<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-4
Registration Statement Under the Securities Act of 1933
CENTENNIAL FIRST FINANCIAL SERVICES
(Exact Name of Registrant as Specified in Its Charter)
CALIFORNIA 6021 91-1995265
- - ------------------------------ ------------------------- -------------------
(State or Other (Primary Standard (I.R.S. Employer
Jurisdiction of Incorporation Industrial Classification Identification No.)
or Organization) Code Number)
218 EAST STATE STREET, REDLANDS, CALIFORNIA 92373, (909) 798-3611
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(Address and Telephone Number of Principal Executive Offices)
218 EAST STATE STREET, REDLANDS, CALIFORNIA 92373
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(Address of Principal Place of Business)
DOUGLAS C. SPENCER, PRESIDENT & CEO
218 EAST STATE STREET, REDLANDS, CALIFORNIA 92373, (909) 798-3611
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(Name, Address and Telephone of Agent for Service)
Copy to:
Gary Steven Findley, Esq., Gary Steven Findley & Associates
1470 North Hundley Street, Anaheim, California 92806, (714) 630-7136
Approximate date of commencement of proposed sale of the securities to the
public: As soon as practicable after the effective date.
If the securities being registered on this form are being offered in connection
with the formation of a holding company and there is compliance with General
Instruction G, check the following box. [ X ]
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
- - -------------------------.
If this form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
- - -------------------------.
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CALCULATION OF REGISTRATION FEE
- - -----------------------------------------------------------------------------------------------------------------
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Title of each Class Proposed Maximum Proposed Maximum
of Securities to Amount to be Offering Price Aggregate Amount of
be Registered Registered(1) Per Unit Offering Price(2) Registration Fee
- - -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common stock(1) 753,469 $14.50 $10,925,300 $3,037.24
(No Par Value)
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</TABLE>
(1) Represents the maximum number of shares of the Registrant's Common
Stock to be issued in connection with the Merger described herein.
(2) Estimated pursuant to Rule 457(f)(1) solely for the purpose of
calculating the registration fee.
<PAGE>
REDLANDS CENTENNIAL BANK
November 10, 1999
Dear Shareholder:
You are cordially invited to attend the Special Meeting of Shareholders of
Redlands Centennial Bank, which will be held at 218 East State Street, Redlands,
California on Wednesday, December 1, 1999 at 6:00 p.m. The purpose for this
Special Meeting of Shareholders is for shareholders to vote on a Plan of
Reorganization and Agreement of Merger dated September 24, 1999, which details
the reorganization of Redlands Centennial. Following the reorganization,
Redlands Centennial will become a wholly owned subsidiary of a new holding
company, Centennial First Financial Services. In the reorganization, all of the
shareholders of Redlands Centennial will become shareholders of Centennial. The
reorganization is subject to certain conditions including shareholder and
regulatory approvals.
Redlands Centennial is requesting your proxy to vote in favor of the plan of
reorganization. As part of the reorganization, each share of Redlands Centennial
common stock will be exchanged for one share of Centennial common stock. The
Board of Directors of Redlands Centennial recommends that you vote for approval
of the plan of reorganization. The plan of reorganization is attached as Exhibit
A to the proxy statement/prospectus.
The proxy statement/prospectus contains information about Centennial and
Redlands Centennial and describes the conditions upon which the proposed
reorganization will occur. A majority of the outstanding shares of Redlands
Centennial's common stock must vote in favor in order to approve the plan of
reorganization, so we urge you to cast your vote.
To ensure that your vote is represented at this important meeting, please sign,
date and return the proxy card in the enclosed envelope as promptly as possible.
Sincerely,
Douglas C. Spencer
President and Chief Executive Officer
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
REGULATORS HAVE APPROVED EITHER THE REORGANIZATION DESCRIBED IN THIS PROXY
STATEMENT/PROSPECTUS OR THE CENTENNIAL COMMON STOCK TO BE ISSUED IN THE
REORGANIZATION, NOR HAVE THEY DETERMINED IF THIS PROXY STATEMENT/PROSPECTUS IS
ACCURATE OR ADEQUATE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The Date of this Proxy Statement/Prospectus is November 10, 1999
<PAGE>
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
REDLANDS CENTENNIAL BANK
TO: THE SHAREHOLDERS OF
REDLANDS CENTENNIAL BANK
Notice is hereby given that, pursuant to its Bylaws and the call of its Board of
Directors, a Special Meeting of Shareholders of Redlands Centennial Bank will be
held at 218 East State Street, Redlands, California on Wednesday, December 1,
1999, at 6:00 p.m., for the purpose of considering and voting upon a Plan of
Reorganization and Agreement of Merger dated September 24, 1999. The plan of
reorganization sets forth the terms of the reorganization of Redlands Centennial
into a wholly-owned subsidiary of a newly formed holding company, Centennial
First Financial Services. As a result, all shareholders of Redlands Centennial
will receive for their shares of Redlands Centennial's common stock an equal
number of shares of Centennial's common stock. These transactions are more fully
described in the enclosed proxy statement/prospectus, and in the plan of
reorganization which is attached as Exhibit A to the proxy statement/prospectus.
The Board of Directors has fixed the close of business on October 4, 1999 as the
record date for determination of shareholders entitled to notice of, and the
right to vote at, the meeting.
Since the affirmative vote of shareholders holding not less than a majority of
the outstanding shares of Redlands Centennial's common stock is required to
ratify and confirm the plan of reorganization, it is essential that all
shareholders vote. You are urged to vote in favor of the proposal by signing and
returning the enclosed proxy as promptly as possible, whether or not you plan to
attend the meeting in person. If you do attend the meeting you may then withdraw
your proxy. The proxy may be revoked at any time prior to its exercise.
By Order of the Board of Directors
Dated: November 10, 1999 --------------------------------
Sally Flanders, Secretary
<PAGE>
PROXY STATEMENT OF REDLANDS CENTENNIAL BANK
PROSPECTUS OF CENTENNIAL FIRST FINANCIAL SERVICES
Redlands Centennial is providing this Proxy Statement of Redlands Centennial
Bank and Prospectus of Centennial First Financial Services to shareholders of
Redlands Centennial Bank in connection with the Special Meeting of Shareholders
of Redlands Centennial to be held at 218 East State Street, Redlands, California
on December 1, 1999 at 6:00 p.m.
Shareholders of Redlands Centennial will vote upon a proposal to approve the
principal terms of the Plan of Reorganization and Agreement of Merger dated
September 24, 1999. Under the plan of reorganization, shareholders of
Redlands Centennial will receive shares of Centennial First Financial
Services common stock for their shares of Redlands Centennial's common stock.
After the reorganization, Redlands Centennial will be the sole wholly-owned
subsidiary of Centennial, and shareholders of Redlands Centennial immediately
before the reorganization will maintain their proportional interest in
Centennial immediately after the reorganization.
You should rely only on the information contained in this proxy
statement/prospectus or other information referred to in this document.
Neither Redlands Centennial nor Centennial has authorized anyone to provide
you with different or other information. This proxy statement/prospectus is
dated November 10, 1999. You should not assume that the information contained
in this proxy statement/prospectus is accurate as of any dat other than that
date, and neither the mailing of this proxy statement/prospectus to
shareholders nor the issuance of shares of Centennial in the reorganization
shall create any implication to the contrary.
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PROXY STATEMENT/PROSPECTUS
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
Summary of Proxy Statement/Prospectus.............................................................................1
Introduction......................................................................................................3
Revocability of Proxies...........................................................................................3
Persons Making The Solicitation...................................................................................3
Voting Securities.................................................................................................4
Shareholdings of Certain Beneficial Owners And Management.........................................................4
Bank Holding Company Reorganization And Merger
Between Redlands Centennial And RCB..............................................................................5
General ................................................................................................5
Recommendation of Directors..............................................................................6
Reasons for the Reorganization: Benefits of the Use of Holding
Company Form to the Shareholders of Redlands Centennial................................................6
Description of the Reorganization and Merger
between Redlands Centennial and RCB....................................................................6
Ratification and Approval of the plan of reorganization: Effective Date.................................8
Federal Income Tax Consequences..........................................................................8
Comparison of Redlands Centennial and Centennial: Analysis of Corporate Structures......................9
Authorized and Outstanding Stock........................................................................10
Voting Rights...........................................................................................10
Dividend Rights.........................................................................................11
Assessment of Shares....................................................................................12
Liquidation Rights......................................................................................12
Preemptive Rights.......................................................................................12
Directors...............................................................................................12
Rights of Dissenting Shareholders of Redlands Centennial................................................12
Corporate Operation and Management .....................................................................13
Operations Under Centennial......................................................................................13
Organization............................................................................................13
Management and Directors of Centennial..................................................................13
Supervision and Regulation of Centennial................................................................14
Indemnification of Centennial's
Directors and Officers .................................................................................15
</TABLE>
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TABLE OF CONTENTS
<TABLE>
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PAGE
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RCB Merger Company...............................................................................................16
General Background......................................................................................16
Initial Capitalization..................................................................................16
Redlands Centennial..............................................................................................17
General ...............................................................................................17
Banking Services........................................................................................18
Competition.............................................................................................18
Premises ...............................................................................................19
Legal Proceedings.......................................................................................19
Supervision and Regulation of Redlands Centennial.......................................................19
Capital Ratios .........................................................................................22
Year 2000 Issues .......................................................................................22
Selected Financial Information...................................................................................23
Price Range of Redlands Centennial's Common Stock................................................................23
Dividends........................................................................................................24
Unaudited Pro Forma Capitalization ..............................................................................24
Book Value of Redlands Centennial's Common Stock ................................................................25
Financial Statements And Related Matters.........................................................................26
Management of Redlands Centennial ...............................................................................26
Directors and Executive Officer ........................................................................26
Executive Compensation..................................................................................28
Employment Agreements...................................................................................30
Compensation of Directors...............................................................................32
Legal Matters....................................................................................................32
Exhibit A: Plan of Reorganization and Agreement of Merger....................................................A-1
Redlands Centennial Bank Financial Report .......................................................................F-1
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ii
<PAGE>
SUMMARY OF PROXY STATEMENT/PROSPECTUS
This Summary is qualified in its entirety by the more detailed information
appearing elsewhere herein.
Redlands Centennial incorporated Centennial under California law for the purpose
of becoming the holding company for Redlands Centennial. Upon completion of the
reorganization as described in the Plan of Reorganization and Agreement of
Merger dated September 24, 1999, attached hereto as Exhibit A, the business
activities of Centennial will initially consist solely of the operation of
Redlands Centennial as a wholly-owned bank subsidiary. It is possible that in
the future Centennial may acquire or commence additional businesses; however, no
specific acquisitions or new business activities are currently planned.
After the reorganization, Redlands Centennial will continue its current business
and operations as a California state-chartered bank under its current existing
name. The existing charter and bylaws of Redlands Centennial will not be
substantially affected by the reorganization. See "Bank Holding Company
Reorganization And Merger Between Redlands Centennial And RCB."
The principal executive offices of Redlands Centennial and Centennial are
located at 218 East State Street, Redlands, California 92373, and the telephone
number is (909)798-3611.
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Description of The Centennial will become the holding company for Redlands
Reorganization Centennial pursuant to the plan of reorganization. Under the
plan of reorganization Redlands Centennial organized RCB as a
wholly-owned subsidiary of Centennial. Redlands Centennial will
be merged with and into RCB with Redlands Centennial as the surviving
corporation. The shareholders of Redlands Centennial will receive
shares of Centennial's common stock on a one-for-one basis for their
shares of Redlands Centennial's common stock. The shareholders of
Redlands Centennial will thus become the sole shareholders of Centennial
in its form as the holding company for Redlands Centennial. The
reorganization is subject to certain conditions including shareholder and
regulatory approvals. See "Bank Holding Company Reorganization And
Merger Between Redlands Centennial And RCB - Description of the
Reorganization and Merger between Redlands Centennial and RCB."
Reasons For The The reorganization will provide greater flexibility for
Reorganization operations and future expansion. See "Bank Holding
Company Reorganization And Merger Between Redlands
Centennial And RCB -- Reasons for the Reorganization:
Benefits of the Use of Holding Company Form to the
Shareholders of Redlands Centennial."
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Tax Consequences of The plan of reorganization is structured to qualify the
The Reorganization reorganization as a tax-free reorganization so that, among
other things, no gain or loss will be recognized by the shareholders of
Redlands Centennial upon the exchange of their shares of Redlands
Centennial's common stock for shares of Centennial's common stock.
Market For It is not anticipated that the Centennial common stock
Centennial Stock received by Redlands Centennial's shareholders in the
reorganization will be listed on any exchange nor will
Centennial's common stock be more marketable than
Redlands Centennial's common stock. See "Price Range of
Redlands Centennial's Common Stock."
Management of The directors of Centennial are, and will be, three of the
Centennial current directors of Redlands Centennial. The executive
officers of Centennial will be the current executive officers
of Redlands Centennial. See "Management of Redlands
Centennial."
Regulation of Centennial will be subject to the regulation of the Board of
Centennial Governors of the Federal Reserve System under the Bank
Holding Company Act of 1956, as amended. See
"Operations Under Centennial -- Supervision and Regulation
of Centennnial."
Voting Rights of Each shareholder of Redlands Centennial will be entitled to
Shareholders cast one vote for each share of common stock held of record
as of the close of business on October 4, 1999 in voting on the
plan of reorganization. Directors and executive officers of Redlands
Centennial own, in the aggregate, approximately 24.4% of Redlands
Centennial's common stock entitled to vote on the plan of reorganization.
Shareholder Vote Approval of the plan of reorganization requires the
Required For Approval affirmative vote of a majority of the outstanding shares of
Redlands Centennial's common stock.
Dissenters' Rights California state law does not provide for the exercise of
dissenter's rights in this transaction.
OTHER INFORMATION CONCERNING THE MEETING
Time And Place The meeting will be held at 218 East State Street, Redlands,
Of Meeting California on December 1, 1999 at 6:00 p.m.
2
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Additional For additional information, you may telephone Douglas C.
Information Spencer, President of Redlands Centennial, at (909) 798-
3611.
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INTRODUCTION
Management is furnishing you with this proxy statement/prospectus in connection
with the solicitation of proxies for use at the special meeting of Redlands
Centennial, to be held at 218 East State Street, Redlands, California on
December 1, 1999 at 6:00 p.m., and at any and all adjournments thereof.
It is expected that Redlands Centennial will mail this proxy
statement/prospectus and accompanying notice and form of proxy to shareholders
on or about November 10, 1999.
At the meeting, the shareholders will consider and vote on approval of the plan
of reorganization. Under the plan of reorganization, Redlands Centennial will
become a wholly-owned subsidiary of the newly formed holding company,
Centennial, as a result of which shareholders of Redlands Centennial will
receive on a one-for-one basis shares of the Centennial's common stock for their
shares of Redlands Centennial's common stock. These transactions are more fully
described in this proxy statement/prospectus, and in the plan of reorganization
attached as Exhibit A.
REVOCABILITY OF PROXIES
A proxy for use at the meeting is enclosed. Any shareholder who executes and
delivers such proxy has the right to revoke it at any time before it is
exercised, by filing with the Secretary of Redlands Centennial an instrument
revoking it, or a duly executed proxy bearing a later date. The Secretary of
Redlands Centennial is Sally Flanders, and any revocation should be filed with
her at Redlands Centennial Bank, 218 East State Street, Redlands, California
92373. In addition, the powers of the proxyholders will be revoked if the person
executing the proxy is present at the meeting and elects to vote in person.
Subject to such revocation or suspension, the proxyholders will vote all shares
represented by a properly executed proxy received in time for the meeting in
accordance with the instructions on the proxy. IF NO INSTRUCTION IS SPECIFIED
WITH REGARD TO THE MATTER TO BE ACTED UPON, THE PROXYHOLDERS WILL VOTE THE
SHARES REPRESENTED BY THE PROXY "FOR" APPROVAL OF THE PRINCIPAL TERMS OF THE
PLAN OF REORGANIZATION. IF ANY OTHER MATTER IS PRESENTED AT THE MEETING, THE
PROXYHOLDERS WILL VOTE IN ACCORDANCE WITH THE RECOMMENDATIONS OF MANAGEMENT.
PERSONS MAKING THE SOLICITATION
The Board of Directors of Redlands Centennial are soliciting these proxies.
Redlands Centennial will bear the expense of preparing, assembling, printing and
mailing this proxy statement/prospectus and the material used in the
solicitation of proxies for the meeting. Redlands Centennial contemplates that
proxies will be solicited principally through the use of the
3
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mail, but officers, directors and employees of Redlands Centennial may solicit
proxies personally or by telephone, without receiving special compensation
therefor. Although there is no formal agreement to do so, Redlands Centennial
may reimburse banks, brokerage houses and other custodians, nominees and
fiduciaries for their reasonable expenses in forwarding these proxy materials to
their principals. In addition, Redlands Centennial may utilize the services of
individuals or companies not regularly employed by Redlands Centennial in
connection with the solicitation of proxies, if management of Redlands
Centennial determines that this is advisable.
VOTING SECURITIES
On October 4, 1999, which management has fixed as the record date for purposes
of determining the shareholders entitled to notice of, and to vote at, the
meeting, 672,284 shares of Redlands Centennial's common were issued and
outstanding. Each holder of Redlands Centennial's common stock will be entitled
to one vote for each share of Redlands Centennial's common stock held of record
on the books of Redlands Centennial as of the record date. The holders of not
less than a majority of the outstanding shares of Redlands Centennial's common
stock must vote in favor in order to approve the plan of reorganization.
SHAREHOLDINGS OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Management of Redlands Centennial knows of no person who owns, beneficially or
of record, either individually or together with associates, 5 percent or more of
the outstanding shares of Redlands Centennial's common stock, except as set
forth in the table below. The following table sets forth, as of October 4, 1999,
the number and percentage of shares of Redlands Centennial's outstanding common
stock beneficially owned, directly or indirectly, by each of Redlands
Centennial's directors, named officers and principal shareholders and by the
directors and executive officers of Redlands Centennial as a group. The shares
"beneficially owned" are determined under the Securities and Exchange Commission
Rules, and do not necessarily indicate ownership for any other purpose. In
general, beneficial ownership includes shares over which the director, named
officer or principal shareholder has sole or shared voting or investment power
and shares which such person has the right to acquire within 60 days of October
4, 1999. Unless otherwise indicated, the persons listed below have sole voting
and investment powers of the shares beneficially owned. Management is not aware
of any arrangements which may result in a change of control of Redlands
Centennial other than the proposed reorganization.
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<CAPTION>
Amount and Nature of
Beneficial Owner Beneficial Ownership Percent of Class
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<S> <C> <C>
DIRECTORS AND NAMED OFFICERS:
Bruce J. Bartells 14,812(1) 2.2
Carole H. Beswick 16,576(1) 2.4
James C. Coffin 15,337(2) 2.3
Irving M. Feldkamp, III, DDS 13,351 2.0
Stephen L. Guggisberg 2,379(3) 0.4
Larry Jacinto 30,587 4.5
4
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<CAPTION>
Amount and Nature of
Beneficial Owner Beneficial Ownership Percent of Class
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<S> <C> <C>
Ronald J. Jeffrey 22,131(4) 3.3
William A. McCalmon 14,820(5) 2.2
Patrick J. Meyer 28,396(1) 4.2
William J. Solberg 10,872(1) 1.6
Douglas C. Spencer 27,267(6) 4.0
Douglas F. Welebir 24,354(1) 3.4
All Directors and Executive Officers
as a Group (14 in all) 244,924(7) 32.5
PRINCIPAL SHAREHOLDER:
Vaughn Bryan 39,970 5.9
</TABLE>
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(1) The amount includes 7,689 shares acquirable by exercise of stock
options.
(2) The amount includes 1,337 shares acquirable by exercise of stock
options.
(3) The amount includes 949 shares acquirable by exercise of stock
options.
(4) The amount includes 4,513 shares acquirable by exercise of stock
options.
(5) The amount includes 4,689 shares acquirable by exercise of stock
options.
(6) The amount includes 10,700 shares acquirable by exercise of stock
options.
(7) The amount includes 81,185 shares acquirable by exercise of stock
options.
BANK HOLDING COMPANY REORGANIZATION AND MERGER
BETWEEN REDLANDS CENTENNIAL AND RCB
GENERAL
Redlands Centennial is asking its shareholders to consider and approve the
plan of reorganization. Under the plan of reorganization, the business of
Redlands Centennial will be conducted as a wholly-owned subsidiary of
Centennial. If the plan of reorganization is approved, the current
shareholders of Redlands Centennial will exchange their shares of Redlands
Centennial's common stock for shares of Centennial's common stock on a
one-for-one basis. For accounting purposes, the transaction will be accounted
for in a manner similar to that of a pooling of interests whereby the assets
and liabilities of the combining banks will be combined at their recorded
amounts.
The Board of Directors of Redlands Centennial approved the plan of
reorganization on August 27, 1999, and directed that the plan of
reorganization be submitted to the shareholders of Redlands Centennial. The
Board of Directors of Redlands Centennial recommends that the shareholders
approve the plan of reorganization.
The detailed terms and conditions of the reorganization are set forth in the
plan of reorganization attached to this proxy statement/prospectus as Exhibit
A. The statements made in this proxy statement/prospectus regarding the plan
of reorganization are qualified in their entirety by the more detailed
information appearing in the plan.
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RECOMMENDATION OF DIRECTORS
THE BOARD OF DIRECTORS OF REDLANDS CENTENNIAL HAS APPROVED THE TERMS AND
CONDITIONS OF THE PLAN OF REORGANIZATION. THE BOARD OF DIRECTORS OF REDLANDS
CENTENNIAL FURTHERMORE RECOMMENDS THAT THE SHAREHOLDERS OF REDLANDS
CENTENNIAL APPROVE THE PLAN OF REORGANIZATION.
REASONS FOR THE REORGANIZATION: BENEFITS OF THE USE OF HOLDING COMPANY FORM
TO THE SHAREHOLDERS OF REDLANDS CENTENNIAL
As stated above, the Board of Directors of Redlands Centennial has approved
the plan of reorganization and believes that the reorganization is in the
best interests of Redlands Centennial and its shareholders, and recommends
that the shareholders vote in favor of approval of the plan of reorganization.
Management and the Board of Directors of Redlands Centennial believe that the
formation of a bank holding company, under which Redlands Centennial will
operate, will result in a more flexible entity for operations and growth.
Management expects that Centennial will facilitate growth within the banking
field and in areas related to banking, either by the creation of new
subsidiaries or the acquisition of existing companies. For example, in the
event an opportunity for the acquisition of another bank were to develop, it
might be desirable to maintain the separate existence of the other bank
rather than merge it into Redlands Centennial. Neither Redlands Centennial
nor Centennial are currently considering any acquisitions.
The bank holding company structure will also provide a framework for
restructuring certain of Redlands Centennial's existing departments or
subsidiaries into separate operating subsidiaries of Centennial, although no
plans for restructuring are being considered at this time.
Many major banking institutions in the United States and in California have
reorganized into bank holding companies and Redlands Centennial's Board of
Directors believes that the reorganization is desirable for Redlands
Centennial to maintain and enhance its competitive position.
DESCRIPTION OF THE REORGANIZATION AND MERGER
BETWEEN REDLANDS CENTENNIAL AND RCB
At the direction of the Board of Directors of Redlands Centennial, management
incorporated Centennial for the purpose of becoming a bank holding company
under the laws of the State of California. RCB, which is wholly-owned by
Centennial, was also organized as a California corporation. The
reorganization will be accomplished by merging Redlands Centennial with RCB
pursuant to the terms of the plan of reorganization. Upon completion of the
reorganization, Redlands Centennial will be the surviving entity and the name
will remain Redlands Centennial Bank. Upon the effective date of the
reorganization, the shares of capital stock of the respective parties to the
plan of reorganization shall be converted as follows:
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1. Each share of Redlands Centennial's outstanding common stock shall be
converted into an equal number of shares of Centennial's common stock.
Shareholders of Redlands Centennial will be entitled to exchange their
present share certificates for new certificates evidencing shares of
Centennial's common stock. Until so exchanged, the certificates for
shares of Redlands Centennial's common stock after the reorganization
shall be deemed to represent shares of Centennial's common stock. Options
to purchase shares of Redlands Centennial's common stock shall be assumed
by Centennial with the same terms and conditions and for the same number
of shares of Centennial's common stock.
2. The shares of common stock of RCB outstanding immediately prior to the
reorganization will be converted into an equal number of shares of the
surviving bank and be owned by Centennial.
3. The shareholders of Redlands Centennial will become shareholders of
Centennial. There are no anticipated changes in Redlands Centennial's
shareholders' relative equity ownership interest in Redlands Centennial's
assets. As shareholders of the Centennial, Redlands Centennial's
shareholders will have essentially the same rights to govern that
corporation's activities as they have with respect to Redlands
Centennial. However, as shareholders of Centennial, they will not be
entitled to vote on matters requiring the approval of Redlands
Centennial's shareholders as Centennial will own 100 percent of Redlands
Centennial. Shareholders of Centennial will be entitled to vote on those
matters affecting Centennial. A discussion of those rights is contained
in the section entitled, "Bank Holding Company Reorganization And Merger
Between Redlands Centennial and RCB -- Comparison of Redlands Centennial
and Centennial: Analysis of Corporate Structures."
4. Centennial will adopt the Redlands Centennial Bank 1990 Stock Option Plan
which will automatically, and without further action on the part of the
shareholders, become the stock option plan of Centennial. All options
previously granted will become an equal number of options to purchase
shares of Centennial instead of shares of Redlands Centennial. The Board
of Directors of Centennial may grant further options to purchase
Centennial common stock thereunder, in accordance with the terms of the
stock option plan.
Upon the completion of the reorganization, the existing directors of Redlands
Centennial will serve as the directors of the surviving bank. The surviving bank
will operate under the charter of Redlands Centennial. The following 12 persons
who currently serve as directors of Redlands Centennial, are expected to serve
as directors of the surviving bank after the reorganization:
Bruce J. Bartells Ronald J. Jeffrey
Carole H. Beswick William A. McCalmon
James C. Coffin Patrick J. Meyer
Irving M. Feldkamp, III, DDS William J. Solberg
Stephen L. Guggisberg Douglas C. Spencer
Larry Jacinto Douglas F. Welebir
7
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RATIFICATION AND APPROVAL OF THE PLAN OF REORGANIZATION: EFFECTIVE DATE
Approvals of applications in connection with the proposed reorganization must be
obtained from the Federal Reserve, FDIC and the California Department of
Financial Institutions. Applications for the necessary approvals have been made,
and are now pending before those regulatory agencies. If any of the above
regulatory agencies should fail to give the required approval for this
transaction within a reasonable time, the Board of Directors of Redlands
Centennial reserves the right, in its sole discretion, to terminate and cancel
the plan of reorganization. It is presently contemplated that the effective date
of the reorganization will be in the fourth quarter of 1999.
Completion of the reorganization between Redlands Centennial and RCB is
conditioned upon obtaining the required shareholder and regulatory approvals.
Approval of the reorganization by Redlands Centennial's shareholders can only be
obtained if the affirmative vote of the holders of not less than a majority of
the outstanding shares of Redlands Centennial's common stock is obtained. The
directors of Redlands Centennial, RCB and Centennial have approved the plan of
reorganization. However, if any action, suit, or proceeding should be threatened
or instituted with respect to the proposed reorganization, the Board of
Directors of Redlands Centennial reserves the right, in its sole discretion, to
terminate the transaction at any time before the effective date.
If the shareholders of Redlands Centennial should fail to approve the plan of
reorganization, or if the transaction is otherwise terminated as provided above,
then the business of Redlands Centennial shall continue to operate under the
ownership of its existing shareholders as it has prior to the adoption of the
plan of reorganization.
It is estimated at this time that the total expenses of the reorganization are
approximately $20,000.00, and these expenses will be borne appropriately by the
respective parties.
Should the plan of reorganization be terminated or canceled for any of the
reasons set forth above or in the attached plan, such termination or
cancellation will not result in any liability on the part of Redlands
Centennial, Centennial, or any of their respective directors, officers,
employees, agents or shareholders.
FEDERAL INCOME TAX CONSEQUENCES
The plan of reorganization has been structured to qualify the reorganization as
a tax free reorganization under Section 368(a)(1)(A) and Section 368(a)(2)(D) of
the Internal Revenue Code of 1986, as amended. The Board of Directors of
Redlands Centennial has reserved the right and intends to terminate the plan of
reorganization unless satisfactory rulings regarding the nontaxability of the
proposed transaction are received from the Internal Revenue Service, or Redlands
Centennial is otherwise satisfied by its accountants regarding the nontaxability
of the reorganization.
If the reorganization is treated as a tax-free reorganization, it will have the
following federal income tax consequences:
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1. No gain or loss will be recognized by Redlands Centennial or any of the
other parties to the reorganization as a result of the reorganization.
2. No gain or loss will be recognized by the shareholders of Redlands
Centennial upon the exchange of their shares of Redlands Centennial's
common stock solely for shares of Centennial's common stock.
3. The basis and holding periods of the assets exchanged between the parties
to the reorganization shall remain the same as those prior to the
reorganization.
4. The basis of the shares of Centennial's common stock to be received by
shareholders of Redlands Centennial will be the same as the basis of the
shares of Redlands Centennial's common stock surrendered in exchange
therefor.
5. The holding period of the shares of Centennial's common stock to be
received by shareholders of Redlands Centennial will include the holding
period of the shares of Redlands Centennial's common stock surrendered in
exchange therefor, provided that such stock is held as a capital asset on
the date of the completion of the reorganization.
Management cannot advise individual shareholders and prospective shareholders of
the proper tax consequences or suggest the methods of reporting the
reorganization. Each shareholder or prospective shareholder is advised to
contact his or her accountant or tax counsel with respect to the reorganization
and the means of reporting the transaction as well as regarding the state and
local tax consequences which may or may not parallel the federal income tax
consequences.
COMPARISON OF REDLANDS CENTENNIAL AND CENTENNIAL: ANALYSIS OF CORPORATE
STRUCTURES
The following chart constitutes a summarization of a comparison between
Redlands Centennial and Centennial. Reference should be made to the detailed
explanations included in this proxy statement/prospectus, and this summary is
qualified in its entirety by said detailed explanations.
<TABLE>
<CAPTION>
Redlands Centennial Centennial
Item Stock Stock
- - -------------------------- ------------------------------------ --------------------------------------
<S> <C> <C>
Authorized and 10,000,000 shares of common 10,000,000 shares of common
Outstanding stock, no par value, with 672,284 stock, no par value; total shares to
shares outstanding as of October be outstanding immediately prior
4, 1999. to the reorganization is 100.
Voting Rights One vote per share with One vote per share with
cumulative voting in the election cumulative voting in the election
of directors if the requirements of directors if the requirements
for cumulative voting are for cumulative voting are
satisfied. satisfied.
9
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<CAPTION>
Redlands Centennial Centennial
Item Stock Stock
- - -------------------------- ------------------------------------ --------------------------------------
<S> <C> <C>
Dividend Rights As declared by the Board of As declared by the Board of
Directors subject to the laws in Directors subject to the laws in
the California Banking Law and the California General
applicable federal law. Corporation Law and applicable
federal law.
Assessment Nonassessable. Nonassessable.
Liquidation Rights Pro rata after payment of debts. Pro rata after payment of debts.
Redemption Redlands Centennial may Centennial may redeem its shares
redeem its shares under under restrictive conditions of the
restrictive conditions of the California General Corporation
California Financial Code. Law.
Preemptive Rights None. None.
Number of Directors Fixed in accordance with the Fixed in accordance with the
Bylaws. Bylaws.
</TABLE>
AUTHORIZED AND OUTSTANDING STOCK
Redlands Centennial currently has an authorized capitalization of 10,000,000
shares of common stock, no par value. Of these authorized capital shares,
672,284 shares of Redlands Centennial's common stock were issued and outstanding
as of October 4, 1999, and 198,723 shares of Redlands Centennial's common stock
were reserved for issuance upon exercise of options pursuant to Redlands
Centennial's 1990 Stock Option Plan.
Centennial has an authorized capitalization of 10,000,000 shares of common
stock, no par value. Of these authorized capital shares, 100 shares of
Centennial's common stock were issued and outstanding as of October 4, 1999.
VOTING RIGHTS
All voting rights are vested in the holders of common stock of Redlands
Centennial and Centennial, each share being entitled to one vote, except with
respect to the election of directors, as described below.
For the election of directors, California law provides that every shareholder
entitled to vote may cumulate votes for candidates in nomination and give one
candidate a number of votes equal to the number of directors to be elected
multiplied by the number of votes to which that shareholder's shares are
entitled, or distribute the shareholder's votes on the same principal among any
or all of the candidates, as the shareholder thinks fit. The candidates
receiving the highest number of votes, up to the number of directors to be
elected, shall be elected. However,
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a shareholder may cumulate votes only for a candidate or candidates whose names
have been placed in nomination prior to the voting, and only if the shareholder
has given notice at the meeting prior to the voting at such meeting of his or
her intention to cumulate his or her votes. If any one shareholder has given
such notice, all shareholders may cumulate votes for candidates in nomination.
The shareholders of Redlands Centennial now have cumulative voting rights, and
the shareholders of Centennial will have the same voting rights, as described
above.
DIVIDEND RIGHTS
Holders of Redlands Centennial common stock are entitled to dividends legally
available therefor, when and as declared by Redlands Centennial's Board of
Directors. The California Financial Code provides that a bank may not make a
cash distribution to its shareholders in an amount which exceeds the lesser of:
- - - the retained earnings, or
- - - the net income of the bank for its last three fiscal years, less the
amount of any distributions made by the bank to its shareholders during
such period.
However, a bank may, with the approval of the Commissioner of Financial
Institutions, make a distribution to its shareholders in an amount not exceeding
the greatest of
- - - the retained earnings of the bank,
- - - the net income of the bank for its last fiscal year, or
- - - the net income of the bank for its current fiscal year.
If the Commissioner of Financial Institutions finds that the shareholders'
equity of a bank is not adequate or that the payment of a dividend would be
unsafe or unsound for the bank, the Commissioner of Financial Institutions may
order the bank not to pay any dividend to the shareholders.
In addition, under the Financial Institutions Supervisory Act of 1966, as
amended, the FDIC also has the authority and general enforcement powers to
prohibit a bank from engaging in practices which the FDIC considers to be unsafe
or unsound. It is possible, depending upon the financial condition of Redlands
Centennial and other factors, that the FDIC could assert that the payment of
dividends or other payments might under some circumstances be such an unsafe or
unsound practice and thereby prohibit such payment. The Federal Deposit
Insurance Corporation Improvement Act of 1991 further prohibits a bank from
paying a dividend if the dividend payment would result in the bank failing to
meet any of its minimum capital requirements.
The shareholders of Centennial will be entitled to receive dividends when and as
declared by its Board of Directors, out of funds legally available for the
payment of dividends, as provided in the California General Corporation Law. The
California General Corporation Law provides that a corporation may make a
distribution to its shareholders if retained earnings immediately prior
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<PAGE>
to the dividend payout at least equal the amount of the proposed distribution.
In the event that sufficient retained earnings are not available for the
proposed distribution, a corporation may, nevertheless, make a distribution, if
it meets both the "quantitative solvency" and the "liquidity" tests, as set
forth in the Law. In general, the quantitative solvency test requires that the
sum of the assets of the corporation equal at least 1-1/4 times its liabilities.
