting the
Executive in 100 percent of the Accrual Balance. Schedule A shall be adjusted to reflect any benefit level increases determined by the Board of Directors under Section 2.1.1 prior to the Executive's Termination of Employment. The Disability Annual Benefit is determined by calculating a fixed annuity which is payable in 20 annual equal installments, crediting interest on the unpaid balance of the Accrual Balance at an annual rate of 8.5 percent and monthly compounding.
2.3.2 Payment of Benefit. The Company shall pay the annual benefit to the Executive in 12 equal monthly installments payable on the first day of each month commencing with the month following the Termination of Employment.
2.3.3 Benefit Increases. Benefit payments shall be increased as provided in Section 2.1.3.
2.4 Change of Control Benefit. Upon a Termination of Employment within 12 months of a Change of Control, the Company shall pay to the Executive the benefit described in this Section 2.4 in lieu of any other benefit under this Agreement.
2.4.1 Amount of Benefit. The annual benefit under this Section 2.3 is the change of Control Annual Benefit set forth in Section A for the Plan Year ending immediately prior to the date in which Termination of Employment occurs. This benefit is equal to the Normal Retirement Benefit that would have been paid under Section 2.1.
2.4.2 Payment of Benefit. The Company shall pay the annual benefit to the Executive in 12 equal monthly installments payable on the first day of each month commencing with the month following the Termination of Employment. The annual benefit shall be paid to the Executive for 20 years.
2.4.3 Benefit increases. Benefit payments shall be increased as provided in Section 2.1.3.
Article 3 Death Benefits
3.1 Death During Active Service. If the Executive dies while in the active service of the Company, the Company shall pay to the Executive's beneficiary the benefit described in this Section 3.1. This death benefit shall be in lieu of any Lifetime Benefits in Article 2. under Article 2.
3.1.1 Amount of Benefit. The annual benefit under Section 3.1 is the Normal Retirement Benefit that would have been paid under Section 2.1 calculated as if the date of the Executive's death were the Normal Retirement Date.
3.1.2 Payment of Benefit. The Company shall pay the annual benefit to the Beneficiary in 12 equal monthly installments payable on the first day of each month
commencing on the month following the Executive's death. The annual benefit shall be paid to the Executive's beneficiary for 20 years.
3.2 Death During Benefit Period. If the Executive dies after benefit payments have commenced under this Agreement but before receiving all such payments, the Company shall pay the remaining benefits to the Beneficiary at the same time and in the same amounts they would have been paid to the Executive had the Executive survived.
Article 4 Beneficiaries
4.1 Beneficiary Designations. The Executive shall designate a beneficiary by filing a written designation with the Company. The Executive may revoke or modify the designation at any time by filing a new designation. However, designations will only be effective if signed by the Executive and accepted by the Company during the Executive's lifetime. The Executive's beneficiary designation shall be deemed automatically revoked if the Beneficiary predeceases the Executive, or if the Executive names a spouse as beneficiary and the marriage is subsequently dissolved. If the Executive dies without a valid beneficiary designation, all payments shall be made to the Executive's Surviving Spouse, if any, and if none, to the Executive's surviving children and the descendants of any deceased child by right of representation, and if no children or descendants survive, to the Executive's estate.
4.2 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 Company 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 Company may require proof of incompetence, minority or guardianship as it may deem appropriate prior to distribution of the benefit. Such distribution shall completely discharge the Company from all liability with respect to such benefit.
Article 5 General Limitations
Notwithstanding any other provision of this Agreement to the contrary, the Company's obligation to pay any benefit under this Agreement shall be limited by the following:
5.1 Excess Parachute Payment. Benefits shall not be payable under this
Agreement to the extent the benefit would be an excess parachute payment under
Section 280G of the Code.
5.2 Termination for Cause. No benefits shall be payable under this Agreement, upon the Executive's Termination for Cause.
5.3 Suicide. No benefits shall be payable under this Agreement, if the Executive commits suicide within two years after the date of this Agreement.
5.4 Misstatement. No benefits shall be payable under this Agreement if the Executive has made any material misstatement of fact on any application for life insurance purchased by the Company, which results in the Company being denied its death benefit.
Article 6 Claims and Review Procedures
6.1 Claims Procedure. The Company shall notify any person or entity that makes a claim under this Agreement (the "Claimant") in writing, within 90 days of Claimant's written application for benefits, of his or her eligibility or ineligibility for benefits under the Agreement If the Company determines that the Claimant is not eligible for benefits or full benefits, the notice shall set forth (1) the specific reasons for such denial, (2) a specific reference to the provisions of the Agreement on which the denial is based, (3) 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 (4) an explanation of the Agreement's claims review procedure and other appropriate information as to the steps to be taken if the Claimant wishes to have the claim reviewed. If the Company determines that there are special circumstances requiring additional time to make a decision, the Company shall notify the Claimant 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 90 days.
6.2 Review Procedure. If the Claimant is determined by the Company not to be eligible for benefits, or if the Claimant believes that he or she is entitled to greater or different benefits, the Claimant shall have the opportunity to have such claim reviewed by the Company by filing a petition for review with the Company within 60 days after receipt of the notice issued by the Company. Said petition shall state the specific reasons which the Claimant believes entitle him or her to benefits or to greater or different benefits. Within 60 days after receipt by the Company of the petition, the Company shall afford the Claimant (and counsel, if any) an opportunity to present his or her position to the Company verbally or in writing, and the Claimant (or counsel) shall have the right to review the pertinent documents. The Company shall notify the Claimant of its decision in writing within the 60-day period, stating specifically the basis of its decision, written in a manner to be understood by the Claimant and the specific provisions of the Agreement on which the decision is based. If, because of the need for a hearing, the 60-day period is not sufficient, the decision may be deferred for up to another 60 days at the election of the Company, but notice of this deferral shall be given to the Claimant.
Article 7 Amendments and Termination
7.1 Generally. This Agreement may be amended or terminated only by a written agreement signed by the Company and the Executive.
7.2 Exception. Notwithstanding Section 7.1, the Company may amend or terminate this Agreement at any time provided that, pursuant to legislative, judicial or regulatory action,
continuation of this Agreement would (a) cause benefits to be taxable to the Executive prior to actual receipt; or (b) result in significant financial penalties or other material detrimental financial impact on the Company (other than the financial impact of paying the benefits).
Article 8 Miscellaneous
8.1 Binding Effect. This Agreement shall bind the Executive and the Company, and their beneficiaries, survivors, executors, administrators and transferees.
8.2 No Guaranty of Employment. This Agreement is not an employment policy or contract. It does not give the Executive the right to remain an employee of the Company, nor does it interfere with the Company's right to discharge the Executive. It also does not, require the Executive to remain an employee nor interfere with the Executive's right to terminate employment 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 Reorganization. The Company shall not merge or consolidate into or with another corporation, or reorganize, or sell substantially all of its assets to another corporation, entity or person, unless and until such succeeding or continuing corporation, entity or person agrees to assume and discharge the obligations of the Company under this Agreement. Upon the occurrence of such event, the term "Company", as used in this Agreement, shall be deemed to refer to such successor company.
8.5 Tax Withholding. The Company shall withhold any taxes that are required to be withheld from the benefits provided under this Agreement.
8.6 Applicable Law. The Agreement and all rights hereunder shall be governed by the laws of the State of California, except to the extent preempted by the laws of the United States of America.
8.7 Unfunded Arrangement. The Executive and beneficiary are general unsecured creditors of the Company for the payment of benefits under this Agreement. The benefits represent the mere promise by the Company to pay such benefits. The rights to benefits are not subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment, or garnishment by creditors. Any insurance on the Executive's life is a general asset of the Company to which the Executive and beneficiary have no preferred or secured claim.
8.8 Entire Agreement. This Agreement constitutes the entire agreement between the Company and the Executive as to the subject matter hereof. No rights are granted to the Executive by virtue of this Agreement other than those specifically set forth herein.
8.9 Administration. The Company shall have powers which are necessary to administer this Agreement, including but not limited to:
(a) Interpreting the provisions of the Agreement;
(b) Establishing and revising the method of accounting for the Agreement;
(c) Maintaining a record of benefit payments; and
(d) Establishing rules and prescribing any forms necessary or desirable to administer the Agreement.
IN WITNESS WHEREOF, the Executive and a duly authorized Company officer have signed this Agreement.
EXECUTIVE: COMPANY:
FIRST NATIONAL BANK OF
NORTHERN CALIFORNIA
/s/ James B. Ramsey By /s/ Michael R. Wyman
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James B. Ramsey Title Chairman of the Board
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SCHEDULE A
FIRST NATIONAL BANK OF NORTHERN CALIFORNIA
SALARY CONTINUATION AGREEMENT
James B. Ramsey
Early Disablity Change of
Termination Annual Control
Annual Benefit Annual
Plan Accrual Benefit Payable Payable Benefit Payable
Year Balance At Age 66 Immediatley Immediatley
1 $37,123 $7,613 $3,866 $50,000
2 77,527 14,607 8,074 50,000
3 121,502 21,033 12,653 50,000
4 169,395 26,938 17,637 50,000
5 221,458 32,363 23,062 50,000
6 278,155 37,347 28,967 50,000
7 339,864 41,926 35,393 50,000
8 407,028 46,134 42,387 50,000
9 480,128 50,000 50,000 50,000
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BENEFICIARY DESIGNATION
FIRST NATIONAL BANK OF NORTHERN CALIFORNIA
SALARY CONTINUATION AGREEMENT
James B. Ramsey
I designate the following as beneficiary of any death benefits under this Salary Continuation Agreement:
Primary: XXXXXXXXXXXXXXXXXX
Contingent: XXXXXXXXXXXXXXXXXXX
Note: To name a trust as beneficiary, please provide the name of the trustee and the exact name and date of the trust agreement.
I understand that I may change these beneficiary designations by filing a new written designation with the Company. I further understand that the designations will be automatically revoked if the beneficiary predeceases me, or, if I have named my spouse as beneficiary, and our marriage is subsequently dissolved.
Signature: /s/ James B. Ramsey
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Date: December 23, 1999
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Accepted by the Company this 23rd day of December, 1999
By /s/ Michael R. Wyman
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Title Chairman of the Board {Corporate Seal}
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EXHIBIT 10.14
FIRST NATIONAL BANK OF NORTHERN CALIFORNIA
975 EL CAMINO REAL
SOUTH SAN FRANCISCO, CA 94080
July 20, 2000
{Employee Name}
{Employee Title}
First National Bank of Northern California
Re: Management Continuity Agreement
Dear _____________________:
First National Bank of Northern California, a national banking association (the "Bank"), considers the establishment and maintenance of a sound and vital management to be essential to protecting and enhancing the best interests of the Bank. The Bank recognizes that the possibility of a change in control of the Bank may arise in the future and that the uncertainty and questions which such possibility may raise among management may result in the departure or distraction of management personnel to the detriment of the Bank. Accordingly, the non-management members of the Bank's Board of Directors (the "Board") have determined that it is imperative to be able to rely upon management's continuance and that appropriate steps should be taken to reinforce and encourage your continued attention and dedication to your assigned duties without distraction in the face of the potentially disturbing circumstances arising from the possibility of a change in control.
In order to induce you to remain in the employ of the Bank, this letter agreement sets forth the benefits which the Bank agrees will be provided to you in the event that there is a "Change in Control" (as defined in Section 1 hereof) and the "Constructive Termination" or the "Actual Termination" of your employment (as defined in Section 3 hereof).
1. Change In Control. No benefits shall be payable hereunder unless there shall have been a Change in Control, as set forth below. For purposes of this Agreement, a "Change in Control" shall mean 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 Securities and Exchange Commission or any stock exchange on which the Bank's shares are listed which requires the reporting of a change in control; provided that, without limitation, such a Change in Control shall be deemed to have occurred if (i) any "person" (as such term is used in the Exchange Act) is or becomes the beneficial owner, directly or indirectly, of securities of the Company representing 25% or more of the combined voting power
of the Bank's then outstanding securities; or (ii) any "person" (as such term is
used in the Exchange Act), other than the Bank, is or becomes the beneficial
owner, directly or indirectly, of securities of the Bank representing 25% or
more of the combined voting power of the Bank's then outstanding securities; or
(iii) in any one year period, individuals who at the beginning of such period
constitute the Board of Directors of the Bank cease for any reason to constitute
at least a majority thereof, unless the election, or the nomination for election
by the Bank's shareholders, of each new director is approved by a vote of at
least three-quarters of the directors then still in office who were directors at
the beginning of the period; or (iv) a majority of the members of the Board 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.
2. Term. The term of this Agreement shall commence immediately upon the date hereof and, unless terminated earlier pursuant to Section 5(ii) hereof, shall continue for two (2) years. Upon the occurrence of the first annual anniversary date of this Agreement, and on each anniversary date thereafter, the term of this Agreement shall be deemed automatically extended for an additional year, unless written notice of nonrenewal is furnished by you or by the Bank prior to such anniversary date. Written notice of nonrenewal of this Agreement will take effect at the conclusion of the term of this Agreement. Such notice shall be furnished in accordance with Section 6 of this Agreement.
3. Definitions.
(i) Constructive Termination. For the purposes of this Agreement, "Constructive Termination" shall mean your resignation of employment with the Bank within a period of two(2) years after a Change in Control due to a great diminution or adverse change in the circumstances of your employment, such as your duties, responsibilities, compensation or location of employment.
(ii) Cause. For the purposes of this Agreement, "Cause" shall include, without limitation, embezzlement, fraud, dishonesty, deliberate disregard of any State of California or federal banking laws, or of the By-laws, rules, resolutions or policies of the Board, or of the laws, rules or regulations of the Federal Deposit Insurance Corporation, the Board of Governors of the Federal Reserve System or the Office of the Comptroller of the Currency, or in the event that any federal banking authority determines that you are not suitable to act as an officer or employee of the Bank. "Cause" shall also include your conviction for any felony or crime involving moral turpitude, your disclosure without authority of any secret or confidential information concerning the Bank, or any action by you which, in the Board's discretion to determine, constitutes unfair competition with or induces any customer to breach any contract with the Bank. In the event that you are terminated for Cause, you shall have no rights under this Agreement.
(iii) Actual Termination. For the purposes of this Agreement, "Actual Termination" shall mean the termination of your employment by the Bank, other than for cause, within a period of one (1) year after a Change in Control.
(iv) Date of Termination. "Date of Termination" shall mean either: (A) the date of Constructive Termination; or (B) the date of Actual Termination; or (C) if a dispute exists concerning the date of Constructive Termination or the date of Actual Termination, the Date of Termination shall be the date as finally determined, either by mutual written agreement of the parties or a binding and final arbitration award or by a final judgment, order or decree of a court of competent jurisdiction (the time for appeal therefrom having expired and no appeal having been perfected).
4. Benefit.
(i) Amount of Benefit. The Bank shall pay you within ten days following the Date of Termination a severance benefit calculated as follows:
Severance benefit in dollars = Two x Base Annual Salary
For purposes of this Agreement, "Base Annual Salary" shall be the regular compensation paid by the Bank to you which was included in gross income for federal income tax purposes for the twelve (12) months ending immediately prior to the Change in Control.
The severance benefit described above shall be subject to reduction for each month and portion thereof of your continued employment without Constructive or Actual Termination by the Bank or any successor entity following a period of two (2) months after a Change in Control up to the expiration of two (2) years following a period of two (2) months after such Change in Control in the case of Constructive Termination and one (1) year following a period of two (2) months after such Change in Control in the case of Actual Termination.
In the event your employment without Constructive or Actual Termination by the Bank or any successor entity continues for the entire two (2) years in the case of Constructive Termination, or one (1) year in the case of Actual Termination, following a period of two (2) months after such a Change in Control, no severance benefit shall be payable pursuant to this Agreement.
(ii) Timing of Benefit. Instead of a single lump sum payment, the Bank may elect to have the benefit (calculated in accordance with the formula set forth above) paid to you in monthly installments over the period not exceeding two (2) years following the Date of Termination. The first installment in any such deferred payment period shall be made at the end of the month in which the Date of Termination occurs and subsequent installments shall be paid at the end of each month following the first installment until the end of the deferred payment period which the Bank elected. Such election is to be communicated by notice as provided in Section 6 below and shall specify the number of months over which the benefit is to be paid. Such election may be modified or revoked by notice given to you as provided in Section 6. No election, modification or revocation of such election will be made after the Date of Termination.
(iii) Other Benefits Payable. The benefit described in subsection (i) above shall be payable in addition to, or not in lieu of, all other accrued or vested or earned but deferred compensation, rights, options or other benefits which may be owed to you following termination of employment, including but not limited to accrued vacation or sick pay, amounts or benefits payable under any employment agreement or any bonus or other compensation plans, stock option plan, stock ownership plan, stock purchase plan, life insurance plan, health plan, disability plan or similar plan.
(iv) Payment Obligations Absolute. Upon the Date of Termination, the Bank's (and its successor's) obligation to pay the benefits described herein shall be absolute and unconditional and shall not be affected by any circumstances, including, without limitation, any set-off, counterclaim, recoupment, defense or other right which the Bank (and its successor) may have against you or anyone else.
(v) Legal Fees. In the event of arbitration or litigation concerning this Agreement, the prevailing party shall be entitled to recover from the other party all costs and expenses including reasonable attorney's fees, incurred in such arbitration or litigation.
(vi) Mitigation. You shall not be required to mitigate the amount of any payment provided for in this Section 4, nor shall the amount of any payment provided for in this Section 4 be reduced or offset in any way whatsoever by any amount received by you for any reason whatsoever from the Bank (or its successor) or another employee or otherwise after the Date of Termination.
(vii) Indemnification. For claims made within one (I) year of the Date of Termination, you shall be indemnified under the Bank's Articles of Association and Bylaws and covered by the directors' and officers' liability insurance, the fiduciary liability insurance and the professional liability insurance policies that are the same as, or provide coverage at least equivalent to, those the Bank carries.
