<PAGE>
As filed with Securities and Exchange Commission on March 5, 1999.
Registration Statement No. 333-_______
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
Form SB-2
Registration Statement
Under
The Securities Act of 1933
----------------------
HCNB Bancorp, Inc.
(Name of Small Business Issuer in its Charter)
<TABLE>
<S> <C> <C>
Maryland 6021 52-2083046
(State or Other Jurisdiction of (Primary Standard Industrial (IRS Employer I.D. Number)
Incorporation or Organization) Classification Code Number)
</TABLE>
1682 E. Gude Drive, Suite 102D
Rockville, Maryland 20850
301/251-1020
(Address, Including Zip Code, and Telephone Number, Including
Area Code, of Registrant's Principal Executive Offices)
<TABLE>
<S> <C>
Michael J. Burke, Chairman Copies To:
HCNB Bancorp, Inc. Melissa Allison Warren, Esquire
1682 E. Gude Drive Frank C. Bonaventure, Jr., Esquire
Suite 102D Ober, Kaler, Grimes & Shriver
Rockville, Maryland 20850 A Professional Corporation
301/251-1020 120 E. Baltimore Street
Baltimore, Maryland 21202
410/347-7684
</TABLE>
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
Approximate date of proposed sale to the public: As soon as practicable after
the effective date of this Registration Statement.
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER SHARE OFFERING PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, $0.01 par value 900,000 Shares $10.00 $9,000,000 $2,502
</TABLE>
The Registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
<PAGE>
SUBJECT TO COMPLETION, DATED MARCH 5, 1999
700,000 SHARES (MINIMUM)
900,000 SHARES (MAXIMUM)
HCNB BANCORP, INC.
COMMON STOCK
$.01 PAR VALUE
$10.00 PER SHARE
This is an initial public offering of shares of common stock of HCNB
Bancorp, Inc. The offering price will be $10.00 per share. No market exists
for the common stock, and we do not expect that an active public market will
exist after this offering. We will not apply for listing of the common stock on
any stock exchange or on The Nasdaq Stock Market Inc.'s quotation systems.
Because we are selling these shares on a best efforts, minimum/maximum
basis, we will not sell any shares unless we receive subscriptions for at least
700,000 shares. Until we receive subscriptions for 700,000 shares, investors'
money will be deposited in an escrow account with FMB Bank. This offering will
end on __________________, 1999 [60 DAYS AFTER DATE OF PROSPECTUS], or earlier
if we sell all of the shares before that date. In addition, we have the option
to extend the offering until ______________, 1999 [ADDITIONAL 60 DAYS]. We will
not extend the offering after _____________, 1999.
INVESTING IN THE COMMON STOCK INVOLVES SUBSTANTIAL RISK. YOU SHOULD READ
CAREFULLY THE SECTION CALLED "RISK FACTORS" BEGINNING ON PAGE 3 OF THIS
PROSPECTUS.
We will not engage a broker-dealer to sell the common stock in this
offering. Therefore, we will receive all of the offering proceeds without
deducting any commissions or fees.
<TABLE>
<CAPTION>
TOTAL TOTAL
PER SHARE MINIMUM MAXIMUM
--------- ---------- ----------
<S> <C> <C> <C>
Public Offering Price $10.00 $7,000,000 $9,000,000
Underwriting Discounts and Commissions None None None
Proceeds to HCNB Bancorp, Inc. $10.00 $7,000,000 $9,000,000
</TABLE>
THE COMMON STOCK DOES NOT REPRESENT A DEPOSIT ACCOUNT OR OTHER OBLIGATION OF OUR
PROPOSED BANKING SUBSIDIARY. THE COMMON STOCK IS NOT AND WILL NOT BE INSURED BY
THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is _________________, 1999.
RED HERRING LEGEND:
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an
offer to sell these securities and is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
<PAGE>
HOW TO FIND ADDITIONAL INFORMATION
We are a newly organized company and to date have not issued any capital
stock or engaged in any business operations. We are not currently required to
file reports with the Securities and Exchange Commission, although we will do so
after this offering. We will furnish stockholders with annual reports
containing audited financial statements. We may also send other reports to keep
stockholders informed of our business.
We have filed a Registration Statement on Form SB-2 with the Securities and
Exchange Commission and this prospectus is included in the Registration
Statement. This prospectus does not contain all of the information contained in
the Registration Statement. You can read the Registration Statement and the
exhibits to the Registration Statement at the following public reference
facilities of the Securities and Exchange Commission: 450 Fifth Street, NW,
Room 1024, Washington, DC 20549; 7 World Trade Center, Suite 1300, New York, New
York, 10048; and the Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. You can obtain copies of the Registration
Statement and the exhibits for a fee from the Public Reference Room of the
Securities and Exchange Commission, 450 Fifth Street, NW, Room 1024, Washington,
DC 20549. You may call 1-800-SEC-0330 to obtain information on the operation of
the Public Reference Room. These materials also may be accessed via the
Securities and Exchange Commission's Internet web site. The address of that web
site is http://www.sec.gov.
No one is authorized to give you information that is not included in this
prospectus. If someone gives you any other information you should not rely upon
it because we may not have authorized the use of that information. We may
deliver this prospectus to a prospective investor or sell shares of common stock
in this offering even if the information in this prospectus changes after the
date on the cover of the prospectus. This prospectus is not an offer to sell
the common stock and is not soliciting an offer to buy the common stock in any
state where the offer or sale is not permitted.
1
<PAGE>
PROSPECTUS SUMMARY
Because this is a summary, it does not contain all of the information that
may be important to you. You should read carefully the entire prospectus,
including the information under "RISK FACTORS", before making any decision to
buy our common stock.
THE HOLDING COMPANY AND THE BANK
HCNB Bancorp, Inc. was incorporated in Maryland on February 24, 1998, to be
a bank holding company. Subject to regulatory approvals, we will use at least
$6,000,000 of the proceeds of this offering to purchase all of the shares of the
common stock of Harbor Capital National Bank, a federally chartered commercial
bank in the process of organization. The Bank will use the proceeds of the sale
of its common stock to pay certain organizational and operating costs, to
furnish and equip the Bank's premises and offices, to provide working capital
for expansion and to fund lending activities. See "USE OF PROCEEDS" and
"SUPERVISION AND REGULATION."
The Bank has not yet opened and will not do so unless we complete this
offering and the Bank obtains the approvals of the Office of the Comptroller of
the Currency, Board of Governors of the Federal Reserve System and Federal
Deposit Insurance Corporation to open as a national bank.
We anticipate that the Bank, which will have a primary market area in
Montgomery County, Maryland, will open in the second quarter of 1999, although
we may encounter any number of delays. Temporary offices of the Holding Company
and the Bank are located at 1682 East Gude Drive, Suite 102D, Rockville,
Maryland 20850 and our telephone number is (301) 251-1020. See "THE HOLDING
COMPANY AND THE BANK."
A group of individuals active in business, professional, banking, financial
and charitable activities in the Washington D.C. metropolitan area are
organizing the Bank because they believe the banking needs of the community are
not served adequately by existing banks. In particular, the Bank will emphasize
small business lending and meeting the banking needs of the local Asian-American
community. Several of the organizers have prior experience with other
successful Montgomery County area community banks.
The Asian-American community in Montgomery County has grown dramatically.
In the ten year period, 1980-1990, the size of the community grew almost
threefold. In 1980, the Asian American community represented 3.9% of the total
population in the county; in 1990 this community represented 8.3%. This trend
continued through the 1990's. In 1996, 9.6% of the county population was Asian-
American. As of 1998, at a majority of the elementary schools within three
miles of the bank's office, in excess of 20% of the students were Asian-
American.
The small business environment in Montgomery County also provides an
opportunity for the Bank. Of all the business establishments in the county, 75%
have fewer than 10 employees;
<PAGE>
87% have 20 or fewer employees. This is the market most affected by the
consolidation of the financial industry over the last decade.
The local banking community has also changed over the years. In the period
of 1991 to 1996, the number of financial institutions doing business in
Montgomery County has declined from 69 to 54, and the number of banking
locations has declined from 365 to 302. The consolidation of the financial
industry, the reduction in local banking offices and the growth of the county
led the organizers to believe the Asian-American and small business markets are
currently underserved.
THE OFFERING
Shares Offered Hereby Minimum of 700,000 and maximum of 900,000 shares
of common stock. We must receive acceptable
subscriptions for a minimum of 700,000 shares
before we will sell any shares in this offering.
Subscription Price $10.00 per share
Termination Date _______________, 1999, unless earlier terminated
or extended by the Company to a date not later
than _____________, 1999.
Minimum Subscription 500 shares ($5,000), although we may permit
smaller subscriptions in our discretion.
Maximum Subscription Five percent (5%) of the total number of shares
sold in the offering, although we may permit
larger purchases in order to ensure the sale of
the minimum number of shares to be sold in the
offering or otherwise in our discretion. If you
purchase five percent (5%) or more of the common
stock, you must file certain information or
applications with bank regulatory agencies. We may
reduce, or reject, in whole or in part, any
subscription which would require prior regulatory
approval if you have not obtained that approval
prior to the date this offering terminates. See
"THE OFFERING - General".
Gross Proceeds
of the Offering $7,000,000 if the minimum number of shares are
subscribed for. $9,000,000 if the maximum number
of shares are subscribed for.
Use of Proceeds We will use $6,000,000 of the net proceeds of the
offering to purchase all of the shares of common
stock of the Bank ($7,000,000 if the maximum
offering is raised). If we do not contribute
additional net proceeds to the Bank, we will
invest those
2
<PAGE>
funds in insured bank deposits and/or short term
U.S. government and agency securities until we use
those funds for corporate purposes or further
contributions to the Bank's capitalization.
The Bank will spend the funds received from the
Company to pay certain organizational and
operating costs, to furnish and equip facilities
for the Bank, and for working capital and general
corporate purposes of the Bank. See "USE OF
PROCEEDS."
RISK FACTORS
An investment in the common stock involves substantial risk. You should
read carefully the section called "RISK FACTORS," beginning on page 3 of this
prospectus.
RISK FACTORS
An investment in the common stock involves substantial risks. You should
carefully read the following, together with the other information in this
prospectus, before making a decision to purchase the common stock.
Some of the information in this prospectus may include "forward-looking
statements." These statements use words such as "may," "will," "expect,"
"anticipate," "plan," "estimate," or similar words, and they discuss our future
expectations, projections of financial results or strategies that are subject to
risks and uncertainties. When you read a forward-looking statement, you should
keep in mind the risk factors described below and any other information
contained in this prospectus which identifies a risk or uncertainty. Our actual
results and the actual outcome of our expectations and strategies could be
different from what we have described in this prospectus because of these risks
and uncertainties.
Limited Trading Market. While the common stock will be freely transferable
by most investors in this offering immediately upon issuance, we do not
anticipate an active market for trading following this offering. An active or
established trading market may never develop. As a result, you may not easily
be able to sell your shares of common stock. We do not plan to apply for
listing on an exchange or quotation system at this time. See "THE OFFERING --
Limited Market for Shares."
Lack of Operating History and Profitability. The Holding Company and the
Bank are in the process of organization and neither has any prior operating
history. Our profitability will depend on the results of operations of our
principal asset, the Bank. We expect that the Bank will incur operating losses
during its initial years of operation, and may not achieve profitability, if at
all, for at least two years. If we decide to open new branch offices, that
decision may further delay profitability because of the increased expenses of
expansion and because the branches may not
3
<PAGE>
enhance our results of operations as anticipated. See "PROPOSED BUSINESS OF THE
HOLDING COMPANY."
Delay or Denial of Regulatory Approvals; Possible Loss of Investment. If
offering proceeds are released from escrow but the Bank fails to receive final
regulatory approvals or does not open for any other reason, we intend to propose
that the stockholders approve a plan to liquidate the Holding Company. If the
Holding Company is dissolved, its net assets (generally consisting of the
amounts received in the offering plus any interest earned on those amounts, less
the amount of all costs and expenses incurred by the Holding Company) would be
distributed to stockholders. We would have incurred numerous expenses related
to the offering and the organization of the Holding Company and the Bank,
estimated to be at least $1,000,000 as of June 1, 1999. In addition, we would
incur expenses related to the liquidation. Therefore, the amounts distributed
in liquidation to stockholders may be substantially less than the amount they
paid for their shares of stock. We cannot estimate what the amount of
liquidation proceeds would be. See "THE OFFERING."
Risks Related to Commercial and Consumer Lending. We expect that the
Bank's loan portfolio will be made up largely of commercial business and real
estate loans. The Bank also will offer mortgage loans for owner occupied and
non-owner occupied residential properties. Commercial real estate, commercial
business, construction and consumer loans are generally more interest rate
sensitive and carry higher yields than residential mortgage loans. However,
they generally carry a higher degree of credit risk than residential mortgage
loans.
Commercial real estate loans usually are larger and present more risk than
residential mortgage loans. Because payments on loans secured by commercial
real estate depend on the successful operation or management of the properties
that secure the loans, repayment is affected significantly by downturns in the
real estate market or in the economy.
Unlike residential mortgage loans, which generally are made on the basis of
the borrower's ability to repay using his or her employment and other income and
which are secured by real property which can be valued easily, commercial
business loans are riskier and typically are made on the basis of the borrower's
ability to make repayment from the cash flow of the borrower's business. As a
result, the availability of funds for the repayment of commercial business loans
depends substantially on the success of the business itself. Further, the
collateral securing the loans may depreciate over time, may be difficult to
appraise and may fluctuate in value based on the success of the business.
Construction loans generally involve a higher degree of credit risk than
residential mortgage loans. Risk of loss on a construction loan depends largely
upon the accuracy of the initial estimate of the property's value at completion
of construction or development compared to the estimated cost of construction.
If the estimate of value proves to be inaccurate, the value of the project when
completed could be insufficient to ensure full repayment of the loan.
4
<PAGE>
Consumer loans may present greater credit risk than residential mortgage
loans, because many consumer loans are unsecured or are secured by rapidly
depreciable assets, such as automobiles. Repossessed collateral for a defaulted
consumer loan may not provide an adequate source of repayment of the outstanding
loan balance because of the greater likelihood of damage, loss or depreciation.
Consumer loan collections depend on the borrower's continuing financial
stability. If a borrower suffers personal financial difficulties, the loan may
not be repaid. Also, various federal and state laws, including bankruptcy and
insolvency laws, may limit the amount the Bank can recover on such loans.
Impact of Interest Rate Volatility on Deposits. Our results of operations
will depend to a large extent on the Bank's "net interest income." Net interest
income is the difference between the interest expense incurred on the Bank's
interest-bearing liabilities, such as interest on deposit accounts, and the
interest income received from its interest-earning assets, such as loans and
investment securities. Fluctuations or "volatility" in interest rates can result
in the flow of funds from the Bank and into corporate securities or other
investments which may pay higher rates of return. This volatility could cause
the Bank to pay higher interest rates to obtain deposits, and if the Bank could
not increase the interest rates on its loans and the rate of return on its
investment portfolio, our net interest income would suffer.
Risk of Loan Losses. The Bank will maintain an allowance for loan losses
to provide for loan defaults and nonperformance. The allowance is based on,
among other things, prior experience with loan losses and an evaluation of the
risks in the current portfolio. The Bank will maintain the allowance at a level
we consider adequate to absorb anticipated losses.
Although we will attempt to use the best information available to determine
allowances for loan losses, future adjustments may be necessary if economic,
operating and other conditions differ substantially from the assumptions used in
making the initial determinations. In addition, we anticipate that the Bank's
provisions for loan losses will increase in the future as it expands its lending
activities. Also, regulatory agencies may require the Bank to add to the
allowance based on their judgments when they conduct examinations of the Bank.
Future provisions for loan losses could adversely affect our results of
operations.
Risks of Expansion Strategies. We intend to expand our business in the
future by opening branches and considering other opportunities when they arise.
At this time, we have not identified any new branch locations or other
opportunities. Our success in expanding our business will depend on, among
other things, our ability to obtain regulatory approvals, our access to capital,
our ability to manage growth and our ability to attract and train qualified
employees. We cannot guarantee that we will be able to do any of these things.
If we are not able to expand our business successfully, our competitive position
and our results of operations will suffer. See "PROPOSED BUSINESS OF THE BANK."
Impact of Government Regulation on Operating Results. The Holding Company
and the Bank will operate in a highly regulated environment and will be subject
to examination,
5
<PAGE>
supervision and comprehensive regulation by several federal and state regulatory
agencies. The Bank will be subject to supervision and regulation by the
Comptroller of the Currency and the Federal Deposit Insurance Corporation, and
the Holding Company will be subject to supervision and regulation by the Federal
Reserve Board and the Maryland Commissioner of Financial Regulation. Banking
regulations, designed primarily for the safety of depositors, may limit the
growth of the Bank and the return to investors by restricting activities such as
the payment of dividends, mergers with or acquisitions by other institutions,
investments, loans and interest rates, interest rates paid on deposits and the
creation of branch offices. The Bank is subject to capitalization guidelines set
forth in federal legislation, and could be subject to enforcement actions if it
ever is found by regulatory examiners to be undercapitalized. Laws and
regulations could change at any time, and changes could adversely affect our
business. In addition, the cost of compliance with regulatory requirements could
adversely affect our ability to operate profitably. See "SUPERVISION AND
REGULATION."
Risks of Competitive Market. The Bank will operate in a competitive market
for financial services and will face intense competition both in making loans
and in attracting deposits. Many financial institutions operate in the Bank's
market area, and some have a state-wide, regional or national presence. In
addition, the Bank will compete with other community banks in its market area
that have a similar business philosophy and strategy, although the Bank hopes to
create a niche for itself in the local Asian-American community. Many of these
financial institutions have been in business for many years, are significantly
larger, have established customer bases and greater financial resources than the
Bank and are able to offer certain services that the Bank is not able to offer.
In addition, the Bank faces competition for deposits and loans from non-bank
institutions such as brokerage firms, credit unions, insurance companies, money
market mutual funds and other lenders. See "PROPOSED BUSINESS OF THE BANK -
Competition."
Developments in Technology. The market for financial services, including
banking services and consumer finance services, is increasingly affected by
advances in technology, including developments in telecommunications, data
processing, computers, automation, Internet-based banking, telephone banking,
debit cards and so-called "smart" cards. Our ability to compete successfully
may depend on the extent to which we can take advantage of such technological
changes. We will not offer computer or telephone banking initially, although
many of our competitors do offer such services. See "PROPOSED BUSINESS OF THE
BANK - Description of Proposed Services."
Year 2000 Issues. The much publicized Year 2000 Issue is the result of
computer programs using two digits rather than four to define a year. Computer
programs with date-sensitive software may recognize a date using "00" as the
year 1900 rather than the year 2000. Problems with software used for bank
operations could cause disruptions of operations, including the temporary
inability to process transactions or engage in similar routine business
activities. In addition, the Year 2000 Issue increases transaction risks with
third parties, including customers.
6
<PAGE>
Our outside data processing firm has advised us that its software is Year
2000 compliant. Therefore, we expect that the data processing firm's software
would not be impacted by any date-sensitive calculations related to the Year
2000 Issue. We do not anticipate incurring any extra costs from the data
processing firm in connection with the Year 2000 Issue and we do not believe
that our operations will be materially impacted by the Year 2000 Issue, assuming
that our data processing firm's software is Year 2000 compliant. However, if
our data processing system fails, our earnings, cash flows and overall financial
condition could be adversely affected. In addition to risks relating to
internal Year 2000 compliance, we may be vulnerable to the failure of customers
to remedy their own Year 2000 issues. See "MANAGEMENT'S PLAN OF OPERATION -
Year 2000."
Arbitrary Offering Price. Our Board of Directors arbitrarily determined
the offering price of the shares offered by this prospectus. We did not engage
an independent investment banking firm to assist in determining the offering
price. The $10.00 per share price bears no relationship to the assets,
earnings, book value or other established measure of value of the Holding
Company or the Bank. In fixing the price the Board considered primarily the
subscription prices of securities offered by other newly organized financial
institutions and bank holding companies.
Limitations on Dividends. The Bank will be the wholly owned subsidiary of
the Holding Company and, initially, will be our principal source of revenue.
We anticipate that the Bank will incur losses during its initial phase of
operations, and we do not expect to pay any dividends in the foreseeable future.
Even if the Bank and the Holding Company have earnings in an amount sufficient
to pay dividends, we intend to retain earnings for the purpose of funding the
growth of the Holding Company and the Bank. If we decide to pay dividends in
the future, those dividends would be funded from dividends paid by the Bank to
the Holding Company. Approvals of the banking regulators may be required prior
to payment of dividends by the Bank to the Holding Company. See "DIVIDEND
POLICY" and "SUPERVISION AND REGULATION."
Non-Underwritten Offering; Sale of Minimum Number of Shares. The common
stock is being sold through certain directors of the Holding Company. No
broker-dealer will assist us in the offering. Because the offering is not
underwritten, the sale of the minimum number of shares is not guaranteed. If
the minimum number of shares is not subscribed for, subscriber funds will be
returned, without interest or deduction, but subscribers will have lost the use
of their funds during the offering. If only the minimum number of shares are
sold in the offering, we will have less capital to fund initial operating losses
and Bank operations and expansion activities.
Reliance On Management; Discretion of Management. As a newly organized
institution we will rely on our officers and directors to locate, establish and
outfit appropriate facilities for the Bank, hire staff, develop and implement
marketing and business development strategies and evaluate lines of business in
addition to the Bank's core commercial banking functions. The Board of
Directors will have substantial discretion in these matters, and we cannot
guarantee that they will be successful in establishing a new bank in a
competitive market.
7
<PAGE>
Monetary Policy and Economic Conditions. The operating income and net
income of the Bank will depend to a great extent on the difference between the
interest yields the Bank receives on its loans, securities and other interest
bearing assets and the interest rates it pays on its interest bearing deposits
and other liabilities. These rates are highly sensitive to many factors which
are beyond the control of the Bank, including general economic conditions and
the policies of various governmental and regulatory authorities, including the
Federal Reserve Board. See "SUPERVISION AND REGULATION."
Control by Management; Allocation of Shares by the Company. Directors and
officers of the Holding Company have indicated their intention to purchase
approximately 18% of the shares if the minimum number of shares is sold and 14%
of the shares if the maximum number of shares is sold. Directors and officers
or persons related or affiliated with them, may purchase additional shares in
the offering. If more than 20% of the shares outstanding after the offering
are held by directors, officers and their affiliates, then this group could, by
voting against a proposal submitted to shareholders, block the approval of any
proposal which requires the affirmative vote of 80% of the shareholders. Those
proposals include certain business combinations and charter amendments. See
"DESCRIPTION OF CAPITAL STOCK."
Dilution. After the offering, we expect to issue stock to directors as
payment of directors fees, and it is likely that we will adopt a plan to grant
options to officers, directors and key employees. In addition, we may conduct
another public offering or private placement of our shares in the future. The
issuance of more shares could have a dilutive effect on your interest in our
earnings and book value.
THE HOLDING COMPANY AND THE BANK
The Holding Company was incorporated under the laws of the State of
Maryland on February 24, 1998, to operate as a bank holding company. We will
file an application with the Board of Governors of the Federal Reserve System
("Federal Reserve Board") for approval to become a bank holding company pursuant
to the Bank Holding Company Act of 1956, and to purchase all of the capital
stock to be issued by the Bank. We will also file an application for insurance
of the Bank's deposits with the Federal Deposit Insurance Corporation ("FDIC").
An application to organize the Bank was filed with the Office of the
Comptroller of the Currency ("OCC") on December 16, 1998. The application
contemplates the sale of all of the shares of the Bank's common stock to the
Company for an aggregate price of $6,000,000. If we raise more than $7,000,000
in net proceeds in this offering, we may purchase additional shares of common
stock of the Bank, or otherwise contribute such additional proceeds to the Bank,
or retain a portion of the additional proceeds in the Holding Company. See "USE
OF PROCEEDS."
8
<PAGE>
We anticipate that the Bank will open in the second quarter of 1999, or as
soon thereafter as possible. Our ability to meet the targeted opening date
depends upon a number of factors which may be beyond our control, including the
timely completion of this offering, approval by the bank regulatory agencies,
and final development of the Bank's facility. Any delay in the commencement of
operations could increase the estimated pre-opening expenses of the Bank.
Neither the Holding Company nor the Bank has commenced operations and
neither will do so unless this offering is successfully completed and the Bank
meets the conditions of the OCC to receive its certificate of authority to
commence the business of banking, of the FDIC to receive deposit insurance, and
of the Federal Reserve Board to become a member bank. The Holding Company also
must obtain approval from the Federal Reserve Board to become a bank holding
company.
THE OFFERING
GENERAL
We are offering for sale a minimum of 700,000 and a maximum of 900,000
shares of common stock, $.01 par value at a price of $10.00 per share. No
shares will be sold unless we receive acceptable subscriptions for a minimum of
700,000 shares. We expect that directors and officers of the Holding Company
and the Bank will purchase approximately 18% of the shares offered if the
minimum number of shares are sold, or 14% if the maximum number of shares are
sold. We must receive subscriptions to purchase shares no later than 5:00 p.m.,
eastern time, on _________, 1999, unless we elect to terminate or extend the
offering. We reserve the right to terminate the offering at any time prior to
_____, 1999, or to extend the expiration date for one sixty (60) day period,
without notice to subscribers. However, we will not extend the offering beyond
______________, 1999.
Investors must subscribe to purchase a minimum of 500 shares (for a minimum
investment of $5,000), subject to our right to permit smaller subscriptions in
our discretion. The purchase of five percent (5%) or more of the common stock
may require the subscriber to provide certain information to, or seek the prior
approval of, the Federal Reserve Board. We will not be required to issue shares
of common stock to any person who, in our opinion, would be required to obtain
prior clearance or approval from the Federal Reserve Board for authority to own
or control such shares. We reserve the right to reduce or reject, in whole or
in part, any subscription which would require prior regulatory application or
approval if such approval has not been obtained prior to the termination date of
the offering.
We will not engage a broker-dealer and will not pay any underwriting
discounts or commissions for the sale of the shares. Officers and directors of
the Holding Company will solicit subscriptions from prospective stockholders.
The officers and directors will not receive any special compensation for such
services, but will be reimbursed for reasonable expenses.
9
<PAGE>
METHOD OF SUBSCRIPTION
If you wish to purchase shares, you must complete and sign the Subscription
Agreement accompanying this prospectus and deliver the completed Subscription
Agreement to the Holding Company prior to the termination date of the offering,
together with payment in full of the subscription price of all shares subscribed
for. Such payment must be by check or bank draft drawn upon a U.S. bank,
payable to "FMB Bank, Escrow Agent for HCNB Bancorp., Inc." If you wish to wire
funds to our escrow account, you may call the Holding Company at 301/251-1020 to
obtain wiring instructions. If paying by uncertified personal check, you should
allow at least five business days prior to the termination date for the funds to
clear. We will deposit all funds in the HCNB Bancorp, Inc., escrow account and,
pending closing of the offering, funds will be invested in bank accounts, short
term certificates of deposit or short-term securities issued or guaranteed by
the United States government.
The address to which Subscription Agreements and payment of the
Subscription Price should be delivered is:
HCNB Bancorp., Inc.
1682 East Gude Drive
Suite 102D
Rockville, Maryland 20850
Attention: William J. Olsen
Telephone No.: (301) 251-1020
THE FULL SUBSCRIPTION PRICE FOR THE SHARES SUBSCRIBED FOR MUST BE INCLUDED
WITH THE SUBSCRIPTION AGREEMENT. FAILURE TO INCLUDE THE FULL SUBSCRIPTION PRICE
WITH THE SUBSCRIPTION AGREEMENT MAY CAUSE US TO REJECT THE APPLICATION.
We recommend that you send your Subscription Agreement and payment by
registered mail, return receipt requested, and allow a sufficient number of days
for delivery and clearance of payment prior to the termination date of the
offering.
ESCROW ACCOUNT; RELEASE OF FUNDS
We established an escrow account at FMB Bank, Baltimore, Maryland, for
deposit of all subscription funds. Subscription funds may be invested
temporarily in bank accounts, short-term certificates of deposit or short-term
securities issued or guaranteed by the United States government. The funds in
the escrow account will not be released until the Bank receives preliminary
regulatory approvals from the OCC and we accept subscriptions for at least
700,000 shares.
10
<PAGE>
If the offering is not completed because the minimum number of shares is
not subscribed for, all regulatory approvals are not received, or otherwise, all
subscription funds will be returned to investors, without interest or deduction.
We have the right to break escrow, receive the funds in the escrow account
and issue shares of common stock to subscribers at any time after we receive
acceptable subscriptions for 700,000 shares and the preliminary approval of the
Bank's charter by the OCC. Such preliminary approval does not authorize the
Bank to open for business. That authority will not be granted until we obtain
insurance of the Bank's deposits by the FDIC and satisfy any other conditions
imposed by the OCC. We cannot guarantee that the Bank will receive final
approval to commence business from all applicable regulatory agencies. If we
elect to break escrow prior to the Bank receiving final approvals to commence
business, but such approvals are not ultimately obtained, your funds will be
irrevocably invested in the common stock. However, we would not be able to
implement our plan to own and operate a newly formed bank. In that event, we
would likely begin liquidation proceedings and distribute investor funds,
without interest, as soon as possible after completion of those proceedings.
Whether or not the offering is completed, all interest earned on funds held
in escrow will be retained by the Holding Company. By submitting a
subscription, you will forego interest you otherwise could have earned on the
funds for the period during which your funds are held in escrow.
ACCEPTANCE AND REFUNDING OF SUBSCRIPTIONS
Although subscribers may not revoke their subscriptions, Subscription
Agreements are not binding on us until we accept them. We reserve the right to
reject, in our sole discretion, any Subscription Agreement or to allot a smaller
number of shares than the number for which a person has subscribed. In
determining the number of shares to allot to each subscriber in the event the
offering is oversubscribed, we may take into account the order in which
subscriptions were received, a subscriber's potential to do business with, or to
direct customers to, the Bank, and our desire to have a broad distribution of
stock ownership, as well as legal or regulatory restrictions.
If we reject all or a portion of any subscription, the escrow agent will
promptly refund to the subscriber the amount submitted with the Subscription
Agreement, without interest or deduction. If for any reason the offering is not
completed, all subscription funds will be promptly refunded to subscribers
without interest or deduction. After all refunds have been made, the escrow
agent, the Holding Company, the Bank and their respective directors, officers,
and agents will have no further liabilities to subscribers.
Certificates representing shares duly subscribed and paid for will be
issued by the Holding Company as soon as practicable after funds are released to
the Holding Company by the escrow agent.
11
<PAGE>
LIMITED MARKET FOR SHARES
Except for shares held by the Holding Company's directors and certain
officers, the shares will be freely transferable immediately upon issuance and
will not be subject to any transfer restrictions. We do not anticipate that an
active trading market will develop in the foreseeable future, although the
shares could be bought and sold in the over-the-counter market after the
offering. The shares will not be listed initially on any stock exchange or be
designated for trading on The Nasdaq Stock Market Inc.'s quotation system,
although we plan to apply to have the shares listed on an exchange or designated
for trading on Nasdaq once the Holding Company meets the requirements for
approval of such an application. We cannot predict when the Holding Company
will meet the requirements or whether our application would be accepted. Even
if our application is accepted, we cannot guarantee that an active trading
market will ever develop.
USE OF PROCEEDS
The proceeds to the Holding Company from the sale of the shares will be
$7,000,000 if the minimum number of shares are sold, and $9,000,000 if the
maximum number of shares are sold, before deducting expenses of the offering,
which are estimated at $150,000.
We will use $6,000,000 of the net proceeds of the offering to purchase all
of the common stock of the Bank. We will pay all of the organizational and
offering expenses and certain operating costs of the Holding Company from the
proceeds of the offering, including interest on funds advanced by the
organizers, in an estimated aggregate amount of $346,000. The balance of the
proceeds, estimated to be $654,000 if the minimum number of shares is sold, or
$1,654,000 if the maximum number of shares is sold, will be retained by the
Holding Company for general corporate purposes. If more than $7,000,000 of
proceeds is raised in the offering, we may contribute all or a portion of the
additional funds to the Bank and retain a portion of the additional proceeds in
the Holding Company for general corporate purposes. It is possible that we
could be required to contribute more to the capital of the Bank than the amount
currently anticipated as a condition to the approval of the Bank's charter or
the establishment of branches.
The Bank will apply the proceeds from the sale of its capital stock to the
Holding Company to pay certain organizational and prepaid operating costs in an
estimated amount of $157,600, and to furnish and equip the Bank's premises at an
estimated cost of $538,000. The balance of the proceeds, estimated at
$5,304,400 if the minimum number of shares is sold, or $6,304,400 if the maximum
number of shares is sold, will be used to provide working capital for expansion,
to fund lending activities and for general corporate purposes (including the
investment of all or a portion of the working capital funds in interest-bearing
certificates of deposit or other deposits with an FDIC - insured bank or other
types of securities, such as government bonds). Certain expenses for furnishing
and equipping the Bank's premises and offices may be paid initially through
organizer advances, and the Holding Company will repay the organizer loans
reflecting such expenses in cash or shares of common stock. Currently, we
expect that the organizers will elect to accept repayment in stock. See
"CERTAIN TRANSACTIONS."
12
<PAGE>
The following table reflects the anticipated allocation of the net proceeds
of the offering, after deducting estimated expenses of the offering of $150,000.
<TABLE>
<CAPTION>
MINIMUM % OF MAXIMUM % OF
AMOUNT PROCEEDS(3) AMOUNT PROCEEDS(3)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
THE COMPANY:
Net Offering Proceeds $6,850,000 100% $8,850,000 100%
Purchase of Stock of $6,000,000 87.6% $7,000,000 79.1%
Bank/Capital
Contributions/(1)/
Salary and Benefits $ 118,000 1.6% $ 118,000 1.2%
Other Operating Costs $ 71,000 1.2% $ 71,000 .9%
Interest on Organizer $ 7,000 .1% $ 7,000 *
Advances/(2)/
Working Capital $ 654,000 9.5% $1,654,000 18.8%
THE BANK:
Proceeds of Capital $6,000,000 100% $7,000,000 100%
Contributions by
Holding Company
Organization Costs $ 72,600 1.2% $ 72,600 1.0%
Premises and Equipment $ 538,000 9.0% $ 538,000 7.7%
Expense
Prepaid Operating $ 85,000 1.4% $ 85,000 1.2%
Expenses
Working Capital $5,304,400 88.4% $6,304,400 90.1%
</TABLE>
______________
(1) The Holding Company reserves the right to not contribute to the Bank any
portion of the proceeds of the offering in excess of $6,000,000.
(2) Represents interest at rate of 5% per annum on amounts actually advanced.
We assume that all organizers will elect to have the principal amount of
their advances repaid in shares of common stock. See "CERTAIN
TRANSACTIONS."
(3) Percent of proceeds, in the case of the Bank, is calculated on the basis of
percent of proceeds contributed to the Bank by the Holding Company.
13
<PAGE>
CAPITALIZATION
The following table shows the pro forma consolidated capitalization of the
Holding Company at December 31, 1998 after giving effect to (i) the sale of
700,000 shares and (ii) the sale of 900,000 shares, at a price of $10.00 per
share, less estimated expenses of $150,000.
<TABLE>
<CAPTION>
Stockholders' equity: Minimum Number Maximum Number
- ---------------------
Actual Of Shares Sold Of Shares Sold
--------------- --------------- ---------------
<S> <C> <C> <C>
Common Stock, $.01 par value;
9,000,000 shares authorized;
700,000 shares outstanding(if
minimum number of shares is
sold) and 900,000 shares out-
standing (if maximum number
of shares is sold) -- $ 7,000 $ 9,000
Preferred Stock, $.01 par value;
1,000,000 shares authorized;
no shares outstanding -- -- --
Additional paid-in capital -- 6,993,000 8,991,000
Retained deficit (128,939) (339,000) (339,000)
-------------- ---------- ----------
Total stockholders' equity (deficit) (128,939) $6,661,000 $8,661,000
Net tangible book value per share -- $ 9.52 $ 9.62
</TABLE>
DIVIDEND POLICY
We expect that the Holding Company will retain any earnings to provide more
funds to operate and expand our business. Therefore, we have no plans to pay
any cash dividends in the foreseeable future. If we decide to pay dividends in
the future, our ability to do so will depend on the ability of the Bank to pay
dividends to the Holding Company. The Bank cannot pay dividends to the Holding
Company unless it complies with certain regulatory requirements regarding the
payment of dividends by a national bank. See "SUPERVISION AND REGULATION." In
addition, we would consider a number of other factors, including our earnings
prospects, financial condition, and cash needs before deciding to pay dividends.
If you are looking for an investment that pays dividends, you should not invest
in this offering.
14
<PAGE>
PROPOSED BUSINESS OF THE HOLDING COMPANY
The Holding Company expects to file an application to become a bank holding
company with the Federal Reserve Board in the near future. We know of no reason
why the approval from the Federal Reserve Board would not be received, but we
cannot predict when such approval will be received, or if the Federal Reserve
Board will impose any conditions on its approval.
Our principal asset will be our investment in all of the issued and
outstanding capital stock of the Bank. Currently, our principal business will
be commercial banking, through our banking subsidiary. With the prior approval
of the Federal Reserve Board, we could engage in non-banking activities closely
related to the business of banking. For example, with such approval, we could
make and service loans through a consumer finance subsidiary, or provide other
types of commercial financing. Further, the Federal Reserve Board allows bank
holding companies to give investment or financial advice, lease personal or real
property, provide data processing and courier services, invest in small business
investment companies, among other permissible activities. If a favorable
opportunity is presented, we might consider such activities, but we are not
actively seeking additional opportunities at this time.
We are new to our market in the Washington, D.C. metropolitan area, but we
believe our board of directors enhances our ability to establish the Bank
successfully and compete in our highly competitive market. Many of our
directors have banking and finance experience. Most of our organizers are
successful members of the Montgomery County business community. In addition,
several of our directors have significant relationships in the local Asian-
American community, where we anticipate the Bank will focus its marketing
efforts initially.
PROPOSED BUSINESS OF THE BANK
As of the date of this prospectus, the Bank has not been authorized to
conduct banking business and has not engaged in any operations. The issuance of
a charter by the OCC and approval of deposit insurance by the FDIC will be
dependent upon compliance with certain conditions and procedures, including the
sale of the Bank's stock to the Holding Company, the completion of the Bank's
premises, the purchase of certain fidelity and other insurance, the hiring of
staff and the adoption of certain operating procedures and policies. When those
conditions have been satisfied, the Bank will open for business with its main
office in Rockville, Maryland. The Bank will accept checking and savings
deposits, and offer a wide range of commercial, residential mortgage,
consumer/installment and real estate loans.
We want to be a community bank providing superior, personalized service to
our customers. We will focus on relationship banking, especially in the local
Asian-American community.
The Asian-American community in Montgomery County has grown dramatically.
In the ten year period, 1980-1990, the size of the community grew almost
threefold. In 1980, the Asian
15
<PAGE>
American community represented 3.9% of the total population in the county. In
1990 this community represented 8.3%. This trend continued through the 1990's.
In 1996, 9.6% of the county population was Asian-American. As of 1998, at a
majority of the elementary schools within three miles of the bank's office, in
excess of 20% of the students were Asian-American.
The average income of the Asian-American community has also increased over
the years. The Asian-American population has a higher percentage of persons
over 25 years of age with college and advanced degrees than the overall
Montgomery County population. This suggests that the trend in income growth
will continue.
The small business environment in Montgomery County also provides an
opportunity for the Bank. Of all the business establishments in the county, 75%
have fewer than 10 employees; 87% have 20 or fewer employees. This is the
market most affected by the consolidation of the financial industry over the
last decade.
The local banking community has also changed over the years. In the period
of 1991 to 1996, the number of financial institutions doing business in
Montgomery County declined from 69 to 54, and the number of banking locations
declined from 365 to 302. The consolidation of the financial industry, the
reduction in local banking offices and the growth of the county led the
organizers to believe the Asian-American and small business markets are
currently underserved.
BANK LOCATION AND MARKET AREA
We will be located in Rockville, Maryland and our primary service area will
be Montgomery County, Maryland. Our secondary market area will be in the
Washington D.C. region, particularly Washington D.C., Prince George's, Howard
and Frederick Counties in Maryland, and Arlington, Loudon and Fairfax Counties
in Virginia.
Montgomery County comprises 495 square miles and is located in Central
Maryland. It is a suburb of Washington, D.C. and had a population of 810,000
persons in 1996. It is located in the Washington-Baltimore market region, the
4th largest U.S. retail market.
Persons over 25 years of age living in Montgomery County are highly
educated. In 1996, 56% of this population group had college degrees. This
compares to a Washington metropolitan area average of 32% and a national average
of 16%. 27% of this population had advanced degrees. The average household
income was $98,963.
Montgomery County has a diversified economy, including high technology
research and development which ranks with California and Massachusetts. The
technology corridor along Interstate 270 has over 500 major companies and 30
million square feet of new development capacity. The county is the location of
19 major federal regulatory agencies and R & D laboratories including National
Institutes of Health, National Institute of Standards and
16
<PAGE>
Technology and the Food and Drug Administration. The county had, in 1996, the
highest concentration of scientists and engineers in the United States.
Montgomery County was, in 1996, the second largest suburban employment
center in the metropolitan area and the first in the State of Maryland. Ten
percent of Montgomery County's workforce was employed in high technology,
topping the ten largest U.S. metropolitan areas. 81.2% of the civilian workforce
was employed in the private sector and 18.8% by federal, state and local
governments. 48% held professional or managerial positions.
DESCRIPTION OF PROPOSED SERVICES
The Bank will offer commercial banking services to its business and
professional clients as well as consumer banking services to individuals. The
Bank will emphasize providing commercial banking services to businesses but will
welcome and provide superior service to individual customers.
We expect to offer the following lending services:
1) Commercial loans for business purposes including working capital, equipment
purchases, real estate, lines of credit, and government contract financing.
Asset-based lending and accounts receivable financing will also be
available on a selective basis.
2) Real estate loans, including land development and construction loan
financing, for business and investment purposes.
3) Traditional general purpose consumer installment loans including automobile
and personal loans. In addition, the Bank will offer personal lines of
credit.
4) Residential mortgage loans.
Our deposit services will include business and personal checking accounts,
NOW accounts, and a savings/money market account. We will offer certificates of
deposits with various rate structures and maturities.
We will offer our customers safety deposit boxes and after hours deposit
services. Initially we will offer one ATM at our Rockville branch. Although we
will not offer computer or telephone banking initially, we anticipate that we
will develop those services in the future. We will consider offering additional
products and services as warranted by customer demand. We believe that our data
processing capability, provided through a third party vendor, is sufficient to
support the introduction of new products and services such as computer and
telephone banking.
17
<PAGE>
Through our correspondent banking relationships, we will be able to offer
wire transfers of funds, international banking services, and certain other
services that our customers may require, especially those in the Asian -
American community.
SOURCE OF BUSINESS
A philosophy of convenience and personal service forms the basis for the
Bank's business development strategies. We expect to capitalize upon the
extensive business and personal contacts and relationships of our directors and
officers to establish the Bank's initial customer base. To introduce new
customers to the Bank, we will rely on officer-originated calling programs and
customer and shareholder referrals.
ASSET MANAGEMENT
Consistent with the Bank's objective to serve the needs of the business
community, we expect that our assets will be concentrated in commercial and
commercial real estate loans. Consistent with the requirements of prudent
banking practices, we will invest assets in amounts we believe to be adequate in
high grade securities to provide liquidity and safety. Loans will be targeted
at 75% or less of deposits (excluding repurchase agreements), and structured
generally with variable rates and/or fixed rates with short maturities.
Investment securities will primarily be United States treasury securities and
securities of the United States government or "quasi-government" agencies, and
certificates of deposits of FDIC-insured institutions.
The risk of nonpayment (or deferred payment) of loans is inherent in
commercial banking. The Bank's marketing focus on small to medium-sized
businesses may result in the Bank assuming lending risks that are different from
those associated with loans to larger companies. Management of the Bank will
carefully evaluate all loan applications and will attempt to minimize credit
risk exposure by use of thorough loan application, approval and monitoring
procedures. However, we cannot guarantee that those procedures will
significantly reduce the Bank's lending risks.
COMPETITION
Deregulation of financial institutions and acquisitions of banks across
state lines has resulted in widespread changes in the financial services
industry. This transformation, although occurring nationwide, is particularly
intense in the greater Washington, D.C. metropolitan area.
In our primary market area, we face strong competition from large banks
headquartered outside of Maryland. In addition, we will compete with other
community banks, savings and loan associations, credit unions, mortgage
companies, finance companies and others providing financial services. Many of
our competitors can finance extensive advertising campaigns, maintain extensive
branch networks and technology investments, and offer certain services, such as
international banking and trust services, which we cannot or will not offer
initially. Also, larger
18
<PAGE>
institutions have substantially higher lending limits than the Bank will have.
Some of our competitors have other advantages, such as tax exemption in the case
of credit unions, and lesser regulation in the case of mortgage companies and
finance companies.
EMPLOYEES
We anticipate that the Bank initially will employ approximately sixteen
people, including officers of the Bank. We do not expect to add more employees
during the first year of the Bank's operation.
PROPERTIES
The Holding Company entered into a lease as of December 23, 1998 for 4,153
square feet of space, including two existing drive-through teller lanes, at the
Federal Plaza shopping center located at 1776 East Jefferson Street in
Rockville, Maryland. The Holding Company's and the Bank's offices will be
located there, and the Bank's only branch and ATM will operate at that location.
The lease term began as of February 18, 1999, and runs for two years. The
Holding Company has the option to extend the term of the lease for one eight-
year renewal term. During the first year of the lease term, the Holding Company
will pay monthly rent of $7,267.75. During the second year of the lease term,
the Holding Company will pay monthly rent of $7,520.39. In addition, the
Holding Company will pay its share of taxes, operating costs and merchants
association dues. If all regulatory approvals to begin banking operations are
not obtained within 90 days after the execution of the lease, then either the
Holding Company or the landlord can terminate the lease.
MANAGEMENT'S PLAN OF OPERATION
GENERAL
As of the date of this prospectus, neither the Holding Company nor the Bank
has commenced operations or engaged in any activities except those related to
the organization and capitalization of the Holding Company and the Bank. These
limited activities have been financed solely by advances, in the amount of
$110,000 as of January 31, 1999, by six organizers of the Holding Company. We
expect these and additional organizer advances to be sufficient to meet our
needs until the offering is completed. See "CERTAIN TRANSACTIONS."
Once the Bank opens, expected in the second quarter of 1999, we will begin
the banking operations described in this prospectus under the caption "Proposed
Business of the Bank." We expect that the Bank will incur approximately
$210,000 in expenses in leasehold improvements for its offices and for
furniture, fixtures and equipment for those offices. We will contract with an
outside vendor for the Bank's data processing. We anticipate a one-time capital
expenditure of
19
<PAGE>
$243,000, and annual costs in our first year of operations of approximately
$89,000 for data processing services.