The liquidity test generally requires that a corporation have current assets at
least equal to current liabilities, or, if the average of the earnings of the
corporation before taxes on income and before interest expenses for the two
preceding fiscal years was less than the average of the interest expense of the
corporation for such fiscal years, then current assets must equal at least 1-1/4
times current liabilities. In certain circumstances, Centennial may be required
to obtain the prior approval of the Federal Reserve Board to make capital
distributions to shareholders of Centennial.
ASSESSMENT OF SHARES
Shares of Redlands Centennial are not subject to assessment and shares of
Centennial also will not be subject to assessment.
LIQUIDATION RIGHTS
The holders of Redlands Centennial common stock are entitled to share equally in
Redlands Centennial's assets legally available for distribution in the event of
liquidation or dissolution. Similarly, holders of Centennial common stock will
have a pro rata right to participate in the Centennial's assets legally
available for distribution in the event of liquidation or dissolution.
PREEMPTIVE RIGHTS
The holders of Redlands Centennial's common stock do not have preemptive rights
to subscribe to any additional shares of Redlands Centennial's common stock
being issued. The holders of Centennial's common stock also do not have
preemptive rights to subscribe to any additional shares of Centennial's common
stock being issued. Therefore, shares of Centennial's common stock or other
securities may be offered in the future to the investing public or to
shareholders at the discretion of Centennial's Board of Directors, and such
other securities may have rights that are senior to those of the shares of
Centennial's common stock.
DIRECTORS
Redlands Centennial's Bylaws authorize its Board of Directors or shareholders to
designate the number of directors at any number from 8 to 15 with certain
limitations, and Centennial's Bylaws authorize its Board of Directors or
shareholders to designate the number of directors at any number from 3 to 5.
There are no current plans to change the size of Centennial's Board of Directors
from 3.
RIGHTS OF DISSENTING SHAREHOLDERS OF REDLANDS CENTENNIAL
California state law does not provide for exercise of dissenters' rights in the
context of the reorganization.
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CORPORATE OPERATION AND MANAGEMENT
The Articles of Incorporation and Bylaws of Redlands Centennial and of
Centennial are substantially similar in all material provisions, except with
respect to provisions in Redlands Centennial's Articles of Incorporation and
Bylaws required by California Financial Code and applicable only to banks.
OPERATIONS UNDER CENTENNIAL
ORGANIZATION
Centennial was organized and incorporated under the laws of the State of
California on August 6, 1999, at the direction of the Board of Directors of
Redlands Centennial for the purpose of becoming a bank holding company to
acquire all of the outstanding capital stock of Redlands Centennial. The
principal location of Centennial and its operations will be at the head office
of Redlands Centennial located at 218 East State Street, Redlands, California
92373.
In order to effect the reorganization and to initially capitalize Centennial,
two directors of Centennial, Mr. Meyers and Mr. Spencer, each loaned $5,000 to
Centennial. In addition, Mr. Spencer has purchased 100 shares of the common
stock of Centennial at an aggregate purchase price of $150 for an aggregate
capitalization of $10,150. Upon the completion of the reorganization, the loans
will be repaid and the 100 shares of Centennial's common stock will be
repurchased and canceled by Centennial for the sum of $150. Presently, 100
shares of Centennial's common stock are outstanding, and Centennial will have no
additional stock issued until after the shareholders of Redlands Centennial have
approved the plan of reorganization.
MANAGEMENT AND DIRECTORS OF CENTENNIAL
The present Board of Directors of Centennial is composed of three directors, and
consists of the following individuals:
Bruce J. Bartells
Patrick J. Meyer
Douglas C. Spencer
Upon completion of the reorganization, the business of Redlands Centennial will
be conducted as a subsidiary of Centennial, and will be carried on with the same
officers, personnel, property and name as before the transaction. Centennial
will not pay its executive officers any amounts in addition to the amounts they
receive as executive officers of Redlands Centennial.
The following directors and officers of Redlands Centennial have agreed to serve
as the initial directors and officers of Centennial:
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<PAGE>
<TABLE>
<CAPTION>
Name Position with Redlands Centennial Position with Centennial
- - --------------------- --------------------------------- ------------------------------------
<S> <C> <C>
Patrick J. Meyer Chairman of the Board Chairman of the Board
Bruce Bartells Vice Chairman & Director Vice Chairman & Director
Douglas C. Spencer President, Chief Executive President, Chief Executive Officer
Officer and Director and Director
Roy D. Lewis Executive Vice President. & Executive Vice President &
Chief Credit Officer Chief Credit Officer
Beth Sanders Executive Vice President & Executive Vice President &
Chief Financial Officer Chief Financial Officer
Sally Flanders Corporate Secretary Corporate Secretary
</TABLE>
The business of Redlands Centennial will be carried on after the reorganization,
with the same officers, employees and properties, and the Centennial directors
shall serve until their successors have been duly elected and qualified at
Centennial's next Annual Meeting of Shareholders.
SUPERVISION AND REGULATION OF CENTENNIAL
Upon completion of the reorganization, Centennial will become a bank holding
company within the meaning of the Band Holding Company Act, and will become
subject to the supervision and regulation of the Federal Reserve. A notice
application for prior approval to become a bank holding company has previously
been filed by Centennial with the Federal Reserve pursuant to the Bank Holding
Company Act.
As a bank holding company, Centennial will be required to register with the
Federal Reserve within 180 days after the reorganization is completed, and,
thereafter, to file annual reports and other information concerning its business
operations and those of its subsidiaries as the Federal Reserve may require
pursuant to the Bank Holding Company Act. The Federal Reserve also has the
authority to examine Centennial and each of its respective subsidiaries, as well
as any arrangements between Centennial and any of its respective subsidiaries,
with the cost of any such examination to be borne by Centennial.
In the future, Centennial will be required to obtain the prior approval of the
Federal Reserve before it may acquire all or substantially all of the assets of
any bank, or ownership or control of voting securities of any bank if, after
giving effect to such acquisition, Centennial would own or control more than 5
percent of the voting shares of such bank.
A bank holding company and its subsidiaries are also prohibited from engaging in
certain tie-in arrangements in connection with extensions of credit, leases,
sales, or the furnishing of services. For example, Redlands Centennial will
generally be prohibited from extending credit to a customer on the condition
that the customer also obtain other services furnished by Centennial, or any of
its subsidiaries, or on the condition that the customer promise not to obtain
financial services from a competitor. Centennial and its subsidiaries will also
be subject to certain restrictions with respect to engaging in the underwriting,
public sale and distribution of securities.
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<PAGE>
Centennial and any subsidiaries which it may acquire or organize after the
Reorganization will be deemed affiliates of Redlands Centennial within the
meaning of the Federal Reserve Act. Pursuant thereto, loans by Redlands
Centennial to affiliates, investments by Redlands Centennial in affiliates'
stock, and taking affiliates' stock by Redlands Centennial as collateral for
loans to any borrower will be limited to 10 percent of Redlands Centennial's
capital, in the case of each affiliate, and 20 percent of Redlands Centennial's
capital, in the case of all affiliates. In addition, such transactions must be
on terms and conditions that are consistent with safe and sound banking
practices and, in particular, a bank and its subsidiaries generally may not
purchase from an affiliate a low-quality asset, as that term is defined in the
Federal Reserve Act. Such restrictions also prevent a bank holding company and
its other affiliates from borrowing from a banking subsidiary of the bank
holding company unless the loans are secured by marketable collateral of
designated amounts.
A bank holding company is also prohibited from itself engaging in or acquiring
direct or indirect ownership or control of more than 5% of the voting shares of
any company engaged in nonbanking activities. One of the principal exceptions to
this prohibition is for activities found by the Federal Reserve by order or
regulation to be so closely related to banking or managing or controlling banks
as to be a proper incident thereto. In making these determinations, the Federal
Reserve considers whether the performance of such activities by a bank holding
company or a bank holding company subsidiary would offer advantages to the
public which outweigh possible adverse effects.
Federal Reserve Regulation Y sets out those activities which are regarded as
closely related to banking or managing or controlling banks, and thus, are
permissible activities that may be engaged in by bank holding companies subject
to approval in certain cases by the Federal Reserve. Most of these activities
are now permitted for national banks. There has been litigation challenging the
validity of certain activities authorized by the Federal Reserve for bank
holding companies, and the Federal Reserve has various regulations in this
regard still under consideration. The future scope of permitted activities is
uncertain.
Although Centennial has no present plans, agreements or arrangements to engage
in any nonbanking activities, Centennial may consider in the future engaging in
one or more of the above activities, subject to the approval of the Federal
Reserve.
Directors, executive officers, and principal shareholders of Centennial will be
subject to restrictions on the sale of their Centennial stock under Rule 144 as
promulgated under the Securities Act. ALSO, THE SEC RULES PROVIDE THAT
DIRECTORS, EXECUTIVE OFFICERS AND PRINCIPAL SHAREHOLDERS OF CENTENNIAL CANNOT
SELL THEIR SHARES OF CENTENNIAL'S COMMON STOCK UNTIL 30 DAYS HAVE ELAPSED SINCE
THE POST-REORGANIZATION RESULTS HAVE BEEN SENT TO CENTENNIAL'S SHAREHOLDERS.
INDEMNIFICATION OF CENTENNIAL'S
DIRECTORS AND OFFICERS
Centennial's Articles of Incorporation and Bylaws provide for indemnification of
agents including directors, officers and employees to the maximum extent allowed
by California law.
15
<PAGE>
The indemnification law of the State of California generally allows
indemnification, in matters not involving the right of the corporation, to an
agent of the corporation if such person acted in good faith and in a manner such
person reasonably believed to be in the best interests of the corporation, and
in the case of a criminal matter had no reasonable cause to believe the conduct
of such person was unlawful. California law, with respect to matters involving
the right of a corporation, allows indemnification of an agent of the
corporation, if such person acted in good faith, in a manner such person
believed to be in the best interests of the corporation and its shareholders;
provided that there shall be no indemnification for: amounts paid in settling or
otherwise disposing of a pending action without court approval; expenses
incurred in defending a pending action which is settled or otherwise disposed of
without court approval; or matters which such person shall have been adjudged to
be liable to the corporation unless and only to the extent that the court in
which the proceeding is or was pending shall determine that such person is
entitled to be indemnified.
The Bylaws provide that Centennial WILL indemnify its directors, officers and
employees and that such right to indemnification shall be a contract right. The
Bylaws also provide that Centennial may purchase and maintain insurance covering
its directors, officers and employees against any liability asserted against any
of them and incurred by any of them, whether or not Centennial would have the
power to indemnify them against such liability under the provisions of
applicable law or the provisions of the Bylaws.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers or persons controlling Centennial
pursuant to the foregoing, Centennial has been informed that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act of 1933 and is therefore
unenforceable.
RCB MERGER COMPANY
GENERAL BACKGROUND
At the direction of the Board of Directors of Redlands Centennial, RCB was
incorporated on August 6, 1999. It was organized to facilitate the
reorganization. On the effective date of the reorganization, Redlands Centennial
will merge with and into RCB, with Redlands Centennial as the surviving entity.
INITIAL CAPITALIZATION
RCB was initially capitalized through the purchase of 100 shares of its common
stock by Centennial for an aggregate sum of $100.00. The 100 shares of capital
stock of RCB issued and outstanding immediately prior to the date of
reorganization shall be converted into and exchanged by Centennial for 100
shares of Redlands Centennial common stock. RCB will disappear and all of the
outstanding shares of Redlands Centennial common stock will be owned by
Centennial.
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<PAGE>
REDLANDS CENTENNIAL
GENERAL
Redlands Centennial was incorporated under the laws of the State of California
on March 27, 1990, and was licensed by the Commissioner of Financial
Institutions and commenced operations as a California state-chartered bank on
August 1, 1990. Redlands Centennial is engaged in substantially all of the
business operations customarily conducted by independent commercial banks in
California. Redlands Centennial provides a wide range of commercial banking
services primarily for small and medium-sized businesses. Services include those
traditionally offered by commercial banks, such as checking, interest-bearing
checking ("NOW") and savings accounts, Money Market Deposit Accounts and time
certificates, commercial, real estate, construction, Small Business
Administration, personal, home improvement, automobile and other installment and
term loans and account receivable loans, travelers' checks, safe deposit boxes
and telephone transfers; however, Redlands Centennial places special emphasis on
services tailored to meet the needs of the professional and business market.
Redlands Centennial does not have a trust department.
As of June 30, 1999, Redlands Centennial employed 33 full-time and 8 part-time
employees.
As of December 31, 1998, Redlands Centennial had total assets of $69 million of
which $41 million were loans, exclusive of loan loss reserves. Redlands
Centennial also had $63 million in interest-bearing and noninterest-bearing
deposits. Total capital of Redlands Centennial as of December 31, 1998 was
$5.818 million. In addition, the allowance for loan losses for the same period
was $433,000.
The three general areas in which Redlands Centennial has directed virtually all
of its lending activities are real estate loans, commercial loans and consumer
loans. As of December 31, 1998, these three categories accounted for
approximately 42, 39 and 19 percent, respectively, of Redlands Centennial's loan
portfolio.
Redlands Centennial's deposits are attracted primarily from commercial
enterprises and individuals.
As of December 31, 1998, Redlands Centennial had approximately $16 million in
demand deposits, $10 million in interest-bearing demand deposits, $18 million in
savings deposits, and $19 million in total time deposits; as compared with
approximately $19 million in demand deposits, $11 million in interest-bearing
demand deposits, $19 million in savings deposits, and $20 million in total time
deposits as of June 30, 1999.
The principal sources of Redlands Centennial's income are interest, fees and
other charges from Redlands Centennial's loan portfolio, interest income on
Redlands Centennial's investments, and account service charges to Redlands
Centennial's depositors and other fee and noninterest income. For the year ended
December 31, 1998, these sources comprised approximately 65, 19 and 16 percent,
respectively, of Redlands Centennial's total income for said period; and, 60, 26
and 14 percent, respectively, of Redlands Centennial's total income in 1997.
17
<PAGE>
BANKING SERVICES
Redlands Centennial is a locally owned and operated bank, and its primary
service area is Southern California's Inland Empire. Redlands Centennial's
primary business is servicing the banking needs of these communities and its
marketing strategy stresses its local ownership and commitment to serve the
banking needs of local businesses, including retail, professional and real
estate-related activities in Redlands Centennial's primary service areas and
individuals living and working in those service areas.
Redlands Centennial offers a broad range of services to individuals and
businesses in its primary service area with an emphasis upon efficiency and
personalized attention. Redlands Centennial provides a full line of consumer
services and also offers specialized services, such as courier services and
appointment banking to small businesses, middle market companies and
professional firms. Redlands Centennial offers personal and business checking
and savings accounts (including individual interest-bearing negotiable orders of
withdrawal ("NOW") and money market accounts), IRA accounts, time certificates
of deposit and direct deposit of social security, pension and payroll checks.
Redlands Centennial also makes available commercial, construction, accounts
receivable, automobile, home improvement, real estate, commercial real estate,
single family mortgage, Small Business Administration and installment loans (as
well as overdraft protection lines of credit), issues credit cards, sells
travelers' checks (issued by an independent entity), offers ATM's tied in with
major statewide and national networks and offers other customary commercial
banking services. Other special services and products include business checking
products and mortgage products and services.
Most of Redlands Centennial's deposits are obtained from commercial businesses,
professionals and individuals. At December 31, 1998, Redlands Centennial had a
total of 4,242 accounts, consisting of demand deposit accounts with an average
balance of approximately $7,285; savings, NOW and money market accounts with an
average balance of approximately $15,359; time certificates of $100,000 or more
with an average balance of approximately $207,876; and other time deposits with
an average balance of approximately $33,339. There is no concentration of
deposits or any customer with 5% or more of Redlands Centennial's deposits.
COMPETITION
The banking business in Redlands Centennial's service area is highly competitive
with respect to both loans and deposits and is dominated by a relatively small
number of major insured depository institutions which have many offices
operating over wide geographic areas. Redlands Centennial is one of many insured
depository institutions located in Redlands Centennial's service area. Among the
advantages which major insured depository institutions have over Redlands
Centennial are their ability to finance extensive advertising campaigns,
allocate their investment assets to regions of highest yield and demand, offer
certain services (such as trust and international banking services) which are
not offered directly by Redlands Centennial, and offer loans with substantially
higher lending limits than Redlands Centennial.
18
<PAGE>
Redlands Centennial's market share of all bank deposits in the City of Redlands
was approximately 14.13% as of June 30, 1998. Redlands Centennial competes with
major financial institutions including Bank of America and Wells Fargo Bank,
N.A. Its major community bank competitor is Community Bank.
In addition to competition from insured depository institutions, principal
competitors for deposits and loans have been mortgage brokerage companies,
insurance companies, brokerage houses, credit card companies and even retail
establishments offering investment vehicles such as mutual funds, annuities and
money market funds, as well as traditional bank-like services such as check
access to money market funds, or cash advances on credit card accounts.
In order to compete with the other financial institutions in its principal
marketing area, Redlands Centennial relies principally upon local promotional
activities, personal contacts by its officers, directors and employees, and
close connections with its community.
PREMISES
Redlands Centennial owns the real property located at 218 East State Street,
Redlands, California. The building situated on the property consists of 8,500
square feet and houses the executive and head offices of Redlands Centennial.
Redlands Centennial also leases 1,100 square feet of space at 200 W. Santa Ana
Blvd., Santa Ana, California as an office providing Small Business
Administration lending. The current lease term on that property runs until
January 8, 2001 and the monthly rental is $1,705.
LEGAL PROCEEDINGS
There are no legal proceedings other than ordinary routine litigation incidental
to Redlands Centennial's business pending against Redlands Centennial to which
Redlands Centennial is a party or of which any of its property is subject.
SUPERVISION AND REGULATION OF REDLANDS CENTENNIAL
GENERAL: Redlands Centennial, as a California state-chartered bank whose
deposits are insured by the FDIC up to the maximum legal limits thereof, is
subject to regulation, supervision and regular examination by the Commissioner
of Financial Institutions and the FDIC. While Redlands Centennial is not a
member of the Federal Reserve System, it is nevertheless subject to applicable
provisions of the Federal Reserve Act and regulations issued pursuant thereto.
The regulations of these various agencies govern most aspects of Redlands
Centennial's business, including required reserves on deposits, investments,
loans, certain of their check clearing activities, issuance of securities,
payment of dividends, branching and numerous other matters. As a consequence of
the extensive regulation of commercial banking activities in California and the
United States, Redlands Centennial's business is particularly susceptible to
changes in California and federal legislation and regulations which may have the
effect of increasing the cost of doing business, limiting permissible activities
or increasing competition.
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IMPACT OF MONETARY POLICIES: Banking is a business which depends on interest
rate differentials. In general, the difference between the interest paid by
Redlands Centennial on its deposits and its other borrowings and the interest
received by Redlands Centennial on loans extended to its customers and
securities held in its portfolio, comprises the major portion of Redlands
Centennial's earnings. These rates are highly sensitive to many factors which
are beyond the control of Redlands Centennial. Accordingly, the earnings and
growth of Redlands Centennial are subject to the influence of domestic and
foreign economic conditions, including inflation, recession and unemployment.
The earnings and growth of Redlands Centennial are affected not only by general
economic conditions, both domestic and international, but also by the monetary
and fiscal policies of the United States and its agencies, particularly the
Federal Reserve Board. The Federal Reserve Board can and does implement national
monetary policy such as seeking to curb inflation and combat recession, by its
open market operations in U.S. Government securities, by adjusting the required
level of reserves for financial institutions subject to reserve requirements and
by varying the discount rates applicable to borrowings by banks from the Federal
Reserve System. The actions of the Federal Reserve Board influence the growth of
bank loans, investments and deposits and also affect interest rates charged on
loans and paid on deposits. The nature and impact that future changes in fiscal
or monetary policies or economic controls may have on Redlands Centennial's
business and earnings cannot be predicted. In addition, adverse economic
conditions could make a higher provision for loan losses a prudent course and
could cause higher loan charge-offs, thus adversely affecting Redlands
Centennial's net income.
CURRENT ACCOUNTING DEVELOPMENTS: The Financial Accounting Standards Board issued
Statement No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES.
This Statement is effective for fiscal years beginning after June 15, 1999 but
may be adopted as of the beginning of any fiscal quarter that begins after the
issuance of the Statement. Management of Redlands Centennial has not yet
completed its analysis to determine the effect implementation of Statement No.
133 will have on its financial statements.
RECENT LEGISLATION AND OTHER CHANGES: From time to time, legislation is enacted
which has the effect of increasing the cost of doing business, limiting or
expanding permissible activities or affecting the competitive balance between
banks and other financial institutions. Proposals to change the laws and
regulations governing the operations and taxation of banks and other financial
institutions are frequently made in Congress, in the California legislature and
before various bank regulatory agencies. The likelihood of any major changes and
the impact such changes might have on Redlands Centennial or Centennial are
impossible to predict. Certain of the potentially significant changes which have
been enacted recently by Congress and others which are currently under
consideration by Congress or various regulatory or professional agencies are
discussed below.
On October 1, 1998, the FDIC adopted two new rules governing minimum capital
levels that FDIC-supervised banks must maintain against the risks to which they
are exposed. The first rule makes risk-based capital standards consistent for
two types of credit enhancements, recourse arrangements and direct credit
substitutes, and requires different amounts of capital for different risk
positions in asset securitization transactions. The second rule permits limited
amounts of
20
<PAGE>
unrealized gains on equity securities to be recognized for risk-based capital
purposes. These rules may be applied by Redlands Centennial on September 1,
1998.
In August 1997, Governor Wilson of California signed Assembly Bill 1432
("AB1432") which provides for certain changes in the banking laws of California.
Effective January 1, 1998 AB1432 eliminates the provisions regarding impairment
of contributed capital and the assessment of shares when there is an impairment
of capital. AB1432 now allows the Department of Financial Institutions to close
a bank, if the Department of Financial Institutions finds that the bank's
tangible shareholders' equity is less than the greater of 3% of the bank's total
assets or $1 million.
The Economic Growth and Regulatory Paperwork Reduction Act (the "1996 Act") as
part of the Omnibus Appropriations Bill was enacted on September 30, 1996 and
includes many banking related provisions. The most important banking provision
is the recapitalization of the Savings Association Insurance Fund. The 1996 Act
provides for a one time assessment, payable on November 30, 1996, of
approximately 65 basis points per $100 of deposits of Savings Association
Insurance Fund insured deposits including Savings Association Insurance Fund
insured deposits which were assumed by banks in acquisitions of savings
associations. For the years 1997 through 1999 the banking industry will assist
in the payment of interest on Financing Corporation bonds that were issued to
help pay for the clean up of the savings and loan industry. Banks will pay
approximately 1.3 cents per $100 of deposits for this special assessment, and
after the Year 2000, banks will pay approximately 2.4 cents per $100 of deposits
until the Financing Corporation bonds mature in 2017. There is a three year
moratorium on conversions of Savings Association Insurance Fund deposits to Bank
Insurance Fund deposits. The 1996 Act also has certain regulatory relief
provisions for the banking industry. Lender liability under the Superfund is
eliminated for lenders who foreclose on property that is contaminated provided
that the lenders were not involved with the management of the entity that
contributed to the contamination. There is a five year sunset provision for the
elimination of civil liability under the Truth in Savings Act. The Federal
Reserve Board and Department of Housing and Urban Development are to develop a
single format for Real Estate Settlement Procedures Act and Truth in Lending Act
disclosures. Truth in Lending Act disclosures for adjustable mortgage loans are
to be simplified. Significant revisions are made to the Fair Credit Reporting
Act including requiring that entities which provide information to credit
bureaus conduct an investigation if a consumer claims the information to be in
error. Regulatory agencies may not examine for Fair Credit Reporting Act
compliance unless there is a consumer complaint investigation that reveals a
violation or where the agency otherwise finds a violation. In the area of the
Equal Credit Opportunity Act, banks that self-test for compliance with fair
lending laws will be protected from the results of the test provided that
appropriate corrective action is taken when violations are found.
During 1996, new federal legislation amended the Comprehensive Environmental
Response, Compensation, and Liability Act and the underground storage tank
provisions of the Resource Conversation and Recovery Act to provide lenders and
fiduciaries with greater protections from environmental liability. In June 1997,
the U.S. Environmental Protection Agency issued its official policy with regard
to the liability of lenders under the Comprehensive Environmental Response,
Compensation, and Liability Act as a result of the enactment of the Asset
21
<PAGE>
Conservation, Lender Liability and Deposit Insurance Protection Act of 1996.
California law provides that, subject to numerous exceptions, a lender acting in
the capacity of a lender shall not be liable under any state or local statute,
regulation or ordinance, other than the California Hazardous Waste Control Law,
to undertake a cleanup, pay damages, penalties or fines, or forfeit property as
a result of the release of hazardous materials at or from the property.
In 1997, California adopted the Environmental Responsibility Acceptance Act
(Cal. Civil Code Sections 850-855) to facilitate the notification of government
agencies and potentially responsible parties (for example, for cleanup) of the
existence of contamination and the cleanup or other remediation of contamination
by the potentially responsible parties. The Environmental Responsibility
Acceptance Act requires, among other things, that owners of sites who have
actual awareness of a release of a hazardous material that exceeds a specified
notification threshold to take all reasonable steps to identify the potentially
responsible parties and to send a notice of potential liability to the parties
and the appropriate oversight agency.
PENDING LEGISLATION AND REGULATIONS: There are pending legislative proposals to
reform the Glass-Steagall Act to allow affiliations between banks and other
firms engaged in "financial activities," including insurance companies and
securities firms. Certain other pending legislative proposals include bills to
let banks pay interest on business checking accounts, to cap consumer liability
for stolen debit cards, and to give judges the authority to force high-income
borrowers to repay their debts rather than cancel them through bankruptcy.
It is impossible to predict what effect the enactment of certain of the
above-mentioned legislation will have on Redlands Centennial and on the
financial institutions industry in general. Moreover, it is likely that other
bills affecting the business of banks may be introduced in the future by the
United States Congress or California legislature.
CAPITAL RATIOS
As of June 30, 1999, Redlands Centennial's leverage ratio was 7.96%, its Tier 1
risk-based capital ratio was 10.25%, and its total risk-based capital ratio was
11.09%. Based upon these capital ratios and Redlands Centennial's standing with
the FDIC, Redlands Centennial is considered a well capitalized institution.
YEAR 2000 ISSUES
Redlands Centennial relies on outside vendors to provide the software used in
the computer operations of Redlands Centennial. Consequently, Redlands
Centennial's efforts at addressing the technology issues relating to the coming
of Year 2000 are concentrated on vendor, and, to a limited extent, on borrower
capabilities to become Year 2000 compliant. Management has developed a Year 2000
Plan that prioritized vendors by the degree of dependence on the services and
software that they provide. In most cases, written representations from vendors
of their capabilities to operate effectively in the Year 2000 and beyond have
been obtained. Redlands Centennial utilized internal resources to identify and,
if necessary, replaced and tested computer systems for Year 2000 compliance.
Although Redlands Centennial does not anticipate any system failure after
January 1, 2000, it has nevertheless developed detailed contingency plans for
22
<PAGE>
all core business functions in accordance with FFIEC guidelines. It is the
intent of Redlands Centennial to ensure, to the extent possible, that all
operations continue as usual regardless of any potential system or vendor
failure. Testing of those applications determined to be essential for the
operation of Redlands Centennial was completed by June 30, 1999. Redlands
Centennial is also in the process of determining whether major borrowers are
aware of Year 2000 implications on their businesses and are taking appropriate
steps to be in compliance. The projected additional cost to Redlands Centennial
to remediate any additional unforeseen Year 2000 issues is anticipated to be
limited to in-house staff time and a minor amount of additional operating
expense, and is not expected to exceed $5,000. This will not have a material
impact on Redlands Centennial's operations or financial condition.
SELECTED FINANCIAL INFORMATION
The following table sets forth selected financial date of Redlands Centennial as
of December 31, 1998, 1997, 1996, 1995 and 1994, respectively:
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
------------- ------------- --------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Interest income $ 5,039,169 $ 4,167,859 $ 3,304,798 $ 3,182,502 $ 2,769,063
Interest expense 1,694,494 1,497,669 1,018,594 975,130 841,456
Provision for loan losses 50,000 9,000 0 116,000 191,000
Other income 977,352 554,551 300,267 346,932 304,324
Other expense 3,451,839 2,342,391 1,755,530 1,777,448 1,771,700
Net Income 627,188 610,050 527,041 428,156 242,431
Earnings per share $ .95 .95 .82 .67 .38
Total assets $69,594,445 $59,135,187 $48,598,559 $38,497,374 $38,016,973
Total deposits 63,324,629 53,656,133 43,915,376 34,387,082 34,685,390
Total equity 5,818,344 5,152,847 4,394,780 3,858,131 3,245,397
</TABLE>
PRICE RANGE OF REDLANDS CENTENNIAL'S COMMON STOCK
The shares of Redlands Centennial common stock are thinly traded, and no
established public trading market exists. The shares of Redlands Centennial
common stock are not listed on a national exchange, and there is no established
public market for Redlands Centennial common stock. The high and low sales
prices and volume of trades concerning Redlands Centennial common stock are
provided in the chart below.
<TABLE>
<CAPTION>
Sales Prices(1)
---------------------------------- Number of
Calendar Quarter High Low Shares Traded(1)
- - -------------------- -------- -------- -------------------
<S> <C> <C> <C>
1999
-------
Second quarter 15.375 14.3125 68,700
First quarter 15.875 14.75 24,800
23
<PAGE>
<CAPTION>
Sales Prices(1)
-------------------------- Number of
Calendar Quarter High Low Shares Traded(1)
- - ------------------ ------- -------- ------------------
<S> <C> <C> <C>
1998
--------
Fourth quarter 15.75 13.69 56,700
Third quarter 14.75 12.94 34,800
Second quarter 15.00 12.00 10,100
First quarter 17.25 10.62 14,400
1997
-------
Fourth quarter 10.875 10.31 9,300
Third quarter 11.25 10.40 43,378
- - ----------
</TABLE>
(1) Redlands Centennial has paid the following stock dividends since the
beginning of 1997: a 7% stock dividend on December 1, 1997; and a 25%
stock dividend on December 1, 1998. The sales prices and number of
shares have been retroactively adjusted for the stock dividends.
DIVIDENDS
Redlands Centennial has paid no cash dividends since inception. No cash
dividends are expected to be paid in the immediate future. The payment of
dividends in the future is subject to the discretion of the Board of Directors
of Redlands Centennial and will depend on Redlands Centennial's earnings,
financial condition and other relevant factors, including applicable regulatory
orders and restrictions with respect to dividends. Redlands Centennial paid a
25% stock dividend to shareholders of record on December 1, 1998, and a 7% stock
dividend to shareholders of record on December 1, 1997. After the
reorganization, it is expected that Redlands Centennial will pay a dividend to
Centennial in the amount of approximately $10,000 to pay for the reorganization
costs and initial capitalization and provide Centennial with working capital. If
the reorganization is approved, dividends to shareholders may be paid by
Centennial. The payment of cash dividends by Centennial in the future is subject
to the discretion of the Board of Directors of Centennial and will depend on
Redlands Centennial paying a cash dividend to Centennial. Redlands Centennial's
ability to pay a cash dividend to Centennial will depend on Redlands
Centennial's earnings, financial condition and other relevant factors, including
applicable regulatory orders and restrictions with respect to dividends. No cash
dividends by Centennial are expected to be paid in the immediate future.
UNAUDITED PRO FORMA CAPITALIZATION
The following table sets forth the unaudited actual capitalization of Redlands
Centennial at June 30, 1999, the proposed capitalization of RCB Merger Company
and Centennial immediately prior to completion of the reorganization, and the
pro forma capitalization of Redlands Centennial and Centennial on a consolidated
basis to reflect the completion of the reorganization.
24
<PAGE>
<TABLE>
<CAPTION>
Pro Forma of
Redlands RCB Centennial and
Centennial(1) Merger Company(2) Centennial(3) Redlands Centennial
---------------- -------------------- --------------- --------------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Shareholders' Equity:
Capital stock $ 2,689,136 $ 100 $ 150 $ 2,689,422
Surplus 2,648,548 0 0 2,648,548
Other capital accounts 616,300 0 0 616,300
Total $ 5,953,984 $ 100 $ 150 $ 5,954,134
Per Share Data:
Common stock
Authorized 10,000,000 1,000,000 10,000,000 10,000,000
Outstanding 672,284 100 100 672,284
</TABLE>
- - -----------
(1) Capital stock and outstanding shares are stated as of June 30, 1999.
(2) Funds to capitalize RCB Merger Company were obtained by issuing 100 shares
to Centennial for $100. At the time of the reorganization, Centennial will
receive $100, and the shares of RCB Merger Company common stock will be
exchanged for shares of Redlands Centennial common stock.
(3) Funds to capitalize Centennial were obtained by a loan in the amount of
$10,000 and the issuing a total of 100 shares of Centennial for the sum of
$150.00 Upon completion of the reorganization, the loan will be repaid and
the 100 shares repurchased by Centennial.
As of June 30, 1999, Redlands Centennial had issued and outstanding 672,284
shares of common stock which, based upon the June 30, 1999 total shareholders'
equity of Redlands Centennial of $5.954 million results in a book value of $8.85
per share for Redlands Centennial common stock. After the reorganization, and
the one-for-one share exchange of Redlands Centennial common stock for
Centennial common stock, Centennial will have 672,284 shares of common stock
issued and outstanding, plus any additional shares up to 172,028 shares of
common stock which become outstanding pursuant to the exercise of outstanding
stock options under Redlands Centennial's stock option plan.
BOOK VALUE OF REDLANDS CENTENNIAL'S COMMON STOCK
The table below shows the per share book value of Redlands Centennial's common
stock, as of the date indicated, for the two years ended December 31, 1998 and
1997.
December 31, 1998 $ 8.72
December 31, 1997 $ 9.93
25
<PAGE>
FINANCIAL STATEMENTS AND RELATED MATTERS
Redlands Centennial's audited statements of condition as of December 31, 1998
and 1997 and related audited statements of earnings, changes in stockholders'
equity and cash flows for each of the years ended December 31, 1998 and 1997,
prepared in conformity with generally accepted accounting principles, report of
independent public accountants, management's discussion and analysis of
financial condition and the results of operations are set forth in Redlands
Centennial's 1998 Annual Report to Shareholders and are incorporated into this
proxy statement/prospectus by reference. A copy of these sections of the annual
report is included with this proxy statement/prospectus.
MANAGEMENT OF REDLANDS CENTENNIAL
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth, as of October 4, 1999, the names of, and certain
information regarding, the directors and executive officers of Redlands
Centennial.
<TABLE>
<CAPTION>
Year First
Name and Title Appointed Principal Occupation During
Other than Director Age Director the Past Five Years
- - --------------------- ---- ---------- ---------------------------------------------------
<S> <C> <C> <C>
Bruce J. Bartells 55 1992 Chief Executive Officer and former Chief
Financial Officer of Wilden Pump & Engineering
Company, Inc. (formerly President and CEO of
Soren McAdams Bartells, CPA's, Inc.)
Carole H. Beswick 57 1990 Part owner of Paper Partners, Inc. (formerly a
Councilwoman of the City of Redlands).
James C. Coffin 77 1994 President and CEO of C-Y Development Co.
(building and land development).
Irving M. Feldkamp, 54 1999 President/Owner of Hospitality Dental Associates
III, DDS and President/Owner Glen Helen Racing Inc.
Stephen L. Guggisberg 51 1990 Management/Sales Consultant (formerly an auto
dealer, Yucaipa Valley Auto Sales and former
Vice President and General Manager of Inland
Motors).
Larry Jacinto 50 1998 President of Larry Jacinto Construction, President
of Pangahamo Materials, Inc., President of Larry
Jacinto Family, President of Mentone
Enterprises, and Vice President of Rancho Las
Narajas.