5. Successors; Termination of Agreement.
(i) The Bank will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Bank to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Bank would be required to perform it if no such succession had taken place. Failure of the Bank to obtain such agreement prior to the effectiveness of any such succession shall be a breach of this Agreement. As used in this Agreement, "Bank" shall mean the Bank as hereinabove defined and any successor to its business and/or assets as aforesaid which executes and delivers the agreement provided for in this Section 5 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law.
(ii) This Agreement shall terminate automatically upon the occurrence of any of the following events: (A) your termination of employment from the Bank, at any time, for Cause; or (B) your death, except that if you should die while you are entitled to receive any amounts under this Agreement but which are unpaid at your date of death, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to your devisee, legatee, or other designee or, if there be no such designee, to your estate and this Agreement shall inure to the benefit of and be enforceable by your personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees.
6. Notice. For the purposes of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid. All notices to the Bank shall be directed to the Board and all notices to you shall be directed to you at your address of residence on file with the Bank, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt.
7. Excess Parachute Payments. If all or any portion of the amounts payable to you under this Agreement, either alone or together with other payments which you have the right to receive from the Bank, 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), the Bank (and its successor) shall increase the amounts payable hereunder to the extent necessary to place you in the same after-tax position as you would have been in had no such excise tax been imposed on the payments hereunder. The determination
of the amount of any such excise taxes shall initially be made by the independent accounting firm employed by the Bank immediately prior to the Change in Control.
If at a later date it is determined (pursuant to final regulations or published rulings of the IRS, final judgment of a court of competent jurisdiction or otherwise) that the amount of excise taxes payable by you is greater than the amount initially so determined, then the Bank (or its successor) shall pay you an amount equal to the sum of such additional excise taxes, any interest, fines and penalties resulting from such underpayment, plus an amount necessary to substantially reimburse you for any income, excise or other taxes payable by you with respect to such amounts.
8. Miscellaneous. No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by you and the Chairman of the Board of Directors or such officer as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. This Agreement shall not affect your rights under any pension, welfare or fringe benefit arrangements or any employment agreement of the Bank under which you are entitled to receive any benefits. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of California. The provisions of this Agreement, and any payment provided for hereunder, shall not reduce any amounts otherwise payable, or in any way diminish your existing rights, or rights which would accrue solely as a result of the passage of time, under any employment agreement or other contract, plan or arrangement with the Bank.
9. Validity. The invalidity or unenforceability of any provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect.
10. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument.
11. Withholding of Taxes. The Bank may withhold from any amounts payable under this Agreement all federal, state, city or other taxes as shall be required pursuant to any law or government regulation or ruling.
12. No Employment Right. Nothing contained in this Agreement shall confer upon you the right to continue in the employ of or in the status as an officer of the Bank, nor limit in any way the right of the Bank to terminate your employment or status as an officer at any time.
13. Nonassignability This Agreement is personal in nature and neither of the parties hereto shall, without the consent of the other, assign or transfer this Agreement or any rights or obligations hereunder, except as provided in Section 5 above. Without limiting the foregoing, your right to receive payments hereunder shall not be assignable or transferable, whether by pledge, creation of a security interest or otherwise, other than by a transfer by will or by the laws of descent and distribution. In the event of any attempted assignment or transfer contrary to this Section, the Bank shall have no liability to pay any amounts so attempted to be assigned or transferred.
14. Arbitration.
(i) Any disagreement, dispute, controversy or claim arising out of or in any way related to this Agreement or the subject matter thereof or the interpretation hereof or any arrangements relating hereto or contemplated herein or the breach, termination or invalidity hereof shall be settled exclusively and finally by arbitration.
(ii) The arbitration shall be conducted in accordance with the Commercial Arbitration Rules (the "Arbitration Rules") of the American Arbitration Association (the "AAA") then in effect.
(iii) The arbitral tribunal shall consist of one arbitrator. The parties to the arbitration jointly shall directly appoint such arbitrator within 30 days of initiation of the arbitration. If the parties shall fail to appoint such arbitrator as provided above, such arbitrator shall be appointed by the AAA as provided in the Arbitration Rules and shall be a person who (A) maintains his or her principal place of business or residence in Northern California and (B) is a retired judge of the State of California.
(iv) The arbitration shall be conducted in San Francisco, California or in any other city in the United States of America as the parties to the dispute may designate by mutual written consent.
(v) Any decision or award of the arbitral tribunal shall be final and binding upon the parties to the arbitration proceeding. The parties hereto hereby waive to the extent permitted bylaw any rights to appeal or to review of such award by any court or tribunal. The parties hereto agree that the arbitral award may be enforced against the parties to the arbitration proceeding or their assets wherever they may be entered in any court having jurisdiction thereof.
If this letter correctly sets forth our agreement on the subject matter hereof, kindly sign and return to the Bank the enclosed copy of this letter which will then constitute our agreement on this subject.
Sincerely,
FIRST NATIONAL BANK
OF NORTHERN CALIFORNIA
Agreed to this ________day of ________, 2000.
EXHIBIT 10.15
CORPORATE RESOLUTION TO BORROW
--------------- ------------ ------------ ------------ ------------ ----------- ----------- ----------
Principal Loan Date Maturity Loan No. Call / Coll Account Officer Initials
$500,000.00 08-15-2001 02-22-2002 7001574 UNSEC
--------------- ------------ ------------ ------------ ------------ ----------- ----------- ----------
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
Any item above containing "***" has, been omitted due to
text length limitations.
------------------------------------------------------------------------------------------------------
|
Corporation: FNB Bancorp Lender: PACIFIC COAST BANKERS' BANK
975 El Camino Real, third Floor 340 PINE STREET. SUITE 401
South San Francisco, CA 94080 SAN FRANCISCO, CA 94104
======================================================================================================
|
WE, THE UNDERSIGNED, DO HEREBY CERTIFY THAT:
THE CORPORATION'S EXISTENCE. The complete and correct name of the Corporation is FNB Bancorp ("Corporation"). The Corporation is a corporation for profit which is, and at all times shall be, duly organized, validly existing, and in good standing under and by virtue of the laws of the State of California The Corporation is duly authorized to transact business in all other states in which the Corporation is doing business, having obtained all necessary filings, governmental licenses and approvals for each state in which the Corporation is doing business. Specifically, the Corporation is, and at all limes shall be, duly qualified as a foreign c0rporafian in all states in which the failure to so qualify would have a material adverse effect on its business or financial condition. The Corporation has the full power and authority to own its properties and to transact the business in which it is presently engaged or presently proposes to engage. The Corporation maintains an office at 975 El Camino Real, third Floor. South San Francisco, CA 94080. Unless the Corporation has designated otherwise in writing, the principle office is the office at which the Corporation keeps its books and records, The Corporation will notify Lender of any change in the location of the Corporation's principle office. The Corporation shall do all things necessary to preserve and to keep in full force and effect its existence, rights and privileges, and shall comply with all regulations, rules, ordinances, statutes, orders and decrees of any governmental or quasi-governmental authority or court applicable to the Corporation and the Corporation's business activities.
RESOLUTIONS ADOPTED. At a meeting of the Directors at the Corporation, or if the Corporation is a dose corporation having no Board of Directors then at a meeting of the Corporations shareholders, duly called and held on ,at which a quorum was present and voting, or by other duly authorized action in lieu of a meeting, the resolutions set forth in this Resolution were adopted.
OFFICERS. The following named persons are officers of FNB Bancorp:
NAMES TITLES AUTHORIZED ACTUAL SIGNATURES
------ ------ ---------- -----------------
Michael R. Wyman Chairman or the Board Y X
-------------------------------------------
Paul B. Hogan Chief Operating Officer Y X
-------------------------------------------
James B. Ramsey Chief Financial officer Y X
-------------------------------------------
|
ACTIONS AUTHORIZED, Any one(l) of the authorized persons listed above may enter into any agreements of any nature with Lender, and those agreements will bind the Corporation, Specifically, but without limitation, any one (1) at such authorized persons are authorized, empowered, and directed to do the following for and on behalf of the Corporation:
Borrow Money. To borrow, as a cosigner or otherwise, from time to lime from Lender, an such terms as may be agreed upon between the Corporation and Lender, such sum or sums of money as in their judgment should be borrowed; however, not exceeding al any one time the amount of Five Hundred Thousand & 00/100 Dollars ($500,000.00), in addition to such sum or sums of money as may be currently borrowed by the Corporation from Lender
Execute Notes. To execute and deliver to Lender the promissory note or notes, or other evidence of the Corporation's credit accommodations on Lender's forms, at such rates of interest and on such terms as may be agreed upon, evidencing the sums of money so borrowed or any of the Corporation's indebtedness to Lender, and also to execute and deliver to Lender one or more renewals, extensions, modifications, refinancings consolidations, or substitutions (or one or more of the notes, any portion of the notes, or any other evidence of credit accommodations.
Execute Security Documents. To execute and deliver to Lender the farms of mortgage, deed of trust, pledge agreement, hypothecation agreement, and other security agreements and financing statements which Lender may require and which shall evidence the terms and conditions under and pursuant to which such liens and encumbrances, or any of them, are given; and also to execute and deliver to lender any other written instruments, any chattel paper, or any other collateral, of any kind or nature, which Lender may deem necessary or proper in connection with or pertaining to the giving of the liens and encumbrances. Notwithstanding the foregoing, any one of the above authorized persons may execute deliver, or record financing statements.
Negotiate Items. To draw, endorse, and discount with Lender all drafts, trade acceptances, promissory notes, or other evidences of indebtedness payable to or belonging to the Corporation or in which the Corporation may have an interest, and either to receive cash for the same or to cause such proceeds to be credited to the Corporation's account with Lender, or to cause such other disposition of the proceeds derived therefrom as they may deem advisable.
Further Acts. In the case of lines of credit, to designate additional or alternate individuals as being authorized to request advances under such lines, and in all cases, to do and perform such other acts and things, to pay any and all fees and costs, and to execute and deliver such other documents and agreements as the officers may in their discretion deem reasonably necessary or proper in order to carry into effect the provisions of this Resolution.
ASSUMED BUSINESS NAMES. The Corporation has filed or recorded all documents or
filings required by law relating to a I assumed business names used by the
Corporation. Excluding the name al the Corporation, the following is a complete
list of all assumed business names under which the Corporation does business:
None.
NOTICES TO LENDER. The Corporation will promptly notify Lender in writing at Lender's address shown above (or such other addresses as Lender may designate from lime to time) prior to any (A) change n the Corporation's name; (B) change in the Corporation's assumed business name(s); (C change in the management of the Corporation; (D) change in the authorized signer(s): (E) change in the Corporation's principal office address: (F) conversion at the Corporation to a new or different type of business entity; or (G) change in any other aspect of the Corporation that directly or indirectly relates to any agreements between the Corporation and Lender. No change in the Corporation's name will take effect until after Lender has been notified.
CERTIFICATION CONCERNING OFFICERS AND RESOLUTIONS, The officers named above are duly elected, appointed, or employed by or for the Corporation, as the case may be, and occupy the positions set opposite their respective names. This Resolution now stands of record on the books of the Corporation is in full force and effect, and has not been modified or revoked in any manner whatsoever.
CONTINUING VALIDITY. Any and all acts authorized pursuant to this Resolution and performed prior to the passage of this Resolution are hereby ratified and approved- This Resolution shall be continuing, shall remain in full force and effect and Lender may rely on it until written notice of its revocation shall have been delivered to and received by Lender at Lender's address shown above (or such addresses as Lender may designate from time to lime). Any such notice shall not affect any of the Corporation's agreements or commitments in effect al the lime notice s given.
IN TESTIMONY WHEREOF, We have hereunto set our hand and, affixed the seal of the Corporation.
We each have read all the provisions of this Resolution, and we each personally and on behalf of the Corporate certify that all statements and representations made in this Resolution are true and correct. This Corporate Resolution to Borrow is dated August 22, 2001.
CERTIFIED TO AND ATTESTED BY:
CORPORATE /s/ Thomas C. McGraw
Secretary
SEAL
|
PROMISSORY NOTE
--------------- ------------- ------------- -------------- -------------- --------------- ------------- ----------
Principal Loan Date Maturity Loan No. Call / Coll Account Officer Initials
$500,000.00 08-15-2001 02-22-2002 7001574 UNSEC
--------------- ------------- ------------- -------------- -------------- --------------- ------------- ----------
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
Any item above containing "***" has, been omitted due to
text length limitations.
------------------------------------------------------------------------------------------------------------------
|
Borrower: FNB Bancorp Lender: PACIFIC COAST BANKERS' BANK
975 El Camino Real, third Floor 340 PINE STREET. SUITE 401
South San Francisco, CA 94080 SAN FRANCISCO, CA 94104
==================================================================================================================
Principal Amount: $500,000.00 Initial Rate: 7.750% Date of Note: August 15, 2001
|
PROMISE TO PAY. FNB Bancorp ("Borrower") promises to pay to PACIFIC COAST BANKERS' BANK ("Lender"), or order, in lawful money of the United States of America, the principal amount of Five Hundred Thousand & 00/100 Dollars ($500,000.00) or so much as may be outstanding, together with interest on the unpaid outstanding principal balance of each advance. Interest shall be calculated tram the date of each advance until repayment of each advance.
PAYMENT. Borrower will pay this loan in one payment of all outstanding principal plus all accrued unpaid interest on February 22, 2002. Unless otherwise agreed or required by applicable law, payments will be applied first to any unpaid collection costs and any late charges, then to any unpaid interest, and any remaining amount to principal. The annual interest rate for this Note is computed on a 365/360 basis; that is, by applying the ratio at the annual interest rate over a year of 360 days, multiplied by the outstanding principal balance, multiplied by the actual number of days the principal balance is outstanding. Borrower will pay Lender at Lender's address shown above or at such other place as Lender may designate in writing.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from
time to lime based on changes n an independent index which is the Prime Rate as
published in the Western Edition of the Wall Street Journal (the "index"). The
index is not necessarily the lowest rate charged by Lender on its loans. If the
index becomes unavailable during the term of this loan, Lender may designate a
substitute index after notice to Borrower. Lender will re I Borrower the current
index rate upon Borrower's request. The interest rate change will not occur more
often than each Day. Borrower understands that Lender may make loans based on
other rates as well. The index currently is 6.750%. The interest rate to be
applied to the unpaid principal balance of this Note will be at a rate of 1.000
percentage point over the Index, resulting in an initial rate of 7.750%. NOTICE:
Under no circumstances will the interest rate on this Note be more than the
maximum rate allowed by applicable law.
PREPAYMENT. Borrower may pay without penalty all or a portion of the amount owed earlier than it is due. Early payments will not, unless agreed to by Lender in writing, relieve Borrower of Borrower's obligation to continue to make payments. Rather, early payments will reduce the principal balance due. Borrower agrees not to send Lender payments marked "paid in full", "without recourse", or similar language. If Borrower sends such a payment, Lender may accept ii without losing any of Lender rights under this Note, and Borrower will remain obligated to pay any further amount owed to Lender. All written communications concerning disputed amounts, including any check or other payment instrument that indicates that the payment constitutes "payment in full" of the amount owed or that is tendered with other conditions or limitations or as full satisfaction of a disputed amount must be mailed or delivered to: PACIFIC COAST BANKERS' BANK, 340 PINE STREET, SUITE 401, SAN FRANCISCO, CA 94104.
LATE CHARGE. If a payment is 10 days or more late, Borrower will be charged 5.000% of the regularly scheduled payment.
INTEREST AFTER DEFAULT. Upon Borrower`s failure to pay all amounts declared due pursuant to this sect on, including failure to pay upon final maturity, Lender, al its option, may, if permitted under applicable law, increase the variable interest rate on this Note to 6.000 percentage points over the Index.
DEFAULT. Each of the following shall constitute an event of default ("Event of Default") under this Note:
Payment Default. Borrower fails to make any payment when due under this Note.
Other Defaults, Borrower fails to comply with or to perform any other term, obligation, covenant or condition contained in this Note or in any of the related documents or to comply with or to perform any term, obligation, covenant or condition contained in any other agreement between Lender and Borrower.
False Statements. Any warranty, representation or statement made or furnished to Lender by Borrower or on Borrower's behalf under this Note or the related documents is false or misleading in any material respect, either now or at the time made or furnished or becomes false or misleading at any time thereafter.
Insolvency. The dissolution or termination of Borrower's existence as a going business, the insolvency of Borrower, the appointment of a receiver for any part of Borrower's property, any assignment for the benefit of creditors, any type of creditor workout, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against Borrower.
Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help, repossession or any other method, by any creditor of Borrower or by any governmental agency against any collateral securing the loan. This includes a garnishment of any of Borrower's accounts, including deposit accounts, with Lender. However, this Event of Default shall not apply if there is a good faith dispute by Borrower as to the validity or reasonableness of the claim which a the basis of the creditor or forfeiture proceeding and if Borrower gives Lender written notice of the creditor or forfeiture proceeding and deposits with Lender monies or a surety bond) or the creditor or forfeiture proceeding, in an amount determined by Lender, in its sole discretion, as being an adequate reserve or bond for the dispute.
Events Affecting Guarantor. Any of the preceding events occurs with respect to any guarantor, endorser surety, or accommodation party of any of the indebtedness or any guarantor, endorser, surety, or accommodation party dies or becomes incompetent, or revokes or disputes the validity of, or liability under, any guaranty other indebtedness evidenced by this Note. In the event of a death, Lender, at its apron, may, but shall not be required to, permit the guarantor's estate to assume unconditionally the obligations arising under the guaranty in a manner satisfactory to Lender and, in doing so, cure any Event of Default.
Change In Ownership. Any change in ownership of twenty-five percent (25%) or more of the common stock of Borrower.
Adverse Change. A material adverse change occurs in Borrower's financial condition, or Lender believes the prospect of payment or performance of this Note is impaired.