We believe that the proceeds of the offering, ($7,000,000 if the minimum
number of shares are sold, and $9,000,000 if the maximum number of shares are
sold), in each case without deduction for estimated expenses of the offering,
will be sufficient to fund the expenses of establishing and opening the Bank,
and the Bank's and Holding Company's operations for at least twelve months after
the offering. We do not anticipate a need to raise additional capital during
that period. See "USE OF PROCEEDS."
YEAR 2000
The Year 2000 poses a significant challenge to all financial institutions
and other businesses because many automated systems may cease to function
normally in 2000 as a result of the way date files are maintained in those
systems. Federal banking regulators have taken a strong position relating to
the financial industry's obligations to manage so-called "Y2K risks."
As a new institution, we are focusing on making certain that any system put
into place is already Y2K compliant. It is our policy to require Y2K warranties
on all systems obtained and installed. Once we obtain warranties of compliance
from the system provider, it will be our responsibility to verify the vendor's
claim.
Our primary concern is the operation of our outside data processing
service, because this service is the backbone of the Bank's operations. Our
contract with the data processing service provider includes a warranty from the
provider that its systems are Y2K compliant and that the transition to the Year
2000 or any other date will not materially adversely affect its ability to
provide the services our contract covers.
We will lease an existing banking office and we will evaluate any existing
systems within that facility for Y2K compliance. For example, in addition to
information systems, we will assess office equipment, security systems, our
vault door and other systems.
We also recognize that our customers' Y2K issues may affect our operations.
The ability of a major credit customer to honor a debt obligation could be
impaired if the customer has problems relating to Y2K. We will ask our credit
customers for Y2K representations, and make that part of our loan documentation.
SUPERVISION AND REGULATION
The Holding Company and the Bank will be subject to extensive regulation
under state and federal banking laws and regulations. These laws impose
specific requirements and restrictions on virtually all aspects of operations,
and generally are intended to protect depositors, not stockholders. The
following discussion is only a summary and you should refer to particular
20
<PAGE>
statutory and regulatory provisions for more detailed information. Any change
in applicable laws or regulations may have a material effect on our business and
prospects. Beginning with the enactment of the Financial Institutions Reform,
Recovery and Enforcement Act of 1989 and following in December 1991 with the
Federal Deposit Insurance Corporation Act, numerous additional regulatory
requirements have been placed on the banking industry in the past ten years, and
additional changes have been proposed. We cannot predict the nature or the
extent of the effect on our business and earnings that fiscal or monetary
policies, economic control, or new federal or state legislation may have in the
future.
THE HOLDING COMPANY
The Holding Company will be a bank holding company registered under the
Bank Holding Company Act of 1956, as amended, and will be subject to supervision
by the Board of Governors of the Federal Reserve System. As a bank holding
company, the Holding Company will be required to file with the Federal Reserve
Board an annual report and such other additional information as the Federal
Reserve Board may require by statute. The Federal Reserve Board may also make
examinations of the Holding Company and each of its subsidiaries.
The Federal Reserve Board must approve, among other things, the acquisition
by a proposed bank holding company of control of more than five percent (5%) of
the voting shares, or substantially all the assets, of any bank or the merger or
consolidation by a bank holding company with another bank holding company. A
bank holding company may acquire control or substantially all the assets of any
bank located in a state other than the home state of the bank holding company,
except where the bank has not been in existence for the minimum period of time
required by state law. If the bank is at least 5 years old, the Federal Reserve
Board may approve the acquisition.
With certain limited exceptions, a bank holding company is prohibited from
acquiring control of any voting shares of any company which is not a bank or
bank holding company and from engaging directly or indirectly in any activity
other than banking or managing or controlling banks or furnishing services for
its authorized subsidiaries. A bank holding company may, however, engage in
activities which the Federal Reserve Board has determined by order or regulation
to be so closely related to banking or managing or controlling banks as to be
"properly incident thereto." In making such a determination, the Federal
Reserve Board is required to consider whether the performance of such activities
can reasonably be expected to produce benefits to the public, such as
convenience, increased competition or gains in efficiency, which outweigh
possible adverse effects, such as undue concentration of resources, decreased or
unfair competition, conflicts of interest or unsound banking practices. The
Federal Reserve Board is also empowered to differentiate between activities
commenced de novo and activities commenced by the acquisition, in whole or in
part, of a going concern. Some of the activities that the Federal Reserve Board
has determined by regulation to be closely related to banking include making or
servicing loans, performing certain data processing services, acting as a
fiduciary or investment or
21
<PAGE>
financial advisor, and making investments in corporations or projects designed
primarily to promote community welfare.
Subsidiary banks of a bank holding company are subject to certain
restrictions imposed by statute on any extensions of credit to the bank holding
company or any of its subsidiaries, or investments in their stock or other
securities, and on taking such stock or securities as collateral for loans to
any borrower. Further, a holding company and any subsidiary bank are prohibited
from engaging in certain tie-in arrangements in connection with the extension of
credit. A subsidiary bank may not extend credit, lease or sell property or
furnish any services, or fix or vary the consideration for any of the foregoing
on the condition that: (i) the customer obtain or provide some additional
credit, property or services from or to such bank other than a loan, discount,
deposit or trust service; (ii) the customer obtain or provide some additional
credit, property or service from or to the Holding Company or any other
subsidiary of the Holding Company, or (iii) the customer not obtain some other
credit, property or service from competitors, except for reasonable requirements
to assure the soundness of credit extended.
In accordance with Federal Reserve Board policy, the Holding Company is
expected to act as a source of financial strength to the Bank and to commit
resources to support the Bank in circumstances in which the Holding Company
might not otherwise do so. The Federal Reserve Board may require a bank holding
company to terminate any activity or relinquish control of a nonbank subsidiary
(other than a nonbank subsidiary of a bank) upon the Federal Reserve's
determination that such activity or control constitutes a serious risk to the
financial soundness or stability of any subsidiary depository institution of the
bank holding company. Further, federal bank regulatory authorities have
additional discretion to require a bank holding company to divest itself of any
bank or nonbank subsidiary if the agency determines that divestiture may aid the
depository institution's financial condition.
THE BANK
The Bank, as a national banking association whose accounts will be insured
by the Bank Insurance Fund of the FDIC up to the maximum legal limits, will be
subject to regulation, supervision and regular examinations by the OCC. The
Bank will be a member of the Federal Reserve System, and, as such, will be
subject to certain regulations issued by the Federal Reserve Board. The Bank
also will be subject to applicable banking provisions of Maryland law, insofar
as they do not conflict with or are not preempted by federal law. The
regulations of these various agencies govern most aspects of the Bank's
business, including setting required reserves against deposits, loans,
investments, mergers and acquisitions, borrowing, dividends and location and
number of branch offices.
Competition among commercial banks, savings and loan associations, and
credit unions has increased following enactment of legislation which greatly
expanded the ability of banks and bank holding companies to engage in interstate
banking or acquisition activities. Banks in the Washington,
D.C./Maryland/Virginia area can, subject to limited restrictions, acquire or
merge
22
<PAGE>
with a bank in another of the jurisdictions, and can branch de novo in any of
the jurisdictions. Legislation has been proposed which may result in nonbanking
companies being authorized to own banks, which could permit companies with
resources substantially in excess of the Holding Company's to compete with the
Holding Company and the Bank.
Banking is a business which depends on interest rate differentials. In
general, the differences between the interest paid by a bank on its deposits and
its other borrowings and the interest received by a bank on loans extended to
its customers and securities held in its investment portfolio constitute the
major portion of the bank's earnings. Thus, the earnings and growth of the Bank
will be subject to the influence of economic conditions generally, both domestic
and foreign, and also to the monetary and fiscal policies of the United States
and its agencies, particularly the Federal Reserve Board, which regulates the
supply of money. We cannot predict the nature and timing of changes in such
policies and their impact on the Bank.
Branching and Interstate Banking. Beginning on June 1, 1997, the federal
banking agencies were authorized to approve interstate bank merger transactions
without regard to whether such transaction is prohibited by the law of any
state, unless the home state of one of the banks has opted out of the interstate
bank merger provisions of the Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994. Interstate acquisitions of branches will be permitted
only if the law of the state in which the branch is located permits such
acquisitions.
The Riegle-Neal Act authorizes the OCC and FDIC to approve interstate
branching de novo by national and state banks, but only in states which
specifically allow for such branching. The District of Columbia, Maryland and
Virginia have all enacted laws which permit interstate acquisitions of banks and
bank branches and permit out-of-state banks to establish de novo branches.
Capital Adequacy Guidelines. The Federal Reserve Board, the OCC and the
FDIC have all adopted risk based capital adequacy guidelines by which they
assess the adequacy of capital in examining and supervising banks and bank
holding companies and in analyzing bank regulatory applications. Risk-based
capital requirements, determine the adequacy of capital based on the risk
inherent in various classes of assets and off-balance sheet items.
Since December 31, 1992, national banks have been expected to meet a
minimum ratio of total qualifying capital (the sum of core capital (Tier 1) and
supplementary capital (Tier 2)) to risk weighted assets of 8%. At least half of
this amount (4%) should be in the form of core capital. These requirements
apply to the Bank and will apply to the Holding Company once its total assets
equal $150,000,000 or more, it engages in certain highly leveraged activities or
it has publicly held debt securities.
Tier 1 Capital for national banks generally consists of the sum of common
stockholders' equity and perpetual preferred stock (subject in the case of the
latter to limitations on the kind and amount of such stock which may be included
as Tier 1 Capital), less goodwill, without adjustment
23
<PAGE>
in accordance with SFAS 115. Tier 2 Capital consists of the following: hybrid
capital instruments; perpetual preferred stock which is not otherwise eligible
to be included as Tier 1 Capital; term subordinated debt and intermediate-term
preferred stock; and, subject to limitations, general allowances for loan
losses. Assets are adjusted under the risk-based guidelines to take into account
different risk characteristics, with the categories ranging from 0% (requiring
no risk-based capital) for assets such as cash, to 100% for the bulk of assets
which are typically held by a bank holding company, including certain multi-
family residential and commercial real estate loans, commercial business loans
and consumer loans. Residential first mortgage loans on one to four family
residential real estate and certain seasoned multi-family residential real
estate loans, which are not 90 days or more past-due or non-performing and which
have been made in accordance with prudent underwriting standards, are assigned a
50% level in the risk-weighing system, as are certain privately-issued mortgage-
backed securities representing indirect ownership of such loans. Off-balance
sheet items also are adjusted to take into account certain risk characteristics.
In addition to the risk based capital requirements, the OCC has established
a minimum 3% Leverage Capital Ratio (Tier 1 Capital to total adjusted assets)
requirement for the most highly-rated national banks, with an additional cushion
of at least 100 to 200 basis points for all other national banks, which
effectively increases the minimum Leverage Capital Ratio for such other banks to
4% - 5% or more. Under the OCC's regulations, highest-rated banks are those
that the OCC determines are not anticipating or experiencing significant growth
and have well diversified risk, including no undue interest rate risk exposure,
excellent asset quality, high liquidity, good earnings and, in general, those
which are considered a strong banking organization. A national bank that has
less than the minimum Leverage Capital Ratio requirement must submit to the
applicable district office for review and approval a reasonable plan describing
the means and timing by which the bank will achieve its minimum Leverage Capital
Ratio requirement. A national bank which fails to file such plan is deemed to
be operating in an unsafe and unsound manner, and could be subject to a cease-
and-desist order. The OCC's regulations also provide that any insured depository
institution with a Leverage Capital Ratio that is less than 2% is deemed to be
operating in an unsafe or unsound condition and is subject to potential
termination of deposit insurance. However, such an institution will not be
subject to an enforcement proceeding solely on account of its capital ratios, if
it has entered into and is in compliance with a written agreement with the OCC
to increase its Leverage Capital Ratio to such level as the OCC deems
appropriate and to take such other action as may be necessary for the
institution to be operated in a safe and sound manner. The capital regulations
also provide, among other things, for the issuance by the OCC or its designee(s)
of a capital directive, which is a final order issued to a bank that fails to
maintain minimum capital or to restore its capital to the minimum capital
requirement within a specified time period. Such directive is enforceable in
the same manner as a final cease-and-desist order.
Prompt Corrective Action. Each federal banking agency is required to
implement a system of prompt corrective action for institutions which it
regulates. Under applicable regulations, a bank will be deemed to be: (i) "well
capitalized" if it has a Total Risk Based Capital Ratio of 10% or more, a Tier 1
Risk Based Capital Ratio of 6% or more, a Leverage Capital
24
<PAGE>
Ratio of 5% or more and is not subject to any written capital order or
directive; (ii) "adequately capitalized" if it has a Total Risk Based Capital
Tier Ratio of 8% or more, a Tier 1 Risk Based Capital Ratio of 4% or more and a
Tier 1 Leverage Capital Ratio of 4% or more (3% under certain circumstances);
(iii) "undercapitalized" if it has a Total Risk Based Capital Ratio that is less
than 8%, a Tier 1 Risk Based Capital Ratio that is less than 4% or a Leverage
Capital Ratio that is less than 4% (3.3% under certain circumstances); (iv)
"significantly undercapitalized" if it has a Total Risk Based Capital Ratio that
is less than 6%, a Tier 1 Risk Based Capital Ratio that is less than 3% or a
Leverage Capital Ratio that is less than 3% or a Leverage Capital Ratio that is
less than 3%; and (v) "critically undercapitalized" if it has a ratio of
tangible equity to total assets that is equal to or less than 2%.
An institution generally must file a written capital restoration plan which
meets specified requirements with an appropriate federal banking agency within
45 days of the date the institution receives notice or is deemed to have notice
that it is undercapitalized, significantly undercapitalized or critically
undercapitalized. A federal banking agency must provide the institution with
written notice of approval or disapproval within 60 days after receiving a
capital restoration plan, subject to extensions by the applicable agency.
An institution which is required to submit a capital restoration plan must
concurrently submit a performance guaranty by each company that controls the
institution. Such guaranty is limited to the lesser of (i) an amount equal to 5%
of the institution's total assets at the time the institution was notified or
deemed to have notice that it was undercapitalized or (ii) the amount necessary
at such time to restore the relevant capital measures of the institution to the
levels required for the institution to be classified as adequately capitalized.
Such a guaranty expires after the federal banking agency notifies the
institution that it has remained adequately capitalized for each of four
consecutive calender quarters. An institution which fails to submit a written
capital restoration plan within the requisite period, including any required
performance guaranty, or fails in any material respect to implement a capital
restoration plan, is subject to the restrictions in Section 38 of the FDIA which
are applicable to significantly undercapitalized institutions.
A "critically undercapitalized institution" is to be placed in
conservatorship or receivership within 90 days unless the FDIC formally
determines that forbearance from such action would better protect the deposit
insurance fund. Unless the FDIC or other appropriate federal banking regulatory
agency makes specific further findings and certifies that the institution is
viable and is not expected to fail, an institution that remains critically
undercapitalized on average during the fourth calendar quarter after the date it
becomes critically undercapitalized must be placed in receivership.
Immediately upon becoming undercapitalized, an institution becomes subject
to statutory provisions which (i) restrict payment of capital distributions and
management fees; (ii) require that the appropriate federal banking agency
monitor the condition of the institution and its efforts to restore its capital;
(iii) require submission of a capital restoration plan; (iv) restrict the growth
of the institution's assets; and (v) require prior approval of certain expansion
proposals. The
25
<PAGE>
appropriate federal banking agency for an undercapitalized institution also may
take any number of discretionary supervisory actions if the agency determines
that any of these actions is necessary to resolve the problems of the
institution at the least possible long-term cost to the deposit insurance fund,
subject in certain cases to specified procedures. These discretionary
supervisory actions include: requiring the institution to raise additional
capital; restricting transactions with affiliates; requiring divestiture of the
institution or the sale of the institution to a willing purchaser; and any other
supervisory action that the agency deems appropriate. These and additional
mandatory and permissive supervisory actions may be taken with respect to
significantly undercapitalized and critically undercapitalized institutions.
Regulatory Enforcement Authority. The Financial Institutions Reform,
Recovery, and Enforcement Act of 1989 ("FIRREA") included substantial
enhancement to the enforcement powers available to federal banking regulators.
This enforcement authority includes, among other things, the ability to assess
civil money penalties, to issue cease-and-desist or removal orders and to
initiate injunctive actions against banking organizations and institution-
affiliated parties, as defined in FIRREA. In general, these enforcement actions
may be initiated for violations of laws and regulations and unsafe or unsound
practices. Other actions or inactions may provide the basis for enforcement
action, including misleading or untimely reports filed with regulatory
authorities. FIRREA significantly increased the amount of and grounds for civil
money penalties and requires, except under certain circumstances, public
disclosure of final enforcement actions by the federal banking agencies.
Transactions with Affiliates and Insiders. The Bank will be subject to the
provisions of Section 23A of the Federal Reserve Act, which place limits on the
amount of loans or extensions of credit to, investments in or certain other
transactions with affiliates, and on the amount of advances to third parties
collateralized by the securities or obligations of affiliates. Section 23A
limits the aggregate amount of transactions with any individual affiliate to ten
percent (10%) of the capital and surplus of the Bank and also limits the
aggregate amount of transactions with all affiliates to twenty percent (20%) of
the bank's capital and surplus. Loans and certain other extensions of credit to
affiliates are required to be secured by collateral in an amount and of a type
described in Section 23A, and the purchase of low quality assets from affiliates
is generally prohibited.
The Bank also will be subject to the provisions of Section 23B of the
Federal Reserve Act which, among other things, prohibit an institution from
engaging in certain transactions with certain affiliates unless the transactions
are on terms substantially the same, or at least as favorable to such
institution or its subsidiaries, as those prevailing at the time for comparable
transactions with non-affiliated companies. In the absence of comparable
transactions, such transactions may only occur under terms and circumstances,
including credit standards, that in good faith would be offered to or would
apply to non- affiliated companies.
The Bank will be subject to certain restrictions on extensions of credit to
executive officers, directors, certain principal stockholders and their related
interests. Such extensions of
26
<PAGE>
credit (i) must be made on substantially the same terms, including interest
rates and collateral, as those prevailing at the time for comparable
transactions with third parties and (ii) must not involve more than the normal
risk of repayment or present other unfavorable features.
Community Reinvestment Act. The Community Reinvestment Act ("CRA")
requires that, in connection with examinations of financial institutions within
their respective jurisdictions, the Federal Reserve Board, the FDIC, the OCC or
the Office of Thrift Supervision shall evaluate the record of the financial
institutions in meeting the credit needs of their local communities, including
low and moderate income neighborhoods, consistent with the safe and sound
operation of those institutions. The CRA does not establish specific lending
requirements or programs for financial institutions nor does it limit an
institution's discretion to develop the types of products and services that it
believes are best suited to its particular community, consistent with the CRA.
These factors are considered in evaluating mergers, acquisitions and
applications to open a branch or facility. The CRA also requires all
institutions to make public disclosure of their CRA ratings.
DIVIDENDS
The principal source of the Holding Company's revenues will be derived from
dividends received from the Bank. The amount of dividends that may be paid by
the Bank to the Holding Company depends on the Bank's earnings and capital
position and is limited by statute, regulations and policies. As a national
bank, the Bank may not pay dividends from its paid-in surplus. All dividends
must be paid out of undivided profits then on hand, after deducting expenses,
including provisions for loan losses and bad debts. In addition, a national
bank is prohibited from declaring a dividend on its shares of common stock until
its surplus equals its stated capital, unless there has been transferred to
surplus no less than one-tenth of the bank's net profits for the preceding two
consecutive half-year periods (in the case of an annual dividend). The approval
of the OCC is required if the total of all dividends declared by a national bank
in any calendar year exceeds the total of its net profits for that year combined
with its retained net profits for the preceding two years, less any required
transfers to surplus. Under applicable law, the Bank may not pay a dividend if,
after paying the dividend, the Bank would be undercapitalized.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The executive officers and directors of HCNB Bancorp, Inc. and Harbor
Capital National Bank are as follows:
NAME AGE POSITION
- ---- --- --------
Michael J. Burke 49 Chairman of the Board
of the Company and the
Bank, President of the
27
<PAGE>
Company
Chi Ping Penny Chow 37 Vice President of the Bank,
Business Development
Officer of the Bank,
Director of the Company
and the Bank
Michael L. Derr 48 Senior Vice President
of the Bank, Secretary of
the Company, Chief Operating
Officer of the Bank
Harvey S. Fenster 65 Director of the Company
and the Bank
Wayne A. Harrison 49 Director of the Company
and the Bank
Li-min Lee 40 Treasurer of the Company, Director
of the Company and the Bank
William J. Olsen 48 President of the Bank, Vice President
of the Company, Chief Lending
Officer of the Bank, Director
of the Company and the Bank
Robert K. Wang 44 Vice Chairman of the Board of the
Company, Director of the Bank
William J. Olsen will serve as the president and chief lending officer of
the Bank, and as a vice president of the Holding Company. He is also a director
of the Holding Company and will serve as a director of the Bank. Mr. Olsen is a
credit trained commercial banker with more than 26 years of experience acquired
at money center, regional and community banks. His client base has included
professionals as well as small to middle market businesses, and his primary
responsibilities were to build full service banking relationships. He moved to
the Baltimore-Washington metropolitan area in 1993 and most recently served as a
vice president at Crestar Bank, managing the Maryland region's Professional &
Executive and Not-for-Profit new business efforts.
Michael J. Burke serves as chairman of the board of directors and
president of the Holding Company, and will serve as chairman of the board of
directors of the Bank. Mr. Burke is a certified public accountant and has been
the president since 1996 and a principal since 1971 of
28
<PAGE>
Yorke, Burke and Lee, CPA,s P.A. Mr. Burke has been the chief financial officer
for The Parvus Company, an international security company, since 1986, the
president of East West Communications, Inc. since 1984, and the president of
Metro Billing Corporation since 1993. Mr. Burke served as president of Quads
Trust Company from 1995 to 1996, and was a director from 1991 to 1996.
Chi Ping Penny Chow will serve as vice president and business development
officer of the Bank. She is a director of the Holding Company, and will be a
director of the Bank. From 1996, until joining the organizing efforts of the
Bank, Ms. Chow was the treasurer of the Development Bank of Singapore. Ms. Chow
was a senior loan processor at Fidelity Mortgage Services, Inc. from 1992 to
1994, when she was promoted to the position of manager, which she held from 1994
to 1996.
Michael L. Derr will serve as senior vice president and chief operating
officer of the Bank. He is secretary of the Holding Company. Prior to joining
the organizing efforts of the Bank, Mr. Derr was president of MLD Consulting,
Inc., a bank consulting company, which he founded in 1998. Mr. Derr previously
served as assistant vice president and vice president of operations at The Bank
of Glen Burnie from 1989 to 1998. From 1972 to 1989, Mr. Derr held various
positions, including vice president of operations, at Citizen Savings Bank, FSB.
Harvey S. Fenster is a director of the Holding Company and will be a
director of the Bank. Dr. Fenster has practiced as an orthodontist since 1964,
specializing in orthodontics and dentofacial orthopedics. Dr. Fenster was an
organizer, director and vice chairman of the board of Kennedy Bank & Trust
Company from 1970 to 1982. In addition, Dr. Fenster has been a director of East
West Communications, Inc. since 1985
Wayne A. Harrison is a director of the Holding Company and will be a
director of the Bank. Since 1983, Mr. Harrison has been the president of H.T.
Harrison & Sons, Inc., a family owned roofing and building contractor which has
been doing business in the Washington, D.C. metropolitan area for over 50 years.
Mr. Harrison has served as a director and secretary of East West Communications,
Inc. since 1995.
Li-min Lee serves as treasurer of the Holding Company. She is a director of
the Holding Company and will be a director of the Bank. Ms. Lee is currently a
certified public accountant and a principal of Yorke, Burke and Lee, CPA,s PA,
where she has served as the vice president since 1985. Ms. Lee has served as
vice president for Com-Tech International, Inc. since 1996 and as vice president
of Crossover International, LLC since 1996.
Robert K. Wang is vice chairman of the board of directors of the Holding
Company and will be a director of the Bank. Mr. Wang is currently the chairman
and president of Comtech Micro Systems, Inc., which he founded in 1986. Comtech
Micro Systems, Inc. specializes in the manufacture and distribution of micro
computers and related products. The company also is an authorized distributor
for major brand personal computers and related products.
29
<PAGE>
DIRECTOR COMPENSATION
The Holding Company currently does not pay directors' fees. Beginning in
the first month of Bank operations, directors will receive fees for their
services, and will be reimbursed for expenses incurred in connection with their
service as directors. Directors will receive $300 for each Board meeting
attended and $100 for each committee meeting attended. We expect that such fees
will be paid in shares of common stock, valued at $10.00 per share, for the
foreseeable future.
We expect that the Bank will pay Mr. Burke $25,000 annually, payable in
cash or the shares of the Holding Company's common stock at Mr. Burke's option,
in connection with his duties as Chairman of the Board of the Bank. Mr. Burke
is not a party to an employment or consulting agreement with either the Holding
Company or the Bank and he could resign or be terminated at any time and for any
reason.
EMPLOYMENT AND EXECUTIVE COMPENSATION ARRANGEMENTS
The Holding Company has entered into a written employment agreement with
Mr. Olsen. Under the Agreement, Mr. Olsen will serve as Vice President of the
Holding Company at an annual base salary of $100,000, subject to annual review.
Either the Holding Company or Mr. Olsen may terminate his employment at any time
upon 30 days' prior written notice, and Mr. Olsen may be terminated for cause at
any time without prior notice. Unless notice is provided otherwise, the
Agreement with the Holding Company will terminate on the effective date of an
employment agreement between Mr. Olsen and the Bank, or on the date the Holding
Company's board of directors decides to terminate this offering. In addition,
the Holding Company will pay Mr. Olsen $10,000 on the date the Holding Company
has collected in escrow the minimum proceeds of this offering or upon a
determination by the Holding Company's board of directors to terminate this
offering.
Under the Agreement with the Bank, Mr. Olsen will serve as President of the
Bank at an annual base salary of $100,000, subject to annual review, and an
initial term of three years, automatically renewable for one year terms unless
written notice is provided by either party 90 days before expiration of a term.
However, either the Bank or Mr. Olsen may terminate his employment at any time
upon 30 days' prior written notice, and Mr. Olsen may be terminated for cause at
any time without prior notice. The Bank will also provide Mr. Olsen with a
monthly automobile allowance and benefits available to other employees.
The Holding Company has entered into a written employment agreement with
Mr. Derr. Under the Agreement, Mr. Derr will receive an annual base salary of
$72,000, subject to annual review. Either the Holding Company or Mr. Derr may
terminate his employment at any time upon 30 days' prior written notice, and Mr.
Derr may be terminated for cause at any time without prior notice. Unless
notice is provided otherwise, the Agreement with the Holding Company will
terminate on the effective date of an employment agreement between Mr. Derr and
the Bank, or
30
<PAGE>
on the date the Holding Company's board of directors decides to terminate this
offering. In addition, the Holding Company will pay Mr. Derr $6,000 upon a
determination by the Holding Company's board of directors to terminate this
offering.
Under the Agreement with the Bank, Mr. Derr will serve as Senior Vice
President and Chief Operating Officer of the Bank at an annual base salary of
$72,000, subject to annual review. The Agreement has an initial term of one
year, automatically renewable for additional one year terms unless written
notice is provided by either party 90 days before expiration of a term.
However, either the Bank or Mr. Derr may terminate his employment at any time
upon 30 days' prior written notice, and Mr. Derr may be terminated for cause at
any time without prior notice. The Bank will also provide Mr. Derr with a
monthly automobile allowance and benefits available to other employees.
Prior to entering into the written agreement described above with the
Holding Company, Mr. Derr was compensated as a consultant at a rate of $6,000
per month, beginning December 21, 1998. Prior to that date, he was compensated
at an hourly rate of $25.00. As of January 31, 1999, he has received
compensation of $10,105.
The Holding Company currently pays Ms. Chow $45,000 annually, and the Bank
will assume the obligation to pay Ms. Chow's salary after it opens, in
connection with her duties as Vice President and Business Development Officer of
the Bank. Ms. Chow is not a party to an employment agreement with either the
Holding Company or the Bank and she could resign or be terminated at any time
and for any reason.
SECURITIES OWNERSHIP OF MANAGEMENT
To date, we have not issued any shares of capital stock. We anticipate
that officers and directors, as a group, will purchase approximately 18% of the
shares in this offering if the maximum number of shares is sold and 14% of the
shares if the maximum number of shares is sold, including up to 48,000 shares
which may be issued to certain organizers of the Holding Company and the Bank in
repayment of funds advanced by those people. See "CERTAIN TRANSACTIONS."
CERTAIN TRANSACTIONS
Six of the organizers of the Holding Company and the Bank have made loans,
totaling $110,000 as of January 31, 1999, to fund certain organizational and
prepaid operating expenses until we can raise funds in this offering. We expect
that these six organizers will loan an additional $370,000 between February and
April of 1999. We will repay these loans only from the proceeds of this
offering, but the lenders may choose to be repaid in shares of common stock
valued at $10.00 per share. We will pay interest of 5% per annum on the amount
of any loaned funds. We believe that all of the lenders will request repayment
of their loans in shares of
31
<PAGE>
common stock, valued at $10.00 per share. If that is the case, we will issue up
to 48,000 shares of common stock, assuming that a total of $480,000 is loaned by
the organizers.
We anticipate that our directors and officers and the business and
professional organizations with which they are associated will have banking
transactions with the Bank in the ordinary course of business. It will be our
policy that any loans and loan commitments will be made in accordance with
applicable laws and on substantially the same terms, including interest rates
and collateral, as those prevailing at the time for comparable transactions with
other persons of comparable credit standing. Loans to directors and officers
must comply with the Bank's lending policies and statutory lending limits, and
directors with a personal interest in any loan application will be excluded from
considering any such loan application.
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of nine million (9,000,000) shares of
common stock, $0.01 par value, and one million (1,000,000) shares of preferred
stock, $0.01 par value. No shares are issued as of the date of this prospectus.
The following summary of certain terms of the common stock and preferred stock
is not complete and you may refer to our Charter and Bylaws, copies of which are
available for inspection.
In general, shareholders or subscribers for our stock have no personal
liability for the debts and obligations of the Holding Company because of their
status as shareholders or subscribers, except to the extent that the
subscription price or other agreed consideration for the stock has not been
paid.
COMMON STOCK
We are authorized to issue nine million (9,000,000) shares of common stock,
par value $0.01 per share. Upon completion of the offering, a minimum of 700,000
and a maximum of 900,000 shares of common stock will be issued and outstanding.
All shares of common stock offered will be duly authorized and will, upon
payment as described in this prospectus, be fully paid and nonassessable.
Subject to all the rights of holders of any other class or series of stock,
holders of common stock will be entitled to receive dividends if and when the
Board of Directors of the Holding Company declares dividends from funds legally
available. In addition, holders of common stock share ratably in the net assets
of the Holding Company upon the voluntary or involuntary liquidation,
dissolution or winding up of the Holding Company, after distributions are made
to anyone with more senior rights.
In general, each outstanding share of common stock entitles the holder to
vote for the election of directors and on all other matters requiring
shareholder action, and each share is entitled to one vote. There is no
cumulative voting in the election of directors, which means that the holders of
a majority of the outstanding shares of common stock can elect all of the
directors
32
<PAGE>
then standing for election and the holders of the remaining shares will not be
able to elect any directors.
Holders of common stock have no conversion, sinking fund, redemption rights
or preemptive rights to subscribe for any securities of the Holding Company or
the Bank.
Our Charter grants to the Board of Directors the right to classify or
reclassify any unissued shares of common stock from time to time by setting or
changing the designations, preferences, conversion and other rights, voting
powers, restrictions, limitations as to dividends, qualifications and terms or
conditions of redemption. Accordingly, the Board of Directors could authorize
the issuance of additional shares of common stock with terms and conditions
which could have the effect of discouraging a takeover or other transaction
which some of our shareholders might believe to be in their best interests or in
which they might receive a premium for their shares of common stock over the
market price of such shares. As of the date hereof, we have no plans to classify
or reclassify any unissued shares of the common stock.
PREFERRED STOCK
We are authorized to issue one million (1,000,000) shares of preferred
stock, par value $0.01 per share. Shares of preferred stock may be issued from
time to time by the Board of Directors in one or more series. Prior to issuance
of shares of each series the Board of Directors is required by the Maryland
General Corporate Law (MGCL) to fix for each series the designation,
preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends, qualifications and terms or conditions of
redemption. The Board of Directors could authorize the issuance of shares of
preferred stock with terms and conditions which could have the effect of
discouraging a takeover or other transaction which some of our shareholders
might believe to be in their best interests or in which they might receive a
premium for their shares of common stock over the market price of such shares.
As of the date hereof, we have no present plans to issue any preferred stock.
ANTI-TAKEOVER PROVISIONS
Extraordinary Transactions. Pursuant to the MGCL, a corporation generally
cannot amend its charter (except in compliance with specific provisions of the
MGCL), consolidate, merge, sell, lease or exchange all or substantially all of
its assets, engage in a share exchange or liquidate, dissolve or wind-up unless
such acts are approved by the affirmative vote of at least two-thirds of the
shares entitled to vote on the matter, unless a lesser or greater percentage is
set forth in the corporation's charter. Our Charter requires that such acts be
approved by the affirmative vote at least 80% of all the votes entitled to be
cast on some of these matters. However, only a majority vote is required to
approve the liquidation, dissolution or winding up of the Holding Company, or
the amendment of our Charter unless the provision to be amended relates to the
classification of the Board of Directors or the super majority approval of
certain extraordinary transactions. Those amendments would require the 80%
affirmative vote.
33
<PAGE>
Classification of the Board of Directors. Our Charter and Bylaws provide
for seven (7) directors. The number of directors may be increased or decreased
by the Board of Directors but may not be less than three (3). At the first
annual meeting of the shareholders, the directors will be divided into three
classes - Class A, Class B and Class C - each class to consist of an equal
number of directors, or as nearly equal as possible. Each director will serve
for a term ending on the date of the third annual meeting following the annual
meeting at which such director was elected. However, the Class A Directors
first chosen shall hold office for one year or until the first annual meeting
following their election, the Class B Directors first chosen shall hold office
for two years or until the second annual meeting following their election and
the Class C Directors first chosen shall hold office for three years or until
the third annual meeting following their election. We believe that
classification of the Board of Directors will help to assure the continuity and
stability of the Holding Company's business strategies and policies as
determined by the Board of Directors.
Removal of Directors. Our Charter and Bylaws provide that a director may
only be removed by the affirmative vote of at least 80% of the votes entitled to
be cast in the election of directors.
Summary of Anti-takeover Provisions. The above described provisions
included in our Charter and Bylaws are designed to encourage potential acquirors
to negotiate directly with our Board of Directors and to discourage takeover
attempts. Such provisions may discourage non-negotiated takeover attempts which
certain shareholders could deem to be in their best interests.
For example, the classified director provision could have the effect of
making the removal of incumbent directors more time consuming and difficult,
which could discourage a third party from making a tender offer or otherwise
attempting to obtain control of the Holding Company, even though such an attempt
might be beneficial to the Holding Company and its shareholders. In general,
more than one annual meeting of shareholders will be required to effect a change
in a majority of the Board of Directors. Thus, the classified board provision
could increase the likelihood that incumbent directors will retain their
positions. Holders of common stock have no right to cumulative voting for the
election of directors. Consequently, at each annual meeting of shareholders, the
holders of a majority of the shares of common stock will be able to elect all of
the successors of the class of directors whose term expires at that meeting.
The provision providing that directors may be removed only by the
affirmative vote of at least 80% of the votes entitled to be cast in the
election of directors, when coupled with the provision in the Bylaws authorizing
the Board of Directors to fill vacant directorships, precludes shareholders from
removing incumbent directors except upon a substantial affirmative vote and
filling the vacancies created by such removal with their own nominees.
Business Combinations. Under the MGCL, certain "business combinations"
(including any merger or similar transaction subject to a statutory stockholder
vote and additional
34
<PAGE>
transactions involving transfers of assets or securities in specific amounts)
between a Maryland corporation and any person who, after the date on which the
corporation has 100 or more beneficial owners of its stock, beneficially owns
10% or more of the voting power of the corporation's shares or any affiliate of
the corporation who, at any time within the two year period prior to the date in
question and after the date on which the corporation has 100 or more beneficial
owners of its stock, was the beneficial owner of 10% or more of the voting power
of the then-outstanding voting stock of the corporation (an "Interested
Stockholder"), or an affiliate thereof, are prohibited for five years after the
most recent date on which the Interested Stockholder became an Interested
Stockholder unless an exemption is available. Thereafter, any such business
combination must be recommended by the board of directors of the corporation and
approved by the affirmative vote of at least: (i) 80% of the votes entitled to
be cast by holders of outstanding voting shares of the corporation; and (ii)
two-thirds of the votes entitled to be cast by holders of outstanding voting
shares of the corporation other than shares held by the Interested Stockholder
with whom the business combination is to be effected, unless the corporation's
stockholders receive a minimum price (as described in the MGCL) for their shares
and the consideration is received in cash or in the same form as previously paid
by the Interested Stockholder for its shares. These provisions of Maryland law
do not apply, however, to business combinations that are approved or exempted by
the board of directors prior to the time that the Interested Stockholder becomes
an Interested Stockholder.
Control Share Acquisitions. The MGCL provides that "control shares" of a
Maryland corporation acquired in a "control share acquisition" have no voting
rights except to the extent approved by a vote of two-thirds of the shares
entitled to be voted on the matter, excluding shares of stock owned by the
acquiror or by officers or directors who are employees of the corporation.
"Control shares" are voting shares of stock which, if aggregated with all other
such shares of stock previously acquired by the acquiror, or in respect of which
the acquiror is able to exercise or direct the exercise of voting power except
solely by virtue of a revocable proxy, would entitle the acquiror to exercise
voting power in electing directors within one of the following ranges of voting
power: (i) one-fifth or more but less than one-third; (ii) one-third or more but
less than a majority; or (iii) a majority of all voting power. Control shares do
not include shares the acquiring person is then entitled to vote as a result of
having previously obtained stockholder approval. A "control share acquisition"
means the acquisition of control shares, subject to certain exceptions.
A person who has made or proposes to make a control share acquisition, upon
satisfaction of certain conditions (including an undertaking to pay expenses and
delivery of an "acquiring person statement"), may compel the corporation's board
of directors to call a special meeting of stockholders to be held within 50 days
of demand to consider the voting rights of the shares. If no request for a
meeting is made, the corporation may itself present the question at any
stockholders' meeting.
Unless the charter or bylaws provide otherwise, if voting rights are not
approved at the meeting or if the acquiring person does not deliver an acquiring
person statement within 10 days
35
<PAGE>
following a control share acquisition then, subject to certain conditions and
limitations, the corporation may redeem any or all of the control shares (except
those for which voting rights have previously been approved) for fair value
determined, without regard to the absence of voting rights for the control
shares, as of the date of the last control share acquisition or of any meeting
of stockholders at which the voting rights of such shares are considered and not
approved. Moreover, unless the charter or bylaws provides otherwise, if voting
rights for control shares are approved at a stockholders' meeting and the
acquiror becomes entitled to exercise or direct the exercise of a majority or
more of all voting power, other stockholders may exercise appraisal rights. The
fair value of the shares as determined for purposes of such appraisal rights may
not be less than the highest price per share paid by the acquiror in the control
share acquisition.
TRANSFER AGENT
We presently intend to serve as our own transfer agent after the offering.
SHARES ELIGIBLE FOR FUTURE SALE
All shares sold in this offering will be freely tradeable without
restriction, except for any shares purchased by an "affiliate" of the Holding
Company, which will be subject to the resale limitations set forth in Securities
and Exchange Commission Rule 144. Prior to this offering, we have not issued
any shares of stock. No market exists now for our shares, and we do not expect
one to develop in the foreseeable future. However, if a market did develop, the
sale of a substantial number of shares in that market could decrease the
prevailing market price of our stock and also could impair our ability to raise
more funds in the future.
All of the Holding Company's officers and directors are considered
"affiliates" within the meaning of Rule 144 and will, therefore, be subject to
the applicable resale limitations of that Rule with respect to the shares
purchased in this offering. In general, the number of shares that can be sold
by each affiliate in brokers' transactions, (as that term is used in Rule 144)
within any three month period may not exceed the greater of (i) one percent (1%)
of the outstanding shares as shown by the most recent report or statement
published by the Holding Company (7,000 shares if the minimum number of shares
are sold or 9,000 shares if the maximum number of shares are sold), or (ii) the
average weekly reported volume of trading in the shares on all national
securities exchanges and/or reported through the automated quotation system of a
registered securities association during the four calendar weeks preceding the
sale.
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for the
Company by Ober, Kaler, Grimes & Shriver, P.C., Baltimore, Maryland.
36
<PAGE>
EXPERTS
The audited financial statements of HCNB Bancorp. Inc. for the period
ending December 31, 1998 included in this prospectus have been included herein
in reliance upon the report of Jameson & Associates, independent certified
public accountants, and upon the authority of said firm as experts in accounting
and auditing.
37
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
Report of Independent Public Accountants............................ F-2
Balance Sheet of the Holding Company at December 31, 1998........... F-3
Statement of Operations............................................. F-4
Statement of Changes in Stockholders' Deficit....................... F-5
Statement of Cash Flows............................................. F-6
Notes to Financial Statements....................................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Board of Directors of
HCNB Bancorp, Inc. (A Development Stage Company)
We have audited the accompanying balance sheet of HCNB Bancorp, Inc. (A
Development Stage Company) (a Maryland corporation), as of December 31, 1998 and
the related statements of operations, changes in stockholders' deficit and cash
flows for the period from February 24, 1998 (inception) to December 31, 1998.
These financial statements are the responsibility of management. Our
responsibility is to express an opinion on these financial statements based upon
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of HCNB Bancorp, Inc. (A Development
Stage Company) as of December 31, 1998, and the results of its operations and
its cash flows for the period from February 24, 1998 (inception) to December 31,
1998 in conformity with generally accepted accounting principles.
Baltimore, Maryland
February 26, 1999
F-2
<PAGE>
HCNB BANCORP, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
DECEMBER 31, 1998
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Cash $ 8,341
Due from insiders 20,000
Deposit 19,422
--------
Total assets $ 47,763
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Accounts payable and accrued expenses $ 56,702
Advances from insiders 120,000
--------
Total liabilities 176,702
--------
Contingencies (Note 1)
Stockholders' equity
Common stock, par value $0.01 per share,
9,000,000 shares authorized; 0 shares
issued and outstanding -
Preferred stock, par value $0.01 per share,
1,000,000 shares authorized; 0 shares
issued and outstanding -
Additional paid-in capital -
Retained earnings (deficit) (128,939)
---------
Total stockholders' equity (128,939)
---------
Total liabilities and stockholders' equity $ 47,763
=========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F-3
<PAGE>
HCNB BANCORP, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
FOR THE PERIOD
FROM FEBRUARY 24, 1998 (INCEPTION) TO DECEMBER 31, 1998
<TABLE>
<S> <C>
Revenues $ -
--------
Expenses
Legal and other professional fees 109,380
Fees 17,600
Other 1,959
--------
128,939
--------
Loss before income tax benefit (128,939)
Income tax benefit -
--------
Net loss $(128,939)
=========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F-4
<PAGE>
HCNB BANCORP, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
FOR THE PERIOD
FROM FEBRUARY 24, 1998 (INCEPTION) TO DECEMBER 31, 1998
<TABLE>
<CAPTION>
Common
Stock Surplus Deficit
------ ------- ----------
<S> <C> <C> <C>
Balances at February 24, 1998 $ - $ - $ -
Net loss - - (128,939)
----- ------ ---------
Balances at December 31, 1998 $ - $ - $(128,939)
===== ====== =========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F-5
<PAGE>
HCNB BANCORP, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
FOR THE PERIOD
FROM FEBRUARY 24, 1998 (INCEPTION) TO DECEMBER 31, 1998
<TABLE>
<S> <C>
Cash flows from operating activities
Net income (loss) $(128,939)
Adjustments to reconciles net loss to net
cash used by operating activities
Increase in accounts payable 56,702
--------
(72,237)
--------
Cash flows from investing activities
Cash paid for deposits (19,422)
--------
Cash flows from financing activities
Advances from insiders 100,000
--------
Increase in cash 8,341
Cash, beginning of period -
--------
Cash, end of period $ 8,341
========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F-6
<PAGE>
HCNB BANCORP, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. ORGANIZATION
HCNB Bancorp, Inc. (the Company) was incorporated under the laws of
the State of Maryland on February 24, 1998, primarily to hold all the
capital stock of a proposed new national bank with the name Harbor Capital
National Bank (the Proposed Bank). As of December 31, 1998, the Company has
not been capitalized and is not required to be capitalized to be a
corporation under Maryland law. The Company will be capitalized as a result
of the contemplated initial public offering discussed in Note 2. The
Proposed Bank will be formed by the Company's purchase of approximately
$6,000,000 offering of the Proposed Bank common stock. The Proposed Bank
will operate as a community-oriented bank concentrating on real estate,
consumer loan products, small business loans and deposit services from its
headquarters in Rockville, Maryland, and anticipates that it will open for
business in the second quarter of 1999. Qualifying deposits in the Proposed
Bank will be insured by the Federal Deposit Insurance Corporation.
At the date of these financial statements, the Company's operations
have been limited to obtaining regulatory approval and earning interest on
excess funds. The Company has not had any operating activities or incurred
any operating expenses. The Proposed Bank will begin operations once all
regulatory approvals are received from authorities.
As the Proposed Bank is a start-up operation, there can be no
assurance that the Proposed Bank can attract sufficient depositors or issue
sufficient quality loans to operate at a profit. There is also no assurance
that the Company will be able to raise sufficient capital to capitalize the
Proposed Bank. The Company is subject to other risks and uncertainties,
including interest rate risk.
2. SIGNIFICANT ACCOUNTING POLICIES
Advances from insiders
----------------------
Certain insiders of the Company have loaned money to the Company for
organizational costs and cost associated with the Offering. Such persons
will be reimbursed out of the proceeds of the Offering or be repaid in
shares of the Company's common stock
F-7
<PAGE>
HCNB BANCORP, INC.
(IN ORGANIZATION)
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
DECEMBER 31, 1998
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income taxes
------------
The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." The Company
has not provided for a tax provision for the period ended December 31,
1998, as the Company is anticipating a loss for the year end and
anticipates a 100% valuation allowance on the tax benefit generated from
the loss.
Use of estimates
----------------
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities in
the financial statements and the disclosures of contingent assets and
liabilities. While actual results could differ from those estimates,
management believes that actual results will not be materially different
from amounts provided in the accompanying financial statements.