26
<PAGE>
<CAPTION>
Year First
Name and Title Appointed Principal Occupation During
Other than Director Age Director the Past Five Years
- - ----------------------- ---- ------------ ----------------------------------------------
<S> <C> <C> <C>
Ronald J. Jeffrey 56 1990 Vice President of Tri-City Acoustics, Inc., a
specialty subcontracting business and former
President of Inland Acoustics, Inc.
William A. McCalmon 54 1990 President and owner of RPM Insurance Services,
Inc., registered principal of PIM Financial
Services, Inc.
Patrick J. Meyer 48 1990 Owner of Urban Environs, a land planning
Chairman of the Board consultant business.
William J. Solberg 51 1990 Owner of a State Farm Insurance Agency.
Douglas C. Spencer 41 1997 President and CEO of Redlands Centennial
(formerly Senior Vice President/Branch
Administration with California
State Bank and former Senior Vice
President/Chief Operating Officer of Landmark Bank).
Douglas F. Welebir 56 1990 Attorney and President of Welebir, McCune &
Jure, a professional law corporation.
Roy D. Lewis 53 Executive Vice President and Chief Credit
Exec. Vice President & Officer of Redlands Centennial.
Chief Credit Officer
Beth Sanders 47 Executive Vice President and Chief Financial
Exec. Vice President & Officer of Redlands Centennial.
Chief Financial Officer
</TABLE>
None of the directors were selected pursuant to any arrangement or understanding
other than with the directors and executive officers of Redlands Centennial
acting within their capacities as such. There are no family relationships
between any of the directors and executive officers of Redlands Centennial.
27
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
-------------------------------------------
Annual Compensation Awards Payouts
- - ----------------------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
- - ----------------------------------------------------------------------------------------------------------------------------------
Other
Annual Restricted All Other
Name and Compen- Stock LTIP Compen-
Principal Salary Bonus sation(1) Award(s) Options/ Payouts sation(3)
Position Year ($) ($) ($) ($) SARs(2) ($) ($)
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Douglas C. Spencer(4) 1998 120,000 0 8,400 -- -- -- 5,000
--------------------------------------------------------------------------------------------------------
1997 30,000 9,883 2,100 -- 26,750 -- 0
--------------------------------------------------------------------------------------------------------
1996 -- -- -- -- -- -- --
- - ----------------------------------------------------------------------------------------------------------------------------------
Roy D. Lewis 1998 93,566 0 0 -- 312 -- 4,449
--------------------------------------------------------------------------------------------------------
1997 73,625 9,883 6,000 -- 0 -- 3,607
--------------------------------------------------------------------------------------------------------
1996 67,875 2,000 6,000 -- 0 -- 1,977
- - ----------------------------------------------------------------------------------------------------------------------------------
Beth Sanders 1998 83,716 0 0 -- 0 -- 4,449
--------------------------------------------------------------------------------------------------------
1997 71,850 9,883 6,000 -- 334 -- 4,750
--------------------------------------------------------------------------------------------------------
1996 69,200 5,000 6,000 -- 0 -- 3,002
- - ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The amounts represent car allowance.
(2) Redlands Centennial does not have SAR's.
(3) The amounts represent Redlands Centennial matching contributions to the
401(k) Plan.
(4) Mr. Spencer began employment with Redlands Centennial on October 1, 1997.
28
<PAGE>
<TABLE>
<CAPTION>
OPTION/SAR EXERCISES AND YEAR END VALUE TABLE
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND YEAR END OPTION/SAR VALUE
(a) (b) (c) (d) (e)
- - ----------------------------------------------------------------------------------------------------------------------------
Number of Value of Unexercised
Unexercised In-the-Money
Options/SARs at Options/SARs at
Year End (#) Year End ($)
Shares Acquired on Value Realized Exercisable/ Exercisable/
Name Exercise (#) ($) Unexercisable Unexercisable
- - ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Douglas C. Spencer 0 0 5,350/21,400 $22,587/$90,350
- - ----------------------------------------------------------------------------------------------------------------------------
Roy D. Lewis 0 0 8,274/0 $65,985/$0
- - ----------------------------------------------------------------------------------------------------------------------------
Beth Sanders 0 0 12,278/0 $93,028/$0
- - ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
29
<PAGE>
EMPLOYMENT AGREEMENTS
Redlands Centennial entered into an employment agreement with Mr. Spencer.
The agreement is for a term of four years commencing October 1, 1997 and
provides for the employment of Mr. Spencer as the President and Chief
Executive Officer of Redlands Centennial. The term of the agreement is
automatically extended for additional periods of one year unless Redlands
Centennial or Mr. Spencer gives written notice of termination of employment
not less than three months and not more than six months prior to the
expiration of the term. The base annual salary for Mr. Spencer is currently
$128,400 per year, with increases to be determined at the discretion of the
Board of Directors of Redlands Centennial. Under the agreement Mr. Spencer is
entitled to bonuses pursuant to his participation in Redlands Centennial's
Incentive Compensation Plan. In addition, the agreement provides that
Redlands Centennial will provide Mr. Spencer with salary continuation
benefits as discussed below. The agreement provides Mr. Spencer with stock
options to acquire 26,750 shares (adjusted for stock dividends) which vest at
the rate of 20% per year (with acceleration of vesting in certain events) and
with a term of ten years. In lieu of an automobile allowance, Mr. Spencer is
provided with a bank automobile. Redlands Centennial paid $10,000 for Mr.
Spencer's relocation expenses for moving to Redlands. Pursuant to the
agreement, Mr. Spencer is entitled to four weeks vacation per year, health,
disability and life insurance benefits and indemnification for matters
incurred in connection with any action against him which arose out of and was
within the scope of his employment, provided that he acted in good faith and
in a manner he reasonably believed to be in the best interests of Redlands
Centennial and with respect to a criminal matter if he also had no reasonable
cause to believe his conduct was unlawful. If Redlands Centennial terminates
Mr. Spencer without cause, he shall be entitled to one year of base salary in
addition to the salary continuation benefits discussed below. Upon any change
of control involving Redlands Centennial and where his position is eliminated
or materially changed in connection with the change of control, he is to be
paid two years of his then current base salary in addition to the salary
continuation benefits discussed below. In the event Mr. Spencer is terminated
for cause, he shall be entitled to four weeks of salary as of the date of
termination plus any pay in lieu of vacation.
On March 17, 1998, Redlands Centennial and Mr. Spencer entered into a salary
continuation agreement to provide salary continuation benefits to Mr.
Spencer. If Mr. Spencer continues in the employ of Redlands Centennial until
age 55, he will receive from Redlands Centennial under the salary
continuation agreement an annual benefit amount beginning at $186,956 and
increasing 3% per year for subsequent years for ten years beginning at his
reaching Retirement Age. In the event Mr. Spencer terminates employment due
to disability prior to age 55, he will receive the salary continuation
benefits in the amount of the annual benefit amount for 10 years beginning at
his reaching retirement age. In the event Mr. Spencer dies while actively
employed by Redlands Centennial prior to reaching retirement age, his
beneficiary will receive from Redlands Centennial benefits in the amount of
the annual benefit amount for ten years beginning with the month following
his death. In the event of involuntary termination without cause Mr. Spencer
shall receive an annual benefit amount based on his years of service with
Redlands Centennial for 10 years beginning with the month following his
involuntary termination. The annual benefit amount for involuntary
termination begins at $13,725 for one year of service and goes up to a
maximum of $125,657 after 7 years of service. In the event of termination due
to early retirement or voluntary termination other than due to a change of
control, Mr. Spencer shall
30
<PAGE>
receive an annual benefit amount based on his years of service for 10 years
beginning with the month following his early retirement or voluntary
termination. The annual benefit amount for early retirement or voluntary
termination begins at $2,478 for one year of service and goes up to a maximum
of $104,251 after 15 years of service. In the event of a change in control of
Redlands Centennial while Mr. Spencer is in active service with Redlands
Centennial, Mr. Spencer will receive an annual benefit amount based on his
years of service with Redlands Centennial for ten years beginning with the
month following the completion of the change in control of Redlands
Centennial. The annual benefit amount for a change of control begins at
$120,000 for one year of service and increases at 3% per year for subsequent
years of service up to $186,956 for 16 years of service. In the event Mr.
Spencer is terminated for cause, he will forfeit any benefits from the salary
continuation agreement.
Redlands Centennial also entered into an Employment Agreement with Mr. Lewis
on March 20, 1998. The agreement is for a term of two years commencing April
1, 1998 and provides for the employment of Mr. Lewis as the Executive Vice
President and Chief Credit Officer of Redlands Centennial. The term of the
agreement is automatically extended for additional periods of one year unless
Redlands Centennial or Mr. Lewis gives written notice of termination of
employment not less than three months and not more than six months prior to
the expiration of the term. The base annual salary for Mr. Lewis under the
agreement is $90,000 per year, with increases to be determined at the
discretion of the Board of Directors of Redlands Centennial. Mr. Lewis is
entitled to accrue up to four weeks vacation per year. In addition, Mr. Lewis
is entitled to health and life insurance benefits as well as all other
employee benefits and plans that Redlands Centennial adopts in its normal
course of business. Under the agreement, Mr. Lewis is entitled to
indemnification for matters incurred in connection with any action against
the him which arose out of and was within the scope of his employment,
provided that he acted in good faith and in a manner he reasonably believed
to be in the best interests of Redlands Centennial and with respect to a
criminal matter if he also had no reasonable cause to believe his conduct was
unlawful. If Redlands Centennial terminates Mr. Lewis without cause, he shall
be entitled to six months of base salary and insurance benefits. Upon any
change of control involving Redlands Centennial and where his position is
eliminated or materially changed in connection with the change of control, he
is to be paid one year of his then current base salary. In the event Lewis is
terminated for cause, he shall be entitled to four weeks of salary as of the
date of termination plus any pay in lieu of vacation.
Redlands Centennial also entered into an Employment Agreement with Mrs.
Sanders on March 20, 1998. The agreement is for a term of two years
commencing April 1, 1998 and provides for the employment of Mrs. Sanders as
the Executive Vice President and Chief Financial Officer of Redlands
Centennial. The term of the agreement is automatically extended for
additional periods of one year unless Redlands Centennial or Mrs. Sanders
gives written notice of termination of employment not less than three months
and not more than six months prior to the expiration of the term. The base
annual salary for Mrs. Sanders under the agreement is $80,000 per year, with
increases to be determined at the discretion of the Board of Directors of
Redlands Centennial. Mrs. Sanders is entitled to accrue up to four weeks
vacation per year. In addition, Mrs. Sanders is entitled to health and life
insurance benefits as well as all other employee benefits and plans that
Redlands Centennial adopts in its normal course of business. Under the
agreement, Mrs. Sanders is entitled to indemnification for matters
31
<PAGE>
incurred in connection with any action against the her which arose out of and
was within the scope of her employment, provided that she acted in good faith
and in a manner the executive reasonably believed to be in the best interests
of Redlands Centennial and with respect to a criminal matter if she also had
no reasonable cause to believe her conduct was unlawful. If Redlands
Centennial terminates Mrs. Sanders without cause, she shall be entitled to six
months of base salary and insurance benefits. Upon any change of control
involving Redlands Centennial where her position is eliminated or materially
changed in connection with the change of control, she is to be paid one year
of her then current base salary. In the event Mrs. Sanders is terminated for
cause, she shall be entitled to four weeks of salary as of the date of
termination plus any pay in lieu of vacation.
COMPENSATION OF DIRECTORS
The directors are each paid a fee of $500 per month, except for the chairman
who receives $750 per month. The directors also receive $50 for each
committee meeting attended by the committee member and $100 for each
committee meeting chaired by the committee chairman. Each of the directors
except Messrs. Bartells, Coffin, Feldkamp and Jacinto was granted a stock
option to acquire 6,352 shares (adjusted for stock dividends) at an exercise
price of $6.28 on January 18, 1991. Mr. Bartells was granted a stock option
to acquire 6,352 shares (adjusted for stock dividends) at an exercise price
of $6.28 on August 21, 1992. Each of the directors except Messrs. Feldkamp
and Jacinto was granted an option to acquire 1,337 shares (adjusted for stock
dividends) at an exercise price of $9.72 on August 15, 1997. Each of the
directors, except for Mr. Feldkamp, received a stock option grant on February
19, 1999 for 2,500 shares with an option price of $15.25 per share. With the
exception of Mr. Feldkamp, the directors also participate in a director
retirement plan which provides each director with retirement, death and
liability benefits that is set forth in their individual agreements. The
agreements provide each director with retirement benefits of $7,500 per year
for ten years commencing at their expected retirement age which ranges from
age 56 for Mr. Meyer to age 85 for Mr. Coffin. The retirement benefits are
informally funded with life insurance policies purchased by Redlands
Centennial. The net accrued costs of such benefits for 1998 for all of the
directors totaled $6,232. In addition, the directors and their dependents
participate in Redlands Centennial's self-funded dental plan. Under Redlands
Centennial's dental plan, the maximum reimbursement by Redlands Centennial to
any participant is $750 per year. A total of $7,536 was paid under Redlands
Centennial's dental plan in 1998 for the benefit of the directors and their
dependents.
LEGAL MATTERS
Certain legal matters in connection with the issuance of the shares of
Centennial's common stock will be passed upon by Gary Steven Findley &
Associates, Anaheim, California.
32
<PAGE>
EXHIBIT A
PLAN OF REORGANIZATION AND MERGER AGREEMENT
This Plan of Reorganization and Merger Agreement ("Agreement") is made
and entered into as of this 24th day of September, 1999 by and between RCB
Merger Company ("RMC"), a California corporation and Redlands Centennial Bank
(the "Bank"), a California banking corporation to which Centennial First
Financial Services ("Centennial"), a California corporation, is a party.
RECITALS AND UNDERTAKINGS
A. The Bank is a California banking corporation with its head banking
office located in Redlands, California. RMC is duly organized and existing
under the laws of the State of California with its principal offices located
in Redlands, California and is a wholly-owned subsidiary of Centennial.
Centennial is duly organized and existing under the laws of the State of
California with its principal offices located in Redlands, California.
B. As of the date hereof, the Bank has 10,000,000 shares of no par value
common stock authorized and 672,284 shares outstanding. It is anticipated that
prior to the Effective Date (as defined in Section 1.2 herein), the Bank will
have no more than 672,284 shares outstanding, reflecting the number of shares of
common stock outstanding as of the date of this Agreement.
C. As of the date hereof, Centennial has an authorized maximum number of
shares of capital stock consisting of 10,000,000 shares of no par value common
stock, 100 of which will be outstanding at the time of the reverse triangular
merger referred to herein, and RMC has an authorized maximum number of shares of
capital stock consisting of 1,000,000 shares of no par value common stock, 100
of which will be issued and outstanding at the time of the reverse triangular
merger referred to herein. All of the issued and outstanding shares of RMC at
the time of the reverse triangular merger referred to herein will be owned by
Centennial.
D. It is contemplated that in the reverse triangular merger RMC will be
merged with and into the Bank, and the Bank will be the surviving corporation of
such merger and will be wholly-owned by Centennial. Such reverse triangular
merger shall be referred to hereinafter as the "reverse triangular merger."
E. The Boards of Directors of the Bank, RMC and Centennial have,
respectively, approved this Agreement and authorized its execution.
F. The parties intend that the reverse triangular merger be structured as
a "reorganization" under Section 368(a)(1)(A) of the Internal Revenue Code of
1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the mutual agreements of the parties
contained herein, the parties hereby agree as follows:
A-1
<PAGE>
SECTION 1. GENERAL
1.1 THE MERGER. On the Effective Date, RMC shall be merged into the Bank,
and the Bank shall be the surviving corporation (the "Surviving Corporation")
and a subsidiary of Centennial, and its name shall continue to be "Redlands
Centennial Bank."
1.2 EFFECTIVE DATE. This Agreement shall become effective on 12-1, 1999
(the "Effective Date").
1.3 ARTICLES OF INCORPORATION AND BYLAWS. On the Effective Date, the
Articles of Incorporation of the Bank, as in effect immediately prior to the
Effective Date, shall be and remain the Articles of Incorporation of the
Surviving Corporation; the Bylaws of the Bank shall be and remain the Bylaws of
the Surviving Corporation until altered, amended or repealed; the certificate of
authority of the Bank issued by the Commissioner of the California Department of
Financial Institutions ("CDFI") shall be and remain the certificate of authority
of the Surviving Corporation; and the Bank's insurance of deposits coverage by
the Federal Deposit Insurance Corporation ("FDIC") shall be and remain the
deposit insurance of the Surviving Corporation.
1.4 DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION. On the Effective
Date, the directors and officers of the Bank immediately prior to the Effective
Date shall be and remain the directors and officers of the Surviving
Corporation. Directors of the Surviving Corporation shall serve until the next
Annual Meeting of Shareholders of the Surviving Corporation or until such time
as their successors are elected and have qualified.
1.5 EFFECT OF THE MERGERS.
a. ASSETS AND RIGHTS. Upon the reverse triangular merger becoming
effective, all rights, privileges, franchises and property of RMC, and all debts
and liabilities due or to become due to RMC, including things in action and
every interest or asset of conceivable value or benefit, shall be deemed fully
and finally and without any right of reversion transferred to and vested in the
Surviving Corporation without further act or deed, and the Surviving Corporation
shall have and hold the same in its own right as fully as the same was possessed
and held by RMC.
b. LIABILITIES. Upon the reverse triangular merger becoming
effective, all debts, liabilities, and obligations due or to become due of, and
all claims or demands for any cause existing against RMC shall be and become the
debts, liabilities, obligations of, and the claims and demands against, the
Surviving Corporation in the same manner as if the Surviving Corporation had
itself incurred or become liable for them.
c. CREDITORS' RIGHTS AND LIENS. Upon the reverse triangular merger
becoming effective, all rights of creditors of RMC, and all liens upon the
property of RMC, shall be preserved unimpaired, limited in lien to the property
affected by the liens immediately prior to the Effective Date.
A-2
<PAGE>
d. PENDING ACTIONS. Upon the reverse triangular merger becoming
effective, any action or proceeding pending by or against RMC shall not be
deemed to have abated or been discontinued, but may be prosecuted to judgment,
with the right to appeal or review as in other cases, as if the reverse
triangular merger had not taken place or the Surviving Corporation may be
substituted for RMC.
1.6 FURTHER ASSURANCES. The Bank, Centennial and RMC each agree that at
any time, or from time to time, as and when requested by the Surviving
Corporation, or by its successors and assigns, it will execute and deliver, or
cause to be executed and delivered in its name by its last acting officers, or
by the corresponding officers of the Surviving Corporation as the case may be,
all such conveyances, assignments, transfers, deeds or other instruments, and
will take or cause to be taken such further or other action as the Surviving
Corporation, its successors or assigns may deem necessary or desirable, in order
to evidence the transfer, vesting or devolution of any property right, privilege
or franchise or to vest or perfect in or confirm to the Surviving Corporation,
its successors and assigns, title to and possession of all the property, rights,
privileges, powers, immunities, franchises and interests referred to in this
Section 1 and otherwise to carry out the intent and purposes hereof.
SECTION 2. CAPITAL STOCK OF THE SURVIVING CORPORATION
2.1 STOCK OF RMC. Upon the reverse triangular merger becoming effective,
the shares of capital stock of RMC issued and outstanding immediately prior to
the Effective Date shall thereupon be converted into and exchanged by Centennial
for 100 shares of fully paid and nonassessable common stock of the Bank as the
Surviving Corporation.
2.2 STOCK OF THE BANK. Upon the reverse triangular merger becoming
effective, each and every share of Bank common stock issued and outstanding
shall, by virtue of the reverse triangular merger and without any action on the
part of the holders thereof, be exchanged for and converted into the right to
receive one share of Centennial common stock.
2.3 EXCHANGE PROCEDURE.
a. U.S. Stock Transfer shall act as payment agent (the "Exchange
Agent") for the purpose of exchanging certificates representing shares of Bank
common stock for shares of Centennial common stock as provided by Section 2.2.
b. If any holder of Bank common stock shall be unable to surrender
his or her stock certificates representing Bank common stock because such
certificates have been lost or destroyed, such holder of Bank common stock may
deliver in lieu thereof an indemnity bond in form and substance and with a
surety satisfactory to the Bank.
2.4 STOCK OPTIONS. Upon the reverse triangular merger becoming effective,
each outstanding option to purchase Bank common stock shall, by virtue of the
reverse triangular merger and without any action on the part of the holders
thereof, be converted into an option to purchase Centennial common stock.
A-3
<PAGE>
SECTION 3. APPROVALS
3.1 SHAREHOLDER APPROVAL. This Agreement shall be submitted to the
shareholders of the Bank and RMC for ratification and approval in accordance
with the applicable provisions of law.
3.2 REGULATORY APPROVALS. The parties shall obtain the waivers, consents
and approvals of all regulatory authorities as required for consummation of the
reverse triangular merger on the terms herein provided, including, without being
limited to, those consents and approvals referred to in Paragraph 4.1b.
SECTION 4. CONDITIONS, TERMINATION AND PAYMENT OF EXPENSES
4.1 CONDITIONS TO THE MERGER. Consummation of the reverse triangular
merger is conditioned upon:
a. ratification and approval of this Agreement by the shareholders
of the Bank and RMC as required by law;
b. obtaining all other consents and approvals, and satisfaction of
all other requirements prescribed by law which are necessary for consummation of
the reverse triangular merger, including, but not limited to, approval of the
FDIC, approval of the CDFI, and approval of the Board of Governors of the
Federal Reserve System under the Bank Holding Company Act of 1956, as amended;
c. obtaining all consents or approvals, governmental or otherwise,
which are or, in the opinion of counsel for the Bank may be, necessary to permit
or enable the Surviving Corporation, upon and after the reverse triangular
merger, to conduct all or any part of the business and activities of the Bank up
to the time of the reverse triangular merger, in the manner in which such
activities and business are then conducted;
d. for the benefit of Centennial, Centennial's shareholders, the
Bank, and the Bank's shareholders unless waived, the Bank shall have received an
opinion from Hutchinson & Bloodgood, CPAs, in form and substance satisfactory to
both the Bank and Centennial, to the effect that: the reverse triangular merger
of RMC with and into the Bank and the exchange of shares of Bank common stock
for shares of Centennial common stock, will be considered a reorganization
within the meaning of Section 368(a)(1)(A) of the Code; no gain or loss will be
recognized by the Bank pursuant to consummation of the reverse triangular
merger; and no gain or loss will be recognized by the shareholders of Centennial
upon the exchange of their shares of Centennial common stock for shares of Bank
common stock, as provided for herein;
e. performance by each party hereto of all of its respective
obligations hereunder to be performed prior to the respective mergers becoming
effective; and
4.2 TERMINATION OF THE MERGER. If any condition in Paragraph 4.1 has not
been fulfilled with respect to the merger, or, if in the opinion of a majority
of the Board of Directors of any of the parties:
A-4
<PAGE>
a. any action, suit, proceeding or claim has been instituted, made or
threatened relating to either of the proposed mergers which makes consummation
of such merger inadvisable; or
b. for any other reason consummation of such merger is inadvisable;
then this Agreement may be terminated at any time before such merger becomes
effective. Upon termination, this Agreement shall be void and of no further
effect, and there shall be no liability by reason of this Agreement or the
termination thereof on the part of the parties or their respective directors,
officers, employees, agents or shareholders, except as provided in Section 4.3
hereof.
4.3 EXPENSES OF THE MERGER. Subject to applicable federal laws and
regulations, each party shall bear its own expenses of the merger, including
filing fees, printing costs, mailing costs, accountants' fees and legal fees.
SECTION 5. MISCELLANEOUS
5.1 ASSIGNMENT. Neither party shall have the right to assign its rights or
obligations under this Agreement.
5.2 EXECUTION. This Agreement may be executed in counterparts, each of
which when so executed shall be deemed an original and such counterparts shall
together constitute one and the same instrument.
5.3 GOVERNING LAW. This Agreement is made and entered into in the State of
California, and the laws of said State shall govern the validity and
interpretation hereof.
5.4 ENTIRE AGREEMENT. This Agreement contains the entire agreement between
the parties hereto with respect to the reverse triangular merger and supersedes
all prior arrangements or understandings with respect thereto.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized officers as of the day and year first above written.
REDLANDS CENTENNIAL BANK
(Corporate Seal)
By: /s/ Douglas Spencer
----------------------------------------
Douglas Spencer, President
By: /s/ Sally Flanders
----------------------------------------
Sally Flanders, Secretary
A-5
<PAGE>
RCB MERGER COMPANY
(Corporate Seal)
By: /s/ Douglas Spencer
------------------------------------------
Douglas Spencer, President and Secretary
CENTENNIAL FIRST FINANCIAL SERVICES
(Corporate Seal)
By: /s/ Douglas Spencer
------------------------------------------
Douglas Spencer, President
By: /s/ Sally Flanders
------------------------------------------
Sally Flanders, Secretary
A-6
<PAGE>
REDLANDS CENTENNIAL BANK
FINANCIAL REPORT
YEARS ENDED DECEMBER 31, 1998 AND 1997
F-1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <S>
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS F-3
INDEPENDENT AUDITORS' REPORT F-8
FINANCIAL STATEMENTS
Statements of condition F-9
Statements of earnings F-10
Statements of changes in stockholders' equity F-11
Statements of cash flows F-12 - F-13
Notes to financial statements F-14 - F-32
</TABLE>
F-2
<PAGE>
REDLANDS CENTENNIAL BANK
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion is intended to provide sufficient information
about Redlands Centennial Bank to enhance the reader's understanding of the
Bank's financial condition and results of operations. In order to understand
this section in context, it should be read in conjunction with the audited
financial statements, including the notes thereto and other data presented
elsewhere in this annual report.
RESULTS OF OPERATIONS
SUMMARY
The Bank reported net income of $627,188 for the year ending December
31, 1998, as compared to net income totaling $610,050 for the year ending
December 31, 1997, an increase of 2.81%. Earnings per share, adjusted for the
effect of the exercise of stock options and stock dividends, resulted in
earnings per share of 88 cents in 1998 versus 91 cents in 1997.
Total assets at December 31, 1998 reached a record of $69,594,445, an
increase of 17.7% or $10,459,258 compared to $59,135,187 at December 31, 1997.
Total assets of $48,598,559 at year end 1997 exceeded year-end 1996 totals by
$10,536,628, or 21.6%.
At December 31, 1998, total deposits grew to a record level of
$63,324,629, an increase of $9,668,496 or 18.0% above year-end 1997. A
significant gain of 17.4% or $4,791,370 in demand deposits, interest-bearing and
NOW accounts was recorded, as these accounts totaled $32,396,096 at December 31,
1998 compared to $27,604,726 at December 31, 1997.
Return on average shareholders' equity was 12.84%, 12.78%, and 11.43%
for the years ending December 31, 1996, 1997, and 1998, respectively. The
risk-based capital ratio was 14.66%, 13.74%, and 12.37% for 1996, 1997, and
1998, respectively. The minimum ratio established by the FDIC to be qualified as
"well capitalized" is 10.0%.
NET INTEREST INCOME AND NET INTEREST MARGIN
Net interest income is the difference between interest earned on loans
and investments and interest it paid on deposits. Net interest income totaled
$3,344,675 for the year ended December 31, 1998, up from $2,670,190 and
$2,286,204 in 1997 and 1996, respectively. The primary factor contributing to
the growth of net interest income during both 1998 and 1997 was an increase in
earning assets. Earning assets in 1998 increased $9,623,531 or 18.9% to
$60,615,611 as compared to an increase of $8,564,822, or 20% in earning assets
for 1997.
The net interest margin (net interest income divided by average earning
assets) totaled 6.10%, 5.49%, and 5.99% for the years ended December 31, 1996,
1997, and 1998, respectively.
F-3
<PAGE>
LIQUIDITY AND ASSET/LIABILITY MANAGEMENT
Liquidity, which primarily represents the Bank's ability to meet
fluctuations in deposit levels and meet customers' credit needs, is managed
through various funding strategies that reflect the maturity structure of the
assets being funded. Management monitors its liquidity position daily in
relation to its deposit base and projected loan funding or payoffs.
Excess liquidity can adversely impact earnings, if not properly
managed. The process of asset/liability management has evolved from simple "gap"
analysis, where a bank views repricing opportunities of its assets and
liabilities through various time periods, to simulation, interest rate risk, and
economic value of equity reporting. These processes not only measure risk, but
also provide the Bank with evaluation tools necessary for continued, stable
earnings, regardless of interest rate fluctuations.
RISK MANAGEMENT
Variance types of risk are inherent in the business of banking. Federal
regulators have adopted examination guidelines that scrutinize not only a bank's
level of risk, but also its ability to manage and control that risk. Regulators
evaluate risks that affect capital, liquidity, and compliance to determine their
potential effect on the safety and soundness of a bank. Certain risks may be
covered by insurance coverage, but management must establish a risk management
approach that addresses all areas of risk.
Redlands Centennial Bank has in place acceptable limits for each of the
risks identified by the Federal Deposit Insurance Corporation. We have defined
the types of risk, and have mechanisms in place to manage, monitor and report
those risks. Specifically, the Bank focuses on six risk categories within each
area of the Bank. Those include credit risk, interest rate risk, liquidity risk,
market risk, transaction risk and compliance risk.
OTHER INCOME
Other income for the Bank includes customer service fees, net gain from
sale of loans, net gain from sale of investment securities, and other
miscellaneous income. Total other income grew 76.2% in 1998 and 84.7% in 1997 as
a result of increases in fees, revenue gains from the sale of SBA loans, and
gains from the sales of investment securities.
Customer service fees increased to $518,379 in 1998 from $295,310 in
1997 and from $238,926 in 1996. The Gain on Sale of Loans was $285,668, up
$168,821 or 144.5%, compared with $116,847 in 1997 and zero in 1996. During
1998, the Bank opened an Orange County based SBA Loan Department. The
increase in gain on sale of loans in 1998 reflects management's strategy to
offset start-up costs for the new department. Gains from sales of investment
securities grew from $460 in 1997 to $119,361 in 1998. Miscellaneous income
for 1998 stood at $53,944 as compared to $141,934 in 1997.
F-4
<PAGE>
OTHER EXPENSES
Total other expenses for 1998 were $3,451,839, an increase of
$1,109,448 from December 31, 1997. During 1998, the Bank invested in new
technology and Year 2000 compliance, which totaled approximately $400,000.
Salaries and employee benefits increased $341,965 or 27.4% from 1997 to 1998 and
increased $350,568 or 39% from 1996 to1997 primarily due to staffing of the new
SBA and Construction Loan Divisions, as well as normal branch growth.
In 1998, net occupancy expense at $314,688 increased $58,746 from
$255,942 in 1997, compared to an increase of $60,325, or 30.8%, from 1996 to
1997. Cost increases during 1998 relate to the Bank's expansion in establishing
new sources of loan and fee income through real estate and SBA lending.
Other operating expenses, including professional fees, data processing
fees, supplies and advertising rose to $1,546,075 in 1998, up 84.6% from
$837,338 in 1997, as compared to an increase of $175,968 (26.6%) from 1996 to
1997.
INCOME TAXES
The provision for income taxes was $193,000 in 1998 versus $263,300 in
1997 and $303,900 in 1996. For the year ended December 31, 1998, the effective
tax rate was 23.2%, compared to 30.1% for the year ended December 31, 1997, and
36.6% for the year ended December 31, 1996.
INVESTMENT SECURITIES
The Bank's investment portfolio provides income to the Bank and also serves as a
source of liquidity. Total yield, maturity, and risk are among the factors
considered in building the investment portfolio. Under FDIC guidelines for
risk-based capital, certain loans and investments may affect the level of
capital required to support risk-weighted assets. For example, U.S. Treasury
Securities have a 0% risk weighting, whereas U.S. Agency Pools have a 20% risk
weighting, while 1-4 Family Real Estate Loans carry a 50% risk-weighting. In
addition, pursuant to FASB 115, securities must be classified as "held to
maturity," "available for sale" or "trading securities." Those securities held
in the "available for sale" category must be carried on the Bank's books at
"fair market value." At December 31, 1998, the Bank's "available for sale,"
investment portfolio consisted of $4,676,773 in mortgage-backed securities,
$3,593,132 in municipal bonds, and $411,000 in U.S. Treasury obligations
compared to $6,641,871, $4,386,650, and $407,970, respectively in 1997.
The Bank's "held to maturity" investment portfolio, which is carried
at net book value, was $807,352 at December 31, 1998, compared to $819,880 at
December 31, 1997. The Bank has no trading securities. Interest-bearing
deposits held in short-term time certificates at other financial institutions
totaled $4,104,463 at year-end 1998 versus $4,663,190 in 1997. Overnight
Federal Funds sold totaled $6,820,000 in 1998, as compared to $2,700,000 in
1997.
F-5
<PAGE>
LOANS
Total loans were $41,027,435 at December 31, 1998, increasing the
portfolio by $8,561,951 or 26.4%, compared to growth of $6,535,557 or 25.2%
during 1997. Commercial and industrial loans increased $8,291,705, to
$32,971,310, which represents a 33.6% growth from 1997, compared to a 41.3%
growth from 1996 to 1997. The Bank recorded an increase of 3.5%, or $270,246 in
loans to individuals from 1997 to 1998, as compared to a decrease of $687,857 or
8.1%, from 1996 to 1997.
Approximately 34%, or $13.9 million, of the Bank's loan portfolio is at
fixed rates, compared to 40%, or $13.1 million, for 1997. Of the total
portfolio, $3.4 million of fixed rate loans mature within one year for 1998,
compared to $2.8 million of fixed rate loans maturing in one year for 1997.
Loans at a variable rate increased to $27.2 million in 1998 compared to $19.3
million in 1997.
ALLOWANCE AND PROVISION FOR LOAN LOSSES
The allowance for possible loan losses is designed to create a reserve
for possible future loan losses. The allowance for possible loan losses was
$433,475 or 1.1% of gross loans at December 31, 1998; $489,711 or 1.5% of gross
loans at December 31, 1997; and $468,024 or 1.8% of gross loans at December 31,
1996. The amount maintained reflects management's evaluation of the present
economic outlook concerning the liquidity and realizable value of the real
property held as collateral. It also reflects an ongoing evaluation of the risks
inherent in the Bank's loan portfolio, the short-term and long-term economic
forecasts, and the continued monitoring of specific loans where there are
potential losses. Non-performing assets include loans for which interest is no
longer accruing, loans 90 or more days past due, impaired loans, and other real
estate owned. Non-performing assets at December 31, 1998 totaled $327,111 verses
$54,480 at December 31, 1997 as a result of the Bank's continued adherence to
strict loan standards and policies.
DEPOSITS
Total deposits increased $9,668,496 or 18.0% to a record level of
$63,324,629 at December 31, 1998. During 1997, deposits increased $9,740,757 or
22% from $43,915,376 recorded at December 31, 1996. An increase of non-interest
bearing deposits contributed to lower cost of funds during 1998. In 1998, these
deposits grew 10.7% to $16,252,693, up $1,576,928 over $14,675,765 recorded at
December 31, 1997, and increased $4,268,480, up 41% over the $10,407,285 at
December 31, 1996. The Bank's cost of funds for 1998 was 2.90%, as compared to
3.07% and 2.60% for 1997 and 1996, respectively.
F-6
<PAGE>
YEAR 2000 INFORMATION AND READINESS DISCLOSURE
The Bank has developed an aggressive approach aimed at
identifying and correcting Year 2000 issues and expects its plans will result in
timely and adequate modifications to all systems and technology well before
December 1999. The Bank continues to test and evaluate critical areas of the
Bank, including hardware, software, and interaction with suppliers, customers,
creditors, and financial institutions. The Bank is in compliance with all
deadlines established by the FDIC.