Cure Provisions. If any default, other than a default in payment is
curable and if Borrower has not been given a notice of a breach of the
same provision of this Note within the preceding twelve (12) months, it
may be cured (and no event of default will have occurred) if Borrower,
after receiving written notice from Lender demanding cure of such default:
(1) cures the default within fifteen (15) days; or (2) if the cure
requires more than fifteen (15) days, immediately initiates steps which
Lender deems in Lender's sole discretion to be sufficient to cure the
default and thereafter continues and completes all reasonable and
necessary steps sufficient to produce comp lance as soon as reasonably
practical.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest immediately due, and then
Borrower will pay that amount
.
ATTORNEYS' FEES; EXPENSES. Lender may hire or pay someone else to help collect
this Note if Borrower does not pay Borrower will pay Lender that amount This
includes, subject to any limits under applicable law. Lender's attorneys fees
and Lenders legal expenses, whether or not there s a lawsuit. including
attorneys. fees, expenses for bankruptcy proceedings (including efforts to
modify or vacate any automatic slay or injunction), and appeals. Borrower also w
ii pay any court costs, in addition to all other sums provided by law.
GOVERNING LAW. This Note will be governed by, construed and enforced in accordance with federal law and the laws of the State of California. This Note has been accepted by Lender in the State of California.
CHOICE OF VENUE. If there s a lawsuit, Borrower agrees upon lenders request to submit to the jurisdiction of the courts of SAN FRANCISCO County. Slate of California.
RIGHT OF SETOFF. To the extent permitted by applicable law, Lender reserves a
light of setoff in all Borrower's accounts with Lender (whether checking.
savings, or some other account). This includes all accounts Borrower holds
jointly with someone else and all accounts Borrower may open in the future.
However, this does not include any IRA or Keogh accounts, or any trust accounts
for which setoff would be prohibited by law Borrower authorizes Lender, to the
extent permitted by applicable law, to charge or setoff all sums owing on the
debt against any and all such accounts.
.
LINE OF CREDIT. This Note evidences a revolving line of credit. Advances under
this Note, as well as directions for payment from Borrower's accounts, may be
requested orally or in writing by Borrower or by an authorized person Lender
may, but need not. require that all oral requests be confirmed in writing.
Borrower agrees to be liable far all sums either: (A) advanced in accordance
with the instructions of an authorized person or (B) credited to any of
Borrower's accounts with Lender. The unpaid principal balance owing on this Note
at any lime may be evidenced by endorsements on this Note or by Lender.5
internal records, including daily computer printouts. Lender will have no
obligation to advance funds under this Note if: (A) Borrower or any guarantor is
n default under the terms of this Note or any agreement that Borrower or any
guarantor has with Lender, including any agreement made in connection with the
signing of this Note: (B) Borrower or any guarantor ceases doing business or is
insolvent; (C) any guarantor seeks, claims or otherwise attempts to limit,
modify or revoke such guarantor's guarantee of this Note or any other loan with
Lender: or (D) Borrower has applied funds provided pursuant to this Note for
purpose other than those authorized by Lender.
SUCCESSOR INTERESTS. The terms of this Note shall be binding upon Borrower, and upon Borrower's heirs, personal representatives, successors and assigns, and shall inure to the benefit of Lender and $ successors and assigns.
NOTIFY US OF INACCURATE INFORMATION WE REPORT TO CONSUMEA REPORTING AGENClES. Please notify us if we report any inaccurate information about your account(s) to a consumer reporting agency. Your written notice describing the specific inaccuracy(ies) should be sent to us at the following address: PACIFIC COAST BANKERS' BANK, 340 PINE STREET, SUITE 401 SAN FRANCISCO, CA 94104.
GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or remedies under this Note without losing them. Borrower and any other person who signs, guarantees or endorses this Note, to the extent allowed by law, waive any applicable statute of limitations, presentment, demand far payment, and notice of dishonor. Upon any change in the terms of this Note. and unless otherwise expressly slated in writing, no party who signs this Note, whether as maker, guarantor, accommodation maker or endorser, shall be released from liability. All such parties agree that Lender may renew or extend (repeatedly and for any length of time) this loan or release any path/ or guarantor or collateral; or impair, fail to realize upon or perfect Lender's security interest in the collateral: and take any other action deemed necessary by Lender without the consent of or notice to anyone. All such parties also agree that Lender may modify this loan without the consent of or notice to anyone other than the parry with whom the modification is made The obligations under this Note are joint and several.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIDNS OF THIS NOTE, INCLUDING THE VARlABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO THE TERMS OF THE NOTE.
BORROWER ACKNOWLEDGES RECElPT OF A COMPLETED COPY OF THIS PROMISSORY NOTE.
BORROWER:
FNB BANCORP
By: /s/ Michael R. Wyman By: /s/ Paul B. Hogan
------------------------------------------------ -----------------------------------------------
Michael R. Wyman, Chairman of the Board of FNB Paul B. Hogan, Chief Operating Officer of FNB
Bancorp Bancorp
By: /s/ James B. Ramsey
------------------------------------------------
James 8. Ramsey, Chief Financial Officer of FNB
Bancorp
==============================================================================================================
|
BUSINESS LOAN AGREEMENT
-------------------- -------------- ------------- ---------------- ----------------- --------------- ------------- ----------
Principal Loan Date Maturity Loan No. Call / Coll Account Officer Initials
$500,000.00 08-15-2001 02-22-2002 7001574 UNSEC
-------------------- -------------- ------------- ---------------- ----------------- --------------- ------------- ----------
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
Any item above containing "***" has, been omitted due to
text length limitations.
-----------------------------------------------------------------------------------------------------------------------------
|
Borrower: FNB Bancorp Lender: PACIFIC COAST BANKERS' BANK
975 El Camino Real, third Floor 340 PINE STREET. SUITE 401
South San Francisco, CA 94080 SAN FRANCISCO, CA 94104
=============================================================================================================================
|
THIS BUSINESS LOAN AGREEMENT dated August 15, 2001, is made and executed between FNB Bancorp ("8orrower") and PACIFIC COAST BANKERS' BANK ("Lender") on the following terms and conditions. Borrower has received prior commercial loans horn Lender or has applied to Lender for a commercial loan or loans or other financial accommodations, including those which may be described on any exhibit or schedule attached to this Agreement ("Loan"). Borrower understands and agrees that: (A) in granting, renewing, or extending any Loan, Lender is relying upon Borrower's representations, warranties, and agreements as set forth in this Agreement, and (B) all such Loans shall be and remain subject to the terms and conditions of this Agreement.
TERM. This Agreement shall be effective as of August 15, 2001, and shall continue in full force and effect until such t me as all at Borrower's Loans in favor of Lender have been paid in full, including principal, interest, costs, expenses, attorneys' fees, and other lees and charges, or until February 22, 2002.
CONDITIONS PRECEDENT TO EACH ADVANCE. Lender's obligation to make the initial Advance and each subsequent Advance under this Agreement shall be subject to the fulfillment to Lender's satisfaction of all of the conditions set forth in this Agreement and n the Related Documents.
Loan Documents. Borrower shall provide to Lender the following documents fat the Loan: (1) the Note; (2) together with all such Related Documents as Lender may require for the Loan: all in farm and substance satisfactory to Lender and Lender's counsel,
Borrower's Authorization. Borrower shall have provided in form and substance satisfactory to Lender properly certified resolutions, duly authorizing the execution and delivery of this Agreement, the Note and the Related Documents. In addition, Borrower shall have provided such other resolutions. authorizations, documents and instruments as Lender or its counsel, may require.
Payment of Fees and Expenses. Borrower shall have paid to Lender all fees, charger, and other expenses which are then due and payable as specified in this Agreement or any Related Document.
Representations and Warranties. The representations and warranties set forth in this Agreement, in the Related Documents. and in any document or certificate delivered to Lender under this Agreement are true and correct.
No Event of Default. There shall not exist at the lime of any Advance a condition which would constitute an Event of Default under this Agreement or under any Related Document.
REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender, as of the date of this Agreement, as of the date of each disbursement of loan proceeds, as of the dale of any renewal, extension or modification of any Loan. and at all times any indebtedness exists:
Organization. Borrower is a corporation for profit which is, and at all limes shall be, du y organized, validly existing. and in good standing under and by virtue of the laws of the Stale of California. Borrower is duly authorized to transact business in ail other stales in which Borrower a doing business, having obtained all necessary filings, governmental licenses and approvals for each state. in which Borrower is doing business. Specifically, Borrower is. and at all times shall be. duly qualified as a foreign corporation in all states in which the failure to so qualify would have a material adverse effect on 15 business or financial condition. Borrower has the full power and authority to own its properties and to transact the business n which it is presently engaged or presently proposes to engage. Borrower maintains an office al 975 El Camino Real, third Floor, South San Francisco, CA 94080. Unless Borrower has designated otherwise in writing, the principle office s the office at which Borrower keeps its books and records including $ records concerning the Collateral. Borrower will notify Lender of any change in the location of Borrower's principle office. Borrower shall do al things necessary to preserve and to keep in full force and effect its existence. rights and privileges, and shall comply with all regulations. rules, ordinances, statutes. orders and decrees of any governmental or quasi-governmental authority or court applicable to Borrower and Borrower's business activities.
Assumed Business Names. Borrower has filed or recorded all documents or filings required by law relating to all assumed business names used by Borrower. Excluding the name of Borrower, the following is a complete list of all assumed business names under which Borrower does business: None.
Authorization. Borrower's execution. deliver/. and performance of this Agreement and all the Related Documents have been duly authorized by all necessary action by Borrower and do not conflict with, result in a violation of, or constitute a default under (1) any provision of Borrower's articles of incorporation or organization, or bylaws, or any agreement or other instrument binding upon Borrower or (2) any law, governmental regulation, court decree, or order applicable to Borrower or to Borrower's properties.
Financial Information. Each of Borrower's financial statements supplied to Lender truly and completely disclosed Borrower's financial condition as al the date of the statement. and there has been no material adverse change in Borrowers financial condition subsequent to the date of the most recent financial statement supplied to Lender. Borrower has no material contingent obligations except as disclosed in such financial statements
Legal Effect. This Agreement constitutes, and any instrument or agreement Borrower s required to give under this Agreement when delivered will constitute legal. valid, and binding obligations of Borrower enforceable against Borrower in accordance with their respective terms.
Properties. Except as contemplated by this Agreement or as previou5iydisClosed n Borrower's financial statements or in writing to Lender and at accepted by Lender and except for property tax liens for taxes not presently due and payable, Borrower owns and has good title to all of Borrower's properties free and clear of all Security Interests, and has not executed any security documents or financing statements relating to such properties. All of Borrower's properties ate titled in Borrower's legal name. and Borrower has not used, or flied a financing statement under, any other name for at least :he last live (5) years.
Hazardous Substances. Except as disclosed to and acknowledged by Lender in
writing. Borrower represents and warrants that (1) During the period of
Borrower's ownership of Borrower's Collateral, there has been no use,
generation, manufacture, storage, treatment, disposal, release or
threatened release of any Hazardous Substance by any person on, under,
about or from any of the Collateral. (2) Borrower has no knowledge of or
reason to believe that there has been (a) any breach or violation of any
Environmental Laws: (b) any use, generation, manufacture storage
treatment, disposal, release or threatened release of any Hazardous
Substance on, under, about or from the Collateral by any prior owners or
occupants of any of the Collateral: or (c) any actual or threatened
litigation or claims of any kind by any person relating to such matters.
(3) Neither Borrower nor any tenant, contractor, agent or other authorized
user of any of the Collateral shall use, generate. manufacture. store,
treat dispose al or release any Hazardous Substance on, under, about or
from any of the Collateral; and any such activity shall be conducted in
compliance with all applicable federal, state, and local laws, regulations, and ordinances, including without limitation all Environmental Laws. Borrower authorizes Lender and its agents to enter upon the Collateral to make such inspections and tests as Lender may deem appropriate to determine compliance of the Collateral with this section of the Agreement. Any inspections or tests made by Lender shall be at Borrower's expense and for Lender's purposes only and shall not be construed to create any responsibility or liability on the part al Lender to Borrower or to any other person. The representations and warranties contained herein are based on Borrower's due diligence in investigating the Collateral for hazardous waste and Hazardous Substances. Borrower hereby (1) releases and waives any future claims against Lender for indemnity or contribution in the event Borrower becomes liable for cleanup or other costs under any such laws. and (2) agrees to indemnify and hold harmless Lender against any and all claims, losses, liabilities, damages, penalties, and expenses which Lender may directly or indirectly sustain or suffer resulting from a breach of this section of the Agreement or as a consequence of any use. generation, manufacture, storage, disposal, release or threatened release of a hazardous waste or substance on the Collateral. The provisions of this section of the Agreement, including the obligation to indemnify. Shall survive the payment of the indebtedness and the termination, expiration or satisfaction of this Agreement and shall not be affected by Lender's acquisition of any interest n any of the Collateral, whether by foreclosure or otherwise.
Litigation and Claims. No litigation, claim, investigation, administrative proceeding or similar action (including those for unpaid taxes against Borrower is pending or threatened, and no other event has occurred which may materially adversely affect Borrower's financial Condition or properties, other than litigation, claims, or other events, if any, that have been disclosed to and acknowledged by Lender in writing.
Taxes. To the best of Borrower's knowledge, all of Borrower's tax returns and reports that are or were required to be filed, have been filed, and all taxes, assessments and other governmental charges have been paid in full, except those presently being or to be contested by Borrower in good faith in the ordinary course of business and for which adequate reserves have been provided.
Lien Priority. Unless otherwise previously disclosed to Lender n writing, Borrower has not entered into or granted any Security Agreements, or permitted the filing or attachment of any Security interests on or affecting any of the Collateral directly or indirectly securing repayment of Borrower's loan and Note. that would be prior or that may in any way be superior to Lender's Security interests and rights in and to such Collateral
Binding Effect. This Agreement. the Note, all Security Agreements (if any), and all Related Documents are binding upon the signers thereof, as well as upon their successors, representatives and assigns. and are legally enforceable in accordance with their respective terms.
AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, so long as this Agreement remains in effect, Borrower will:
Notices of Claims and Litigation. Promptly inform Lender in writing of (1) all material adverse changes in Borrower's financial condition, and (2) all existing and all threatened litigation claims, investigations, administrative proceedings or similar actions affecting Borrower or any Guarantor which could materially affect the financial condition of Borrower or the financial condition of any Guarantor.
Financial Records. Maintain its books and records in accordance with GAAP, applied on a consistent basis, and permit Lender to examine and audit Borrower's books and records al all reasonable times.
Financial Statements. Furnish Lender with such financial statements and other related information at such frequencies and in such detail as Lender may reasonably request.
Additional Information. Furnish such additional information and statements, as Lender may request from time to time.
Insurance. Maintain tire and other risk insurance, public liability insurance. and such other insurance as Lender may require with respect to Borrower's properties and operations, in form, amounts, coverages and with insurance companies acceptable to Lender Borrower, upon request of Lender, will deliver to Lender from time to time the policies or certificates of insurance in form satisfactory to Lender, including stipulations that coverages will not be canoe led or diminished without at least ten (10) days prior written notice to Lender. Each insurance policy also shall include an endorsement providing that coverage in favor of Lender will not be impaired in any way by any act, omission or default al Borrower or any other person, in connection with all policies covering assets in which lender holds or is offered a security interest for the Loans. Borrower will provide Lender with such lender's loss payable or other endorsements as Lender may require.
Insurance Reports, Furnish to Lender, upon request of Lender, reports on
each existing insurance policy showing such information as Lender may
reasonably request, including without limitation the following: (1) the
name of the insurer: (2) the risks insured: (3) the amount of the policy;
(4) the properties insured: (5) the then current property values on the
basis of which insurance has been obtained, and the manner of determining
those values; and (6) The expiration date of the policy. In addition, upon
request of Lender, (however not more often than annually), Borrower will
have an independent appraiser satisfactory to Lender determine, as
applicable, the actual cash value or replacement cost of any Collateral.
The cost of such appraisal shall be paid by Borrower.
Other Agreements. Comply with all terms and conditions of all other agreements. whether now or hereafter existing, between Borrower and any other party and notify Lender immediately in writing of any default in connection with any other such agreements.
Loan Proceeds. Use all Loan proceeds solely for Borrower's business operations, unless specifically consented to the contrary by Lender in writing.
Taxes, Charges and Liens. Pay and discharge when due all al its indebtedness and obligations, including without limitation all assessments, taxes, governmental charges, levies and liens, of every kind and nature, imposed upon Borrower or its properties, income, or profits, prior to the date on which penalties would attach, and all lawful claims that, if unpaid. might become a lien or charge upon any of Borrower's properties, income, or profits.
Performance. Perform and comply, in a timely manner, with all terms, conditions, and provisions set forth in this Agreement, in the Related Documents, and in all other instruments and agreements between Borrower and Lender. Borrower shall notify Lender immediately in writing of any default in connection with any agreement,
Operations. Maintain executive and management personnel with substantially the same qualifications and experience as the present executive and management personnel; provide written notice to Lender of any change in executive and management personnel; conduct its business affairs in a reasonable and prudent manner.
Environmental Studies. Promptly conduct and complete, at Borrower's expense, ail such investigations, studies, samplings and testings as may be requested by Lender or any governmental authority relative to any substance, or any waste or by-product of any substance defined as toxic or a hazardous substance under applicable federal, state, or local law, rule, regulation, order or directive, at or effecting any property or any facilities owned, leased or used by Borrower.
Compliance with Governmental Requirements. Comply with all laws, ordinances, and regulations, now or hereafter in effect, of all governmental authorities applicable to the conduct of Borrower's properties, businesses and operations, and to the use or occupancy of the Collateral, including without limitation, the Americans With Disabilities Act. Borrower may contest in good faith any such law. ordinance, or regulation and withhold c0mpliance during any proceeding, including appropriate appeals. so long as Borrower has notified Lender in writing prior to doing so and so long as, in Lender's sole opinion, Lender's interests in the Collateral are not jeopardized. Lender may require borrower to post
adequate security or a surety bond, reasonably satisfactory to Lender, to protect Lender's interest.