Contemplated initial public offering
------------------------------------
The Company intends to issue between 700,000 and 900,000 shares of
common stock at $10 per share pursuant to a registration statement filed
with the Securities and Exchange Commission.
3. LEASE AND LEASE DEPOSIT
The Company entered into a lease agreement on December 23, 1998 to
lease banking facilities and offices in Rockville, Maryland. The lease is
for a two year period with an option to renew for 8 years. The rental
commitment is as follows:
Lease year Annual rental
---------- -------------
1 $87,213
2 $90,245
F-8
<PAGE>
EXHIBIT A
---------
SUBSCRIPTION AGREEMENT
This Subscription Agreement is entered into in connection with the offer
and sale (the "Offering") of up to 900,000 shares (the "Shares") of Common
Stock, par value $0.01 per share, of HCNB Bancorp, Inc., a corporation
incorporated under the laws of the State of Maryland (the "Company"), for a
purchase price of $10.00 per share.
WITNESSETH:
1. Purchase of Shares. The undersigned agrees to purchase the number of
------------------
Shares set forth below and tenders the amount required to purchase such number
of Shares by check, bank draft or money order drawn to the order of "FMB Bank,
Escrow Agent for HCNB Bancorp, Inc."
2. Acknowledgments. The undersigned acknowledges and agrees that:
---------------
(a) The Company has established a minimum subscription of 500 shares
($5,000).
(b) The undersigned has received a copy of the Company's prospectus dated
_______________ (the "Prospectus"). By executing this Subscription Agreement,
the undersigned acknowledges and agrees to all of the terms and conditions of
the Offering as described in the Prospectus. This Subscription Agreement is not
binding until accepted by the Company. The Company reserves the right to accept
or reject, in whole or in part and in its sole discretion, any Subscription
Agreement. The Company shall notify the subscriber by mail of its acceptance or
rejection, in whole or in part, of this Subscription Agreement.
(c) Following acceptance by the Company, subscriptions are binding on
subscribers and may not be revoked by subscribers except with the consent of the
Company.
(d) The Company reserves the right to cancel accepted Subscription
Agreements at any time and for any reason until the satisfaction of the
conditions of the Offering.
(e) The Company may, in its sole discretion, allocate shares among
subscribers in the event of an oversubscription for the Shares.
3. Representations and Warranties. The undersigned represents and warrants
------------------------------
that he/she:
(a) Is aware that no federal or state agency has made any finding or
determination as to the fairness for public investment in, or any recommendation
or endorsement of, the Shares.
A-1
<PAGE>
(b) Understands that the Company has no financial or operating history and
that the Shares, as an investment, involve a high degree of risk, as described
in the Prospectus.
(c) Is aware that (i) there is no market for the Shares and that there can
be no assurance that a market will develop and (ii) it may not be possible to
liquidate his investment in the Shares readily.
(d) Has adequate means of providing for his current needs and possible
personal contingencies and has no need for liquidity in this investment.
(e) Has carefully read the entire Prospectus, particularly the "Risk
Factors" section therein, and has had the opportunity to ask questions and
receive answers with regard thereto.
(f) Is a resident of Connecticut, Delaware, the District of Columbia,
Florida, Maryland, New Jersey, New York, Pennsylvania or Virginia.
THE SHARES OF COMMON STOCK BEING OFFERED BY THE PROSPECTUS ARE NOT SAVINGS
ACCOUNTS OR SAVINGS DEPOSITS AND ARE NOT INSURED OR GUARANTEED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE SAVINGS ASSOCIATION INSURANCE FUND, THE BANK
INSURANCE FUND OR ANY OTHER GOVERNMENT AGENCY.
The Shares purchased by the undersigned shall be registered as specified
below. If Shares are to be issued in more than one name, please specify whether
ownership is to be as tenants in common, joint tenants with right of
survivorship, community property, etc. If Shares are to be held in joint
ownership, all joint owners should sign this Subscription Agreement. If Shares
are to be issued in the name of one person for the benefit of another, please
indicate whether registration should be as trustee or custodian for such other
person.
IN WITNESS WHEREOF, the undersigned has executed this Subscription
Agreement on the date set forth below.
Date:________________,1999
_____________________________(SEAL)
Signature of Subscriber
Number of Shares Subscribed for:________
(at $10 per Share)
Total Subscription Price: $_____________ _______________________________
Print Name(s) in which Shares are to
be Registered
A-2
<PAGE>
Address of Subscriber:
_________________________________
_________________________________
Social Security/Taxpayer Identification Number
__________________________________
Telephone Number and Area Code
__________________________________
ACCEPTANCE
The foregoing subscription is hereby acknowledged and accepted as to
_____________ shares.
Date: __________________, 1999
HCNB Bancorp, Inc.
By:_________________________________
Authorized Officer
A-3
<PAGE>
No one has been authorized to give any information or to make any
representations in connection with this offering, other than those contained in
this prospectus. You may not assume that we have authorized any other
information or representations. The delivery of this prospectus and the sale of
our common stock does not mean that there has been no change in our affairs
since the date of this prospectus. This prospectus is not an offer to sell or a
solicitation of an offer to buy securities in any state where the offer or sale
is not permitted.
-----------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
How to Find Additional Information......................................
Prospectus Summary......................................................
Risk Factors............................................................
The Holding Company and the Bank........................................
The Offering............................................................
Use of Proceeds.........................................................
Capitalization..........................................................
Dividend Policy.........................................................
Proposed Business of the Holding Company................................
Proposed Business of the Bank...........................................
Management's Plan of Operation..........................................
Supervision and Regulation..............................................
Management..............................................................
Certain Transactions....................................................
Description of Capital Stock............................................
Shares Eligible for Future Sale.........................................
Legal Matters...........................................................
Experts.................................................................
Index to Financial Statements........................................... F-1
Exhibit A - Subscription Agreement...................................... A-1
</TABLE>
-----------------------
Until _____________________________, 1999, all dealers that effect transactions
in these securities, whether or not participating in this offering, may be
required to deliver a prospectus. This is in addition to the dealers'
obligations to deliver a prospectus when acting as underwriters and with respect
to their unsold allotments or subscriptions.
HCNB BANCORP, INC.
Common Stock
($0.01 par value share)
$10.00 Per Share
700,000 Shares (Minimum)
900,000 Shares (Maximum)
-----------------------
PROSPECTUS
-----------------------
--------------------------------------, 1999
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article Eighth of the Company's Articles of Incorporation provides that the
Holding Company shall, to the full extent permitted and in the manner prescribed
by the Maryland General Corporation Law and any other applicable law, indemnify
a director or officer of the Holding Company who is or was a party to any
proceeding by reason of the fact that he is or was a director or officer of the
Holding Company.
The Maryland General Corporation Law provides, in pertinent part, as
follows:
2-418 INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS.
(a) In this section the following words have the meanings indicated.
(1) "Director" means any person who is or was a director of a
corporation and any person who, while a director of a corporation, is or was
serving at the request of the corporation as a director, officer, partner,
trustee, employee, or agent of another foreign or domestic corporation,
partnership, joint venture, other enterprise, or employee benefit plan.
(2) "Corporation" includes any domestic or foreign predecessor entity
of a corporation in a merger, consolidation, or other transaction in which the
predecessor's existence ceased upon consummation of the transaction.
(3) "Expenses" include attorney's fees.
(4) "Official capacity" means the following:
(i) When used with respect to a director, the office of
director in the corporation; and
(ii) When used with respect to a person other than a director as
contemplated in sub-section (j), the elective or appointive office in the
corporation held by the officer, or the employment or agency relationship
undertaken by the employee or agent in behalf of the corporation.
(iii) "Official capacity" does not include service for any other
foreign or domestic corporation or any partnership, joint venture, trust, other
enterprise, or employee benefit plan.
II-1
<PAGE>
(5) "Party" includes a person who was, is, or is threatened to be
made a named defendant or respondent in a proceeding.
(6) "Proceeding" means any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative, or investigative.
(b) (1) A corporation may indemnify any director made a party to any
proceeding by reason of service in that capacity unless it is established that:
(i) The act or omission of the director was material to the
matter giving rise to the proceeding; and
1. Was committed in bad faith; or
2. Was the result of active and deliberate dishonesty; or
(ii) The director actually received an improper personal benefit
in money, property, or services; or
(iii) In the case of any criminal proceeding, the director had
reasonable cause to believe that the act or omission was unlawful.
(2) (i) Indemnification may be against judgments, penalties, fines,
settlements, and reasonable expenses actually incurred by the director in
connection with the proceeding.
(ii) However, if the proceeding was one by or in the right of
the
corporation, indemnification may not be made in respect of any proceeding in
which the director shall have been adjudged to be liable to the corporation.
(3) (i) The termination of any proceeding by judgment, order, or
settlement does not create a presumption that the director did not meet the
requisite standard of conduct set forth in this subsection.
(ii) The termination of any proceeding by conviction, or a plea
of nolo contendere or its equivalent, or an entry of an order of probation prior
to judgment, creates a rebuttal presumption that the director did not meet that
standard of conduct.
(c) A director may not be indemnified under subsection (B) of this section
in respect of any proceeding charging improper personal benefit to the director,
whether or not involving action in the director's official capacity, in which
the director was adjudged to be liable on the basis that personal benefit was
improperly received.
II-2
<PAGE>
(d) Unless limited by the charter:
(1) A director who has been successful, on the merits or otherwise,
in the defense of any proceeding referred to in subsection (B) of this section
shall be indemnified against reasonable expenses incurred by the director in
connection with the proceeding.
(2) A court of appropriate jurisdiction upon application of a
director and such notice as the court shall require, may order indemnification
in the following circumstances:
(i) If it determines a director is entitled to reimbursement
under paragraph (1) of this subsection, the court shall order indemnification,
in which case the director shall be entitled to recover the expenses of securing
such reimbursement; or
(ii) If it determines that the director is fairly and reasonably
entitled to indemnification in view of all the relevant circumstances, whether
or not the director has met the standards of conduct set forth in subsection (b)
of this section or has been adjudged liable under the circumstances described in
subsection (c) of this section, the court may order such indemnification as the
court shall deem proper. However, indemnification with respect to any
proceeding by or in the right of the corporation or in which liability shall
have been adjudged in the circumstances described in subsection (c) shall be
limited to expenses.
(3) A court of appropriate jurisdiction may be the same court in
which the proceeding involving the director's liability took place.
(e) (1) Indemnification under subsection (b) of this section may not be
made by the corporation unless authorized for a specific proceeding after a
determination has been made that indemnification of the director is permissible
in the circumstances because the director has met the standard of conduct set
forth in subsection (b) of this section.
(2) Such determination shall be made:
(i) By the board of directors by a majority vote of a quorum
consisting of directors not, at the time, parties to the proceeding, or, if such
a quorum cannot be obtained, then by a majority vote of a committee of the board
consisting solely of two or more directors not, at the time, parties to such
proceeding and who were duly designated to act in the matter by a majority vote
of the full board in which the designated directors who are parties may
participate;
(ii) By special legal counsel selected by the board of directors
or a committee of the board by vote as set forth in subparagraph (I) of this
paragraph, or, if the requisite quorum of the full board cannot be obtained
therefor and the committee cannot be established, by a majority vote of the full
board in which directors who are parties may participate; or
II-3
<PAGE>
(iii) By the stockholders.
(3) Authorization of indemnification and determination as to
reasonableness of expenses shall be made in the same manner as the determination
that indemnification is permissible. However, if the determination that
indemnification is permissible is made by special legal counsel, authorization
of indemnification and determination as to reasonableness of expenses shall be
made in the manner specified in subparagraph (ii) of paragraph (2) of this
subsection for selection of such counsel.
(4) Shares held by directors who are parties to the proceeding may
not be voted on the subject matter under this subsection.
(f) (1) Reasonable expenses incurred by a director who is a party to a
proceeding may be paid or reimbursed by the corporation in advance of the final
disposition of the proceeding upon receipt by the corporation of:
(i) A written affirmation by the director of the director's
good faith belief that the standard of conduct necessary for indemnification by
the corporation as authorized in this section has been met; and
(ii) A written undertaking by or on behalf of the director to
repay the amount if it shall ultimately be determined that the standard of
conduct has not been met.
(2) The undertaking required by subparagraph (ii) of paragraph (1) of
this subsection shall be an unlimited general obligation of the director but
need not be secured and may be accepted without reference to financial ability
to make the repayment.
(3) Payments under this subsection shall be made as provided by the
charter, bylaws or contract or as specified in subsection (e) of this section.
(g) The indemnification and advancement of expenses provided or authorized
by this section may not be deemed exclusive of any other rights, by
indemnification or otherwise, to which a director may be entitled under the
charter, the bylaws, a resolution of stockholders of directors, an agreement or
otherwise, both as to action in an official capacity and as to action in another
capacity while holding such office.
(h) This section does not limit the corporation's power to pay or
reimburse expenses incurred by a director in connection with an appearance as a
witness in a proceeding at a time when the director has not been made a named
defendant or respondent in the proceeding.
(i) For purposes of this section:
II-4
<PAGE>
(1) The corporation shall be deemed to have requested a director to
serve an employee benefit plan where the performance of the director's duties to
the corporation also imposes duties on, or otherwise involves services by, the
director to the plan or participants or beneficiaries of the plan:
(2) Excise taxes assessed on a director with respect to an employee
benefit plan pursuant to applicable law shall be deemed fined; and
(3) Action taken or omitted by the director with respect to an
employee benefit plan in the performance of the director's duties for a purpose
reasonably believed by the director to be in the interest of the participants
and beneficiaries of the plan shall be deemed to be for a purpose which is not
opposed to the best interests of the corporation.
(j) Unless limited by the charter:
(1) An officer of the corporation shall be indemnified as and to the
extent provided in subsection (d) of this section for a director and shall be
entitled, to the same extent as a director, to seek indemnification pursuant to
the provisions of subsection (d);
(2) A corporation may indemnify and advance expenses to an officer,
employee, or agent of the corporation to the same extent that it may indemnify
directors under this section; and
(3) A corporation, in addition, may indemnify and advance expenses to
an officer, employee, or agent who is not a director to such further extent,
consistent with law, as may be provided by its charter, bylaws, general or
specific action of its board of directors or contract.
(k) (1) A corporation may purchase and maintain insurance on behalf of
any person who is or was a director, officer, employee, or agent of the
corporation, or who, while a director, officer, employee, or agent of the
corporation, is or was serving at the request of the corporation as a director,
officer, partner, trustee, employee, or agent of another foreign or domestic
corporation, partnership, joint venture, trust, other enterprise, or employee
benefit plan against any liability asserted against and incurred by such person
in any such capacity or arising out of such person's position, whether or not
the corporation would have the power to indemnify against liability under the
provisions of this section.
(2) A corporation may provide similar protection, including a trust
fund, letter of credit, or surety bond, not inconsistent with this section.
(3) The insurance or similar protection may be provided by a
subsidiary or an affiliate of the corporation.
II-5
<PAGE>
(l) Any indemnification of, or advance of expenses to, a director in
accordance with this section, if arising out of a proceeding by or in the right
of the corporation, shall be reported in writing to the stockholders with the
notice of the next stockholders' meeting or prior to the meeting.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses payable by the Company in connection with the
offering described in this Registration Statement (other than underwriting
discounts and commissions) are as follows:
SEC Registration Fee $2,502
*Blue Sky Filing Fees and Expenses
(Including counsel fees)
*Legal Fees
*Broker-dealer Fees and Expenses
*Edgar Filing Expenses
*Printing and Engraving
*Accounting Fees and Expenses
*Other Expenses
TOTAL $_______________
*To be provided by amendment
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
None.
ITEM 27. EXHIBITS.
3.1 Amended Articles of Incorporation of HCNB Bancorp, Inc.
3.2 Bylaws of HCNB Bancorp, Inc.
4.1 Rights of Holders of Common Stock (as contained in the Amended Articles of
Incorporation included herein as Exhibit 3.1)
4.2 Form of Common Stock Certificate
5.1 Opinion of Ober, Kaler, Grimes & Shriver, as to legality of Common Stock*
10.1 Form of Employment Agreement between HCNB Bancorp, Inc. and William Olsen
10.2 Form of Employment Agreement between HCNB Bancorp, Inc. and Michael Derr
10.3 Form of Employment Agreement between Harbor Capital National Bank and
William Olsen
10.4 Form of Employment Agreement between Harbor Capital National Bank and
Michael Derr
II-6
<PAGE>
10.5 Lease Agreement dated December 23, 1998 between HCNB Bancorp, Inc. and
Federal Realty Investment Trust
10.6 Agreement dated as of February 19, 1999 between HCNB Bancorp, Inc. and
Fiserv Solutions, Inc.
10.7 Form of Founder Loan Agreement
21.1 Subsidiaries of HCNB Bancorp, Inc.
23.1 Consent of Ober, Kaler, Grimes & Shriver (contained in their opinion
included herein as Exhibit 5.1)*
23.2 Consent of Jameson & Associates, P.A.
24 Power of Attorney (contained herein on page II - 9)
27 Financial Data Schedules
99.1 Form of Subscription Agreement (contained herein on page A-1)
99.2 Form of Escrow Agreement between HCNB Bancorp, Inc. and FMB Bank*
- -------------
*To be filed by amendment
ITEM 28. UNDERTAKINGS.
The Registrant hereby undertakes that it will:
(1) file, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to: (i) include any
prospectus required by section 10(a)(3) of the Securities Act; (ii) reflect in
the prospectus any facts or events which, individually or together represent a
fundamental change in the information in the registration statement; and (iii)
include any additional or changed material information on the plan of
distribution.
(2) for determining liability under the Securities Act, treat each post-
effective amendment as a new registration statement of the securities offered,
and the offering of the securities at that time to be the initial bona fide
offering.
(3) file a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") 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 Act 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,
II-7
<PAGE>
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 of whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
II-8
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of
Rockville, Maryland on February 26, 1999.
HCNB BANCORP, INC.
By: /s/ Michael J. Burke
-------------------------------
Michael J. Burke
Chairman
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints each of Michael J. Burke and William J.
Olsen, and each of them, as his or her true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, for him or her and in
his or her name, place and stead, in any and all capacities, to sign any and all
amendments to the Registration Statement on Form SB-2 of HCNB Bancorp, Inc., and
to file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto each of
said attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing necessary or advisable to be done in connection
therewith, as fully to all intents and purposes as he or she might or could do
in persons, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or their substitutes, may lawfully do or cause to be done by virtue
thereof. This power of attorney may be executed in counterparts.
In accordance with the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates stated.
<TABLE>
<CAPTION>
NAME POSITION DATE
---- -------- ----
<S> <C> <C>
Chairman and President February 26, 1999
/s/ Michael J. Burke (Principal Executive
- ------------------------------
Michael J. Burke Officer)
/s/ Robert K. Wang Vice Chairman February 26, 1999
- ------------------------------
Robert K. Wang
</TABLE>
II-9
<PAGE>
<TABLE>
<CAPTION>
NAME POSITION DATE
---- -------- ----
<S> <C> <C>
Director February 26, 1999
/s/ Chi Ping Penny Chow
- ------------------------------
Chi Ping Penny Chow
______________________________ Director ___________, 1999
Harvey S. Fenster
/s/ Wayne A. Harrison Director February 26, 1999
- ------------------------------
Wayne A. Harrison
/s/ Li-Min Lee Director and Treasurer February 26, 1999
- ------------------------------
Li-Min Lee (Principal Accounting and
Financial Officer)
/s/ William J. Olsen Director February 26, 1999
- ------------------------------
William J. Olsen
</TABLE>
II-10
<PAGE>
EXHIBIT INDEX
3.1 Amended Articles of Incorporation of HCNB Bancorp, Inc.
3.2 Bylaws of HCNB Bancorp, Inc.
4.1 Rights of Holders of Common Stock (as contained in the Amended Articles of
Incorporation included herein as Exhibit 3.1)
4.2 Form of Common Stock Certificate
5.1 Opinion of Ober, Kaler, Grimes & Shriver, as to legality of Common Stock*
10.1 Form of Employment Agreement between HCNB Bancorp, Inc. and William Olsen
10.2 Form of Employment Agreement between HCNB Bancorp, Inc. and Michael Derr
10.3 Form of Employment Agreement between Harbor Capital National Bank and
William Olsen
10.4 Form of Employment Agreement between Harbor Capital National Bank and
Michael Derr
10.5 Lease Agreement dated December 23, 1998 between HCNB Bancorp, Inc. and
Federal Realty Investment Trust
10.6 Agreement dated as of February 19, 1999 between HCNB Bancorp, Inc. and
Fiserv Solutions, Inc.
10.7 Form of Founder Loan Agreement
21.1 Subsidiaries of HCNB Bancorp, Inc.
23.1 Consent of Ober, Kaler, Grimes & Shriver (contained in their opinion
included herein as Exhibit 5.1)*
23.2 Consent of Jameson & Associates, P.A.
24 Power of Attorney (contained herein on page II - 9)
27 Financial Data Schedules
99.1 Form of Subscription Agreement (contained herein on page A-1)
99.2 Form of Escrow Agreement between HCNB Bancorp, Inc. and FMB Bank*
- -------------
*To be filed by amendment
II-11
<PAGE>
Exhibit 3.1
AMENDED ARTICLES OF INCORPORATION
OF
HCNB, INC.
FIRST: The Amended Articles of Incorporation of HCNB, Inc. as set forth
-----
below are made prior to the organization meeting of the Board of Directors.
SECOND: I, Michael Burke, whose post office address is 1682 E. Gude
------
Drive, Suite 102D, Rockville, Maryland 20850, being at least eighteen (18)
years of age, hereby form a corporation under and by virtue of the Corporations
and Associations Article of the Annotated Code of Maryland (the "Corporations
Article") and the General Laws of the State of Maryland.
THIRD: The name of the corporation is
-----
HCNB BANCORP, INC.
FOURTH: The purposes for which HCNB Bancorp, Inc. (the "Corporation") is
------
formed are:
(a) To own and hold the stock of financial institutions and otherwise
operate as a financial institution holding company;
(b) To carry on the business described above and any other related or
unrelated business and activity in the State of Maryland, in any state,
territory, district, or dependency of the United States, or in any foreign
country; and
(c) To do anything permitted in Section 2-103 of the Corporations
Article, as amended from time to time.
FIFTH: The post office address of the principal office of the Corporation
-----
in this State is 1682 E. Gude Drive, Suite 102D, Rockville, Maryland 20850. The
name and post office address of the resident agent of the Corporation in this
State are Michael Burke, 1682 E. Gude Drive, Suite 102D, Rockville, Maryland
20850. The resident agent is an individual actually residing in this State.
1
<PAGE>
SIXTH: Prior to these Amended Articles of Incorporation, the total
-----
authorized capital stock of HCNB, Inc. was One Hundred Thousand (100,000) shares
$0.01 par value per share, all of one class, for an aggregate par value of One
Thousand Dollars ($1,000).
Pursuant to these Amended Articles of Incorporation, the total authorized
capital stock of the Corporation has been increased to Ten Million (10,000,000)
shares, consisting of Nine Million (9,000,000) shares of common stock, with a
par value of $0.01 per share, and One Million (1,000,000) shares of preferred
stock, with a par value of $0.01 per share. The aggregate par value of all
authorized shares is now $100,000.
The designations and the preferences, conversion or other rights, voting
powers, restrictions, limitations as to dividends, qualifications, and terms and
conditions of redemption of the shares of each class of stock now existing are
as follows:
(a) Common Stock. Subject to all of the rights of holders of any
------------
preferred stock established pursuant to paragraph (b) of this Article SIXTH,
each share of common stock shall possess all such rights and privileges as are
afforded to capital stock by applicable law in the absence of any express grant
of rights or privileges in the Corporation's Charter, including, but not limited
to, the following rights and privileges:
(i) dividends may be declared and paid or set apart for payment
upon the common stock out of any assets or funds of the Corporation legally
available for the payment of dividends;
(ii) the holders of common stock shall have the right to vote on
all matters requiring shareholder action, each share being entitled to one
vote; and
(iii) upon the voluntary or involuntary liquidation, dissolution
or winding up of the Corporation, the net assets of the Corporation shall
be distributed pro rata to the holders of the common stock in accordance
with their respective rights and interests.
The Board of Directors by Articles Supplementary to these Amended Articles
of Incorporation, may classify or reclassify any unissued shares of common stock
from time to time by setting or changing the designations, preferences,
conversion or other rights, voting powers, restrictions, limitations as to
dividends and terms or conditions of redemption.
(b) Preferred Stock. The preferred stock may be issued from time to
---------------
time by the Board of Directors as shares of one or more series. The description
of shares of each series of such
2
<PAGE>
preferred stock, including the designation, preferences, conversion and other
rights, voting powers, restrictions, limitations as to dividends,
qualifications, and terms and conditions of redemption shall be as set forth in
resolutions adopted by the Board of Directors and in Articles Supplementary
filed as required by law from time to time prior to the issuance of any shares
of such series.
SEVENTH: (a) The number of directors of the Corporation shall be seven
-------
(7), which number may be increased or decreased pursuant to the By-Laws of the
Corporation, but shall never be less than three (3), unless the number of
shareholders is less than three (3), in which case the number of directors shall
not be less than the number of shareholders. The names of the directors who
shall act until the first annual meeting of the shareholders or until their
successors are duly elected and qualified are: Michael Burke, Chi Ping Penny
Chow, Harvey Fenster, Wayne Harrison, Li Min Lee, William Olsen and Robert Wang.
(b) At the first annual meeting of the shareholders, the directors
shall be divided into three classes, Class A, Class B and Class C, the number of
directors in each class to be as nearly equal in number as possible. Each
director shall serve for a term ending on the date of the third annual meeting
following the annual meeting at which such director was elected; provided,
however, that the Class A Directors first chosen shall hold office for one year
or until the first annual meeting following their election, the Class B
Directors first chosen shall hold office for two years or until the second
annual meeting following their election, and the Class C Directors first chosen
shall hold office for three years or until the third annual meeting following
their election. Each director elected shall hold office until his successor
shall be duly elected and shall qualify.
(c) Newly created directorships resulting from any increase in the
number of directors or any vacancies in the Board of Directors resulting from
death, resignation, retirement, disqualification, removal from office or other
cause shall be filled by a majority vote of the remaining directors, and the
directors so chosen shall hold office for a term expiring at the next annual
meeting of shareholders at which successors shall be elected and shall qualify.
Newly created directorships resulting from an increase in the number of
directors shall be apportioned by the Board of Directors among the three (3)
classes of directors so as to maintain the number of directors in each class as
nearly equal in number as possible.
(d) Notwithstanding any provision to the contrary contained in the
Corporations Article, a director may only be removed from office upon the
affirmative vote of eighty percent (80%) of all of the votes entitled to be cast
on the matter, at any meeting of the shareholders called for the purpose.
3
<PAGE>
(e) Notwithstanding paragraph (d) of Article NINTH, this Article
SEVENTH may not be amended except by the affirmative vote, cast in person or by
proxy, of the holders of record of eighty percent (80%) of the shares of the
capital stock of the Corporation entitled to vote thereon.
EIGHTH: (a) As used in this Article Eighth, any word or words that are
------
defined in Section 2-418 of the Corporations Article, as amended from time to
time (the "Indemnification Section"), shall have the same meaning as provided in
the Indemnification Section.
(b) The Corporation shall indemnify and advance expenses to a
director or officer of the Corporation in connection with a proceeding to the
fullest extent permitted by and in accordance with the Indemnification Section.
(c) With respect to an employee or agent, other than a director or
officer of the Corporation, the Corporation may, as determined by the Board of
Directors of the Corporation, indemnify and advance expenses to such employee or
agent in connection with a proceeding to the fullest extent permitted by and in
accordance with the Indemnification Section.
(d) Neither the amendment nor repeal of this Article EIGHTH, nor the
adoption of any provision to the Charter of the Corporation inconsistent with
this Article, shall eliminate or reduce the protection afforded by this Article
to a director or an officer of the Corporation with respect to his act or
failure to act which occurred prior to such amendment, repeal or adoption.
NINTH: In carrying on its business, or for the purpose of attaining or
-----
furthering any of its objects, the Corporation shall have all of the rights,
powers, and privileges granted to corporations by the laws of the State of
Maryland, as well as the power to do any and all acts and things that a natural
person or partnership could do, as now or hereafter authorized by law, either
alone or in partnership or conjunction with others. In furtherance and not in
limitation of the powers conferred by law, the powers of the Corporation and of
its directors and shareholders shall include the following:
(a) The Board of Directors of the Corporation is hereby empowered to
authorize the issuance from time to time of shares of its stock of any class,
whether now or hereafter authorized, or securities convertible into shares of
its stock of any class or classes, whether now or hereafter authorized.
4
<PAGE>
(b) The Board of Directors may classify or reclassify any unissued
shares by fixing or altering in any one or more respects, from time to time
before issuance of such shares, the preferences, rights, voting powers,
restrictions and qualifications of, the dividends on, the times and prices of
redemption of, and the conversion rights of, such shares.
(c) The Corporation reserves the right to amend its Charter so that
such amendment may alter the contract rights as expressly set forth in the
Charter, of any outstanding stock, and any objecting stockholder whose rights
may or shall be thereby substantially adversely affected shall not be entitled
to the same rights as an objecting stockholder in the case of a consolidation,
merger, share exchange, or transfer of all, or substantially all, of the assets
of the Corporation.
(d) With respect to:
(i) the amendment of the Charter of the Corporation; and
(ii) the voluntary or involuntary liquidation, dissolution or
winding-up of the Corporation;
such action shall be effective and valid if taken or approved by an affirmative
vote of the holders of record of a majority of the shares of capital stock of
the Corporation entitled to vote thereon, after due authorization and/or
approval and/or advice of such action by the Board of Directors as required by
law, notwithstanding any provision of law requiring any action to be taken or
authorized other than as provided in this Article NINTH, paragraph (d).
The enumeration and definition of a particular power of the Board of Directors
included in this Article shall in no way be limited or restricted by reference
to or inference from the terms of any other clause of this or any other Article
of the Charter of the Corporation, or construed as or deemed by inference or
otherwise in any manner to exclude or limit any powers conferred upon the Board
of Directors under the General Laws of the State of Maryland now or hereafter in
force.
TENTH: (a) No proposed transaction resulting in a Business Combination
-----
(hereinafter defined) shall be valid unless first approved by the affirmative
vote, cast in person or by proxy, of the holders of record of eighty percent
(80%) of the shares of the capital stock of the Corporation entitled to vote
thereon; provided, however, that if any such action has been approved prior to
the vote of shareholders by a majority of the Corporation's Board of Directors,
the affirmative vote of the holders of record of a majority of the shares of the
capital stock of the Corporation entitled to vote on such matters shall be
required.
5
<PAGE>
(b) Notwithstanding paragraph (d) of article NINTH, this Article
TENTH may not be amended except by the affirmative vote, cast in person or by
proxy, of the holders of record of eighty percent (80%) of the shares of the
capital stock of the Corporation entitled to vote thereon.
(c) "Business Combination" as used herein shall mean any of the
following proposed transactions:
(i) the merger or consolidation of the Corporation or any
subsidiary of the Corporation;
(ii) the sale, exchange, transfer or other disposition (in one
or a series of transactions) of substantially all of the assets of the
Corporation or any subsidiary of the Corporation; or
(iii) any offer for the exchange of securities of another entity
for the securities of the Corporation.
ELEVENTH: To the full extent permitted under the Corporations Article as
--------
in effect on the date hereof, or as hereafter from time to time amended, no
director or officer shall be liable to the Corporation or to its shareholders
for money damages for any breach of any duty owed by such director or officer to
the Corporation or any of its shareholders. Neither the amendment nor repeal of
this Article Eleventh, nor the adoption of any provision to the Charter of the
Corporation inconsistent with this Article, shall eliminate or reduce the
protection afforded by this Article to a director or officer or former director
or officer of the Corporation with respect to any matter which occurred, or any
cause of action, suit or claim which but for this Article would have accrued or
arisen, prior to such amendment, repeal or adoption.
IN WITNESS WHEREOF, I do hereby acknowledge these Amended Articles of
Incorporation to be my act this _____ day of January, 1999.
______________(SEAL)
Michael Burke
I HEREBY CONSENT TO ACT AS RESIDENT AGENT IN MARYLAND FOR THE ENTITY NAMED
IN THE ATTACHED INSTRUMENT
- -------------------- ---------------
Michael Burke Date
6
<PAGE>
Exhibit 3.2
BYLAWS
OF
HCNB BANCORP, INC.
ARTICLE I
OFFICES AND AGENTS
------------------
Section 1.1. Principal Office. The principal office of the Corporation
----------------
shall be located in the State of Maryland. The address of the principal office
may be changed from time to time pursuant to the Maryland General Corporation
Law.
Section 1.2. Other Offices. The Corporation may have such other offices
-------------
and places of business at such places within or without the State of Maryland as
the Board of Directors may determine from time to time.
Section 1.3. Resident Agent. The Corporation shall have at least one
--------------
registered agent who shall be either a citizen of the State of Maryland or a
Maryland corporation. The Corporation may designate or change its resident
agent pursuant to the Maryland General Corporation Law.
ARTICLE II
STOCKHOLDERS
------------
Section 2.1. Annual Meeting of Stockholders. The annual meeting of the
------------------------------
stockholders shall be held on a date fixed from time to time by the Board of
Directors during the month of May, provided notice of the date is duly set forth
in the notice of the meeting.
Section 2.2. Special Meetings. Special meetings of the stockholders may be
----------------
called at any time for any purpose or purposes by the Chairman of the Board, the
President, by a Vice President, or by eighty percent (80%) of the members of the
Board of Directors, and shall be called forthwith by the Chairman of the Board,
the President, by a Vice President, the Secretary or any Director of the
Corporation upon the request in writing of the holders of twenty-five percent
(25%) of all the shares outstanding and entitled to vote on the business to be
transacted at such meeting. Such request shall state the purpose or purposes of
the meeting. The Secretary shall inform such requesting stockholders of the
reasonably estimated cost of preparing and mailing the notice of the meeting,
and, unless otherwise provided by applicable federal or state law, such cost
shall then be paid to the Corporation before the required notice is given.
<PAGE>
Business transacted at all special meetings of stockholders shall be
confined to the purpose or purposes stated in the notice of the meeting. No
special meeting need be called to consider any matter that is substantially the
same as a matter voted upon at any special meeting of the stockholders held
during the preceding twelve (12) months unless requested by stockholders
entitled to cast a majority of all the votes entitled to be cast at such
meeting.
Section 2.3. Place of Meetings. All meetings of stockholders shall be
-----------------
held at the principal office of the Corporation in the State of Maryland or in
such other place within the United States as may be designated by the Board of
Directors from time to time provided notice of the location is duly set forth in
the notice of the meeting.
Section 2.4. Notice of Meetings. Not less than ten (10) nor more than
------------------
ninety (90) days before the date of a stockholders' meeting, the Secretary shall
give each stockholder entitled to vote at or to receive notice of each
stockholders' meeting, written or printed notice stating the date, hour and
place of the meeting and, in the case of a special meeting or a meeting at which
an action proposed to be taken requires advance notice of the purpose of such
action, the purpose or purposes for which the meeting is called, either by mail
or by presenting it to him in person or by leaving it at his residence or usual
place of business. If mailed, such notice shall be deemed to be given when
deposited in the United States mail addressed to the stockholder at his post
office address as it appears on the records of the Corporation at the time of
such mailing, with postage thereon prepaid.
Section 2.5. Quorum; Action. Unless the Maryland General Corporation Law
--------------
or the Charter of the Corporation otherwise provide: (i) at any meeting of
stockholders, the presence in person or by proxy of stockholders entitled to
cast a majority of all the votes entitled to be cast thereat shall constitute a
quorum; and (ii) a majority of all the votes cast at a meeting of stockholders,
duly called and at which a quorum is present, shall be sufficient to take or
authorize action upon any matter that properly comes before the meeting.
Section 2.6. Chairman. The Chairman of the Board or, in his absence, the
--------
President or the Vice President, shall call meetings of the stockholders to
order and shall act as chairman of such meetings. In the absence of the
Chairman of the Board, the President and the Vice President, a chairman of the
meeting shall be chosen by the stockholders present.
Section 2.7. Secretary. The Secretary of the Corporation shall act as
---------
secretary of all meetings of the stockholders, but, in the absence of the
Secretary of the Corporation, the presiding officer may appoint any person to
act as secretary of the meeting.
2
<PAGE>
Section 2.8. Voting. At each meeting of the stockholders, every
------
stockholder then entitled to vote shall be entitled to vote in person or by
proxy as provided by the Maryland General Corporation Law. No proxy shall be
valid after eleven (11) months from its date, unless otherwise provided in the
proxy. A proxy purporting to be executed by or on behalf of a stockholder shall
be deemed valid unless challenged at or prior to its exercise.
No share shall be entitled to any vote if any installment payable thereon
is overdue and unpaid. The votes for Directors and, upon demand of any
stockholder, the votes upon any questions before the meeting shall be by secret
ballot, unless otherwise determined at the meeting.
Section 2.9. Voting of Shares in the Name of the Corporation. Shares of
-----------------------------------------------
the Corporation's own stock owned directly or indirectly by the Corporation
shall not be voted at any meeting and shall not be counted in determining the
total number of outstanding shares entitled to vote at any given time, unless
held by it in a fiduciary capacity, in which case they may be voted and shall
be counted in determining the total number of outstanding shares at any given
time. Shares of its own stock shall be deemed to be owned indirectly by the
Corporation if owned by another corporation in which the Corporation owns shares
entitled to cast a majority of all the votes entitled to be cast by all shares
outstanding and entitled to vote. Shares standing in the name of the
Corporation, when entitled to be voted, may be voted in person or by proxy by
the Chairman of the Board, the President or the Vice President, unless the Board
of Directors authorizes another person to do so.
Section 2.10. Telephone Meetings. Subject to the requirement of notice,
------------------
the stockholders may participate in and hold a meeting by means of a conference
telephone or similar communications equipment if all persons participating can
hear each other at the same time, and participation in the meeting shall
constitute presence in person at the meeting.
Section 2.11. Informal Action by Stockholders. Any action required or
-------------------------------
permitted to be taken at any meeting of stockholders may be taken without a
meeting, if a consent in writing, setting forth such action, is signed by all
the stockholders entitled to vote on the matter and if all other stockholders
entitled to notice of such meeting of stockholders but not entitled to vote
thereat have waived in writing any right to dissent from such action, and such
consent and waiver are filed with the records of stockholders meetings.
3
<PAGE>
ARTICLE III
BOARD OF DIRECTORS
------------------
Section 3.1. Management. The business, property and affairs of the
----------
Corporation shall be managed under the direction of the Board of Directors,
which may exercise or authorize the exercise of all the powers of the
Corporation except those powers vested solely in the stockholders by law, by the
Corporation's Charter or by these Bylaws. The Board of Directors shall have
access at all reasonable times to the books of the Corporation.
Section 3.2. Number of Directors. The number of Directors of the
-------------------
Corporation shall be seven (7), which number may be increased or decreased by
the Board of Directors pursuant to a resolution adopted by a majority of the
members of the entire Board of Directors, provided, however, that the number of
Directors shall in no event be contrary to Maryland law. No reduction in the
number of Directors by resolution of the Board shall have the effect of removing
any Director from office prior to the expiration of his term. The stockholders
shall not be entitled to fix the number of members of the Board of Directors.
Directors need not be stockholders.
At the first annual meeting of the stockholders, the Directors shall be
divided into three classes, Class A, Class B and Class C, the number of
directors in each class to be as nearly equal in number as possible. Each
Director shall serve for a term ending on the date of the third annual meeting
following the annual meeting at which such Director was elected; provided,
however, that the Class A Directors first chosen shall hold office for one year
or until the first annual meeting following their election, the Class B
Directors first chosen shall hold office for two years or until the second
annual meeting following their election, and the Class C Directors first chosen
shall hold office for three years or until the third annual meeting following
their election. The Directors shall be elected each year at the annual meeting
of stockholders, except as provided above, and each Director shall serve until
his successor shall be elected and shall qualify.
Section 3.3. Election of Directors and Terms of Office. Until successors
-----------------------------------------
are elected and qualify, the Board of Directors shall consist of the individuals
named as Directors in the Corporation's Charter. Newly created directorships
resulting from any increase in the number of Directors or any vacancies in the
Board of Directors resulting from death, resignation, retirement,
disqualification, removal from office or other cause shall be filled by a
majority vote of the remaining Directors, and the Directors so chosen shall hold
office for a term expiring at the next annual meeting of stockholders at which
successors shall be elected and shall qualify. Newly created directorships
resulting from an increase in the number of Directors shall be apportioned by
the Board of Directors among the three (3) classes so as to
4
<PAGE>
maintain the number of Directors in each class as nearly equal in number as
possible.
Section 3.4. Resignation. A Director of the Corporation may resign at any
-----------
time by giving written notice of his resignation to the Board of Directors, the
Chairman of the Board, the President or the Secretary of the Corporation. A
resignation shall take effect on the date specified in the notice of resignation
or, should an effective date not be specified, immediately upon receipt of the
notice of resignation. Unless otherwise specified therein, such resignation
shall take effect upon delivery.
Section 3.5. Removal. Notwithstanding any provision of the Maryland
-------
General Corporation Law to the contrary, a Director may only be removed from
office upon the affirmative vote of eighty percent (80%) of all of the votes of
stockholders entitled to be cast on the matter, at any meeting of the
stockholders called for the purpose.
Section 3.6. Vacancies. Newly created directorships resulting from any
---------
increase in the number of directors or any vacancies in the Board of Directors
resulting from death, resignation, retirement, disqualification, removal from
office or other cause shall be filled by a majority vote of the remaining
directors, and the directors so chosen shall hold office for a term expiring at
the next annual meeting of shareholders at which successors shall be elected and
shall qualify. Newly created directorships resulting from an increase in the
number of directors shall be apportioned by the Board of Directors among the
three (3) classes of directors so as to maintain the number of directors in each
class as nearly equal in number as possible.
Section 3.7. Annual and Regular Meetings. Immediately after the annual
---------------------------
meeting of stockholders, the Board of Directors shall meet to elect officers and
to transact such other proper business as may be brought before the meeting.
The Board of Directors from time to time may provide by resolution for the
holding of regular meetings.
Section 3.8. Special Meetings. Special meetings of the Board of Directors
----------------
shall be held whenever called by the Chairman of the Board, the President or at
the request of any two (2) Directors then in office.
Section 3.9. Place of Meetings. The Directors may hold their meetings and
-----------------
may have one or more offices in such place or places in or outside of the State
of Maryland as the Board of Directors from time to time may determine.
Section 3.10. Notice. The Secretary shall give written notice of each
------
special meeting of the Board of Directors by mailing the same at least four (4)
days before the meeting, or by telegraphing, sending by facsimile or causing to
be delivered
5
<PAGE>
personally the same at least one (1) day before the meeting, to each Director at
his residence or regular place of business. If mailed, such notice shall be
deemed to be given when deposited in the U.S. mail, with postage thereon
prepaid. If sent by facsimile, such notice shall be deemed to be given upon
receipt by the Corporation of the facsimile transmission confirmation. Unless
otherwise indicated in the notice thereof, any and all business may be
transacted at a special meeting. No notice shall be required for regular
meetings or the annual meeting; provided, however, that notice of any change in
the time or place of any regular meeting shall be sent promptly to each Director
not present at the meeting at which such change was made. Such notice shall be
in the manner provided for notice of special meetings.
Section 3.11. Quorum; Action. At all meetings of the Board of Directors,
--------------
the presence of a majority of the entire Board of Directors then in office shall
constitute a quorum for the transaction of business. If at any meeting of the
Board of Directors there be less than a quorum present, a majority of the
Directors present may adjourn the meeting from time to time, without further
notice, to the same place until a quorum shall attend and thereupon any business
may be transacted that might have been transacted at the meeting as originally
called had the same been then held. The action of a majority of the Directors
present at a meeting at which a quorum is present is the action of the Board of
Directors.
Section 3.12. Order of Business. At meetings of the Board of Directors,
-----------------
business shall be transacted in such order as the Board of Directors may from
time to time determine.
Section 3.13. Directors Holding Over. In case of failure to hold an
----------------------
election of Directors at the designated time, the Directors holding over shall
continue to manage the business and affairs of the Corporation until their
successors are duly elected and qualify.
Section 3.14. Informal Action by Directors. Any action required or
----------------------------
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting, if a written consent to such
action setting forth such action is signed by each member of the Board of
Directors or of such committee, as the case may be, and such written consent is
filed with the minutes of proceedings of the Board of Directors or such
committee.
Section 3.15. Compensation. Each Director shall be entitled to receive
------------
compensation, if any, as may from time to time be fixed by the Board of
Directors, including a fee for attending any regular or special meeting of the
Board of Directors or any committee thereof. Directors also may be reimbursed
by the Corporation for all reasonable expenses incurred in traveling to and from
the place of a Board of Directors or committee meeting.
6
<PAGE>
Section 3.16. Telephone Meetings. Subject to the requirement of notice,
------------------
members of the Board of Directors or of any committee thereof may participate in
and hold a meeting by means of a conference telephone or similar communications
equipment if all persons participating can hear each other at the same time, and
participation in the meeting shall constitute presence in person at the meeting.
ARTICLE IV
OFFICERS
--------
Section 4.1. Executive Officers. The Executive Officers of the
------------------
Corporation shall be a President, a Vice President, a Secretary, and a
Treasurer. The Board of Directors may elect, but shall not be required to
elect, a Chairman of the Board for the same term as the Executive Officers.
Section 4.2. Election; Term of Office. The officers of the Corporation
------------------------
shall be elected by the Board of Directors at its first meeting and thereafter
annually at its annual meeting. Each officer shall hold office for one (1) year
and until his successor shall have been elected and qualified.
Section 4.3. Number of Offices Held by One Person. Any two (2) or more
------------------------------------
offices, except those of President and Vice President, may be held by the same
person. No person shall execute, acknowledge or verify any instrument in more
than one capacity if such instrument is required by law to be executed,
acknowledged or verified by more than one (1) officer.
Section 4.4. Subordinate Officers. The Board of Directors from time to
--------------------
time may elect such other officers or agents as they may deem advisable, each of
whom shall have such title, hold office for such period, have such authority and
perform such duties as may be prescribed by the Board of Directors. The Board
of Directors may delegate the power to appoint and remove, with or without
cause, any such subordinate officers or agents and to prescribe their respective
authority and duties.
Section 4.5. Vacancies. The Board of Directors may fill a vacancy
---------
occurring in any office.
Section 4.6. Removal. Any officer or agent may be removed by the Board of
-------
Directors whenever, in its judgment, the best interests of the Corporation will
be served thereby. Such removal shall be without prejudice to the contractual
rights, if any, of the person so removed.
Section 4.7. Resignation. Any officer may resign his office at any time
-----------
by delivering a written resignation to the Board of Directors, the Chairman of
the Board, the President or the
7
<PAGE>
Secretary. Unless otherwise specified therein, such resignation shall take
effect upon delivery.