The final impact of the Year 2000 issue will largely depend, not only
on the corrective measures Redlands Centennial Bank undertakes, but also the way
the year 2000 issue is addressed by governmental agencies, businesses, and other
entities that provide data or services to the Bank and its customers. The Bank
continues communications, monitoring, and evaluation of each of these parties in
an effort to ensure they are addressing the impact of Year 2000 issues on their
business and the effect on the Bank.
Although we are confident and will be well prepared for the date
change, we are also preparing contingency plans, which will be implemented if
required, to minimize interruptions to Bank operations. The Bank began a reserve
account in 1997 specifically identified for Y2K expenses. None of these costs
are expected to materially impact the Bank's results of operations.
Redlands Centennial Bank is committed to resolving any Year
2000-related difficulties that may arise, in order to continue to provide
excellent service to our customers.
THIS STATEMENT HAS NOT BEEN REVIEWED, OR CONFIRMED FOR ACCURACY OR RELEVANCE, BY
THE FEDERAL DEPOSIT INSURANCE CORPORATION.
F-7
<PAGE>
[LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Redlands Centennial Bank
Redlands, California
We have audited the accompanying statements of condition of Redlands Centennial
Bank as of December 31, 1998 and 1997, and the related statements of earnings,
changes in stockholders' equity and cash flows for the years then ended. These
financial statements are the responsibility of the Bank's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Redlands Centennial Bank at
December 31, 1998 and 1997, the results of its operations and cash flows for the
years then ended, in conformity with generally accepted accounting principles.
HUTCHINSON AND BLOODGOOD LLP
February 2, 1999
F-8
<PAGE>
REDLANDS CENTENNIAL BANK
STATEMENTS OF CONDITION
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---------------- ---------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 4,485,450 $ 5,114,553
Federal funds sold 6,820,000 2,700,000
--------------- --------------
Total cash and cash equivalents 11,305,450 7,814,553
Interest-bearing deposits in financial institutions 4,104,463 4,663,190
Investment securities, available for sale (Note 2) 8,680,905 11,436,491
Investment securities, held to maturity (Note 2) 807,352 819,880
Loans, net (Note 3) 40,202,891 31,372,519
Accrued interest receivable 327,523 482,704
Bank premises and equipment, net (Note 4) 1,729,135 1,650,535
Other assets (Note 12) 2,436,726 895,315
--------------- --------------
Total assets $ 69,594,445 $ 59,135,187
=============== ==============
LIABILITIES
Deposits:
Noninterest-bearing $ 16,252,693 $ 14,675,765
Interest-bearing and NOW accounts 16,143,403 12,928,961
Savings 11,640,655 8,238,315
Time deposits $100,000 or greater 7,553,038 7,451,222
Other time deposits 11,734,840 10,361,870
--------------- --------------
Total deposits 63,324,629 53,656,133
Accrued interest payable 283,988 271,124
Other liabilities (Note 12) 167,484 55,083
--------------- --------------
Total liabilities 63,776,101 53,982,340
--------------- --------------
COMMITMENTS AND CONTINGENCIES (Note 9)
STOCKHOLDERS' EQUITY
Common stock, $4 stated value; authorized 10,000,000 shares, issued and
outstanding 667,377 and 519,087 shares
at December 31, 1998 and 1997, respectively 2,669,508 2,595,415
Additional paid-in capital 2,634,412 2,584,054
Retained earnings (deficit) 500,663 (124,404)
Accumulated other comprehensive income 13,761 97,782
--------------- --------------
Total stockholders' equity 5,818,344 5,152,847
--------------- --------------
Total liabilities and stockholders' equity $ 69,594,445 $ 59,135,187
=============== ==============
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
F-9
<PAGE>
REDLANDS CENTENNIAL BANK
STATEMENTS OF EARNINGS
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Interest income:
Interest and fees on loans $ 3,917,147 $ 2,927,516
Deposits in financial institutions 252,333 305,821
Federal funds sold 339,565 156,255
Investments 530,124 778,267
-------------- -------------
Total interest income 5,039,169 4,167,859
-------------- -------------
Interest expense:
Demand and savings deposits 700,394 535,525
Time deposits $100,000 or greater 433,144 407,764
Other time deposits 560,956 554,380
-------------- -------------
Total interest expense 1,694,494 1,497,669
-------------- -------------
Net interest income 3,344,675 2,670,190
Provision for loan losses 50,000 9,000
-------------- -------------
Net interest income after provision for loan losses 3,294,675 2,661,190
-------------- -------------
Other income:
Customer service fees 518,379 295,310
Gain from sale of loans 285,668 116,847
Gain from sale of investment securities 119,361 460
Other income 53,944 141,934
-------------- -------------
Total other income 977,352 554,551
-------------- -------------
Other expenses:
Salaries and wages 1,308,016 1,040,558
Employee benefits 283,060 208,553
Net occupancy expense 314,688 255,942
Other operating expense 1,546,075 837,338
-------------- -------------
Total other expenses 3,451,839 2,342,391
-------------- -------------
Income before provision for income taxes 820,188 873,350
Provision for income taxes (Note 8) 193,000 263,300
-------------- -------------
Net income $ 627,188 $ 610,050
============== =============
Earnings per share $ .95 $ .95
============== ==============
Earnings per share -- assuming dilution for stock options $ .88 $ .91
============== ==============
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
F-10
<PAGE>
REDLANDS CENTENNIAL BANK
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL RETAINED OTHER
COMMON PAID-IN EARNINGS COMPREHENSIVE
STOCK CAPITAL (DEFICIT) INCOME TOTAL
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1996 $ 2,378,705 $ 2,262,819 $ (267,380) $ 20,636 $ 4,394,780
-------------
Comprehensive income:
Net income - - - - 610,050 - - 610,050
Change in net unrealized gain
on investment securities
available for sale, after
tax effects - - - - - - 77,146 77,146
-------------
Total comprehensive income 687,196
-------------
Stock dividend (Note 7) 169,085 295,898 (467,074) - - (2,091)
Exercise of stock option (Note 7) 47,625 25,337 - - - - 72,962
------------- ------------- ------------ ------------ -------------
BALANCE, DECEMBER 31, 1997 2,595,415 2,584,054 (124,404) 97,782 5,152,847
-------------
Comprehensive income:
Net income - - - - 627,188 - - 627,188
Change in net unrealized gain
on investment securities
available for sale, after
tax effects - - - - - - (84,021) (84,021)
-------------
Total comprehensive income 543,167
-------------
Stock dividend (Note 7) (415) 415 (2,121) - - (2,121)
Exercise of stock option (Note 7) 74,508 49,943 - - - - 124,451
------------- ------------- ------------ ------------ -------------
BALANCE, DECEMBER 31, 1998 $ 2,669,508 $ 2,634,412 $ 500,663 $ 13,761 $ 5,818,344
============= ============= ============ ============ =============
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
F-11
<PAGE>
REDLANDS CENTENNIAL BANK
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 627,188 $ 610,050
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 193,488 141,800
Provision for loan losses 50,000 9,000
Loss (gain) on sale and disposal of equipment 18,869 (4,132)
Loss (gain) on sale of other real estate owned 15,409 (51,589)
Gain from sale of investments (119,361) (460)
Gain from sale of loans (285,668) (116,847)
Amortization of deferred loan fees (160,624) (78,709)
Deferred income tax provision (benefit) (113,360) 54,428
Amortization of premiums on investment
securities available for sale 63,820 63,905
Amortization of premiums on investment
securities held to maturity 12,528 12,850
Increase in cash surrender value of life insurance (43,745) - -
Decrease (increase) in assets:
Accrued interest receivable 155,181 (166,593)
Other assets (308,184) (80,655)
Increase (decrease) in liabilities:
Accrued interest payable 12,864 122,449
Other liabilities 130,750 (84,645)
-------------- --------------
Net cash provided by operating activities 249,155 430,852
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net decrease (increase) in interest-bearing
deposits in financial institutions 558,727 (1,300,737)
Investment in data processing center - - (62,500)
Activity in available-for-sale securities:
Sales 4,581,890 762,008
Maturities, prepayments and calls 2,256,214 2,554,676
Purchases (4,167,010) (5,827,238)
Activity in held-to-maturity securities:
Maturities - - 500,000
Net increase in loans (8,434,080) (6,888,257)
Proceeds from sales of other real estate owned 214,289 140,450
Additions to bank premises and equipment (290,957) (280,838)
Purchase of life insurance (1,268,157) - -
Proceeds from sale of equipment - - 9,429
Proceeds from exercise of stock options 124,451 72,962
-------------- --------------
Net cash used in investing activities (6,424,633) (10,320,045)
-------------- --------------
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
F-12
<PAGE>
REDLANDS CENTENNIAL BANK
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in demand and savings deposits $ 8,193,710 $ 11,540,629
Net increase (decrease) in time deposits 1,474,786 (1,799,872)
Cash dividends paid in lieu of fractional shares (2,121) (2,089)
--------------- --------------
Net cash provided by financing activities 9,666,375 9,738,668
-------------- --------------
Net increase (decrease) in cash and cash equivalents 3,490,897 (150,525)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 7,814,553 7,965,078
-------------- --------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 11,305,450 $ 7,814,553
============== ==============
SUPPLEMENTARY INFORMATION
Interest paid $ 1,681,630 $ 1,375,220
============== ==============
Income taxes paid $ 199,000 $ 257,000
============== ===============
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
F-13
<PAGE>
REDLANDS CENTENNIAL BANK
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Redlands Centennial Bank is a California state chartered bank. The
Bank was incorporated on March 27, 1990 and began operations on
August 1, 1990 with the opening of its office located in Redlands,
California. The Bank provides banking services to personal and
business customers in Redlands and surrounding communities, as
well as Small Business Administration loans in Los Angeles and
Orange counties.
The accounting and reporting policies of Redlands Centennial Bank
are in accordance with generally accepted accounting principles
and in conformity with banking industry practices.
USE OF ESTIMATES
In preparing financial statements in conformity with generally
accepted accounting principles, management is required to make
estimates and assumptions that affect the reported amounts of
assets and liabilities as of the date of the statement of
condition and reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those
estimates. Material estimates that are particularly
susceptible to significant change in the near term relate to
the determination of the allowance for losses on loans, the
valuation of foreclosed real estate and the valuation of
deferred tax assets.
RECLASSIFICATION
Certain amounts have been reclassified in the 1997 financial
statements to conform with the 1998 financial statement
presentation.
LOANS
Loans that management has the intent and ability to hold for
the foreseeable future or until maturity or pay-off generally
are reported at their outstanding unpaid principal balances
adjusted for charge-offs, the allowance for loan losses, and
any deferred fees or costs on originated loans.
Interest on loans is accrued daily as earned, except when
serious doubt concerning collectibility arises, at which time
such loans are placed on a nonaccrual basis, and all accrued
and uncollected interest income is reversed against current
period operations. Interest income on nonaccrual loans is
recognized only to the extent of interest payments received.
F-14
<PAGE>
REDLANDS CENTENNIAL BANK
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LOANS (CONTINUED)
Unearned income on installment loans is recognized as income
over the term of the loans using a method that approximates
the interest method.
Loan origination fees, to the extent they represent
reimbursement for initial direct costs, are recognized as
income at the time of loan closing. The excess of fees over
costs, if any, are deferred and credited to income over the
term of the loan using a method which approximates the
interest method. Amortization of loan origination fees are
included in revenues as an element of interest on loans. If a
loan is paid in full, any deferred fees not yet amortized are
recognized as income.
Loans which are deemed impaired by management are loans
whereby the collectibility of both contractual principal and
interest is doubtful. Losses on impaired loans are measured on
a loan by loan basis by either the present value of expected
future cash flows discounted at the loan's effective interest
rate, the loan's obtainable market price, or the fair value of
the collateral if the loan is collateral dependent. Larger
groups of smaller balance homogenous loans are collectively
evaluated for impairment. Accordingly, the Bank does not
separately identify individual consumer loans for impairment
disclosures.
ALLOWANCE FOR LOAN LOSSES
The determination of the allowance for loan losses is based on
an analysis of the loan portfolio and evaluation of
collateral. The allowance reflects an amount which, in
management's judgment, is adequate to provide for estimated
loan losses. The allowance is based on estimates, and ultimate
losses may vary from the current estimates. Management's
judgment in determining the adequacy of the allowance for loan
losses is based on evaluations of the collectibility of loans,
taking into consideration such factors as changes in the
nature and volume of the loan portfolio, adequacy of
collateral, current economic conditions which may affect the
borrower's ability to pay, overall portfolio quality, and
review of specific problem loans. Loans are charged against
the allowance for loan losses when management believes that
the collectibility of the principal is unlikely.
F-15
<PAGE>
REDLANDS CENTENNIAL BANK
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LOAN SERVICING
The Bank has adopted Statement of Financial Accounting
Standards ("SFAS") No. 122, "Accounting for Mortgage Servicing
Rights," as superseded by SFAS No. 125, "Accounting for
Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities," whereby rights to service
mortgage loans for others are capitalized as separate assets,
whether acquired through purchase or origination, if such
loans are sold or securitized with servicing rights retained.
Accordingly, the total cost of the mortgage loan is allocated
to the related servicing right and to the loan based on the
relative fair values if it is practicable to estimate those
fair values. The Bank estimates fair value based on the
present value of estimated expected future cash flows using
prepayment speeds and discount rates commensurate with the
risks involved, and servicing costs determined on an
incremental cost basis. Prior to the adoption of SFAS No. 122,
the capitalization of originated mortgage servicing rights was
not allowed under generally accepted accounting principles.
Capitalized mortgage servicing rights are amortized to
servicing revenue in proportion to, and over the period of,
estimated net servicing revenues. Impairment of mortgage
servicing rights is assessed based on the fair value of those
rights. For purposes of measuring impairment, the rights are
stratified based on the following predominant risk
characteristics of the underlying loans: loan type, size, note
rate, date origination, term, and geographic location.
Impairment is recognized through a valuation allowance for an
individual stratum, to the extent that fair value is less than
the capitalized amount for the stratum.
BANK PREMISES, EQUIPMENT AND DEPRECIATION
Land is carried at cost. Bank premises and equipment are
stated at cost, less accumulated depreciation. Depreciation is
provided for in amounts sufficient to relate the cost of
depreciable assets to operations over their estimated service
lives on a straight-line basis, which range from five to
thirty-nine years. It is general practice to charge the cost
of maintenance and repairs to earnings when incurred; major
expenditures for betterments are capitalized and depreciated.
F-16
<PAGE>
REDLANDS CENTENNIAL BANK
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FORECLOSED REAL ESTATE
Foreclosed real estate is held for sale and carried at the
lower of cost or fair values less estimated costs to sell and
an allowance for losses. Troubled loans are transferred to
foreclosed real estate upon completion of formal foreclosure
proceedings.
Costs relating to development and improvement of foreclosed
real estate are capitalized, whereas costs relating to holding
property are expensed. The portion of interest costs relating
to development of real estate is capitalized.
Valuations are periodically performed by management, and an
allowance for losses is established through a charge to
operations if the carrying value of a property exceeds its
fair value less estimated costs to sell.
TRANSFERS OF FINANCIAL ASSETS
Transfers of financial assets are accounted for as sales, when
control over the assets has been surrendered. Control over
transferred assets is deemed to be surrendered when (1) the
assets have been isolated from the Bank, (2) the transferee
obtains the right (free of conditions that constrain it from
taking advantage of that right) to pledge or exchange the
transferred assets, and (3) the Bank does not maintain
effective control over the transferred assets through an
agreement to repurchase them before their maturity.
INCOME TAXES
Deferred income taxes are recognized for estimated future tax
effects attributable to temporary differences between income
tax and financial reporting purposes and carryforwards.
Valuation allowances are established when necessary to reduce
the deferred tax asset to the amount expected to be realized.
The current and deferred taxes are based on the provisions of
the enacted tax laws and rates.
F-17
<PAGE>
REDLANDS CENTENNIAL BANK
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVESTMENT SECURITIES
Debt securities that management has the positive intent and
ability to hold to maturity are classified as "held to
maturity" and recorded at cost. Securities not classified as
held to maturity or trading, including equity securities with
readily determinable fair values, are classified as "available
for sale" and recorded at fair value, with unrealized gains or
losses excluded from earnings and reported in other
comprehensive income.
Purchase premiums and discounts are recognized in interest
income using the interest method over the terms of the
securities. Declines in the fair value of held-to-maturity and
available-for-sale securities below their cost that are deemed
to be other than temporary are reflected in earnings as
realized losses. Gains and losses on the sale of securities
are recorded on the trade date and are determined using the
specific identification method.
The Bank's investment in its data processing center, Bancdata
Solutions, Inc., is recorded at cost and is included in other
assets.
STOCK COMPENSATION PLANS
In October 1995, the Financial Accounting Standards Board
("FASB") issued SFAS No. 123, "Accounting for Stock-Based
Compensation." This Statement encourages all entities to adopt
a fair value based method of accounting for employee stock
compensation plans, whereby compensation cost is measured at
the grant date based on the value of the award and is
recognized over the service period, which is usually the
vesting period. However, it also allows an entity to continue
to measure compensation cost for those plans using the
intrinsic value based method of accounting prescribed by APB
Opinion No. 25, "Accounting for Stock Issued to Employees,"
whereby compensation cost is the excess, if any, of the quoted
market price of the stock at the grant date over the amount an
employee or a director must pay to acquire the stock. Stock
options issued under the Bank's stock option plan have no
intrinsic value at the grant date, and under Opinion No. 25 no
compensation cost is recognized for them. Under the Bank's
stock option plan, compensation cost is recognized to the
extent that the quoted market price of the stock on the date
of grant exceeds the amount that the employee is required to
pay. The Bank has elected to continue with the accounting
methodology in Opinion No. 25 and, as a result, must make pro
forma disclosures of net income and earnings per share and
other disclosures, as if the fair value based method of
accounting had been applied. The pro forma disclosures include
the effects of all awards granted on or after January 1, 1995
(see Note 7).
F-18
<PAGE>
REDLANDS CENTENNIAL BANK
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EARNINGS PER SHARE
Basic earnings per share represents income available to common
stockholders divided by the weighted-average number of common
shares outstanding during the period. Diluted earnings per
share reflects additional common shares that would have been
outstanding if dilutive potential common shares had been
issued, as well as any adjustment to income that would result
from the assumed issuance. Potential common shares that may be
issued by the Bank relate solely to outstanding stock options,
and are determined using the treasury stock method.
The weighted average number of shares used in the computation
of basic earnings per share was 658,256 for 1998 and 644,428
for 1997. The weighted average number of shares used in the
computation of earnings per share assuming dilution for stock
options was 712,861 for 1998 and 672,229 for 1997.
STATEMENT OF CASH FLOWS
For the purposes of reporting cash flows, cash and cash
equivalents include cash on hand, amounts due from banks, and
federal funds sold.
COMPREHENSIVE INCOME
The Bank adopted SFAS No. 130, "Reporting Comprehensive
Income," as of January 1, 1998. Accounting principles
generally require that recognized revenue, expenses, gains and
losses be included in net income. Although certain changes in
assets and liabilities, such as unrealized gains and losses on
available-for-sale securities, are reported as a separate
component of the equity section of the statement of condition,
such items, along with net income, are components of
comprehensive income. The adoption of SFAS No. 130 had no
effect on the Bank's net income or stockholders' equity.
The components of other comprehensive income are as follows:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Unrealized holding gains (losses) on
available-for-sale securities $ (20,673) $ 129,033
Reclassification adjustment for gains
realized in income (119,361) (460)
-------------- --------------
Net unrealized gains (losses) (140,034) 128,573
Tax effect 56,013 (51,427)
-------------- --------------
Net-of-tax amount $ (84,021) $ 77,146
============== ==============
</TABLE>
F-19
<PAGE>
REDLANDS CENTENNIAL BANK
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 2. INVESTMENT SECURITIES
The following is a comparison of amortized cost and fair value of
investment securities at December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998
------------------------------------------------------------------
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Available for sale:
Mortgage-backed Securities $ 4,671,476 $ 12,564 $ 7,267 $ 4,676,773
Obligations of States and
Local Governments 3,582,905 11,414 1,187 3,593,132
U.S. Treasury Obligations 403,587 7,413 - - 411,000
--------------- ----------- ---------- --------------
$ 8,657,968 $ 31,391 $ 8,454 $ 8,680,905
=============== =========== ========== ==============
Held to maturity:
Corporate Securities,
Mortgage-backed $ 807,352 $ 8,058 $ - - $ 815,410
=============== =========== ========== ==============
<CAPTION>
1997
------------------------------------------------------------------
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Available for sale:
Mortgage-backed Securities $ 6,630,021 $ 12,613 $ 763 $ 6,641,871
Obligations of States and
Local Governments 4,238,185 148,465 - - 4,386,650
U.S. Treasury Obligations 405,315 2,655 - - 407,970
--------------- ----------- ---------- --------------
$ 11,273,521 $ 163,733 $ 763 $ 11,436,491
=============== =========== ========== ==============
Held to maturity:
Corporate Securities,
Mortgage-backed $ 819,880 $ 10,032 $ - - $ 829,912
=============== =========== ========== ==============
</TABLE>
F-20
<PAGE>
REDLANDS CENTENNIAL BANK
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 2. INVESTMENT SECURITIES (CONTINUED)
The amortized cost and fair value of investment securities
available at December 31, 1998, by contractual maturity, are shown
below. Expected maturities for mortgage-backed securities may
differ from contractual maturities because borrowers may have the
right to call or retire obligations with or without call or
prepayment penalties.
<TABLE>
<CAPTION>
Available for Sale Held to Maturity
---------------------------------- --------------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
<S> <C> <C> <C> <C>
Due within one year $ 200,111 $ 201,312 $ 807,352 $ 815,410
Due after one year 691,092 704,753 - - - -
Due after five years 1,903,713 1,896,357 - - - -
Due after ten years 1,191,576 1,201,710 - - - -
-------------- --------------- ----------- ------------
3,986,492 4,004,132 807,352 815,410
Mortgage-backed
Securities 4,671,476 4,676,773 - - - -
-------------- --------------- ----------- ------------
$ 8,657,968 $ 8,680,905 $ 807,352 $ 815,410
============== =============== =========== ============
</TABLE>
As of December 31, 1998 and 1997, U.S. Treasury Obligations with
amortized cost of $403,587 and $405,315 and fair values of
$411,000 and $407,970, respectively, were pledged as collateral
against the Bank's treasury, tax and loan account.
NOTE 3. LOANS
The composition of the Bank's loan portfolio at December 31, 1998
and 1997 is as follows:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Commercial and industrial loans $ 32,971,310 $ 24,679,605
Loans to individuals for
personal expenditures 8,056,125 7,785,879
-------------- --------------
Total loans 41,027,435 32,465,484
Less unearned income (391,069) (603,254)
Less allowance for loan losses (433,475) (489,711)
-------------- --------------
Net loans $ 40,202,891 $ 31,372,519
============== ==============
</TABLE>
F-21
<PAGE>
REDLANDS CENTENNIAL BANK
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 3. LOANS (CONTINUED)
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Loans at a fixed rate:
Due within one year 3,349,451 $ 2,783,210
Due one to five years 6,717,645 8,886,018
Due over five years 3,786,394 1,488,474
-------------- --------------
13,853,490 13,157,702
Loans at a variable rate 27,173,945 19,307,782
-------------- --------------
Total loans $ 41,027,435 $ 32,465,484
============== ==============
</TABLE>
Changes in the allowance for possible loan losses are summarized
as follows:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Balance as of January 1 $ 489,711 $ 468,024
Provision charged to expense 50,000 9,000
Loans charged off (162,567) (95,103)
Recoveries 56,331 107,790
----------- -----------
Balance as of December 31 $ 433,475 $ 489,711
=========== ===========
</TABLE>
Loans serviced for others are not included in the accompanying
statements of condition. The unpaid principal balances of loans
serviced for others were $8,169,484 and $3,659,355 at December 31,
1998 and 1997, respectively.
The balance of capitalized loan servicing rights included in other
assets was $69,467 at December 31, 1998.
At December 31, 1998 and 1997, the recorded investment in impaired
loans totaled $327,111 and $54,480, respectively. No additional
funds are committed to be advanced in connection with impaired
loans. Nonaccrual loans totaled $327,111 and $54,480 at December
31, 1998 and 1997, respectively. The interest income that would
have been recorded in 1998 and 1997 had the nonaccrual loans
performed in accordance with the original terms, would have been
approximately $35,000 and $5,500, respectively.
F-22
<PAGE>
REDLANDS CENTENNIAL BANK
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 4. BANK PREMISES, EQUIPMENT AND ACCUMULATED DEPRECIATION
Bank premises, equipment and accumulated depreciation at December
31, 1998 and 1997 consist of the following:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Land $ 132,092 $ 132,092
Building 1,083,449 1,045,278
Equipment, furniture and fixtures 1,005,748 949,312
------------- -------------
2,221,289 2,126,682
Less accumulated depreciation 492,154 476,147
------------- -------------
$ 1,729,135 $ 1,650,535
============= =============
</TABLE>
Total depreciation expense amounted to $193,488 in 1998 and
$141,800 in 1997.
During 1998, the Bank opened a loan office in Santa Ana,
California. Pursuant to the terms of the noncancelable operating
lease agreement in effect at December 31, 1998, pertaining to this
office, future minimum rent commitments under the lease are as
follows:
<TABLE>
<S> <C>
1999 $ 20,240
2000 20,900
2001 7,040
-------------
$ 48,180
=============
</TABLE>
Total rent expense for the year ended December 31, 1998 amounted
to $13,230.
F-23
<PAGE>
REDLANDS CENTENNIAL BANK
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 5. DEPOSITS
A summary of time deposits by maturity is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
------------------------------ ------------------------------
Weighted Weighted
Average Average
Amount Rate Amount Rate
<S> <C> <C> <C> <C>
Within 1 year $ 18,037,102 4.92% $ 14,481,268 5.47%
After 1 year through 3 years 893,093 6.60 2,878,870 6.35
After 3 years through 5 years 298,000 7.00 397,000 6.95
After 5 years 59,683 6.45 55,954 6.45
---------------- ----------------
$ 19,287,878 5.03% $ 17,813,092 5.65%
================ ================
</TABLE>
NOTE 6. RELATED PARTY TRANSACTIONS
In the ordinary course of business, the Bank has granted loans to
certain directors, principal officers, their immediate families,
and affiliated companies in which they are principal stockholders.
All loans were made under terms which are consistent with the
Bank's normal lending policies.
Aggregate related party loan transactions were as follows:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Balance as of January 1 $ 1,327,128 $ 223,974
Borrowings, net of repayments 440,315 1,103,154
-------------- ---------------
Balance as of December 31 $ 1,767,443 $ 1,327,128
============== ===============
</TABLE>
F-24
<PAGE>
REDLANDS CENTENNIAL BANK
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 7. STOCK DIVIDEND AND STOCK OPTIONS
During 1998, the Board of Directors approved a 25% stock dividend,
accounted for as a stock split, which resulted in the issuance of
132,301 shares. The Board of Directors approved a 7% stock
dividend during 1997 which resulted in the issuance of 33,817
shares. References in the accompanying financial statements to the
per share amounts for 1997 have been restated to reflect the 1998
stock dividend.
The Bank has a combined incentive and nonqualified stock option
plan which authorizes the issuance of stock options to full-time
salaried employees and directors. The incentive portion of the
Plan is only available to employees of the Bank, while the
nonqualified portion is also available to directors of the Bank.
The Bank's Board of Directors is responsible for administrating
the Plan. Option prices are determined by the Bank's directors and
must be equal or greater than the fair market value of the Bank's
capital stock at the time the option is granted. Options are
vested at a rate of 20% a year for five years and expire ten years
from the date the options are granted. The maximum number of
shares reserved for issuance upon exercise of options under
the Plan is 157,789 shares of the Bank's capital stock. Options
issued have an exercise price ranging from $5.27 to $15.60 per
share.
The following is a summary of the Bank's stock option activity for
1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
-------------------------- --------------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
<S> <C> <C> <C> <C>
Options granted and outstanding
at beginning of year 105,263 $ 9.35 75,034 $ 7.78
Stock dividend 26,756 - - 6,886 - -
Options granted 17,600 16.79 35,250 12.11
Options canceled (4,944) 13.51 (2,382) 7.66
Options exercised (15,989) 7.78 (9,525) 7.66
---------- ----------
Options granted and outstanding
at end of year 128,686 $ 8.46 105,263 $ 9.35
========== =======
Options exercisable at year-end 87,414 $7.23 73,625 $8.23
Weighted average fair value of
options granted during year $4.32 $3.71
</TABLE>
F-25
<PAGE>
REDLANDS CENTENNIAL BANK
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 7. STOCK DIVIDEND AND STOCK OPTIONS (CONTINUED)
Information pertaining to options outstanding at December 31,
1998 is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------ ---------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life Price Exercisable Price
<S> <C> <C> <C> <C> <C>
$5.27 to $7.85 67,705 2.8 years $ 6.24 66,555 $ 6.23
$9.16 to $15.60 60,981 9.5 years $ 10.92 20,859 $ 10.41
---------- ---------
Options outstanding
at end of year 128,686 6.0 years $ 8.46 87,414 $ 7.23
========== =========
</TABLE>
The Bank applies APB 25 and related interpretations in accounting
for the Plan. Accordingly no compensation cost has been recognized
for the stock option plan. Had compensation cost for the Bank's
stock option plan been determined based on the fair value at the
grant date for awards under the Plan consistent with the method
prescribed by SFAS No. 123, the Bank's net income and earnings per
share would have been reduced to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
Years Ended December 31,
1998 1997
<S> <C> <C>
Net income:
As reported $ 627,188 $ 610,050
Pro forma 564,667 548,456
Earnings per share:
As reported $.95 $.95
Pro forma .86 .85
Earnings per share - assuming dilution for stock options:
As reported $.88 $.91
Pro forma .79 .82
</TABLE>
F-26
<PAGE>
REDLANDS CENTENNIAL BANK
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 7. STOCK DIVIDEND AND STOCK OPTIONS (CONTINUED)
The fair value of each option grant is estimated on the date of
grant using the Black-Scholes option-pricing model with the
following weighted assumptions used for option grants in 1998 and
1997; no dividend yield or expected volatility for both years;
risk-free interest rates of 4.6% for 1998 and 5.7% for 1997 and
expected lives of 10 years for both years.
NOTE 8. INCOME TAXES
The components of the provision for income taxes at December 31,
are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
1998 1997
Current tax provision:
Federal $ 216,598 $ 139,112
State 89,762 69,760
---------- -----------
306,360 208,872
---------- -----------
Deferred tax provision:
Federal (76,598) 36,888
State (36,762) 17,540
---------- -----------
(113,360) 54,428
---------- -----------
$ 193,000 $ 263,300
========== ===========
</TABLE>
The reasons for the differences between the statutory federal
income tax rate and the effective tax rates are summarized as
follows:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Statutory tax rate 34.0% 34.0%
Increase (decrease) resulting from:
State taxes, net of federal tax benefit 7.2 7.5
Change in valuation allowance (3.0) (1.1)
Municipal bond income (4.1) (6.5)
Stock option compensation deduction (5.6) (2.4)
Cash surrender value of life insurance (2.0) - -
Other, net (3.3) (1.4)
------ ------
Effective tax rates 23.2% 30.1%
====== ======
</TABLE>
F-27
<PAGE>
REDLANDS CENTENNIAL BANK
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 8. INCOME TAXES (CONTINUED)
The components of the net deferred tax asset (liability) at
December 31, are as follows:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Deferred tax assets:
Federal $ 190,985 $ 142,018
State 33,968 27,416
---------- -----------
224,953 169,434
Valuation allowance (33,474) (88,352)
---------- -----------
191,479 81,082
---------- -----------
Deferred tax liability:
Federal (34,666) (79,866)
State (5,789) (19,565)
---------- -----------
(40,455) (99,431)
---------- -----------
Net deferred tax asset (liability) $ 151,024 $ (18,349)
========== ===========
</TABLE>
The tax effects of the temporary differences in income and expense
items that give rise to deferred taxes at December 31, are as
follows:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Deferred assets:
Allowance for loan losses $ 128,349 $ 140,718
Cash basis of reporting for tax purposes 26,781 - -
Employee benefit plans 13,525 - -
Deferred loan fees 56,298 28,716
---------- -----------
224,953 169,434
Valuation allowance (33,474) (88,352)
---------- -----------
191,479 81,082
---------- -----------
Deferred tax liability:
Net unrealized gain on investment
securities available for sale (9,439) (67,070)
Depreciation and amortization (24,824) (16,117)
Cash basis of reporting for tax purposes - - (11,062)
State income taxes (6,192) (5,182)
---------- -----------
(40,455) (99,431)
---------- -----------
Net deferred tax asset (liability) $ 151,024 $ (18,349)
========== ===========
</TABLE>
F-28
<PAGE>
REDLANDS CENTENNIAL BANK
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 9. COMMITMENTS AND CONTINGENCIES
FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
In the normal course of business, there are various
commitments outstanding, such as commitments to extend credit,
which are not reflected in the financial statements. At
December 31, 1998 and 1997, such commitments included
approximately $691,000 and $10,000, respectively, of standby
letters of credit and approximately $12,789,000 and
$9,976,000, respectively, of undisbursed lines of credit and
undisbursed loans in process.
OTHER CONTINGENCIES
Various legal claims also arise from time to time in the
normal course of business which, in the opinion of management,
will have no material effect on the Bank's financial
statements.
EMPLOYMENT AGREEMENTS AND SPECIAL TERMINATION AGREEMENTS
The Bank has entered into employment agreements with several
of its key officers. The agreements provide for a specified
minimum annual compensation and the continuation of benefits
currently received. However, employment under the agreements
may be terminated for cause, as defined, without incurring any
continuing obligations. The agreements also provide for the
establishment of a salary continuation plan to provide
benefits to the Bank's president at the age of retirement
(Note 12).
All of the employment agreements contain special termination
clauses which provide for certain lump sum severance payments
within a specified period following a "change in control," as
defined in the agreements.
NOTE 10. EMPLOYEE BENEFIT PLAN
The Bank has a 401(k) savings and retirement plan that includes
substantially all employees. The employees attain vesting in the
Bank's contribution over seven years. Employees may contribute up
to 15% of their compensation subject to certain limits based on
federal tax laws. Under the terms of the Plan, the Bank may make
matching contributions at the discretion of the Board of
Directors. Contributions to the Plan by the Bank amounted to
$35,713 and $19,233 for the years ended December 31, 1998 and
1997, respectively.
F-29
<PAGE>
REDLANDS CENTENNIAL BANK
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 11. CONCENTRATION OF CREDIT RISK
The Bank services the Redlands community and has no concentration
of deposits with any one particular customer or industry. At
December 31, 1998 and 1997, the Bank had approximately $7,530,000
and $4,388,000, respectively, of Federal funds sold,
interest-bearing deposits and noninterest-bearing deposits with
its correspondent banks and one other financial institution.
Approximately 14% and 20% of the Bank's loan portfolio at December
31, 1998 and 1997, respectively, consists of transportation
vehicle loans.
NOTE 12. SALARY CONTINUATION PLANS
During 1998, the Bank established salary continuation plans which
provide for payments to the Bank's president and its directors at
the age of retirement. Included in other liabilities at December
31, 1998 is approximately $33,000 of deferred compensation related
to the salary continuation plans. The plans are funded through
life insurance policies that generate a cash surrender value to
fund the future benefits. Included in other assets at December 31,
1998 is approximately $1,313,000 of life insurance cash surrender
value.