Inspection. Permit employees or agents of Lender at any reasonable time to inspect any and all Collateral for the Loan or Loans and Borrower's other properties and to examine Or audit Borrower's books. accounts, and records and to make copies and memoranda of Borrower's books. accounts, and records. I Borrower now or at any time hereafter maintains any records (including without limitation computer generated records and computer software programs for the generation of such records) n the possession of a third party, Borrower, upon request of Lender, shall notify such party to permit Lender free access to such records at all reasonable limes and to provide Lender with copies of any records it may request, all at Borrower's expense.
Compliance Certificates. Unless waived in writing by Lender, provide Lender at least annually, with a certificate executed by Borrower's chief financial officer, or other officer or person acceptable to Lender, certifying that the representations and warranties set forth in this Agreement are true and correct as of the date of the certificate and further certifying that. as of the date of the certificate, no Event of Default exists under this Agreement.
Environmental Compliance and Reports. Borrower shall comply in all respects with any and al Environmental Laws: not cause or permit to exist, as a result of an intentional or unintentional action or omission on Borrower's part or on the part of any third party, on property owned and/or occupied by Borrower, any environmental activity where damage may result to the environment. unless such environmental activity 5 pursuant to and in compliance with the conditions of a permit issued by the appropriate federal, state or local governmental authorities; shall furnish to Lender promptly and in any event within thirty (30) days after receipt thereof a copy of any notice. summons, lien, citation, directive, letter or other communication from any governmental agency or instrumentality concerning any intentions or unintentional action or omission on Borrower's part n connection with any environmental activity whether or not there is damage to the environment and/or other natural resources,
Additional Assurances. Make, execute and deliver to Lender such promissory notes, mortgages, deeds of trust, security agreements, assignments, financing statements, instruments. documents and other agreements as Lender or its attorneys may reasonably request to evidence and secure the Loans and to perfect all Security Interests.
LENDOR'S EXPENDITURES. If any action or proceeding is commenced that would materially affect Lender's interest n the Collateral or if Borrower fails to comply with any provision of this Agreement or any Related Documents, including but not limited to Borrower's failure to discharge or pay when due any amount Borrower is required to discharge or pay under this Agreement or any Related Documents. Lender on Borrower's behalf may (but shall not be obligated to) take any action that Lender deems appropriate. including but not limited to discharging or paying all taxes, liens, security interests, encumbrances and other c aims. at any time levied or placed on any Collateral and paying all costs for insuring, maintaining and preserving any Collateral. All such expenditures incurred or paid by Lender for such purposes will then bear interest at the rate charged under the Note from the dale incurred or paid by Lender to the date of repayment by Borrower. All such expenses will become a part of the indebtedness and, at Lender's option, will (A) be payable on demand; (B) be added to the balance of the Note and be apportioned among and be payable with any installment payments to become due during either (1) the term of any applicable insurance policy: or (2) the remaining term of the Note; or (C) be treated as a balloon payment which will be due and payable at the Note's maturity.
NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this Agreement is in effect, Borrower shall not, without the prior written consent of Lender:
Indebtedness and Liens. (1] Except for trade debt incurred in the normal course of business and indebtedness to Lender contemplated by this Agreement, create, incur or assume indebtedness for borrowed money. including capital eases. (2) sell, transfer, mortgage, assign, pledge ease, grant a security interest in, or encumber any at Borrower's assets (except as allowed as Permitted Liens), or (3) sell with recourse any of Borrower's accounts, except to Lender.
Continuity of Operations. (1) Engage in any business activities
substantially different than those in which Borrower is presently engaged,
(2) cease operations, liquidate, merge, transfer, acquire or consolidate
with any other entity, change its name, dissolve or transfer or sell
Collateral out of the ordinary course of business, or (3) pay any
dividends on Borrower's stock (other than dividends payable in its stock),
provided, however that notwithstanding the foregoing, but on y so long as
no Event of Default has occurred and is continuing or would result from
the payment of dividends, if Borrower is a "Subchapter S Corporation" (as
defined in the internal Revenue Code of 1986, as amended). Borrower may
pay cash dividends an its stock to its shareholders from lime to time in
amounts necessary to enable the shareholders to pay income taxes and make
estimated income tax payments to satisfy their liabilities under federal
and stale law which arise solely from their status as Shareholders of a
Subchapter S Corporation because of their ownership of shares of
Borrower's stock, or purchase or retire any of Borrower's outstanding
shares or alter or amend Borrower's capital structure.
Loans, Acquisitions and Guaranties. (1) Loan. invest in or advance money or assets, (2) purchase, create or acquire any interest in any other enterprise or entity, or (3) incur any obligation as surety or guarantor other than in the ordinary course of business.
CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to Borrower, whether under this Agreement or under any other agreement, Lender shall have no obligation to make Loan Advances or to disburse Loan proceeds if (A) Borrower or any Guarantor is in default under the terms of this Agreement or any of the Related Documents or any other agreement that Borrower or any Guarantor has with Lender, (B) Borrower or any Guarantor dies. becomes incompetent or becomes insolvent, files a petition in bankruptcy or similar proceedings, or is adjudged a bankrupt; or (C) there occurs a material adverse change in Borrower's financial condition. in the financial condition or any Guarantor. or in the value of any Collateral securing any Loan; or (0) any Guarantor seeks, c aims or otherwise attempts to limit, modify or revoke such Guarantor's guaranty of the Loan or any other loan with Lender.
RIGHT OF SETOFF. To the extent permitted by applicable law, Lender reserves a right of setoff in all Borrower's accounts with Lender (whether checking, savings, or some other account). This includes all accounts Borrower holds jointly with someone else and all accounts Borrower may open in the future. However. this does not include any IRA or Keogh accounts, or any trust accounts for which setoff would be prohibited by law. Borrower authorizes Lender, to the extent permitted by applicable law, to charge or setoff all sums owing on the debt against any and all such accounts.
DEFAULT. Each of the following shall constitute an Event of Default under this Agreement:
Payment Default. Borrower fails to make any payment when due under the Loan.
Other Defaults. Borrower fails to comply with or to perform any other term, obligation, covenant or condition contained in this Agreement or in any of the Related Documents or to comply with or to perform any term. obligation, covenant or condition contained in any other agreement between lender and Borrower.
False Statements. Any warranty, representation or statement made or furnished to Lender by Borrower or on Borrower's behalf under this Agreement, the Note, or the Related Documents is false or misleading in any material respect. either now or at the time made or furnished or becomes false or misleading at any lime thereafter.
Insolvency. The dissolution or termination of Borrower's existence as a going business. the insolvency of Borrower, the appointment of a receiver for any part of Borrower's property, any assignment for the benefit of creditors. any type of creditor workout, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against Borrower.
Defective Collateralization. This Agreement or any of the Related Documents ceases to be in full force and effect (including failure of any collateral document to create a valid and perfected security Interest or lien) at any lime and for any reason.
Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help, repossession or any other method, by any creditor of Borrower or by any governmental agency against any collateral securing the Loan. This Includes a garnishment of any of Borrower's accounts, including deposit accounts. with Lender: However, this Event of Default shall not apply if there is a good faith dispute by Borrower as to the validity or reasonableness of the claim which is the basis of the creditor or forfeiture proceeding and if Borrower gives Lender written notice of the creditor or forfeiture proceeding and deposits with Lender monies or a surety bond for the creditor or forfeiture proceeding, in an amount determined by Lender, in its sole discretion, as being an adequate reserve or band for (he dispute.
Events Affecting Guarantor. Any of the preceding events occurs with respect to any Guarantor of any of the indebtedness or any Guarantor dies or becomes incompetent, or revokes or disputes the validity of, or liability under. any Guaranty of the indebtedness in the event of a death, Lender, at its option may, but shall not be required to, permit the Guarantor's estate to assume unconditionally the obligations arising under the guaranty in a manner satisfactory to Lender, and. in doing so, cure any Event of Default.
Change in Ownership. Any change in ownership of twenty-live percent (25%) or more of the common Stock of Borrower.
Adverse Change. A material adverse change occurs in Borrower's financial condition, or Lender believes the prospect of payment or performance of the Loan is impaired.
Right to Cure. If any default, other than a default on indebtedness, is curable and it Borrower or Grantor, as the case may be, has not been given a notice of a similar default within (he preceding twelve (12) months, it may be cured (and no Event of Default will have occurred) ii Borrower or Grantor, as the case may be, after receiving written notice from Lender demanding cure of such default: (1) cure the default within fifteen L15) days: or (2) if the cure requires more than fifteen (15) days, immediately initiate steps which Lender deems in Lender's sole discretion to be sufficient to cure the default and thereafter continue and complete all reasonable and necessary steps sufficient to produce compliance as soon as reasonably practical.
EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except where otherwise provided in this Agreement or the Related Documents. all commitments and obligations of Lender under this Agreement or the Related Documents or any other agreement immediately will terminate (including any obligation to make further loan Advances or disbursements). and, at Lender's option, all indebtedness immediately will become due and payable, all without notice of any kind to Borrower, except that in the case of an Event of Default of the type described in the "Insolvency" subsection above. such acceleration shall be automate and not optional, In addition, Lender shall have all the rights and remedies provided in the Related Documents or available al law. in equity, or otherwise. Except as may be prohibited by applicable law, al of Lender's rights and remedies shall be cumulative and may be exercised singularly or concurrently. Election by Lender to pursue any remedy shall not exclude pursuit of any other remedy, and an election to make expenditures or to take action to perform an obligation of Borrower or of any Grantor shall not affect Lender's right to declare a default and to exercise its rights and remedies.
MISCELLANEOUS PROVISIONS, The following miscellaneous provisions are a part of this Agreement:
Amendments. This Agreement, together with any Related Documents, constitutes the entire understanding and agreement of the parses as to the matters set forth in this Agreement. No alteration of or amendment to this Agreement shall be effective unless given in writing and signed by the party or parties sought to be charged or bound by the alteration or amendment,
Attorneys' Fees; Expenses. Borrower agrees to pay upon demand ail of Lender's costs and expenses, including Lender's attorneys' fees and Lender's legal expenses. incurred in connection with the enforcement of this Agreement. Lender may hire or pay someone else to help enforce this Agreement, and Borrower shall pay the costs and expenses of such enforcement. Costs and expenses include Lender's attorneys' fees and legal expenses whether or not there is a lawsuit, including attorneys, fees and legal expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), appeals, and any anticipated post-judgment collection services. Borrower also shall pay al court costs and such additional fees as may be directed by the court.
Caption Headings. Caption headings in this Agreement are for convenience purposes only and are not to be used to interpret or define the provisions of this Agreement.
Consent to Loan Participation. Borrower agrees and consents to Lender's sale or transfer, whether now or later. of one or more participation interests in the Loan to one or more purchasers, whether related or unrelated to Lender- Lender may provide. without any limitation whatsoever. to any one or more purchasers, or potential purchasers, any information or knowledge Lender may have about Borrower or about any other matter relating to the Loan, and Borrower hereby waives any rights to privacy Borrower may have with respect to such matters. Borrower additionally waives any and all notices of sale of participation interests, as well as all notices of any repurchase of such participation interests. Borrower also agrees that the purchasers of any such participation interests will be considered as the absolute owners of such interests in the Loan and will have all the rights granted under the participation agreement or agreements governing the sale of such participation interests. Borrower further waives all rights of offset or counterclaim that it may have now or later against Lender or against any purchaser of such a participation interest and unconditionally agrees that either Lender or such purchaser may enforce Borrower's obligation under the Loan irrespective of the failure or insolvency of any holder of any interest in the Loan. Borrower further agrees that the purchaser at any such participation interests may enforce its interests irrespective of any personal c aims or defenses that Borrower may have against Lender
Governing Law. This agreement will be governed by, construed and enforced in accordance with federal law and the laws of the State at California, This Agreement has been accepted by Lender in the State or California.
Choice of Venue, If there is a lawsuit, Borrower agrees upon Lender's request to submit to the jurisdiction of the courts of SAN FRANCISCO County. State of California.
No Waiver by Lender. Lender shall not be deemed to have waived any rights under this Agreement unless such waiver is given in writing and signed by Lender. No delay or omission on the part of Lender in exercising any right shall operate as a waiver of such right or any other right. A waiver by Lender of a provision of this Agreement shall not prejudice or constitute a waiver of Lender's right otherwise to demand strict compliance with that provision or any other provision at this Agreement. No prior waiver by Lender nor any course of dealing between Lender and Borrower, or between Lender and any Grantor. shall constitute a waiver of any of Lender's rights or of any of Borrowers or any Grantor's obligations as to any future transactions. Whenever the consent of Lender is required under this Agreement, the gran6ng of such consent by Lender in any instance shall not constitute continuing consent to subsequent instances where such consent s required and in all cases such consent may be granted or withheld in the sale discretion of Lender.
Notices. Any notice required to be given under this Agreement shall be given in writing, and shall be effective when actually delivered. when actually received by telefacsimile (unless otherwise required by law), when deposited with a nationally recognized overnight courier, or. if mailed, when deposited in the United States mall, as first claps, certified or registered mail postage prepaid, directed to the addresses shown near the beginning of this Agreement. Any party may change its address for notices under this Agreement by giving formal written notice to the other parties, specifying that the purpose of the notice is to change the party's address. For notice purposes, Borrower agrees to keep Lender informed at all times of Borrower's current address. Unless otherwise provided or required by law, if there is more than one Borrower, any notice given by
Lender to any Borrower is deemed to be notice given to all Borrowers.
Severability. If a court of competent jurisdiction finds any provision at this Agreement to be illegal, invalid, or unenforceable as to any circumstance, that finding shall not make the offending provision illegal, invalid, or unenforceable as to any other circumstance. If feasible, the offending provision shall be considered modified so that it becomes legal. valid and enforceable If the offending provision cannot be so modified. it shall be considered deleted from this Agreement. Unless otherwise required by law, the illegality, invalidity, or unenforceability of any provision of this Agreement shall not affect the legality, validity or enforceability of any other provision of this Agreement
Subsidiaries and Affiliates of Borrower. To the extent the context of any provisions of this Agreement makes it appropriate, including without Iimitation any representation, warranty or covenant, the word "Borrower" as used in this Agreement shall include all of Borrower's subsidiaries and affiliates. Notwithstanding the foregoing however, under no circumstances shall this Agreement be construed to require Lender to make any Loan or other financial accommodation to any of Borrower's subsidiaries or affiliates.
Successors and Assigns. All covenants and agreements contained by or on behalf of Borrower shall bind Borrower's successors and assigns and shall inure to the benefit of Lender and its successors and assigns. Borrower shall not, however, have the right to assign Borrower's rights under this Agreement or any interest therein, without the prior written consent of Lender
Survival of Representations and Warranties. Borrower understands and agrees that in extending Loan Advances. Lender is relying on all representations, warranties, and covenants made by Borrower in this Agreement or in any certificate or other instrument delivered by Borrower to Lender under this Agreement or the Related Documents. Borrower further agrees that regardless of any investigation made by Lender, all such representations, warranties and covenants will survive the extension of Loan Advances and delivery to Lender of the Related Documents, shall be continuing in nature, shall be deemed made and redated by Borrower at the time each Loan Advance is made, and shall remain in full force and effect until such time as Borrower's indebtedness shall be paid in full, or until this Agreement shall be terminated in the manner provided above, whichever is the last to occur.
Time is of the Essence. Time is or the essence in the performance of this Agreement.
DEFINITIONS. The following capitalized words and terms shall have the following meanings when used in this Agreement. Unless specifically stated to the contrary, all references to dollar amounts shall mean amounts in lawful money of the United States of America. Words and terms used in the singular shall include the plural, and the plural shall include the singular, as the context may require. Words and terms not otherwise defined in this Agreement shall have the meanings attributed to such terms in the Uniform Commercial Code. Accounting words and terms not otherwise defined in this agreement shall have the meanings assigned to them in accordance with generally accepted accounting principles as in effect on the date of this Agreement:
Advance. The word "Advance" means a disbursement of Loan funds made, or to be made, to Borrower or on Borrower's behalf an a line of credit or multiple advance basis under the terms and conditions of this Agreement.
Agreement. The word "Agreement" means this Business Loan Agreement, as this Business Loan Agreement may be amended or modified from time to time, together with all exhibits and schedules attached to this Business Loan Agreement from time to time.
Borrower The word "Borrower" means FNB Bancorp, and all other persons and entities signing the Note in whatever capacity
Collateral. The word "Collateral" means all property and assets granted as collateral security for a Loan, whether real or personal property. whether granted directly or indirectly, whether granted now or in the future, and whether granted in the form of a security interest. mortgage. collateral mortgage, deed of trust, assignment, pledge, crop pledge, chattel mortgage, collateral chattel mortgage, chattel trust, factor's lien. equipment trust, conditional sale, trust receipt, lien, charge, lien or title retention contract, lease or consignment intended as a security device, or any other security or lien interest whatsoever, whether created by law, contract, or otherwise.
Environmental Law. The words "Environmental Laws" mean any and all state, federal and local statutes, regulations and ordinances relating to the protection of human health or the environment. including without limitation the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, 42 U.S.C. Section 9601, et seq. ("CERCLA"), the Superfund Amendments and Reauthorization Act of 1986, Pub. L. No. 99-499 ("SARA"), the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq., the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq., Chapters 6.5 through 7.7 of Division 20 of the California Health and Safety Code, Section 25100, et seq., or other applicable state or federal laws, rules, or regulations adopted pursuant thereto.
Event of Default. The words "Event of Default" mean any of the events of default set forth in this Agreement in the default section of this Agreement.