Section 4.8. Chairman of the Board. The Chairman of the Board, if one is
---------------------
elected, shall be the senior officer of the Corporation, shall preside at all
stockholders meetings and at all meetings of the Board of Directors. The
Chairman of the Board must be a member of the Board of Director. The Chairman
of the Board shall have such other powers and perform such other duties as may
be assigned to him from time to time by the Board of Directors.
Section 4.9. President. The President shall be the chief executive
---------
officer of the Corporation and, subject to the supervision of the Board of
Directors, shall have the general direction over the business, affairs and
property of the Corporation and of its officers, employees and agents. In the
absence of the Chairman of the Board or if no Chairman of the Board has been
chosen, the President shall preside at all meetings of the stockholders and of
the Board of Directors and exercise the powers and perform the duties of the
Chairman of the Board. The President also shall exercise such other powers and
perform such other duties as from time to time may be assigned to him by the
Board of Directors.
Section 4.10. Vice President; Assistant Vice Presidents. The Vice
-----------------------------------------
President shall have such powers and perform such duties as may be assigned to
him by the President or by the Board of Directors and, in the absence of the
President, the powers and duties of the President.
The Board of Directors may elect one (1) or more Assistant Vice Presidents.
Each Assistant Vice President shall have such powers and perform such duties as
may be assigned to him by the President, the Vice President or by the Board of
Directors and, in the absence of the Vice President, the most senior of the
Assistant Vice Presidents may perform all of the duties of the Vice President.
Section 4.11. Secretary; Assistant Secretaries. The Secretary shall keep
--------------------------------
the minutes of all meetings of the Board of Directors and the minutes of all
meetings of the stockholders in books to be kept for that purpose. He shall
attend to the giving and serving of all notices of the Corporation and shall
have charge of the records of the Corporation and such other books and papers as
the Board of Directors may direct or as may be required by law and shall execute
such documents as may require his signature. He shall perform such other duties
as pertain to his office or as may be required by the Board of Directors.
The Board of Directors may elect one (1) or more Assistant Secretaries.
Each Assistant Secretary shall have such powers and shall perform such duties as
may be assigned to him by the Board of Directors, the President or the
Secretary, and in the absence of
8
<PAGE>
the Secretary, the most senior of the Assistant Secretaries may perform all of
the duties of the Secretary.
Section 4.12. Treasurer; Assistant Treasurer. The Treasurer shall be the
------------------------------
principal financial and accounting officer of the Corporation and shall have
general charge of the finances and books of account of the Corporation. Except
as otherwise provided by the Board of Directors, he shall have general
supervision of the funds and property of the Corporation. He shall render to
the Board of Directors, whenever directed by the Board, an account of the
financial condition of the Corporation and of all his transactions as Treasurer,
and as soon as possible after the close of each financial year, he shall make
and submit to the Board of Directors a like report for such financial year. He
shall perform all the acts incident to the office of Treasurer, including the
general supervision and control of the accounts of the Corporation, subject to
the control of the Board of Directors. The Treasurer shall have custody of all
funds and securities of the Corporation. When necessary or proper, he shall
endorse, on behalf of the Corporation for collection, checks, notes and other
obligations and shall deposit the same to the credit of the Corporation, in such
bank or banks or depository as the Board of Directors may designate. All checks
and drafts for the payment of money by the Corporation may be signed in the name
of the Corporation by the Treasurer. He shall also perform such other duties as
may be required by the Board of Directors.
The Board of Directors may elect one (1) or more Assistant Treasurers.
Each Assistant Treasurer shall have such powers and shall perform such duties as
may be assigned to him by the Board of Directors, the President or the Treasurer
and, in the absence of the Treasurer, the most senior of the Assistant
Treasurers may perform all of the duties of the Treasurer.
Section 4.13. Voting Stock in Other Corporations. The President shall
----------------------------------
have full power and authority on behalf of the Corporation to attend and vote at
any meeting of the stockholders of any corporation in which the Corporation may
hold stock, and at any such meeting shall possess and may exercise (in person or
by proxy), any and all rights, powers and privileges incident to the ownership
of such stock, and which, as the owner thereof, this Corporation might have
possessed and exercised if present. The President may grant proxies on behalf
of the Corporation to any person or persons to act in his stead at such
meetings.
Section 4.14. Surety Bonds. The Board of Directors may require any
------------
officer or agent of the Corporation to execute a bond to the Corporation in such
sum and with such surety or sureties as the Board of Directors may determine,
conditioned upon the faithful performance of his duties to the Corporation,
including responsibility for negligence and for the accounting of any of the
Corporation's property, funds or securities that may come into his possession.
9
<PAGE>
Section 4.15. Remuneration. The salaries or other compensation of the
------------
Executive Officers of the Corporation shall be fixed from time to time by
resolution of the Board of Directors. The Board of Directors may by resolution
delegate to any person or group of persons the power to fix the salaries or
other compensation of any subordinate officers or agents.
ARTICLE V
CAPITAL STOCK
-------------
Section 5.1. Stock Certificates. Unless the Board of Directors authorizes
------------------
the issuance of certificateless shares and such issuance is not otherwise
prohibited by the Corporation's Charter, each stockholder shall be entitled to a
certificate or certificates that shall represent and certify the number of
shares of any class of stock owned by him in the Corporation. No certificate
shall be issued for any share of stock of any class until such share is fully
paid in accordance with the Maryland General Corporation Law.
Stock certificates of each class shall be in such form as shall be prepared
or approved by the Board of Directors. Each certificate shall be signed by the
President or a Vice President or the Chairman of the Board, and countersigned by
the Secretary or an Assistant Secretary or the Treasurer or an Assistant
Treasurer. The signatures may be either manual or facsimile signatures. Such a
certificate shall be valid and may be issued whether or not an officer who
signed it is still an officer when it is issued. The name of the Corporation
and of the person owning the shares represented thereby, with the number and
class of such shares and the date of issue, shall be on the face of the
certificate and entered on the Corporation's books at the time of issuance.
Section 5.2. Regulations. The Board of Directors shall have the power and
-----------
authority to make such rules and regulations as it may deem expedient concerning
the issuance, transfer and registration of certificates for shares of stock of
any class of the Corporation.
Section 5.3. Record Date. The Board of Directors may fix in advance a
-----------
date as a record date for the determination of the stockholders entitled to
notice of or to vote at any meeting of stockholders or any adjournment thereof;
or to express consent to corporate action in writing without a meeting; or to
receive payments of any dividend or other distribution or allotment of any
rights; or to exercise any rights in respect of any change, conversion or
exchange of stock; or for the purpose of any other lawful action, provided that
such record date shall not be a date more than ninety (90) days nor less than
ten (10) days prior to the date on which the particular action requiring such
determination of stockholders is to be taken. In such case, only such
stockholders as shall be stockholders of record on the record date so fixed
10
<PAGE>
shall be entitled to such notice of, and to vote at, such meeting or
adjournment; or to give such consent; or to receive payment of such dividend or
other distribution, or to receive such allotment of rights; or to exercise such
rights; or to take such other action, as the case may be, notwithstanding any
transfer of any shares on the books of the Corporation after any such record
date.
Section 5.4. Closing of Transfer Books. The Board of Directors shall have
-------------------------
the power at any time and from time to time to close the stock transfer books
for a period not to exceed twenty (20) days for the determination of the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof; or to express consent to corporate action in writing
without a meeting; or to receive payments of any dividend or other distribution
or allotment of any rights; or to exercise any rights in respect of any change,
conversion or exchange of stock; or for the purpose of any other lawful action,
provided that the date of such closing of the stock transfer books shall not be
a date less than ten (10) days prior to the date on which the particular action
requiring such determination of stockholders is to be taken. In such case, only
such stockholders as shall be stockholders of record on the date of such closing
of the stock transfer books shall be entitled to such notice of, and to vote at,
such meeting or adjournment; or to give such consent; or to receive payment of
such dividend or other distribution, or to receive such allotment of rights; or
to exercise such rights; or to take such other action, as the case may be.
Section 5.5. Transfer of Shares.
------------------
(a) Transfers of shares of the stock of the Corporation shall be made
on the books of the Corporation by the holder of record thereof (in person or by
his attorney thereunto duly authorized by a power of attorney duly executed in
writing and filed with the Secretary of the Corporation) (i) if a certificate or
certificates have been issued, upon the surrender of the certificate or
certificates, properly endorsed or accompanied by proper instruments of
transfer, representing such shares; or (ii) as otherwise prescribed by the Board
of Directors.
(b) The Corporation shall be entitled to treat the holder of record
of any share of stock as the absolute owner thereof for all purposes, including,
without limitation, the rights to receive dividends or other distributions and
to vote as the owner, and the Corporation shall not be bound to recognize any
legal, equitable or other claim or interest in such share on the part of any
other person, whether or not it shall have express or other notice thereof,
except as otherwise expressly provided by the laws of the State of Maryland.
(c) Notwithstanding anything to the contrary contained in Section
5.5(b) of these Bylaws, the Board of Directors may adopt by resolution a
procedure by which a stockholder of the Corporation
11
<PAGE>
may certify in writing to the Corporation that any shares of stock registered in
the name of the stockholder are held for the account of a specified person other
than the stockholder. The resolution shall set forth the class of stockholders
who may make the certification; the purpose for which the certification may be
made; the form of certification and the information to be contained in it; if
the certification is with respect to a record date or closing of the stock
transfer books, the time after the record date or closing of the stock transfer
books within which the certification must be received by the Corporation; and
any other provisions with respect to the procedure which the Board considers
necessary or desirable. On receipt of a certification which complies with the
requirements established by the Board's resolution, the person specified in the
certification shall be, for the purpose set forth in the certification, the
holder of record of the specified stock in place of the stockholder who makes
the certification.
Section 5.6. Transfer Agent And Registrar. The Board of Directors may
----------------------------
appoint a transfer agent and/or registrar of transfers and may require that all
stock certificates representing shares of any class to bear the signatures of
such transfer agent or registrar of transfers, or the signatures of both.
Section 5.7. Lost, Stolen or Destroyed Certificates. Before issuing a new
--------------------------------------
certificate for stock of the Corporation alleged to have been lost, stolen or
destroyed, the Board of Directors or any officer authorized by the Board of
Directors may, in its discretion, require the owner of the lost, stolen or
destroyed certificate (or his legal representative) to give the Corporation a
bond or other indemnity, in such form and in such amount as the Board of
Directors or any such officer may direct and with such surety or sureties as may
be satisfactory to the Board of Directors or any such officer, sufficient to
indemnify the Corporation against any claim that may be made against it on
account of the alleged loss, theft or destruction of any such certificate or the
issuance of such new certificate.
ARTICLE VI
COMMITTEES
----------
Section 6.1. Executive Committee. The Board of Directors may appoint from
-------------------
among its members an Executive Committee of not less than two (2) members and
shall designate one of such members as chairman of the Executive Committee.
When the Board of Directors is not in session, the Executive Committee shall
possess and exercise all powers of the Board of Directors in the management of
the business and affairs of the Corporation that lawfully may be exercised by
the Executive Committee.
Section 6.2. Other Committees. The Board of Directors may also appoint
----------------
from among its members such other committees as the
12
<PAGE>
Board may determine, which shall in each case consist of not less than two (2)
Directors and which shall have such powers and duties as shall from time to time
be prescribed by the Board.
Section 6.3. Committee Membership; Conduct of Business. The Board of
-----------------------------------------
Directors also may designate one or more of its members as alternates to serve
as a member or members of the Executive Committee or any other committee in the
absence of a regular member or members, change the membership of any committee
at any time, fill vacancies therein and discharge any committee either with or
without cause at any time. Except as otherwise provided by law or by these
Bylaws, each committee may determine the procedural rules for meeting and
conducting its business and shall act in accordance therewith. Adequate
provision shall be made for notice to members of all meetings; a majority of the
members shall constitute a quorum; and all matters shall be determined by the
majority vote of the members present. The members present at any committee
meeting, whether or not they constitute a quorum, may appoint a Director to act
in the place of an absent member.
ARTICLE VII
MISCELLANEOUS
-------------
Section 7.1. Insurance of Officers, Directors, Employees and Agents. The
------------------------------------------------------
Corporation may purchase and maintain insurance on behalf of any person who is
or was a Director, officer, employee or agent of the Corporation, or while a
Director, officer, employee or agent of the Corporation is or was serving at the
request of the Corporation as a Director, officer, employee or agent of another
corporation, partnership, joint venture, trust, other enterprise or employee
benefit plan, against any liability asserted against and incurred by such person
in any such capacity or arising out of such person's position.
Section 7.2. Indemnification. The Corporation shall indemnify and advance
---------------
expenses to Directors and officers of the Corporation, and to employees and
agents of the Corporation to the extent provided by the Charter of the
Corporation.
Section 7.3. Books and Records. The Corporation shall keep correct and
-----------------
complete books and records of its accounts and transactions and minutes of the
proceedings of its stockholders and Board of Directors and of any committee
thereof.
Section 7.4. Stock Ledger. The Corporation shall maintain, or shall cause
------------
its transfer agent to maintain, at its principal office in Maryland, an original
or duplicate stock ledger containing the names and addresses of all stockholders
and the number of shares of each class held by each stockholder. Such stock
ledger may be in written form or any other form which can be converted within a
reasonable time into written form for visual inspection.
13
<PAGE>
Section 7.5. Corporate Seal. The Board of Directors may provide for a
--------------
corporate seal. The corporate seal of the Corporation shall be circular in form
and shall bear the name of the Corporation, the year of its incorporation, and
the word "Maryland." The form of the seal shall be subject to alteration by the
Board of Directors and the seal may be used by causing it or a facsimile to be
impressed or affixed or printed or otherwise reproduced. Any officer or
Director of the Corporation shall have authority to affix the corporate seal of
the Corporation to any document requiring the same.
Section 7.6. Waiver of Notice. Whenever any notice of the date, hour,
----------------
place and/or purpose of any meeting of stockholders, Directors or a committee is
required to be given under the provisions of the Maryland General Corporation
Law or under the provisions of the Corporation's Charter or by these Bylaws, a
waiver thereof in writing, signed by the person or persons entitled to such
notice and filed with the records of the meeting, whether before or after the
holding thereof, or actual attendance at the meeting in person or, in the case
of a meeting of stockholders, by proxy, shall be deemed equivalent to the giving
of such notice to such person.
ARTICLE VIII
AMENDMENT OF BYLAWS
-------------------
Section 8.1. Power of Directors to Amend. The Board of Directors shall
---------------------------
have the exclusive power and authority to amend, alter or repeal these By-Laws
or any provision thereof, and may from time to time make additional By-Laws; by
resolution adopted by a majority of all of the Directors, at any regular or
special meeting of the Board, provided, however, that a resolution adopted by a
majority of the members of the Directors, at any regular or special meeting of
the Board, shall be required to amend or repeal, or to adopt any provision
inconsistent with, the provisions of Article II, Section 2.2 or Article III,
Sections 3.2, 3.3, 3.5 or 3.8 of these By-Laws; and further provided that no
such action by the Board of Directors shall be inconsistent with any of the
terms of the Charter of the Corporation.
END OF BYLAWS
14
<PAGE>
Exhibit 4.1
INCORPORATED UNDER THE LAWS OF
THE STATE OF MARYLAND
NUMBER SHARES
________ ________
HCNB BANCORP, INC.
9,000,000 Shares of Common Stock Authorized
THIS CERTIFIES That is the registered holder of
shares of common stock of the par value of $0.01 per share of HCNB Bancorp, Inc.
transferable only on the books of the corporation by the holder hereof in person
or by Attorney duly authorized upon surrender of this Certificate properly
endorsed.
IN WITNESS WHEREOF the said Corporation has caused this Certificate to be signed
by its duly authorized officers and its Corporate Seal to be hereunto affixed
this day of A.D. 19 .
_________________________ _________________________
President Secretary
[SEAL]
Shares $0.01 Par Value Each
REVERSE SIDE
For value received, _________ hereby sell, assign and transfer unto (PLEASE
INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE AND PRINT OR
TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE) _________________
Shares represented by the within Certificate, and do hereby irrevocably
constitute and appoint _____________________________Attorney to transfer the
said Shares on the books of the within named Corporation with full power of
substitution in the premises.
Dated ________________________
In presence of
______________________________ _________________________
<PAGE>
Exhibit 10.1
HCNB BANCORP, INC.
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (this "Agreement") dated as of _________, 1999,
is entered by and between HCNB Bancorp, Inc (the "Company") and William J. Olsen
("Employee").
The Company and Employee, in consideration of the mutual promises set forth
herein and for other valuable consideration the sufficiency of which is hereby
acknowledged and intending to be legally bound, agree as follows:
1. Employment. The Company agrees to employ Employee, and Employee
----------
agrees to accept employment with the Company. Employee agrees to perform his
duties and responsibilities in accordance with the terms and conditions set
forth herein.
1.1 Employment Term. The term of this Agreement (the "Employment Term")
---------------
shall commence on ______ __, 1999 and shall terminate on the Effective Date of
an employment agreement in substantially similar form as Exhibit A hereto
between Harbor Capital National Bank ("Bank") and Employee or on the date the
board of directors of the company makes a determination to abandon efforts to
raise capital for the purpose of chartering the Bank.
1.2 Duties and Responsibilities
---------------------------
(a) During the Employment Term, Employee shall serve as Vice President of
the Company and shall perform all duties and accept all responsibilities
incidental to such position or as may be assigned to him from time to time by
the Company's Board of Directors. Employee shall devote his productive time,
ability, attention, and energies to the fulfillment of said duties during the
Employment Term. During such time, the Employee shall not directly or
indirectly render any services of a business, commercial, or professional nature
to any other person or organization except for entities affiliated with the
Company, whether or not for compensation, without the prior written consent of
the Company.
(b) Employee represents to the Company that he is not subject or a party
to any employment, non-competition, non-disclosure or other agreement, covenant,
understanding or restriction which would prohibit Employee from executing this
Agreement and performing fully his duties and responsibilities hereunder, or
which would in any manner, directly or indirectly, limit or affect the duties
and responsibilities which may now or in the future be assigned to Employee by
the Company.
1.3(a) Compensation. The Company shall pay Employee a base salary at
------------
the annual rate of $100,000. The Company agrees that the Employee's base salary
will be reviewed annually by the Company's Board of Directors to determine, in
light of the performance of Employee and the Company, if an increase is
appropriate. Such increases shall be in the sole discretion of the
<PAGE>
Company's Board of Directors. All compensation under this Agreement shall be
paid less withholding required by law or agreed to by Employee, and shall be
payable as determined by the Board of Directors of the Company. The Company also
agrees to pay Employee $10,000 on the date HCNB Bancorp, Inc., has collected in
escrow the minimum amount necessary to break escrow in its initial public
offering or upon a determination by the board of directors of the Company to
abandon efforts to raise capital for the purpose of chartering the Bank.
2. Other Benefits.
--------------
2.1 Plan Benefits. Upon the opening of the Company, the Company shall
-------------
provide to Employee the following benefits: family health, dental and vision
insurance, life insurance equal to one year's base salary and officers and
directors liability insurance. From the date of commencement of this Agreement
until the opening of the Company, the Company shall reimburse Employee in an
amount equal to the amount Employee pays for COBRA coverage from his previous
employer.
2.2 Supplemental Disability. The Company agrees to provide to the
-----------------------
Employee disability insurance coverage in an amount equal to 60% of Employee's
base salary.
2.4. Automobile. Company shall provide to Employee during the term of
----------
this Agreement an automobile allowance of $1,000.00 per month.
3. Non-Disclosure of Confidential Information and Records.
------------------------------------------------------
3.1 During the term of his employment, Employee will have access to the
Company's (which includes information concerning the Bank) proprietary
information or information which is entrusted to the Company, including
information relating to business plans and to business as conducted or
anticipated to be conducted, and to past, current or anticipated products,
employees, and services ("Confidential Information").
3.2 In further consideration of Employee's employment and continued
employment, and other benefits provided to Employee by the Company, Employee
agrees as follows: (i) except as required by Employee's duties to the Company,
not to at any time directly or indirectly disclose to or use for others or
appropriate for his own personal use or cause to be used by others any
Confidential Information without first obtaining the written consent of the
Board of Directors of the Company to do so; (ii) all records and other writings
of Confidential Information prepared by Employee, or which come into his
possession or control, or which he has access to, are and shall remain the
exclusive property of the Company, and upon termination of Employee's
employment, Employee will not remove any such records or copies thereof, but all
shall be left with the Company, and any such records or copies not with the
Company in an Employee's possession or control, shall be, upon termination of
employment, immediately returned to the Company along with any other property of
the Company.
2
<PAGE>
3.3 The requirements of this Section 3 shall apply during the time of
Employee's employment with the Company and thereafter with no time limitation,
unless it can be demonstrated conclusively that such Confidential Information
has through no act or fault of Employee become part of the public domain.
4. Non-Competition.
---------------
4.1 During the Employment Term, Employee will not, unless acting pursuant
thereto or with the prior written consent of the Board of Directors of the
Company, directly or indirectly, own, manage, operate, join, control, finance or
participate in the ownership, management, operation, control or financing of, or
be connected as an officer, director, employee, partner, principal, agent,
representative, consultant or otherwise with or use or permit his name to be
used in connection with, any federally chartered or state chartered Company,
savings and loan, thrift or other financial institution offices of which are
located in Montgomery County.
4.2 The foregoing restriction shall not be construed to prohibit the
ownership by Employee of not more than five percent (5%) of any class of
securities of any corporation which is engaged in the business of banking having
a class of securities registered pursuant to the Securities Exchange Act of
1934, provided that such ownership represents a passive investment and that
neither Employee nor any group of persons, including Employee in any way, either
directly or indirectly, manages or exercises control of any such corporation,
guarantees any of its financial obligations, otherwise takes any part in its
business, other than exercising his rights as a shareholder, or seeks to do any
of the foregoing.
4.3 This Covenant Not to Compete is an inducement to cause the Company
to execute this Agreement and is a condition to, and consideration for, such
employment and continued employment, raises, promotions, severance, and other
benefits provided to Employee by the Company.
5. No Solicitation. Employee agrees that, for a period of one (1) year
---------------
after the employment of the Employee by the Company or any of its affiliates has
ended (whether or not such employment is pursuant to this Agreement), he will
not either directly or indirectly, (i) call on or solicit any person,
institution, corporation, trust or other entity who or which at the time of such
termination was, or within one (1) year prior thereto had been, a customer of
the Company or any of its affiliates in connection with the activities
prohibited by Section 5 hereof or (ii) solicit the employment of any person who
was employed by the Company or any of its affiliates on a full or part time
basis at the time of Employee's termination of employment, unless such person
(a) was involuntarily discharged by the Company or such affiliates, or (b)
voluntarily terminated his relationship with the Company or such affiliate prior
to Employee's termination of employment.
3
<PAGE>
6. Equitable Relief.
----------------
6.1 Employee acknowledges that the restrictions contained in Sections 3, 4
and 5 are reasonable and necessary to protect the legitimate interests of the
Company and its affiliates, that the Company would not have entered into this
Agreement in the absence of such restrictions and that any violation of any
provision of these Sections will result in irreparable injury to the Company and
its affiliates. Employee further represents and acknowledges that (i) he has
been advised by the Company to consult his own legal counsel in respect of this
Agreement, and (ii) that he has had full opportunity, prior to execution of this
Agreement, to review thoroughly this Agreement with his counsel.
6.2 Employee agrees that the Company's remedy at law for a breach of
paragraphs 3, 4, and 5 would be inadequate and that the Company shall be
entitled to preliminary and permanent injunctive relief, without the necessity
of providing actual damages, as well as an equitable accounting of all earnings,
profits and other benefits arising from any violation of Sections 3, 4, or 5,
which rights shall be cumulative and in addition to any other rights or remedies
to which the Company may be entitled. In the event that any of the provisions
of Sections 3, 4, or 5 should ever be adjudicated to exceed the time, geographic
or other limitations permitted by applicable law in any jurisdiction, then such
provisions shall be deemed reformed in such jurisdiction to the maximum time,
geographic or other limitations permitted by applicable law.
6.3 Employee irrevocably and unconditionally (i) agrees that any suit,
action or other legal proceeding arising out of this Agreement, including
without limitation, any action commenced by the Company for preliminary and
permanent injunctive relief and other equitable relief, may be brought in the
United States District Court for the District of Maryland, or if such court does
not have jurisdiction or will not accept jurisdiction, in any court of general
jurisdiction in Montgomery County, Maryland, (ii) consents to the non-exclusive
jurisdiction of any such court in any such suit, action or proceeding, and (iii)
waives any objection which Employee may have to the laying of venue of any such
suit. Employee also irrevocably and unconditionally consents to the service of
any process, pleadings, notices or other papers in a manner permitted by the
notice provisions of Section 11 of this Agreement.
6.4 Employee agrees that he will provide, and that the Company may
similarly provide, a copy of Sections 3, 4, and 5 of this Agreement to any
business or enterprise (i) which he may directly or indirectly own, manage,
operate, finance, join, control or participate in the ownership, management,
operation, financing, or control of, or (ii) with which he may be connected as
an officer, director, employee, partner, principal, agent, representative,
consultant or otherwise, or in connection with which he may use or permit his
name to be used; provided, however, that this provision shall not apply in
respect of Section 5 of this Agreement after expiration of the time periods set
forth therein.
7. Termination. This Agreement shall terminate prior to the expiration
-----------
of its term set forth in Section 1.1 above, upon the occurrence of any one of
the following events:
4
<PAGE>
7.1 Disability. In the event that Employee becomes unable to perform his
----------
duties hereunder for a period of six consecutive months or otherwise is deemed
to be disabled by the board of directors, this Agreement may be terminated by
the Company, and the Company shall have no further liability or obligation to
Employee for compensation; provided, however, that if the Employee becomes
disabled during the employment term, the Company shall pay to him or his legal
representatives an amount equal to the installment of his salary set forth in
Section 1.3 hereof for the month in which he becomes disabled which have been
earned but not yet paid. Employee agrees, in the event of any dispute under
this Section 6.1, to submit to up to three physical examinations by licensed
physicians selected by the Employee and the Company in any four month period.
In the event of a disagreement among such physicians, Employee and the Company
agree to be bound by the concurring conclusions of two such physicians. This
Section shall be interpreted in compliance with the Family Medical Leave Act to
the extent that the provisions of that law would apply.
7.2 Death. In the event that Employee dies during the Employment Term,
-----
the Company shall pay to his executors, legal representatives or administrators
an amount equal to the installment of his salary set forth in Section 1.3 hereof
for the month in which he dies, which have been earned but not yet paid and
thereafter except as otherwise provided in this Agreement, the Company shall
have no further liability or obligation hereunder to his executors, legal
representatives, administrators, heirs or assigns or any other person claiming
under or through him, provided, however, that Employee's estate or designated
beneficiaries shall be entitled to receive the payments described for such
recipients under any death benefit plan which may be in effect for executive-
level employees of the Company and in which Employees participated.
7.3 Termination by Company For Cause. Nothing in this Agreement shall be
--------------------------------
construed to prevent its termination by the Company at any time for "cause"
without prior notice. For purposes of this Agreement, "cause" shall mean the
failure of Employee to perform or observe any of the terms or provisions of this
Agreement or to comply fully with the lawful directives of the Members of the
Company, dishonesty, misconduct, conviction of a crime or otherwise causing
embarrassment to the Company and its public reputation, substance abuse,
misappropriation of funds, disparagement of the Company or failure to comply
with Company policy.
7.4 Termination by Either Party Without Cause. This Agreement may be
-----------------------------------------
terminated by either party for any reason whatsoever, by giving 30 days' prior
written notice of termination to the other party. If Employee is terminated
without cause pursuant to this Section 7.4, Employee shall receive continue to
receive compensation and benefits as provided in this Agreement.
7.5 Effect of Termination at Employee's Election. In the event of the
--------------------------------------------
termination of this Agreement by Employee prior to the completion of the
Employment Term, the Employee shall be entitled to the base compensation earned
prior to the date of termination as provided for in this Agreement under Section
1.3, computed pro-rata up to and including the date of termination. The
Employee shall be entitled to no other compensation.
5
<PAGE>
8. Survival. Notwithstanding the termination of employment under this
--------
Agreement for any reason, the Employee's obligations under Section 3 and 5
hereof and with respect to termination of employment under Sections 7.1, 7.3 or
by Employee under 7.4, the Employee's obligations under Sections 4 and 5 hereof
shall survive and remain in full force and effect for the periods therein
provided, and the provisions for equitable relief in Section 6 of the Agreement
shall continue in force.
9. Governing Law. This Agreement shall be governed by and interpreted
-------------
under the laws of the State of Maryland without giving effect to any conflict of
laws provisions.
10. Litigation Expenses. In the event of a lawsuit by either party to
-------------------
enforce the provisions of this Agreement, the prevailing party shall be entitled
to recover reasonable costs, expenses and attorney's fees from the other party.
Disputes arising under Section 7 of the Agreement shall be submitted to an
arbitrator (who is agreeable to both parties). The decision of the arbitrator
shall be binding on both parties and the fees (including legal fees) and cost
attributable to that arbitration process will be assessed as part of that
process by the arbitrator. Such arbitration shall be held in the Baltimore
Metropolitan area and shall be conducted by the American Arbitration Association
(or other mutually selected arbitrators) ("AAA") by an arbitrator selected using
the AAA's procedures.
11. Notices. All notices and other communications required or permitted
-------
hereunder or necessary or convenient in connection herewith shall be in writing
and shall be deemed to have been given when hand delivered or mailed by
registered or certified mail, as follows (provided that notice of change of
address shall be deemed given only when received);
If to the Company, to: Michael J. Burke
1682 E. Gude Drive
Suite 102D
Rockville, Maryland 20850
If to Employee, to: William J. Olsen
8501 High Timber Court
Ellicott City, Maryland 21043
or to such other names and addresses as the Company or Employee, as the case may
be, shall designate by notice to each other person entitled to receive notices
in the manner specified in this Section.
12. Contents of Agreement; Amendment and Assignment.
-----------------------------------------------
12.1 This Agreement supersedes all prior agreements and sets forth the
entire understanding among the parties with respect to the subject matter hereof
and cannot be changed, modified, extended or terminated except upon written
amendment approved by the Board of Directors of the Company.. Without
limitation, nothing in this Agreement shall be construed as giving Employee any
6
<PAGE>
right to be retained in the employ of the Company beyond the expiration of the
Employment Term and Employee specifically acknowledges that he shall be an
employee-at-will of the Company thereafter, and thus subject to discharge by the
Company with or without cause and without compensation of any nature unless a
new Agreement is executed by both parties (or employment is continued at will).
12.2 All of the terms and provisions of this Agreement shall be binding
upon and inure to the benefit of and be enforceable by the respective heirs,
executors, administrators, legal representatives, successors and assigns of the
parties, except that the duties and responsibilities of Employee hereunder are
of a personal nature and shall not be assignable or delegatable in whole or in
part by Employee.
13. Severability. If any provision of this Agreement or application
------------
thereof to anyone or under any circumstance is adjudicated to be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect any other provision or application of this Agreement which can be given
effect without the invalid or unenforceable provision or application and shall
not invalidate or render unenforceable such provision or application in any
other jurisdiction.
14. Remedies Cumulative; No Waiver. No remedy conferred upon the parties
------------------------------
by this Agreement is intended to be exclusive of any other remedy, and each and
every remedy shall be cumulative and shall be in addition to any other remedy
given hereunder or now or hereafter existing at law or in equity. No delay or
omission by the parties in exercising any right, remedy or power hereunder or
existing at law or in equity shall be construed as a waiver thereof, and any
such right, remedy or power may be exercised by the parties from time to time
and as often as may be deemed expedient or necessary by such party in its sole
discretion.
15. Miscellaneous. All section headings are for convenience only. This
-------------
Agreement may be executed in several counterparts, each of which is an original.
It shall not be necessary in marking proof of this Agreement or any counterpart
to produce or account for any of the other counterparts.
IN WITNESS WHEREOF, the undersigned, intending to be legally bound, have
executed this Agreement as of the date first above written.
Attest: HCNB BANCORP, INC.
______________________ By:________________________________________
Secretary Name:
Title:
7
<PAGE>
Witness:
______________________ -------------------------------------------
8
<PAGE>
Exhibit 10.2
HCNB BANCORP, INC.
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (this "Agreement") dated as of _________, 1999,
is entered by and between HCNB Bancorp, Inc (the "Company") and Michael L. Derr
("Employee").
The Company and Employee, in consideration of the mutual promises set forth
herein and for other valuable consideration the sufficiency of which is hereby
acknowledged and intending to be legally bound, agree as follows:
1. Employment. The Company agrees to employ Employee, and Employee
----------
agrees to accept employment with the Company. Employee agrees to perform his
duties and responsibilities in accordance with the terms and conditions set
forth herein.
1.1 Employment Term. The term of this Agreement (the "Employment Term")
---------------
shall commence on ______ __, 1999 and shall terminate on the Effective Date of
an employment agreement in substantially similar form as Exhibit A hereto
between Harbor Capital National Bank ("Bank") and Employee or on the date the
board of directors of the company makes a determination to abandon efforts to
raise capital for the purpose of chartering the Bank.
1.2 Duties and Responsibilities
---------------------------
(a) During the Employment Term, Employee shall serve as Secretary of the
Company and shall perform all duties and accept all responsibilities incidental
to such position or as may be assigned to him from time to time by the Company's
Board of Directors. Employee shall devote his productive time, ability,
attention, and energies to the fulfillment of said duties during the Employment
Term. During such time, the Employee shall not directly or indirectly render
any services of a business, commercial, or professional nature to any other
person or organization except for entities affiliated with the Company, whether
or not for compensation, without the prior written consent of the Company.
(b) Employee represents to the Company that he is not subject or a party
to any employment, non-competition, non-disclosure or other agreement, covenant,
understanding or restriction which would prohibit Employee from executing this
Agreement and performing fully his duties and responsibilities hereunder, or
which would in any manner, directly or indirectly, limit or affect the duties
and responsibilities which may now or in the future be assigned to Employee by
the Company.
1.3(a) Compensation. The Company shall pay Employee a base salary at
------------
the annual rate of $72,000. The Company agrees that the Employee's base salary
will be reviewed annually by the Company's Board of Directors to determine, in
light of the performance of Employee and the Company, if an increase is
appropriate. Such increases shall be in the sole discretion of the Company's
Board of Directors. All compensation under this Agreement shall be paid less
<PAGE>
withholding required by law or agreed to by Employee, and shall be payable as
determined by the Board of Directors of the Company. The Company also agrees to
pay Employee $6,000 upon a determination by the board of directors of the
Company to abandon efforts to raise capital for the purpose of chartering the
Bank.
2. Other Benefits.
--------------
2.1 Plan Benefits. Upon the opening of the Company, the Company shall
-------------
provide to Employee the following benefits: family health, dental and vision
insurance, life insurance equal to one year's base salary and officers and
directors liability insurance. Employee shall have the option to decline any or
all benefits described in this Section 2.2. If Employee declines any or all such
benefits, the Bank shall provide to Employee as an automobile allowance an
amount equal to the Bank's costs for benefits declined as such by Employee.
2.2 Supplemental Disability. The Company agrees to provide to the
-----------------------
Employee disability insurance coverage in an amount equal to 60% of Employee's
base salary.
3. Non-Disclosure of Confidential Information and Records.
------------------------------------------------------
3.1 During the term of his employment, Employee will have access to the
Company's (which includes information concerning the Bank) proprietary
information or information which is entrusted to the Company, including
information relating to business plans and to business as conducted or
anticipated to be conducted, and to past, current or anticipated products,
employees, and services ("Confidential Information").
3.2 In further consideration of Employee's employment and continued
employment, and other benefits provided to Employee by the Company, Employee
agrees as follows: (i) except as required by Employee's duties to the Company,
not to at any time directly or indirectly disclose to or use for others or
appropriate for his own personal use or cause to be used by others any
Confidential Information without first obtaining the written consent of the
Board of Directors of the Company to do so; (ii) all records and other writings
of Confidential Information prepared by Employee, or which come into his
possession or control, or which he has access to, are and shall remain the
exclusive property of the Company, and upon termination of Employee's
employment, Employee will not remove any such records or copies thereof, but all
shall be left with the Company, and any such records or copies not with the
Company in an Employee's possession or control, shall be, upon termination of
employment, immediately returned to the Company along with any other property of
the Company.
3.3 The requirements of this Section 3 shall apply during the time of
Employee's employment with the Company and thereafter with no time limitation,
unless it can be demonstrated conclusively that such Confidential Information
has through no act or fault of Employee become part of the public domain.
2
<PAGE>
4. Non-Competition.
---------------
4.1 During the Employment Term, Employee will not, unless acting pursuant
thereto or with the prior written consent of the Board of Directors of the
Company, directly or indirectly, own, manage, operate, join, control, finance or
participate in the ownership, management, operation, control or financing of, or
be connected as an officer, director, employee, partner, principal, agent,
representative, consultant or otherwise with or use or permit his name to be
used in connection with, any federally chartered or state chartered Company,
savings and loan, thrift or other financial institution offices of which are
located in Montgomery County.
4.2 The foregoing restriction shall not be construed to prohibit the
ownership by Employee of not more than five percent (5%) of any class of
securities of any corporation which is engaged in the business of banking having
a class of securities registered pursuant to the Securities Exchange Act of
1934, provided that such ownership represents a passive investment and that
neither Employee nor any group of persons, including Employee in any way, either
directly or indirectly, manages or exercises control of any such corporation,
guarantees any of its financial obligations, otherwise takes any part in its
business, other than exercising his rights as a shareholder, or seeks to do any
of the foregoing.
4.3 This Covenant Not to Compete is an inducement to cause the Company
to execute this Agreement and is a condition to, and consideration for, such
employment and continued employment, raises, promotions, severance, and other
benefits provided to Employee by the Company.
5. No Solicitation. Employee agrees that, for a period of one (1) year
---------------
after the employment of the Employee by the Company or any of its affiliates has
ended (whether or not such employment is pursuant to this Agreement), he will
not either directly or indirectly, (i) call on or solicit any person,
institution, corporation, trust or other entity who or which at the time of such
termination was, or within one (1) year prior thereto had been, a customer of
the Company or any of its affiliates in connection with the activities
prohibited by Section 5 hereof or (ii) solicit the employment of any person who
was employed by the Company or any of its affiliates on a full or part time
basis at the time of Employee's termination of employment, unless such person
(a) was involuntarily discharged by the Company or such affiliates, or (b)
voluntarily terminated his relationship with the Company or such affiliate prior
to Employee's termination of employment.
6. Equitable Relief.
----------------
6.1 Employee acknowledges that the restrictions contained in Sections 3, 4
and 5 are reasonable and necessary to protect the legitimate interests of the
Company and its affiliates, that the Company would not have entered into this
Agreement in the absence of such restrictions and that any violation of any
provision of these Sections will result in irreparable injury to the Company and
its affiliates. Employee further represents and acknowledges that (i) he has
been advised by the Company to consult his own legal counsel in respect of this
Agreement, and (ii) that he has had full
3
<PAGE>
opportunity, prior to execution of this Agreement, to review thoroughly this
Agreement with his counsel.
6.2 Employee agrees that the Company's remedy at law for a breach of
paragraphs 3, 4, and 5 would be inadequate and that the Company shall be
entitled to preliminary and permanent injunctive relief, without the necessity
of providing actual damages, as well as an equitable accounting of all earnings,
profits and other benefits arising from any violation of Sections 3, 4, or 5,
which rights shall be cumulative and in addition to any other rights or remedies
to which the Company may be entitled. In the event that any of the provisions
of Sections 3, 4, or 5 should ever be adjudicated to exceed the time, geographic
or other limitations permitted by applicable law in any jurisdiction, then such
provisions shall be deemed reformed in such jurisdiction to the maximum time,
geographic or other limitations permitted by applicable law.
6.3 Employee irrevocably and unconditionally (i) agrees that any suit,
action or other legal proceeding arising out of this Agreement, including
without limitation, any action commenced by the Company for preliminary and
permanent injunctive relief and other equitable relief, may be brought in the
United States District Court for the District of Maryland, or if such court does
not have jurisdiction or will not accept jurisdiction, in any court of general
jurisdiction in Montgomery County, Maryland, (ii) consents to the non-exclusive
jurisdiction of any such court in any such suit, action or proceeding, and (iii)
waives any objection which Employee may have to the laying of venue of any such
suit. Employee also irrevocably and unconditionally consents to the service of
any process, pleadings, notices or other papers in a manner permitted by the
notice provisions of Section 11 of this Agreement.
6.4 Employee agrees that he will provide, and that the Company may
similarly provide, a copy of Sections 3, 4, and 5 of this Agreement to any
business or enterprise (i) which he may directly or indirectly own, manage,
operate, finance, join, control or participate in the ownership, management,
operation, financing, or control of, or (ii) with which he may be connected as
an officer, director, employee, partner, principal, agent, representative,
consultant or otherwise, or in connection with which he may use or permit his
name to be used; provided, however, that this provision shall not apply in
respect of Section 5 of this Agreement after expiration of the time periods set
forth therein.
7. Termination. This Agreement shall terminate prior to the expiration
-----------
of its term set forth in Section 1.1 above, upon the occurrence of any one of
the following events:
7.1 Disability. In the event that Employee becomes unable to perform his
----------
duties hereunder for a period of six consecutive months or otherwise is deemed
to be disabled by the board of directors, this Agreement may be terminated by
the Company, and the Company shall have no further liability or obligation to
Employee for compensation; provided, however, that if the Employee becomes
disabled during the employment term, the Company shall pay to him or his legal
representatives an amount equal to the installment of his salary set forth in
Section 1.3 hereof for the month in which he becomes disabled which have been
earned but not yet paid. Employee agrees, in the event of any dispute under
this Section 6.1, to submit to up to three physical examinations by
4
<PAGE>
licensed physicians selected by the Employee and the Company in any four month
period. In the event of a disagreement among such physicians, Employee and the
Company agree to be bound by the concurring conclusions of two such physicians.
This Section shall be interpreted in compliance with the Family Medical Leave
Act to the extent that the provisions of that law would apply.
7.2 Death. In the event that Employee dies during the Employment Term,
-----
the Company shall pay to his executors, legal representatives or administrators
an amount equal to the installment of his salary set forth in Section 1.3 hereof
for the month in which he dies, which have been earned but not yet paid and
thereafter except as otherwise provided in this Agreement, the Company shall
have no further liability or obligation hereunder to his executors, legal
representatives, administrators, heirs or assigns or any other person claiming
under or through him, provided, however, that Employee's estate or designated
beneficiaries shall be entitled to receive the payments described for such
recipients under any death benefit plan which may be in effect for executive-
level employees of the Company and in which Employees participated.
7.3 Termination by Company For Cause. Nothing in this Agreement shall be
--------------------------------
construed to prevent its termination by the Company at any time for "cause"
without prior notice. For purposes of this Agreement, "cause" shall mean the
failure of Employee to perform or observe any of the terms or provisions of this
Agreement or to comply fully with the lawful directives of the Members of the
Company, dishonesty, misconduct, conviction of a crime or otherwise causing
embarrassment to the Company and its public reputation, substance abuse,
misappropriation of funds, disparagement of the Company or failure to comply
with Company policy.
7.4 Termination by Either Party Without Cause. This Agreement may be
-----------------------------------------
terminated by either party for any reason whatsoever, by giving 30 days' prior
written notice of termination to the other party. If Employee is terminated
without cause pursuant to this Section 7.4, Employee shall receive continue to
receive compensation and benefits as provided in this Agreement.
7.5 Effect of Termination at Employee's Election. In the event of the
--------------------------------------------
termination of this Agreement by Employee prior to the completion of the
Employment Term, the Employee shall be entitled to the base compensation earned
prior to the date of termination as provided for in this Agreement under Section
1.3, computed pro-rata up to and including the date of termination. The
Employee shall be entitled to no other compensation.
8. Survival. Notwithstanding the termination of employment under this
--------
Agreement for any reason, the Employee's obligations under Section 3 and 5
hereof and with respect to termination of employment under Sections 7.1, 7.3 or
by Employee under 7.4, the Employee's obligations under Sections 4 and 5 hereof
shall survive and remain in full force and effect for the periods therein
provided, and the provisions for equitable relief in Section 6 of the Agreement
shall continue in force.
9. Governing Law. This Agreement shall be governed by and interpreted
-------------
under the laws of the State of Maryland without giving effect to any conflict of
laws provisions.
5
<PAGE>
10. Litigation Expenses. In the event of a lawsuit by either party to
-------------------
enforce the provisions of this Agreement, the prevailing party shall be entitled
to recover reasonable costs, expenses and attorney's fees from the other party.
Disputes arising under Section 7 of the Agreement shall be submitted to an
arbitrator (who is agreeable to both parties). The decision of the arbitrator
shall be binding on both parties and the fees (including legal fees) and cost
attributable to that arbitration process will be assessed as part of that
process by the arbitrator. Such arbitration shall be held in the Baltimore
Metropolitan area and shall be conducted by the American Arbitration Association
(or other mutually selected arbitrators) ("AAA") by an arbitrator selected using
the AAA's procedures.
11. Notices. All notices and other communications required or permitted
-------
hereunder or necessary or convenient in connection herewith shall be in writing
and shall be deemed to have been given when hand delivered or mailed by
registered or certified mail, as follows (provided that notice of change of
address shall be deemed given only when received);
If to the Company, to: Michael J. Burke
1682 E. Gude Drive
Suite 102D
Rockville, Maryland 20850
If to Employee, to: Michael L. Derr
242 Mill Church Road
Arnold, Maryland 21012
or to such other names and addresses as the Company or Employee, as the case may
be, shall designate by notice to each other person entitled to receive notices
in the manner specified in this Section.
12. Contents of Agreement; Amendment and Assignment.
-----------------------------------------------
12.1 This Agreement supersedes all prior agreements and sets forth the
entire understanding among the parties with respect to the subject matter hereof
and cannot be changed, modified, extended or terminated except upon written
amendment approved by the Board of Directors of the Company.. Without
limitation, nothing in this Agreement shall be construed as giving Employee any
right to be retained in the employ of the Company beyond the expiration of the
Employment Term and Employee specifically acknowledges that he shall be an
employee-at-will of the Company thereafter, and thus subject to discharge by the
Company with or without cause and without compensation of any nature unless a
new Agreement is executed by both parties (or employment is continued at will).
12.2 All of the terms and provisions of this Agreement shall be binding
upon and inure to the benefit of and be enforceable by the respective heirs,
executors, administrators, legal representatives, successors and assigns of the
parties, except that the duties and responsibilities of
6
<PAGE>
Employee hereunder are of a personal nature and shall not be assignable or
delegatable in whole or in part by Employee.