NOTE 13. STOCKHOLDERS' EQUITY
MINIMUM REGULATORY REQUIREMENTS
The Bank is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory
and possibly additional discretionary actions by regulators
that, if undertaken, could have a direct material effect on
the Bank's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective
action, the Bank must meet specific capital guidelines that
involve quantitative measures of the Bank's assets,
liabilities and certain off-balance-sheet items as calculated
under regulatory accounting practices. The Bank's capital
amounts and classification are also subject to qualitative
judgments by the regulators
F-30
<PAGE>
REDLANDS CENTENNIAL BANK
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 13. STOCKHOLDERS' EQUITY (CONTINUED)
MINIMUM REGULATORY REQUIREMENTS (CONTINUED)
about components, risk weighting, and other factors.
Quantitative measures established by the regulations to ensure
capital adequacy require the Bank to maintain minimum amounts
and ratios of total and Tier 1 capital to risk-weighted assets
and of Tier 1 capital to average assets. Management believes,
as of December 31, 1998, that the Bank met all capital
adequacy requirements to which it is subject. As of December
31, 1998, the most recent notification from the Federal
Deposit Insurance Corporation categorized the Bank as well
capitalized under the regulatory framework for prompt
corrective action. To be categorized as well capitalized, the
Bank must maintain minimum total risk-based, Tier 1 risk-based
and Tier 1 leverage ratios as set forth in the following
table. There are no conditions or events since the
notification that management believes have changed the Bank's
category. The Bank's actual capital amounts and ratios as of
December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
Minimum
To Be Well
Minimum Capitalized Under
Capital Prompt Corrective
Actual Requirement Action Provisions
-------------------- --------------------- -----------------------
Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1998:
Total capital to
risk-weighted assets $6,300,000 12.37% > $4,074,000 > 8.00% > $5,092,000 > 10.00%
-- -- -- --
Tier 1 capital to
risk-weighted assets $5,867,000 11.52% > $2,037,000 > 4.00% > $3,056,000 > 6.00%
-- -- -- --
Tier 1 capital to
average assets $5,867,000 8.52% > $2,754,000 > 4.00% > $3,443,000 > 5.00%
-- -- -- --
</TABLE>
F-31
<PAGE>
REDLANDS CENTENNIAL BANK
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 13. STOCKHOLDERS' EQUITY (CONTINUED)
<TABLE>
<CAPTION>
Minimum
To Be Well
Minimum Capitalized Under
Capital Prompt Corrective
Actual Requirement Action Provisions
---------------------- ----------------------- -------------------------
Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1997:
Total capital to
risk-weighted assets $5,561,000 13.74% > $3,237,000 > 8.00% > $4,047,000 > 10.00%
-- -- -- --
Tier 1 capital to
risk-weighted assets $5,055,000 12.49% > $1,619,000 > 4.00% > $2,428,000 > 6.00%
-- -- -- --
Tier 1 capital to
average assets $5,055,000 8.72% > $2,319,000 > 4.00% > $2,899,000 > 5.00%
-- -- -- --
</TABLE>
F-32
<PAGE>
PART II
Item 20. Indemnification of Directors and Officers
The Articles of Incorporation and Bylaws of Centennial First Financial Services
("Centennial") provide for indemnification of agents including directors,
officers and employees to the maximum extent allowed by California law including
the use of an indemnity agreement. Centennial's Articles further provide for the
elimination of director liability for monetary damages to the maximum extent
allowed by California law. The indemnification law of the State of California
generally allows indemnification in matters not involving the right of the
corporation, to an agent of the corporation if such person acted in good faith
and in a manner such person reasonably believed to be in the best interests of
the corporation, and in the case of a criminal matter, had no reasonable cause
to believe the conduct of such person was unlawful. California law, with respect
to matters involving the right of a corporation, allows indemnification of an
agent of the corporation, if such person acted in good faith, in a manner such
person believed to be in the best interests of the corporation and its
shareholders; provided that there shall be no indemnification for: (i) amounts
paid in settling or otherwise disposing of a pending action without court
approval; (ii) expenses incurred in defending a pending action which is settled
or otherwise disposed of without court approval; (iii) matters in which such
person shall have been adjudged to be liable to the corporation unless and only
to the extent that the court in which the proceeding is or was pending shall
determine that such person is entitled to be indemnified; or (iv) other matters
specified in the California General Corporation Law.
Centennial's Bylaws provide that Centennial shall to the maximum extent
permitted by law have the power to indemnify its directors, officers and
employees. Centennial's Bylaws also provide that Centennial shall have the power
to purchase and maintain insurance covering its directors, officers and
employees against any liability asserted against any of them and incurred by any
of them, whether or not Centennial would have the power to indemnify them
against such liability under the provisions of applicable law or the provisions
of Centennial's Bylaws.
<TABLE>
<CAPTION>
ITEM 21. EXHIBITS
<S> <C>
2. Agreement and Plan of Reorganization and Merger by and between
Centennial, RCB Merger Company and Redlands Centennial Bank dated as of
September 24, 1999 attached as Exhibit A to the Proxy
Statement-Prospectus contained in Part I of this Registration
Statement.
3.1 Articles of Incorporation of Registrant.
3.2 Bylaws of Registrant.
4. Specimen form of certificate for Centennial First Financial Services
Common Stock.
5. Opinion re: legality.
10.1 Employment Agreement of Douglas Spencer
10.2 Salary Continuation Agreement for Douglas Spencer
10.3 Employment Agreement of Roy Lewis
10.4 Employment Agreement of Anne E. "Beth" Sanders
10.5 Redlands Centennial Bank 1990 Stock Option Plan and form of incentive
stock option and nonqualified stock option agreements.
13. Redlands Centennial Bank's Annual Report to shareholders for 1998 is
included in the Proxy Statement/Prospectus. Those portions which have
been incorporated by reference herein are filed with the Commission.
The portions which have not been incorporated by reference herein and
are provided for information purposes only.
21. Sole Subsidiary of the registrant is Redlands Centennial Bank, a
California state-chartered bank.
23.1 Consent of Counsel is included with the opinion re: legality as Exhibit
5 to this Registration Statement.
23.2 Consent of Hutchinson & Bloodgood LLP, as accountants for the
Registrant.
99. Form of Proxy to be utilized in connection with the Special Meeting of
the Bank.
</TABLE>
II-1
<PAGE>
ITEM 28. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) that prior to any public reoffering of the securities registered
hereunder through the use of a Prospectus which is a part of this
Registration Statement or by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c), the Registrant
undertakes that such reoffering Prospectus will contain the information
called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters in addition to
the information called for by other Items of the applicable form;
(2) that every Prospectus (i) that is filed pursuant to Paragraph (1)
immediately preceding, or (ii) that purports to meet the requirements
of Section 10(a)(3) of the Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as part of an
amendment to the Registration Statement and will not be used until such
amendment is effective, and that, for each such post-effective
amendment shall be deemed to be a new Registration Statement relating
to the securities offered herein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof;
(3) to respond to requests for information that is incorporated by
reference into the Prospectus pursuant to Items 4, 10(b), 11 or 13 of
this Form, within one business day of receipt of such request, and to
send the incorporated documents by first class mail or other equally
prompt means. This included information contained in documents filed
subsequent to the effective date of the Registration Statement through
the date of responding to the request;
(4) to supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved
therein, that was not the subject of an included in the Registration
Statement when it became effective.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 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, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Redlands, California, on
October 19, 1999.
CENTENNIAL FIRST FINANCIAL SERVICES
/s/ Douglas C. Spencer
------------------------------------
Douglas C. Spencer, President & CEO
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
date indicated.
/s/ Douglas C. Spencer Director and Principal Executive October 19 ,1999
- - --------------------------, Officer -----------
Douglas C. Spencer
/s/ Patrick J. Meyer Chairman October 19 , 1999
- - --------------------------, -----------
Patrick J. Meyer
/s/ Bruce Bartells Director October 19 , 1999
- - --------------------------, -----------
Bruce Bartells
/s/ Beth Sanders Principal Accounting October 19 , 1999
- - --------------------------, & Financial Officer -----------
Beth Sanders
II-3
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
- - ---------- ---------------
<S> <C>
2. Agreement and Plan of Reorganization and Merger by and between
Centennial, RCB Merger Company and Redlands Centennial Bank dated as of
September 24, 1999 attached as Exhibit A to the Proxy
Statement-Prospectus contained in Part I of this Registration
Statement.
3.1 Articles of Incorporation of Registrant.
3.2 Bylaws of Registrant.
4. Specimen form of certificate for Centennial First Financial Services Common Stock.
5. Opinion re: legality.
10.1 Employment Agreement of Douglas Spencer
10.2 Salary Continuation Agreement for Douglas Spencer
10.3 Employment Agreement of Roy Lewis
10.4 Employment Agreement of Anne E. "Beth" Sanders
10.5 Redlands Centennial Bank 1990 Stock Option Plan and form of incentive
stock option and nonqualified stock option agreements.
13. Registrant's Annual Report to shareholders for 1998 is included with
the Proxy Statement/Prospectus.
21. Sole Subsidiary of the registrant is Redlands Centennial Bank, a
California state-chartered bank.
23.1 Consent of Counsel is included with the opinion re: legality as Exhibit
5 to this Registration Statement.
23.2 Consent of Hutchinson & Bloodgood LLP as accountants for the
Registrant.
99. Form of Proxy to be utilized in connection with the Special Meeting of
the Bank.
</TABLE>
<PAGE>
Exhibit 3.1
ARTICLES OF INCORPORATION
OF
CENTENNIAL FIRST FINANCIAL SERVICES
ONE: NAME
The name of the corporation is:
Centennial First Financial Services
TWO: PURPOSE
The purpose of this corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporations
Law of California other than the banking business, the trust company business or
the practice of a profession permitted to be incorporated by the California
Corporations Code.
THREE: AUTHORIZED STOCK
The corporation is authorized to issue only one class of shares of
stock, designated "Common Stock," and the total number of shares which the
corporation is authorized to issue is ten million (10,000,000).
FOUR: DIRECTOR LIABILITY
The liability of the directors of the corporation for monetary damages
shall be eliminated to the fullest extent permissible under California law.
FIVE: INDEMNIFICATION
The corporation is authorized to indemnify its agents (as defined from
time to time in Section 317 of the California Corporations Code) to the fullest
extent permissible under California law. Any amendment, repeal or modification
of the provisions of this Article shall not adversely affect any right or
protection of an agent of the corporation existing at the time of such
amendment, repeal or modification.
<PAGE>
SIX: AGENT FOR SERVICE OF PROCESS
The name and address in this State of this corporation's initial agent
for service of process is:
Gary Steven Findley
1470 North Hundley Street
Anaheim, California 92806
IN WITNESS WHEREOF, for the purpose of forming this corporation under
the laws of the State of California, the undersigned, constituting the
incorporator of this corporation, has executed these Articles of Incorporation.
Dated: AUGUST 5, 1999
/s/ Gary Steven Findley
----------------------------------------
Gary Steven Findley
I hereby declare that I am the person who executed the foregoing
Articles of Incorporation, which execution is my act and deed.
/s/ Gary Steven Findley
----------------------------------------
Gary Steven Findley
<PAGE>
Exhibit 3.2
BYLAWS
OF
CENTENNIAL FIRST FINANCIAL SERVICES
ARTICLE I
OFFICES
SECTION 1.1. PRINCIPAL OFFICE. The principal executive office of the corporation
is hereby located at such place as the board of directors (the "board") shall
determine. The board is hereby granted full power and authority to change said
principal executive office from one location to another.
SECTION 1.2. OTHER OFFICES. Other business offices may, at any time, be
established by the board at such other places as it deems appropriate.
ARTICLE II
MEETINGS OF SHAREHOLDERS
SECTION 2.1. PLACE OF MEETINGS. Meetings of shareholders may be held at such
place within or outside the state of California designated by the board. In the
absence of any such designation, shareholders' meetings shall be held at the
principal executive office of the corporation.
SECTION 2.2. ANNUAL MEETING. The annual meeting of shareholders shall be held
for the election of directors on a date and at a time designated by the board.
The date so designated shall be within fifteen (15) months after the last annual
meeting. At such meeting, directors shall be elected, and any other proper
business within the power of the shareholders may be transacted.
SECTION 2.3. SPECIAL MEETINGS. Special meetings of the shareholders may be
called at any time by the board, the chairperson of the board, the president, or
by the holders of shares entitled to cast not less than ten percent (10%) of the
votes at such meeting. If a special meeting is called by any person or persons
other than the board, the request shall be in writing, specifying the time of
such meeting and the general nature of the business proposed to be transacted,
and shall be delivered personally or by registered mail to the chairperson of
the board, the president, any vice president or the secretary of the
corporation. The officer receiving the request shall cause notice to be promptly
given to the shareholders entitled to vote that a meeting will be held at a time
requested by the person or persons calling the meeting, not less than 35 nor
more than 60 days after receipt of the request. If the notice is not given
within 20 days after receipt of the request, the person or persons requesting
the meeting may give the notice. Nothing in this paragraph shall be construed as
limiting, fixing or affecting the time when a meeting of shareholders called by
action of the board may be held.
SECTION 2.4. NOTICE OF MEETINGS. Written notice, in accordance with Section 2.5
of this Article II, of each annual or special meeting of shareholders shall be
given not less than 10 nor more than 60 days before the date of the meeting to
each shareholder entitled to vote thereat. Such notice shall state the place,
date and hour of the meeting
<PAGE>
and (a) in the case of a special meeting, the general nature of the business to
be transacted, and no other business may be transacted, or (b) in the case of
the annual meeting, those matters which the board, at the time of the mailing of
the notice, intends to present for action by the shareholders, but, subject to
the provisions of applicable law, any proper matter may be presented at the
meeting for such action. The notice of any meeting at which directors are to be
elected shall include the names of nominees intended at the time of the notice
to be presented by the board for election.
If action is proposed to be taken at any meeting for approval of (a) a contract
or transaction in which a director has a direct or indirect financial interest,
pursuant to Section 310 of the California Corporations Code, as amended (the
"Code"), (b) an amendment of the articles of incorporation, pursuant to Section
902 of the Code, (c) a reorganization of the corporation, pursuant to Section
1201 of the Code, (d) a voluntary dissolution of the corporation, pursuant to
Section 1900 of the Code, or (e) a distribution in dissolution other than in
accordance with the rights of outstanding preferred shares, pursuant to Section
2007 of the Code, the notice shall also state the general nature of that
proposal.
SECTION 2.5. MANNER OF GIVING NOTICE. Notice of a shareholders' meeting shall be
given either personally or by first-class mail or telegraphic or other written
communication, charges prepaid, addressed to the shareholder at the address of
that shareholder appearing on the books of the corporation or given by the
shareholder to the corporation for the purpose of notice. If no such address
appears on the corporation's books or is given, notice shall be deemed to have
been given if sent to that shareholder by first-class mail or telegraphic or
other written communication to the corporation's principal executive office or
if published at least once in a newspaper of general circulation in the county
in which the principal executive office is located. Notice shall be deemed to
have been given at the time when delivered personally or deposited in the mail
or sent by telegram or other means of written communication. An affidavit of
mailing or other means of giving any notice in accordance with the above
provisions, executed by the secretary, assistant secretary or any transfer
agent, shall be prima facie evidence of the giving of the notice.
If any notice addressed to the shareholder at the address of such shareholder
appearing on the books of the corporation is returned to the corporation by the
United States Postal Service marked to indicate that the United States Postal
Service is unable to deliver the notice to the shareholder at such address, all
future notices shall be deemed to have been duly given without further mailing
if the same shall be available for the shareholder upon written demand of the
shareholder at the principal executive office of the corporation for a period of
one year from the date of the giving of the notice to all other shareholders.
SECTION 2.6. QUORUM. A majority of the shares entitled to vote, represented in
person or by proxy, shall constitute a quorum at any meeting of shareholders.
The shareholders present at a duly called or held meeting at which a quorum is
present may continue to transact business until adjournment notwithstanding the
withdrawal of enough shareholders to leave less than a quorum, if any action
taken (other than adjournment) is approved by at least a majority of the shares
required to constitute a quorum.
SECTION 2.7. ADJOURNED MEETING AND NOTICE THEREOF. Any shareholders' meeting,
whether or not a quorum is present, may be adjourned from time to time by the
vote of a majority of the shares represented either in person or by proxy at the
meeting, but in the absence of a quorum (except as provided in Section 2.6 of
this Article II) no other business may be transacted at such meeting.
When any meeting of shareholders, either annual or special, is adjourned to
another time or place, notice need not be given of the adjourned meeting if the
time and place are announced at the meeting at which the adjournment is taken.
However, when any shareholders' meeting is adjourned for more than 45 days from
the date set for the original meeting, or, if after adjournment a new record
date is fixed for the adjourned meeting, notice of the adjourned meeting shall
be given to each shareholder of record entitled to vote at the meeting. At any
adjourned meeting the corporation may transact any business which might have
been transacted at the original meeting.
<PAGE>
SECTION 2.8. VOTING. The shareholders entitled to notice of any meeting or to
vote at any such meeting shall be only persons in whose name shares stand on the
stock records of the corporation on the record date determined in accordance
with Section 2.9 of this Article II.
Voting of shares of the corporation shall in all cases be subject to the
provisions of Sections 700 through 711, inclusive, of the Code.
The shareholders' vote may be by voice or ballot; provided, however, that any
election for directors must be by ballot if demanded by any shareholder before
the voting has begun. On any matter other than election of directors, any
shareholder may vote part of the shares in favor of the proposal and refrain
from voting the remaining shares or vote them against the proposal (other than
the election of directors), but, if the shareholder fails to specify the number
of shares which the shareholder is voting affirmatively, it will be conclusively
presumed that the shareholder's approving vote is with respect to all shares
that the shareholder is entitled to vote. If a quorum is present, the
affirmative vote of the majority of the shares represented at the meeting and
entitled to vote on any matter (other than the election of directors) shall be
the act of the shareholders, unless the vote of a greater number or voting by
classes is required by the Code or by the articles of incorporation.
Subject to the following sentence and the provisions of Section 708 of the Code,
every shareholder entitled to vote at any election of directors may cumulate
such shareholder's votes and give one candidate a number of votes equal to the
number of directors to be elected multiplied by the number of votes to which the
shareholder's shares are entitled, or distribute the shareholder's votes on the
same principle among as many candidates as the shareholder thinks fit. No
shareholder shall be entitled to cumulate votes for any candidate or candidates
pursuant to the preceding sentence unless such candidate's or candidates' names
have been placed in nomination prior to the voting and the shareholder has given
notice at the meeting and prior to the voting of the shareholder's intention to
cumulate the shareholder's votes. If any one shareholder has given such notice,
all shareholders may cumulate their votes for candidates in nomination.
In any election of directors, the candidates receiving the highest number of
affirmative votes of the shares entitled to be voted for them, up to the number
of directors to be elected, shall be elected. Votes against the director and
votes withheld shall have no legal effect.
SECTION 2.9. RECORD DATE. The board may fix, in advance, a record date for the
determination of the shareholders entitled to notice of any meeting or to vote
or to receive payment of any dividend or other distribution, or allotment of any
rights, or to exercise any rights in respect of any other lawful action. The
record date so fixed shall be not more than 60 days nor less than 10 days prior
to the date of the meeting nor more than 60 days prior to any other action. When
a record date is so fixed, only shareholders of record on that date are entitled
to notice of and to vote at the meeting or to receive the dividend,
distribution, or allotment of rights, or to exercise rights, as the case may be,
notwithstanding any transfer of shares on the books of the corporation after the
record date. A record date for a meeting of shareholders shall apply to any
adjournment of the meeting unless the board fixes a new record date for the
adjourned meeting. The board shall fix a new record date if the meeting is
adjourned for more than 45 days.
If no record date is fixed by the board, the record date for determining
shareholders entitled to notice of or to vote at a meeting of shareholders shall
be at the close of business on the business day next preceding the day on which
notice of the meeting is given or, if notice is waived, the close of business on
the business day next preceding the day on which the meeting is held. The record
date for determining shareholders for any purpose other than as set forth in
this Section 2.9 or Section 2.11 of this Article II shall be at the close of
business on the day on which the board adopts the resolution relating thereto,
or the sixtieth day prior to the date of such other action, whichever is later.
<PAGE>
SECTION 2.10. CONSENT OF ABSENTEES. The transactions of any meeting of
shareholders, however called and noticed, and wherever held, are as valid as
though had at a meeting duly held after regular call and notice, if a quorum is
present either in person or by proxy, and if, either before or after the
meeting, each of the persons entitled to vote, who was not present in person or
by proxy, signs a written waiver of notice, or a consent to the holding of the
meeting or an approval of the minutes thereof. All such waivers, consents or
approvals shall be filed with the corporate records or made a part of the
minutes of the meeting. Attendance of a person at a meeting shall constitute a
waiver of notice of and presence at such meeting, except when the person
objects, at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened and except that
attendance at a meeting is not a waiver of any right to object to the
consideration of matters required by the Code to be included in the notice but
not so included, if such objection is expressly made at the meeting. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of shareholders need be specified in any written waiver of notice, consent to
the holding of the meeting or approval of the minutes of the meeting, except
that if action is taken or proposed to be taken for approval of any of those
matters specified in the second paragraph of Section 2.4 of this Article II, the
waiver of notice, consent or approval shall state the general nature of the
proposal.
SECTION 2.11. ACTION BY WRITTEN CONSENT WITHOUT A MEETING. Subject to Section
603 of the Code, any action which may be taken at any annual or special meeting
of shareholders may be taken without a meeting and without prior notice if a
consent in writing, setting forth the action so taken, is signed by the holders
of the outstanding shares, or their proxies, having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted. All
such consents shall be filed with the secretary of the corporation and shall be
maintained in the corporate records; provided, however, that (1) unless the
consents of all shareholders entitled to vote have been solicited in writing,
notice of any shareholder approval without a meeting by less than unanimous
consent shall be given, as provided by Section 603(b) of the Code, and (2) in
the case of election of directors, such a consent shall be effective only if
signed by the holders of all outstanding shares entitled to vote for the
election of directors; provided, however, that subject to applicable law, a
director may be elected at any time to fill a vacancy on the board that has not
been filled by the directors, by the written consent of the holders of a
majority of the outstanding shares entitled to vote for the election of
directors. Any written consent may be revoked by a writing received by the
secretary of the corporation prior to the time that written consents of the
number of shares required to authorize the proposed action have been filed with
the secretary.
Unless a record date for voting purposes be fixed as provided in Section 2.9 of
this Article II, the record date for determining shareholders entitled to give
consent pursuant to this Section 2.11, when no prior action by the board has
been taken, shall be the day on which the first written consent is given.
SECTION 2.12. PROXIES. Every person entitled to vote shares or execute written
consents has the right to do so either in person or by one or more persons
authorized by a written proxy executed and dated by such shareholder and filed
with the secretary of the corporation prior to the convening of any meeting of
the shareholders at which any such proxy is to be used or prior to the use of
such written consent. A validly executed proxy which does not state that it is
irrevocable continues in full force and effect unless: (1) revoked by the person
executing it prior to the vote pursuant thereto, by a writing delivered to the
corporation stating that the proxy is revoked or by a subsequent proxy executed
by the person executing the prior proxy and presented to the meeting, or as to
any meeting of shareholders, by attendance at such meeting and voting in person
by the person executing the proxy; or (2) written notice of the death or
incapacity of the maker of the proxy is received by the corporation before the
vote pursuant thereto is counted; provided, however, that no proxy shall be
valid after the expiration of 11 months from the date of its execution unless
otherwise provided in the proxy.
SECTION 2.13. INSPECTORS OF ELECTION. In advance of any meeting of shareholders,
the board may appoint any persons other than nominees for office as inspectors
of election to act at such meeting and any adjournment thereof. If no inspectors
of election are so appointed, or if any persons so appointed fail to appear or
refuse to act, the
<PAGE>
chairperson of any such meeting may, and on the request of any shareholder or
shareholder's proxy shall, appoint inspectors of election at the meeting. The
number of inspectors shall be either one (1) or three (3). If inspectors are
appointed at a meeting on the request of one or more shareholders or proxies,
the holders of a majority of shares or their proxies present shall determine
whether one (1) or three (3) inspectors are to be appointed.
The duties of such inspectors shall be as prescribed by Section 707(b) of the
Code and shall include: determining the number of shares outstanding and the
voting power of each; determining the shares represented at the meeting;
determining the existence of a quorum; determining the authenticity, validity
and the effect of proxies; receiving votes, ballots or consents; hearing and
determining all challenges and questions in any way arising in connection with
the right to vote; counting and tabulating all votes or consents; determining
when the polls shall close; determining the result; and doing such acts as may
be proper to conduct the election or vote with fairness to all shareholders. If
there are three inspectors of election, the decision, act or certificate of a
majority is effective in all respects as the decision, act or certificate of
all.
SECTION 2.14. CONDUCT OF MEETINGS. The president shall preside at all meetings
of the shareholders and shall conduct each such meeting in a businesslike and
fair manner, but shall not be obligated to follow any technical, formal or
parliamentary rules or principles of procedure. The presiding officer's rulings
on procedural matters shall be conclusive and binding on all shareholders,
unless at the time of ruling a request for a vote is made to the shareholders
entitled to vote and represented in person or by proxy at the meeting, in which
case the decision of a majority of such shares shall be conclusive and binding
on all shareholders. Without limiting the generality of the foregoing, the
presiding officer shall have all the powers usually vested in the presiding
officer of a meeting of shareholders.
ARTICLE III
DIRECTORS
SECTION 3.1. POWERS. Subject to the provisions of the Code and any limitations
in the articles of incorporation and these bylaws relating to actions required
to be approved by the shareholders or by the outstanding shares, the business
and affairs of the corporation shall be managed and all corporate powers shall
be exercised by or under the direction of the board. The board may delegate the
management of the day-to-day operations of the business of the corporation to a
management company or other person provided that the business and affairs of the
corporation shall be managed and all corporate powers shall be exercised under
the ultimate direction of the board. Without prejudice to such general powers,
but subject to the same limitations, it is hereby expressly declared that the
board shall have the following powers in addition to the other powers enumerated
in these bylaws:
(a) to select and remove all the other officers, agents and employees of
the corporation, prescribe any qualifications, powers and duties for
them that are consistent with law, the articles of incorporation or
these bylaws, fix their compensation, and require from them security
for faithful service;
(b) to conduct, manage and control the affairs and business of the
corporation and to make such rules and regulations therefor not
inconsistent with law, the articles of incorporation or these bylaws,
as they may deem best;
(c) to adopt, make and use a corporate seal, to prescribe the forms of
certificates of stock, and to alter the form of such seal and of such
certificates from time to time as in their judgment they may deem best;
(d) to authorize the issuance of shares of stock of the corporation from
time to time, upon such terms and for such consideration as may be
lawful;
<PAGE>
(e) to borrow money and incur indebtedness for the purposes of the
corporation, and to cause to be executed and delivered therefor, in the
corporate name, promissory and capital notes, bonds, debentures, deeds
of trust, mortgages, pledges, hypothecations or other evidences of debt
and securities therefor and any agreements pertaining thereto;
(f) to prescribe the manner in which and the person or persons by whom any
or all of the checks, drafts, notes, contracts and other corporate
instruments shall be executed;
(g) to appoint and designate, by resolution adopted by a majority of the
authorized number of directors, one or more committees, each consisting
of two or more directors, including the appointment of alternate
members of any committee who may replace any absent member at any
meeting of the committee; and
(h) generally, to do and perform every act or thing whatever that may
pertain to or be authorized by the board of directors of a corporation
incorporated under the laws of this state.
SECTION 3.2. NUMBER AND QUALIFICATION OF DIRECTORS. The authorized number of
directors of the corporation shall not be less than three (3) nor more than five
(5) until changed by an amendment of the articles of incorporation or by a bylaw
amending this Section 3.2 duly adopted by the vote or written consent of holders
of a majority of the outstanding shares entitled to vote. The exact number of
directors shall be fixed from time to time, within the range specified in the
articles of incorporation or in this Section 3.2: (i) by a resolution duly
adopted by the board; (ii) by a bylaw or amendment thereof duly adopted by the
vote of a majority of the shares entitled to vote represented at a duly held
meeting at which a quorum is present, or by the written consent of the holders
of a majority of the outstanding shares entitled to vote; or (iii) by approval
of the shareholders (as defined in Section 153 of the Code.
SECTION 3.3. NOMINATIONS OF DIRECTORS. Nominations for election of members of
the board may be made by the board or by any holder of any outstanding class of
capital stock of the corporation entitled to vote for the election of directors.
Notice of intention to make any nominations (other than for persons named in the
notice of the meeting called for the election of directors) shall be made in
writing and shall be delivered or mailed to the president of the corporation by
the later of: (i) the close of business twenty-one (21) days prior to any
meeting of shareholders called for the election of directors; or (ii) ten (10)
days after the date of mailing of notice of the meeting to shareholders. Such
notification shall contain the following information to the extent known to the
notifying shareholder: (a) the name and address of each proposed nominee; (b)
the principal occupation of each proposed nominee; (c) the number of shares of
capital stock of the corporation owned by each proposed nominee; (d) the name
and residence address of the notifying shareholder; (e) the number of shares of
capital stock of the corporation owned by the notifying shareholder; (f) the
number of shares of capital stock of any bank, bank holding company, savings and
loan association or other depository institution owned beneficially by the
nominee or by the notifying shareholder and the identities and locations of any
such institutions; and (g) whether the proposed nominee has ever been convicted
of or pleaded nolo contendere to any criminal offense involving dishonesty or
breach of trust, filed a petition in bankruptcy or been adjudged bankrupt. The
notification shall be signed by the nominating shareholder and by each nominee,
and shall be accompanied by a written consent to be named as a nominee for
election as a director from each proposed nominee. Nominations not made in
accordance with these procedures shall be disregarded by the chairperson of the
meeting, and upon his or her instructions, the inspectors of election shall
disregard all votes cast for each such nominee. The foregoing requirements do
not apply to the nomination of a person to replace a proposed nominee who has
become unable to serve as a director between the last day for giving notice in
accordance with this paragraph and the date of election of directors if the
procedure called for in this paragraph was followed with respect to the
nomination of the proposed nominee.
A copy of the preceding paragraph shall be set forth in the notice to
shareholders of any meeting at which directors are to be elected.
<PAGE>
SECTION 3.4. ELECTION AND TERM OF OFFICE. The directors shall be elected at each
annual meeting of shareholders, but if any annual meeting is not held or the
directors are not elected thereat, the directors may be elected at any special
meeting of shareholders held for that purpose. Each director shall hold office
until the next annual meeting and until a successor has been elected and
qualified.
SECTION 3.5. VACANCIES. Vacancies on the board, except for a vacancy created by
the removal of a director, may be filled by a majority of the remaining
directors, though less than a quorum, or by a sole remaining director, and each
director so elected shall hold office until the next annual meeting and until
such director's successor has been elected and qualified. A vacancy on the board
created by the removal of a director may only be filled by the vote of a
majority of the shares entitled to vote represented at a duly held meeting at
which a quorum is present, or by the written consent of the holders of all of
the outstanding shares.
The shareholders may elect a director or directors at any time to fill any
vacancy or vacancies not filled by the directors. Any such election by written
consent other than to fill a vacancy created by removal requires the consent of
a majority of the outstanding shares entitled to vote.
Any director may resign effective upon giving written notice to the chairperson
of the board, the president, secretary, or the board, unless the notice
specifies a later time for the effectiveness of such resignation. If the board
accepts the resignation of a director tendered to take effect at a future time,
the board or the shareholders shall have power to elect a successor to take
office when the resignation is to become effective.
A vacancy or vacancies on the board shall be deemed to exist in case of the
death, resignation or removal of any director, or if the authorized number of
directors is increased, or if the shareholders fail, at any annual or special
meeting of shareholders at which any director or directors are elected, to elect
the full authorized number of directors to be voted for at that meeting.
The board may declare vacant the office of a director who has been declared of
unsound mind by an order of court or convicted of a felony.
No reduction of the authorized number of directors shall have the effect of
removing any director prior to the expiration of the director's term of office.
SECTION 3.6. PLACE OF MEETINGS. Regular or special meetings of the board shall
be held at any place within or outside the state of California which has been
designated in the notice of meeting or if there is no notice, at the principal
executive office of the corporation, or at a place designated by resolution of
the board or by the written consent of the board. Any regular or special meeting
is valid wherever held if held upon written consent of all members of the board
given either before or after the meeting and filed with the secretary of the
corporation.
SECTION 3.7. REGULAR MEETINGS. Immediately following each annual meeting of
shareholders, the board shall hold a regular meeting for the purpose of
organization, any desired election of officers and the transaction of other
business. Notice of this meeting shall not be required.
Other regular meetings of the board shall be held without notice on the fourth
Wednesday of each month at the hour of 7:30 a.m., or at such different date and
time as the board may from time to time fix by resolution; provided, however,
should said day fall upon a legal holiday observed by the corporation at its
principal executive office, then said meeting shall be held at the same time and
place on the next succeeding full business day of the corporation. Call and
notice of all regular meetings of the board are hereby dispensed with.
SECTION 3.8. SPECIAL MEETINGS. Special meetings of the board for any purpose or
purposes may be called at any time by the chairperson of the board, the
president, any vice president, the secretary or by any two directors.
<PAGE>
Special meetings of the board shall be held upon four days' written notice by
mail or 48 hours' notice delivered personally or by telephone, telegraph, telex
or other similar means of communication. Any such notice shall be addressed or
delivered to each director at the director's address as shown upon the records
of the corporation or as given to the corporation by the director for purposes
of notice or, if such address is not shown on such records or is not readily
ascertainable, at the place in which the meetings of the directors are regularly
held. Such notice may, but need not, specify the purpose of the meeting, or the
place if the meeting is to be held at the principal executive office of the
corporation.
Notice by mail shall be deemed to have been given at the time a written notice
is deposited in the United States mails, postage prepaid. Any other written
notice shall be deemed to have been given at the time it is personally delivered
to the recipient or is delivered to a common carrier for transmission, or
actually transmitted by the person giving the notice by electronic means or by
facsimile transmission, to the recipient. Oral notice shall be deemed to have
been given at the time it is communicated, in person or by telephone or
wireless, to the recipient or to a person at the office of the recipient whom
the person giving the notice has reason to believe will promptly communicate it
to the recipient.
SECTION 3.9. QUORUM. A majority of the authorized number of directors
constitutes a quorum of the board for the transaction of business, except to
adjourn as hereinafter provided. Every act or decision done or made by a
majority of the directors present at a meeting duly held at which a quorum is
present shall be regarded as the act of the board, unless a greater number be
required by the articles of incorporation and subject to the provisions of
Section 310 of the Code (as to approval of contracts or transactions in which a
director has a direct or indirect material financial interest) and Section
317(e) of the Code (as to indemnification of directors). A meeting at which a
quorum is initially present may continue to transact business notwithstanding
the withdrawal of directors, if any action taken is approved by at least a
majority of the required quorum for such meeting.
SECTION 3.10. PARTICIPATION IN MEETINGS BY CONFERENCE TELEPHONE. Members of the
board may participate in a meeting through use of a conference telephone or
similar communications equipment, so long as all members participating in such
meeting can hear one another. Participation in a meeting pursuant to this
Section 3.10 constitutes presence in person at such meeting.
SECTION 3.11. WAIVER OF NOTICE. Notice of a meeting need not be given to any
director who signs a waiver of notice or a consent to holding the meeting or an
approval of the minutes of the meeting, whether before or after the meeting, or
who attends the meeting without protesting, before the meeting or at its
commencement, the lack of notice to such director. All such waivers, consents or
approvals shall be filed with the corporate records or made a part of the
minutes of the meeting.