GAAP. The word "GAAP" means generally accepted accounting principles.
Grantor. The word "Grantor" means each any all of the persons or entities granting a Security interest in any Collateral for the Loan, including without limitation all Borrowers granting such a Security interest.
Guarantor. The word "Guarantor" means any guarantor, surety, or accommodation party of any or all of the Loan.
Guaranty. The word "Guaranty" means the guaranty from Guarantor to Lender, including without limitation a guaranty of all or part of the Note.
Hazardous Substances. The words "Hazardous Substances" mean materials that, because of their quantity, concentration or physical, chemical or infectious characteristics, may cause or pose a present or potential hazard to human health or the environment when improperly used, treated, stored, disposed of, generated, manufactured, transported or otherwise handled. The words "Hazardous Substances" are used in their very broadest sense and include without limitation any and all hazardous or toxic substances, materials or waste as defined by or listed under the Environmental Laws. The term "Hazardous Substances" also includes, without limitation, petroleum and petroleum by-products or any fraction thereof and asbestos
Indebtedness. The word "Indebtedness" means the indebtedness evidenced by the Note or Related Documents, including all principal and interest together with ail other indebtedness and costs and expenses for which Borrower is responsible under this Agreement or under any of the Related Documents
Lender. The word "Lender" means PACIFIC COAST BANKERS' BANK, its successors and assigns.
Loan. The word "Loan" means any and all loans and financial accommodations from Lender to Borrower whether now or hereafter existing, and however evidenced, including without imitation those loans and financial accommodations described herein or described on any exhibit or schedule attached to this Agreement from time to time.
Note. The word "Note" means the Note executed by Borrower in the principal amount of $500,000,00 dated August 15, 2001, together with all renewals of, extensions of, modifications of, refinancings of, consolidations of, and substitutions for the note or credit agreement.
Permitted Liens. The words "Permitted Liens" mean (1) liens and security interests securing indebtedness owed by Borrower to Lender; (2) liens for taxes, assessments, or similar charges either not yet due or being contested in good faith; (3) liens of materialmen, mechanics,
warehousemen, or carriers, or other like liens arising in the ordinary
course of business and securing obligations which are not yet delinquent:
(4) purchase money liens or purchase money security interests upon or in
any property acquired or held by Borrower in the ordinary course of
business to secure indebtedness outstanding on the date of this Agreement
or permitted to be incurred under the paragraph of this Agreement titled
"Indebtedness and Liens"; (5) liens and security interests which, as of
the dale of this Agreement, have been disclosed to and approved by the
Lender in writing; and (6) those Iiens and security interests which in the
aggregate constitute an immaterial and insignificant monetary amount with
respect to the net value of Borrower's assets.
Related Documents. The words "Related Documents" mean all promissory notes, credit agreements, loan agreements, environmental agreements, guaranties, security agreements, mortgages, deeds of trust, security deeds, collateral mortgages, and all other instruments, agreements and documents, whether now or hereafter existing, executed in connection with the Loan.
Security Agreement. The words "Security Agreement" mean and include without limitation any agreements, promises, covenants, arrangements, understandings or other agreements, whether created by law, contract, or otherwise, evidencing, governing, representing, or creating a Security Interest.
Security Interest. The words "Security Interest" mean, without limitation, any and all types of collateral security, present and future, whether in the form of a Iien, charge, encumbrance, mortgage, deed of trust, security deed, assignment, pledge, crop pledge, chattel mortgage. collateral chattel mortgage, chattel trust, factor's lien, equipment trust, conditional sale, trust receipt, lien or title retention contract lease or consignment intended as a security device, or any other security or lien interest whatsoever whether created by law, contract, or otherwise.
BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS BUSINESS LOAN AGREEMENT AND BORROWER AGREES TO ITS TERMS. THIS BUSINESS LOPIN AGREEMENT IS DATED AUGUST 15. 2001.
BORROWER:
FNB BANCORP
By: /s/ Michael R. Wyman By: /s/ Paul B. Hogan
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Michael R. Wyman, Chairman or the Board of FNB Paul B. Hogan, Chief Operating Officer of FNB
Bancorp Bancorp
By: /s/ James B. Ramsey
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James B. Ramsey, Chief Financial Officer or FNB
Bancorp
LENDER:
PAClFlC COAST BARKERS' BANK
By: /s/ Larry Ryan, Vice President
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Authorized Signer
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DISBURSEMENT REQUEST AND AUTHORIZATION
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Principal Loan Date Maturity Loan No. Call / Coll Account Officer Initials
$500,000.00 08-15-2001 02-22-2002 7001574 UNSEC
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References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
Any item above containing "***" has, been omitted due to
text length limitations.
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Borrower: FNB Bancorp Lender: PACIFIC COAST BANKERS' BANK
975 El Camino Real, third Floor 340 PINE STREET. SUITE 401
South San Francisco, CA 94080 SAN FRANCISCO, CA 94104
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LOAN TYPE. This is a Variable Rate Nondisclosable Revolving Line of Credit Loan to a Corporation for $500,000.00 due on February 22, 2002. The reference rate (WSJ Prime Rate, currently 6.750%) is added to the margin of 1.000%, resulting in an initial rate of 7.750.
PRIMARY PURPOSE OF LOAN. The primary purpose of this loan is for:
[ ] Personal, Family, or Household Purposes or Personal Investment.
[X] Business (Including Real Estate Investment).
SPECIFIC PURPOSE. The specific purpose of this loan is: Revolving Line of Credit to be used to cover organizational costs for formation of Bancorp.
DISBURSEMENT INSTRUCTIONS. Borrower understands that no loan proceeds will be disbursed until all of Lender's conditions for making the loan have been satisfied. Please disburse the loan proceeds of $500,000.00 as follows:
Amount paid to Borrower directly: $500,000.00
$500,000.00 Deposited to Loan
Account #7001574 (Undisbursed)
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Note Principal: $500,000.00
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CHARGES PAID IN CASH. Borrower has paid or will pay in cash as agreed the following charges:
Prepaid Finance Charges Paid in Cash: $0.00
Other Charges Paid in Cash: $5,000.00
$5,000.00 Loan Fee
--------------
Total Charges Paid in Cash: $5,000.00
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FINANCIAL CONDITION. BY SIGNING THIS AUTHORIZATION, BORROWER REPRESENTS AND WARRANTS TO LENDER THAT THE INFORMATION PROVIDED ABOVE IS TRUE AND CORRECT AND THAT THERE HAS BEEN NO MATERIAL ADVERSE CHANCE IN BORROWER'S FINANCIAL CONDITION AS DISCLOSED IN BORROWER'S MOST RECENT FINANCIPIL STATEMENT TO LENDER. TH1S AUTHORIZATION IS DATED AUGUST 15, 2001.
BORROWER:
FNB BANCORP
By: /s/ Michael R. Wyman By: /s/ Paul B. Hogan
------------------------------------------------ -----------------------------------------------
Michael R. Wyman, Chairman or the Board of FNB Paul B. Hogan, Chief Operating Officer of FNB
Bancorp Bancorp
By: /s/ James B. Ramsey
------------------------------------------------
James B. Ramsey, Chief Financial Officer or FNB
Bancorp
=================================================================================================================
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NOTICE OF FINAL AGREEMENT
------------------- ------------- -------------- ---------------- ----------------- --------------- ------------ ----------
Principal Loan Date Maturity Loan No. Call / Coll Account Officer Initials
$500,000.00 08-15-2001 02-22-2002 7001574 UNSEC
------------------- ------------- -------------- ---------------- ----------------- --------------- ------------ ----------
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
Any item above containing "***" has, been omitted due to
text length limitations.
----------------------------------------------------------------------------------------------------------------------------
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Borrower: FNB Bancorp Lender: PACIFIC COAST BANKERS' BANK
975 El Camino Real, third Floor 340 PINE STREET. SUITE 401
South San Francisco, CA 94080 SAN FRANCISCO, CA 94104
============================================================================================================================
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BY SIGNING THIS DOCUMENT EACH PARTY REPRESENTS AND AGREES THAT: (A) THE WRITTEN LOAN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES, (B) THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES, AND (C) THE WRITTEN LOAN AGREEMENT MAY NOT BE CONTRADICTED BY EVIDENCE OF ANY PRIOR, CONTEMPORANEOUS, OR SUBSEOUENT ORAL AGREEMENTS OR UNDERSTANDINGS OF THE PARTIES.
As used in this Notice, the following terms have the following meanings:
Loan. The term "Loan" means the following described loan: a Variable Rate Nondisclosable Revolving Line of Credit Loan to a Corporation for $500,000.00 due on February 22, 2002. The reference rate (WSJ Prime Rate, currently 6.750%] is added to the margin of 1.000%, resulting n an initial rate of 7.750.
Loan Agreement. The term "Loan Agreement" means one or more promises, promissory notes, agreements, undertakings, security Agreements, deeds of trust or other documents, or commitments, or any combination of those actions or documents, relating to the Loan, including without limitation the following:
LOAN DOCUMENTS
Corporate Resolution: FNB Bancorp Business Loan Agreement Promissory Note Disbursement Request and Authorization Notice of Final Agreement |
Parties. The term "Parties" means PACIFIC COAST BANKERS' BANK and any and all entities or individuals who are obligated to repay the loan or have pledged property as security far the Loan, including without imitation the following.
Each Parry who signs below, other than PACIFIC COAST BANKERS' BANK, acknowledges, represents, and warrants to PACIFIC COAST BANKERS' BANK that it has received, read and understood this Notice of Final Agreement. This Notice is dated August 15, 2001.
BORROWER:
FNB BANCORP
By: /s/ Michael R. Wyman By: /s/ Paul B. Hogan
------------------------------------------------ ----------------------------------------------
Michael R. Wyman, Chairman or the Board of FNB Paul B. Hogan, Chief Operating Officer of FNB
Bancorp Bancorp
By: /s/ James B. Ramsey
------------------------------------------------
James B. Ramsey, Chief Financial Officer or FNB
Bancorp
LENDER:
PACIFIC COAST BANKERS' BANK
X /s/ Larry Ryan, Vice President
----------------------------------------------------
Authorized Signer
==================================================================================================================
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EXHIBIT 10.16
COMMUNICATIONS SITE LEASE AGREEMENT (BUILDING)
This Communications Site Lease Agreement ("Agreement") is entered into this 30 day of March 1999, between NEXTEL OF CALIFORNIA, INC., a Delaware corporation, d/b/a Nextel Communications, ("Lessee"), and FIRST NATIONAL BANK, a California corporation ("Lessor").
For good and valuable consideration the receipt and sufficiency of which is hereby acknowledged. the parties hereto agree as follows:
1. Premises.
(a) Lessor is the owner of a parcel of land (the "Land")
and building (the "Building") located in the City of Redwood City, County of San
Mateo, State of California, commonly known as 700 El Camino Real (APN: 52195140)
(the Building and the Land are collectively. the "Property"). The Land is more
particularly described in Exhibit A annexed hereto. Lessor hereby leases to
Lessee and Lessee leases from Lessor approximately Two Hundred Ten (210) square
feet of space on the roof of the Building for the placement of its equipment
shelter and space on the roof of (he building for the placement of up to twelve
(12) panel antennas and all access and utility easements (collectively. the
"Premises"), as described in Exhibit B annexed hereto.
(b) Lessor hereby reserves the right upon not less than ninety (90) day's prior written notice. to require Lessee, to relocate the Lessee's antenna to another location on the Building ("Alternate Antenna Location"), in the event Lessor plans a renovation or expansion of ail or part of the Building and Lessee's antennas directly affect the portion of the Building to be renovated or expanded. In the event of such renovation or expansion of the Building:
(1) (i) The Alternate Antenna Location shall, in Lessee's sole and reasonable judgment. be similar in area and appropriateness for Lessee's purposes, (ii) Lessee is able, with reasonable efforts, to acquire any governmental approvals required for the relocation, if any, (iii) that if such required relocation occurs more than once during the Term or any Renewal Term of the Agreement, Lessor shall pay any and all expenses connected with moving Lessee, its properly and its antennas to the Alternate Antenna Location and back to the original site, provided however, any cost associated with the first temporary relocation pursuant to this Agreement shall be borne solely by Lessee
(2) Upon conclusion of the Building renovation, Lessee's antennas shall be moved back to the Premises, pursuant to the cost basis as provided in (b)(l)(iii), and Lessee will cease use of the Alternate Antenna Location.
2. Use. The Premises may be used by Lessee for any activity in connection with the provision of communications services. Lessor agrees to cooperate with Lessee. at Lessee's expense. in making application for and obtaining all licenses, permits and any and all other necessary approvals that may be required for Lessee's intended use of the Premises.
3. Tests and Construction. Lessee shall have the right at any time following the full execution of this Agreement to enter upon the Property for the purpose of making appropriate engineering and boundary surveys inspections, soil test borings, other reasonably necessary tests and constructing the Lessee Facilities (as defined in Paragraph 6(a) below).
4. Term. The term of this Agreement shall be five (5) years commencing on the date Lessee begins construction of the Lessee Facilities or eighteen (18) months following full execution of this Agreement, whichever first occurs ("Commencement Date") and terminating on the fifth anniversary of the Commencement Date (the "Term") unless otherwise terminated as provided in Paragraph 10. Lessee shall have the right to extend the Term for five (5) successive five (5) year periods (the "Renewal Terms") on the same terms and conditions as set forth herein This Agreement shall automatically be extended for each successive Renewal Term unless Lessee notifies Lessor of its intention not to renew prior to commencement of the succeeding Renewal Term.
5. Rent.
(a) Within fifteen (15) business days following the Commencement Date and on the first day of each month thereafter, Lessee shall pay to Lessor as rent EIGHT HUNDRED and 001100 DOLLARS ($800.00) per month ("Rent"). Rent for any fractional month at the beginning or at the end of the Term or Renewal Term shall be prorated Rent shall be payable to Lessor at 975 El Camino Real, South San Francisco, CA 94080 Attention: Paul Hogan.
(b) On each anniversary of the Commencement Date, Lessee shall pay the then current Rent increased by percent (3%) of the Rent in effect for the previous year.
6. Facilities; Utilities; Access
(a) Lessee has the right to erect, maintain and operate on the Premises radio communications facilities, including without limitation an air conditioned equipment room, utility lines, transmission lines, electronic equipment, radio transmitting and receiving antennas and supporting equipment and structures thereto ("Lessee Facilities"). In connection therewith, Lessee has the right to do all work necessary to prepare, maintain and alter the Premises for Lessee's business operations and to install transmission lines connecting the antennas to the transmitters and receivers. All of Lessee's construction and installation work shall be performed at Lessee's sole cost and expense and in a good and workmanlike manner. In the event it is determined that the installation, operation or removal of the Lessee Facilities causes any damage to the roof or the membrane thereof, Lessee shall repair such damage at its sole cost and expense within a reasonable time period after notice thereof from Lessor. Lessee, at Lessor's option, may be required to paint the Lessee Facilities to match the exterior color and finish of the Building. Title to the Lessee Facilities shall be held by Lessee. All of Lessee Facilities shall remain Lessee's personal property and are not fixtures. Lessee has the right to remove all Lessee Facilities at its sole expense on or before the expiration or earlier termination of the Agreement; provided, Lessee repairs any damage to the Premises caused by such removal.
(b) Lessee shall pay for the electricity it consumes in its operations at the rate charged by the servicing utility company. Lessee shall have the right to draw electricity and other utilities from the existing utilities on the Property or obtain separate utility service from any utility company that will provide service to the Property (including a standby power generator for Lessee's exclusive use) Lessor agrees to sign such documents or easements as may be required by said utility companies to provide such service to the Premises, including the grant to Lessee or to the servicing utility company at no cost to the Lessee, of an easement in, over across or through the Land as required by such servicing utility company to provide utility services as provided herein. Any easement necessary for such power or other utilities will be at a location acceptable to Lessor and the servicing utility company.
(c) Lessee, Lessees employees, agents, and subcontractors shall have access to the Premises, subject to reasonable restrictions established from time to time by Lessor, on a twenty-four (24) hours a day, seven days a week basis, at no charge above and beyond any direct costs to Lessee for these provisions (including security charges) to permit off hours access. Lessor grants to Lessee, and its agents employees, contractors, a non-exclusive right and easement for pedestrian and vehicular ingress and egress across that portion of the Land described in Exhibit B.
(d) Lessor shall maintain all access roadways from the nearest public roadway to the Premises in a manner sufficient to allow pedestrian and vehicular access at all times under normal weather conditions. Lessor shall be responsible for maintaining and repairing such roadway, at its sole expense, except for any damage caused by Lessee's use of such roadways.
7. Interference.
(a) Lessee shall operate the Lessee Facilities in a manner that will not cause interference to Lessor and other lessees or licensees of the Property, provided that their installations predate that of the Lessee Facilities. All operations by Lessee shall be in compliance with all Federal Communications Commission ("FCC") requirements.
(b) Subsequent to the installation of the Lessee Facilities, Lessor shall not permit itself, its lessees or licensees to install new equipment on the Property or property contiguous thereto owned or controlled by Lessor, if such equipment is likely to cause interference with Lessee's operations. Such interference shall be deemed a mater al breach by Lessor in the event interference occurs, Lessor agrees to take all action necessary to eliminate such interference, in a reasonable time period. In the event Lessor fails to comply with this paragraph, Lessee may terminate this Agreement and/or pursue any other remedies available under this Agreement, at law, and/or at equity.
8. Taxes. If personal property taxes are assessed, Lessee shall pay any portion of such taxes directly attributable to the Lessee Facilities. Lessor shall pay all real property taxes, assessments and deferred taxes on the Property.
9. Waiver of Lessor's Lien.
(a) Lessor waives any lien rights it may have concerning the Lessee Facilities, which are deemed Lessee's personal property and not fixtures, and Lessee has the right to remove the same at any time without Lessor's consent.