13. Severability. If any provision of this Agreement or application
------------
thereof to anyone or under any circumstance is adjudicated to be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect any other provision or application of this Agreement which can be given
effect without the invalid or unenforceable provision or application and shall
not invalidate or render unenforceable such provision or application in any
other jurisdiction.
14. Remedies Cumulative; No Waiver. No remedy conferred upon the parties
------------------------------
by this Agreement is intended to be exclusive of any other remedy, and each and
every remedy shall be cumulative and shall be in addition to any other remedy
given hereunder or now or hereafter existing at law or in equity. No delay or
omission by the parties in exercising any right, remedy or power hereunder or
existing at law or in equity shall be construed as a waiver thereof, and any
such right, remedy or power may be exercised by the parties from time to time
and as often as may be deemed expedient or necessary by such party in its sole
discretion.
15. Miscellaneous. All section headings are for convenience only. This
-------------
Agreement may be executed in several counterparts, each of which is an original.
It shall not be necessary in marking proof of this Agreement or any counterpart
to produce or account for any of the other counterparts.
IN WITNESS WHEREOF, the undersigned, intending to be legally bound, have
executed this Agreement as of the date first above written.
Attest: HCNB BANCORP, INC.
______________________ By:________________________________________
Secretary Name:
Title:
Witness:
______________________ ___________________________________________
Michael L. Derr
7
<PAGE>
Exhibit 10.3
HARBOR CAPITAL NATIONAL BANK
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (this "Agreement") dated as of _________, 1999,
is entered by and between Harbor Capital National Bank, a national bank (the
"Bank") and William J. Olsen ("Employee").
The Bank and Employee, in consideration of the mutual promises set forth
herein and for other valuable consideration the sufficiency of which is hereby
acknowledged and intending to be legally bound, agree as follows:
1. Employment. The Bank agrees to employ Employee, and Employee agrees
----------
to accept employment with the Bank. Employee agrees to perform his duties and
responsibilities in accordance with the terms and conditions set forth herein.
1.1(a) Employment Term. The term of this Agreement (the "Employment Term")
---------------
shall be for three years and commence on ______ __, 1999 and, unless previously
terminated in accordance with Section 7 of this Agreement or extended by mutual
agreement of the parties, shall terminate on __________, 2001 (the _____
anniversary on such date) upon 90 days prior written notice by either party. If
neither party gives prior written notice of termination, this Agreement shall
automatically renew for a one year term and successive one year terms thereafter
until such time as one party gives 90 days prior written notice by either party
of a termination.
1.1.(b) Effective Date. The Effective Date of this Agreement is _______,
--------------
19__.
1.2 Duties and Responsibilities
---------------------------
(a) During the Employment Term, Employee shall serve as President of the
Bank and shall perform all duties and accept all responsibilities incidental to
such position or as may be assigned to him from time to time by the Bank's Board
of Directors. Employee shall devote his productive time, ability, attention,
and energies to the fulfillment of said duties during the Employment Term.
During such time, the Employee shall not directly or indirectly render any
services of a business, commercial, or professional nature to any other person
or organization except for entities affiliated with the Bank, whether or not for
compensation, without the prior written consent of the Bank.
(b) Employee represents to the Bank that he is not subject or a party to
any employment, non-competition, non-disclosure or other agreement, covenant,
understanding or restriction which would prohibit Employee from executing this
Agreement and performing fully his duties and responsibilities hereunder, or
which would in any manner, directly or indirectly, limit or affect the duties
and responsibilities which may now or in the future be assigned to Employee by
the Bank.
1.3(a) Compensation. The Bank shall pay Employee a base salary at the
------------
annual rate of $100,000. The Bank agrees that the Employee's base salary will
be reviewed annually by the Bank's
<PAGE>
Board of Directors to determine, in light of the performance of Employee and the
Bank, if an increase is appropriate. Such increases shall be in the sole
discretion of the Bank's Board of Directors. All compensation under this
Agreement shall be paid less withholding required by law or agreed to by
Employee, and shall be payable as determined by the Board of Directors of the
Bank. The Bank also agrees to pay Employee $10,000, unless already paid by HCNB
Bancorp, Inc., ("HCNB"), on the date HCNB has collected in escrow the minimum
amount necessary to break escrow in its initial public offering or upon a
determination by the board of directors of HCNB that HCNB has abandoned efforts
to raise capital.
1.3(b). Bank and Employee agree that the Bank will offer Employee an
incentive compensation plan, the terms of which to be agreed upon by the
parties.
2. Other Benefits.
--------------
2.1 Vacation. For the duration of the Employment Term, Employee shall be
--------
entitled vacation per the policies of the Bank as applicable to executive level
employees. Earned but unused vacation will be forfeited at the end of each
calendar year.
2.2 Plan Benefits. Upon the opening of the Bank, the Bank shall provide
-------------
to Employee the following benefits: family health, dental and vision insurance,
life insurance equal to one year's base salary and officers and directors
liability insurance. From the date of commencement of this Agreement until the
opening of the Bank, the Bank shall reimburse Employee in an amount equal to the
amount Employee pays for COBRA coverage from his previous employer. Employee
shall be eligible to participate in any executive stock option plan and/or
retirement plan offered by the Bank.
2.3 Supplemental Disability. The Bank agrees to provide to the Employee
-----------------------
disability insurance coverage in an amount equal to 60% of Employee's base
salary.
2.4. Automobile. Bank shall provide to Employee during the term of
----------
this Agreement an automobile allowance of $1,000.00 per month.
3. Non-Disclosure of Confidential Information and Records.
------------------------------------------------------
3.1 During the term of his employment, Employee will have access to the
Bank's proprietary information or information which is entrusted to the Bank,
including information relating to business plans and to business as conducted or
anticipated to be conducted, and to past, current or anticipated products,
employees, and services ("Confidential Information").
3.2 In further consideration of Employee's employment and continued
employment, and other benefits provided to Employee by the Bank, Employee agrees
as follows: (i) except as required by Employee's duties to the Bank, not to at
any time directly or indirectly disclose to or use for others or appropriate for
his own personal use or cause to be used by others any Confidential Information
without first obtaining the written consent of the Board of Directors of the
Bank to do so; (ii) all
2
<PAGE>
records and other writings of Confidential Information prepared by Employee, or
which come into his possession or control, or which he has access to, are and
shall remain the exclusive property of the Bank, and upon termination of
Employee's employment, Employee will not remove any such records or copies
thereof, but all shall be left with the Bank, and any such records or copies not
with the Bank in an Employee's possession or control, shall be, upon termination
of employment, immediately returned to the Bank along with any other property of
the Bank.
3.3 The requirements of this Section 3 shall apply during the time of
Employee's employment with the Bank and thereafter with no time limitation,
unless it can be demonstrated conclusively that such Confidential Information
has through no act or fault of Employee become part of the public domain.
4. Non-Competition.
---------------
4.1 During the Employment Term, Employee will not, unless acting pursuant
thereto or with the prior written consent of the Board of Directors of the Bank,
directly or indirectly, own, manage, operate, join, control, finance or
participate in the ownership, management, operation, control or financing of, or
be connected as an officer, director, employee, partner, principal, agent,
representative, consultant or otherwise with or use or permit his name to be
used in connection with, any federally chartered or state chartered bank,
savings and loan, thrift or other financial institution offices of which are
located in Montgomery County or the Bank's service area.
4.2 The foregoing restriction shall not be construed to prohibit the
ownership by Employee of not more than five percent (5%) of any class of
securities of any corporation which is engaged in the business of banking having
a class of securities registered pursuant to the Securities Exchange Act of
1934, provided that such ownership represents a passive investment and that
neither Employee nor any group of persons, including Employee in any way, either
directly or indirectly, manages or exercises control of any such corporation,
guarantees any of its financial obligations, otherwise takes any part in its
business, other than exercising his rights as a shareholder, or seeks to do any
of the foregoing.
4.3 This Covenant Not to Compete is an inducement to cause the Bank to
execute this Agreement and is a condition to, and consideration for, such
employment and continued employment, raises, promotions, severance, and other
benefits provided to Employee by the Bank.
5. No Solicitation. Employee agrees that, for a period of one (1) year
---------------
after the employment of the Employee by the Bank or any of its affiliates has
ended (whether or not such employment is pursuant to this Agreement), he will
not either directly or indirectly, (i) call on or solicit any person,
institution, corporation, trust or other entity who or which at the time of such
termination was, or within one (1) year prior thereto had been, a customer of
the Bank or any of its affiliates in connection with the activities prohibited
by Section 5 hereof or (ii) solicit the employment of any person who was
employed by the Bank or any of its affiliates on a full or part time basis at
the time of Employee's termination of employment, unless such person (a) was
involuntarily discharged
3
<PAGE>
by the Bank or such affiliates, or (b) voluntarily terminated his relationship
with the Bank or such affiliate prior to Employee's termination of employment.
6. Equitable Relief.
----------------
6.1 Employee acknowledges that the restrictions contained in Sections 3, 4
and 5 are reasonable and necessary to protect the legitimate interests of the
Bank and its affiliates, that the Bank would not have entered into this
Agreement in the absence of such restrictions and that any violation of any
provision of these Sections will result in irreparable injury to the Bank and
its affiliates. Employee further represents and acknowledges that (i) he has
been advised by the Bank to consult his own legal counsel in respect of this
Agreement, and (ii) that he has had full opportunity, prior to execution of this
Agreement, to review thoroughly this Agreement with his counsel.
6.2 Employee agrees that the Bank's remedy at law for a breach of
paragraphs 3, 4, and 5 would be inadequate and that the Bank shall be entitled
to preliminary and permanent injunctive relief, without the necessity of
providing actual damages, as well as an equitable accounting of all earnings,
profits and other benefits arising from any violation of Sections 3, 4, or 5,
which rights shall be cumulative and in addition to any other rights or remedies
to which the Bank may be entitled. In the event that any of the provisions of
Sections 3, 4, or 5 should ever be adjudicated to exceed the time, geographic or
other limitations permitted by applicable law in any jurisdiction, then such
provisions shall be deemed reformed in such jurisdiction to the maximum time,
geographic or other limitations permitted by applicable law.
6.3 Employee irrevocably and unconditionally (i) agrees that any suit,
action or other legal proceeding arising out of this Agreement, including
without limitation, any action commenced by the Bank for preliminary and
permanent injunctive relief and other equitable relief, may be brought in the
United States District Court for the District of Maryland, or if such court does
not have jurisdiction or will not accept jurisdiction, in any court of general
jurisdiction in Montgomery County, Maryland, (ii) consents to the non-exclusive
jurisdiction of any such court in any such suit, action or proceeding, and (iii)
waives any objection which Employee may have to the laying of venue of any such
suit. Employee also irrevocably and unconditionally consents to the service of
any process, pleadings, notices or other papers in a manner permitted by the
notice provisions of Section 11 of this Agreement.
6.4 Employee agrees that he will provide, and that the Bank may similarly
provide, a copy of Sections 3, 4, and 5 of this Agreement to any business or
enterprise (i) which he may directly or indirectly own, manage, operate,
finance, join, control or participate in the ownership, management, operation,
financing, or control of, or (ii) with which he may be connected as an officer,
director, employee, partner, principal, agent, representative, consultant or
otherwise, or in connection with which he may use or permit his name to be used;
provided, however, that this provision shall not apply in respect of Section 5
of this Agreement after expiration of the time periods set forth therein.
4
<PAGE>
7. Termination. This Agreement shall terminate prior to the expiration
-----------
of its term set forth in Section 1.1 above, upon the occurrence of any one of
the following events:
7.1 Disability. In the event that Employee becomes unable to perform his
----------
duties hereunder for a period of six consecutive months or otherwise is deemed
to be disabled within the meaning of the Company's then existing disability
benefit program, this Agreement may be terminated by the Company and the Company
shall have no further liability or obligation to Employee for compensation;
provided, however, that if the Employee becomes disabled during the employment
term, the Company shall pay to him or his legal representatives an amount equal
to the installment of his salary set forth in Section 1.3 hereof for the month
in which he becomes disabled which have been earned but not yet paid. Employee
agrees, in the event of any dispute under this Section 6.1, to submit to up to
three physical examinations by licensed physicians selected by the Employee and
the Company in any four month period. In the event of a disagreement among such
physicians, Employee and the Company agree to be bound by the concurring
conclusions of two such physicians. This Section shall be interpreted in
compliance with the Family Medical Leave Act to the extent that the provisions
of that law would apply.
7.2 Death. In the event that Employee dies during the Employment Term,
-----
the Company shall pay to his executors, legal representatives or administrators
an amount equal to the installment of his salary set forth in Section 1.3 hereof
for the month in which he dies, which have been earned but not yet paid and
thereafter except as otherwise provided in this Agreement, the Company shall
have no further liability or obligation hereunder to his executors, legal
representatives, administrators, heirs or assigns or any other person claiming
under or through him, provided, however, that Employee's estate or designated
beneficiaries shall be entitled to receive the payments described for such
recipients under any death benefit plan which may be in effect for executive-
level employees of the Company and in which Employee participated.
7.3 Termination by Company For Cause. Nothing in this Agreement shall be
--------------------------------
construed to prevent its termination by the Company at any time for "cause"
without prior notice. For purposes of this Agreement, "cause" shall mean the
failure of Employee to perform or observe any of the terms or provisions of this
Agreement or to comply fully with the lawful directives of the Members of the
Company, dishonesty, misconduct, conviction of a crime or otherwise causing
embarrassment to the Company and its public reputation, substance abuse,
misappropriation of funds, disparagement of the Company or failure to comply
with Company policy.
7.4 Termination by Either Party Without Cause. This Agreement may be
-----------------------------------------
terminated by either party for any reason whatsoever, by giving 30 days' prior
written notice of termination to the other party. If Employee is terminated
without cause pursuant to this Section 7.4, Employee shall continue to receive
compensation and benefits as provided in this Agreement.
7.5 Effect of Termination at Employee's Election. In the event of the
--------------------------------------------
termination of this Agreement by Employee prior to the completion of the
Employment Term, the Employee shall be entitled to the base compensation earned
prior to the date of termination as provided for in this
5
<PAGE>
Agreement under Section 1.3, computed pro-rata up to and including the date of
termination. The Employee shall be entitled to no other compensation.
7.6 Effect of Termination at The Company's Election. In the event of the
-----------------------------------------------
termination of this Agreement by the Company for any reason other than for
cause, the Employee shall be entitled to the base compensation earned prior to
the date of termination as provided for in this Agreement, computed pro-rata up
to and including the date of termination plus a continued salary (at the then
current rate and) which shall terminate on the sooner of six months, the
remaining term under this Agreement, or at such time as the Employee has found
other employment comparable with Employee's employment with the Bank. Employee
shall use his best efforts to obtain such employment. Any amounts paid to
Employee pursuant to such new employment shall be deducted from any amounts owed
under the Section 3.6. In addition, if any employment of Employee is with a
competing Financial Institution in the Montgomery County metropolitan area)
Company's obligation under this Agreement shall immediately cease. The Employee
shall be entitled to no further compensation under this Agreement as of the date
of termination. In the event of termination of the Agreement by the Company for
cause, the Employee will be entitled to compensation earned to the date of
termination as provided for under Section 1.3.(a) computed pro-rata up to the
date of termination.
8. Survival. Notwithstanding the termination of employment under this
--------
Agreement for any reason, the Employee's obligations under Sections 3 and 5
hereof shall survive and remain in full force and effect for the periods therein
provided, and the provisions for equitable relief in Section 6 of the Agreement
shall continue in force.
9. Governing Law. This Agreement shall be governed by and interpreted
-------------
under the laws of the State of Maryland without giving effect to any conflict of
laws provisions.
10. Litigation Expenses. In the event of a lawsuit by either party to
-------------------
enforce the provisions of this Agreement, the prevailing party shall be entitled
to recover reasonable costs, expenses and attorney's fees from the other party.
Disputes arising under Section 7 of the Agreement shall be submitted to an
arbitrator (who is agreeable to both parties). The decision of the arbitrator
shall be binding on both parties and the fees (including legal fees) and cost
attributable to that arbitration process will be assessed as part of that
process by the arbitrator. Such arbitration shall be held in the Montgomery
County metropolitan area and shall be conducted by the American Arbitration
Association (or other mutually selected arbitrators) ("AAA") by an arbitrator
selected using the AAA's procedures.
11. Notices. All notices and other communications required or permitted
-------
hereunder or necessary or convenient in connection herewith shall be in writing
and shall be deemed to have been given when hand delivered or mailed by
registered or certified mail, as follows (provided that notice of change of
address shall be deemed given only when received);
6
<PAGE>
If to the Bank, to: Michael J. Burke
1682 E. Gude Drive
Suite 102D
Rockville, Maryland 20850
copy to: Frank C. Bonaventure, Jr., Esquire
Ober, Kaler, Grimes & Shriver
120 East Baltimore Street
Baltimore, Maryland 21202
If to Employee, to: William J. Olsen
8501 High Timber Court
Ellicott City, Maryland 21043
or to such other names and addresses as the Bank or Employee, as the case may
be, shall designate by notice to each other person entitled to receive notices
in the manner specified in this Section.
12. Contents of Agreement; Amendment and Assignment.
-----------------------------------------------
12.1 This Agreement supersedes all prior agreements and sets forth the
entire understanding among the parties with respect to the subject matter hereof
and cannot be changed, modified, extended or terminated except upon written
amendment approved by the Board of Directors of the Bank.. Without limitation,
nothing in this Agreement shall be construed as giving Employee any right to be
retained in the employ of the Bank beyond the expiration of the Employment Term
and Employee specifically acknowledges that he shall be an employee-at-will of
the Bank thereafter, and thus subject to discharge by the Bank with or without
cause and without compensation of any nature unless a new Agreement is executed
by both parties (or employment is continued at will).
12.2 All of the terms and provisions of this Agreement shall be binding
upon and inure to the benefit of and be enforceable by the respective heirs,
executors, administrators, legal representatives, successors and assigns of the
parties, except that the duties and responsibilities of Employee hereunder are
of a personal nature and shall not be assignable or delegatable in whole or in
part by Employee.
13. Severability. If any provision of this Agreement or application
------------
thereof to anyone or under any circumstance is adjudicated to be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect any other provision or application of this Agreement which can be given
effect without the invalid or unenforceable provision or application and shall
not invalidate or render unenforceable such provision or application in any
other jurisdiction.
14. Remedies Cumulative; No Waiver. No remedy conferred upon the parties
------------------------------
by this Agreement is intended to be exclusive of any other remedy, and each and
every remedy shall be cumulative and shall be in addition to any other remedy
given hereunder or now or hereafter existing
7
<PAGE>
at law or in equity. No delay or omission by the parties in exercising any
right, remedy or power hereunder or existing at law or in equity shall be
construed as a waiver thereof, and any such right, remedy or power may be
exercised by the parties from time to time and as often as may be deemed
expedient or necessary by such party in its sole discretion.
15. Miscellaneous. All section headings are for convenience only. This
-------------
Agreement may be executed in several counterparts, each of which is an original.
It shall not be necessary in marking proof of this Agreement or any counterpart
to produce or account for any of the other counterparts.
IN WITNESS WHEREOF, the undersigned, intending to be legally bound, have
executed this Agreement as of the date first above written.
Attest: HARBOR CAPITAL NATIONAL BANK
______________________ By:________________________________________
Secretary Name:
Title:
Witness:
______________________ ____________________________________________
William J. Olsen
8
<PAGE>
Exhibit 10.4
HARBOR CAPITAL NATIONAL BANK
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (this "Agreement") dated as of _________, 1999,
is entered by and between Harbor Capital National Bank, a national bank (the
"Bank") and Michael L. Derr ("Employee").
The Bank and Employee, in consideration of the mutual promises set forth
herein and for other valuable consideration the sufficiency of which is hereby
acknowledged and intending to be legally bound, agree as follows:
1. Employment. The Bank agrees to employ Employee, and Employee agrees
----------
to accept employment with the Bank. Employee agrees to perform his duties and
responsibilities in accordance with the terms and conditions set forth herein.
1.1(a) Employment Term. The term of this Agreement (the "Employment Term")
---------------
shall be for one year and commence on ______ __, 199__ and, unless previously
terminated in accordance with Section 7 of this Agreement or extended by mutual
agreement of the parties, shall terminate on __________, ___ (the _____
anniversary on such date) upon 90 days prior written notice by either party. If
neither party gives prior written notice of termination, this Agreement shall
automatically renew for a one year term and successive one year terms thereafter
until such time as one party gives 90 days prior written notice by either party
of a termination.
1.1.(b) Effective Date. The Effective Date of this Agreement is _______,
--------------
19__.
1.2 Duties and Responsibilities
---------------------------
(a) During the Employment Term, Employee shall serve as Senior Vice
President and Chief Operating Officer of the Bank and shall perform all duties
and accept all responsibilities incidental to such positions or as may be
assigned to him from time to time by the Bank's Board of Directors. Employee
shall devote his productive time, ability, attention, and energies to the
fulfillment of said duties during the Employment Term. During such time, the
Employee shall not directly or indirectly render any services of a business,
commercial, or professional nature to any other person or organization except
for entities affiliated with the Bank, whether or not for compensation, without
the prior written consent of the Bank.
(b) Employee represents to the Bank that he is not subject or a party to
any employment, non-competition, non-disclosure or other agreement, covenant,
understanding or restriction which would prohibit Employee from executing this
Agreement and performing fully his duties and responsibilities hereunder, or
which would in any manner, directly or indirectly, limit or affect the duties
and responsibilities which may now or in the future be assigned to Employee by
the Bank.
<PAGE>
1.3(a) Compensation. The Bank shall pay Employee a base salary at the
------------
annual rate of $72,000. The Bank agrees that the Employee's base salary will be
reviewed annually by the Bank's Board of Directors to determine, in light of the
performance of Employee and the Bank, if an increase is appropriate. Such
increases shall be in the sole discretion of the Bank's Board of Directors.
All compensation under this Agreement shall be paid less withholding required by
law or agreed to by Employee, and shall be payable as determined by the Board of
Directors of the Bank. The Bank also agrees to pay Employee $6,000.00, unless
already paid by HCNB Bancorp, Inc., upon a determination by the board of
directors of HCNB that HCNB has abandoned efforts to raise capital to capitalize
the Bank.
1.3(b). Bank and Employee agree that the Bank will offer Employee an
incentive compensation plan, the terms of which to be agreed upon by the
parties.
2. Other Benefits.
--------------
2.1 Vacation. For the duration of the Employment Term, Employee shall be
--------
entitled vacation per the policies of the Bank as applicable to executive level
employees. Earned but unused vacation will be forfeited at the end of each
calendar year.
2.2 Plan Benefits. Upon the opening of the Bank, the Bank shall provide
-------------
to Employee the following benefits: family health, dental and vision insurance,
life insurance equal to one year's base salary and officers and directors
liability insurance. Employee shall have the option to decline any or all
benefits described in this Section 2.2. If Employee declines any or all such
benefits, the Bank shall provide to Employee as an automobile allowance an
amount equal to the Bank's costs for benefits declined as such by Employee.
2.3 Supplemental Disability. The Bank agrees to provide to the Employee
-----------------------
disability insurance coverage in an amount equal to 60% of Employee's base
salary.
3. Non-Disclosure of Confidential Information and Records.
------------------------------------------------------
3.1 During the term of his employment, Employee will have access to the
Bank's proprietary information or information which is entrusted to the Bank,
including information relating to business plans and to business as conducted or
anticipated to be conducted, and to past, current or anticipated products,
employees, and services ("Confidential Information").
3.2 In further consideration of Employee's employment and continued
employment, and other benefits provided to Employee by the Bank, Employee agrees
as follows: (i) except as required by Employee's duties to the Bank, not to at
any time directly or indirectly disclose to or use for others or appropriate for
his own personal use or cause to be used by others any Confidential Information
without first obtaining the written consent of the Board of Directors of the
Bank to do so; (ii) all records and other writings of Confidential Information
prepared by Employee, or which come into his possession or control, or which he
has access to, are and shall remain the exclusive property of
2
<PAGE>
the Bank, and upon termination of Employee's employment, Employee will not
remove any such records or copies thereof, but all shall be left with the Bank,
and any such records or copies not with the Bank in an Employee's possession or
control, shall be, upon termination of employment, immediately returned to the
Bank along with any other property of the Bank.
3.3 The requirements of this Section 3 shall apply during the time of
Employee's employment with the Bank and thereafter with no time limitation,
unless it can be demonstrated conclusively that such Confidential Information
has through no act or fault of Employee become part of the public domain.
4. Non-Competition.
---------------
4.1 During the Employment Term, Employee will not, unless acting pursuant
thereto or with the prior written consent of the Board of Directors of the Bank,
directly or indirectly, own, manage, operate, join, control, finance or
participate in the ownership, management, operation, control or financing of, or
be connected as an officer, director, employee, partner, principal, agent,
representative, consultant or otherwise with or use or permit his name to be
used in connection with, any federally chartered or state chartered bank,
savings and loan, thrift or other financial institution offices of which are
located in Montgomery County or the Bank's service area.
4.2 The foregoing restriction shall not be construed to prohibit the
ownership by Employee of not more than five percent (5%) of any class of
securities of any corporation which is engaged in the business of banking having
a class of securities registered pursuant to the Securities Exchange Act of
1934, provided that such ownership represents a passive investment and that
neither Employee nor any group of persons, including Employee in any way, either
directly or indirectly, manages or exercises control of any such corporation,
guarantees any of its financial obligations, otherwise takes any part in its
business, other than exercising his rights as a shareholder, or seeks to do any
of the foregoing.
4.3 This Covenant Not to Compete is an inducement to cause the Bank to
execute this Agreement and is a condition to, and consideration for, such
employment and continued employment, raises, promotions, severance, and other
benefits provided to Employee by the Bank.
5. No Solicitation. Employee agrees that, for a period of one (1) year
---------------
after the employment of the Employee by the Bank or any of its affiliates has
ended (whether or not such employment is pursuant to this Agreement), he will
not either directly or indirectly, (i) call on or solicit any person,
institution, corporation, trust or other entity who or which at the time of such
termination was, or within one (1) year prior thereto had been, a customer of
the Bank or any of its affiliates in connection with the activities prohibited
by Section 5 hereof or (ii) solicit the employment of any person who was
employed by the Bank or any of its affiliates on a full or part time basis at
the time of Employee's termination of employment, unless such person (a) was
involuntarily discharged by the Bank or such affiliates, or (b) voluntarily
terminated his relationship with the Bank or such affiliate prior to Employee's
termination of employment.
3
<PAGE>
6. Equitable Relief.
----------------
6.1 Employee acknowledges that the restrictions contained in Sections 3, 4
and 5 are reasonable and necessary to protect the legitimate interests of the
Bank and its affiliates, that the Bank would not have entered into this
Agreement in the absence of such restrictions and that any violation of any
provision of these Sections will result in irreparable injury to the Bank and
its affiliates. Employee further represents and acknowledges that (i) he has
been advised by the Bank to consult his own legal counsel in respect of this
Agreement, and (ii) that he has had full opportunity, prior to execution of this
Agreement, to review thoroughly this Agreement with his counsel.
6.2 Employee agrees that the Bank's remedy at law for a breach of
paragraphs 3, 4, and 5 would be inadequate and that the Bank shall be entitled
to preliminary and permanent injunctive relief, without the necessity of
providing actual damages, as well as an equitable accounting of all earnings,
profits and other benefits arising from any violation of Sections 3, 4, or 5,
which rights shall be cumulative and in addition to any other rights or remedies
to which the Bank may be entitled. In the event that any of the provisions of
Sections 3, 4, or 5 should ever be adjudicated to exceed the time, geographic or
other limitations permitted by applicable law in any jurisdiction, then such
provisions shall be deemed reformed in such jurisdiction to the maximum time,
geographic or other limitations permitted by applicable law.
6.3 Employee irrevocably and unconditionally (i) agrees that any suit,
action or other legal proceeding arising out of this Agreement, including
without limitation, any action commenced by the Bank for preliminary and
permanent injunctive relief and other equitable relief, may be brought in the
United States District Court for the District of Maryland, or if such court does
not have jurisdiction or will not accept jurisdiction, in any court of general
jurisdiction in Montgomery County, Maryland, (ii) consents to the non-exclusive
jurisdiction of any such court in any such suit, action or proceeding, and (iii)
waives any objection which Employee may have to the laying of venue of any such
suit. Employee also irrevocably and unconditionally consents to the service of
any process, pleadings, notices or other papers in a manner permitted by the
notice provisions of Section 11 of this Agreement.
6.4 Employee agrees that he will provide, and that the Bank may similarly
provide, a copy of Sections 3, 4, and 5 of this Agreement to any business or
enterprise (i) which he may directly or indirectly own, manage, operate,
finance, join, control or participate in the ownership, management, operation,
financing, or control of, or (ii) with which he may be connected as an officer,
director, employee, partner, principal, agent, representative, consultant or
otherwise, or in connection with which he may use or permit his name to be used;
provided, however, that this provision shall not apply in respect of Section 5
of this Agreement after expiration of the time periods set forth therein.
7. Termination. This Agreement shall terminate prior to the expiration
-----------
of its term set forth in Section 1.1 above, upon the occurrence of any one of
the following events:
4
<PAGE>
7.1 Disability. In the event that Employee becomes unable to perform his
----------
duties hereunder for a period of six consecutive months or otherwise is deemed
to be disabled within the meaning of the Company's then existing disability
benefit program, this Agreement may be terminated by the Company, and the
Company shall have no further liability or obligation to Employee for
compensation; provided, however, that if the Employee becomes disabled during
the employment term, the Company shall pay to him or his legal representatives
an amount equal to the installment of his salary set forth in Section 1.3 hereof
for the month in which he becomes disabled which have been earned but not yet
paid. Employee agrees, in the event of any dispute under this Section 6.1, to
submit to up to three physical examinations by licensed physicians selected by
the Employee and the Company in any four month period. In the event of a
disagreement among such physicians, Employee and the Company agree to be bound
by the concurring conclusions of two such physicians. This Section shall be
interpreted in compliance with the Family Medical Leave Act to the extent that
the provisions of that law would apply.
7.2 Death. In the event that Employee dies during the Employment Term,
-----
the Company shall pay to his executors, legal representatives or administrators
an amount equal to the installment of his salary set forth in Section 1.3 hereof
for the month in which he dies, which have been earned but not yet paid and
thereafter except as otherwise provided in this Agreement, the Company shall
have no further liability or obligation hereunder to his executors, legal
representatives, administrators, heirs or assigns or any other person claiming
under or through him, provided, however, that Employee's estate or designated
beneficiaries shall be entitled to receive the payments described for such
recipients under any death benefit plan which may be in effect for executive-
level employees of the Company and in which Employees participated.
7.3 Termination by Company For Cause. Nothing in this Agreement shall be
--------------------------------
construed to prevent its termination by the Company at any time for "cause"
without prior notice. For purposes of this Agreement, "cause" shall mean the
failure of Employee to perform or observe any of the terms or provisions of this
Agreement or to comply fully with the lawful directives of the Members of the
Company, dishonesty, misconduct, conviction of a crime or otherwise causing
embarrassment to the Company and its public reputation, substance abuse,
misappropriation of funds, disparagement of the Company or failure to comply
with Company policy.
7.4 Termination by Either Party Without Cause. This Agreement may be
-----------------------------------------
terminated by either party for any reason whatsoever, by giving 30 days' prior
written notice of termination to the other party. If Employee is terminated
without cause pursuant to this Section 7.4, Employee shall receive continue to
receive compensation and benefits as provided in this Agreement.
7.5 Effect of Termination at Employee's Election. In the event of the
--------------------------------------------
termination of this Agreement by Employee prior to the completion of the
Employment Term, the Employee shall be entitled to the base compensation earned
prior to the date of termination as provided for in this Agreement under Section
1.3, computed pro-rata up to and including the date of termination. The
Employee shall be entitled to no other compensation.
5
<PAGE>
7.6 Effect of Termination at The Company's Election. In the event of the
-----------------------------------------------
termination of this Agreement by the Company for any reason other than for
cause, the Employee shall be entitled to the base compensation earned prior to
the date of termination as provided for in this Agreement, computed pro-rata up
to and including the date of termination plus a continued salary (at the then
current rate and) which shall terminate on the sooner of six months, the
remaining term under this Agreement, or at such time as the Employee has found
other employment comparable with Employee's employment with the Bank. Employee
shall use his best efforts to obtain such employment. Any amounts paid to
Employee pursuant to such new employment shall be deducted from any amounts owed
under the Section 3.6. In addition, if such employment of Employee is with a
competing Financial Institution in the Montgomery County metropolitan area, the
Company's obligation under this Agreement shall immediately cease. The Employee
shall be entitled to no further compensation under this Agreement as of the date
of termination. In the event of termination of the Agreement by the Company for
cause, the Employee will be entitled to compensation earned to the date of
termination as provided for under Section 1.3.(a) computed pro-rata up to the
date of termination.
8. Survival. Notwithstanding the termination of employment under this
--------
Agreement for any reason, the Employee's obligations under Sections 3 and 5
shall survive and remain in full force and effect for the periods therein
provided, and the provisions for equitable relief in Section 6 of the Agreement
shall continue in force.
9. Governing Law. This Agreement shall be governed by and interpreted
-------------
under the laws of the State of Maryland without giving effect to any conflict of
laws provisions.
10. Litigation Expenses. In the event of a lawsuit by either party to
-------------------
enforce the provisions of this Agreement, the prevailing party shall be entitled
to recover reasonable costs, expenses and attorney's fees from the other party.
Disputes arising under Section 7 of the Agreement shall be submitted to an
arbitrator (who is agreeable to both parties). The decision of the arbitrator
shall be binding on both parties and the fees (including legal fees) and cost
attributable to that arbitration process will be assessed as part of that
process by the arbitrator. Such arbitration shall be held in the Montgomery
County metropolitan area and shall be conducted by the American Arbitration
Association (or other mutually selected arbitrators) ("AAA") by an arbitrator
selected using the AAA's procedures.
11. Notices. All notices and other communications required or permitted
-------
hereunder or necessary or convenient in connection herewith shall be in writing
and shall be deemed to have been given when hand delivered or mailed by
registered or certified mail, as follows (provided that notice of change of
address shall be deemed given only when received);
If to the Bank, to: Michael J. Burke
1682 E. Gude Drive
Suite 102D
Rockville, Maryland 20850
6
<PAGE>
If to Employee, to: Michael L. Derr
242 Mill Church Road
Arnold, Maryland 21012
or to such other names and addresses as the Bank or Employee, as the case may
be, shall designate by notice to each other person entitled to receive notices
in the manner specified in this Section.
12. Contents of Agreement; Amendment and Assignment.
-----------------------------------------------
12.1 This Agreement supersedes all prior agreements and sets forth the
entire understanding among the parties with respect to the subject matter hereof
and cannot be changed, modified, extended or terminated except upon written
amendment approved by the Board of Directors of the Bank.. Without limitation,
nothing in this Agreement shall be construed as giving Employee any right to be
retained in the employ of the Bank beyond the expiration of the Employment Term
and Employee specifically acknowledges that he shall be an employee-at-will of
the Bank thereafter, and thus subject to discharge by the Bank with or without
cause and without compensation of any nature unless a new Agreement is executed
by both parties (or employment is continued at will).
12.2 All of the terms and provisions of this Agreement shall be binding
upon and inure to the benefit of and be enforceable by the respective heirs,
executors, administrators, legal representatives, successors and assigns of the
parties, except that the duties and responsibilities of Employee hereunder are
of a personal nature and shall not be assignable or delegatable in whole or in
part by Employee.
13. Severability. If any provision of this Agreement or application
------------
thereof to anyone or under any circumstance is adjudicated to be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect any other provision or application of this Agreement which can be given
effect without the invalid or unenforceable provision or application and shall
not invalidate or render unenforceable such provision or application in any
other jurisdiction.
14. Remedies Cumulative; No Waiver. No remedy conferred upon the parties
------------------------------
by this Agreement is intended to be exclusive of any other remedy, and each and
every remedy shall be cumulative and shall be in addition to any other remedy
given hereunder or now or hereafter existing at law or in equity. No delay or
omission by the parties in exercising any right, remedy or power hereunder or
existing at law or in equity shall be construed as a waiver thereof, and any
such right, remedy or power may be exercised by the parties from time to time
and as often as may be deemed expedient or necessary by such party in its sole
discretion.
15. Miscellaneous. All section headings are for convenience only. This
-------------
Agreement may be executed in several counterparts, each of which is an original.
It shall not be necessary in marking proof of this Agreement or any counterpart
to produce or account for any of the other counterparts.
7
<PAGE>
IN WITNESS WHEREOF, the undersigned, intending to be legally bound, have
executed this Agreement as of the date first above written.
Attest: HARBOR CAPITAL NATIONAL BANK
______________________ By:________________________________________
Secretary Name:
Title:
Witness:
______________________ -________________________________
8
<PAGE>
Exhibit 10.5
LEASE AGREEMENT FINAL 12/22/98
BETWEEN
FEDERAL REALTY INVESTMENT TRUST, LANDLORD
AND
HCNB BANCORP, INC., TENANT
DATE: December 23, 1998
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS Page
<S> <C> <C>
ARTICLE I REFERENCE PROVISIONS, DEFINITIONS AND EXHIBITS.....................1
Section 1.1 Reference Provisions......................................1
Section 1.2 Definitions...............................................3
ARTICLE II LEASED PREMISES AND THE SHOPPING CENTER............................4
ARTICLE III TERM...............................................................5
Section 3.1 Term......................................................5
Section 3.2 End of Term...............................................5
Section 3.3 Holding Over..............................................5
ARTICLE IV USE AND OPERATION OF THE LEASED PREMISES...........................6
Section 4.1 Continuous Operation by Tenant............................6
Section 4.2 Use and Trade Name........................................7
Section 4.3 Store Hours...............................................7
Section 4.4 Signs and Advertising.....................................7
Section 4.5 Tenant's Use Of Roof......................................8
Section 4.6 Intentionally Deleted.....................................8
ARTICLE V RENT...............................................................9
Section 5.1 Rent Payable..............................................9
Section 5.2 Payment of Minimum Rent..................................10
Section 5.3 Intentionally Deleted....................................10
Section 5.4 Intentionally Deleted....................................10
Section 5.5 Intentionally Deleted....................................10
Section 5.6 Intentionally Deleted....................................10
Section 5.7 Taxes....................................................10
Section 5.8 Payment of Tax Rent......................................10
Section 5.9 "Tax Year" Defined.......................................11
Section 5.10 Taxes on Tenant's Personal Property......................11
ARTICLE VI COMMON AREAS......................................................12
Section 6.1 Use of Common Areas......................................12
Section 6.2 Management and Operation of Common Areas.................13
Section 6.3 Tenant's Proportionate Share of Landlord's
Operating Costs..........................................13
</TABLE>
i
<PAGE>
<TABLE>
<S> <C> <C>
ARTICLE VII UTILITIES.........................................................16
Section 7.1 Utility Charges..........................................16
Section 7.2 Discontinuance and Interruption of Service...............16
Section 7.3 Landlord's Right to Alter Utilities......................17
ARTICLE VIII INDEMNITY AND INSURANCE...........................................17
Section 8.1................................................................17
Section 8.2 Landlord Not Responsible for Acts of Others..............18
Section 8.3 Tenant's Insurance.......................................19
Section 8.4 Tenant's Contractor's Insurance..........................19
Section 8.5 Policy Requirements......................................20
Section 8.6 Increase in Insurance Premiums...........................21
Section 8.7 Waiver of Right of Recovery..............................21
Section 8.8 Landlord's Insurance.....................................22
ARTICLE IX CONSTRUCTION AND ALTERATIONS......................................22
Section 9.1 Condition of Leased Premises.............................22
Section 9.2 Tenant Improvements......................................23
Section 9.3 Alterations..............................................23
Section 9.4 Work Requirements........................................23
Section 9.5 Ownership of Improvements................................23
Section 9.6 Removal of Tenant's Property.............................24
Section 9.7 Mechanic's Liens.........................................24
Section 9.8 Changes to Shopping Center...............................25
ARTICLE X REPAIRS, MAINTENANCE, AND LANDLORD'S ACCESS.......................26
Section 10.1 Repairs by Landlord......................................26
Section 10.2 Repairs and Maintenance by Tenant........................27
Section 10.3 Inspections, Access and Emergency Repairs by
Landlord.................................................28
ARTICLE XI CASUALTY..........................................................29
Section 11.1 Fire or Other Casualty...................................29
Section 11.2 Right to Terminate.......................................29
Section 11.3 Landlord's Duty to Reconstruct...........................30
Section 11.4 Tenant's Duty to Reconstruct.............................30
ARTICLE XII CONDEMNATION......................................................31
Section 12.1 Taking of Leased Premises................................31
Section 12.2 Taking of Shopping Center................................31
Section 12.3 Condemnation Award.......................................31
ARTICLE XIII MERCHANTS ASSOCIATION.............................................32
Section 13.1 Merchants Association....................................32
Section 13.2 Landlord's and Tenant's Contribution to
Merchants Association....................................32
Section 13.3 Landlord's Participation.................................32
Section 13.4 Landlord's Option to Form Marketing Fund.................33
Section 13.5 Fund or Association......................................33
ARTICLE XIV SUBORDINATION AND ATTORNMENT......................................33
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C> <C>
Section 14.1 Subordination............................................33
Section 14.2 Attornment...............................................34
Section 14.3 Estoppel Certificate.....................................34
Section 14.4 Quiet Enjoyment..........................................34
ARTICLE XV ASSIGNMENT AND SUBLETTING.........................................35
Section 15.1 Landlord's Consent Required..............................35
ARTICLE XVI DEFAULT AND REMEDIES..............................................37
Section 16.1 Default..................................................37
Section 16.2 Remedies and Damages.....................................37
Section 16.3 Remedies Cumulative......................................39
Section 16.4 Waiver...................................................39
ARTICLE XVII MISCELLANEOUS PROVISIONS..........................................40
Section 17.1 Notices..................................................40
Section 17.2 Recording................................................40
Section 17.3 Interest and Administrative Costs........................40
Section 17.4 Legal Expenses...........................................41
Section 17.5 Successors and Assigns...................................41
Section 17.6 Limitation on Right of Recovery Against Landlord.........41
Section 17.7 Security Deposit.........................................42
Section 17.8 Entire Agreement; No Representations; Modification.......43
Section 17.9 Severability.............................................43
Section 17.10 Joint and Several Liability..............................43
Section 17.11 Broker's Commission......................................44
Section 17.12 Irrevocable Offer, No Option.............................44
Section 17.13 Inability to Perform.....................................44
Section 17.14 Survival.................................................44
Section 17.15 Intentionally Deleted....................................44
Section 17.16 Intentionally Deleted....................................44
Section 17.17 Showing of Leased Premises...............................44
Section 17.18 Relationship of Parties..................................45
Section 17.19 Rule Against Perpetuities................................45
Section 17.20 Choice of Law............................................45
Section 17.21 Choice of Forum..........................................45
Section 17.22 Time is of the Essence...................................45
Section 17.23 Bank Closing.............................................45
</TABLE>
iii
<PAGE>
LEASE AGREEMENT
This Lease Agreement (the "Lease") is made this 23rd day of December, 1998,
by and between FEDERAL REALTY INVESTMENT TRUST, an unincorporated business
trust, organized under the laws of the District of Columbia ("Landlord"), and
HCNB BANCORP, INC., a Maryland corporation ("Tenant").
ARTICLE I
REFERENCE PROVISIONS, DEFINITIONS AND EXHIBITS
-----------------------------------------------
As used in the Lease, the following terms shall have the meanings set forth
in Sections 1.1. and 1.2. below.
Section 1.1 Reference Provisions.
--------------------
A. Leased Premises: The "cross-hatched" space indicated on the site plan
attached as Exhibit A, comprising approximately four thousand one hundred fifty-
three (4,153) square feet, including the two (2) existing drive-through teller
lanes, commonly known as Store #119 and located at Rockville Pike & Jefferson
Street, Rockville, Maryland 20852, and as defined in Article II.
B. Term: Two (2) Lease Years, plus any additional Lease Years pursuant to
the Option to Extend set forth in Addendum III.
C. Term Commencement Date: The date upon which the Landlord delivers the
Leased Premises to Tenant.
D. Rent Commencement Date: The date upon which the Landlord delivers the
Leased Premises to Tenant, subject to Section 5.2.
E. Termination Date: The last day of the Term, or such earlier date if
this Lease is sooner terminated in accordance with the provisions hereof.
F. Opening Date: The earlier of (a) the date the Bank (as that term is
hereinafter defined) opens for business from the Leased Premises, or (b) within
sixty (60) days of the date of Tenant's receipt of all regulatory approvals for
Tenant to be a bank holding company under the Bank Holding Company Act of 1956,
as amended and for Harbor Capital National Bank (the "Bank") to commence
operations as a national bank (the appropriate date to be confirmed in a letter
agreement between Landlord and Tenant)
<PAGE>
G. Minimum Rent:
Lease Year Annually Monthly
---------- -------- -------
1 $87,213.00 $7,267.75
2 $90,244.69 $7,520.39
H. Intentionally Deleted.
I. Percentage Rent Factor: None.
J. Tenant's Initial Monthly Tax Estimate: $993.26.
K. Tenant's Initial Monthly Operating Costs Estimate: $1,104.01.
L. Tenant's Initial Monthly Merchants Association (or Marketing Fund)
Dues: $346.08.
M. Security Deposit: One (1) month's Rent, being nine thousand seven
hundred eleven dollars and 08/100 ($9,711.08)
N. Permitted Use: The operation of a nationally chartered full service
bank, a state chartered commercial or federally chartered thrift, or any other
banking-related activities of the Bank or any affiliate, subsidiary or holding
company hereof, and for no other purpose. The Leased Premises shall also
include a drive-through Automatic Teller Machine (ATM) and a night depository
located in the exterior wall of the Leased Premises. Tenant shall also have the
right to use and maintain the two (2) existing drive-through teller lanes
attached to the Leased Premises.
O. Minimum Store Hours: Normal and customary banking hours.
P. Rent Payments: The rent payments due herein shall be made payable to
Federal Realty Investment Trust at:
Federal Realty Investment Trust - Federal Plaza
Department #0930
McLean, Virginia 22109-0930
Q. Notice Addresses:
TO LANDLORD:
FEDERAL REALTY INVESTMENT TRUST
1626 East Jefferson Street
Rockville, Maryland 20852-4041
Attention: Legal Department
2
<PAGE>
TO TENANT:
HARBOR CAPITAL NATIONAL BANK
Yorke, Burke & Lee
1682 East Gude Drive, Suite # 102D
Rockville, Maryland 20850
Attention: Michael J. Burke, CPA
with a copy to:
OBER, KALER, GRIMES & SHRIVER
A Professional Corporation
120 E. Baltimore Street
Baltimore, Maryland 21202
Attention: Frank C. Bonaventure, Esquire
R. Shopping Center: That certain shopping center known as Federal Plaza,
located in the City of Rockville, County of Montgomery, in the State of
Maryland.