SECTION 3.12. ADJOURNMENT. A majority of the directors present, whether or not a
quorum is present, may adjourn any directors' meeting to another time and place.
Notice of the time and place of holding an adjourned meeting need not be given,
unless the meeting is adjourned for more than twenty-four hours, in which case
notice of the time and place shall be given before the time of the adjourned
meeting to the directors who were not present at the time of the adjournment.
SECTION 3.13. ACTION WITHOUT MEETING. Any action required or permitted to be
taken by the board may be taken without a meeting if all members of the board
shall individually or collectively consent in writing to such action. Such
written consent or consents shall be filed with the minutes of the proceedings
of the board. Such action by written consent shall have the same effect as a
unanimous vote of the board.
SECTION 3.14. FEES AND COMPENSATION. Directors and members of committees may
receive such compensation, if any, for their services, and such reimbursement
for expenses, as may be fixed or determined by the board. This
<PAGE>
Section 3.14 shall not be construed to preclude any director from serving the
corporation in any other capacity as an officer, agent, employee or otherwise,
and receiving compensation for those services.
SECTION 3.15. RIGHTS OF INSPECTION. Every director of the corporation shall have
the absolute right at any reasonable time to inspect and copy all books, records
and documents of every kind and to inspect the physical properties of the
corporation and also of its subsidiary corporations, domestic or foreign. Such
inspection by a director may be made in person or by agent or attorney, and the
right of inspection includes the right to copy and make extracts.
SECTION 3.16. REMOVAL OF DIRECTOR WITHOUT CAUSE. Any or all of the directors of
the corporation may be removed without cause if the removal is approved by the
outstanding shares, subject to the following:
(a) Except if the corporation has a classified board, no director may be
removed (unless the entire board is removed) when the votes cast
against removal, or not consenting in writing to the removal, would be
sufficient to elect the director if voted cumulatively at an election
at which the same total number of votes were cast (or, if the action is
taken by written consent, all shares entitled to vote were voted) and
the entire number of directors authorized at the time of the director's
most recent election were then being elected.
(b) When by the provisions of the articles the holders of the shares of any
class or series, voting as a class or series, are entitled to elect one
or more directors, any director so elected may be removed only by the
applicable vote of the holders of the shares of that class or series.
(c) When the corporation has a classified board, a director may not be
removed if the votes cast against removal of the director, or not
consenting in writing to the removal, would be sufficient to elect the
director if voted cumulatively (without regard to whether shares may
otherwise be voted cumulatively) at an election at which the same total
number of votes were cast (or, if the action is taken by written
consent, all shares entitled to vote were voted) and either the number
of directors elected at the most recent annual meeting of shareholders,
or if greater, the number of directors for whom removal is being
sought, were then being elected.
SECTION 3.17. REMOVAL OF DIRECTORS BY SHAREHOLDER'S SUIT. The superior court of
the proper county may, at the suit of the shareholders holding at least 10
percent of the number of outstanding shares of any class, remove from office any
director in case of fraudulent or dishonest acts or gross abuse of authority or
discretion with reference to the corporation and may bar from reelection any
director so removed for a period prescribed by the court. The corporation shall
be made a party to such action.
ARTICLE IV
OFFICERS
SECTION 4.1. OFFICERS. The officers of the corporation shall be a president, a
secretary and a chief financial officer. The corporation may also have, at the
discretion of the board, a chairperson of the board, a vice chairperson of the
board, one or more vice presidents, one or more assistant secretaries, one or
more assistant financial officers and such other officers as may be elected or
appointed in accordance with the provisions of Section 4.3 of this Article IV.
One person may hold two or more offices, except those of president and
secretary.
SECTION 4.2. APPOINTMENT. The officers of the corporation, except such officers
as may be appointed in accordance with the provisions of Section 4.3 or Section
4.5 of this Article IV, shall be chosen by, and shall serve at the pleasure of,
the board, and shall hold their respective offices until their resignation,
removal or other disqualification from
<PAGE>
service, or until their respective successors shall be appointed, subject to the
rights, if any, of an officer under any contract of employment.
SECTION 4.3. SUBORDINATE OFFICERS. The board may appoint, or may empower the
president to appoint, such other officers as the business of the corporation may
require, each to hold office for such period, have such authority and perform
such duties as are provided in these bylaws or as the board may from time to
time determine.
SECTION 4.4. REMOVAL AND RESIGNATION. Subject to the rights, if any, of an
officer under any contract of employment, any officer may be removed, either
with or without cause, by the board at any time, or, except in the case of an
officer chosen by the board, by any officer upon whom such power of removal may
be conferred by the board.
Any officer may resign at any time by giving written notice to the corporation
without prejudice to the rights, if any, of the corporation under any contract
to which the officer is a party. Any such resignation shall take effect at the
date of the receipt of such notice or at any later time specified therein; and,
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.
SECTION 4.5. VACANCIES. A vacancy in any office because of death, resignation,
removal, disqualification or any other cause shall be filled in the manner
prescribed in these bylaws for regular appointment to such office.
SECTION 4.6. CHAIRPERSON. The chairperson of the board, if there shall be such
an officer, shall, if present, preside at all meetings of the board and exercise
and perform such other powers and duties as may be assigned from time to time by
the board.
SECTION 4.7. VICE CHAIRPERSON. The vice chairperson of the board, if there shall
be such an officer, shall, in the absence of the chairperson of the board,
preside at all meetings of the board and exercise and perform such other powers
and duties as may be assigned from time to time by the board.
SECTION 4.8. PRESIDENT. Subject to such powers, if any, as may be given by the
board to the chairperson of the board, if there shall be such an officer, the
president is the general manager and chief executive officer of the corporation
and has, subject to the control of the board, general supervision, direction and
control of the business and affairs of the corporation. The president shall
preside at all meetings of the shareholders and in the absence of both the
chairperson of the board and the vice chairperson, or if there be none, at all
meetings of the board. The president has the general powers and duties of
management usually vested in the office of president and chief executive officer
of a corporation and such other powers and duties as may be prescribed by the
board.
SECTION 4.9. VICE PRESIDENT. In the absence or disability of the president, the
vice presidents in order of their rank as fixed by the board or, if not ranked,
the vice president designated by the board, shall perform all the duties of the
president and, when so acting, shall have all the powers of, and be subject to
all the restrictions upon, the president. The vice presidents shall have such
other powers and perform such other duties as from time to time may be
prescribed for them respectively by the bylaws, the board, the president or the
chairperson of the board.
SECTION 4.10. SECRETARY. The secretary shall keep or cause to be kept, at the
principal executive office or such other place as the board may order, a book of
minutes of all meetings of shareholders, the board and its committees, with the
time and place of holding, whether regular or special, and, if special, how
authorized, the notice or waivers of notice thereof given, the names of those
present at the board and committee meetings, the number of shares present or
represented at shareholders' meetings, and the proceedings thereof.
The secretary shall keep, or cause to be kept, a copy of the bylaws of the
corporation at the principal executive office or business office in accordance
with Section 213 of the Code. The secretary shall keep, or cause to be kept, at
the
<PAGE>
principal executive office or at the office of the corporation's transfer agent
or registrar, if one is appointed, a record of its shareholders, or a duplicate
record of its shareholders, giving the names and addresses of all shareholders
and the number and class of shares held by each.
The secretary shall give, or cause to be given, notice of all the meetings of
the shareholders, of the board and of any committees thereof required by these
bylaws or by law to be given, shall keep the seal of the corporation in safe
custody, and shall have such other powers and perform such other duties as may
be prescribed by the board.
SECTION 4.11. ASSISTANT SECRETARY. The assistant secretary or the assistant
secretaries, in the order of their seniority, shall, in the absence or
disability of the secretary, or in the event of such officer's refusal to act,
perform the duties and exercise the powers of the secretary and shall have such
additional powers and discharge such duties as may be assigned from time to time
by the president or by the board.
SECTION 4.12. CHIEF FINANCIAL OFFICER. The chief financial officer shall keep
and maintain, or cause to be kept and maintained, adequate and correct books and
records of the properties and financial and business transactions of the
corporation, including accounts of its assets, liabilities, receipts,
disbursements, gains, losses, capital, retained earnings and shares, and shall
send or cause to be sent to the shareholders of the corporation such financial
statements and reports that by law or these bylaws are required to be sent to
them. The books of account shall at all times be open to inspection by any
director of the corporation.
The chief financial officer shall deposit all monies and other valuables in the
name and to the credit of the corporation with such depositories as may be
designated by the board. The chief financial officer shall disburse the funds of
the corporation as may be ordered by the board, shall render to the president
and directors, whenever they request it, an account of all transactions engaged
in as chief financial officer and of the financial condition of the corporation,
and shall have such other powers and perform such other duties as may be
prescribed by the board.
SECTION 4.13. ASSISTANT FINANCIAL OFFICER. The assistant financial officer or
the assistant financial officers, in the order of their seniority, shall, in the
absence or disability of the chief financial officer, or in the event of such
officer's refusal to act, perform the duties and exercise the powers of the
chief financial officer, and shall have such additional powers and discharge
such duties as may be assigned from time to time by the president or by the
board.
SECTION 4.14. SALARIES. The salaries of the officers shall be fixed from time to
time by the board and no officer shall be prevented from receiving such salary
by reason of the fact that such officer is also a director of the corporation.
SECTION 4.15. OFFICERS HOLDING MORE THAN ONE OFFICE. Any two or more offices,
except those of president and secretary, may be held by the same person, but no
officer shall execute, acknowledge or verify any instrument in more than one
capacity.
SECTION 4.16. INABILITY TO ACT. In the case of absence or inability to act of
any officer of the corporation and of any person herein authorized to act in his
or her place, the board may from time to time delegate the powers or duties of
such officer to any other officer, or any director or other person whom it may
select.
ARTICLE V
INDEMNIFICATION
SECTION 5.1. DEFINITIONS. For use in this Article V, certain terms are defined
as follows:
<PAGE>
(a) "Agent": A director, officer, employee or agent of the corporation or a
person who is or was serving at the request of the corporation as a
director, officer, employee or agent of another foreign or domestic
corporation, partnership, joint venture, trust, or other enterprise
(including service with respect to employee benefit plans and service
on creditors' committees with respect to any proceeding under the
Bankruptcy Code, assignment for the benefit of creditors or other
liquidation of assets of a debtor of the corporation), or a person who
was a director, officer, employee or agent of a foreign or domestic
corporation which was a predecessor corporation of the corporation or
of another enterprise at the request of the predecessor corporation.
(b) "Loss": All expenses, liabilities, and losses including attorneys'
fees, judgments, fines, ERISA excise taxes and penalties, amounts paid
or to be paid in settlement, any interest, assessments, or other
charges imposed thereon, and any federal, state, local, or foreign
taxes imposed on any Agent as a result of the actual or deemed receipt
of any payments under this Article.
(c) "Proceeding": Any threatened, pending or completed action, suit or
proceeding including any and all appeals, whether civil, criminal,
administrative or investigative.
SECTION 5.2. RIGHT TO INDEMNIFICATION. Each person who was or is a party or is
threatened to be made a party to or is involved (as a party, witness or
otherwise) in any Proceeding, by reason of the fact that he or she, or a person
of whom he or she is the legal representative, is or was an Agent, is entitled
to indemnification. Agent shall be indemnified and held harmless by the
corporation to the fullest extent authorized by law. The right to
indemnification conferred in this Article V shall be a contract right. It is the
corporation's intention that these bylaws provide indemnification in excess of
that expressly permitted by Section 317 of the Code, as authorized by the
corporation's articles of incorporation.
SECTION 5.3. AUTHORITY TO ADVANCE EXPENSES. The right to indemnification
provided in Section 5.2 of these bylaws shall include the right to be paid, in
advance of a Proceeding's final disposition, expenses incurred in defending that
Proceeding, PROVIDED, HOWEVER, that if required by the California General
Corporation Law, as amended, the payment of expenses in advance of the final
disposition of the Proceeding shall be made only upon delivery to the
corporation of an undertaking by or on behalf of the Agent to repay such amount
if it shall ultimately be determined that he or she is not entitled to be
indemnified by the corporation as authorized under this Article V or otherwise.
The Agent's obligation to reimburse the corporation for advances shall be
unsecured and no interest shall be charged thereon.
SECTION 5.4. RIGHT OF CLAIMANT TO BRING SUIT. If a claim under Section 5.2 or
5.3 of these bylaws is not paid in full by the corporation within thirty (30)
days after a written claim has been received by the corporation, the claimant
may at any time there-after bring suit against the corporation to recover the
unpaid amount of the claim and, if successful in whole or in part, the claimant
shall be entitled to be paid also the expenses (including attorneys' fees) of
prosecuting such claim. It shall be a defense to any such action (other than an
action brought to enforce a claim for expenses incurred in defending a
Proceeding in advance of its final disposition) that the claimant has not met
the standards of conduct that make it permissible under the California General
Corporation Law for the corporation to indemnify the claimant for the amount
claimed. The burden of proving such a defense shall be on the corporation.
Neither the failure of the corporation (including its board of directors,
independent legal counsel, or its shareholders) to have made a determination
prior to the commencement of such action that the indemnification of the
claimant is proper under the circumstances because he or she has met the
applicable standard of conduct set forth in the California General Corporation
Law, nor an actual determination by the corporation (including its board of
directors, independent legal counsel, or its shareholders) that the claimant has
not met such applicable standard of conduct, shall be a defense to the action or
create a presumption that claimant has not already met the applicable standard
of conduct.
<PAGE>
SECTION 5.5. PROVISIONS NONEXCLUSIVE. The rights conferred on any person by this
Article V shall not be exclusive of any other rights that such person may have
or hereafter acquire under any statute, provision of the articles of
incorporation, agreement, vote of shareholders or disinterested directors, or
otherwise, both as to action in an official capacity and as to action in another
capacity while holding such office. To the extent that any provision of the
articles of incorporation, agreement, or vote of the shareholders or
disinterested directors is inconsistent with these bylaws, the provision,
agreement, or vote shall take precedence.
SECTION 5.6. AUTHORITY TO INSURE. The corporation may purchase and maintain
insurance to protect itself and any Agent against any Loss asserted against or
incurred by such person, whether or not the corporation would have the power to
indemnify the Agent against such Loss under applicable law or the provisions of
this Article V. If the corporation owns all or a portion of the shares of the
company issuing the insurance policy, the company and/or the policy must meet
one of the two sets of conditions set forth in Section 317 of the Code.
SECTION 5.7. SURVIVAL OF RIGHTS. The rights provided by this Article V shall
continue as to a person who has ceased to be an Agent and shall inure to the
benefit of the heirs, executors, and administrators of such person.
SECTION 5.8. SETTLEMENT OF CLAIMS. The corporation shall not be liable to
indemnify any Agent under this Article V: (a) for any amounts paid in settlement
of any action or claim effected without the corporation's written consent, which
consent shall not be unreasonably withheld; or (b) for any judicial award, if
the corporation was not given a reasonable and timely opportunity, at its
expense, to participate in the defense of such action.
SECTION 5.9. EFFECT OF AMENDMENT. Any amendment, repeal or modification of this
Article V shall not adversely affect any right or protection of any Agent
existing at the time of such amendment, repeal or modification.
SECTION 5.10. SUBROGATION. Upon payment under this Article V, the corporation
shall be subrogated to the extent of such payment to all of the rights of
recovery of the Agent, who shall execute all papers required and shall do
everything that may be necessary to secure such rights, including the execution
of such documents necessary to enable the corporation effectively to bring suit
to enforce such rights.
SECTION 5.11. NO DUPLICATION OF PAYMENTS. The corporation shall not be liable
under this Article V to make any payment in connection with any claim made
against the Agent to the extent the Agent has otherwise actually received
payment (under any insurance policy, agreement, vote or otherwise) of the
amounts otherwise indemnifiable hereunder.
ARTICLE VI
OTHER PROVISIONS
SECTION 6.1. INSPECTION OF CORPORATE RECORDS.
(a) A shareholder or shareholders of the corporation holding at least five
percent (5%) in the aggregate of the outstanding voting shares of the
corporation or who hold at least one percent (1%) of the outstanding
voting shares and have filed a Schedule 14B with the United States
Securities and Exchange Commission relating to the election of
directors of the corporation shall have an absolute right to do either
or both of the following:
(i) inspect and copy the record of shareholders' names and
addresses and shareholdings during usual business hours upon
five business days' prior written demand upon the corporation;
or
<PAGE>
(ii) obtain from the transfer agent, if any, for the corporation,
upon written demand and upon the tender of its usual charges
for such a list (the amount of which charges shall be stated
to the shareholder by the transfer agent upon request), a list
of the shareholders' names and addresses who are entitled to
vote for the election of directors and their shareholdings, as
of the most recent record date for which it has been compiled,
or as of a date specified by the shareholder subsequent to the
date of demand. The corporation shall have a responsibility to
cause the transfer agent to comply with this Section 6.1;
(b) The record of shareholders shall also be open to inspection and copying
by any shareholder or holder of a voting trust certificate at any time
during usual business hours upon written demand on the corporation, for
a purpose reasonably related to such holder's interest as a shareholder
or holder of a voting trust certificate. A written demand for such
inspection shall be accompanied by a statement in reasonable detail of
the purpose of the inspection.
(c) The accounting books and records and minutes of proceedings of the
shareholders and the board and committees of the board shall be open to
inspection upon written demand on the corporation by any shareholder or
holder of a voting trust certificate at any reasonable time during
usual business hours, for a purpose reasonably related to such holder's
interest as a shareholder or as a holder of such voting trust
certificate. The right of inspection created by this Section 6.1(c)
shall extend to the records of each subsidiary of the corporation. A
written demand for such inspection shall be accompanied by a statement
in reasonable detail of the purpose of the inspection.
(d) Any inspection and copying under this Section 6.1 may be made in person
or by agent or attorney.
SECTION 6.2. INSPECTION OF BYLAWS. The corporation shall keep at its principal
executive office in California the original or a copy of these bylaws as amended
to date, which shall be open to inspection by shareholders at all reasonable
times during office hours.
SECTION 6.3. EXECUTION OF DOCUMENTS, CONTRACTS. Subject to the provisions of
applicable law, any note, mortgage, evidence of indebtedness, contract, share
certificate, initial transaction statement or written statement, conveyance or
other instrument in writing and any assignment or endorsement thereof executed
or entered into between the corporation and any other person, when signed by the
chairperson of the board, the president or any vice president and the secretary,
any assistant secretary, the chief financial officer or any assistant financial
officer of the corporation, or when stamped with a facsimile signature of such
appropriate officers in the case of share certificates, shall be valid and
binding upon the corporation in the absence of actual knowledge on the part of
the other person that the signing officers did not have authority to execute the
same. Any such instruments may be signed by any other person or persons and in
such manner as from time to time shall be determined by the board, and unless so
authorized by the board, no officer, agent or employee shall have any power or
authority to bind the corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or amount.
SECTION 6.4. CERTIFICATES OF STOCK. Every holder of shares of the corporation
shall be entitled to have a certificate signed in the name of the corporation by
the chairperson or the vice chairperson of the board or the president or a vice
president and by the secretary or an assistant secretary or the chief financial
officer or an assistant financial officer, certifying the number of shares and
the class or series of shares owned by the shareholder. The signatures on the
certificates may be facsimile signatures. If any officer, transfer agent or
registrar who has signed a certificate or whose facsimile signature has been
placed upon the certificate shall have ceased to be such officer, transfer agent
or registrar before such certificate is issued, it may be issued by the
corporation with the same effect as if such person were an officer, transfer
agent or registrar at the date of issue.
<PAGE>
Except as provided in this Section 6.4, no new certificate for shares shall be
issued in lieu of an old certificate unless the latter is surrendered and
canceled at the same time. The board may, however, in case any certificate for
shares is alleged to have been lost, stolen or destroyed, authorize the issuance
of a new certificate in lieu thereof, and the corporation may require that the
corporation be given a bond or other adequate security sufficient to indemnify
it against any claim that may be made against it (including any expense or
liability) on account of the alleged loss, theft or destruction of such
certificate or the issuance of such new certificate.
Prior to the due presentment for registration of transfer in the stock transfer
book of the corporation, the registered owner shall be treated as the person
exclusively entitled to vote, to receive notifications and otherwise to exercise
all the rights and powers of an owner, except as expressly provided otherwise by
the laws of the state of California.
SECTION 6.5. REPRESENTATION OF SHARES OF OTHER CORPORATIONS. The president or
any other officer or officers authorized by the board or the president are each
authorized to vote, represent and exercise on behalf of the corporation all
rights incident to any and all shares or other securities of any other
corporation or corporations standing in the name of the corporation. The
authority herein granted may be exercised either by any such officer in person
or by any other person authorized to do so by proxy or power of attorney duly
executed by said officer.
SECTION 6.6. SEAL. The corporate seal of the corporation shall consist of two
concentric circles, between which shall be the name of the corporation, and in
the center shall be inscribed the word "Incorporated" and the date of its
incorporation.
SECTION 6.7. FISCAL YEAR. The fiscal year of the corporation shall begin on the
first day of January and end on the 31st day of December of each year.
SECTION 6.8. CONSTRUCTION AND DEFINITIONS. Unless the context otherwise
requires, the general provisions, rules of construction and definitions
contained in the Code and the California General Corporation Law shall govern
the construction of these bylaws. Without limiting the generality of this
provision, the singular number includes the plural, the plural number includes
the singular, and the term "person" includes both a corporation and a natural
person.
SECTION 6.9. BYLAW PROVISIONS CONTRARY TO OR INCONSISTENT WITH PROVISIONS OF
LAW. Any article, section, subsection, subdivision, sentence, clause or phrase
of these bylaws which, upon being construed in the manner provided in this
Section 6.9, shall be contrary to or inconsistent with any applicable provision
of the Code or other applicable laws of the state of California or of the United
States shall not apply so long as said provisions of law shall remain in effect,
but such result shall not affect the validity or applicability of any other
portions of these bylaws, it being hereby declared that these bylaws would have
been adopted and each article, section, subsection, subdivision, sentence,
clause or phrase thereof, irrespective of the fact that any one or more
articles, sections, subsections, subdivisions, sentences, clauses or phrases is
or are illegal.
ARTICLE VII
AMENDMENTS
SECTION 7.1. AMENDMENT BY SHAREHOLDERS. New bylaws may be adopted or these
bylaws may be amended or repealed by the vote or written consent of holders of a
majority of the outstanding shares entitled to vote; provided, however, that if
the articles of incorporation of the corporation set forth the number of
authorized directors of the corporation, the authorized number of directors may
be changed only by an amendment of the articles of incorporation and provided
also that a bylaw reducing the fixed number or the minimum number of directors
to a number less than five cannot be adopted if the votes cast against adoption
at a meeting, or the shares not consenting
<PAGE>
in the case of action by written consent, are equal to more than 16 2/3 percent
of the outstanding shares entitled to vote.
SECTION 7.2. AMENDMENT BY DIRECTORS. Subject to the rights of the shareholders
as provided in Section 7.1 of this Article VII, bylaws, other than a bylaw
specifying or changing a fixed number of directors or the maximum or minimum
number or changing from a fixed to a variable board or vice versa, may be
adopted, amended or repealed by the board.
<PAGE>
CERTIFICATE OF SECRETARY
I, the undersigned, do hereby certify:
1. That I am the duly elected and acting secretary of Centennial First
Financial Services, a California corporation; and
2. That the foregoing Bylaws, comprising 19 pages, constitute the Bylaws
of Centennial First Financial Services as duly adopted by action of the
board of directors of Centennial First Financial Services duly taken on
August 27, 1999.
/s/ Sally Flanders
---------------------------------------------------
Sally Flanders, Secretary
<PAGE>
Exhibit 4
Common Stock Common Stock
Number Shares
CENTENNIAL FIRST FINANCIAL SERVICES
-------------- --------------
Incorporated under the laws of the State of California See Reverse for
Certain Definitions
CUSIP _________
This certifies that
is the record holder of
shares of no par value common stock of
Centennial First Financial Services
hereinafter designated the "Company", transferable on the share register of the
Company in person or by duly authorized attorney upon surrender of this
Certificate properly endorsed or assigned. By the acceptance of this
Certificate, the holder hereof assents to and agrees to be bound by all of the
provisions of the Articles of Incorporation and all amendments thereto.
Witness the facsimile seal of the Company and the facsimile signatures
of its duly authorized officers.
Dated:
Sally Flanders Centennial First Douglas C. Spencer
Secretary Financial Services President and Chief Executive Officer
Incorporated
Aug. 6, 1999
California
<PAGE>
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT - Custodian
------ ------
(Cust) (Minor)
TEN ENT - as tenants by the entireties under Uniform Gifts to
Minors Act
------------
JT TEN - as joint tenants with right (State)
of survivorship and not as
tenants in common
Additional abbreviations may also be used though not in the above list.
For valued received, _________ hereby sell, assign and transfer unto
Please insert social security or other
identifying number of assignee
- - -------------------------------------------------------------------------------
(Please Print or Typewrite Name and Address, Including Zip Code, of Assignee)
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
shares
- - -------------------------------------------------------------------------
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint __________________________________Attorney to
transfer the said stock on the books of the within named Corporation with full
power of substitution in the premises.
Dated
-----------------------
-----------------------------------------------------
Notice: The signature to this assignment must
correspond with the name as written upon the
face of the Certificate in every particular,
without alteration or enlargement or any
change whatever.
Signature(s) Guaranteed
By______________________________________________________ The
signature(s) should be guaranteed by an eligible guarantor
institution (banks, stockbrokers, savings and loan
association and credit unions with membership in an approved
signature guarantee medallion program) pursuant to S.E.C.
Rule 17Ad-15.
<PAGE>
Exhibit 5
October 19, 1999
Centennial First Financial Services
218 E. State Street
Redlands, California 92373
RE: Registration Statement on Form S-4
Gentlemen:
At your request, we have examined the form of Registration Statement to be filed
with the Securities and Exchange Commission in connection with the registration
under the Securities Act of 1933, as amended, for the offer and sale of up to
753,469 shares of your common stock, no par value (the "Common Stock"). We are
familiar with the actions taken or to be taken in connection with the
authorization, issuance and sale of the Common Stock.
It is our opinion that, subject to said proceedings being duly taken and
completed as now contemplated before the issuance of the Common Stock, said
Common Stock, will, upon the issuance and sale thereof be legally and validly
issued and fully paid and nonassessable.
We consent to the use of this opinion as an exhibit to said Registration
Statement.
Respectfully submitted,
GARY STEVEN FINDLEY & ASSOCIATES
By: /s/ Gary Steven Findley
Gary Steven Findley
Attorney at Law
<PAGE>
Exhibit 10.1
AMENDED EMPLOYMENT AGREEMENT
This Agreement supersedes the Employment Agreement dated September 10, 1997.
This amended EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as
of the 26th day of February, 1998, between Redlands Centennial Bank
(hereinafter referred to as "Employer"), and Douglas C. Spencer (hereinafter
referred to as "Executive").
WITNESSETH:
WHEREAS, Employer is desirous of employing Executive in the capacity
hereinafter stated and Executive is desirous of continuing in the Employ of
Employer in such capacity, for the period and on the terms and conditions set
forth herein;
NOW, THEREFORE, in consideration of the premises and of the mutual covenants
and conditions herein contained, the parties hereto, intending to be legally
bound, do hereby agree as follows:
1. EMPLOYMENT
Employer hereby employs Executive as its President and Chief Executive
Officer, and Executive accepts the duties that are customarily performed by
the President and Chief Executive Officer of a state-chartered banking
institution and accepts all other duties described herein and agrees to
discharge the same faithfully and to the best of his ability and consistent
with past performances and the highest and best standards of the banking
industry, in accordance with the policies of Employer's Board of Directors as
established, and in compliance with all laws and Employer's Articles of
Incorporation, Bylaws, Policies and Procedures. Executive shall devote his
business time and attention to the business and affairs of Employer for which
he is employed and shall perform the duties thereof to the best of his
ability. Except as permitted by the prior written consent of Employee's
Board of Directors, Executive shall not directly or indirectly render any
services of a business, commercial or professional nature to any other
person, firm or corporation, whether for compensation or otherwise, which are
in conflict with Employer's interests. Executive shall perform such other
duties as shall be from time to time prescribed by Employer's Board of
Directors.
1
<PAGE>
Executive shall have such responsibility and duties and such authority to
transact business on behalf of Employer, as are customarily incident to the
office of President and Chief Executive Officer of a state-chartered banking
institution. In addition, Executive shall be appointed to the Board of
Directors of Employer.
2. TERM
Employer hereby employs Executive, and Executive hereby accept employment
with Employer for the period of four (4) years (the "Term"), commencing
October 1, 1997, with such Term being subject to prior termination as
hereinafter provided. Where used herein, "Term" shall refer to the entire
period of employment of Executive by Employer, whether for the period
provided above, or whether terminated earlier as hereinafter provided, or
extended by mutual agreement in writing by Employer and Executive.
Such Term shall be automatically extended for additional periods of one (1)
year unless Executive or Employer shall give written notice not less than
three months and not more than six months prior to the expiration of the
Term, of intention not to extend the Term.
3. COMPENSATION
In consideration for all services to be rendered by Executive to Employer,
Employer agrees to pay Executive a starting base salary of One Hundred Twenty
Thousand Dollars ($120,000) per year. Employer's Board of Directors shall in
their discretion determine any increases in Executive's base salary after the
first anniversary of the Term. Executive's salary shall be paid semi-monthly.
Employer shall deduct therefrom all taxes which may be required to be
deducted or withheld under any provision of the law (including, but not
limited to, social security payments and income tax withholding) now in
effect or which may become effective anytime during the term of this
Agreement.
Executive shall be entitled to participate in any and all other employee
benefits and plans that may be developed and adopted by Employer and in its
normal course of business, subject to the terms and conditions of such
agreements provided that nothing contained herein shall obligate Employer to
commence, develop or warranty any employee benefits or plans.
2
<PAGE>
Executive shall not be entitled to fees paid to Employer's Board of Directors
for attendance at regular or special meetings of Employer's Board of
Directors. Executive shall also not be entitled to any committee fees paid to
Employer's Board of Directors.
4. BONUS AND SALARY CONTINUATION PLAN
Executive shall be entitled to participate in Employer's Incentive
Compensation Plan ("Bonus Plan"), which shall be at the discretion of the
Board of Directors.
Within one (1) year of the execution of this Agreement, Employer shall
establish a Salary Continuation Plan that shall pay Executive a minimum of
One Hundred Twenty Thousand Dollars ($120,000) per year for ten (10) years
commencing on the earlier to occur on Executive's death or Executive reaching
the age of fifty-five such Salary Continuation Plan shall be covered by a
separate agreement. The Salary Continuation Plan Agreement shall be attached
as an exhibit to this Agreement. Notwithstanding the foregoing, nothing
contained herein shall be deemed to grant Executive any rights or benefits
under a Salary Continuation Plan until such plan is duly adopted by Employer.
5. STOCK OPTION
Employer shall grant Executive stock options to purchase twenty thousand
(20,000) shares of Employer's common stock at the price per share set at the
market value at the time of the grant. Options shall have a term of ten (10)
years and are subject to a Stock Option Agreement to be executed by the
parties. One-fifth (1/5) of the stock provided in said option shall vest and
become exercisable each year at the anniversary dates of the granting of the
stock option, provided Executive is an employee of Employer, commencing on
the first year anniversary of employment.
Vested options may be exercised at any time during the remaining term of the
stock option, provided Executive remains an employee of Employer.
Notwithstanding the preceding sentence, if Executive is terminated and such
termination if not for cause, then Executive shall have ninety (90) days to
exercise all options vested with Executive as of the termination date.
3
<PAGE>
The Stock Option Plan shall be attached as an exhibit and incorporated herein
by reference. Notwithstanding anything contained herein to the contrary,
nothing contained in this Agreement shall grant to Executive any rights as a
stockholder or optionholder of employer unless and until a stock option
agreement is adopted by Employer.
6. AUTOMOBILE AND REIMBURSEMENT
Employer agrees to provide Executive with an automobile allowance of $700.00
per month.
Employer agrees to reimburse Executive for all ordinary and necessary
expenses incurred by Executive on behalf of Employer, including
entertainment, meals and travel expenses. Any costs incurred by Executive for
conventions, meetings and seminars will be reimbursed as well as special
social entertainment expenses, provided Employer's Board of Directors
approves such.
Employer shall pay money for personal relocation expenses of Executive
incurred in a relocation of Executive to Redlands up to a maximum of $10,000.
7. INSURANCE
Employer agrees to provide Executive with health and life insurance benefits
which are now or may hereinafter be in effect for all other full-time
employees. Employer shall also provide life insurance for executive with a
beneficiary defined by Executive. Provision of the insurance will commence on
the Effective Date and is subject to Executive's passing the necessary
physical examinations for qualification, if any. Employer may also apply for
"key man" life insurance with Employer as beneficiary of the policy.
8. VACATION
Executive shall be entitled to accrue up to four (4) weeks vacation during
each year of the Term with at least two (2) weeks to be taken in a
consecutive period. Vacation benefits shall not accrue above four weeks at
any time. Employer's Board of Directors, in its discretion, may waive the
provision with respect to unused vacation time.
4
<PAGE>
9. TERMINATION
Employer shall have the right to terminate this Agreement for any of the
following reasons by service written notice upon Executive:
(a) willful breach of, habitual neglect of, willful failure to perform,
or inability to perform, Executive's duties and obligations as
President and Chief Executive Officer;
(b) illegal conduct, constituting a crime involving moral turpitude,
conviction of a felony, or any conduct detrimental to the interests
of Employer;
(c) physical or mental disability rendering Executive incapable of
performing his duties for a consecutive period of 180 days, or by
death. In the event of such disability, Employer will provide salary
continuation for 180 days, less accrued sick leave. Accrued sick
leave is to be utilized until exhausted PRIOR to salary continuation
provided herein; or
(d) determination by Employer's Board of Directors that the continued
employment of Executive is not desired for any reason or no reason
at all, solely within the discretion of the Employer's Board of
Directors.
In the event this Agreement is terminated for any of the reasons specified in
the paragraphs (a), (b), or (c) above, Executive will be paid four weeks'
salary calculated as of the date of Executive's termination, plus any pay in
lieu of vacation accrued to, but not taken as of termination. Such
termination pay shall be considered to be in full and complete satisfaction
of any and all rights which Executive may enjoy under the terms of this
Agreement other than rights, if any, to exercise any of the stock options
vested prior to such termination. The insurance benefits provided herein
shall be extended at Employer's sole cost until the end of the month in which
Executive is terminated.
In the event this Agreement is terminated for any reason specified in
paragraph (d) above, Executive shall be entitled to termination pay in an
amount equal to one (1) year of Executive's then base annual salary. Such
termination pay shall be paid in one lump sum and shall be considered to be
in full and complete satisfaction of any and all rights which Executive may
enjoy under the terms of this Agreement including any pay in lieu of vacation
accrued to, but not taken as of the date of termination, other than rights,
if any, to exercise any of the stock options vested prior to such termination.
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Where termination is pursuant to paragraph (d) above, the insurance benefits
provided here shall be extended at Employer's sole cost for the remainder of
the month and twelve (12) full months following the date of termination.
Executive shall give one hundred twenty (120) days prior notice, in writing,
to Employer in the event Executive resigns or voluntarily terminates
employment. In the event Executive resigns or voluntarily terminates
employment to work for another financial institution, such financial
institution shall reimburse Employer for any continuing expense incurred by
Employer concerning Executive's employment.