(b) Lessor acknowledges that Lessee has entered into a financing arrangement including promissory notes and financial and security agreements for the financing of the Lessee Facilities (the "Collateral") with a third party financing entity (and may in the future enter into additional financing arrangements with other financing entities) In connection therewith, Lessor (i) consents to the installation of the Collateral; (ii) disclaims any interest in the Collateral. as fixtures or otherwise; and (iii) agrees that the Collateral shall be exempt from execution, foreclosure, sale, levy. attachment, or distress for any Rent due or to become due and that such Collateral may be removed at any time without recourse to legal proceedings.
10. Termination. This Agreement may be terminated without further liability on thirty (30) days prior written notice as follows. (i) by either party upon a default of any covenant or term hereof by the other party, which default is not cured within sixty (60) days of receipt of written notice of default, provided that the grace period for any monetary default is ten (10) days from receipt of notice; or (ii) by Lessee for any reason or for no reason, provided Lessee delivers written notice of early termination to Lessor no later than thirty (30) days prior to the Commencement Date; or (iii) by Lessee if it does not obtain or maintain any license, permit or other approval necessary for the construction and operation of Lessee Facilities; or (iv) by Lessee if Lessee is unable to occupy and utilize the Premises due to an action of the FCC, including without limitation, a take back of channels or change in frequencies; or (v) by Lessee if Lessee determines that the Premises are not appropriate for its operations for economic or technological reasons, including, without limitation, signal interference.
11. Destruction Or Condemnation. If the Premises or Lessee Facilities are damaged, destroyed, condemned or transferred in lieu of condemnation, Lessee may elect to terminate this Agreement as of the date of the damage, destruction, condemnation or transfer in lieu of condemnation by giving notice to Lessor no more than forty-five (45) days following the date of such damage, destruction, condemnation or transfer in lieu of condemnation. If Lessee chooses not to terminate this Agreement, Rent shall be reduced or abated in proportion to the actual reduction or abatement of use of the Premises.
12. Insurance. Lessee, at Lessee's sole cost and expense, shall procure and maintain on the Premises and on the Lessee Facilities, bodily injury and property damage insurance with a combined single limit of al least One Million and 001100 Dollars ($1,000,000.00) per occurrence. Such insurance shall insure, on an occurrence basis, against liability of Lessee, its employees and agents arising out of or in connection with Lessee's use of the Premises, all as provided for herein. Lessor, at Lessor's sole cost and expense, shall procure and maintain on the Property, bodily injury and property damage insurance with a combined single limit of at least One Million Dollars ($1,000,000) per occurrence. Such insurance shall insure, on an occurrence basis, against liability of Lessor, its employees and agents arising out of or in connection
with Lessor's use, occupancy and maintenance of the Property. Each party shall be named as an additional insured on the other's policy. Each party shall provide to the other a certificate of insurance evidencing the coverage required by this paragraph within thirty (30) days of the Commencement Date.
13. Waiver of Subrogation. Lessor and Lessee release each other and their respective principals, employees, representatives and agents, from any claims for damage to any person or to the Premises or to the Lessee Facilities thereon caused by, or that result from, risks insured against under any insurance policies carried by the parties and in force at the time of any such damage. Lessor and Lessee shall cause each insurance policy obtained by them to provide that the insurance company waives all right of recovery by way of subrogation against the other in connection with any damage covered by any policy. Neither Lessor nor Lessee shall be liable to the other for any damage caused by fire or any of the risks insured against under any insurance policy required by Paragraph 12.
14. Assignment and Subletting. Lessee may not assign, sublet or otherwise transfer all or any part of its interest in this Agreement or in the Premises without the prior written consent of Lessor: provided, however, that Lessee may assign its interest to its parent company, any subsidiary or affiliate of it or its parent company or to any successor-in- interest or entity acquiring fifty-one percent (51 %) or more of its stock or assets, subject to any financing entity's interest, if any, in this Agreement as set forth in Paragraph 9 above. Lessor may assign this Agreement upon written notice to Lessee, subject to the assignee assuming all of Lessor's obligations herein, including but not limited to, those set forth in Paragraph 9 above. Notwithstanding anything to the contrary contained in this Agreement, Lessee may assign, mortgage, pledge, hypothecate or otherwise transfer without consent its interest in this Agreement to any financing entity, or agent on behalf of any financing entity to whom Lessee (i) has obligations for borrowed money or in respect of guaranties thereof, (ii) has obligations evidenced by bonds, debentures, notes or similar instruments, or (iii) has obligations under or with respect to letters of credit, bankers acceptances and similar facilities or in respect of guaranties thereof.
15. Warranty of Title and Quiet Enjoyment. Lessor warrants that:
(i) Lessor owns the Property in fee simple and has rights of access thereto;
(ii) Lessor has full right to make and perform this Agreement; and (iii) Lessor
covenants and agrees with Lessee that upon Lessee paying the Rent and observing
and performing all the terms, covenants and conditions on Lessee's part to be
observed and performed, Lessee may peacefully and quietly enjoy the Premises.
Lessor agrees to indemnify and hold harmless Lessee from any and all claims on
Lessee's leasehold interest.
16. Repairs. Lessee shall not be required to make any repairs to the Premises or Property unless such repairs shall be necessitated by reason of the default or neglect of Lessee. Except as set forth in Paragraph 6(a) above, upon expiration or termination hereof, Lessee shall restore the Premises to the condition in which it existed upon execution hereof, reasonable wear and tear and loss by casualty or other causes beyond Lessee's control excepted.
17. Hazardous Substances. Lessee agrees that it will not use, generate, store or dispose of any Hazardous Material on, under, about or within the Land in violation of any law or regulation. Lessor represents, warrants and agrees (1) that neither Lessor nor, to Lessor's knowledge, any third party has used, generated, stored or disposed of, or permitted the use, generation, storage or disposal of, any Hazardous Material on, under, about or within the Land in violation of any law or regulation, and (2) that Lessor will not, and will not permit any third party to use, generate, store or dispose of any Hazardous Material on, under, about or within the Land in violation of any law or regulation. Lessor and Lessee each agree to defend, indemnify and hold harmless the other and the other's partners, affiliates, agents and employees against any and all losses, liabilities, claims and/or costs (including reasonable attorneys' fees and costs) arising from any breach of any representation, warranty or agreement contained in this paragraph. As used in this paragraph, "Hazardous Material" shall mean petroleum or any petroleum product, asbestos, any substance known by the state in which the Land is located to cause cancer and/or reproductive toxicity, and/or any substance, chemical or waste that is identified as hazardous, toxic or dangerous in any applicable federal, state or local law or regulation This paragraph shall survive the termination of this Agreement.
18. Liability and Indemnity. Lessee shall indemnify and hold Lessor harmless from all claims (including reasonable attorneys' fees, costs and expenses of defending against such claims) arising from the negligence or willful misconduct of Lessee or Lessee's agents or employees in or about the Property. Lessor shall indemnify and hold Lessee harmless from all claims (including reasonable attorneys' fees, costs and expenses of defending against such claims) arising or alleged to arise from the acts or omissions of Lessor or Lessor's agents, employees, licensees, invitees, contractors or other tenants occurring in or about the Property. The duties described in Paragraph 18 survive termination of this Agreement.
19. Miscellaneous
(a) This Agreement constitutes the entire agreement and understanding between the parties, and supersedes all offers, negotiations and other agreements concerning the subject matter contained herein. Any amendments to this Agreement must be in writing and executed by both parties.
(b) If any provision of this Agreement is invalid or unenforceable with respect to any party, the remainder of this Agreement or the application of such provision to persons other than those as to whom it is held invalid or unenforceable, shall not be affected and each provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law.
(c) This Agreement shall be binding on and inure to the benefit of the successors and permitted assignees of the respective parties.
(d) Any notice or demand required to be given herein shall be made by certified or registered mail, return receipt requested, or reliable overnight courier to the address of the respective parties set forth below:
Lessor: Lessee:
FIRST NATIONAL BANK, NEXTEL OF CALIFORNIA, INC.
a California corporation a Delaware corporation,
975 El Camino Real d/b/a Nextel Communications
South San Francisco, CA 94080 1255 Treat Blvd., Suite 800
Phone:(650) 875-4864 Walnut Creek, CA 94596
Attn: Paul Hogan Attn: Property Manager
With a copy to: Nextel Communications, Inc.
2001 Edmund Halley Drive
Reston, VA 20191-3436
Attn: Legal Department, Contracts Manager
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Lessor or Lessee may from time to time designate any other address for this purpose by written notice to the other party.
(e) This Agreement shall be governed by the laws of the State of California.
(f) Lessor acknowledges that a Memorandum of Agreement in the form annexed hereto as Exhibit C will be recorded by Lessee in the Official Records of the County where the Property is located. In the event the Property is encumbered by a mortgage or deed of trust, Lessor agrees to obtain and furnish to Lessee a non-disturbance and attornment instrument for each such mortgage or deed of trust.
(g) Lessee may obtain title insurance on its interest in the Premises. Lessor shall cooperate by executing documentation required by the title insurance company.
(h) In any case where the approval or consent of one party hereto is required, requested or otherwise to be given under this Agreement, such party shall not unreasonably delay or withhold its approval or consent.
(i) All Riders and Exhibits annexed hereto form material parts of this Agreement.
(j) This Agreement may be executed in duplicate counterparts, each of which shall be deemed an original.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.
LESSOR: LESSEE:
FIRST NATIONAL BANK NEXTEL OF CALIFORNIA, INC.,
a California corporation a Delaware corporation,
d/b/a Nextel Communications
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PAUL HOGAN
By: /s/ PAUL B. HOGAN By: /s/ MARK NELSON
Date: 11/30/99 Date: Jan 08, 2000
Title: President & Chief Operating Title: Vice President Of Engineering
Officer Nextel of California Inc.
--------------------------- -----------------------------
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JAMES B. RAMSEY, SR.
By: /s/ JAMES B. RAMSEY
Date: 11/30/99
Title: Senior Vice President and Chief Financial Officer
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Tax ID#:
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EXHIBIT A
DESCRIPTION OF LAND
to the Agreement dated 11/30/ , 1999, by and between, FIRST NATIONAL BANK, a California corporation, as Lessor and NEXTEL OF CALIFORNIA, INC., a Delaware corporation, d/b/a Nextel Communications, as Lessee.
The Land is described and/or depicted as follows (metes and bounds description):
APN: 52195140 (page 1 of 2)
ALL THAT CERTAIN REAL PROPERTY SITUATE IN THE COUNTY OF SAN MATEO,
STATE OF CALIFORNIA. DESCRIBED AS FOLLOWS:
CITY OF REDWOOD CITY
LOT 2 IN BLOCK 2 AS SHOWN ON THAT CERTAIN MAP ENTITLED "MAP OF RESUBDIVISION OF DINGEE PARK", FILED IN THE OFFICE OF THE COUNTY RECORDER OF SAN MATEO COUNTY, STATE OF CALIFORNIA ON JULY 8, 1908 IN BOOK 6 OF MAPS AT PAGES 25 AND 26.
EXCEPTION THEREFROM THAT PORTION THEREOF DESCRIBED IN THE DEED FROM FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION TO LOUIS B. DEMATTEIS, ET, UX. RECORDED MARCH 15, 1963 IN BOOK 4412 AT PAGE 526 AS DOCUMENT NO. 71169-V OF OFFICIAL RECORDS.
A PORTION OF LOT 1 IN BLOCK 2 AS SHOWN ON THAT CERTAIN MAP ENTITLED "MAP OF RESUBDIVISION OF DINGEE PARK": FILED IS THE OFFICE OF THE COUNTY RECORDER OF SAN MATEO COUNTY, STATE OF CALIFORNIA JULY 8, 1908 IN BOOK 6 OF MAPS AT PAGE 26, MORE PARTICULARLY DESCRIBED AS FOLLOWS:
BEGINNING AT THE MOST WESTERLY CORNER OF SAID LOT 1 IN THE SOUTHEASTERLY LINE OF BREWSTER AVENUE; THENCE ALONG SAID LINE OF BREWSTER AVENUE NORTH 44(degree) 32' 30" EAST 44.55 FEET TO THE SOUTHWESTERLY LINE OF LAND CONVEYED BY DEED FROM REDWOOD HIGHLANDS COMPANY, LTD., TO STATE. OF CALIFORNIA. DATED FEBRUARY 25, 1937 AND
RECORDED MARCH 26. 1937 IN BOOK 736 AT PAGE 270 OF OFFICIAL RECORDS;
THENCE ALONG SAID LINE OF PROPERTY SO CONVEYED TO STATE OF CALIFORNIA,
SOUTH 43(degree) 00' 63.12 FEET: THENCE SOUTH 44(degree) 32' 30" WEST
41.83 FEET TO THE SOUTHWESTERLY BOUNDARY OF SAID LOT 1: THENCE ALONG
SAID BOUNDRY OF LOT 1, NORTH 45(degree) 27' 30" WEST 53.06 FEET TO THE
POINT OF BEGINNING.
BEGINNING AT A POINT OF THE DIVIDING LINE BETWEEN LOTS 1 AND 2 IN BLOCK
1 AS SHOWN ON THAT CERTAIN MAP ENTITLED "MAP OF RESUBDIVISION OF DINGEE
PARK FILED IN THE OFFICE OF THE COUNTY RECORDER OF SAN MATEO COUNTY,
STATE OF CALIFORNIA ON JULY 8, 1908 IN BOOK 6 OF MAPS AT PAGES 25 AND
26. SAID POINT BEING DISTANT ON SAID LINE NORTH 45(degree) 27' 30" WEST
42.99 FEET FROM THE MOST SOUTHERLY. CORNER OF SAID LOT I, AS SHOWN ON
SAID MAP; THENCE POINT OF BEGINNING. CONTINUING ALONG SAID LINE
DIVIDING LOTS 1 AND 2, NORTH 45(degree)27' 30" WEST 23.95 FEET; THENCE
LEAVING SAID LINE NORTH 44(degree) 31' 30'` EAST 41.83 FEET TO THE
SOUTHWESTERLY LINE OF EL CAMINO REAL AS WIDENED; THENCE ALONG SAID
SOUTHWESTERLY LINE SOUTH 43(degree) 00' EAST 23.92 FEET; THENCE LEAVING
SAID LINE SOUTH 44(degree) 28' 04' WEST 40.80 FEET TO THE POINT OF
BEGINNING AND BEING A PORTION OF LOT 1 IN BLOCK 2 AS SHOWN ON SAID MAP.
BEGINNING AT A POINT ON THE DIVIDING LINE BETWEEN LOTS 1 AND 2 IN BLOCK
AS SHOWN ON THAT CERTAIN MAP ENTITLED "MAP OF RESUBDIVISION OF DINGEE
PARK", FILED IN THE OFFICE OF THE COUNTY RECORDER OF SAN MATEO COUNTY,
STAT OF CALIFORNIA ON JULY 8, 1908 IN BOOK 6 OF MAPS AT PAGES 25 AND
26, SAID POINT DISTANT ON SAID LINE NOTRH 45(degree) 27' 30" WEST 42.99
FEET FROM THE MOST SOUTHERLY CORNER OF SAID LOT 1, AS SHOWN ON SAID
MAP; THENCE FROM SAID POINT OF BEGINNING, LEAVING SAID LINE SOUTH
44(degree) 28' 04" 0.36 FEET; THENCE NORTH 45(degree) 10' 17" WEST
23.95 FEET; THENCE NORTH 44(degree) 32' 30" EAST 0.24 FEET. TO A POINT
ON SAID LINE DIVIDING LOTS 1 AND 2; THENCE ALONG SAID LNIE SOUTH
45(degree) 27' 30" EAST 23. 95 FEET TO THE POINT OF BEGNNING AND BEING
A PORTION OF LOT 2 IN BLOCK 2 AS SHOWN ON SAID MAP.
BEGINNING AT A POINT IN THE DIVIDING LINE BETWEEN LOTS 1,2 AND 5 IN
BLOCK 2 AND WHICH POINT IS ALSO THE MOST SOUTHERLY CORNER OF 1, AS
SHOWN ON THAT CERTAIN MAP ENTITLED " MAP OF RESUBDIVISION OF DINGEE
PARK", FILED IN THE OFFICE OF THE COUNTY RECORDER OF SAN MATEO COUNTY,
STATE OF CALIFORNIA ON JULY 8, 1908 IN BOOK 6 0F MAPS AT PAGES 25 AND
26; THENCE FROM SAID POINT OF BEGINNING NORTH 45(degree) 27' 30" WEST
43.03 FEET ALONG THE DIVIDING LINE BETWEEN LOTS 1 AND 2; THENCE NORTH
44(degree) 32' 30" EAST 40.81 FEET TO A POINT ON THE SOUTHWESTERLY LINE
OF EL CAMINO REAL AS WIDENED; THENCE ALONG SAID LINE SOUTH 43(degree)
00' EAST 43.07 FEET TO A POINT ON THE DIVIDING LINE BETWEEN LOTS 1 AND
5 AS SHOWN ON THE AFOREMENTIONED MAP; THENCE SOUTH 44(degree) 32' 30"
WEST.38.96 FEET ALONG SAID DIVIDING LINE TO THE POINT OF BEGINNING AND
BEING A PORTION OF LOT 1 IN BLOCK 2 AS SHOWN ON SAID MAP.
EXHIBIT B
DESCRIPTION OF PREMISES
to the Agreement dated NOV. 20, 1999, by and between FIRST NATIONAL BANK, a California corporation, as Lessor and NEXTEL OF CALIFORNIA, INC., a Delaware corporation, d/b/a Nextel Communications, as Lessee.
The Premises are described and/or depicted as follows:
[GRAPHIC OMITTED]
1. This Exhibit may be replaced by a land survey of the Premises once it is received by Lessee.
2. Setback of the Premises from the Land's boundaries shall be the distance required by the applicable governmental authorities
3. Width of access road shall be the width required by the applicable governmental authorities, Including police and fire departments.