S. Tenant Trade Name: Harbor Capital National Bank.
T. Schedules and Exhibits: The schedules and exhibits listed below are
attached to the Lease and are hereby incorporated in and made a part of the
Lease.
Exhibit A Site Plan
Exhibit B Landlord and Tenant Improvements
Exhibit C Signage Criteria
Exhibit D Rules and Regulations
Addendum I Asbestos Containing Material
Addendum II Lease Contingency
Addendum III Option to Extend
Addendum IV Approval Contingency
Addendum V Automatic Teller Machine
Section 1.2 Definitions.
-----------
A. Common Areas: Any improvements, equipment, areas and/or spaces (as the
------------
same may be enlarged, reduced, replaced, increased, removed or otherwise altered
by Landlord) for the non-exclusive, common and joint use or benefit of Landlord,
Tenant and other tenants, occupants and users of the Shopping Center. The
Common Areas may include (not to be deemed a representation as to their
availability) sidewalks, parking areas, access roads, driveways, landscaped
areas, serviceways, tunnels, loading docks, pedestrian malls, stairs, ramps,
elevators, escalators, comfort and first aid stations, public washrooms, and
other similar areas and improvements.
B. Major Tenants: Those tenants leasing so-called "pad sites," or leasing
-------------
space within the Shopping Center which
3
<PAGE>
contains a floor area of fifteen thousand (15,000) square feet or more.
C. Enclosed Mall: The portion or portions of the Common Areas which are
-------------
enclosed by walls and a roof.
D. Floor Area: Unless otherwise specifically set forth in this Lease,
----------
"Floor Area," when used with respect to the Leased Premises, shall mean the
number of square feet set forth in Section 1.1.A. When used with respect to any
other space in the Shopping Center (or the entire Shopping Center), Floor Area
shall mean the number of leasable square feet on the first floor of such space
as determined by Landlord.
E. Interest: A rate per annum of twelve percent (12%)
--------
F. (1) Lease Year: If the Term Commencement Date occurs on the first day
----------
of a calendar month, the period beginning on the Term Commencement Date and
terminating on the last day of the twelfth full calendar month thereafter, and
each succeeding period of twelve (12) full calendar months during the Term. If
the Term Commencement Date does not occur on the first day of a calendar month,
then the period beginning on the first day of the next succeeding calendar month
and terminating on the last day of the twelfth full calendar month thereafter,
and each succeeding period of twelve (12) full calendar months during the Term.
(2) Partial Lease Year: Any period during the Term which is less than
------------------
a full Lease Year.
G. Person: An individual, firm, partnership, association, corporation, or
------
any other entity.
H. Additional Rent: All sums payable by Tenant to Landlord under the
---------------
Lease, other than Minimum Rent.
I. Rent: Minimum Rent plus Additional Rent.
----
ARTICLE II
LEASED PREMISES AND THE SHOPPING CENTER
---------------------------------------
Landlord, for and in consideration of the Rent and the other conditions and
covenants to be observed, satisfied, fulfilled and performed by Tenant, demises
and leases to Tenant, and Tenant leases and takes from Landlord, the Leased
Premises, extending, as the case may be, to (i) the exterior faces of those
walls abutting the exterior of the Shopping Center, or (ii) the center line of
those walls separating the Leased Premises from other premises within the
Shopping Center. The Leased Premises shall include the floor coverings,
interior ceilings, and, without
4
<PAGE>
limitation, space in any mezzanines and basements, if any, leased to Tenant,
each upon the terms and conditions of this Lease, together with any loading dock
designated exclusively for Tenant's use. Landlord shall have the exclusive right
to (i) use the exterior faces of the exterior walls of the Leased Premises and
the roof of the Shopping Center, and (ii) install, maintain, use, repair and
replace pipes, ducts, cables, conduits, plumbing, vents, utility lines and wires
to, in, through, above and below the Leased Premises and other parts of the
Shopping Center as and to the-extent that Landlord deems appropriate. If any of
the foregoing are located within the Leased Premises, Landlord's exercise of
such rights shall not unreasonably interfere with the operation of Tenant's
business in the Leased Premises.
ARTICLE III
TERM
-----
Section 3.1 Term.
----
The Term shall commence on the Term Commencement Date and expire on the
Termination Date. Upon five (5) days' request of Landlord, Tenant agrees to
acknowledge and confirm in writing by a written addendum to the Lease the dates
specified in Article I.
Section 3.2 End of Term.
-----------
This Lease shall terminate on the Termination Date without the necessity of
notice from either Landlord or Tenant unless the Term is otherwise extended as
provided for in Addendum III of this Lease. Upon the Termination Date, Tenant
shall quit and surrender to Landlord the Leased Premises, broom-clean, in good
order and condition, ordinary wear and tear excepted; and shall surrender to
Landlord all keys to or for the Leased Premises.
Section 3.3 Holding Over.
------------
If Tenant fails to vacate the Leased Premises on the Termination Date,
Landlord shall be entitled to re-enter without process and without notice (any
notice to quit or of re-entry being hereby expressly waived) using such force as
may be necessary and, alternatively, shall have the benefit of all provisions of
law respecting the speedy recovery of possession of the Leased Premises (whether
by summary proceedings or otherwise) to the same extent as if statutory notice
had been given. In addition to and not in limitation of the foregoing, if
Tenant fails to surrender the Leased Premises to Landlord on the Termination
Date, occupancy subsequent to the Termination Date without the written consent
of Landlord ("Holdover Occupancy"), shall be deemed to be that of a tenancy at
will. Holdover Occupancy shall be subject to all of the terms, covenants, and
5
<PAGE>
conditions of the Lease (including those calling for the payment of Additional
Rent), except that the Minimum Rent for each day that Tenant holds over
("Holdover Minimum Rent") shall be in an amount equal to two (2) times the
Minimum Rent payable in the last Lease Year divided by three hundred sixty-five
(365). Additionally, in the event of such Holdover Occupancy, Landlord shall
also be entitled to recover all damages, direct or indirect, including lost
business opportunity regarding any prospective tenant(s) for the Leased Premises
where Landlord has a fully executed lease agreement replacement tenant, suffered
by Landlord as a result of Tenant's failure to vacate the Leased Premises on the
Termination Date.
Notwithstanding anything to the contrary in the foregoing, the Holdover
Minimum Rent shall not be applicable (i) in the event Tenant is holding over
with Landlord's written consent, in which event the tenancy shall be a month-to-
month tenancy subject to all of the terms, conditions and covenants of the
Lease; or (ii) during the sixty (60) days following the Termination Date if
Landlord and Tenant are negotiating an extension of the Lease in good faith
during such sixty (60) day period.
ARTICLE IV
USE AND OPERATION OF THE LEASED PREMISES
----------------------------------------
Section 4.1 Continuous Operation by Tenant.
------------------------------
A. Tenant shall (i) open the Leased Premises for business on the Opening
Date; (ii) intentionally deleted; (iii) conduct its business in the Leased
Premises in a manner consistent with reputable business standards and practices;
and (iv) except as set forth in Section 4.3, or for renovation to the Leased
Premises as a result of a Casualty or refurbishing of the Leased Premises,
operate the entire Leased Premises continuously and uninterruptedly during the
Term with due diligence and efficiency and in accordance with the terms of this
Lease.
B. If Tenant violates this Section 4.1, then, in addition to all other
rights and remedies provided in the Lease, Landlord and Tenant agree Landlord
shall have the right to seek mandatory injunctive relief. Landlord shall also
have the right to collect upon demand, in addition to other Rent, liquidated
damages in an amount equal to One Hundred Percent (100%) of the per diem Minimum
Rent otherwise payable for each and every day that such violation shall
continue. Payment of such sums are intended to be only a partial and temporary
remedy for Landlord during the continuance of such violation, and shall not
relieve Tenant of any obligation under the Lease, excuse any default or waive
Landlord's other remedies therefor. Specifically, such payments
6
<PAGE>
shall not prevent Landlord from obtaining mandatory injunctive relief against
such violation. Furthermore, if Tenant leaves or vacates the Leased Premises
without surrendering its keys to Landlord, Landlord shall have the right to
enter and secure the Leased Premises without notice and without legal process
and such act(s) shall not be deemed an acceptance or surrender of the Leased
Premises, a constructive eviction of Tenant, a termination of the Lease or of
Tenant's obligations thereunder, or a modification of the terms and conditions
of this Lease.
Section 4.2 Use and Trade Name.
------------------
Unless prohibited by applicable law or court order, Tenant shall use the
Leased Premises solely for the Permitted Use and for no other purpose. Tenant
shall operate its business in the Leased Premises solely under the Tenant Trade
Name and under no other name.
Notwithstanding the foregoing, Tenant may, without Landlord's consent,
change the Tenant Trade Name as specified in Section 1.1.S. of the Lease, so
long as (i) concurrently therewith the trade name of substantially all other
similar bank branches or businesses owned, operated or controlled by Tenant and
its affiliates in the Baltimore/Washington, D.C. metropolitan area shall
likewise be changed to the same trade name, (ii) such trade name does not
conflict with the trade name of any other tenant in the Shopping Center, and
(iii) Tenant pays the cost of all necessary signage changes throughout the
Shopping Center.
Tenant agrees to provide Landlord at least thirty (30) days prior written
notice of the name change and to submit to Landlord for approval plans and
specifications for such sign prior to the installation of a new sign.
Section 4.3 Store Hours.
-----------
Tenant shall conduct its business in the Leased Premises continuously
during the Store Hours.
Tenant shall have the right to remain closed on Thanksgiving Day, Christmas
Day, New Year's Day, and Easter Sunday, and other normal and customary banking
holidays.
Section 4.4 Signs and Advertising.
---------------------
A. Prior to the Opening Date, Tenant shall install, at its sole cost,
sign(s) required pursuant to the Signage Criteria attached as Exhibit C. All
sign permits required for Tenant's signs shall be obtained and paid for by
Tenant. Tenant shall submit to Landlord reasonably detailed drawings of all
proposed signs for review and written approval by Landlord prior to installation
or utilization of the signs.
7
<PAGE>
B. Except as provided in Section 4.4.A. hereof, Tenant shall not place on
the exterior of the Leased Premises, on the doors, windows or roof thereof, in
any display window space, or within five (5) feet behind the storefront of the
Leased Premises if visible from the Common Areas, any sign, placard, decoration,
lettering, advertising matter or descriptive material. In all events, hand
lettered signs and flashing signs visible from the Common Areas are prohibited.
Notwithstanding anything to the contrary contained in this Lease, Tenant
may install signs within five (5) feet behind the storefront of the Leased
Premises provided the following criteria are fulfilled: (a) the signs are
professionally designed and manufactured; (b) the signs are utilized in
substantially all of its (and its affiliates) stores operating under the Tenant
Trade Name; (c) the signs are not flashing, blinking or otherwise lighting in an
alternate fashion; (d) the individual signs do not exceed two (2) feet by three
(3) feet in size, and do not in the aggregate exceed more than one-third (1/3)
of the glass portion of the storefront; and (e) the signs are not taped or
affixed to the glass of the storefront windows or doors. Landlord agrees that
such signs may be mounted on plexiglass and hung with thin wire behind the
storefront or displayed on an easel. Furthermore, Landlord agrees that Tenant
may install on the interior storefront glass or glass of the entrance door
signage indicating Tenant's hours of operation and any other information
required by the banking authorities, such signage to be subject to Landlord's
prior reasonable approval.
C. Landlord shall have the right, upon notice to Tenant and at Tenant's
sole risk and expense, to remove any items which are in violation of the
provisions of this Section 4.4. All exterior signs installed by Tenant shall be
maintained by Tenant at all times in first class condition, operating order and
repair. Tenant shall repair any of Tenant's signs which have been damaged
within ten (10) days after such damage occurs. In the event Tenant fails to
repair any of its signs as specified above, Landlord shall have the right to
make such repairs at Tenant's sole cost and expense.
Section 4.5 Tenant's Use Of Roof.
--------------------
Tenant shall not use the roof for any purpose, nor shall Tenant make any
penetrations in the roof, without Landlord's prior written consent. Landlord
may at any time relocate any of the equipment serving the Leased Premises which
is located on the roof of the Shopping Center.
Section 4.6 Intentionally Deleted.
---------------------
8
<PAGE>
ARTICLE V
RENT
----
Section 5.1 Rent Payable.
------------
A. Tenant shall pay all Rent to Landlord, without prior notice or demand
therefor and without any offset, deduction or counterclaim whatsoever, in the
amounts, at the rates and at the times set forth herein, and at such place as is
provided in Section 1.1., or at such other place as Landlord may from time to
time designate by written notice to Tenant.
B. In addition to constituting a breach under the Lease, and in addition
to Landlord's other rights and remedies for such breach, if Tenant shall fail to
make any payment of Rent after the due date, Tenant shall pay to Landlord a late
charge (the same being Additional Rent) in an amount equal to Twenty Dollars
($20.00) per day from the date such Rent is due until the date such Rent is
received. The payment of such Additional Rent shall not excuse or waive the
late payment of Rent.
C. If during the term Landlord receives two (2) or more checks from
Tenant which are returned by Tenant's bank without honoring, Tenant agrees that
all checks for Rent thereafter shall be bank certified and that Landlord shall
not be required to accept checks except in such form. In addition to any bank
service charges resulting from dishonored checks, which shall be borne by
Tenant, Tenant shall pay to Landlord Fifty Dollars ($50.00) on the occasion of
each dishonored check as an administrative fee (the same being Additional Rent)
compensating Landlord for the additional expense involved in processing such
check.
D. Any payment by Tenant of a lesser amount than the total Rent due under
the Lease shall be treated as a payment on account. In the event that any check
bears an endorsement or statement, or is accompanied by a letter stating, that
such lesser amount constitutes "payment in full" (or terms of similar import),
Landlord's acceptance thereof shall not be an accord and satisfaction or a
novation, and such statement shall be given no effect. Landlord may accept any
check without prejudice to any rights or remedies which Landlord may have
against Tenant.
E. For any portion of a calendar month included at the beginning of the
Term, Tenant shall pay in advance, at the beginning of such portion, the pro-
rated amount of the Rent (including, without limitation, Minimum Rent, Tax
Estimates, Operating Costs Estimates, and Merchant's Association or Marketing
Fund Dues) for each day included in such portion of the month.
9
<PAGE>
Section 5.2 Payment of Minimum Rent.
-----------------------
Tenant shall pay to Landlord the Minimum Rent provided in Section 1.1. in
equal monthly installments, in advance, commencing on the Rent Commencement
Date, and on the first day of each and every calendar month thereafter
throughout the Term. An amount equal to the first month's Rent shall be paid in
advance upon Tenant's execution of this Lease and credited toward the first
payment of Rent due.
Notwithstanding the foregoing, all Rent shall be abated during the period
commencing on the Rent Commencement Date and ending on the earlier of (i) ninety
(90) days after the date of delivery of possession by Landlord to Tenant of the
Leased Premises, or (ii) the date Tenant opens for business from the Leased
Premises. The foregoing abatement of Rent represents Landlord's full and final
contribution toward work required by Tenant to open for business from the Leased
Premises. In the event Tenant shall materially default under this Lease within
six (6) months of the Term Commencement Date and after notice and an
opportunity to cure, Tenant shall automatically forfeit the right to the
remaining rent abatement, if any, and, further, upon written notice from
Landlord, Tenant shall be obligated to repay any rent abatement already
received. Tenant shall be obligated to make such repayment on the first day of
the month following Landlord's notice, which obligation shall be deemed to be
Additional Rent.
Section 5.3 Intentionally Deleted
---------------------
Section 5.4 Intentionally Deleted.
---------------------
Section 5.5 Intentionally Deleted.
---------------------
Section 5.6 Intentionally Deleted.
---------------------
Section 5.7 Taxes.
-----
The term "Taxes" means all governmental or quasi-governmental real estate
taxes, fees, charges and assessments (whether general, special, ordinary, or
extraordinary) applicable to the Shopping Center, together with all reasonable
costs and fees (including but not limited to reasonable appraiser, consultant
and attorney's fees) incurred by Landlord in any tax contest, appeal or
negotiation.
Section 5.8 Payment of Tax Rent.
-------------------
A. Tenant's share of Taxes ("Tax Rent") for each Tax Year shall be
computed by Landlord by multiplying the amount of the Taxes (less the Tax Rent
paid by Major Tenants) by a fraction ("Tenant's Proportionate Share"), the
numerator of which shall be
10
<PAGE>
the Floor Area of the Leased Premises and the denominator of which shall be the
greater of (i) the average of the Floor Area leased to tenants other than Major
Tenants during the Tax Year, as that term is hereinafter defined; or (ii) the
number equal to (a) ninety percent of the total Floor Area of the Shopping
Center, minus (b) the average square footage Floor Area leased to Major Tenants
during the Tax Year.
B. Tax Rent shall be paid by Tenant in such equal monthly installments
(the "Tax Estimates") as are estimated by Landlord from time to time, with the
first installment being due on the Rent Commencement Date and each succeeding
installment being due on the first day of each calendar month thereafter. The
initial Tax Estimate shall be in the amount set forth in Section 1.1. hereof.
All succeeding installments shall be in such amount until notice of change is
issued by Landlord. Subsequent to the end of each Tax Year, Landlord shall send
to Tenant a statement (the "Tax Statement") setting forth the amount of the Tax
Rent and the aggregate amount of the Tax Estimates which have been paid by
Tenant for the Tax Year in question. In the event the total of the Tax
Estimates actually paid by Tenant for any Tax Year or portion of a Tax Year is
less than the amount of the Tax Rent for such period, Tenant shall remit the
difference to Landlord within twenty (20) days after receipt of the Tax
Statement. In the event that the total of the Tax Estimates actually paid by
Tenant for such Tax Year is in excess of the Tax Rent for such period, Landlord
shall credit the difference toward the Tax Estimates next due. If any tax
payable by Landlord to which Tenant has contributed is retroactively decreased,
Tenant shall be credited with its proportionate share of the net refund within
ninety (90) days of the date of Landlord's receipt thereof, and, at the end of
the Term, any such amount due Tenant shall be promptly refunded to Tenant, less
the amount of any monies owed to Landlord by Tenant.
Section 5.9 "Tax Year" Defined.
-----------------
The term "Tax Year" means a twelve (12) month period established by
Landlord as the year for purposes of computing Tax Rent. The Tax Year may or
may not coincide with the period designated as the tax year by the taxing
authorities having jurisdiction over the Shopping Center.
Section 5.10 Taxes on Tenant's Personal Property.
-----------------------------------
Tenant shall be responsible for the payment of all governmental taxes,
charges, fees and assessments applicable to Tenant's personal property, trade
fixtures, inventory and Tenant's Rent obligation. Tenant shall pay all of the
foregoing before they become delinquent. Tenant shall deliver a duplicate
receipt of such payment to Landlord within five (5) days after request thereof.
11
<PAGE>
ARTICLE VI
COMMON AREAS
------------
Section 6.1 Use of Common Areas.
-------------------
During the Term, Tenant shall have a non-exclusive license to use the
Common Areas, such license being subject to the exclusive control and management
of Landlord and the rights of Landlord and of other tenants. Tenant agrees to
comply with such rules and regulations as Landlord prescribes regarding use of
the Common Areas. Tenant agrees it shall not use the Common Areas for any sales
or display purposes, or for any purpose which would impede or create hazardous
conditions for the flow of pedestrian or other traffic. Tenant agrees that the
parking spaces, fire lanes and the lanes in the front of the Leased Premises
shall not be used for the loading or unloading of trucks or other vehicles.
Trucks are to only use such entrances, exits, and service lanes designated by
Landlord in the rear of the stores. Tenant further agrees that Tenant and
Tenant's employees shall only use the employee parking areas designated by
Landlord. Tenant shall, upon five (5) days' written notice from Landlord,
provide to Landlord a list of license numbers of all of Tenant's and its
employees' vehicles. In the event Tenant or its employees fail to park their
vehicles in designated parking areas, or in the event Tenant undertakes or
permits the delivery of merchandise or other items except as herein provided,
Landlord may, in addition to its other rights and remedies under this Lease,
charge Tenant and Tenant shall pay to Landlord, as Additional Rent, on demand,
$25.00 per day per vehicle parking in any area other than those designated by
Landlord and $25.00 per delivery for deliveries undertaken or permitted by
Tenant in the manner hereinabove prohibited.
Notwithstanding anything to the contrary contained herein, Landlord agrees
that the failure of Tenant or its employees to park in the designated employee
parking area shall not constitute a Default of this Lease and Tenant shall not
be required to pay the aforementioned sum, until Landlord has given Tenant
written notice of two (2) such violations within any Lease Year, after which
time both the Default and payable sum shall apply.
Landlord hereby agrees that it shall install signage to designate the six
(6) parking spaces shown on Exhibit A as "30-minute only" customer parking.
Such parking shall be available to all customers of the Shopping Center and
Landlord shall not be required to "tow" any automobiles in enforcing such thirty
(30) minute time limit restriction.
12
<PAGE>
Section 6.2 Management and Operation of Common Areas.
----------------------------------------
Landlord shall operate, repair, equip and maintain the Common Areas in a
manner consistent with first-class strip shopping centers in the
Baltimore/Washington, D.C. metropolitan area and Landlord shall have the
exclusive right and authority to employ and discharge personnel with respect
thereto. Without limiting the foregoing, Landlord may (i) utilize the Common
Areas for promotions, exhibits, displays, outdoor seating, food facilities and
any other use which tends to attract customers to or benefits the Shopping
Center (ii) grant the right to conduct sales in the Common Areas; (iii) erect,
remove and lease kiosks, planters, pools, sculptures, buildings and other
improvements within the Common Areas; (iv) enter into, modify and terminate
easements and other agreements pertaining to the use and maintenance of the
Shopping Center; (v) construct, maintain, operate, replace and remove lighting,
equipment, and signs on all or any part of the Common Areas; (vi) provide
security personnel for the Shopping Center; (vii) restrict parking in the
Shopping Center; (viii) discourage non-customer parking; and (ix) temporarily
close all or any portion of the Shopping Center as may be necessary to prevent a
dedication or accrual of any rights to any person or to the public.
Section 6.3 Tenant's Proportionate Share of Landlord's Operating Costs.
----------------------------------------------------------
A. Tenant's share of Landlord's Operating Costs ("Tenant's Proportionate
Share of Landlord's Operating Costs") for each full or partial calendar year (or
fiscal year selected by Landlord) (the "Operating Costs Year") during the Term
shall be computed by Landlord by multiplying the amount of Landlord's Operating
Costs (less contributions paid by Major Tenants toward Landlord's Operating
Costs) by the fraction described in Section 5.8.A. as "Tenant's Proportionate
Share."
B. Tenant's Proportionate Share of Landlord's Operating Costs shall be
paid by Tenant in equal monthly installments (individually, each an "Operating
Costs Estimate," collectively, the "Operating Costs Estimates") in such amounts
as are estimated by Landlord from time to time during the Term. The first such
installment shall be due on the Rent Commencement Date and each succeeding
installment shall be due on the first day of each calendar month thereafter.
The initial Operating Costs Estimate shall be in the amount set forth in Section
1.1., and all succeeding installments shall be in such amount until notice of a
change in the amount is issued by Landlord. Subsequent to the end of each
Operating Costs Year, Landlord shall send to Tenant a statement (the "Operating
Costs Statement") setting forth the amount of Tenant's Proportionate Share of
Landlord's Operating Costs for the Operating Costs Year in question and the
aggregate amount of the Operating Costs Estimates which have been paid by
13
<PAGE>
Tenant. In the event the total of the Operating Costs Estimates paid by Tenant
are less than the amount of Tenant's Proportionate Share of Landlord's Operating
Costs for such period, Tenant shall remit the difference to Landlord within
twenty (20) days after receipt of the Operating Costs Statement. In the event
that the total of the Operating Costs Estimates actually paid by Tenant for such
Operating Costs Year are in excess of Tenant's Proportionate Share of Landlord's
Operating Costs for such period, Landlord shall credit the difference toward the
Operating Costs Estimate payment(s) next due and, at the end of the Term, any
excess amount of Operating Costs paid by Tenant shall be promptly refunded to
Tenant less any monies owed by Tenant to Landlord.
C. "Landlord's Operating Costs" shall mean all costs and expenses
associated with the operation, equipping, painting, maintenance and repair of
the Shopping Center including, but not limited to, the costs and expenses of:
(i) operating, equipping, maintaining, repairing, replacing, lighting, cleaning,
striping, and removing snow, ice, garbage, trash and debris from, the parking
areas of the Shopping Center; (ii) operating, equipping, maintaining, repairing
and replacing ducts, conduits, fire protection systems, sprinkler systems,
security alarm systems, roofs, storm and sanitary drainage systems and other
utility systems, signs and markers, on and off-site traffic regulation and
control signs and devices, and compliance with all laws and regulations; (iii)
all premiums, fees and other charges for insurance applicable to the Shopping
Center, including self-insurance; (iv) interior and exterior landscaping; (v)
seasonal decorations; (vi) all replacement and improvements of or to the Common
Areas including, without limitation, floors, stairways, escalators, elevators,
parking areas and similar facilities; (vii) machinery and equipment; (viii) all
license and permit fees and any and all parking surcharges; (ix) music program
services and loudspeaker systems; (x) all costs and expenses relating to the
employment of personnel above the level of property manager (to the extent such
personnel are on-site at the Shopping Center), including, without limitation,
the salaries, benefits and insurance costs of such personnel; (xi) all utility
costs relating to the Common Areas; and (xii) Landlord's administrative charge
in an amount equal to twenty percent (20%) of the total of all other costs
included in Landlord's Operating Costs. Notwithstanding anything to the
contrary in this Article VI, in no event shall Tenant's Proportionate Share of
Landlord's Operating Costs contain as a component thereof in any one Operating
Costs Year a charge for capital expenditures incurred, or depreciation or
amortization thereof, in excess of the product of fifty cents ($.50) times the
Floor Area of the Leased Premises (any excess, whether from a prior lessee's
term or Tenant's Term, shall be carried over and included, subject to the same
limit, in Landlord's Operating Costs for the subsequent Operating Costs Year).
14
<PAGE>
Notwithstanding the foregoing, the following items shall be specifically
excluded from Landlord's Operating Costs:
1) Any costs for which Landlord is reimbursed by insurance proceeds or
condemnation awards;
2) Costs of repairs or maintenance caused or necessitated by the
negligence of Landlord, its agents, contractors or employees or due to defects
in initial construction of the Shopping Center;
3) Any costs relating exclusively to a tenant in particular as contrasted
to tenants in general, such as build-out allowances, rent concessions and
brokerage commissions;
4) Professional fees incurred by Landlord in the preparation of leases or
in disputes with tenants of the Shopping Center;
5) Any costs for which Landlord is reimbursed by tenant(s) of the
Shopping Center (other than as part of such other tenant's proportionate share
of Landlord's Operating Costs);
6) Any expense resulting from the negligent acts or omissions of
Landlord, its agents, servants or employees;
7) Taxes due as a result of or in connection with the sale of the
Shopping Center or underlying land or any recordation or transfer taxes;
8) Costs incurred by Landlord in undertaking a major and comprehensive
renovation of the entire Shopping Center;
9) Costs of structural additions or structural improvements to be made to
the Shopping Center of the kind to be considered to be "capital improvements"
under generally accepted accounting principles (provided, however, that the cost
of any such capitalized repair or replacement or improvement incurred by
Landlord in performance of its obligations under this Lease shall be amortized
over the useful life of the repair or replacement or improvement in accordance
with generally accepted accounting principles and the annual amortization cost
shall be included in the Landlord's Operating Costs);
10) The cost of any repair or replacement item which, by standard
accounting practice, axe required to be capitalized (provided, however, that the
cost of any such capitalized repair or replacement items incurred by Landlord in
performance of its obligations under this Lease shall be amortized over the life
of the repair or replacement item in accordance with generally
15
<PAGE>
accepted accounting principles and the annual amortization cost shall be
included in the Landlord's Operating Costs); and
11) Charges for depreciation for items other than those incurred by
Landlord in performance of its obligations in connection with the maintenance
and repair of the Common Areas and amortized as aforesaid.
ARTICLE VII
UTILITIES
----------
Section 7.1 Utility Charges.
---------------
A. Tenant shall pay, as and when the same become due and payable, all
charges for water, sewer, electricity, gas, telephone service and other
utilities supplied to the Leased Premises (the "Utility Charges"). If any such
utilities are not separately metered or assessed, then in addition to Tenant's
payment of separately metered charges, Tenant shall pay to Landlord, as
Additional Rent, a proportionate share of charges for such non-separately
metered utilities. Tenant's proportionate share of the charges for non-
separately metered utilities shall be calculated by multiplying the Utility
Charges for such utilities by a fraction, the numerator of which shall be the
Floor Area of the Leased Premises and the denominator of which shall be the
Floor Area using such utilities.
B. At any time Landlord may, at Landlord's option, install submeters in
connection with the utility services furnished to the Leased Premises. In the
event Landlord exercises its option to install such submeters, Landlord may
collect all or any part of the Utility Charges directly from Tenant, as
Additional Rent, on the first day of each calendar month provided such Utility
Charges shall not exceed the rates Tenant would be charged if billed directly
for the same services by the utility company.
Section 7.2 Discontinuance and Interruption of Service.
------------------------------------------
Landlord shall not be liable to Tenant in damages or otherwise for the
quality, quantity, failure, unavailability or disruption of any utility service
and the same shall not constitute a termination of this Lease, or an actual or
constructive eviction of Tenant, or entitle Tenant to an abatement of Rent.
Notwithstanding anything to the contrary in this Lease, in the event
utilities serving the Leased Premises are disrupted due to the negligence or
acts of Landlord, its agents, contractors, servants or employees, Landlord shall
promptly and diligently pursue the restoration of the affected utilities at
Landlord's
16
<PAGE>
sole cost and expense. If the disrupted utilities are not restored by Landlord
within twenty-four (24) hours after the Landlord has knowledge of the
disruption, and Tenant is unable to conduct its business in the Leased Premises
due to the disruption of utility service, the Minimum Rent shall be abated
during the period commencing on the expiration of the aforementioned twenty-four
(24) hours and ending on the date Tenant is able to resume conducting its
business. In no event, however, shall Landlord be liable for consequential
damages resulting from any disruption of utilities. In addition, in no event
shall a disruption of utility service constitute a termination of this Lease or
a constructive or actual eviction of Tenant.
Furthermore, in the event utilities serving the Leased Premises are
disrupted for more than thirty (30) days, such that the Leased Premises are
untenantable, due to the negligence or acts of Landlord, its agents,
contractors, servants or employees, Tenant shall have the right to terminate the
Lease upon ten (10) days notice to Landlord.
Section 7.3 Landlord's Right to Alter Utilities.
-----------------------------------
Landlord reserves and shall at all times have the right to alter any and
all utilities, and related equipment, serving the Shopping Center, provided such
alteration does not materially interrupt service to the Leased Premises and
provided further such alteration does not unreasonably interfere with Tenant's
business operations within the Leased Premises. Tenant shall execute and
deliver to Landlord without delay such documentation as may be required by
Landlord to effect such alteration.
ARTICLE VII
INDEMNITY AND INSURANCE
------------------------
Section 8.1
A. Indemnity by Tenant. Tenant shall indemnify, defend and hold Landlord
-------------------
and Landlord's lessors, shareholders, trustees, agents, employees and
Mortgagee(s) (collectively, the "Indemnitees") harmless from and against all
liabilities, obligations, damages, judgments, penalties, claims, costs, charges
and expenses, including, without limitation, reasonable architects' and
attorneys' fees, which may be imposed upon, incurred by, or asserted against any
of the Indemnitees and arising, directly or indirectly, out of or in connection
with (i) Tenant's breach of its obligations under this Lease, (ii) the acts or
negligence of Tenant, its agents, contractors, and employees, and (iii) the use
or occupancy of the Leased Premises or the Shopping Center by Tenant's invitees
while within the Leased Premises, and by Tenant, its agents, servants,
employees,
17
<PAGE>
and contractors. In case any action or proceeding is brought against any of the
Indemnitees by reason of any of the foregoing, Tenant shall reimburse to
Landlord the cost of defending such action or proceeding or, upon Landlord's
written request and at Tenant's sole cost and expense, resist and defend such
action and proceeding by counsel approved by Landlord. Notwithstanding the
foregoing, Tenant shall not be obligated to indemnify Indemnitees against loss,
liability, damage, cost or expense arising out of a claim for which Tenant is
released from liability pursuant to Section 8.7 below (or a claim arising out of
the willful or negligent acts or omissions of Landlord or its agents, employees
or contractors)
B. Landlord shall indemnify, defend and hold Tenant, its officers,
shareholders, trustees, principals, agents and employees (collectively "Tenant's
Indemnitees") harmless from and against all liabilities, obligations, damages,
penalties, claims, costs, charges and expenses, including, without limitation,
reasonable attorneys' fees which may be imposed upon, incurred by, or asserted
against any of the Tenant's Indemnitees and arises out of (i) the negligence or
willful acts or omissions of Landlord, its agents, contractors, servants and/or
employees; and (ii) the use of the Common Areas except as shall be occasioned by
the negligence or willful acts or omissions of Tenant, its agents, servants
and/or employees (in which event Tenant shall indemnify and hold harmless
Landlord to the extent of such negligence or willful act or omission). In no
event, however, shall Landlord's indemnity cover consequential damages (e.g.
lost profits), punitive damages or any damages other than direct, actual and
compensatory damages incurred by Tenant.
Section 8.2 Landlord Not Responsible for Acts of Others.
-------------------------------------------
To the maximum extent permitted by law, the Indemnitees shall not be liable
for, and Tenant waives all claims for, loss or damage to Tenant's business or
injury or damage to person or property sustained by Tenant, or any person
claiming by, through or under Tenant, resulting from any accident or occurrence
in, on, or about the Shopping Center, including, without limitation, claims for
loss, theft, injury or damage resulting from: (i) any equipment or appurtenances
being or becoming out of repair; (ii) wind or weather; (iii) any defect in or
failure to operate any sprinkler, HVAC equipment, electric wiring, gas, water or
steam pipe, stair, railing or walk; (iv) broken glass; (v) the backing up of any
sewer pipe or downspout; (vi) the escape of gas, steam or water; (vii) water,
snow or ice being upon the Shopping Center or coming into the Leased Premises;
(viii) the falling of any fixture, plaster, tile, stucco or other material; or
(ix) any act, omission or negligence of other tenants, licensees or any other
persons including occupants of the Shopping Center, occupants of adjoining or
contiguous buildings, owners of adjacent or contiguous property, or the public.
18
<PAGE>
Section 8.3 Tenant's Insurance.
------------------
Commencing on the Rent Commencement Date and at all times thereafter,
Tenant shall carry and maintain, at its sole cost and expense:
A. A policy of Commercial General Liability Insurance (ISO form, or
equivalent) naming Tenant as the named insured and Landlord and (at Landlord's
request) Landlord's mortgagee (and managing agent), if any, and Federal Realty
Investment Trust ("FRIT"), if FRIT is not the Landlord under this Lease, as
additional insureds, protecting Tenant and the additional insureds against
liability for bodily injury, death and property damage occurring upon or in the
Leased Premises, with such policy to afford protection to the limit of not less
than One Million Dollars ($1,000,000.00) with respect to bodily injury or death
or damage to property arising from any one occurrence and Two Million Dollars
($2,000,000.00) from the aggregate of all occurrences within each policy year.
If the policy also covers locations other than the Leased Premises, the policy
shall include a provision to the effect that the aggregate limit of Two Million
Dollars ($2,000,000.00) shall apply separately at the Leased Premises. If
Tenant sells, serves or distributes alcoholic beverages in or on the Leased
Premises, then such General Liability Insurance shall include, at the same
minimum limits of liability as shown above, Liquor Legal Liability coverage.
B. "All Risks" or "Special Form" property insurance covering all of
Tenant's Property (as defined in Section 9.5. below), and the floor and wall
coverings within the Leased Premises, and written for at least the full
replacement cost with a deductible of not more than One Thousand Dollars
($1,000.00).
C. Plate glass insurance covering all plate glass in the Leased Premises.
Tenant shall be and remain liable for the repair and restoration of all such
plate glass.
Section 8.4 Tenant's Contractor's Insurance.
-------------------------------
Before any alterations, additions, improvements or construction may be
undertaken by or on behalf of Tenant, Tenant shall require any contractor
performing work on the Leased Premises to obtain, carry and maintain, at no
expense to Landlord: (i) worker's compensation insurance and employer's
liability as required by the jurisdiction in which the Shopping Center is
located; (ii) builder's risk insurance with a deductible no greater than Ten
Thousand Dollars ($10,000.00), in the amount of the full replacement cost of the
Tenant's Property and the Leasehold Improvements; and (iii) Commercial General
Liability Insurance providing on an occurrence basis a minimum combined single
limit of One Million Dollars ($1,000,000.00) per
19
<PAGE>
occurrence (and Two Million Dollars ($2,000,000.00) general aggregate, if
applicable). If the contractor fails or is unable to acquire the above-mentioned
insurance, Tenant shall provide such insurance (except worker's compensation
insurance and employer's liability) at its sole cost and expense.
Section 8.5 Policy Requirements.
-------------------
Any company writing any insurance which Tenant is required to maintain or
cause to be maintained pursuant to Sections 8.3. and 8.4. (all such insurance as
well as any other insurance pertaining to the Leased Premises or the operation
of Tenant's business therein being referred to as "Tenant's Insurance") shall at
all times be licensed and qualified to do business in the jurisdiction in which
the Leased Premises are located and shall have received an A or better (and be
in a financial size category of class VII or higher) rating by the latest
edition of A.M. Best's Insurance Rating Service. All policies evidencing
Tenant's Insurance shall specify Tenant as named insured, and Landlord and (at
Landlord's request) Landlord's mortgagee (and managing agent), if any, and FRIT,
if FRIT is not the Landlord under this Lease, as additional insured(s).
Provided that the coverage afforded Landlord and any designees of Landlord shall
not be reduced or otherwise adversely affected, all of Tenant's Insurance may be
carried under a blanket policy covering the Leased Premises and any other
location of Tenant, but only if such blanket policy allocates to the properties
and liabilities to be insured under this Article VIII an amount not less than
the amount of insurance required to be covered pursuant to this Article VIII, so
that the proceeds of such insurance shall not be less than the proceeds that
would be available if Tenant were insured under a unitary policy. All policies
of Tenant's Insurance shall contain endorsements requiring the insurer(s) to
give to Landlord and all other additional insureds, if any, at least thirty (30)
days advance written notice of any material reduction, cancellation, termination
or non-renewal of said insurance. Tenant shall be solely responsible for
payment of premiums for all of Tenant's Insurance. Tenant shall deliver to
Landlord at least fifteen (15) days prior to the time Tenant's Insurance is
first required to be carried by Tenant, and upon renewals at least fifteen (15)
days prior to the expiration of the term of any such insurance policy, a
certificate of insurance of all policies procured by Tenant in compliance with
its obligations under the Lease. The limits of Tenant's Insurance shall in no
event limit Tenant's liability under the Lease, at law, or in equity.
If Tenant fails to have a certificate of insurance on deposit with
Landlord, then Landlord shall have the right to acquire such insurance, and
Tenant shall be obligated to pay Landlord, as Additional Rent, the amount of the
premium
20
<PAGE>
applicable thereto within five (5) days following notice from Landlord.
Section 8.6 Increase in Insurance Premiums.
------------------------------
Tenant shall not keep or do anything in the Leased Premises which will (i)
result in an increase in the rate of any insurance on the Shopping Center; (ii)
violate the terms of any insurance coverage on the Shopping Center carried by
Landlord or any other tenant; (iii) prevent Landlord from obtaining such
policies of insurance acceptable to Landlord or any Mortgagee of the Shopping
Center; (iv) contravene the rules, regulations or recommendations of Landlord's
insurers, loss prevention consultants, safety engineers, the National Fire
Protection Association, or any similar body having jurisdiction over the Leased
Premises. In the event of the occurrence of any event set forth in this Section
8.6., Tenant shall pay to Landlord upon demand, as Additional Rent, the amount
of any increase in any such insurance premium. In determining the cause of any
increase in insurance premiums, the schedule or rate of the organization issuing
the insurance or rating procedures shall be conclusive evidence of the items and
charges which comprise the insurance rates and premiums on such property.
Section 8.7 Waiver of Right of Recovery.
---------------------------
A. Landlord and Tenant (each, a "Waiving Party") each hereby waives and
releases all rights of recovery against the other and the other's agents and
employees (the "Released Parties") on account of loss or damage to the property
of the Waiving Party to the extent that such loss or damage is required to be
insured against under any property damage insurance policies required to be
carried by this Lease. By this waiver it is the intent of the parties that the
Released Parties shall not be liable to the Waiving Party or any insurance
company (by way of subrogation or otherwise) insuring the Waiving Party for any
loss or damage insured against (or that could have been insured against) under
any property damage insurance required by this Article, even though such loss or
damage might be caused by the negligence of one (1) or more of the Released
Parties; provided, however, the mutual release contained herein shall not apply
to damage to the Waiving Party's property caused by the willful misconduct of
any of the Released Parties. If the Waiving Party does not carry, or is not
required to carry, property damage insurance pursuant to this Lease, this
release shall apply to damage to the Waiving Party's property that would have
been covered by a policy of "all risk" or "special form" property damage
insurance if the Waiving Party had maintained such insurance.
B. Each of Landlord and Tenant shall include in each of its property
damage insurance policies a waiver of the insurer's
21
<PAGE>
right of subrogation against the other party and the officers, directors, agents
and employees of, and the partners in, the other party. If such waiver is not,
or ceases to be, obtainable without additional charge (other than a nominal
administrative charge) or at all, the insuring party shall so notify the other
party promptly after notice thereof. If the other party agrees in writing to pay
the insurer's additional charge therefor, such waiver shall (if obtainable) be
included in the policy. Landlord and Tenant hereby acknowledge that such waiver
is obtainable under normal commercial insurance practice on the date of this
Lease at no additional charge (other than a nominal administrative charge)
C. The waiver and release in Section 8.7.A above shall not apply to loss
or damage to property of the Waiving Party to the extent of the deductible
contained in the Waiving Party's policies of property damage insurance.
Section 8.8 Landlord's Insurance.
--------------------
The Shopping Center shall be insured by Landlord against fire and such
other risks as are, from time to time, included in an "all risk" or "special
form" property insurance policy and with such deductibles as Landlord from time
to time may determine, such insurance to be in an amount equal to at least
eighty percent (80%) of the full replacement cost (exclusive of the cost of
excavations, footings below floor level and foundations) including any increase
in value thereof resulting from increased construction costs. Such insurance
shall not cover any property with respect to which Tenant or other tenants are
obliged to insure. Landlord shall maintain such other insurance as it shall
determine is in its best interests and shall have the right to insure and
maintain the insurance coverages set forth herein under blanket insurance
policies covering other properties owned, leased or operated by Landlord or its
affiliates, provided the insurance requirements in this Lease are fulfilled and
the insurance coverage is not diminished in any way.
ARTICLE IX
CONSTRUCTION AND ALTERATIONS
----------------------------
Section 9.1 Condition of Leased Premises.
----------------------------
Except for Landlord's Work (as defined and set forth in Exhibit B of this
Lease), Tenant acknowledges: (i) it has inspected the Leased Premises; (ii) it
accepts the Leased Premises, and all improvements, betterments and equipment "AS
IS," with no representation or warranty by Landlord as to the condition or
suitability of the Leased Premises or of the
22
<PAGE>
Shopping Center for Tenant's purpose; and (iii) Landlord has no obligation to
improve or repair the Leased Premises, or the Shopping Center, unless said
obligation is specifically set forth in this Lease.
Section 9.2 Tenant Improvements.
-------------------
Tenant, at its sole cost and expense, agrees to provide all improvements to
the Leased Premises in accordance with its obligations set forth in Exhibit B.
Tenant further agrees it shall utilize only first-class fixtures and furnishings
in the Leased Premises, and shall have the Leased Premises fully constructed and
fixtured by the Opening Date.
Section 9.3 Alterations.
-----------
Except for interior, non-structural, non-storefront, non-mechanical, non-
electrical and non-plumbing alterations (except for interior electrical and
plumbing alterations which affect only the Leased Premises and do not affect the
main electrical and plumbing lines providing services to the Shopping Center)
costing less than Ten Thousand Dollars ($10,000.00) and made in accordance with
Tenant's standard interior decor and fixtures, Tenant shall not make or cause to
be made any alterations, additions, renovations, improvements or installations
in or to the Leased Premises or any part thereof without Landlord's prior
written consent, which such consent may be granted or withheld in Landlord's
sole and absolute discretion.
Section 9.4 Work Requirements.
-----------------
All work to be performed by Tenant in the Leased Premises shall be
performed (i) promptly, at Tenant's sole cost and expense, and in a workmanlike
manner with first-class materials; (ii) by duly qualified or licensed persons;
(iii) without interference with, or disruption to, the operations of Landlord or
other tenants or occupants of the Shopping Center; and (iv) in accordance with
plans and specifications approved in writing in advance by Landlord (as to both
design and materials) which such approval may be granted or withheld in
Landlord's sole and absolute discretion, and all applicable governmental
permits, rules and regulations.
Section 9.5 Ownership of Improvements.
-------------------------
All present and future alterations, additions, renovations, improvements
and installations made to the Leased Premises, including the HVAC system
(collectively the "Leasehold Improvements"), shall be deemed to be the property
of Landlord when made and, upon Tenant's vacation or abandonment of the Leased
Premises, unless Landlord directs otherwise, shall remain
23
<PAGE>
upon and be surrendered with the Leased Premises in good order, condition and
repair. All movable goods, inventory, office furniture, equipment, trade
fixtures (including exterior signage) and other movable personal property
belonging to Tenant which are installed, stored, or kept in the Leased Premises
by Tenant and are not permanently affixed to the Leased Premises, shall remain
Tenant's property ("Tenant's Property") and shall be removable by Tenant at any
time, provided that: (i) Tenant is not in default under this Lease beyond any
applicable notice and cure period; and (ii) Tenant shall repair any damage to
the Leased Premises or the Shopping Center caused by the removal of any of
Tenant's Property. Specifically excluded from the definition of Leasehold
Improvements are safe deposit boxes, night depositories and the safe and/or
vault located within the Leased Premises.
Section 9.6 Removal of Tenant's Property.
----------------------------
Tenant shall remove all of Tenant's Property (and any Leasehold
Improvements as Landlord may direct) prior to the Termination Date or the
termination of Tenant's right to possession. Tenant, at its sole cost and
expense (payable as Additional Rent) shall repair any damage to the remaining
Leasehold Improvements, the Leased Premises or any other portion of the Shopping
Center caused by such removal. Should Tenant fail to timely remove said items
then they shall be considered as abandoned and shall become the property of
Landlord, or Landlord may have them removed and disposed of at Tenant's sole
cost and expense, payable as Additional Rent.