10. ACQUISITION OR DISSOLUTION OF EMPLOYER
This Employment Agreement shall not be terminated by the voluntary or
involuntary dissolution of the Employer. Notwithstanding the foregoing, in
the event proceedings for liquidation of Employer commenced by regulatory
authorities, this Agreement and all rights and benefits hereunder shall
terminate. In the event of a Change of Ownership or Control occurs during
the employment of the Executive and if the Executive's position is either
eliminated or materially changed, the Executive shall receive an amount equal
to two (2) years of the then current annual salary in full and complete
satisfaction of any and all rights which Executive may enjoy hereunder other
than the right, if any, to exercise any of the stock options vested prior to
such termination and Executive's right pursuant to the attached Salary
Continuation Agreement. The Executive may choose to receive said amount in a
lump sum or in quarterly payments. Change of Ownership shall have occurred on
the date of (i) a merger, where the Bank is not the surviving corporation;
(ii) a consolidation, where the Bank is not the surviving corporation; (iii)
a transfer to another entity of all or substantially all of the assets of the
Bank; (iv) an acquisition by a financial institution, company, individual or
individuals acting as a group, of more than fifty percent (50%) of the then
outstanding shares of the Bank are held by a person or group of persons
(whether or not acting in concert) not the holder of more than fifty percent
(50%) of the shares on the Commencement Date of this Agreement; or (v) during
any period of twenty-four consecutive months, individuals who at the
beginning of such period where members of the Board of Directors of the Bank
(the "Incumbent Board") shall cease to constitute a majority of the Board of
Directors of the Bank or any successor to the Bank, provided that any person
becoming a director subsequent to the beginning of such period whose election
or nomination for
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<PAGE>
election was approved by a vote of at least seventy-five percent (75%) of all
the directors compromising the Incumbent Board shall, for the purposes
hereof, considered as though such a person were a member of the Incumbent
Board.
11. INDEMNIFICATION
To the extent permitted by law, Employer shall indemnify Executive if he was
or is a party or is threatened to be made a party in any action brought by a
third party against Executive (whether or not Employer is joined as a party
defendant) against expenses, judgments, fines, settlements and other amounts
actual and reasonably incurred in connection with said action if Executive
acted in good faith and in a manner Executive reasonably believed to be in
the best interest of Employer (and with respect to a criminal proceeding if
Executive had no reasonable cause to believe his conduct was unlawful),
provided that the alleged conduct of Executive arose out of and was within
the course and scope of his employment as an officer or employee of Employer.
12. TRADE SECRETS
During the Term, Executive will have access to and become acquainted with
what Executive and Employer acknowledge as trade secrets, i.e., knowledge or
data concerning Employer, including its operations and business, and the
identity of customers and clients of Employer. Executive will not any time
disclose any trade secrets or propriety information, directly or indirectly,
or use them in any way, except as required by his duties and
responsibilities. Executive's obligation not to disclose the Employer's trade
secrets or propriety information to third parties continues after his
employment with the Employer ceases.
13. NONCOMPETITION
During the term of this Agreement, Executive will not, directly or
indirectly, either as an employee, employer, consultant, agent, principal,
partner, stockholder, corporate officer, director or in any other individual
or representative capacity, engage or participate in any business that is in
competition in any manner whatsoever with the business of Employer.
14. RETURN OF DOCUMENTS
Executive expressly agrees that all manuals, documents, files, reports,
studies, instruments or other materials used or developed by Executive during
the Term are solely the property of Employer, and Executive has no right,
title or interest therein. Upon termination of this
7
<PAGE>
Agreement, Executive or Executive's representatives shall promptly deliver
possession of all said property to Employer in good condition.
15. NOTICES
Any notice, request, demand, or other communication required or permitted
hereunder shall be deemed to be properly given when personally served in
writing, when deposited in the U.S. mail, postage prepaid, or when
communicated to a public telegraph company for transmittal, addressed as
follows:
TO BANK: Redlands Centennial Bank
218 East State Street
Redlands California 92373
Attention: Board of Directors
TO EXECUTIVE: Douglas C. Spencer
508 Normandy Avenue
Placentia California 92870
Any party hereto may change its or his address for purposes of this Section
by giving notice in accordance herewith.
16. BENEFIT OF AGREEMENT
This Agreement shall inure to the benefit of and be binding upon the parties
hereto and their respective executors, administrators, successors and assigns.
17. APPLICABLE LAW.
This Agreement is made and entered into in the State of California, and the
laws of said State shall govern the validity and interpretation hereof, and
the performance of the parties hereto and their respective duties and
obligations hereunder.
18. CAPTIONS AND PARAGRAPH HEADINGS
Captions and paragraph headings used herein are for convenience only and are
not a part of this Agreement and shall not be used in construing it.
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19. INVALID PROVISIONS
Should any provision of this Agreement for any reason be declared invalid,
void, or unenforceable by a court of competent jurisdiction, the validity and
binding effect of any remaining portions shall not be affected and the
remaining portions of this Agreement shall remain in full force and effect as
if this Agreement had been executed with said provision eliminated.
20. ENTIRE AGREEMENT
This Agreement contains the entire agreement of the parties and it supersedes
any and all other agreements, either oral or in writing, between the parties
hereto with respect to the employment of Executive by Employer, except to the
extent that it is contemplated that Executive and Employer may enter into a
stock option agreement and/or salary continuation agreement. Each party to
this Agreement acknowledges that no representations, inducements, promises or
agreements, oral or otherwise, have been made by any party, or anyone acting
on behalf of any party, which are not embodied herein, and that no other
agreement, statement, or promise not contained in this Agreement shall be
valid or binding. This Agreement may not be modified or amended by oral
agreement, but only by an agreement in writing signed by Employer and
Executive.
21. CONFIDENTIALITY
This Agreement is to be held confidential. Willful breach of such
confidentiality by Executive will be subject to termination under the
provisions of 9(a) of this Agreement.
22. ARBITRATION
Any controversy or claim arising out of or relating to this Agreement, or the
breach thereof, shall be settled pursuant to an arbitration agreement to be
entered into by the parties, and in the event there is no arbitration
agreement, then in accordance with the rules of the American Arbitration
Association, and judgment upon the award rendered by the arbitrator(s) may
be entered into any court having jurisdiction thereof.
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23. LEGAL COSTS
If either Executive or Employer commences an action against the other arising
out of or in connection with this Agreement, the prevailing party shall be
entitled to have and recover from the losing party reasonable attorney's fees
and costs of suit.
IN WITNESS WHEREOF, the parties hereto have executed this amended Agreement
as of the day and year first written above.
REDLANDS CENTENNIAL BANK
By: /s/ PATRICK J. MEYER
---------------------
DOUGLAS C. SPENCER
/s/ DOUGLAS C. SPENCER
- - ----------------------
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<PAGE>
REDLANDS CENTENNIAL BANK
SALARY CONTINUATION AGREEMENT
THIS AGREEMENT is made this 17 day of March, 1998, by and between REDLANDS
CENTENNIAL BANK, a state commercial bank located at 218 East State Street,
Redlands, CA (the "Company") and DOUGLAS C. SPENCER (the "Executive").
INTRODUCTION
To encourage the Executive to remain an employee of the Company, the
Company is willing to provide salary continuation benefits to the Executive.
The Company will pay the benefits from its general assets.
AGREEMENT
The Executive and the Company agree as follows:
ARTICLE 1
DEFINITIONS
1.1 DEFINITIONS. Whenever used in this Agreement, the following words
and phrases shall have the meanings specified:
1.1.1 "CODE" means the Internal Revenue Code of 1986, as amended.
1.1.2 "DISABILITY" means, if the Executive is covered by a Company
sponsored disability policy, total disability as defined in such policy
without regard to any waiting period. If the Executive is not covered by
such a policy, Disability means the Executive suffering a sickness,
accident or injury which, in the judgment of a physician satisfactory to
the Company, prevents the Executive from performing substantially all of
the Executive's normal duties for the Company. As a condition to any
benefits, the Company may require the Executive to submit to such physical
or mental evaluations and tests as the Company's Board of Directors deems
appropriate.
1.1.3 "EARLY TERMINATION" means the Termination of Employment
before Normal Retirement Age for reasons other than death, Disability,
Termination for Cause or following a Change of Control.
1.1.4 "EARLY TERMINATION DATE" means the month, day and year in
which Early Termination occurs.
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1.1.5 "INVOLUNTARY TERMINATION OF EMPLOYMENT" means the Executive,
during active service and prior to attaining Normal Retirement Age, has
been notified by the Company, in writing, that he is being terminated as an
employee of the Company for reasons other than an approved leave of
absence, Termination for Cause, Voluntary Termination or Disability.
1.1.6 "NORMAL RETIREMENT AGE" means the Executive's 55th birthday.
1.1.7 "NORMAL RETIREMENT DATE" means the later of the Normal
Retirement Age or Termination of Employment.
1.1.8 "PLAN YEAR" means a twelve-month period commencing on March 17
and ending on March 17 of each year. The initial Plan Year shall commence
on the effective date of this Agreement.
1.1.9 "PROJECTED NORMAL RETIREMENT BENEFIT" means the Normal
Retirement Benefit under Section 2.1 of this Agreement determined as if
the Executive terminated his employment on his Normal Retirement Age.
1.1.10 "TERMINATION FOR CAUSE" See Section 5.2.
1.1.11 "TERMINATION OF EMPLOYMENT" means that the Executive ceases to
be employed by the Company for any reason whatsoever other than by reason
of a leave of absence which is approved by the Company. For purposes of
this Agreement, if there is a dispute over the employment status of the
Executive or the date of the Executive's Termination of Employment, the
Company shall have the sole and absolute right to decide the dispute.
1.1.12 "VOLUNTARY TERMINATION OF EMPLOYMENT" means the Executive,
during active service and prior to attaining Normal Retirement Age,
notifies the Company, in writing, that he is terminating his employment for
any reason except: (a) an approved leave of absence; (b) Disability; (c)
Termination for Cause; or (d) Involuntary Termination.
1.1.13 "CHANGE OF CONTROL" means on the date of (i) a merger,
where the Bank is not the surviving corporation; (ii) a consolidation,
where the Bank is not the surviving corporation; (iii) a transfer to
another entity of all or substantially all of the assets of the Bank;
(iv) an acquisition by a financial institution, company, individual or
individuals acting as a group, of more than fifty percent (50%) of the
then outstanding shares of the Bank are held by a person or group of
persons (whether or not acting in concert) not the holder of more than
fifty percent (50%) of the shares on the Commencement Date of this
Agreement; or (v) during any period of twenty-four consecutive months,
individuals who at the beginning of such period where members of the
Board of Directors of the Bank (the "Incumbent Board") shall cease to
constitute a majority of the Board of Directors of
2
<PAGE>
subsequent to the beginning of such period whose election or nomination for
election was approved by a vote of at least seventy-five percent (75%) of
all the directors compromising the Incumbent Board shall, for the purposes
hereof, considered as though such a person were a member of the Incumbent
Board.
1.1.14 DISPUTE. If there is a dispute over the employment status of
the Executive or Termination or any other aspect pertaining to this
Agreement, the dispute will be arbitrated by a third party satisfactory to
the Executive (or in case of death the beneficiary) and the Bank.
ARTICLE 2
LIFETIME BENEFITS
2.1 NORMAL RETIREMENT BENEFIT. Upon Termination of Employment on or
after the Normal Retirement Age for reasons other than death, the Company
shall pay to the Executive the benefit described in this Section 2.1 in
lieu of any other benefit under this Agreement.
2.1.1 AMOUNT OF BENEFIT. The annual benefit under this Section 2.3
is $120,000 increased by 3% each year between the date of this Agreement
and the Executive's Normal Retirement Date.
2.1.2 PAYMENT OF BENEFIT. The Company shall pay the annual benefit
to the Executive in 120 equal monthly installments payable on the first
day of each month commencing with the month following the Executive's
Normal Retirement Date.
2.1.3 BENEFIT INCREASES. Commencing on the first anniversary of
the first benefit payment, and continuing on each subsequent anniversary,
the benefit shall be increased by 3% each year.
2.2 VOLUNTARY TERMINATION OF EMPLOYMENT BENEFIT. Upon Voluntary
Termination of Employment for reasons other than Change of Control, the
Company shall pay to the Executive the benefit described in this Section
2.2. Termination for Cause shall result in the Executive receiving no
benefits under this Agreement (see Section 5.2).
2.2.1 AMOUNT OF BENEFIT. The benefit under this Section 2.2 is the
Voluntary Termination of Employment Annual Benefit amount set forth in
Schedule A for the Plan Year ending immediately prior to the Early
Termination Date. This amount shall be the Accrued Benefit Liability.
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<PAGE>
2.2.2 PAYMENT OF BENEFIT. The Company shall pay the Accrued
Benefit Liability to the Executive in 120 equal monthly installments
payable on the first day of each month commencing with the month
following the Voluntary Termination.
2.3 INVOLUNTARY TERMINATION OF EMPLOYMENT BENEFIT. Upon Involuntary
Termination of Employment for reasons other than death or Change of
Control, the Company shall pay to the Executive the benefit described in
this Section 2.3. Termination for Cause shall result in the Executive
receiving no benefits under this Agreement (see Section 5.2).
2.3.1 AMOUNT OF BENEFIT. The benefit under this Section 2.3 is
the Involuntary Termination of Employment Annual Benefit amount set
forth in Schedule B for the Plan Year ending immediately prior to the
Early Termination Date. This amount shall be the Accrued Benefit
Liability.
2.3.2 PAYMENT OF BENEFIT. The Company shall pay the Accrued
Benefit Liability to the Executive in 120 equal monthly installments
payable on the first day of each month commencing with the month
following the Involuntary Termination.
2.4 DISABILITY BENEFIT. If the Executive terminates employment due to
Disability prior to Normal Retirement Age, the Company shall pay to the
Executive the benefit described in this Section 2.4 in lieu of any other
benefit under this Agreement.
2.4.1 AMOUNT OF BENEFIT. The benefit under this Section 2.4 is
Projected Normal Retirement Benefit amount described in Section 2.1.1.
2.4.2 PAYMENT OF BENEFIT. The Company shall pay the annual
benefit amount to the Executive in 120 equal monthly installments
payable on the first day of each month commencing with the month
following the Executive's Normal Retirement Age.
2.4.3 BENEFIT INCREASES. Benefit payments may be increased as
provided in Section 2.1.3.
2.5 CHANGE OF CONTROL BENEFIT. If the Executive is in the active
service of the Company at the time of a Change of Control, the Company
shall pay to the Executive the benefit described in this Section 2.5 in
lieu of any other benefit under this Agreement.
2.5.1 AMOUNT OF BENEFIT. The annual benefit under this Section
2.5 is the Normal Retirement Benefit amount described in 2.1.1.
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2.5.2 PAYMENT OF BENEFIT. The Company shall pay the annual
benefit amount to the Executive in 12 equal monthly installments payable
on the first day of each month commencing with the month following the
Change of Control and continuing for 119 additional months.
2.5.3 BENEFIT INCREASES. Benefits payments may be increased as
provided in Section 2.1.3.
ARTICLE 3
DEATH BENEFITS
3.1 DEATH DURING ACTIVE SERVICE. If the Executive dies while in the
active service of the Company, the Company shall pay to the Executive's
beneficiary the benefit described in this Section 3.1. This benefit
shall be paid in lieu of the Lifetime Benefits of Article 2.
3.1.1 AMOUNT OF BENEFIT. The annual benefit under this Section
3.1 is the Projected Normal Retirement Benefit amount.
3.1.2 PAYMENT OF BENEFIT. The Company shall pay the annual
benefit to the beneficiary in 120 equal monthly installments payable on
the first day of each month commencing with the month following the
Executive's death.
3.2 DEATH DURING BENEFIT PERIOD. If the Executive dies after the
benefit payments have commenced under this Agreement but before
receiving all such payments, the Company shall pay the remaining
benefits to the Executive's beneficiary at the same time and in the same
amounts they would have been paid to the Executive had the Executive
survived.
3.3 DEATH FOLLOWING TERMINATION OF EMPLOYMENT BUT BEFORE BENEFITS
COMMENCE. If the Executive is entitled to benefits under this
Agreement, but dies prior to receiving said benefits, the Company shall
pay to the Executive's beneficiary the same benefits, in the same
manner, they would have been paid to the Executive had the Executive
survived, however, said benefit payments will commence upon the
Executive's death.
ARTICLE 4
BENEFICIARIES
4.1 BENEFICIARY DESIGNATIONS. The Executive shall designate a
beneficiary by filing a written designation with the Company. The
Executive may revoke or modify the designation at any time by filing a
new designation. However, designations will only be
5
<PAGE>
effective if signed by the Executive and accepted by the Company during
the Executive's lifetime. The Executive's beneficiary designation shall
be deemed automatically revoked if the beneficiary predeceases the
Executive, or if the Executive names a spouse as beneficiary and the
marriage is subsequently dissolved. If the Executive dies without a
valid beneficiary designation, all payments shall be made to the
Executive's estate.
4.2 FACILITY OF PAYMENT. If a benefit is payable to a minor, to a
person declared incapacitated, or to a person incapable of handling the
disposition of his or her property, the Company may pay such benefit to
the guardian, legal representative or person having the care or custody
of such minor, incapacitated person or incapable person. The Company may
require proof of incapacity, minority or guardianship as it may deem
appropriate prior to distribution of the benefit. Such distribution
shall completely discharge the Company from all liability with respect
to such benefit.
ARTICLE 5
GENERAL LIMITATIONS
Notwithstanding any provision of this Agreement to the contrary, the
Company shall not pay any benefit under this Agreement:
5.1 TERMINATION FOR CAUSE. If the Company terminates the Executive's
employment for:
5.1.1 Gross negligence or gross neglect of duties;
5.1.2 Commission of a felony or of a gross misdemeanor involving
moral turpitude; or
5.2 SUICIDE OR MISSTATEMENT. No benefits shall be payable if the
Executive commits suicide within two years after the date of this
Agreement, or if the Executive has made any material misstatement of
fact on any application for life insurance purchased by the Company.
ARTICLE 3
CLAIMS AND REVIEW PROCEDURES
6.1 CLAIMS PROCEDURE. The Company shall notify any person or entity
that makes a claim against the Agreement (the "Claimant") in writing,
within ninety (90) days of Claimant's written application for benefits,
of his or her eligibility or noneligibility for benefits under the
Agreement. If the Company determines that the Claimant is not eligible
for benefits or full benefits, the notice shall set forth (1) the
specific reasons for such denial, (2) a specific reference to the
provisions of the Agreement on which the
6
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denial is based, (3) a description of any additional information or
material necessary for the Claimant to perfect his or her claim, and a
description of why it is needed, and (4) an explanation of the
Agreement's claims review procedure and other appropriate information as
to the steps to be taken if the Claimant wishes to have the claim
reviewed. If the Company determines that there are special circumstances
requiring additional time to make a decision, the Company shall notify
the Claimant of the special circumstances and the date by which a
decision is expected to be made, and may extend the time for up to an
additional ninety-day period.
6.2 REVIEW PROCEDURE. If the Claimant is determined by the Company not
to be eligible for benefits, or if the Claimant believes that he or she
is entitled to greater or different benefits, the Claimant shall have
the opportunity to have such claim reviewed by the Company by filing a
petition for review with the Company within sixty (60) days after
receipt of the notice issued by the Company. Said petition shall state
the specific reasons which the Claimant believes entitle him or her to
benefits or to greater or different benefits. Within sixty (60) days
after receipt by the Company of the petition, the Company shall afford
the Claimant (and counsel, if any) an opportunity to present his or her
position to the Company orally or in writing, and the Claimant (or
counsel) shall have the right to review the pertinent documents. The
Company shall notify the Claimant of its decision in writing within the
sixty-day period, stating specifically the basis of its decision,
written in a manner calculated to be understood by the Claimant and the
specific provisions of the Agreement on which the decision is based.
If, because of the need for a hearing, the sixty-day period is not
sufficient, the decision may be deferred for up to another sixty-day
period at the election of the Company, but notice of this deferral shall
be given to the Claimant.
ARTICLE 7
AMENDMENTS AND TERMINATION
This Agreement may be amended or terminated only by a written agreement
signed by the Company and the Executive.
7.1 Employment Agreement signed on February 26, 1998, but fulfills
paragraph 4 and becomes Exhibit A to such agreement.
ARTICLE 8
MISCELLANEOUS
8.1 BINDING EFFECT. This Agreement shall bind the Executive and the
Company, and their beneficiaries, survivors, executors, successors,
administrators and transferees.
8.2 NO GUARANTEE OF EMPLOYMENT. This Agreement is not an employment
policy or
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contract. It does not give the Executive the right to remain an
employee of the Company, nor does it interfere with the Company's right
to discharge the Executive. It also does not require the Executive to
remain an employee nor interfere with the Executive's right to terminate
employment at any time.
8.3 NON-TRANSFERABILITY. Benefits under this Agreement cannot be sold,
transferred, assigned, pledged, attached or encumbered in any manner.
8.4 DISABILITY POLICY. The Company shall purchase a disability-
insurance policy on the Executive and keep the policy in force until the
earlier of the Executive's Termination of Employment or the Executive's
Normal Retirement Age. The amount of the policy shall be the maximum
amount of coverage that the Company can obtain from a reputable
insurance company.
8.5 REORGANIZATION. The Company shall not merge or consolidate into or
with another company, or reorganize, or sell substantially all of its
assets to another company, firm, or person unless such succeeding or
continuing company, firm, or person agrees to assume and discharge the
obligations of the Company under this Agreement. Upon the occurrence of
such event, the term "Company" as used in this Agreement shall be deemed
to refer to the successor or survivor company.
8.6 TAX WITHHOLDING. The Company shall withhold any taxes that are
required to be withheld from the benefits provided under this Agreement.
8.7 APPLICABLE LAW. The Agreement and all rights hereunder shall be
governed by the laws of the State of California, except to the extent
preempted by the laws of the United States of America.
8.8 UNFUNDED ARRANGEMENT. The Executive and beneficiary are general
unsecured creditors of the Company for the payment of benefits under
this Agreement. The benefits represent the mere promise by the Company
to pay such benefits. The rights to benefits are not subject in any
manner to anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance, attachment, or garnishment by creditors. Any insurance on
the Executive's life is a general asset of the Company to which the
Executive and beneficiary have no preferred or secured claim.
8.9 RECOVERY OF ESTATE TAXES. If the Executive's gross estate for
federal estate tax purposes includes any amount determined by reference
to and on account of this Agreement, and if the beneficiary is other
than the Executive's estate, then the Executive's estate shall be
entitled to recover from the beneficiary receiving such benefit under
the terms of the Agreement, an amount by which the total estate tax due
by the Executive's estate, exceeds the total estate tax which would have
been payable if the
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value of such benefit had not been included in the Executive's gross
estate. If there is more than one person receiving such benefit, the
right of recovery shall be against each such person. In the event the
beneficiary has a liability hereunder, the beneficiary may petition the
Company for a lump sum payment in an amount not to exceed the
beneficiary's liability hereunder.
8.10 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the Company and the Executive as to the subject matter hereof.
No rights are granted to the Executive by virtue of this Agreement other
than those specifically set forth herein.
8.11 ADMINISTRATION. The Company shall have powers which are necessary
to administer this Agreement, including but not limited to:
8.11.1 Interpreting the provisions of the Agreement;
8.11.2 Establishing and revising the method of accounting for the
Agreement;
8.11.3 Maintaining a record of benefit payments; and
8.11.4 Establishing rules and prescribing any forms necessary or
desirable to administer the Agreement.
8.12 DESIGNATED FIDUCIARY. For purposes of the Employee Retirement
Income Security Act of 1974, if applicable, the Company shall be the
named fiduciary and plan administrator under the Agreement. The named
fiduciary may delegate to others certain aspects of the management and
operation responsibilities of the plan including the employment of
advisors and the delegation of ministerial duties to qualified
individuals.
IN WITNESS WHEREOF, the Executive and a duly authorized Company officer
have signed this Agreement.
EXECUTIVE: COMPANY:
REDLANDS CENTENNIAL BANK
/s/ Douglas C. Spencer By /s/ Patrick J. Meyer
- - ----------------------------------- -----------------------------------
Douglas C. Spencer Title CHAIRMAN OF THE BOARD
--------------------------------
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BENEFICIARY DESIGNATION
REDLANDS CENTENNIAL BANK
SALARY CONTINUATION AGREEMENT
DOUGLAS C. SPENCER
I designate the following as beneficiary of any death benefits under this
Redlands Centennial Bank Salary Continuation Agreement:
Primary: Spencer Family Trust, under Trust Agreement
----------------------------------------------------------------------
dated February 28, 1992
- - ------------------------------------------------------------------------------
Contingent:
-------------------------------------------------------------------
- - ------------------------------------------------------------------------------
NOTE: TO NAME A TRUST AS BENEFICIARY, PLEASE PROVIDE THE NAME OF THE
TRUSTEE(S) AND THE EXACT NAME AND DATE OF THE TRUST AGREEMENT.
I understand that I may change these beneficiary designations by filing a new
written designation with the Company. I further understand that the
designations will be automatically revoked if the beneficiary predeceases me,
or, if I have named my spouse as beneficiary and our marriage is subsequently
dissolved.
Signature /s/ Douglas C. Spencer
-----------------------
Douglas C. Spencer
Date March 17, 1998
----------------------------
Accepted by the Company this 17th day of March, 1998.
------ ------ --
By /s/ Patrick J. Meyer
------------------------------
Patrick J. Meyer
Title CHAIRMAN OF THE BOARD
----------------------------
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SCHEDULE A
INDIVIDUAL PLAN ACCOUNTING
SALARY CONTINUATION PLAN
REDLANDS CENTENNIAL BANK
Doug Spencer
<TABLE>
<CAPTION>
- - ---------------------------------------------------- ---------Annual--------
<S> <C> <C>
Birth date: 08/03/58 Current salary: 120,000 Years of benefit: 10
Retirement age: 55 1st Year benefit: 120,000 Benefit incr: 3.00%
Age/Ins. age: 39/40 Projected salary: 186,956 Discount rate: 8.50%
Years of accrual: 16 Proj 1st yr benefit: 186,956 Corp. tax rate: 43.00%
Non-Guar. COLA: 3.00%
</TABLE>
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------
Accrued Cumulative
Plan Annual Benefit ---Pre-Tax Plan Expense--- Cumulative After-Tax
Age Year Benefit Liability Annual Cumulative Tax Credit Expense
- - -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
39 1 120,000 24,775 24,775 24,775 10,653 14,122
40 2 123,600 52,574 27,799 52,574 22,607 29,967
41 3 127,308 83,800 31,226 83,800 36,034 47,766
42 4 131,127 118,916 35,116 118,916 51,134 67,782
43 5 135,061 158,461 39,545 158,461 68,138 90,323
44 6 139,113 203,066 44,605 203,066 87,318 115,748
45 7 143,286 253,474 50,408 253,474 108,994 144,480
46 8 147,585 310,572 57,098 310,572 133,546 177,026
47 9 152,012 375,430 64,859 375,430 161,435 213,995
48 10 156,573 449,370 73,940 449,370 193,229 256,141
49 11 161,270 534,058 84,689 534,058 229,645 304,413
50 12 166,108 631,684 97,625 631,684 271,624 360,060
51 13 171,091 745,279 113,596 745,279 320,470 424,809
52 14 176,224 879,456 134,177 879,456 378,166 501,290
53 15 181,511 1,042,508 163,051 1,042,508 448,278 594,229
54 16 186,956 1,256,570 214,063 1,256,570 540,325 716,245
55 17 186,956 1,173,225 103,611 1,360,182 584,878 775,303
56 18 192,565 1,114,989 134,328 1,494,510 642,639 851,871
57 19 198,342 1,043,696 127,049 1,621,559 697,270 924,288
58 20 204,292 957,586 118,182 1,739,740 748,088 991,652
59 21 210,421 854,680 107,514 1,847,255 794,320 1,052,935
60 22 216,733 732,753 94,807 1,942,061 835,086 1,106,975
61 23 223,235 589,306 79,789 2,021,850 869,396 1,152,455
62 24 229,932 421,532 62,158 2,084,009 896,124 1,187,885
63 25 236,830 226,277 41,575 2,125,584 914,001 1,211,583
64 26 243,935 0 17,658 2,143,242 921,594 1,221,648
</TABLE>
March 17, 1998
/s/ P.M.
/s/ D.C.S.
<PAGE>
INDIVIDUAL PLAN ACCOUNTING
SALARY CONTINUATION PLAN
REDLANDS CENTENNIAL BANK
SCHEDULE "B"
Doug Spencer
<TABLE>
<CAPTION>
- - ---------------------------------------------------- ---------Annual--------
<S> <C> <C>
Birth date: 08/03/58 Current salary: 186,956 Years of benefit: 10
Retirement age: 50 Curr annl benefit: 186,956 Salary increase: 0.00%
Age/Ins. age: 43/44 Projected salary: 186,956 Discount rate: 8.50%
Years of accrual; 7 Proj annl benefit: 186,956 Corp. tax rate: 43.00%
</TABLE>
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------
Accrued Cumulative
Plan Annual Benefit ---Pre-Tax Plan Expense--- Cumulative After-Tax
Age Year Benefit Liability Annual Cumulative Tax Credit Expense
- - -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
40 1 137,253 137,253 137,253 59,019 78,234
41 2 286,637 149,385 286,637 123,254 163,383
42 3 449,226 162,589 449,226 193,167 256,059
43 4 626,186 176,960 626,186 269,260 356,926
44 5 818,788 192,602 818,788 352,079 466,709
45 6 1,028,415 209,626 1,028,416 442,218 886,196
46 7 1,256,570 228,155 1,256,570 540,328 716,245
50 8 186,956 103,611 1,360,181 584,878 776,303
51 9 186,956 96,244 1,456,428 626,263 830,162
52 10 186,956 88,226 1,544,651 664,200 880,451
53 11 186,956 79,499 1,624,150 698,385 925,766
54 12 186,956 70,001 1,694,151 728,486 965,666
55 13 186,956 59,663 1,753,815 754,140 999,674
56 14 186,956 48,412 1,802,226 774,957 1,027,269
57 15 186,956 36,166 1,838,392 790,509 1,047,884
58 16 186,956 22,837 1,861,229 800,329 1,060,901
59 17 186,956 8,331 1,869,560 803,911 1,065,649
</TABLE>
March 17, 1998
/s/ P.M.
/s/ D.C.S.
<PAGE>
Exhibit 10.3
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of the
20th day of March, 1998, between Redlands Centennial Bank (hereinafter
referred to as "Employer"), and Roy D. Lewis (hereinafter referred to as
"Executive").
WITNESSETH:
WHEREAS, Employer is desirous of employing Executive in the capacity
hereinafter stated and Executive is desirous of continuing in the Employ of
Employer in such capacity, for the period and on the terms and conditions set
forth herein;
NOW, THEREFORE, in consideration of the premises and of the mutual covenants
and conditions herein contained, the parties hereto, intending to be legally
bound, do hereby agree as follows:
1. EMPLOYMENT
Employer hereby employs Executive as its Executive Vice President and Chief
Credit Officer, and Executive accepts the duties that are customarily
performed by the Executive Vice President and Chief Credit Officer of a
state-chartered banking institution and accepts all other duties described
herein and agrees to discharge the same faithfully and to the best of his
ability and consistent with past performances and the highest and best
standards of the banking industry, in accordance with the policies of
Employer's Board of Directors as established, and in compliance with all laws
and Employer's Articles of Incorporation, Bylaws, Policies and Procedures.
Executive shall devote his business time and attention to the business and
affairs of Employer for which he is employed and shall perform the duties
thereof to the best of his ability. Except as permitted by the prior written
consent of Employee's Board of Directors, Executive shall not directly or
indirectly render any services of a business, commercial or professional
nature to any other person, firm or corporation, whether for compensation or
otherwise, which are in conflict with Employer's interests. Executive shall
perform such other duties as shall be from time to time prescribed by
Employer's President and Chief Executive Officer.
1
<PAGE>
Executive shall have such responsibility and duties and such authority to
transact business on behalf of Employer, as are customarily incident to the
office of Executive Vice President and Chief Credit Officer of a
state-chartered banking institution.
2. TERM
Employer hereby employs Executive, and Executive hereby accept employment
with Employer for the period of two (2) years (the "Term"), commencing April
1, 1998, with such Term being subject to prior termination as hereinafter
provided. Where used herein, "Term" shall refer to the entire period of
employment of Executive by Employer, whether for the period provided above,
or whether terminated earlier as hereinafter provided, or extended by mutual
agreement in writing by Employer and Executive.
Such Term shall be automatically extended for additional periods of one (1)
year unless Executive or Employer shall give written notice not less than
three months and not more than six months prior to the expiration of the
Term, of intention not to extend the Term.
3. COMPENSATION
In consideration for all services to be rendered by Executive to Employer,
Employer agrees to pay Executive a starting base salary of Ninety Thousand
Dollars ($90,000) per year. Employer's President and Chief Executive Officer
shall in his discretion determine any increases in Executive's base salary
after the first anniversary of the Term. Executive's salary shall be paid
semi-monthly. Employer shall deduct therefrom all taxes which may be required
to be deducted or withheld under any provision of the law (including, but not
limited to, social security payments and income tax withholding) now in
effect or which may become effective anytime during the term of this
Agreement.
Executive shall be entitled to participate in any and all other employee
benefits and plans that may be developed and adopted by Employer and in its
normal course of business, subject to the terms and conditions of such
agreements provided that nothing contained herein shall obligate Employer to
commence, develop or warranty any employee benefits or plans.
2
<PAGE>
4. AUTOMOBILE AND REIMBURSEMENT
Employer agrees to provide Executive with an automobile allowance of $500.00
per month.
Employer agrees to reimburse Executive for all ordinary and necessary expenses
incurred by Executive on behalf of Employer, including entertainment, meals and
travel expenses. Any costs incurred by Executive for conventions, meetings and
seminars will be reimbursed as well as special social entertainment expenses,
provided Employer's Board of Directors approves such.
5. INSURANCE
Employer agrees to provide Executive with health and life insurance benefits
which are now or may hereinafter be in effect for all other full-time employees.
Employer shall also provide life insurance for executive with a beneficiary
defined by Executive. Provision of the insurance will commence on the Effective
Date and is subject to Executive's passing the necessary physical examinations
for qualification, if any.
6. VACATION
Executive shall be entitled to accrue up to four (4) weeks vacation during each
year of the Term with at least two (2) weeks to be taken in a consecutive
period. Vacation benefits shall not accrue above four weeks at any time.
Employer's Board of Directors, in its discretion, may waive the provision with
respect to unused vacation time.
7. TERMINATION
Employer shall have the right to terminate this Agreement for any of the
following reasons by service written notice upon Executive:
(a) willful breach of, habitual neglect of, willful failure to perform,
or inability to perform, Executive's duties and obligations as
Executive Vice President and Chief Credit Officer;
(b) illegal conduct, constituting a crime involving moral turpitude,
conviction of a felony, or any conduct detrimental to the interests
of Employer;
(c) physical or mental disability rendering Executive incapable of
performing his duties for a consecutive period of 180 days, or by
death. In the event of such disability, Employer will provide
salary continuation for 180 days, less accrued sick leave. Accrued
sick leave is to be utilized until exhausted PRIOR to salary
continuation provided herein; or
3
<PAGE>
(d) determination by Employer's Board of Directors that the continued
employment of Executive is not desired for any reason or no reason at
all, solely within the discretion of the Employer's Board of
Directors.