4. The type, number and mounting positions and locations of antennas and transmission lines are illustrative only Actual types, numbers, mounting positions may vary from what is shown above.
5. The location of any utility easement is illustrative only. Actual location shall be determined by the servicing utility company in compliance with all local laws and regulations.
EXHIBIT C
MEMORANDUM OF AGREEMENT
CLERK: Please return this document to:
NEXTEL OF CALIFORNIA, INC.
1255 Treat Blvd., Suite 800
Walnut Creek, CA 94596
Attn: Property Manager
This Memorandum of Agreement is entered into on this 30 day of November, 1999, by and between FIRST NATIONAL BANK, a California corporation with an address at 975 El Camino Real, South San Francisco, CA 94080 (hereinafter referred to as "Lessor") and NEXTEL OF CALIFORNIA, INC., a Delaware corporation, d/b/a Nextel Communications, with an office at 1255 Treat Blvd., Suite 800, Walnut Creek, CA 94596, (hereinafter referred to as "Lessee")
1. Lessor and Lessee entered into a Communications Site Lease Agreement ("Agreement") on the day of 1999, for the purpose of installing, operating and maintaining a radio communications facility and other improvements. All of the foregoing are set forth in the Agreement.
2. The term of this Agreement shall be five (5) years commencing on the date Lessee begins construction of the Lessee Facilities or eighteen (18) months following full execution of this Agreement, whichever first occurs ("Commencement Date") and terminating on the fifth anniversary of the Commencement Date (the "Term") unless otherwise terminated as provided in Paragraph 10. Lessee shall have the right to extend the Term for five (5) successive five (5) year periods (the "Renewal Terms") on the same terms and conditions as set forth herein This Agreement shall automatically be extended for each successive Renewal Term unless Lessee notifies Lessor of its intention not to renew prior to commencement of the succeeding Renewal Term.
3. The Land which is the subject of the Agreement is described in Exhibit A annexed hereto. The portion of the Land being leased to Lessee (the "Premises") is described in Exhibit B annexed hereto.
IN WITNESS WHEREOF, the parties have executed this Memorandum of Agreement as of the day and year first above written.
LESSOR: LESSEE:
FIRST NATIONAL BANK NEXTEL OF CALIFORNIA, INC.,
a California corporation a Delaware corporation,
d/b/a Nextel Communications
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AMENDMENT NO. 1
THIS AMENDMENT NO, 1 ("Amendment") is attached to and made a part of that certain Communications Site Lease Agreement ("Agreement") dated November 30, 1999, by and between NEXTEL OF CALIFORMA, ING., a Delaware corporation, d/b/a Nextel Communications ("Lessee") and FIRST NATIONAL BANK, a California Corporation ("Lessor").
Unless expressly defined herein, the terms in this Amendment shall have the same meaning as in the Agreement. In case of any inconsistencies between the terms and conditions contained in the Agreement and the terms and conditions contained herein, the terms and conditions herein shall control. Except as set forth below, all provisions of the Agreement remain unchanged and in full force and effect.
NOW, THEREFORE, in consideration of the mutual covenants contained herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows:
1. That Exhibit B of the Agreement is hereby deleted in its entirety and replaced with the attached construction drawings as the Revised Exhibit B attached hereto and made a part hereof.
2. Under Paragraph 1(a) of the Agreement, the following language shall be deleted in its entirety: "Lessor hereby leases to Lessee and Lessee leases from Lessor approximately Two Hundred Ten (210) square feet of space on the roof of the Building for the placement of its equipment shelter and space on the roof of the building for the placement of up to twelve (12) panel antennas and all access and utility easements (collectively, the "Premises"), as described in Exhibit B annexed hereto," and shall be replaced with the following: "Lessor hereby leases to Lessee and Lessee leases from Lessor approximately Four Hundred and Twenty-Five (425) square feet of space on the roof of the Building for the placement of its equipment shelter and space on the roof of the building for the placement of up to twelve (12) panel antennas and all access and utility easements (collectively, the "Premises"), as described in the Revised Exhibit B annexed hereto."
3. Under Paragraph S(a) of the Agreement, the following language shall be
deleted in its entirety: "Within fifteen (15) business days following the
Commencement Date and on the first day of each month thereafter, Lessee shall
pay to Lessor as rent EIGHT HUNDRED and 00/100 DOLLARS ($800.00) per month
("Rent")," and shall be replaced with the following: "Within fifteen (15)
business days following the Commencement Date and on the first day of each month
thereafter, Lessee shall pay to Lessor as rent ONE THOUSAND THREE HUNDRED AND
FIFTY and 00/100 DOLLARS ($1,350.00) per month ("Rent")."
4. At the end of Paragraph 6(b) of the Agreement, the following language shall be added: "if Lessee submeters utilities, Lessee shall reimburse the Lessor for the cost of utility service provided to the Premises and attributable to Lessee's use ("Utility Charge"). Lessee shall pay the estimated cost of the Utility Charge monthly in advance together with the monthly Rent. The parties estimate the Utility Charge at the Commencement Date to be THREE HUNDRED and
00/100 DOLLARS ($300.00) per month. Semi-annually Lessee shall adjust the Utility Charge to reflect the actual electrical usage by Lessee. If Lessee has made overpayments on the Utility Charge, Lessee shall credit such overpayment against future Utility Charges. If Lessee has underpaid the Utility Charge Lessee shall adjust the Utility Charge to include such underpayment, and, if requested by Lessee, Lessor shall supply to Lessee supporting documentation verifying the actual usage of electricity by Lessee."
5. Following the second sentence of Paragraph 6(b), the following language shall be added: "In the event that Lessee brings a temporary standby generator onto the Property, Lessee shall pay Lessor THIRTY and 00/100 DOLLARS ($30.00) per day, as compensation for the parking space that Lessee will be occupying for the use of the generator."
***SIGNATURES ON FOLLOWING PAGE***
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed on the ______day of ________________, 2000.
LESSOR: LESSEE:
FIRST NATIONAL BANK NEXTEL OF CALIFORNIA, INC.,
a California corporation a Delaware corporation,
d/b/a Nextel Communications
By: /s/ PAUL B. HOGAN By: /s/ COLIN HOLLAND
------------------------------ ------------------------------
Paul Hogan Colin Holland
Title: President & Chief Operating Title: Area VP of Engineering and
Officer Operations
------------------------------ ------------------------------
Date: 8/15/00 Date: 8/28/00
By: /s/ JAMES B. RAMSEY
------------------------------
James B. Ramsey, Sr.
Title: Senior Vice President and Chief
Financial Officer
-------------------------------
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Date: 8/15/00
Nextel Communications
1255 Treat Boulevard, Suite 800, Walnut
Creek, CA 94596
925 279-2300 FAX 925 279-2301
NEXTEL
SENT VIA FEDERAL EXPRESS
------------------------
September 29, 2000
First National Bank,
a California corporation
Attention: Paul Hogan
975 El Camino Real
South San Francisco, CA 94080
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Re: Nextel Site #: CA-II 7411/ Wellesey Park Communications Site Lease Agreement dated November 30. 1999 ("Agreement"), between NEXTEL OF CALIFORNIA, INC., a Delaware corporation, d/b/a Nextel Communications ("Nextel ") and FIRST NA TIONL BANK, a California corporation ("Lessor")
Dear Mr. Hogan:
Pursuant to our conversation on Tuesday, September 26, 2000, Nextel and Lessor are in agreement that the letter sent by Nextel to Lessor, dated August 28, 2000, sets forth an incorrect Commencement Date due to construction changes at the site. Nextel started construction once all parties were m agreement, on August 31, 2000. Therefore the correct Commencement Date is August 31, 2000.
In addition, a check was sent to Lessor for said monthly rent and utilities in the amount of Eight Thousand Thirty Seven and 21/100 Dollars ($8037.21), covering from May 5, 2000. through September 30, 2000. Please return that check to me, so that I may send the revised amount of Two Thousand Seven Hundred Fourty-Three and 551100 Dollars ($2743.55), covering August 31, 2000, through October 31, 2000.
Please sign below as your acknowledgement of the correct Commencement Date and return this letter in the enclosed envelope. If you have any questions regarding your Agreement, please call me at (925) 279-5733. We appreciate being your tenant.
Sincerely,
/s/ GINA LA BIER
------------------------------
Gina La Bier
Sr. Property Administrator AGREED TO AND ACCEPTED:
Enclosure By: /s/ PAUL B. HOGAN
------------------------------
Paul B. Hogan
Title: President
------------------------------
cc: Site Leasing Services Date: 10/2/00
Site Book ------------------------------
PM File
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Exhibit 10.17
(INSTALLMENT-INTEREST INCLUDED)
In installments as herein stated, for value received, I promise to pay to FOR
BENEFICIARY SEE EXHIBIT "A" ATTACHED HERETO AND MADE A PART HEREOF, or order at
any place designated by beneficiary the sum of NINE HUNDRED THIRTY FIVE THOUSAND
AND NO/100--($935,000.00)-- DOLLARS, with interest from December, 1991, on
unpaid principal at the rate of 8.5% per cent per annum; principal and interest
payable in installments of EIGHT THOUSAND ONE HUNDRED FOURTEEN AND
21/100--($8,114.21)-------- DOLLARS, or more on the ________ day of each and
every month, beginning on the __________ day of January, 1992 and continuing
until the day of December, 1996 at which time the entire unpaid principal
balance and accrued interest shall be due and payable in full.
_________________________________________________XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
A late charge in an amount equal to 6% of the monthly installment due shall be payable on any installment received more than 10 days after the due dates set forth above. It is hereby agreed and understood by all parties that the within Note shall not be prepaid within the first thirty months of this Note. The within Note may be prepaid at any time after the first thirty months of commencement of the within Note. This Note is subject to Section 2966 of the Civil Code which provides that the holder of this Note shall provide written notice, to the trustors or their successors in interest of prescribed information at least 90 and not more than 150 days before any balloon payment is due.
Each payment shall be credited first on interest then due and the remainder on principal; and interest shall thereupon cease upon the principal so credited. Should default be made in payment of any installment when due the whole sum of principal and interest shall become immediately due at the option of the holder of this note. Principal and interest payable in lawful money of the United States. If action be instituted on this note I promise to pay such sum as the Court may fix as attorney's fees. This note is secured by a DEED OF TRUST to Commonwealth Land Title Company, A California Corporation as Trustee.
FIRST NATIONAL BANK OF DALY CITY
a California Corporation
By: /s/ M. WYMAN
------------------------------ ------------------------------
M. Wyman
By: /s/ OSCAR OROZCO
------------------------------ ------------------------------
Oscar Orozco
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Fidelity National Title
INSURANCE COMPANY OF CALIFORNIA
950 Elm Avenue, #360
San Bruno, CA 94066
(415) 873-3080 FAX (415) 588-2702
MODIFICATION AGREEMENT
This agreement, made and entered into this 1st day of September 19 99 ,between BERTHA DONATI, widow, & JULIO DONATI, widower as first party, and FIRST NATIONAL BANK OF DALY CITY, a California Corporation, It's Successors and/or Assigns, as second party.
WITNESSETH THAT:
WHEREAS, First party is the owner and holder of a promissory note secured by a deed of trust recorded on the 5th day of December 19 91, in Book Page of official Records of the County of San Mateo , State of California.
WHEREAS, Second party is the owner or is about to become the owner of the real property described in said deed of trust subject to the Lien thereof, and
WHEREAS, the parties hereto desire to change and modify the terms of said promissory note.
NOW THEREFORE, in consideration of the premises and covenants herein contained it is mutually agreed as follows:
1. The unpaid balance of principal now due upon said promissory note is the sum of $ 353,192.60 with interest thereon at the rate of 4.00 % per annum from July 1. 1996.
2. The balance due upon said promissory note as aforesaid shall be paid in the following manner and the terms of said promissory note changed and modified as follows to wit:
With payment of $53,192.60 made this 1st day of September 1999:
The remaining principal balance of $300,000.00 will be paid in 4 (four) substantially equal annual installments of approximately $82,275.84. Payments will begin January 31, 2000 continuing to January 31, 2003.
The interest rate paid will concurrently increase to 5.00 % per annum, fixed.
3. That in all other respects said note and said deed of trust shall remain unaffected unchanged and unimpaired by reason of the execution of this agreement.
4. That second party agrees to pay said promissory note according to the terms thereof as herein changed and modified and agrees to perform all of the acts to be performed by the truster under the terms of said deed of trust.
IN WITNESS WHEREOF, the parties hereto have executed this agreement the day and year first above written.
/s/ JULIO DONATI By: /s/ MICHAEL WYMAN
------------------------------ ------------------------------
Julio Donati Michael Wyman
First National Bank of Northern California,
Formerly, First National Bank of Daly City
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EXHIBIT "A"
BENEFICIARY:
BERTHA DONATI, a widow, as to an undivided 1/4 interest; JULIO DONATI, a widower, as to an undivided 1/2 interest; and BERTHA DONATI, MARC M. DONATI AND LIA DETOMASI, as trustees of the trust created under the will of Marino R. Donati, deceased as to an undivided 1/4 interest.
DESCRIPTION
All that certain real property situate in the County of San Mateo, State of California, described as follows:
City of South San Francisco
Portion or Lot A as shown on that certain map entitled "RANCHO BURI-BURI, SOUTH SAN FRANCISCO, CALIFORNIA" filed in the office of the County Recorder of San Mateo County, State of California on March 22, 1946 in Book 25 or Maps at pages 28, 29 and 30, more particularly described as follows:
BEGINNING at a point on the Northeasterly line of Lot A distant along said line South 48(degree) 30' East 589.95 feet and Southeasterly on the arc of and being a curve to the right, said curve having a radius or 2940 feet from the tangent to the last mentioned course, a distance or 247.30 feet from the Southeasterly line of Arroyo Drive said Lot A and Arroyo Drive being as designated on that certain map entitled `RANCHO BURI BURI, SOUTH SAN FRANCISCO CALIFORNIA, filed in the office of the County Recorder of San Mateo County, State of California in Book 25 of Maps at pages 28, 29 and 30; thence from said point of beginning along said Northeasterly line Southeasterly along said curve, a distance of 104.24 feet; thence South 48(degree) 35' 40" West 141.81 feet to the Southerly line of said Lot A; thence along said Southerly line South 81(degree) 51' 40" West 61.05 feet and North 85(degree) 51' 40" West 66.98 feet to a point which bears South 43(degree) 06' 08" West from the point of beginning; thence North 43(degree) 06' 08" East 238.51 feet to the point of beginning
Portion of Lot A is shown on that certain nap entitled "RANCHO BURI-BURI, SOUH SAN FRANCISCO, CALIFORNIA", filed in the office of the County Recorder of San Mateo County, State of California on March 22, 1946 in Book 25 of Maps at pages 28, 29 and 30, more particularly Described as follows:
BEGINNING at a point on the Southerly line of Camaritas Avenue, as said avenue is shown on the map entitled "RECORD OF SURYEY OF PROPOSED EXTENSION OF CAMARITIAS AVENUE, THROUGH LOT A OF MAP ENTITLED `RANCHO BURI BURI', filed in the office of the county Recorder of San Mateo County, State of California on July 25, 1955 In Book 3 of Licensed Land Surveyors Maps at page 56, said point of beginning being at the intersection of said Southerly line of Camaritas Avenue and the most Westerly corner of the lands described in the deed from J. F. Barrett, et al to Severino Donati, et al dated December 26, 1956 and recorded February 211 1957 in Beak 3178 at page 371 as Document no. 29703-P of Official Records; thence from said point of beginning along said Southerly line or Camaritas Avenue the following courses and distances: Westerly along the arc of a curve to the right, said curve having a radius of 340 feet, an arc distance or 219.95 feet, and South 88(degree) 00' 00" West 101.25 feet to the Easterly terminus of a 10 foot radius curve connecting the Southerly line of Camaritas Avenue and the Easterly line al West Orange Avenue, as said avenues are shown on the record of survey map above mentioned; thence Westerly and Southerly along said 10 foot radius curve to the left, tangent to the preceding course, said curve having a radius of 10 feet, through a central angle of 90(degree), an arc distance of 15.71 feet to said Easterly line of West Orange Avenue; thence South 2(degree) 00' 00" East, along the last named line, 19.93 feet to the Southerly line of said Lot A; thence along said Southerly line of Lot A North 79(degree) 11' 20" East 69.14 feet, and South 85(degree) 51' 40" East 309.52 feet to the Northwesterly boundary line of the lands described in the deed from J. F. Barrett and wife, et al, to Severino Donati, et al, dated August 9, 1955 and recorded August 22, 1955 in Book 2861 at page 508 as Document No, 97317-M of Official Records; thence North 43(degree) 06' 08" East, along the last mentioned
boundary line, 38.51 feet to the Southwesterly boundary line of the lands described in the deed to Severino Donati, et al, recorded in Book 3178 at page 371 as Document No. 29703-P of Official Records; thence North 44(degree) 54' 00" West along the last mentioned boundary line of the point of beginning.
EXCEPTING THEREFROM the lands conveyed to the County of San Mateo, a political subdivision of the State of California and described as Parcel III in that certain deed recorded October 26, 1970 in Book 5850 at page 536 as Document No. 56795-AD of Official Records.