Section 9.7 Mechanic's Liens.
----------------
No mechanic's or other lien shall be allowed against the Shopping Center as
a result of Tenant's improvements to the Leased Premises. Tenant shall promptly
pay all persons furnishing labor, materials or services with respect to any work
performed by Tenant on the Leased Premises. If any mechanic's or other lien
shall be filed against the Leased Premises or the Shopping Center by reason of
work, labor, services or materials performed or furnished, or alleged to have
been performed or furnished, to or for the benefit of Tenant, Tenant shall cause
the same to be discharged of record or bonded to the satisfaction of Landlord
within fifteen (15) days subsequent to Tenant's receipt of notice of the filing
thereof. If Tenant fails to discharge or bond any such lien, Landlord, in
addition to all other rights or remedies provided in this Lease, may bond said
lien or claim (or pay off said lien or claim if it cannot with reasonable effort
be bonded) without inquiring into the validity thereof and all expenses incurred
by Landlord in so discharging said lien, including reasonable attorney's fees,
shall be paid by Tenant to Landlord as Additional Rent on five (5) days' demand.
24
<PAGE>
Section 9.8 Changes to Shopping Center.
--------------------------
A. Exhibit A sets forth the general layout of the Shopping Center.
Exhibit A is not and shall not be deemed Landlord's representation or agreement
that all or any part of the Shopping Center is, will be, or will continue to be,
configured as indicated therein. Landlord reserves the right to determine all
tenancies in the Shopping Center, and Tenant does not rely on, nor does Landlord
represent, the tenancy of any specific tenant(s).
B. Landlord shall have the right, at any time, to (i) make alterations or
additions to, or demolish all or any part of, the Shopping Center; (ii) build
other buildings or improvements in or about the Shopping Center; and (iii)
convey to others or withdraw portions of the Shopping Center.
Notwithstanding the foregoing, Landlord agrees that, in exercising its
rights under this Section 9.8.B., (i) it will make no changes to the Shopping
Center or to the Common Areas which will materially adversely obstruct or
materially adversely affect access to and from the Leased Premises via Tenant's
storefront entrance, (ii) it shall make no changes to the Shopping Center or to
the Common Areas which would materially adversely affect the visibility of
Tenant's storefront identification signage, entrance and display windows from
the immediately adjacent Common Areas, and (iii) it shall not reduce the number
of parking spaces in the Shopping Center below that which is required by the
applicable governmental authorities. The foregoing provisions of this paragraph
shall not apply in instances where access and/or visibility is temporarily
affected as a result of repairs, remodeling, renovation or other construction to
the Shopping Center.
C. In the event that Landlord renovates or remodels the front exterior of
the Leased Premises or the Shopping Center, Tenant agrees at its sole risk and
expense to: (i) upon request of Landlord, to remove its then existing signage to
facilitate the remodeling work; (ii) upon direction of Landlord, re-install
signage as is appropriate under the new criteria and consistent with such
exterior remodeling; (iii) replace Tenant's storefront if such replacements are
part of Landlord's renovation plans and (iv) otherwise cooperate with Landlord
to facilitate such renovation and remodeling. Tenant consents to the
performance of all work deemed appropriate by Landlord to accomplish any of the
foregoing, and to any inconvenience or disruption caused thereby.
Notwithstanding anything contained herein to the contrary, Landlord agrees
that in the event Landlord renovates the Shopping Center during the initial two
(2) year Term of the Lease, Tenant shall not be obligated to pay for the
installation of a new sign or a new storefront.
25
<PAGE>
ARTICLE X
REPAIRS, MAINTENANCE, AND LANDLORD'S ACCESS
--------------------------------------------
Section 10.1 Repairs by Landlord.
-------------------
Subject to the terms of this Lease, including without limitation Sections
10.2 and 11.3 below, Landlord shall make all repairs to the Common Areas and
structural repairs to the Leased Premises and to the buildings composing the
Shopping Center. In the event any such repairs are necessitated by Tenant's
breach of this Lease, or by any act or negligence of Tenant, its agents,
employees, assigns, concessionaires, contractors or invitees, Tenant shall
reimburse to Landlord, as Additional Rent, the reasonable cost incurred in
completing such repairs.
Notwithstanding anything to the contrary contained herein, Landlord shall,
at its own expense, comply with all laws, orders, ordinances and regulations of
Federal, State, County, Municipal and other governmental authorities respecting
all matters relating to the Landlord's maintenance and repair obligations under
this Section 10.1.
Notwithstanding anything to the contrary contained herein, Tenant shall not
be obligated hereunder to make any structural alterations or modifications to
the Leased Premises where such structural alterations or modifications are
required of the Shopping Center in general and not directed specifically to the
type of business being conducted by Tenant at the Leased Premises. To the
extent Tenant is not obligated to make said structural alterations or
modifications, Landlord shall promptly make them at Landlord's sole cost and
expense. In any event, Tenant shall be solely responsible for compliance with
The Americans with Disabilities Act of 1990 (the "ADA") within the Leased
Premises including, but not limited to, the storefront, entrances and doors, and
Landlord shall be solely responsible for compliance with the ADA in the Common
Areas of the Shopping Center. However, nothing contained herein shall negate
Landlord's or Tenant's right to challenge any such ADA compliance requirement in
administrative and/or judicial proceedings.
Notwithstanding anything to the contrary contained herein, Landlord will,
at its expense, subject to reimbursement to Landlord as part of Landlord's
Operating Costs, keep the roof, downspouts, gutters, exterior walls (excluding
doors, storefront, windows and glass), the structural concrete floor of the
Leased Premises (excluding floor coverings, such as carpeting, terrazzo and
other special flooring), and sprinkler mains and utility pipes, conduits, ducts,
meters and lines outside of and not exclusively serving the Leased Premises in
good repair.
26
<PAGE>
Landlord shall not be obligated to make any such repairs unless Tenant
shall have given Landlord written notice of the necessity for such repairs.
Furthermore, Landlord shall not be liable to Tenant for damages of any kind
unless Landlord shall have failed to make such repairs within thirty (30) days
after receiving notice from Tenant of the need for such repairs (or if such
repair is of such a nature that it cannot reasonably be cured within thirty (30)
days and Landlord has failed to commence such cure within said thirty (30) days
and diligently pursue said cure to its completion), provided that any damage
arising therefrom shall not have been caused by the negligent or willful act or
omission of Tenant, its concessionaires, officers, employees, licensees or
contractors (in which event Tenant shall be responsible therefor) or have been
caused by any of the items Tenant is required to maintain and repair under this
Lease. Landlord shall be under no liability for repair, maintenance, alteration
or any other action with respect to the Leased Premises or any part thereof, or
any plumbing, electrical, or other mechanical installations therein, except as
may be expressly set out in this Lease.
If Landlord shall fail to commence the making of such repairs or the
performance of such maintenance as it is obligated to do under Section 10.1.
hereof within thirty (30) days after notice from Tenant (except if an emergency
situation exists and the immediate curing of such breach or failure is necessary
to protect the Leased Premises, property located therein, or persons from
imminent injury or damage, the thirty (30) days grace period shall be reduced to
twenty-four (24) hours after written notice), Tenant's sole right and remedy for
such failure shall be, after further notice to Landlord of its intention so to
do, to cause such repairs to be made or maintenance to be performed and to make
a claim against Landlord for the reasonable cost thereof (but not to withhold
Rent on account of such costs). Landlord hereby agrees to reimburse to Tenant
the reasonable and actual cost of such repairs within thirty (30) days after
receipt from Tenant of a statement of its reasonable repair expenses together
with evidence (e.g. paid invoices) supporting said expenses. In no event,
however, shall Tenant have the right to perform any of Landlord's obligations in
regard to the Common Areas or to any premises other the Leased Premises.
Section 10.2 Repairs and Maintenance by Tenant.
---------------------------------
A. Throughout the Term Tenant, at its sole cost and expense, shall
maintain the non-structural portions of the Leased Premises (including the
storefront), the loading dock exclusively designated for Tenant's use, the
Leasehold Improvements and Tenant's Property in good order, condition and
repair. Tenant shall not cause or permit any waste, damage or injury to the
Leased Premises or the Shopping Center. Tenant's obligations shall include,
without limitation, repairing, maintaining, and
27
<PAGE>
making replacements to items such as the following: floor coverings; walls
(other than structural walls) and wall coverings; ceilings; utility meters;
pipes and conduits exclusively serving the Leased Premises; fixtures; the HVAC
system; plumbing, electrical and other mechanical systems exclusively serving
the Leased Premises; sprinkler and other fire protection equipment exclusively
serving the Leased Premises; the storefront(s); security grilles or similar
enclosures; locks and closing devices; window sashes, casements and frames;
glass; doors and door frames. Tenant agrees to maintain with a reputable
contractor a regular service and maintenance contract on the HVAC equipment and
system servicing the Leased Premises, with routine inspections and servicing as
recommended by the HVAC manufacturer.
B. Tenant, at its sole cost and expense, shall install and maintain such
fire extinguishers and other fire protection devices as may be required by any
agency having jurisdiction over, or by the underwriters issuing insurance for,
the Shopping Center. Tenant, at its sole cost and expense, agrees to routine
inspections of fire protection devices by contractors acceptable to Landlord.
If any governmental authority with jurisdiction of the Shopping Center requires
or recommends the installation, modification, or alteration of the sprinkler
system, or other equipment, by reason of Tenant's business; or the location of
any partitions, trade fixtures, or other contents of the Leased Premises; or for
any other reason, then Tenant, at Tenant's sole cost and expense, shall promptly
install such sprinkler system or changes therein.
C. Tenant shall keep the service areas, sidewalks, and loading docks or
bays adjoining the Leased Premises free from ice and snow and shall not permit
the accumulation of garbage, trash or other waste in or around the Leased
Premises.
Section 10.3 Inspections, Access and Emergency Repairs by Landlord.
-----------------------------------------------------
Upon reasonable prior notice and without materially adversely affecting
Tenant's business within the Leased Premises, Tenant shall permit Landlord to
enter all parts of the Leased Premises during the Store Hours to inspect the
same. In the event of an emergency, Landlord may enter the Leased Premises at
any time and make such inspection and repairs as Landlord deems necessary, at
the risk and for the account of Tenant, provided however Landlord shall use
reasonable efforts to notify Tenant in advance of any entry into the Leased
Premises.
28
<PAGE>
ARTICLE XI
CASUALTY
---------
Section 11.1 Fire or Other Casualty.
----------------------
Tenant shall give prompt notice to Landlord in case of fire or other
casualty ("Casualty") to the Leased Premises or the Shopping Center.
Section 11.2 Right to Terminate.
------------------
A. If (i) the buildings (taken in the aggregate) in the Shopping Center
shall be damaged to the extent of more than twenty-five percent (25%) of the
cost of replacement thereof; or (ii) the Leased Premises shall be damaged in
whole or in part during the last three Lease Years or in any Partial Lease Year
at the end of the Term; or (iii) the Leased Premises or the building in which
the Leased Premises is located shall be damaged to the extent of twenty-five
percent (25%) or more of the cost of replacement thereof; then, in any such
event, Landlord may terminate this Lease by notice to Tenant prior to the one
hundred and eightieth (180th) day after the date when the damage occurred. If
Landlord so terminates this Lease then the Termination Date shall be the date
set forth in the notice to Tenant, which date shall not be less than thirty (30)
days nor more than ninety (90) days after the giving of said notice. The "cost
of replacement" shall be determined by the company or companies insuring
Landlord against the Casualty, or, if there shall be no such determination, by a
qualified person selected by Landlord to determine such "cost of replacement."
If during the last two (2) Lease Years or in any Partial Lease Year at the
end of the Term either (i) the Leased Premises shall be damaged to the extent of
thirty percent (30%) or more of the cost of replacement thereof, or (ii) more
than fifty percent (50%) of the Floor Area of the Shopping Center immediately
before such Casualty is rendered untenantable, Tenant may also terminate this
Lease by giving Landlord sixty (60) days' prior written notice, said notice to
be given within sixty (60) days after the date of the Casualty. Further,
Landlord agrees that in the event of a Casualty to the Leased Premises, if
Landlord fails to commence and diligently pursue the repairs to the Leased
Premises in accordance with the provisions of Section 11.3. below within one
hundred and eighty (180) days from the date of such Casualty, Tenant shall have
the right to terminate this Lease by giving Landlord thirty (30) days' prior
written notice, said notice to be given within thirty (30) days after the
expiration of the aforesaid period.
B. If the Casualty shall render the Leased Premises untenantable, in
whole or in part, and provided that the Casualty or the occurrence causing the
untenantability of the Leased
29
<PAGE>
Premises is not caused by the willful misconduct of Tenant, its agents,
sublessees, assignees, concessionaires, employees or contractors, all Rent shall
abate proportionately during the period of such untenantability, computed on the
basis of the ratio which the amount of Floor Area of the Leased Premises
rendered untenantable bears to the total Floor Area of the Leased Premises. Such
abatement of Rent shall terminate on the earliest of (i) the date any such
repair and restoration work is substantially completed by Landlord pursuant to
its obligations under Section 11.3., (ii) sixty (60) days after the date
established in (i) above if Tenant is required to perform repair work pursuant
to Section 11.4., or (iii) the date Tenant reopens for business in the portion
of the Leased Premises previously rendered untenantable. Except to the extent
specifically set forth in this Section 11.2., neither the Rent nor any other
obligations of Tenant under this Lease shall be affected by any Casualty, and
Tenant hereby specifically waives all other rights it might otherwise have under
law or by statute.
Section 11.3 Landlord's Duty to Reconstruct.
------------------------------
Provided this Lease is not terminated pursuant to any provision hereof, and
subject to Landlord's ability to obtain the necessary permits and the
availability of insurance proceeds, Landlord shall repair or reconstruct the
Leased Premises (excluding Tenant's Property and the floor and wall coverings
and plate glass in the Leased Premises, which shall be Tenant's obligation to
repair, restore or replace) to a substantially similar condition as existed
prior to the Casualty; provided, however, in no event shall Landlord be required
to expend an amount in excess of the insurance proceeds received by Landlord in
performing such repairs or reconstruction.
Section 11.4 Tenant's Duty to Reconstruct.
----------------------------
Provided this Lease is not terminated pursuant to any provision hereof,
Tenant shall promptly commence and diligently pursue to completion the
redecorating and refixturing of the Leased Premises, including, without
limitation repairing, restoring or replacing Tenant's Property, the floor and
wall coverings and the plate glass, to a substantially similar condition as
existed prior to the Casualty. Tenant shall reopen for business in the Leased
Premises as soon as practicable after the occurrence of the Casualty.
30
<PAGE>
ARTICLE XII
CONDEMNATION
-------------
Section 12.1 Taking of Leased Premises.
-------------------------
A. If more than twenty-five percent (25%) of the Floor Area of the Leased
Premises shall be appropriated or taken under the power of eminent domain, or
conveyance shall be made in anticipation or in lieu thereof (each being
hereinafter referred to as a "Taking"), either party shall have the right to
terminate this Lease as of the effective date of the Taking by giving notice to
the other party of such election within thirty (30) days prior to the date of
such Taking.
B. If there is a Taking of a portion of the Leased Premises and this
Lease shall not be terminated pursuant to Section 12.1.A., then (i) as of the
effective date of the Taking, this Lease shall terminate only with respect to
the portion of the Leased Premises taken; (ii) after the effective date of the
Taking, the Rent shall be reduced by multiplying the same by a fraction, the
numerator of which shall be the Floor Area taken and the denominator of which
shall be the Floor Area of the Leased Premises immediately prior to the Taking;
(iii) as soon as reasonably possible after the effective date of the Taking,
Landlord shall, at its expense and to the extent feasible, restore the remaining
portion of the Leased Premises to a complete unit of a similar condition as
existed prior to any work performed by Tenant provided, however, Landlord shall
not be required to expend more on such alteration or restoration work than the
condemnation award actually received and retained by Landlord for the Leased
Premises.
Section 12.2 Taking of Shopping Center.
-------------------------
If there is a taking of any portion of the Shopping Center so as to render,
in Landlord's judgment, the remainder unsuitable for use as a shopping center,
Landlord shall have the right to terminate this Lease upon thirty (30) days'
written notice to Tenant. Provided Tenant is not then in default under this
Lease beyond any applicable notice and cure period, Tenant shall receive a
proportionate refund from Landlord of any Rent Tenant paid in advance.
Section 12.3 Condemnation Award.
------------------
All compensation awarded for a Taking of any part of the Leased Premises
(including, without limitation, the Leasehold Improvements) or a Taking of any
other part of the Shopping Center shall belong to and be the property of
Landlord. Tenant hereby assigns to Landlord all of its right, title and
interest in any such award. Tenant shall have the right to collect and
31
<PAGE>
pursue any separate award as may be available under local procedure for moving
expenses or Tenant's Property, so long as such award does not reduce the award
otherwise belonging to Landlord as aforesaid.
ARTICLE XII
MERCHANTS ASSOCIATION
----------------------
Section 13.1 Merchants Association.
---------------------
Landlord may establish or has established a Merchants Association (the
"Association") for the purpose of promoting the Shopping Center. Tenant shall
become a member of the Association on the later of the date of this Lease or the
date such Association is established, remain a member in good standing
thereafter throughout the Term, comply with all obligations imposed by the by-
laws of the Association, and pay to Landlord or the Association (as directed by
Landlord) the amounts specified in Section 13.2.
Section 13.2 Landlord's and Tenant's Contribution to Merchants Association.
-------------------------------------------------------------
A. Provided an Association is established by Landlord, Landlord shall
contribute an amount equal to twenty percent (20%) of the total amount of the
Association dues actually paid to the Association by Tenant. Landlord's
contribution for any calendar year shall be due fifteen (15) days after the
Association has delivered to Landlord satisfactory evidence of the amount of
dues it has received from Tenant, together with a copy of its operating budget
and such other financial data as Landlord may reasonably request.
B. Tenant shall contribute to the Association the amount set forth in
Section 1.1., in advance, on the first day of each calendar month throughout the
Term. The Association dues set forth in Section 1.1. shall be-increased
following the close of the first Lease Year, and at the close of each Lease Year
thereafter, by five percent (5%).
Section 13.3 Landlord's Participation.
------------------------
Landlord may appoint a committee, composed of a representative of Landlord
and one or more of the tenants at the Shopping Center, to act as an advisory
committee with respect to the Association. Landlord shall have the right and
option to employ a Marketing Director and other personnel for the Association,
and to provide promotional services which, in Landlord's judgment, are
reasonable and desirable in the administration of the Association and the
promotional activities
32
<PAGE>
of the Shopping Center. All such personnel shall be under Landlord's control and
supervision. Tenant hereby authorizes the Association to reimburse Landlord for
such personnel and for any other reasonable costs incurred by Landlord in
assisting the Association or providing services thereto, including the fair
rental value of any office or other space provided by Landlord. At Landlord's
election such costs may be credited against Landlord's contribution set forth in
Section 13.2.A.
Section 13.4 Landlord's Option to Form Marketing Fund.
----------------------------------------
In lieu of the Association, Landlord shall have the right and option to
form a Marketing Fund (the "Fund"), in which case the Association dues paid by
Tenant and by Landlord shall become the Fund dues and such payments shall
constitute Tenant's and Landlord's assessment for the Fund. Upon Landlord's
establishment of the Fund, the Association shall be dissolved and any tenant
funds remaining in the Association shall be turned over to Landlord for
application to the Fund. The Fund dues shall be used by Landlord to pay all
costs and expenses associated with the formulation and carrying out of programs
for the promotion of the Shopping Center. In addition, Landlord may use the
Fund dues to defray the cost of administration of the Fund, including, without
limitation, the salary and related costs and benefits of a director and related
administrative personnel, and rent allocable to any management office within the
Shopping Center devoted to use by such personnel. Tenant shall comply with all
other reasonable rules and regulations established by Landlord in connection
with the Fund.
Section 13.5 Fund or Association.
-------------------
Nothing in the Lease shall be construed as a representation that Landlord
has or will establish a Fund or Association. Landlord reserves the right and
option, at any time and from time to time, to alternatively establish either a
Fund or an Association. Upon the establishment of either a Fund or an
Association, Tenant will comply with all of its obligations with respect thereto
as set forth in this Article XIII.
ARTICLE XIV
SUBORDINATION AND ATTORNMENT
-----------------------------
Section 14.1 Subordination.
-------------
Tenant's rights under this Lease are subordinate to: (i) all present and
future ground or underlying leases affecting all or any part of the Shopping
Center; and (ii) any easement, license, mortgage, deed of trust or other
security instrument now or hereafter affecting the Shopping Center (those
documents referred
33
<PAGE>
to in (i) and (ii) above are hereinafter collectively referred to as a
"Mortgage" and the person or persons having the benefit of same are hereinafter
collectively referred to as a "Mortgagee"). Tenant's subordination provided in
this Section 14.1. is self-operative and no further instrument of subordination
shall be required.
Section 14.2 Attornment.
----------
If any person shall succeed to all or part of Landlord's interest in the
Leased Premises, whether by purchase, foreclosure, deed in lieu of foreclosure,
power of sale, termination of lease or otherwise, Tenant shall, without charge,
attorn to such successor-in-interest upon written request from Landlord;
provided such successor-in-interest agrees to recognize Tenant's rights under
this Lease and agrees to assume all of Landlord's obligations under the Lease.
Section 14.3 Estoppel Certificate.
--------------------
Landlord and Tenant, within twenty (20) days after receiving written notice
from the other and without charge or cost to the other, shall certify by written
instrument, which written instrument Landlord or Tenant shall duly execute and
deliver to the other or any other person designated by Landlord or Tenant:
(i) that this Lease is unmodified and in full force and effect (or if there has
been a modification, that the same is in full force and effect as modified, and
stating the modification); (ii) the dates, if any, to which each component of
the Rent due under this Lease has been paid; (iii) whether Landlord or Tenant
has failed to perform any covenant, term or condition under this Lease, and the
nature of Landlord's or Tenant's failure, if any; and (iv) such other relevant
information as Landlord or Tenant may request.
Section 14.4 Quiet Enjoyment.
---------------
Landlord covenants that it has full right, power and authority to enter
into this Lease and that Tenant, upon performing all of Tenant's obligations
under this Lease and timely paying all Rent, shall peaceably and quietly have,
hold and enjoy the Leased Premises during the Term without hindrance, ejection
or molestation by any person lawfully claiming by, through or under Landlord,
subject, however, to all Mortgages, encumbrances, easements, and matters of
record to which this Lease is or may become subject.
34
<PAGE>
ARTICLE XV
ASSIGNMENT AND SUBLETTING
-------------------------
Section 15.1 Landlord's Consent Required.
---------------------------
A. Tenant and any permitted Transferee, as hereinafter defined, shall not
voluntarily or involuntarily, by operation of law or otherwise: (i) transfer,
assign, mortgage, encumber, pledge, hypothecate, or assign all or any of its
interest in this Lease, or (ii) sublet or permit the Leased Premises, or any
part thereof, to be used by others including, but not limited to concessionaires
or licensees, or (iii) intentionally deleted (iv) sell, assign or otherwise
transfer all or substantially all of Tenant's or any permitted Transferee's
assets; without the prior written consent of Landlord, in each instance, which
consent Landlord may withhold in its sole and absolute discretion. All of the
foregoing transactions shall be referred to collectively or singularly as a
"Transfer", and the person to whom Tenant's interest is transferred shall be
referred to as a "Transferee."
B. Any Transfer without Landlord's consent shall not be binding upon
Landlord, and shall confer no rights upon any third person. Each such
unpermitted Transfer shall, without notice or grace period of any kind,
constitute a Default as defined in Article XVI of this Lease by Tenant under
this Lease. The acceptance by Landlord of the payment of Rent following any
Transfer prohibited by this Article XV shall not be deemed to be a consent by
Landlord to any such Transfer, an acceptance of the Transferee as a tenant, a
release of Tenant from the performance of any covenants herein contained, or a
waiver by Landlord of any remedy of Landlord under this Lease, although amounts
actually received shall be credited by Landlord against Tenant's Rent
obligations. Consent by Landlord to any one Transfer shall not constitute a
waiver of the requirement for consent to any other Transfer. No reference in
this Lease to assignees, concessionaires, subtenants or licensees shall be
deemed to be a consent by Landlord to the occupancy of the Leased Premises by
any such assignee, concessionaire, subtenant or licensee.
C. Landlord's consent to any Transfer shall not operate as a waiver of,
or release of Tenant from, Tenant's covenants and obligations hereunder; nor
shall the collection or acceptance of Rent or other performance from any
Transferee have such effect. Rather, Tenant shall remain fully and primarily
liable and obligated under this Lease for the entire Term in the event of any
Transfer, and in the event of a Default by the Transferee, Landlord shall be
free to pursue Tenant, the Transferee, or both, without prior notice or demand
to either.
D. Notwithstanding anything to the contrary contained herein, provided
Tenant shall not be in Default under the Lease,
35
<PAGE>
Tenant shall have the right, without Landlord's prior written consent, to assign
the Lease to any wholly owned subsidiary of Tenant, or to any parent
corporation, partnership or limited liability company of Tenant, or to any
subsidiary of any parent corporation, partnership or limited liability company
of Tenant, provided, however, that said assignment shall be subject to the
following express conditions:
1) no such assignment shall be deemed to release Tenant or any guarantor
from continuing liability throughout the Term of the Lease;
. 2) Tenant's assignee must expressly assume in an instrument delivered to
and reasonably acceptable by Landlord all the obligations of Tenant under the
Lease;
3) Landlord is given thirty (30) days' prior written notice of Tenant's
intent to assign the Lease under this Section 15.1.D. together with sufficient
documentation which verifies that all of the requirements set forth herein have
been fulfilled and the conditions have been met. Landlord shall furnish the
appropriate documentation in connection with any such assignment and be entitled
to a reasonable administrative fee therefor, as set forth in Section 17.3.
E. Notwithstanding anything to the contrary contained herein, Tenant
shall not have the right to issue stock or sell the shares of any subsidiary
entity in a transaction (or a series of transactions) the purpose of which is to
effectuate a third party assignment or other Transfer which is not a Permitted
Transfer without complying with the criteria otherwise set forth in this Section
15.1.
F. Notwithstanding anything to the contrary contained herein, provided
Tenant shall not be in Default under the Lease beyond any applicable cure
period, Tenant shall assign the Lease to the Bank (as defined in Section 1.1.F.
of this Lease) within thirty (30) days following satisfaction of the contingency
set forth in Addendum IV of this Lease, provided, however, that said assignment
shall be subject to the following express conditions:
1) no such assignment shall be deemed to release Tenant or any guarantor
from continuing liability throughout the Term of the Lease;
2) Tenant's assignee must expressly assume in an instrument delivered to
and reasonably acceptable by Landlord all the obligations of Tenant under the
Lease; and
3) Landlord is given thirty (30) days' prior written notice of Tenant's
intent to assign the Lease under this Section 15.1.D. together with sufficient
documentation which verifies
36
<PAGE>
that all of the requirements set forth herein have been fulfilled and the
conditions have been met. Landlord shall furnish the appropriate documentation
in connection with any such assignment and be entitled to a reasonable
administrative fee therefor, as set forth in Section 17.3.
ARTICLE XVI
DEFAULT AND REMEDIES
---------------------
Section 16.1 Default.
-------
Any one or more of the following events shall constitute a default (each, a
"Default") by Tenant under this Lease: (i) if Tenant fails to pay any Rent (or
any installment thereof) within ten (10) days after the same shall be due and
payable; (without the necessity of demand therefor or notice thereof); (ii) if
Tenant shall breach or fail in the observance or performance of any of the
terms, conditions or covenants of this Lease to be observed or performed by
Tenant, other than those involving the payment of Rent or failure to
continuously occupy and operate the Leased Premises as required, and such breach
or failure is not cured within thirty (30) days after Tenant's receipt of
written notice thereof, unless such condition is of such a nature that it cannot
reasonably be cured within such thirty (30) days, in which case Tenant must
commence such cure within said thirty (30) days and diligently pursue said cure
to its completion, (iii) if Tenant shall vacate, abandon or cease to
continuously operate the Leased Premises as required except as a result of a
Casualty, a Taking or for the refurbishing to the Leased Premises as provided
for in Section 4.1., or (iv) if Tenant fails to carry and maintain the insurance
required by this Lease.
Section 16.2 Remedies and Damages.
--------------------
A. Upon the occurrence of any event of Default described in Section
16.1., Landlord shall have all the rights and remedies provided in this Section
16.2., in addition to all other rights and remedies available under this Lease
or provided at law or in equity.
B. It shall be lawful for Landlord, upon written notice to Tenant to
terminate this Lease, or to terminate Tenant's right to possession without
terminating this Lease (as Landlord may elect). If the Lease or Tenant's right
to possession under this Lease shall at any time be terminated under the terms
and conditions of this Section 16.2., or in any other way, Tenant hereby
covenants and agrees to immediately surrender and deliver the Leased Premises
peaceably to Landlord. Should Tenant fail to do so, Landlord shall be entitled
to re-enter, without process and without notice (any notice to quit or of re-
entry being
37
<PAGE>
hereby expressly waived), using such force as may be necessary; and,
alternatively, shall have the benefit of all provisions of law respecting the
speedy recovery of possession of the Leased Premises (whether by summary
proceedings or otherwise), any notice to quit or of re-entry being hereby
expressly waived.
C. After prior written notice to Tenant and an opportunity to cure,
Landlord may also perform, on behalf and at the expense of Tenant, any
obligation of Tenant under this Lease which Tenant has failed to perform, the
cost of which (together with an administrative fee equal to ten percent (10%) of
such cost to cover Landlord's overhead in connection therewith) shall be deemed
Additional Rent and shall be payable by Tenant to Landlord upon demand. In
performing any obligations of Tenant, Landlord shall incur no liability for any
loss or damage that may accrue to Tenant, the Leased Premises or Tenant's
Property by reason thereof, except if caused by Landlord's willful and malicious
act. The performance by Landlord of any such obligation shall not constitute a
release or waiver of any of Tenant's obligations under this Lease.
D. Upon termination of this Lease or the termination of Tenant's right to
possession under this Lease, as the case may be, Landlord may at any time and
from time to time relet the Leased Premises (or any part thereof) for the
account of Tenant or otherwise, at such rentals and upon such terms and
conditions as Landlord shall deem appropriate. Landlord shall receive and
collect the rents therefor, applying the same first to the payment of such
reasonable expenses as Landlord actually incurred in recovering possession of
the Leased Premises, including, without limitation, legal expenses and
reasonable attorneys' fees, and in placing the Leased Premises in good order and
condition and preparing or altering the same for re-rental; second, to the
payment of such reasonable expenses, commissions and charges as may be paid,
assumed or incurred by or on behalf of Landlord in connection with the reletting
of the Leased Premises; and third, to the fulfillment of the covenants of Tenant
under the Lease, including the various covenants to pay Rent. Any such
reletting may be for the remainder of the Term or for a longer or shorter
period, as Landlord elects. Thereafter, Tenant covenants and agrees to pay
Landlord until the end of the Term of this Lease the equivalent of the amount of
all the Rent and all other sums required to be paid by Tenant, less the net
avails of such reletting, if any, and the same shall be due and payable by
Tenant to Landlord on the dates such Rent and other sums above specified are
due. Any reletting by Landlord shall not be construed as an election on the
part of Landlord to terminate this Lease unless a written notice of such
intention is given by Landlord to Tenant. Notwithstanding any reletting without
termination of this Lease, Landlord may at any time thereafter elect to
terminate this Lease. In any event, Landlord shall not be liable for, nor shall
Tenant's obligations hereunder
38
<PAGE>
be diminished by reason of, any failure by Landlord to relet the Leased Premises
or any failure by Landlord to collect any sums due upon such reletting.
Notwithstanding anything to the contrary contained herein, upon default by
Tenant and a subsequent eviction by Landlord, Landlord agrees to use reasonable
efforts to relet the Leased Premises for a term or terms which may, at
Landlord's option, be less than or exceed the balance of the Term of the Lease.
Landlord does not necessarily agree to rent the Leased Premises at its then fair
market value in the event it enters into a new lease agreement. The foregoing,
however, shall in no way obligate Landlord to lease the Leased Premises in any
manner which is not in keeping with the type and caliber of tenants at the
Shopping Center, nor shall the same obligate Landlord to relet the Leased
Premises in preference to other vacant space therein.
E. In the event, as the result of Tenant's Default at any time prior to
the Term Commencement Date, this Lease shall be terminated, Landlord and Tenant
hereby agree that, at Landlord's option, Tenant shall pay to Landlord on account
of such Default, as liquidated and agreed damages (and not as a penalty), which
shall be immediately due and payable from Tenant to Landlord, a sum equal to
such amount as would have constituted one year's Rent had Tenant actually taken
possession of the Leased Premises and commenced paying the Rent herein reserved.
Section 16.3 Remedies Cumulative.
-------------------
No reference to any specific right or remedy in this Lease shall preclude
Landlord or Tenant from exercising any other right, from having any other
remedy, or from maintaining any action to which it may otherwise- be entitled
under this Lease, at law or in equity.
Section 16.4 Waiver.
------
A. No Waiver of Lease Provisions or Breach thereof. Landlord or Tenant
-----------------------------------------------
shall not be deemed to have waived any provision of this Lease, or the breach of
any such provision, unless specifically waived by Landlord or Tenant in a
writing executed by an authorized officer of Landlord or Tenant. Any waiver of
a breach shall not be deemed to be a waiver of any subsequent breach of the same
provision, or of the provision itself, or of any other provision.
B. Waiver of Right of Redemption. Tenant hereby expressly waives any and
-----------------------------
all rights of redemption and any and all rights to relief from forfeiture which
would otherwise be granted or available to Tenant under any present or future
statutes, rules or case law.
39
<PAGE>
C. Waiver of Jury Trial. In any litigation (whether or not arising out
--------------------
of or relating to the Lease) in which Landlord and Tenant shall be adverse
parties, Landlord and Tenant knowingly, voluntarily and intentionally waive
their rights to trial by Jury.
ARTICLE XVI
MISCELLANEOUS PROVISIONS
-------------------------
Section 17.1 Notices.
-------
A. Whenever any demand, request, approval, consent or notice (singularly
and collectively, "Notice") shall or may be given by one party to the other,
such Notice shall be addressed to the parties at their respective addresses as
set forth in Section 1.1. and served by (i) hand, (ii) a nationally recognized
overnight express courier, or (iii) registered or certified mail return receipt
requested. The date the notice is received shall be the date of service of
Notice. In the event an addressee refuses to accept delivery, however, then
Notice shall be deemed to have been served on either (i) the date hand delivery
is refused, (ii) the next business day after the Notice was sent in the case of
attempted delivery by overnight courier, or (iii) five (5) business days after
mailing the notice in the case of registered or certified mail. Either party
may, at any time, change its Notice address by giving the other party Notice, in
accordance with the above, stating the change and setting forth the new address.
B. If any Mortgagee shall notify Tenant that it is the holder of a
Mortgage affecting the Leased Premises, no Notice thereafter sent by Tenant to
Landlord shall be effective unless and until a copy of the same shall also be
sent to such Mortgagee, in the manner prescribed in this Section 17.1., to the
address as such Mortgagee shall designate.
Section 17.2 Recording.
---------
Neither this Lease nor a memorandum thereof shall be recorded without the
written consent of Landlord.
Section 17.3 Interest and Administrative Costs.
---------------------------------
A. If (i) Tenant fails to make any payment under this Lease when due,
(ii) Landlord performs any obligation of Tenant under this Lease, or (iii)
Landlord incurs any costs or expenses as a result of Tenant's Default under this
Lease, then Tenant shall pay, upon demand, Interest from the date such payment
was due or from the date Landlord incurs such costs or expenses relating to the
performance of any such obligation or Tenant's
40
<PAGE>
Default, as the case may be, plus the payment due under (i), or the amount of
such costs and expenses incurred, under (ii) or (iii), plus Landlord's
administrative costs in connection therewith, regardless of whether or not
otherwise expressly provided for in this Lease.
B. If Tenant requests Landlord to review and/or execute any documents in
connection with this Lease, including but not limited to Assignment and Transfer
documents, Tenant shall pay to Landlord, upon demand, as an administrative fee
for the review and/or execution thereof, all costs and expenses, including
reasonable attorney's fees (which shall include the cost of time expended by in-
house counsel) incurred by Landlord and/or Landlord's agent. The minimum fee to
be paid by Tenant to Landlord pursuant to this Section 17.3.B. shall be Five
Hundred Dollars ($500.00)
C. Intentionally Deleted.
D. All such sums payable in accordance with subsections A, B, and C above
{with the exception of any Minimum Rent due pursuant to subsection A (i)} shall
be deemed to be Additional Rent.
Section 17.4 Legal Expenses.
--------------
If Landlord shall deem it necessary to engage an attorney or institute any
suit against Tenant in connection with the enforcement of Landlord's rights
under this Lease, the violation of any term of this Lease, the declaration of
Landlord's rights hereunder, or the protection of Landlord's interests under
this Lease, Tenant shall reimburse Landlord for its expenses incurred as a
result thereof including, without limitation, court costs and reasonable
attorneys' fees.
Section 17.5 Successors and Assigns.
----------------------
This Lease and the covenants and conditions herein contained shall inure to
the benefit of and be binding upon Landlord and Tenant, and their respective
permitted successors and assigns. Upon any sale or other transfer by Landlord of
its interest in the Leased Premises, Landlord shall be relieved of any
obligations under this Lease occurring subsequent to such sale or other
transfer.
Section 17.6 Limitation on Right of Recovery Against Landlord.
------------------------------------------------
It is specifically understood and agreed that there shall be no personal
liability of any shareholder, trustee, partner, officer, employee,
representative or agent of Landlord in respect to any of the covenants,
conditions or provisions of this Lease. Further, in the event of a breach or
default by Landlord of any
41
<PAGE>
of its obligations under this Lease, Tenant shall look solely to the equity of
the Landlord in the Shopping Center for the satisfaction of Tenant's remedies.
The name "Federal Realty Investment Trust" refers to the Trustees, as trustees,
but not individually or personally, under a Third Amended and Restated
Declaration of Trust on file in the office of the Recorder of Deeds of the
District of Columbia, which Declaration provides that neither the shareholders
nor the Trustees, nor any officer, employee, representative or agent of Federal
Realty Investment Trust shall be personally liable for the satisfaction of
obligations of any nature whatsoever of Federal Realty Investment Trust.
Accordingly, Tenant hereby agrees to look solely to Landlord's equity in the
Shopping Center for the satisfaction of any claim arising from this Lease and
shall not seek to impose personal liability on any shareholder, trustee,
partner, officer, employee, representative or agent of Landlord or of Federal
Realty Investment Trust. A similar limitation on liability shall be inserted in
each document executed by Federal Realty Investment Trust pursuant to this
Lease.
Section 17.7 Security Deposit.
----------------
Tenant shall deposit with Landlord, for Landlord's general account, the
Security Deposit as security for the performance of each and every term,
covenant, agreement and condition of this Lease on Tenant's part to be
performed, such Security Deposit to be paid in advance upon Tenant's execution
of this Lease. Landlord may use, apply on Tenant's behalf or retain (without
liability for interest) during the Term the whole or any part of the security so
deposited to the extent required for the payment of any Rent which may be owed
hereunder, or for any sum which Landlord may expend to cure any Default of
Tenant including, but not limited to, any deficiency, cost, expense, or damage
incurred in reletting or attempting to relet the Leased Premises. After each
application from the Security Deposit, Tenant shall, within five (5) days of
Notice thereof from Landlord, replenish and restore said deposit to the amount
set forth in Section 1.1. The use, application or retention of the Security
Deposit by Landlord shall not be deemed a limitation on Landlord's recovery in
any case, or a waiver by Landlord of any Default, nor shall it prevent Landlord
from exercising any other right or remedy for a Default by Tenant. Provided
that Tenant has complied with all the terms, covenants, agreements, and
conditions of this Lease, the Security Deposit (less any amount applied as
herein provided) shall be returned to Tenant without interest within thirty (30)
days after the Termination Date and after surrender of possession of the Leased
Premises to Landlord in accordance with the terms of this Lease.
42
<PAGE>
Section 17.8 Entire Agreement; No Representations; Modification.
--------------------------------------------------
This Lease is intended by the parties to be a final expression of their
agreement and as a complete and exclusive statement of the terms thereof. All
prior negotiations, considerations and representations between the parties (oral
or written) are incorporated herein. No course of prior dealings between the
parties or their officers, employees, agents or affiliates shall be relevant or
admissible to supplement, explain or vary any of the terms of this Lease. No
representations, understandings, agreements, warranties or promises with respect
to the Leased Premises or the building or Shopping Center of which they are a
part, or with respect to past, present or future tenancies, rents, expenses,
operations, or any other matter, have been made or relied upon in the making of
this Lease, other than those specifically set forth herein. This Lease may only
be modified, or a term thereof waived, by a writing signed by an authorized
officer of Landlord and Tenant expressly setting forth said modification or
waiver.
Section 17.9 Severability.
------------
If any term or provision of this Lease, or the application thereof to any
person or circumstance, shall be invalid or unenforceable, the remainder of this
Lease, or the application of such term or provision to persons or circumstances
other than 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.
Section 17.10 Joint and Several Liability.
---------------------------
If two or more individuals, corporations, partnerships or other Persons (or
any combination of two or more thereof) shall sign this Lease as Tenant, the
liability of each such individual, corporation, partnership or other Persons to
pay the Rent and perform all other obligations hereunder shall be deemed to be
joint and several, and all Notices, payments and agreements given or made by,
with or to any one of such individuals, corporations, partnerships or other
Persons shall be deemed to have been given or made by, with or to all of them.
In like manner, if Tenant shall be a partnership or other legal entity, the
partners or members of which are, by virtue of any applicable law, rule, or
regulation, subject to personal liability, the liability of each such partner or
member under this Lease shall be joint and several and each such partner or
member shall be fully obligated hereunder and bound hereby as if each such
partner or member had personally signed this Lease.
43
<PAGE>
Section 17.11 Broker's Commission.
-------------------
Except for Brian Coakley of Donohoe Real Estate Services, whom Landlord
agrees to pay a commission under the terms of a separate agreement, Landlord and
Tenant warrant and represent to each other that no broker, finder or agent has
acted for or on their behalf in connection with the negotiation, execution or
procurement of this Lease. Landlord and Tenant agree to indemnify and hold the
other harmless from and against all liabilities, obligations and damages
arising, directly or indirectly, out of or in connection with a claim from a
broker, finder or agent with respect to this Lease or the negotiation thereof,
including costs and attorneys' fees incurred in the defense of any claim made by
a broker alleging to have performed services on behalf of the indemnifying
party.
Section 17.12 Irrevocable Offer, No Option.
----------------------------
Although Tenant's execution of this Lease shall be deemed an offer by
Tenant, the submission of this Lease by Landlord to Tenant for examination shall
not constitute an offer to lease or a reservation of or option for the Leased
Premises. Rather, this Lease shall become effective only upon execution thereof
by both parties and delivery thereof to Tenant.
Section 17.13 Inability to Perform.
--------------------
Except for the payment of monetary obligations, if Landlord or Tenant is
delayed or prevented from performing any of its obligations under this Lease by
reason of strike, labor troubles, or any similar cause whatsoever beyond their
control, the period of such delay or such prevention shall be deemed added to
the time herein provided for the performance of any such obligation by Landlord
or Tenant.
Section 17.14 Survival.
--------
Notwithstanding anything to the contrary contained in this Lease, the
expiration of the Term of this Lease, whether by lapse of time or otherwise,
shall not relieve Tenant from its obligations accruing prior to the expiration
of the Term.
Section 17.15 Intentionally Deleted.
---------------------
Section 17.16 Intentionally Deleted.
---------------------
Section 17.17 Showing of Leased Premises.
--------------------------
After reasonable notice to Tenant, and provided Landlord shall not
unreasonably interfere with Tenant's business operations within the Leased
Premises, Landlord shall have the right to enter upon the Leased Premises for
purposes of showing
44
<PAGE>
the Leased Premises to Mortgagees or prospective Mortgagees at any time during
the Term and to prospective tenants during the last six (6) months of the Term.
Section 17.18 Relationship of Parties.
-----------------------
This Lease shall not create any relationship between the parties other than
that of Landlord and Tenant.
Section 17.19 Rule Against Perpetuities.
-------------------------
If Landlord fails to deliver the Leased Premises to Tenant within twelve
(12) months from the date of this Lease, either party may terminate this Lease
upon providing the other party thirty (30) days' prior written notice.
Notwithstanding any provision in this Lease to the contrary, if the Term has not
commenced within twenty-one (21) years after the date of this Lease, this Lease
shall automatically terminate on the twenty-first (21st) anniversary of the date
of this Lease. The sole purpose of this provision is to avoid any possible
interpretation of this Lease as. violating the Rule Against Perpetuities, or
any other rule of law or equity concerning restraints on alienation.
Section 17.20 Choice of Law.
-------------
This Lease shall be construed; and all disputes, claims, and questions
arising hereunder shall be determined; in accordance with the laws of the state
within which the Shopping Center is located. (For purposes of this provision,
the District of Columbia shall be deemed to be a state).
Section 17.21 Choice of Forum.
---------------
Any suit or action involving a dispute relating in any manner to the Lease,
the relationship of Landlord Tenant, the use or occupancy of the Leased
Premises, and/or any claim of injury or damage shall be filed and adjudicated
solely in the state or federal courts of the jurisdiction in which the Leased
Premises are located.
Section 17.22 Time is of the Essence.
----------------------
Time is of the essence with respect to each and every obligation arising
under this Lease.
Section 17.23 Bank Closing.
------------
Notwithstanding any other provisions contained in this Lease, in the event
the Tenant is closed or taken over by the Office of the Comptroller of the
Currency, or other bank supervisory authority; the Landlord may terminate the
Lease only
45
<PAGE>
with the concurrence of such banking authority or other bank supervisory
authority; and any such authority shall in any event have the election either to
continue or to terminate the Lease; provided, that in the event this Lease is
terminated, the maximum claim of Landlord for damages or indemnity for injury
resulting from the rejection or abandonment of the unexpired Term of the Lease
shall in no event be in an amount exceeding the Rent reserved by the Lease,
without acceleration, for the Lease Year next succeeding the date of the
surrender of the Leased Premises to the Landlord, or the date of re-entry by
Landlord, whichever first occurs, whether before or after the closing of the
Tenant, plus an amount equal to the unpaid Rent accrued, without acceleration up
to such date.
IN WITNESS WHEREOF, the parties hereto intending to be legally bound hereby
have executed this Lease under their respective hands and seals as of the day
and year first above written.
WITNESS: LANDLORD:
FEDERAL REALTY INVESTMENT TRUST,
an unincorporated business trust
By:
- ------------------------------- -----------------------------------
Name: Nancy J. Herman
Title: Vice President-General
Counsel
ATTEST: TENANT:
HCNB BANCORP, INC., a Maryland
corporation
By: By:
--------------------------- -----------------------------------
Name: Name: Michael J. Burke
-------------------------
Title: Title: President
------------------------
[Corporate Seal]
46
<PAGE>
EXHIBIT 10.6
AGREEMENT
between
FISERV SOLUTIONS, INC.
255 Fiserv Drive
Brookfield, WI 53045-5815
and
HARBOR CAPITAL NATIONAL BANK
Rockville, MD
Date: February 19, 1999
-----------------
<PAGE>
AGREEMENT dated as of February 19, 1999 ("Agreement") between FISERV SOLUTIONS,
INC., a Wisconsin corporation ("Fiserv'), and HARBOR CAPITAL NATIONAL BANK, a
Rockville, MD ("Client").
- --------------------------------------------------------------------------------
Fiserv and Client hereby agree as follows:
1. Term. The initial term of this Agreement shall be 5 years and, unless
----
written notice of non-renewal is provided by either party at least 180 days
prior to expiration of the initial term or any renewal term, this Agreement
shall automatically renew for a renewal term of 5 years. Client reserves the
option to cancel the Agreement after initial thirty-six (36) months of the term,
provided Fiserv is given one hundred and eighty (180) days advance written
notice. Exercise of this option shall not be considered termination for
convenience. This Agreement shall commence on the day Fiserv Services are first
used by Client.
2. Services. (a) Services Generally. Fiserv, itself and through its
-------- ------------------
affiliates, agrees to provide Client, and Client agrees to obtain from Fiserv
services ("Services") and products ("Products") (collectively, "Fiserv
Services") described in the attached Exhibits:
Exhibit A - Account Processing Services
The Exhibits set forth specific terms and conditions applicable to the
Services and/or Products, and, where applicable, the Fiserv affiliate so
performing. Client may select additional services and products from time to time
by incorporating an appropriate Exhibit to this Agreement.
(b) Conversion Services. Fiserv will convert Clients existing applicable
-------------------
data and/or information to the Fiserv Services. Those activities designed to
transfer the processing from Clients present servicer to the Fiserv Services are
referred to as "Conversion Services". Client agrees to cooperate with Fiserv in
connection with Fiserv's provision of Conversion Services and to provide all
necessary information and assistance to facilitate the conversion. Client is
responsible for all reasonable out-of-pocket expenses associated with the
Conversion Services. Fiserv will provide Conversion Services as required in
connection with Fiserv Services.
(c) Training Services. Fiserv shall provide training, training aids,
-----------------
user manuals, and other documentation for Client's use as Fiserv finds necessary
to enable Client personnel to become familiar with Fiserv Services. If requested
by Client, classroom training in the use and operation of Fiserv Services will
be provided at a training facility. All such training aids and manuals remain
Fiserv's property.
3. Fees for Fiserv Services. (a) General. Client agrees to pay Fiserv:
------------------------ -------
(i) estimated fees for Fiserv Services for the following month as
specified in the Exhibits;
<PAGE>
(ii) estimated out-of-pocket charges for the following month
payable by Fiserv for the account of Client; and
(iii) estimated Taxes (as defined below) thereon (collectively,
"Estimated Fees").
Fiserv shall timely reconcile Estimated Fees paid by Client for the Fiserv
Services for the month and the fees and charges actually due Fiserv based on
Clients actual use of Fiserv Services for such month. Fiserv shall either issue
a credit to Client or provide Client with an invoice for any additional fees or
other charges owed. Fiserv may change the amount of Estimated Fees billed to
reflect appropriate changes in actual use of Fiserv Services. Estimated Fees may
be increased from time to time as set forth in the Exhibits. Upon notification
to and acceptance by Client, Fiserv may increase its fees in excess of amounts
listed in the Exhibits in the event that Fiserv implements major system
enhancements to comply with changes in law, government regulation, or industry
practices.
(b) Additional Charges. Fees for out-of-pocket expenses, such as
------------------
telephone, microfiche, courier, and other charges incurred by Fiserv for goods
or services obtained by Fiserv on Client's behalf shall be billed to Client at
cost plus the applicable Fiserv administrative fee. Such out-of-pocket expenses
may be changed from time to time upon notification of a fee change from a
vendor/provider.
(c) Taxes. Fiserv shall add to each invoice any sales, use, excise,
-----
value added, and other taxes and duties however designated that are levied by
any taxing authority relating to the Fiserv Services ("Taxes"). In no event
shall "Taxes" include taxes based upon the net income of Fiserv.
(d) Exclusions. The Estimated Fees do not include, and Client shall be
----------
responsible for, fumishing transportation or transmission of information between
Fiserv's service center(s), Client's site(s), and any applicable clearing house,
regulatory agency, or Federal Reserve Bank.
(e) Payment Terms. Estimated Fees are due and payable monthly upon
-------------
receipt of invoice. Client shall pay Fiserv through the Automated Clearing
House. In the event any amounts due remain unpaid beyond the 30th day after
payment is due, Client shall pay a late charge of 1.5% per month. Client agrees
that it shall neither make nor assert any right of deduction or set-off from
Estimated Fees on invoices submitted by Fiserv for Fiserv Services.
4. Access to Fiserv Services. (a) Procedures. Client agrees to comply with
------------------------- ----------
applicable regulatory requirements and procedures for use of Services
established by Fiserv.
(b) Changes. Fiserv continually reviews and modifies Fiserv systems used
-------
in the delivery of Services (the "Fiserv System") to improve service and comply
with government regulations, if any, applicable to the data and information
utilized in providing Services. Fiserv reserves the right to make changes in
Services, including but not limited to operating procedures, type of equipment
or software resident at, and the location of Fiserv's service center(s). Fiserv
will notify
2
<PAGE>
Client of any material change that affects Client's normal operating procedures,
reporting, or service costs prior to implementation of such change. Should
Fiserv discontinue the use of the Fiserv "ITI" System, the client shall have the
right to terminate this agreement.
(c) Communications Lines. Fiserv shall order the installation of
--------------------
appropriate communication lines and equipment to facilitate Client's access to
Services. Client understands and agrees to pay charges relating to the
installation and use of such lines and equipment as set forth in the Exhibits.
(d) Terminals and Related Equipment Client shall obtain necessary and
-------------------------------
sufficient terminals and other equipment, approved by Fiserv and compatible with
the Fiserv System, to transmit and receive data and information between Client's
location(s), Fiserv's service center(s), and/or other necessary location(s).
Fiserv and Client may mutually agree to change the type(s) of terminal and
equipment used by Client.
5. Client Obligations. (a) Input Client shall be solely responsible for
------------------ -----
the input, transmission, or delivery to and from Fiserv of all information and
data required by Fiserv to perform Services unless Client has retained Fiserv to
handle such responsibilities, as specifically set forth in the Exhibits. The
information and data shall be provided in a format and manner approved by
Fiserv. Client will provide at its own expense or procure from Fiserv all
equipment, computer software, communication lines, and interface devices
required to access the Fiserv System. If Client has elected to provide such
items itself, Fiserv shall provide Client with a list of compatible equipment
and software; Client agrees to pay Fiserv's standard fee (prevailing hourly
programming rate) for recertification of the Fiserv System resulting therefrom.
(b) Client Personnel. Client shall designate appropriate Client
----------------
personnel for training in the use of the Fiserv System, shall supply Fiserv with
reasonable access to Client's site during normal business hours for Conversion
Services and shall cooperate with Fiserv personnel in their performance of
Services, including Conversion Services.
(c) Use of Fiserv System. Client shall (i) comply with any operating
--------------------
instructions on the use of the Fiserv System provided by Fiserv; (ii) review all
reports furnished by Fiserv for accuracy; and (iii) work with Fiserv to
reconcile any out of balance conditions. Client shall determine and be
responsible for the authenticity and accuracy of all information and data
submitted to Fiserv.
(d) Client's Systems. Client shall be responsible for ensuring that its
----------------
systems are Year 2000 compliant and capable of passing and/or accepting date
formats from and/or to the Fiserv System.
6. Ownership and Confidentiality. (a) Definition.
----------------------------- ----------
(i) Client Information. "Client Information" means: (A)
------------------
confidential plans, customer lists, information, and other proprietary material
of Client that is marked with a restrictive
3
<PAGE>
legend, or if not so marked with such legend or is disclosed orally, is
identified as confidential at the time of disclosure (and written confirmation
thereof is promptly provided to Fiserv); and (B) any information and data
concerning the business and financial records of Client's customers prepared by
or for Fiserv, or used in any way by Fiserv in connection with the provision of
Fiserv Services (whether or not any such information is marked with a
restrictive legend); and (C) information that is not discloseable pursuant to
applicable Federal and/or state law
(ii) Fiserv Information. "Fiserv Information" means: (A)
------------------
confidential plans, information, research, development, trade secrets, business
affairs (including that of any Fiserv client supplier, or affiliate), and other
proprietary material of Fiserv that is marked with a restrictive legend, or if
not so marked with such legend or is disclosed orally, is identified as
confidential at the time of disclosure (and written confirmation thereof is
promptly provided to Client); and (B) Fiserv's proprietary computer programs,
including custom software modifications, software documentation and training
aids, and all data, code, techniques, algorithms, methods, logic, architecture,
and designs embodied or incorporated therein (whether or not any such
information is marked with a restrictive legend).
(iii) Information. "Information" means Client Information and Fiserv
-----------
Information. No obligation of confidentiality applies to any Information that
the receiving party ("Recipient") (A) already possesses without obligation of
confidentiality; (B) develops independently; or (C) rightfully receives without
obligation of confidentiality from a third party. No obligation of
confidentiality applies to any Information that is, or becomes, publicly
available without breach of this Agreement.
(b) Obligations. Recipient agrees to hold as confidential all
-----------
Information it receives from the disclosing party ("Discloser"). All Information
shall remain the property of Discloser or its suppliers and licensors.
Information will be returned to Discloser at the termination or expiration of
this Agreement. Recipient will use the same care and discretion to avoid
disclosure of Information as it uses with its own similar information that it
does not wish disclosed, but in no event less than a reasonable standard of
care. Recipient may use Information for any purpose that does not violate such
obligation of confidentiality. Recipient may disclose Information to (i)
employees and employees of affiliates who have a need to know; and (ii) any
other party with Discloser's written consent. Before disclosure to any of the
above parties, Recipient will have a written agreement with such party
sufficient to require that party to treat Information in accordance with this
Agreement. Recipient may disclose Information to the extent required by law.
However, Recipient agrees to give Discloser prompt notice so that it may seek a
protective order. The provisions of this sub-section survive any termination or
expiration of this Agreement.
(c) Residuals. Nothing contained in this Agreement shall restrict
---------
Recipient from the use of any ideas, concepts, know-how, or techniques contained
in Information that are related to Recipient's business activities
("Residuals"), provided that in so doing, Recipient does not breach its
obligations under this Section. However, this does not give Recipient the right
to disclose the Residuals except as set forth elsewhere in this Agreement.
4
<PAGE>
(d) Fiserv System. The Fiserv System contains information and computer
-------------
software that are proprietary and confidential information of Fiserv, its
suppliers, and licensors. Client agrees not to attempt to circumvent the devices
employed by Fiserv to prevent unauthorized access to the Fiserv System,
including, but not limited to, alterations, decompiling, disassembling,
modifications, and reverse engineering thereof.
(e) Confidentiality of this Agreement. Fiserv and Client agree to keep
---------------------------------
confidential the prices, terms and conditions of this Agreement without
disclosure to third parties.
7. Regulatory Agencies. Regulations and Legal Requirements. (a) Client
------------------------------------------------------- ------
Files. Records maintained and produced for Client ("Client Files") may be
- -----
subject to examination by such Federal, State, or other governmental regulatory
agencies as may have jurisdiction over Client's business to the same extent as
such records would be subject if maintained by Client on its own premises.
Client agrees that Fiserv is authorized to give all reports, summaries, or
information contained in or derived from the data or information in Fiserv's
possession relating to Client when formally requested to do so by an authorized
regulatory or government agency.
(b) Compliance with Regulatory Requirements. Client agrees to comply
---------------------------------------
with applicable regulatory and legal requirements, including without limitation:
(i) submitting a copy of this Agreement to the appropriate
regulatory agencies prior to the date Services commence;
(ii) providing adequate notice to the appropriate regulatory
agencies of the termination of this Agreement or any
material changes in Services;
(iii) retaining records of its accounts as required by regulatory
authorities;
(iv) obtaining and maintaining, at its own expense, any Fidelity
Bond required by any regulatory or governmental agency; and
(v) maintaining, at its own expense, such casualty and business
interruption insurance coverage for loss of records from
fire, disaster, or other causes, and taking such precautions
regarding the same, as may be required by regulatory
authorities.
5
<PAGE>
8. Warranties. (a) Fiserv Warranties. Fiserv represents and warrants
---------- -----------------
that:
(I) (A) Services will conform to the specifications set forth in the
Exhibits and to all applicable Fiserv documentation; (B) Fiserv will perform
Client's work accurately (include but not limited to: (i) the provision of
Fiserv Services before, during and after the Year 2000 and (ii) the processing
of date information, regardless of the century) provided that Client supplies
accurate data and information, and follows the procedures described in all
Fiserv documentation, notices, and advices; (C) Fiserv personnel will exercise
due care and follow applicable industry standards in provision of Services; (D)
the Fiserv System will comply in all material respects with all applicable
Federal and State regulations governing Services; and (E) the Fiserv System is
Year 2000 compliant (as defined below). In the event of an error or other
default caused by Fiserv personnel, systems, or equipment, Fiserv shall correct
the data or information and/or reprocess the affected item or report at no
additional cost to Client. Client agrees to supply Fiserv with a written request
for correction of the error within 7 days after Client's receipt of the work
containing the error. Work reprocessed due to errors in data supplied by Client
on Client's behalf by a third party, or by Client's failure to follow procedures
set forth by Fiserv shall be billed to Client at Fiserv's then current time and
material rates provided, however, that Fiserv agrees to obtain Client's prior
approval before performing such time and material work; and (II) it owns or has
a license to furnish all equipment or software comprising the Fiserv System.
Fiserv shall indemnify Client, its officers, directors, employees, and
affiliates and hold it harmless against any claim or action that alleges that
the Fiserv System use infringes a United States patent, copyright, or other
proprietary right of a third party. Client agrees to notify Fiserv promptly of
any such claim and grants Fiserv the sole right to control the defense and
disposition of all such claims. Client shall provide Fiserv with reasonable
cooperation and assistance in defense of any such claim. (III) (A) Fiserv
represents and warrants that the Fiserv system will: (a) calculate, sort,
report, and otherwise operate correctly and in a consistent manner for all date
information processed by the Fiserv System whether before; during or after the
Year 2000; (b) calculate, sort, report and otherwise operate correctly, in a
consistent manner and without material interruption regardless whether the date
on which the Fiserv System is operated or is executed is before, during or after
the Year 2000; and (c) handle all leap years including but not limited to the
Year 2000 leap year, correctly. Fiserv also represents and warrants that
neither the transition to Year 2000 nor any other date will have a material
adverse affect on Fiserv's provision of the Fiserv Services. Fiserv further
represents and warrants that it will perform all necessary testing to ensure
compliance with the other warranties contained in this paragraph. Fiserv shall
provide Client with regular monthly updates on the status of compliance and
testing related to Year 2000. In the event that Fiserv fails to meet the
compliance obligations contained in this paragraph, the Client may, at Client's
sole option: (1) demand a cure for such default, which Fiserv shall correct
promptly; (2) demand Fiserv to move Client to another Fiserv platform that is
Year 2000 compliant at no additional cost to Client; or (3) elect to terminate
this Agreement without the payment of any early termination fees. (B) The
Fiserv System and information delivered to Client, will not knowingly contain
any pre-programmed devices or "viruses" that would cause the Fiserv System or
any client system to be erased, become inoperable of processing or affect
operations of other systems, and (ii) Fiserv will employ throughout the term
commercially reasonable virus screening and other software and technology
designed to detect and/or prevent such viruses.
6
<PAGE>
THE WARRANTIES STATED ABOVE ARE LIMITED WARRANTIES AND ARE THE ONLY WARRANTIES
MADE BY FISERV. FISERV DOES NOT MAKE, AND CLIENT HEREBY EXPRESSLY WAIVES, ALL
OTHER WARRANTIES, INCLUDING WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE. THE STATED EXPRESS WARRANTIES AND OTHER OBLIGATIONS SET
FORTH IN THIS AGREEMENT ARE IN LIEU OF ALL LIABILITIES OR OBLIGATIONS OF FISERV
FOR DAMAGES ARISING OUT OF OR IN CONNECTION WITH THE DELIVERY, USE, OR
PERFORMANCE OF FISERV SERVICES.
(b) Client Warranties. Client represents and warrants that: (A) no
-----------------
contractual obligations exist that would prevent Client from entering into this
Agreement; (B) it has complied with all applicable regulatory requirements; and
(C) Client has requisite authority to execute, deliver, and perform this
Agreement. Client shall indemnify and hold harmless Fiserv, its officers,
directors, employees, and affiliates against any claims or actions arising out
of (X) the use by Client of the Fiserv System in a manner other than that
provided in this Agreement; and (Y) any and all claims by third parties through
Client arising out of the performance and non-performance of Fiserv Services by
Fiserv, provided that the indemnity listed in clause (Y) hereof shall not
--------
preclude Client's recovery of direct damages pursuant to the terms and subject
to the limitations of this Agreement
9. Limitation of Liability. (a) General. IN NO EVENT SHALL FISERV BE
----------------------- -------
LIABLE FOR LOSS OF GOODWILL, OR FOR SPECIAL, INDIRECT, INCIDENTAL, OR
CONSEQUENTIAL DAMAGES ARISING FROM CLIENT'S USE OF FISERV SERVICES, OR FISERV'S
SUPPLY OF EQUIPMENT OR SOFTWARE, REGARDLESS OF WHETHER SUCH CLAIM ARISES IN TORT
OR IN CONTRACT. CLIENT MAY NOT ASSERT ANY CLAIM AGAINST FISERV MORE THAN 2 YEARS
AFTER SUCH CLAIM ACCRUED. FISERV'S AGGREGATE LIABILITY FOR ANY AND ALL CAUSES OF
ACTION RELATING TO SERVICES SHALL BE LIMITED TO THE TOTAL FEES PAID BY CLIENT TO
FISERV FOR SERVICES RESULTING IN SUCH LIABILITY IN THE 2 MONTH PERIOD PRECEDING
THE DATE THE CLAIM ACCRUED. FISERV'S AGGREGATE LIABILITY FOR A DEFAULT RELATING
TO EQUIPMENT OR SOFTWARE SHALL BE LIMITED TO THE AMOUNT PAID BY CLIENT FOR THE
EQUIPMENT OR SOFTWARE.
(b) Lost Records. If Client's records or other data submitted for
------------
processing are lost or damaged as a result of any failure by Fiserv, its
employees, or agents to exercise reasonable care to prevent such loss or damage,
Fiserv's liability on account of such loss or damages shall not exceed the
reasonable cost of reproducing such records or data from exact duplicates
thereof in Client's possession.
10. Disaster Recovery. (a) General. Fiserv maintains a disaster recovery
----------------- -------
plan ("Disaster Recovery Plan") for each Service. A "Disaster" shall mean any
unplanned interruption of the operations of or inaccessibility to Fiserv's
service center in which Fiserv, using reasonable judgment, requires relocation
of processing to a recovery location. Fiserv shall notify Client as soon as
possible after Fiserv deems a service outage to be a Disaster. Fiserv shall move
the processing of Client's
7
<PAGE>
standard services to a recovery location as expeditiously as possible and shall
coordinate the cut-over to back-up telecommunication facilities with the
appropriate carriers. Client shall maintain adequate records of all transactions
during the period of service interruption and shall have personnel available to
assist Fiserv in implementing the switchover to the recovery location. During a
Disaster, optional or on-request services shall be provided by Fiserv only to
the extent adequate capacity exists at the recovery location and only after
stabilizing the provision of base services.
(b) Communications. Fiserv shall work with Client to establish a plan
--------------
for alternative communications in the event of a Disaster.
(c) Disaster Recovery Test. Fiserv shall test the Disaster Recovery
----------------------
Plan periodically. Client agrees to participate in and assist Fiserv with such
test, if requested by Fiserv. Upon Client request, test results will be made
available to Client's management, regulators, auditors, and insurance
underwriters.
(d) Client Plans. Fiserv agrees to release information necessary to
------------
allow Client's development of a disaster recovery plan that operates in concert
with the Disaster Recovery Plan.
(e) No Warranty. Client understands and agrees that the Disaster
-----------
Recovery Plan is designed to minimize, but not eliminate, risks associated with
a Disaster affecting Fiserv's service center(s). Fiserv does not warrant that
Fiserv Services will be uninterrupted or error free in the event of a Disaster;
no performance standards shall be applicable for the duration of a Disaster.
Client maintains responsibility for adopting a disaster recovery plan relating
to disasters affecting Client's facilities and for securing business
interruption insurance or other insurance necessary for Client's protection.
11. Termination. (a) Material Breach. Except as provided elsewhere in this
----------- ---------------
Section 11, either party may terminate this Agreement in the event of a material
breach by the other party not cured within 90 days following written notice
stating, with particularity and in reasonable detail, the nature of the claimed
breach.
(b) Failure to Pay. In the event any invoice remains unpaid by Client
--------------
30 days after due, or Client deconverts any data or information from the Fiserv
System without prior written consent of Fiserv, Fiserv, at its sole option, may
terminate this Agreement and/or Client's access to and use of Fiserv Services.
Any invoice submitted by Fiserv shall be deemed correct unless Client provides
written notice to Fiserv within 15 days of the invoice date specifying the
nature of the disagreement.
(c) Remedies. Remedies contained in this Section 11 are cumulative
--------
and are in addition to the other rights and remedies available to Fiserv under
this Agreement by law or otherwise.
(d) Defaults. If Client:
--------
8
<PAGE>
(i) defaults in the payment of any sum of money due;
(ii) breaches this Agreement in any material respect or
otherwise defaults in any material respect in the
performance of any of its obligations; or
(iii) commits an act of bankruptcy or becomes the subject of any
proceeding under the Bankruptcy Code or becomes insolvent
or if any substantial part of Client's property becomes
subject to any levy, seizure, assignment, application, or
sale for or by any creditor or governmental agency;
then, in any such event Fiserv may, upon written notice, terminate this
Agreement and be entitled to recover from Client as liquidated damages an amount
equal to the present value of all payments remaining to be made hereunder for
the remainder of the initial term or any renewal term of this Agreement. For
purposes of the preceding sentence, present value shall be computed using the
"prime" rate (as published in The Wall Street Journal) in effect at the date of
termination and "all payments remaining to be made" shall be calculated based on
the average bills for the 3 months immediately preceding the date of
termination. Client agrees to reimburse Fiserv for any expenses Fiserv may
incur, including reasonable attorneys' fees, in taking any of the foregoing
actions.
(e) Convenience. Client may terminate this Agreement during any term
-----------
by paying a termination fee based on the remaining unused term of this
Agreement, the amount to be determined by multiplying Client's largest monthly
invoice for each Fiserv Service received by Client during the term (or if no
monthly invoice has been received, the sum of the estimated monthly billing for
each Fiserv Service to be received hereunder) by 80% times the remaining months
of the term, plus any unamortized conversion fees or third party costs existing
on Fiserv's books on the date of termination. Client understands and agrees that
Fiserv losses incurred as a result of early termination of the Agreement would
be difficult or impossible to calculate as of the effective date of termination
since they will vary based on, among other things, the number of clients using
the Fiserv System on the date the Agreement terminates. Accordingly, the amount
set forth in the first sentence of this subsection represents Client's agreement
to pay and Fiserv's agreement to accept as liquidated damages (and not as a
penalty) such amount for any such Client termination.
(f) Merger. In the event of a merger between Client and another
------
organization in which Client is not the surviving organization and where the
other organization was not previously a user of Fiserv services similar to the
Services, Fiserv will allow an early termination of this Agreement upon the
following terms and conditions:
(i) written notice must be given 3 months in advance,
specifying the termination date;
(ii) Fiserv may specify a deconversion date based on its
previous commitments and work loads; and
(iii) Fiserv may charge a termination fee in accordance with
subsection (e) above.
9
<PAGE>
(g) Return of Data Files. Upon expiration or termination of this
--------------------
Agreement, Fiserv shall furnish to Client such copies of Client Files as Client
may request in Fiserv's standard machine readable format along with such
information and assistance as is reasonable and customary to enable Client to
deconvert from the Fiserv System, provided, however, that Client consents and
--------- -------
agrees and authorizes Fiserv to retain Client Files until (i) Fiserv is paid in
full for (A) all Services provided through the date such Client Files are
returned to Client; and (B) any and all other amounts that are due or will
become due under this Agreement; (ii) Fiserv is paid its then standard rates for
the services necessary to return such Client Files; (iii) if this Agreement is
being terminated, Fiserv is paid any applicable termination fee pursuant to
subsection (d), (e), or (f) above; and (iv) Client has returned to Fiserv all
Fiserv Information. Unless directed by Client in writing to the contrary, Fiserv
shall be permitted to destroy Client Files any time after 30 days from the final
use of Client Files for processing.
(h) Miscellaneous. Client understands and agrees that Client is
-------------
responsible for the deinstallation and return shipping of any Fiserv-owned
equipment located on Client's premises.
(i) In the event the bank does not open as the result of the
Client's inability to obtain a charter, this agreement shall be deemed null and
void. In this case, Client agrees to pay Fiserv a termination fee of $ 5,000.00,
less any one-time amount previously paid for conversion services, and reimburse
Fiserv for all out of pocket expenses.
12. Arbitration. (a) General. Except with respect to disputes arising from
----------- -------
a misappropriation or misuse of either party's proprietary rights, any dispute
or controversy arising out of this Agreement, or its interpretation, shall be
submitted to and resolved exclusively by arbitration under the rules then
prevailing of the American Arbitration Association, upon written notice of
demand for arbitration by the party seeking arbitration, setting forth the
specifics of the matter in controversy or the claim being made. The arbitration
shall be heard before an arbitrator mutually agreeable to the parties; provided,
that if the parties cannot agree on the choice of arbitrator within 10 days
after the first party seeking arbitration has given written notice, then the
arbitration shall be heard by three arbitrators, one chosen by each party, and
the third chosen by those two arbitrators. The arbitrators will be selected from
a panel of persons having experience with and knowledge of information
technology and at least one of the arbitrators selected will be an attorney. A
hearing on the merits of all claims for which arbitration is sought by either
party shall be commenced not later than 60 days from the date demand for
arbitration is made by the first party seeking arbitration. The arbitrator(s)
must render a decision within 10 days after the conclusion of such hearing. Any
award in such arbitration shall be final and binding upon the parties and the
judgment thereon may be entered in any court of competent jurisdiction.
(b) Applicable Law. The arbitration shall be governed by the United
--------------
States Arbitration Act 9 U.S.C. 1-16. The arbitrators shall apply the
substantive law of the State of Wisconsin, without reference to provisions
relating to conflict of laws. The arbitrators shall not have the power to alter,
modify, amend, add to, or subtract from any term or provision of this Agreement
nor to rule upon or grant any extension, renewal, or continuance of this
Agreement. The arbitrators
10
<PAGE>
shall have the authority to grant any legal remedy available had the parties
submitted the dispute to a judicial proceeding.
(c) Situs. If arbitration is required to resolve any disputes between
-----
the parties, the proceedings to resolve the first such dispute shall be held in
Milwaukee, Wisconsin, the proceedings to resolve the second such dispute shall
be held in Baltimore, Maryland and the proceedings to resolve any subsequent
disputes shall alternate between Milwaukee, Wisconsin and Baltimore, Maryland.
13. Insurance. Fiserv carries the following types of insurance policies:
---------
(i) Comprehensive General Liability in an amount not less than
$1 million per occurrence for claims arising out of bodily
injury and property damage;
(ii) Commercial Crime covering employee dishonesty in an amount
not less than $5 million;
(iii) All-risk property coverage including Extra Expense and
Business Income coverage; and
(iv) Workers Compensation as mandated or allowed by the laws of
the state in which Services are being performed, including
$500,000 coverage for Employer's Liability.
14. Audit Fiserv employs an internal auditor responsible for ensuring the
-----
integrity of its processing environments and internal controls. In addition,
Fiserv provides for periodic independent audits of its operations. Fiserv shall
provide Client with a copy of the audit of the Fiserv service center providing
Services within a reasonable time after its completion and shall charge each
client a fee based on the pro rata cost of such audit. Fiserv shall also provide
a copy of such audit to the appropriate regulatory agencies, if any, having
jurisdiction over Fiserv's provision of Services.
15. General. (a) Binding Agreement. This Agreement is binding upon the
------- -----------------
parties and their respective successors and permitted assigns. Neither this
Agreement nor any interest may be sold, assigned, transferred, pledged, or
otherwise disposed of by Client whether pursuant to change of control or
otherwise, without Fiserv's prior written consent. Client agrees that Fiserv may
subcontract any Services to be performed hereunder. Any such subcontractors
shall be required to comply with all applicable terms and conditions.
(b) Entire Agreement. This Agreement including its Exhibits, which
----------------
are expressly incorporated herein by reference, constitutes the complete and
exclusive statement of the agreement between the parties as to the subject
matter hereof and supersedes all previous agreements with respect thereto.
Modifications of this Agreement must be in writing and signed by duly authorized
representatives of the parties. Each party hereby acknowledges that it has not
entered into this Agreement in reliance upon any representation made by the
other party not embodied herein. In the event any of the provisions of any
Exhibit are in conflict with any of the provisions of this Agreement
11
<PAGE>
the terms and provisions of this Agreement shall control unless the Exhibit in
question expressly provides that its terms and provisions shall control.
(c) Severability. If any provision of this Agreement is held to be
------------
unenforceable or invalid, the other provisions shall continue in full force and
effect.
(d) Governing Law. This Agreement will be governed by the substantive
-------------
laws of the State of Wisconsin, without reference to provisions relating to
conflict of laws. The United Nations Convention of Contracts for the
International Sale of Goods shall not apply to this Agreement.
(e) Force Majeure. Neither party shall be responsible for delays or
-------------
failures in performance resulting from acts reasonably beyond the control of
that party.
(f) Notices. Any written notice required or permitted to be given
-------
hereunder shall be given by: (i) Registered or Certified Mail, Return Receipt
Requested, postage prepaid; (ii) confirmed facsimile; or (iii) nationally
recognized courier service to the other party at the addresses listed on the
cover page or to such other address or person as a party may designate in
writing. All such notices shall be effective upon receipt.
(g) No Waiver. The failure of either party to insist on strict
---------
performance of any of the provisions hereunder shall not be construed as the
waiver of any subsequent default of a similar nature.
(h) Financial Statements. Upon request, Fiserv shall provide Client
--------------------
and the appropriate regulatory agencies so requiring a copy of Fiserv, Inc.'s
audited consolidated financial statements.
(i) Prevailing Party. The prevailing party in any arbitration, suit
----------------
or action brought against the other party to enforce the terms of this Agreement
or any rights or obligations hereunder, shall be entitled to receive its
reasonable costs, expenses, and attorneys' fees of bringing such arbitration,
suit or action.
(j) Survival. All rights and obligations of the parties under this
--------
Agreement that, by their nature, do not terminate with the expiration or
termination of this Agreement shall survive the expiration or termination of
this Agreement.
(k) Exclusivity. Client agrees that Fiserv shall be the sole and
-----------
exclusive provider of the services that are the subject matter of this
Agreement. For purposes of the foregoing, the term "Client" shall include Client
affiliates, excluding non-traditional banking entities. During the term of this
Agreement, Client agrees not to enter into an agreement with any other entity to
provide these services (or similar services) without Fiserv's prior written
consent. If Client acquires another entity, the exclusivity provided to Fiserv
hereunder shall take effect with respect to such acquired entity as
12
<PAGE>
soon as practicable after termination of such acquired entity's previously
existing arrangement for these services. If Client is acquired by another
entity, the exclusivity provided to Fiserv hereunder shall apply with respect to
the level or volume of these services provided immediately prior to the signing
of the definitive acquisition agreement relating to such acquisition and shall
continue with respect to the level or volume of these services until any
termination or expiration of this Agreement.
(l) Recruitment of Employees. Client agrees not to hire Fiserv's
------------------------
employees during the term of this Agreement and for a period of 6 months after
any termination or expiration thereof, except with Fiserv's prior written
consent
________________________________________________________________________________
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized representatives as of the date indicated below.
For Client For Fiserv:
HARBOR CAPITAL NATIONAL BANK FISERV SOLUTIONS, INC.
(In Formation)
By:________________________________ By:________________________________
Name:______________________________ Name:______________________________
Title:_____________________________ Title:_____________________________
Date:______________________________ Date:______________________________
13
<PAGE>
Exhibit A
Account Processing Services
---------------------------
Client agrees with Fiserv as follows:
1. Services. Fiserv will provide Client the Account Processing Services
--------
("Account Processing Services") specified in Exhibit A-1.
2. Fees. Client shall pay Fiserv fees and other charges for Account
----
Processing Services specified in Exhibit A-1.
3. Responsibility for Accounts. Client shall be responsible for balancing
---------------------------
its accounts each business day and notifying Fiserv immediately of any errors or
discrepancies. Provided that Client immediately notifies Fiserv of any
discrepancy in Client's accounts, Fiserv shall, at its expense, promptly
recompute accounts affected by discrepancies solely caused by the Fiserv Systems
or provide for another mutually agreeable resolution. Fiserv will use its
commercially reasonable efforts to correct errors attributable to Client or
Client's other third party servicers. Reconstruction of error conditions
attributable to Client or to third parties acting on Client's behalf will be
done at prevailing rates as set forth in Exhibit A-1.
4. Annual Histories. Fiserv currently maintains annual histories, where
----------------
applicable, for its clients. These histories can be used to reconstruct Client
Files in an emergency. However, in order to permit prompt and accurate
reconstruction of accounts, Client agrees to retain at all times and make
available to Fiserv upon request the most recent data printout(s) received from
Fiserv, together with copies or other accurate and retrievable records of all
transactions to be reflected on the next consecutive printout(s).
5. Hours of Operation. Account Processing Services will be available for
------------------
use by Client during standard Fiserv business hours, excluding holidays, as
specified in Exhibit A-2. Account Processing Services may be available during
additional hours, during which time Client may use Services at its option and
subject to additional charges.
6. Performance Standards. The Fiserv performance standards for the
---------------------
Account Processing Services ("Performance Standards") are set forth. In no event
shall Fiserv be liable to Client for damages of any nature arising solely from
failure by Fiserv to meet Performance Standards.
7. Protection of Data. (a) For the purpose of compliance with applicable
------------------
government regulations, Fiserv has an operations backup center, for which Client
agrees to pay the charges indicated in Exhibit A-1. Copies of transaction files
are maintained by Fiserv off premises in secured vaults.
14
<PAGE>
(b) Fiserv provides "on-line" security via utilization of the frame
relay network and associated appropriate Client connectivity.
(c) Upon Client providing access to Client Files through Client's
customers' personal computers or voice response system, Client agrees to
indemnify and hold harmless Fiserv, its officers, directors, employees, and
affiliates against any claims or actions arising out of such access to Client
Files or any Fiserv files (including the files of other Fiserv clients) or the
Fiserv System or other Fiserv systems.
8. Processing Priority. Fiserv does not subscribe to any processing
-------------------
priority; all users receive equal processing consideration.
9. Forms and Supplies. Client assumes and will pay the charges for all
------------------
customized forms, supplies, and delivery charges. Custom forms ordered through
Fiserv will be subject to a 15% administrative fee for warehousing and inventory
control. Forms ordered by Client and warehoused at Fiserv will be subject to the
administrative fee.
10. Regulatory Supervision. By entering into this Agreement, Fiserv agrees
----------------------
that the Office of the Comptroller of the Currency, FDIC, or other regulatory
agencies having authority over Client's operations shall have the authority and
responsibility provided to the regulatory agencies pursuant to the Bank Service
Corporation Act, 12 U.S.C. 1867(C) relating to services performed by contract or
otherwise.
15
<PAGE>
Exhibit 10.7
FOUNDER LOAN AGREEMENT
----------------------
THIS FOUNDER LOAN AGREEMENT (this "Agreement") is entered into by and among
each of the individuals executing this Agreement (each a "Lender" and
collectively, the "Lenders") and HCNB BANCORP, INC., a Maryland corporation (the
"Company").
WHEREAS, on February 24, 1998, the Company was incorporated under the laws
of the State of Maryland primarily to own all of the outstanding capital stock
of a de novo national bank
to be named Harbor Capital National Bank (the "Bank"); and
WHEREAS, on December 16, 1998, certain of the Lenders (the "Organizers")
filed an application with the Office of Comptroller of the Currency ("OCC") to
charter the Bank as a national bank; and
WHEREAS, the Organizers intend to file an application with the Board of
Governors of the Federal Reserve System for the Company to become a bank
holding company; and
WHEREAS, the Company intends to offer to the public (the "Offering") shares
of its common stock (the "Common Stock") pursuant to a registration statement
filed with the Securities and Exchange Commission (the "SEC"); and
WHEREAS, subject to regulatory approval, each Organizer will serve as
either an officer or director of the Company and the Bank; and
WHEREAS, in furtherance of the transactions described above (the
"Transactions"), each Lender desires to lend funds or has loaned funds to the
Company on a non-recourse basis to pay for the expenses incurred or to be
incurred in connection with the Transactions, in the amount set opposite such
Lender's name on the signature page of this Agreement; and
WHEREAS, the Lenders understand that if the necessary regulatory approvals
are not obtained or if the Bank does not commence banking operations for any
reasons or if the Company does not sell at least 700,000 shares of Common Stock
in the Offering, the Lenders may not receive the repayment of any of the funds
loaned by them to the Company; and
WHEREAS, the Lenders and the Company intend by this Agreement to delineate
their respective rights and obligations with respect to their loans to the
Company.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereby agree as
follows:
1. THE LOANS; REPAYMENT OR OTHER SATISFACTION. In accordance with this
Agreement, each Lender hereby agrees to loan to the Company on a non-recourse
basis the
<PAGE>
amount set forth opposite his name on the signature page of this Agreement (the
"Loan Amount"). All Loan Amounts shall bear interest accruing at the rate of 5%
per annum.
Each Lender agrees that the Company is obligated to repay such loans only (x)
from the proceeds of the Offering, or, (y) at the Lender's option, by the
issuance of shares of Common Stock in the Offering in satisfaction of such loan.
Such repayment by cash or stock shall be made on the date that proceeds of the
Offerings are first released from escrow and made available to the Company. The
Lenders further agree that if the Offering has not been successfully completed
for any reason by December 31, 1999, the Company shall be dissolved and
liquidated and each of the Lenders shall: (i) receive, on a pro rata basis based
upon the loans made by all of the Lenders, a portion of any of the Company's
remaining assets (after the satisfaction of all liabilities to all other
creditors); and (ii) accept such distribution in full satisfaction of any
amounts due from the Company to the Lenders pursuant to this Agreement.
2. DEPOSIT AND EXPENDITURE OF FUNDS.
a. All funds collected from the Lenders pursuant to this Agreement (the
"Lenders' Funds") have been or will be deposited into an account (the "Loan
Account") established with FMB Bank. Each Lender shall disburse the Loan Amount
to the Company in the following installments due on the following dates:
$10,000 October 31, 1998 $10,000 February 28, 1999
$10,000 December 31, 1998 $10,000 March 31, 1999
$20,000 January 31, 1999 $20,000 April 15, 1999
b. The proper officers of the Company may withdraw funds from the Loan
Account, such funds to be used to pay normal and customary expenses relating to
the Transactions, including, but not limited to, the following: (a) expenses
arising from or relating to the organization, capitalization and operation of
the Company or the Bank; (b) expenses arising from or relating to the Offering;
(c) accounting, legal and due diligence expenses relating to or in connection
with the Transactions; and (d) other expenses arising from or directly relating
to the Transactions. The Lenders hereby acknowledge that the Company will make
withdrawals from the Loan Account when and as funds are deposited, and,
accordingly, if the Offering is not successfully completed, the Lenders will not
receive a repayment of 100% of the Loan Amounts, and may not receive the return
of any of the Loan Amounts.
3. REPRESENTATIONS, WARRANTIES AND COVENANTS. Each Lender hereby
represents and warrants to, and acknowledges to and agrees with, the Company,
the Bank and each other Lender as follows:
(a) Each Lender recognizes that the Bank is a de novo bank to be
organized in the future and has no financial or operating history, that the
organization and operation of the Company and the Bank entails significant
risks, including, without limitation, that the organization of the Company and
the Bank is subject to regulatory approvals and that there are no assurances
that such
- 2 -
<PAGE>
approvals will be obtained and that the Offering may never be commenced, and
that even if commenced, it may be unsuccessful and not raise sufficient funds to
repay the indebtedness arising from the funds loaned by the Lenders to the
Company pursuant to this Agreement.
(b) Within five days after receipt of a request from the Company, each
Lender hereby agrees to provide such information and to execute and deliver such
documents as may be reasonably necessary to comply with any and all laws and
ordinances to which the Company or the Bank is subject.
4. TERMINATION OF PRIOR AGREEMENTS. In the event that any Lender has
entered into any other agreement with the Company or the Bank which is in any
way related to the Transactions, such agreement is hereby terminated and of no
further force or effect.
5. INDEMNIFICATION. Each Lender agrees to indemnify and hold harmless
the Company, the Bank and each of the other Lenders and all of their respective
agents and representatives who are associated with the Transactions and all of
the officers and directors of the Company and the proposed officers and
directors of the Bank against any and all loss, liability, claim, damage and
expense whatsoever (including, but not limited to, any and all expenses
reasonably incurred in investigating, preparing or defending against any
litigation commenced or threatened or any claim whatsoever) arising out of or
based upon any false representations or warranty or breach or failure by the
Lender to comply with any covenant or agreement made by the Lender in this
Agreement.
6. IRREVOCABILITY; BINDING EFFECT. Each Lender hereby acknowledges and
agrees that: (a) the Lender is not entitled to cancel, terminate or revoke this
Agreement; and (b) this Agreement shall survive the death or disability of the
Lender and shall be binding upon and inure to the benefit of the parties and
their heirs, executors, administrators, successors, legal representatives and
assigns.
7. MODIFICATION. Neither this Agreement nor any provisions hereof shall
be waived, modified, discharged or terminated except by an instrument in writing
signed by the party against whom any such waiver, modification, discharge or
termination is sought.
8. NOTICES. Any notice, demand or other communication which any party
hereto may be required, or may elect, to give to any other party hereunder shall
be sufficiently given if: (a) deposited, postage prepaid, in a United States
mail box, stamped registered or certified mail, return receipt requested,
addressed to (i) a Lender at his address as on file with the Company or (ii) the
Company at 1682 E. Gude Drive, Suite 102D, Rockville, Maryland 20850; or (b)
delivered personally at such address.
9. COUNTERPARTS. This Agreement may be executed through the use of one
or more counterparts, and each counterpart shall, for all purposes, constitute
one agreement binding on all parties, notwithstanding that all parties are not
signatories to the same counterpart.
- 3 -
<PAGE>
10. ENTIRE AGREEMENT. This Agreement contains the entire agreement of the
parties with respect to the subject matter hereof and there are no
representations, covenants or other agreements except as stated or referred to
herein.
11. SEVERABILITY. Each provision of this Agreement is intended to be
severable from every other provision, and the invalidity or illegality of any
portion hereof shall not affect the validity or legality of the remainder
hereof.
12. ASSIGNABILITY. This Agreement is not transferable or assignable by
any of the undersigned.
13. HEADINGS. All headings in this Agreement are included herein for
convenience of reference only, and shall not be deemed to affect the meaning or
construction of any of the provisions hereof.
14. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Maryland applied to residents of that
state executing contracts wholly to be performed in that state.
15. CERTIFICATE OF NON-FOREIGN STATUS. Each Lender declares that, to the
best of his knowledge and belief, the following statements are true, correct and
complete: (a) that unless an Internal Revenue Service Form 4224 has been
completed, the Lender is not a foreign person for purposes of U.S. income
taxation (i.e., he is not a nonresident alien, nor executing this document as an
officer of a foreign corporation, as a partner in a foreign partnership, or as a
fiduciary of a foreign employee benefit plan, foreign trust or foreign estate)
and (b) that the Lender agrees to inform the Company promptly if each of the
Lender becomes a nonresident alien.
16. ADDITIONAL LENDERS. Notwithstanding anything to the contrary
contained in this Agreement, the Company may add additional Lenders (an
"Additional Lender") to this Agreement without obtaining the consent of the
other Lenders executing this Agreement, and to the extent the Lenders make any
representations, warranties or agreements to each other pursuant to this
Agreement, such representations, warranties or agreements shall also be deemed
made to the Additional Lenders.
IN WITNESS WHEREOF, the Lenders and the Company have executed and delivered
this Agreement under their respective seals as of the date indicated under the
parties' signature.
[SIGNATURES BEGIN ON FOLLOWING PAGE]
- 4 -
<PAGE>
Amount of Loan:
$80,000*
- ---------------------------- ----------------------------------
Michael J. Burke
Date:
$80,000*
- ---------------------------- ----------------------------------
Chi Ping Penny Chow
Date:
$80,000*
- ---------------------------- ----------------------------------
Harvey S. Fenster
Date:
$80,000*
- ---------------------------- ----------------------------------
Wayne A. Harrison
Date:
$80,000*
- ---------------------------- ----------------------------------
Li-min Lee
Date:
$80,000*
- ---------------------------- ----------------------------------
Robert K. Wang
Date:
* The loans will be disbursed by the above-named Lenders in the installments
described in Section 2 of this Agreement.
- 5 -
<PAGE>
EXHIBIT 21.1
Harbor Capital National Bank will be a wholly-owned subsidiary of HCNB Bancorp,
Inc.
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
and to all references to our Firm included in or made part of this Registration
Statement.
/s/ Jameson & Associates P.A.
Baltimore, Maryland
March 1, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> FEB-24-1998
<PERIOD-END> DEC-31-1998
<CASH> 8,341
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 0
<ALLOWANCE> 0
<TOTAL-ASSETS> 47,763
<DEPOSITS> 0
<SHORT-TERM> 0
<LIABILITIES-OTHER> 176,702
<LONG-TERM> 0
0
0
<COMMON> 0
<OTHER-SE> (128,939)
<TOTAL-LIABILITIES-AND-EQUITY> 47,763
<INTEREST-LOAN> 0
<INTEREST-INVEST> 0
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 0
<INTEREST-DEPOSIT> 0
<INTEREST-EXPENSE> 0
<INTEREST-INCOME-NET> 0
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 128,939
<INCOME-PRETAX> 0
<INCOME-PRE-EXTRAORDINARY> (128,939)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (128,939)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> 0
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 0
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 0
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