A portion of Lot A as shown on that certain map entitled `RANCHO BURI-BURI, SOUTH SAN FRANCISCO, CALIFORNIA", filed in the office of the County Recorder at San Mateo County, State of California on March 22 1946 in Book 25 of Maps at pages 28, 29 and 30, also being a portion of that parcel of land described in that deed recorded February 21, 1957 in Book 3178 at page 371 as Document No. 29703-P of Official Records, more particularly described as follows:
BEGINNING at a point on the Northeasterly line of Lot A distant along said line, South 48(degree) 30' East 589.95 feet and Southeasterly on the arc of a curve to the right, said curve having a radius of 2940 feet and being tangent to the last mentioned course, a distance of 247.30 feet from the Southeasterly line of Arroyo Drive, as said Lot A and Arroyo Drive are shown on the map above Mentioned; thence South 43(degree) 06' 08" West 140.00 feet to the true point of beginning of the lands to be described herein, said true paint of beginning also being the intersection of the Northwesterly boundary line of the lands described in deed from J. F. Barrett, et al to Severino Donati, et al, recorded August 22, 1955 in Book 2861 at page 508 as Document No. 79317-M of Official Records, and the Southwesterly boundary line of lands described in deed from Mary Elise Barrett Heagerty, et al, to J. F. Barrett and H. H Hilp, recorded March 19, 1956 in Book 2995 at page 72 as Document No. 40907-N of Official Records; thence from said true point of beginning, along said last mentioned Southwesterly boundary line, north 44(degree) 54' West 105.28 feet to the Southeasterly boundary of that certain parcel of land described in deed to County of San Mateo recorded October 26, 1970 In Book 5850 at page 543 as Document no. 56796-AD of Official Records; thence along said last mentioned Southeasterly boundary Southwesterly along the arc or a curve to the right tangent to a line which bears South 44(degree) 36' 31" West, said curve having a radius of 650.00 feet and a central angle of 5(degree) 17' 18", a distance of 60.00 to a point on the Southwesterly boundary of the above mentioned parcel of land described in Book 3176 at page 371 of Official Records; thence along the Southwesterly boundary South 44(degree) 54' East 107 feet, more or less, to the Northwesterly boundary line of the lands described in the aforementioned deed to Severino Donati, et al, Book 2861 at page 508 of Official Records; thence along the last mentioned line North 43(degree) 06' 08" East 60 feet, more or less, to the true point of beginning.
Portion of Lot A as shown on that certain map entitled "RANCHO BURI-BURI, SOUTH SAN FRANCISCO, CALIFORNIA", filed in the Office of the County Recorder of San Mateo County, State of California on March 22, 1946 In Boot 25 of Maps at pages 28, 29 and 30, more particularly described as follows:
BEGINNING at a point on the Northeasterly line of Lot A distant along said line South 48(degree) 30' East 589.95 feet and Southeasterly On the arc of a curve to the right, said curve having a radius of 2940 feet and being tangent to the last mentioned course, a distance of 376.54 feet from the Southeasterly line of Arroyo Drive, as said Arroyo Drive is shown on the above mentioned map; thence from said point of beginning along said Northeasterly line, Southeasterly along said curve, a distance of 81.07 feet to the moat Easterly corner of said Lot A; thence along the Southerly line of said Lot A, South 81(degree) 48' 35" West a distance of 112.78 feet; thence north 86(degree) 01' 50" West a distance of 56.18 feet; thence South 81(degree) 56' 50" West a distance of 7.81 feet to the
Southeasterly line of the lands described in the deed to Severino Donati, Marino Donati and Julio Donati, recorded August 22, 1955 in Book 2861 at page 508 of Official Records thence Northeasterly along said line North 48(degree) 35' 40" East 76.81 feet to the most Westerly corner of the lands described in the deed to the Pacific Telephone and Telegraph Company, a corporation, recorded January 10, 1956 in Book 2949 at page 129 of Official Records thence along the boundary line of the property described In said deed, South 41(degree) 24' 20" East 25 feet, more or less, to the most Southerly comer or said property and 1 point which bears South )8o 3S' 40' West from the point of beginning; thence North 48(degree) 35' 40" East 65 feet to the point of beginning.
APN. No. 010-401-050 JPN. No. 010-040-401-05A
010-401-060 010-040-401-06A
010-401-220 010-040-401-22A
010-401-230 010-040-401-23A
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EXHIBIT 10.18
This Separation Agreement ("Agreement") is made and entered into on the 5th day of December, 2001, between First National Bank of Northern California, a national banking association with its executive offices at 975 El Camino Real, South San Francisco, California 94080 (the "Bank" or "Employer"), and Paul B. Hogan ("Employee"), as follows:
1. Termination of Employment.
(a) Employee's employment with the Bank will be deemed to have ended effective as of October 31, 2001. Employee hereby confirms that he voluntarily resigned as an employee and officer of the Bank, and the Bank hereby confirms that it has accepted Employee's resignation, effective as of said date. Employee also confirms that he voluntarily resigned as an employee and officer of FNB Bancorp, a California corporation and affiliate of the Bank, effective as of said date. Employee further confirms that his resignation from the Bank and FNB Bancorp includes his resignation, also effective as of October 31, 2001, as a Director and member of the Board of Directors of the Bank and as a Director and member of the Board of Directors of FNB Bancorp, which resignations have been accepted.
(b) The Bank shall pay to Employee, as severance salary, continuation payments (calculated according to Employee's existing annual rate of pay) for a period of eighteen (18) months, commencing from November 1, 2001. Said payments shall be made by Employer to Employee according to Employer's current (monthly) payroll practices, less applicable tax withholdings. Payments shall be made to Employee by mail or in such other manner as Employee designates in writing. In the event Employee revokes this Agreement pursuant to the terms of Paragraph 10 below, Employee shall return all consideration received from Employer hereunder within five (5) days following such revocation.
(c) The Bank shall make Employee's COBRA payments for continuation of his existing group insurance coverage (for Employee and his eligible dependents) for a period of eighteen (18) months, commencing from November 1, 2001. Thereafter, Employee will be solely responsible for maintaining such coverage, through COBRA or otherwise.
(d) Employer shall, upon request of Employee, provide to Employee a letter of reference.
(e) Employee has entered into a Salary Continuation Agreement with the Bank dated December 20, 1996 (the "Salary Continuation Agreement"). This Agreement shall constitute a determination by the Bank, under Section 1.1.13 of the Salary Continuation Agreement, that Employee's termination of employment with the Bank shall be treated as an "Involuntary Termination" for purposes of the Salary Termination Agreement; and the Bank hereby agrees that Employee shall be entitled to receive the early termination benefit specified under Section 2.2
of the Salary Continuation Agreement in respect of an "Involuntary Termination." The Bank and Employee agree that the amount of said benefit (the "Vested Accrued Liability" amount set forth in Schedule "A" of the Salary Continuation Agreement), as said benefit is referenced under Sections 2.2.1, 2.2.2 and 2.2.3 of the Salary Termination Agreement, shall be $360,167.00.
(f) Employer and Employee each has previously returned or promptly upon signing this Agreement will promptly return to the other any and all personal property of the other in the possession of Employer/Employee.
(g) Employer and Employee hereby acknowledge the incentive stock options granted to Employee and currently outstanding under the First National Bank of Northern California 1997 Stock Option Plan (the "Stock Option Plan"). It is agreed that all such options shall continue to be governed by the incentive stock option agreements executed between Employer and Employee plus the applicable provisions of the Stock Option Plan, notwithstanding anything to the contrary in this Agreement; provided, however, that the effective date of Employee's resignation and termination of employment with the Bank, for purposes of such incentive stock option agreements, shall be October 31, 2001, the same termination date as specified in this Agreement.
2. Release.
(a) Employee, on behalf of himself, and any other person or entity which could make any claims through him, forever releases and fully discharges Employer and its directors, officers, members, employees, agents, representatives, heirs, predecessors, successors, assigns, insurers, subsidiaries, partners, parents, joint venturers, affilliates, and any other person or entity that could be made liable through it from:
(i) all claims of any kind that Employee could assert against Employer including, but not limited to, claims arising from or related in any manner to Employee's employment or separation of employment with Employer; and
(ii) all claims (whether or not the parties know about or suspect the claims and whether or not the claims have matured) which Employee previously had, now has, or may in the future have against Employer.
(b) Nothing contained anywhere in this Agreement shall be considered a waiver of claims which cannot be waived as a matter of law or public policy, or of any rights or obligations granted under this Agreement.
(c) As used throughout this Agreement, "claims" includes, but is not limited to, claims arising from or related in any manner to: breach of any contract, breach of the covenant of good faith and fair dealing, breach of fiduciary duty, breach or violation of any securities laws or regulations, emotional distress, fraud, discrimination on any basis, including discrimination based upon age, disability, marital status, medical condition, race, ancestry, color, national origin, sex, sexual orientation, veteran status, and any other basis upon which local, state, or federal laws or regulations prohibit discrimination, harassment in any form or manner, payment of wages or other
compensation, equal pay, violation of any provision of the California Labor Code, violation of ERISA, OSHA and Cal-OSHA laws, wage and hour laws, and workers compensation laws, fraud or any provision of any benefit plant (including, but not limited to, breach of any stock option, deferred compensation, profit sharing or stock purchase plan), violation of public policy, defamation and any other claims relating in any manner to Employee's relationship with Employer and any of its related persons or entities described in this Agreement.
3. Waiver of Civil Code Section 1542. Employee expressly understands and acknowledges that he may not know that he has claims against Employer, or that Employee is aware of claims against Employer but may have underestimated the amount or severity of those claims. Employee acknowledges that he specifically took these factors into account in agreeing to the terms of this Agreement and to the promises contained in this Agreement. A portion of the payments, benefits, and promises in this Agreement was given in exchange for a full satisfaction and discharge of all such claims. With respect to the claims as described in this Agreement, Employee specifically waives all rights he might have under California Civil Code Section 1542, which provides that:
A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor.
4. Indemnification. Employer shall fully defend and indemnify Employee with respect to any activity undertaken by Employee during his tenure with Employer; provided, however, that such obligation by Employer shall not extend to any act, omission, or statement by Employee that constitutes a criminal violation (unless he had no reasonable cause to believe his conduct was unlawful) or gross and willful negligence (unless he acted in good faith and in a manner he believed to be in, or not opposed to, Employer's best interests). In the event a claim is asserted against Employee to which this paragraph applies, Employer shall have sole and exclusive right to select counsel to defend Employee, and Employee shall cooperate fully with Employer and said counsel in the defense of the claim. In addition, in the event a lawsuit is filed by Employer against a third party or by a third party against Employer (not involving a claim asserted against Employee) in connection with any activity undertaken by Employee during his tenure with Employer, then Employee agrees that (a) he will cooperate with Employer in the prosecution or defense of such suit, as the case may be, (b) he will make himself reasonably available for conferences with counsel representing Employer and as a witness, and will provide all requested information, which information shall be truthful and complete to the best of his ability, and (c) he will not engage in any acts or omissions which have the purpose or effect of thwarting Employer's ability to assert or protect the interests of the Bank in such suit.
5. No Admissions. Employee and Employer each understands and acknowledges that neither party admits that any claim which Employee has made or could make against Employer, or that any claim which Employer has made or could make against Employee is true or false or that Employer is at fault or has any liability to Employee or any other person or entity, or that Employee is at fault or has any liability to Employer, or to any other person or entity.
6. Public Announcement and Other Statements. Neither Employee nor Employer shall make any derogatory statement about the other. Employer has previously announced the resignation of Employee to the employees of the Bank and Employee agrees that the wording of such announcement was appropriate and may be repeated by Employer when explaining Employee's resignation to shareholders of the Bank, to customers of the Bank and to the general public. Employer shall only respond to Employee's prospective successor employer's inquiries consistent with the letter and spirit of this Agreement. Additionally, Employer agrees that it will inform those of its employees to whom it is obligated under the law to make such a report, and to those of its employees of whom it has made inquiries, that inquiries have revealed no act or statement by Employee that would constitute any violation of the law. Employee also agrees to only make statements regarding his separation from Employer that are consistent with the letter and spirit of this Agreement. In the event an arbitrator determines, at the conclusion of any proceedings pursuant to Paragraph 12 of this Agreement, that Employee has made any statement that materially departs from the letter and spirit of this Agreement, at its sole option Employer either may be relieved of any obligation to make further payments under sub-paragraphs 1(b) and 1(c) of this Agreement, or may be relieved of its obligations under this Paragraph 6.
7. Governing Law. This Agreement shall be construed under and governed by the laws of the State of California. This Agreement shall be deemed to have been entered into and performed in South San Francisco, California. All questions of validity, interpretation or performance of any of the terms of this Agreement or any rights or obligations of Employee or Employer shall be governed by California law.
8. Entire Agreement. This Agreement contains the entire agreement between Employee and Employer pertaining to Employee's relationship with Employer. This Agreement supersedes any and all prior and/or concurrent oral or written negotiations, discussions, agreements, representations, and understandings. No modification of this Agreement is valid unless in writing signed by Employee and Employer. Employee and Employer each acknowledges and represents that in agreeing to and signing this Agreement, each party acted voluntarily and did not rely upon any inducement, statement, promise, or representation other than those contained in this Agreement.
9. Severability. If a court which has jurisdiction finds that any provision of this Agreement is invalid, unenforceable, or void, the remainder of this Agreement shall remain in full force. Similarly, if a court which has jurisdiction finds that any provision of this Agreement as applied to particular persons, places and/or circumstances is invalid, unenforceable, or void, the provision as applied to any other persons, places, or circumstances and the balance of the Agreement shall remain in full force and effect.
10. Effective Date. Employee acknowledges that, among other claims, he is waiving all claims for age discrimination under state and federal law, including, but not limited to, the California Fair Employment and Housing Act and the federal Age Discrimination in Employment Act. Employee acknowledges and confirms that he has been provided more than twenty-one (21) days in which to consider and sign this Agreement, in accordance with the Older Workers Benefit Protection Act. In accordance with said Older Workers Benefit Protection Act,
Employee further acknowledges and confirms that he shall have seven (7) days following the date of signing this Agreement in which to revoke the Agreement. This Agreement shall be effective on the eighth (8th) day after execution of this Agreement by Employee ("Effective Date").
11. Voluntary Execution of Agreement. Employee and Employer each acknowledges that each has agreed to all of the terms of this Agreement, has signed this Agreement voluntarily, and has not been subjected to threats or excessive influence by any other party. Employee further acknowledges that he has signed this Agreement with the full intent of releasing all claims as specified herein. Employee and Employer each further specifically acknowledges that:
(a) Each has read this Agreement;
(b) Each has had full opportunity to consult with his/its own attorney prior to agreeing to and signing this Agreement and for the negotiation of this Agreement and has either done so, or voluntarily declined to do so;
(c) Each acknowledges that each understands the terms and consequences of this Agreement and of the releases it contains and has had full opportunity to ask any questions about this Agreement, its terms and its effect; and
(d) Each is fully aware of the legal and binding effect of this Agreement.
12. Arbitration. In the event either party believes that the other has violated any material provision of this Agreement, or in the event any other dispute arises over the meaning or application of this Agreement, Employer and Employee agree that such controversy shall be fully and finally decided by binding arbitration before a single neutral arbitrator to take place in San Mateo County, California, on an accelerated basis, without right to decision by a jury and without right of appeal. The party making a claim shall describe that claim in writing with reasonable particularity in the form of a demand for arbitration and request for specific relief. Employer agrees to advance all costs of the arbitration and arbitrator. In the event Employer is deemed by the arbitrator to be the non-prevailing party in the arbitration, it shall also reimburse Employee's reasonable attorneys' fees in the amount determined by the arbitrator. In the event Employee is deemed by the arbitrator to be the non-prevailing party, he shall reimburse one-half of the amounts advanced by Employer for the arbitrator and arbitration.
13. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
14. Authority. Employer represents and warrants that the undersigned representative has the authority to act on its behalf and to bind it and any and all who may claim through it to this Agreement. Employee represents and warrants that he has the capacity to act on his own behalf and on behalf of all who might claim through him to bind him to this Agreement.
EMPLOYER: EMPLOYEE:
FIRST NATIONAL BANK
OF NORTHERN CALIFORNIA
By /s/ THOMAS C. MCGRAW /s/ PAUL B. HOGAN ------------------------------ ------------------------------ Thomas C. McGraw Paul B. Hogan President and Chief Operating Officer Address for notices: Address for notices: 975 El Camino Real 1262 Glacier Avenue South San Francisco, CA 94080 Pacifica, CA 94044 |
Approved as to form by the undersigned, as legal counsel to Paul B. Hogan:
/s/ JOSEPH P. STRETCH ------------------------------ Joseph P. Stretch Attorney at Law 214 Grant Avenue San Francisco, CA 94108 |
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated January 26, 2001, accompanying the financial statements of First National Bank of Northern California as of December 31, 2000 and 1999 and for the three years ended December 31, 2000, contained in this Registration Statement and Prospectus. We consent to the use of the aforementioned report in this Registration Statement and Prospectus and to the use of our name as it appears under the caption "Experts."
/s/Grant Thornton LLP San Francisco, California December 12, 2001 |
EXHIBIT 99.1
FIRST NATIONAL BANK OF NORTHERN CALIFORNIA
Solicited by the Board of Directors
for the Special Meeting of Shareholders
on ____________, 2002
The undersigned holder of common stock acknowledges receipt of a copy of the notice of special meeting of shareholders of First National Bank of Northern California and the accompanying proxy statement/prospectus dated _______________, and revoking any proxy heretofore given, hereby constitutes and appoints Thomas C. McGraw, Neil J. Vannucci and Edward J. Watson, 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 First National Bank of Northern California, 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 First National Bank of Northern California to be held at the Bank's South San Francisco Branch Office, 211 Airport Boulevard, South San Francisco, California 94080, on ___________, 2002, at 7:30 p.m., or at any postponements or adjournments thereof, upon the following item as set forth in the notice of meeting and 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 ITEM:
1. To consider and vote on a proposal to approve the Agreement and Plan of Reorganization, dated as of November 1, 2001, between FNB Bancorp and First National Bank of Northern California, and the transactions covered by the Agreement, including the reorganization of First National Bank of Northern California.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. In their discretion, to transact such other business as may properly come before the special meeting or any postponements or adjournments of the special 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.
SHAREHOLDER(S) No. of Common Shares _______________
--------------------------------
--------------------------------
Date: ____________________, 2002 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 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.