In the event this Agreement is terminated for any of the reasons specified in
the paragraphs (a), (b), or (c) above, Executive will be paid four weeks'
salary calculated as of the date of Executive's termination, plus any pay in
lieu of vacation accrued to, but not taken as of termination. Such
termination pay shall be considered to be in full and complete satisfaction
of any and all rights which Executive may enjoy under the terms of this
Agreement other than rights, if any, to exercise any of the stock options
vested prior to such termination. The insurance benefits provided herein
shall be extended at Employer's sole cost until the end of the month in which
Executive is terminated.
In the event this Agreement is terminated for any reason specified in paragraph
(d) above, Executive shall be entitled to termination pay in an amount equal to
six (6) months of Executive's then base annual salary. Such termination pay
shall be paid in one lump sum and shall be considered to be in full and
complete satisfaction of any and all rights which Executive may enjoy under the
terms of this Agreement including any pay in lieu of vacation accrued to, but
not taken as of the date of termination, other than rights, if any, to exercise
any of the stock options vested prior to such termination.
Where termination is pursuant to paragraph (d) above, the insurance benefits
provided here shall be extended at Employer's sole cost for the remainder of
the month and six (6) full months following the date of termination.
Executive shall give sixty (60) days prior notice, in writing, to Employer in
the event Executive resigns or voluntarily terminates employment. In the event
Executive resigns or voluntarily terminates employment to work for another
financial institution, such financial institution shall reimburse Employer for
any continuing expense incurred by Employer concerning Executive's employment.
4
<PAGE>
8. ACQUISITION OR DISSOLUTION OF EMPLOYER
This Employment Agreement shall not be terminated by the voluntary or
involuntary dissolution of the Employer. Notwithstanding the foregoing, in the
event proceedings for liquidation of Employer commenced by regulatory
authorities, this Agreement and all rights and benefits hereunder shall
terminate. In the event of a Change of Ownership or Control occurs during the
employment of the Executive and if the Executive's position is either eliminated
or materially changed, the Executive shall receive an amount equal to one (1)
years of the then current annual salary in full and complete satisfaction of
any and all rights which Executive may enjoy hereunder other than the right, if
any, to exercise any of the stock options vested prior to such termination. The
Executive may choose to receive said amount in a lump sum or in quarterly
payments. Change of Ownership shall have occurred on the date of (i) a merger,
where the Bank is not the surviving corporation; (ii) a consolidation, where
the Bank is not the surviving corporation; (iii) a transfer to another entity
of all or substantially all of the assets of the Bank; (iv) an acquisition by a
financial institution, company, individual or individuals acting as a group, of
more than fifty percent (50%) of the then outstanding shares of the Bank are
held by a person or group of persons (whether or not acting in concert) not the
holder of more than fifty percent (50%) of the shares on the Commencement Date
of this Agreement; or (v) during any period of twenty-four consecutive months,
individuals who at the beginning of such period where members of the Board of
Directors of the Bank (the "Incumbent Board") shall cease to constitute a
majority of the Board of Directors of the Bank or any successor to the Bank,
provided that any person becoming a director subsequent to the beginning of
such period whose election or nomination for election was approved by a vote of
at least seventy-five percent (75%) of all the directors compromising the
Incumbent Board shall, for the purposes hereof, considered as though such a
person were a member of the Incumbent Board.
9. INDEMNIFICATION
To the extent permitted by law, Employer shall indemnify Executive if he was or
is a party or is threatened to be made a party in any action brought by a third
party against Executive (whether or not Employer is joined as a party defendant)
against expenses, judgments, fines, settlements and other amounts actual and
reasonably incurred in connection with said action if Executive acted in good
faith and in a manner Executive reasonably believed to be in the best interest
of Employer (and with respect to a criminal proceeding if Executive had no
reasonable cause to
5
<PAGE>
believe his conduct was unlawful), provided that the alleged conduct of
Executive arose out of and was within the course and scope of his employment
as an officer or employee of Employer.
10. TRADE SECRETS
During the Term, Executive will have access to and become acquainted with
what Executive and Employer acknowledge as trade secrets, i.e., knowledge or
data concerning Employer, including its operations and business, and the
identity of customers and clients of Employer. Executive will not any time
disclose any trade secrets or propriety information, directly or indirectly,
or use them in any way, except as required by his duties and
responsibilities. Executive's obligation not to disclose the Employer's trade
secrets or propriety information to third parties continues after his
employment with the Employer ceases.
11. NONCOMPETITION
During the term of this Agreement, Executive will not, directly or
indirectly, either as an employee, employer, consultant, agent, principal,
partner, stockholder, corporate officer, director or in any other individual
or representative capacity, engage or participate in any business that is in
competition in any manner whatsoever with the business of Employer.
12. RETURN OF DOCUMENTS
Executive expressly agrees that all manuals, documents, files, reports,
studies, instruments or other materials used or developed by Executive during
the Term are solely the property of Employer, and Executive has no right,
title, or interest therein. Upon termination of this Agreement, Executive or
Executive's representatives shall promptly deliver possession of all said
property to Employer in good condition.
13. NOTICES
Any notice, request, demand, or other communication required or permitted
hereunder shall be deemed to be properly given when personally served in
writing, when deposited in the U.S. mail, postage prepaid, or when
communicated to a public telegraph company for transmittal, addressed as
follows:
TO BANK: Redlands Centennial Bank
218 East State Street
Redlands California 92373
Attention: Douglas C. Spencer
6
<PAGE>
TO EXECUTIVE: Roy D. Lewis
29403 Clear View Lane
Highland, CA 92346
Any party hereto may change its or his address for purposes of this Section
by giving notice in accordance herewith.
14. BENEFIT OF AGREEMENT
This Agreement shall inure to the benefit of and be binding upon the parties
hereto and their respective executors, administrators, successors and assigns.
15. APPLICABLE LAW
This Agreement is made and entered into in the State of California, and the
laws of said State shall govern the validity and interpretation hereof, and
the performance of the parties hereto and their respective duties and
obligations hereunder.
16. CAPTIONS AND PARAGRAPH HEADINGS
Captions and paragraph headings used herein are for convenience only and are
not a part of this Agreement and shall not be used in construing it.
17. INVALID PROVISIONS
Should any provision of this Agreement for any reason be declared invalid,
void, or unenforceable by a court of competent jurisdiction, the validity and
binding effect of any remaining portions shall not be affected and the
remaining portions of this Agreement shall remain in full force and effect as
if this Agreement had been executed with said provision eliminated.
18. ENTIRE AGREEMENT
This Agreement contains the entire agreement of the parties and it supersedes
any and all other agreements, either oral or in writing, between the parties
hereto with respect to the employment of Executive by Employer, except to
the extent that it is contemplated that Executive and Employer may enter into
a stock option agreement and/or salary continuation agreement. Each party to
this Agreement acknowledges that no representations, inducements, promises or
agreements, oral or otherwise, have been made by any party, or anyone acting
on behalf of any party, which are not embodied herein, and that no other
agreement, statement, or promise not
7
<PAGE>
contained in this Agreement shall be valid or binding. This Agreement may not
be modified or amended by oral agreement, but only by an agreement in writing
signed by Employer and Executive.
19. CONFIDENTIALITY
This Agreement is to be held confidential. Willful breach of such
confidentiality by Executive will be subject to termination under the
provisions of 7(a) of this Agreement.
20. ARBITRATION
Any controversy or claim arising out of or relating to this Agreement, or the
breach thereof, shall be settled pursuant to an arbitration agreement to be
entered into by the parties, and in the event there is no arbitration
agreement, then in accordance with the rules of the American Arbitration
Association, and judgment upon the award rendered by the arbitrator(s) may
be entered into any court having jurisdiction thereof.
21. LEGAL COSTS
If either Executive or Employer commences an action against the other arising
out of or in connection with this Agreement, the prevailing party shall be
entitled to have and recover from the losing party reasonable attorney's fees
and costs of suit.
IN WITNESS WHEREOF, the parties hereto have executed this amended Agreement
as of the day and year first written above.
REDLANDS CENTENNIAL BANK
By: /s/ Douglas C. Spencer
--------------------------
ROY D. LEWIS
/s/ Roy D. Lewis
- - -----------------------------
8
<PAGE>
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of the
20th day of March, 1998, between Redlands Centennial Bank (hereinafter
referred to as "Employer"), and Anne E. Sanders (hereinafter referred to as
"Executive").
WITNESSETH:
WHEREAS, Employer is desirous of employing Executive in the capacity
hereinafter stated and Executive is desirous of continuing in the Employ of
Employer in such capacity, for the period and on the terms and conditions set
forth herein;
NOW, THEREFORE, in consideration of the premises and of the mutual covenants
and conditions herein contained, the parties hereto, intending to be legally
bound, do hereby agree as follows:
1. EMPLOYMENT
Employer hereby employs Executive as its Executive Vice President and Chief
Financial Officer, and Executive accepts the duties that are customarily
performed by the Executive Vice President and Chief Financial Officer of a
state-chartered banking institution and accepts all other duties described
herein and agrees to discharge the same faithfully and to the best of her
ability and consistent with past performances and the highest and best
standards of the banking industry, in accordance with the policies of
Employer's Board of Directors as established, and in compliance with all laws
and Employer's Articles of Incorporation, Bylaws, Polices and Procedures.
Executive shall devote her business time and attention to the business and
affairs of Employer for which she is employed and shall perform the duties
thereof to the best of her ability. Except as permitted by the prior written
consent of Employee's Board of Directors, Executive shall not directly or
indirectly render any services of a business, commercial or professional
nature to any other person, firm or corporation, whether for compensation or
otherwise, which are in conflict with Employer's interests. Executive shall
perform such other duties as shall be from time to time prescribed by
Employer's President and Chief Executive Officer.
1
<PAGE>
Executive shall have such responsibility and duties and such authority to
transact business on behalf of Employer, as are customarily incident to the
office of Executive Vice President and Chief Financial Officer of a
state-chartered banking institution.
2. TERM
Employer hereby employs Executive, and Executive hereby accept employment
with Employer for the period of two (2) years (the "Term"), commencing April
1, 1998, with such Term being subject to prior termination as hereinafter
provided. Where used herein, "Term" shall refer to the entire period of
employment of Executive by Employer, whether for the period provided above,
or whether terminated earlier as hereinafter provided, or extended by mutual
agreement in writing by Employer and Executive.
Such Term shall be automatically extended for additional periods of one (1)
year unless Executive or Employer shall give written notice not less than
three months and not more than six months prior to the expiration of the
Term, of intention not to extend the Term.
3. COMPENSATION
In consideration for all services to be rendered by Executive to Employer,
Employer agrees to pay Executive a starting base salary of Eighty Thousand
($80,000) per year. Employer's President and Chief Executive Officer shall in
his discretion determine any increases in Executive's base salary after the
first anniversary of the Term. Executive's salary shall be paid
semi-monthly. Employer shall deduct therefrom all taxes which may be required
to be deducted or withheld under any provision of the law (including, but not
limited to, social security payments and income tax withholding) now in
effect or which may become effective anytime during the term of this
Agreement.
Executive shall be entitled to participate in any and all other employee
benefits and plans that may be developed and adopted by Employer and in its
normal course of business, subject to the terms and conditions of such
agreements provided that nothing contained herein shall obligate Employer to
commence, develop or warranty any employee benefits or plans.
2
<PAGE>
4. AUTOMOBILE AND REIMBURSEMENT
Employer agrees to provide Executive with an automobile allowance of $500.00
per month.
Employer agrees to reimburse Executive for all ordinary and necessary
expenses incurred by Executive on behalf of Employer, including
entertainment, meals and travel expenses. Any costs incurred by Executive for
conventions, meetings and seminars will be reimbursed as well as special
social entertainment expenses, provided Employer's Board of Directors
approves such.
5. INSURANCE
Employer agrees to provide Executive with health and life insurance benefits
which are now or may hereinafter be in effect for all other full-time
employees. Employer shall also provide life insurance for executive with a
beneficiary defined by Executive. Provision of the insurance will commence on
the Effective Date and is subject to Executive's passing the necessary
physical examinations for qualification, if any.
6. VACATION
Executive shall be entitled to accrue up to four (4) weeks vacation during
each year of the Term with at least two (2) weeks to be taken in a
consecutive period. Vacation benefits shall not accrue above four weeks at
any time. Employer's Board of Directors, in its discretion, may waive the
provision with respect to unused vacation time.
7. TERMINATION
Employer shall have the right to terminate this Agreement for any of the
following reasons by service written notice upon Executive:
(a) willful breach of, habitual neglect of, willful failure to perform,
or inability to perform, Executive's duties and obligations as
Executive Vice President and Chief Financial Officer;
(b) illegal conduct, constituting a crime involving moral turpitude,
conviction of a felony, or any conduct detrimental to the interests
of Employer;
(c) physical or mental disability rendering Executive incapable of
performing her duties for a consecutive period of 180 days, or by
death. In the event of such disability, Employer will provide
salary continuation for 180 days, less accrued sick leave. Accrued
sick leave is to be utilized until exhausted PRIOR to salary
continuation provided herein; or
3
<PAGE>
(d) determination by Employer's President and Chief Executive Officer
that the continued employment of Executive is not desired for any
reason or no reason at all, solely within the discretion of the
Employer's President and Chief Executive Officer.
In the event this Agreement is terminated for any of the reasons specified in
the paragraphs (a), (b), or (c) above, Executive will be paid four weeks'
salary calculated as of the date of Executive's termination, plus any pay in
lieu of vacation accrued to, but not taken as of termination. Such
termination pay shall be considered to be in full and complete satisfaction
of any and all rights which Executive may enjoy under the terms of this
Agreement other than rights, if any, to exercise any of the stock options
vested prior to such termination. The insurance benefits provided herein
shall be extended at Employer's sole cost until the end of the month in which
Executive is terminated.
In the event this Agreement is terminated for any reason specified in
paragraph (d) above, Executive shall be entitled to termination pay in an
amount equal to six (6) months of Executive's then base annual salary. Such
termination pay shall be paid in one lump sum and shall be considered to be
in full and complete satisfaction of any and all rights which Executive may
enjoy under the terms of this Agreement including any pay in lieu of vacation
accrued to, but not taken as of the date of termination, other than rights,
if any, to exercise any of the stock options vested prior to such termination.
Where termination is pursuant to paragraph (d) above, the insurance benefits
provided here shall be extended at Employer's sole cost for the remainder of
the month and six (6) full months following the date of termination.
Executive shall give sixty (60) days prior notice, in writing, to Employer in
the event Executive resigns or voluntarily terminates employment. In the
event Executive resigns or voluntarily terminates employment to work for
another financial institution, such financial institution shall reimburse
Employer for any continuing expense incurred by Employer concerning
Executive's employment.
4
<PAGE>
8. ACQUISITION OR DISSOLUTION OF EMPLOYER
This Employment Agreement shall not be terminated by the voluntary or
involuntary dissolution of the Employer. Notwithstanding the foregoing, in
the event proceedings for liquidation of Employer commenced by regulatory
authorities, this Agreement and all rights and benefits hereunder shall
terminate. In the event of a Change of Ownership or Control occurs during the
employment of the Executive and if the Executive's position is either
eliminated or materially changed, the Executive shall receive an amount equal
to one (1) year of the then current annual salary in full and complete
satisfaction of any and all rights which Executive may enjoy hereunder other
than the right, if any, to exercise any of the stock options vested prior to
such termination. The Executive may choose to receive said amount in a lump
sum or in quarterly payments. Change of Ownership shall have occurred on the
date of (i) a merger, where the Bank is not the surviving corporation; (ii) a
consolidation, where the Bank is not the surviving corporation; (iii) a
transfer to another entity of all or substantially all of the assets of the
Bank; (iv) an acquisition by a financial institution, company, individual or
individuals acting as a group, of more than fifty percent (50%) of the then
outstanding shares of the Bank are held by a person or group of persons
(whether or not acting in concert) not the holder of more than fifty percent
(50%) of the shares on the Commencement Date of this Agreement; or (v) during
any period of twenty-four consecutive months, individuals who at the
beginning of such period where members of the Board of Directors of the Bank
(the "Incumbent Board") shall cease to constitute a majority of the Board of
Directors of the Bank or any successor to the Bank, provided that any person
becoming a director subsequent to the beginning of such period whose election
or nomination for election was approved by a vote of at least seventy-five
percent (75%) of all the directors compromising the Incumbent Board shall,
for the purposes hereof, considered as though such a person were a member of
the Incumbent Board.
9. INDEMNIFICATION
To the extent permitted by law, Employer shall indemnify Executive if she was
or is threatened to be made a party in any action brought by a third party
against Executive (whether or not Employer is joined as a party defendant)
against expenses, judgments, fines, settlements and other amounts actual and
reasonably incurred in connection with said action if Executive acted in good
faith and in a manner Executive believed to be in the best interest of
Employer (and with respect to a criminal proceeding if Executive had no
reasonable cause to
5
<PAGE>
believe her conduct was unlawful), provided that the alleged conduct of
Executive arose out of and was within the course and scope of his employment
as an officer or employee of Employer.
10. TRADE SECRETS
During the Term, Executive will have access to and become acquainted with
what Executive and Employer acknowledge as trade secrets, i.e., knowledge or
data concerning Employer, including its operations and business, and the
identity of customers and clients of Employer. Executive will not any time
disclose any trade secrets or propriety information, directly or indirectly,
or use them in any way, except as required by his duties and
responsibilities. Executive's obligation not to disclose the Employer's trade
secrets or propriety information to third parties continues after his
employment with the Employer ceases.
11. NONCOMPETITION
During the term of this Agreement, Executive will not, directly or
indirectly, either as an employee, employer, consultant, agent, principal,
partner, stockholder, corporate officer, director or in any other individual
or representative capacity, engage or participate in any business that is in
competition in any manner whatsoever with the business of Employer.
12. RETURN OF DOCUMENTS
Executive expressly agrees that all manuals, documents, files, reports,
studies, instruments or other materials used or developed by Executive during
the Term are solely the property of Employer, and Executive has no right,
title or interest therein. Upon termination of this Agreement, Executive or
Executive's representatives shall promptly deliver possession of all said
property to Employer in good condition.
13. NOTICES
Any notice, request, demand, or other communication required or permitted
hereunder shall be deemed to be properly given when personally served in
writing, when deposited in the U.S. mail, postage prepaid, or when
communicated to a public telegraph company for transmittal, addressed
as follows:
TO BANK: Redlands Centennial Bank
218 East State Street
Redlands California 92373
Attention: Douglas C. Spencer
6
<PAGE>
TO EXECUTIVE: Anne E. Sanders
1310 Fifth Avenue
Redlands, CA 92374
Any party hereto may change its or his address for purposes of this Section
by giving notice in accordance herewith.
14. BENEFIT OF AGREEMENT
This Agreement shall inure to the benefit of and be binding upon the parties
hereto and their respective executors, administrators, successors and assigns.
15. APPLICABLE LAW
This Agreement is made and entered into in the State of California, and the
laws of said State shall govern the validity and interpretation hereof, and
the performance of the parties hereto and their respective duties and
obligations hereunder.
16. CAPTIONS AND PARAGRAPH HEADINGS
Captions and paragraph headings used herein are for convenience only and are
not a part of this Agreement and shall not be used in construing it.
17. INVALID PROVISIONS
Should any provision of this Agreement for any reason be declared invalid,
void, or unenforceable by a court of competent jurisdiction, the validity and
binding effect of any remaining portions shall not be affected and the
remaining portions of this Agreement shall remain in full force and effect as
if this Agreement had been executed with said provision eliminated.
18. ENTIRE AGREEMENT
This Agreement contains the entire agreement of the parties and it supersedes
any and all other agreements, either oral or in writing, between the parties
hereto with respect to the employment of Executive by Employer, except to the
extent that it is contemplated that Executive and Employer may enter into a
stock option agreement and/or salary continuation agreement. Each party to
this Agreement acknowledges that no representations, inducements, promises or
agreements, oral or otherwise, have been made by any party, or anyone acting
on behalf of any party, which are not embodied herein, and that no other
agreement, statement, or promise not
7
<PAGE>
contained in this Agreement shall be valid or binding. This Agreement may not
be modified or amended by oral agreement, but only by an agreement in writing
signed by Employer and Executive.
19. CONFIDENTIALITY
This Agreement is to be held confidential. Willful breach of such
confidentiality by Executive will be subject to termination under the
provisions of 7(a) of this Agreement.
20. ARBITRATION
Any controversy or claim arising out of or relating to this Agreement, or the
breach thereof, shall be settled pursuant to an arbitration agreement to be
entered into by the parties, and in the event there is no arbitration
agreement, then in accordance with the rules of the American Arbitration
Association, and judgment upon the award rendered by the arbitrator(s) may be
entered into any court having jurisdiction thereof.
21. LEGAL COSTS
If either Executive or Employer commences an action against the other arising
out of or in connection with this Agreement, the prevailing party shall be
entitled to have and recover from the losing party reasonable attorney's fees
and costs of suit.
IN WITNESS WHEREOF, the parties hereto have executed this amended Agreement
as of the day and year first written above.
REDLANDS CENTENNIAL BANK
By /s/ Douglas C. Spencer
----------------------------
ANNE E. SANDERS
/s/ Anne E. Sanders
- - -------------------------------
8
<PAGE>
EXHIBIT 10.5
REDLANDS CENTENNIAL BANK
1990 STOCK OPTION PLAN
1. PURPOSE
The purpose of the 1990 Stock Option Plan is to strengthen Redlands
Centennial Bank (the "Bank") and those corporations which are or hereafter
become subsidiary corporations of the Bank by providing an additional means
of attracting and retaining competent managerial personnel and by providing
to participating directors, officers and employees added incentive for high
levels of performance and for extraordinary efforts to maintain quality
assets and increase the earnings of the Bank and any subsidiary corporations.
The Plan seeks to accomplish these purposes and achieve these results by
providing a means whereby such directors, officers and employees may purchase
shares of the common stock of the Bank pursuant to options granted in
accordance with this Plan.
Options granted pursuant to this Plan are intended to be "Incentive Stock
Options" within the meaning of Section 422A of the Internal Revenue Code of
1986, as amended from time to time (the "Code"), or "non-qualified" stock
options, as shall be determined and designated upon the grant of each option
hereunder.
2. ADMINISTRATION
This Plan shall be administered by a committee called the Ethics/Stock
Option Committee (the "Ethics/Stock Option Committee") consisting of certain
members of the Board of Directors who from time to time shall be selected by
the Board. Any action of the Ethics/Stock Option Committee with respect to
the administration of the Plan shall be taken pursuant to a majority vote, or
to the unanimous written consent, of its members. If no stock option
committee is selected, the Board of Directors as a whole shall act as such
committee. Vacancies occurring in the
<PAGE>
membership of the Ethics/Stock Option Committee shall be filled by
appointment by the Board of Directors. With regard to the granting of a stock
option to a member of the Board of Directors or to a member of a Ethics/Stock
Option Committee, such member must abstain from voting.
Subject to the express provisions of the Plan, the Ethics/Stock Option
Committee shall have the authority to construe and interpret the Plan, and to
define the terms used therein, to prescribe, and amend, and rescind rules and
regulations relating to administration of the Plan, to determine the duration
and purposes of leaves of employment for purposes of the Plan, and to make
all other determinations necessary or advisable for administration of the
Plan. Determinations of the Ethics/Stock Option Committee on matters referred
to in this section shall be final and conclusive.
3. INCENTIVE STOCK OPTIONS
(a) Incentive Stock Options granted under this Plan are intended to be
qualified under Section 422A of the Internal Revenue Code, as amended from
time to time (the "Code"). Each Incentive Stock Option Agreement shall
contain such terms and provisions as the Ethics/Stock Option Committee may
determine to be necessary in order to qualify options granted thereunder as
incentive stock options within the meaning of Section 422A of the Code.
(b) PARTICIPATION. Full-time salaried officers and employees of the
Bank or of subsidiary corporations (as that term is defined in Section 425 of
the Code), shall be eligible for selection to participate in the incentive
stock option portion of the Plan. No director of the Bank who is not also a
full-time salaried officer or employee of the Bank or a subsidiary
corporation, may be granted an incentive stock option hereunder. Subject to
the express provisions of the Plan, the Ethics/Stock Option Committee shall
select from the eligible class of employees and make recommendations to the
Board of Directors concerning the
<PAGE>
individuals to whom incentive stock options shall be granted, the terms and
provisions of the respective incentive stock option agreements (which need
not be identical), the times at which such incentive stock options shall be
granted, and the number of shares subject to each incentive option. An
individual who has been granted an incentive stock option hereunder may, if
he or she is otherwise eligible, be granted additional incentive stock
options if the Board of Directors shall so determine.
(c) The Board of Directors shall determine the individuals who shall
receive incentive stock options and the terms and provisions of the incentive
stock options, and shall grant such incentive stock options to such
individuals. Notwithstanding the above, however, the Board of Directors may
delegate to the Ethics/Stock Option Committee the power to determine the
individuals who shall receive options, the terms and provisions of such
incentive stock options to such individuals.
(d) Except in compliance with the requirements of subsection (f) below,
the Board of Directors or the Ethics/Stock Option Committee, if authorized,
shall not grant an incentive stock option to purchase shares of the Bank's
common stock to any individual who, at the time of the grant, owns stock
possessing more than 10% of the total combined voting power or value of all
classes of stock of the Bank or its parent or subsidiary corporation. The
attribution rules of Section 425(d) of the Code shall apply in the
determination of ownership of stock for these purposes.
(e) Annual Limit on Incentive Stock Options. The aggregate fair market
value (determined as of the time the incentive stock option is granted) of
stock with respect to which incentive stock options are exercisable for the
first time by an employee during any calendar year (under any other
incentive stock option
<PAGE>
plan of the Bank and its subsidiary corporations, if any) shall not exceed
$100,000, plus any greater amount as may be permitted under subsequent
amendments to the Internal Revenue Code of 1986.
(f) OPTION PRICE. The purchase price of stock subject to each incentive
stock option shall be determined by the Board of Directors (or the
Ethics/Stock Option Committee, if authorized), but shall not be less than one
hundred percent (100%) of the fair market value of such stock at the time
such option is granted, except for officers and key employees who at the time
of the grant own more than 10 percent of the total combined voting power of
all classes of stock of the Bank or its parent or subsidiary corporation (as
defined in Section 422A of the Code), in which case the purchase price of the
stock shall not be less than 110 percent of the fair market value of the
stock subject to the options and such options by its terms is not exercisable
after the expiration of five years from the date such option is granted. The
fair market value of such stock shall be determined in accordance with any
reasonable valuation method, including the valuation methods described in
Treasury Regulation Section 20.2031-2. The purchase price of any shares
purchased shall be paid in full in cash at the time of each said purchase.
(g) The number of shares subject to outstanding stock options (including
both incentive and non-qualified stock options) held by the single optionee
may not exceed ten percent (10%) of the total outstanding shares of the
Bank's common stock.
4. NON-QUALIFIED STOCK OPTIONS
(a) All options granted (1) which are in excess of the fair market value
limitations set forth in Section 3(e) hereof; or (2) which are designated at
the time of the grant as "non-qualified" shall be deemed "non-qualified."
Non-qualified options granted hereunder shall be so designated in the Stock
Option Agreement entered into between the Bank and the Participant.
<PAGE>
(b) PARTICIPATION. Directors, advisory directors appointed by the
Board of Directors, full-time salaried officers, and employees of the Bank or
of a subsidiary corporation [as that term is defined in Section 425 of the
Internal Revenue Code of 1986, as from time to time amended (the "Code")],
shall be eligible for selection to participate in the non-qualified stock
option portion of the Plan. The only persons who may become "advisory
directors" are those persons who were listed as organizers in the Bank's
Offering Circular. Subject to the express provisions of the Plan, the
Ethics/Stock Option Committee shall select from the eligible class of those
individuals to whom non-qualified stock options shall be granted, the terms
and provisions of the respective non-qualified stock option agreements (which
need not be identical), the times at which such non-qualified stock options
shall be granted, and the number of shares subject to each non-qualified
stock option. An individual who has been granted a non-qualified stock option
may, if he or she is otherwise eligible, be granted additional non-qualified
stock options if the Board of Directors shall so determine.
(c) The Board of Directors shall determine the individuals who shall
receive non-qualified stock options and the terms and provisions of the
non-qualified stock options, and shall grant such non-qualified stock options
to such individuals. Notwithstanding the above, however, the Board of
Directors may delegate to the Ethics/Stock Option Committee the power to
determine the individuals who shall receive non-qualified stock options, the
terms and provisions of such non-qualified stock options, and to grant
non-qualified stock options to such individuals.
(d) The purchase price of stock subject to each non-qualified stock
option shall be determined by the Board of Directors (or the Ethics/Stock
Option Committee, if authorized), but shall not be less than one hundred
percent (100%) of the fair market value of such stock at the time such option
is granted. The fair market value of such stock shall be determined in
accordance with any
<PAGE>
reasonable valuation method, including the valuation methods described in
Treasury Regulation 20.2031-2. The purchase price of any shares purchased
shall be paid in full in cash at the time of each purchase.
(e) The number of shares subject to outstanding stock options
(including both incentive and non-qualified and stock options) held by the
single optionee may not exceed ten percent (10%) of the total outstanding
shares of the Bank's common stock.
5. STOCK SUBJECT TO THE PLAN
Subject to adjustments as provided in Section 12, hereof, the stock to be
offered under the Plan shall be shares of the Bank's authorized but unissued
common stock (hereinafter called "stock") and the aggregate amount of stock
to be delivered upon exercise of all options granted under this Plan shall
not exceed 119,675 shares. If any option shall be cancelled, surrendered or
expire for any reason without having been exercised in full, the unpurchased
shares subject thereto shall again be available for purposes of this Plan.
6. CONTINUATION OF EMPLOYMENT
Nothing contained in the Plan (or in any option agreement) shall obligate
the Bank or any subsidiary corporation to employ any option holder
("Optionee") for any period or interfere in any way with the right of the
Bank or a subsidiary corporation to reduce the Optionee's compensation.
7. EXERCISE OF OPTIONS
No option shall be exercisable until all necessary regulatory and
shareholder approvals are obtained. Each option granted under this Plan shall
vest at twenty percent (20%) per year. Except as otherwise provided in this
section, each option
<PAGE>
shall be exercisable upon such contingencies as the Board of Directors (or
the Ethics/Stock Option Committee, if authorized) shall determine; provided,
however, that if an Optionee shall not in any given installment period
purchase all of the shares which the Optionee is entitled to purchase in such
installment period, the Optionee's right to purchase any shares not purchased
in such installment period shall continue until expiration or termination of
such option. Fractional share interests shall be disregarded, except that
they may be accumulated. Not less than ten (10) shares may be purchased under
the option. Options may be exercised by written notice delivered to the Bank
stating the number of shares with respect to which the option is being
exercised, together with the full purchase price for such shares. Payment of
the option price in full, for the number of shares to be delivered, must be
made in cash. If the option is being exercised by any person other than the
Optionee pursuant to Section 11, said notice shall be accompanied by proof,
satisfactory to counsel for the Bank, of the right of such person to exercise
the option. Optionees will have no rights as stockholders with respect to
stock of the Bank subject to their Stock Option Agreements until the date of
issuance of stock certificates to them.
8. NONTRANSFERABILITY OF OPTIONS
Each option shall, by its terms, be nontransferable by the Optionee other
than by Will or the laws of descent and distribution, and shall be
exercisable during his or her lifetime only by the Optionee.
9. CESSATION OF EMPLOYMENT OR DIRECTORSHIP
Except as provided in Section 10 and 20 hereof, if an Optionee ceases to
be a director of the Bank, or an advisory director (with respect to an
option granted to a non-employee director) or an employee (with respect to an
option other than a non-employee director option) of the Bank or a subsidiary
corporation for any
<PAGE>
reason other than his disability (as defined in Section 105(d)(4) of the
Code) or death, the Optionee's option shall expire not later than three (3)
months thereafter. During the period after cessation of directorship, or
appointment in the case of an advisor director or employment, such option
shall be exercisable only as to those installments, if any, which have
accrued and/or vested as of the date on which the Optionee ceased to be a
director, an advisory director or employed by the Bank or a subsidiary
corporation.
10. TERMINATION OF EMPLOYMENT FOR CAUSE
If the Stock Option Agreement so provides and if an Optionee's employment
by the Bank or a subsidiary corporation is terminated for cause, the
Optionee's option shall expire immediately, provided, however, the Board of
Directors may, in its sole discretion, with thirty (30) days of such
termination, reinstate the option by giving written notice of such
reinstatement to the Optionee at the Optionee's last known address. In the
event of reinstatement, the Optionee may exercise the option only to such
extent, for such time, and upon such terms and conditions as if he had ceased
to be employed by the Bank or a subsidiary corporation upon the date of such
termination for a reason other than cause or death. Termination for cause
shall include termination for malfeasance or gross misfeasance in the
performance of duties or conviction of illegal activity in connection
therewith or any conduct detrimental to the interests of the Bank or a
Subsidiary Corporation, and, in any event, the determination of the Board of
Directors with respect thereto shall be final and conclusive.
11. DISABILITY OR DEATH OF OPTIONEE
If any Optionee dies while a director, an advisory director or being
employed by the Bank or a subsidiary corporation, the option shall expire one
(1) year after the date of such death, except as provided in Section 20
hereof. After such
<PAGE>
death but before such expiration, the persons to whom the Optionee's rights
under the option shall have passed by Will or by the applicable laws of
descent and distribution or the executor or administrator of Optionee's
estate shall have the right to exercise such option to the extent that
installments, if any, had accrued and/or vested as of the date on which the
Optionee ceased to be a director, an advisory director or employed by the Bank
or a subsidiary corporation.
If the Optionee shall terminate his or her directorship appointment or
employment because of disability (as defined in Section 105(d)(4) of the
Internal Revenue Code of 1986, as amended from time to time), the Optionee
may exercise this option to the extent he or she is entitled to do so at the
date of termination, at any time within 12 months of the date of termination,
but in no event later than the expiration date in the Option Agreement.
If any Optionee dies or becomes disabled during the three-month period
referred to in Section 9 hereof, the option shall expire one (1) year after
the date of such death or disability, except as provided in Section 20.
12. ADJUSTMENT UPON CHANGES IN CAPITALIZATION
If the outstanding shares of the stock of the Bank are increased,
decreased, or changed into, or exchanged for a different number or kind of
shares or securities of the Bank through reorganization, merger,
recapitalization, reclassification, stock split, stock dividend, stock
consolidation, or otherwise, without consideration to the Bank, an
appropriate and proportionate adjustment shall be made in the number and kind
of shares as to which options may be granted.
A corresponding adjustment changing the number or kind of shares and the
exercise price per share allocated to unexercised options, or portions
thereof, which shall have been granted prior to any such change shall
likewise be made. Any such adjustment, however, in an outstanding option
shall be made without change in
<PAGE>
corresponding adjustment in the price for each share subject to the option.
Any adjustment under the Section shall be made by the Board of Directors,
whose determination as to what adjustments shall be made, and the extent
thereof, shall be final and conclusive. No fractional shares of stock shall
be issued or made available under the Plan on account of any such adjustment,
and fractional share-interests shall be disregarded, except that they may be
accumulated.
13. TERMINATING EVENTS
A Terminating Event shall be defined as any one of the following
events; (i) dissolution or liquidation of the Bank, (ii) a reorganization,
merger or consolidation of the Bank with one or more corporation, the result
of which the Bank is not the surviving corporation or the Bank becomes a
subsidiary of another corporation (which shall be deemed to have occurred if
another corporation shall own directly or indirectly, over 80% of the
aggregate voting power of all outstanding equity securities of the Bank),
(iii) a sale of substantially all the assets of the Bank to another
corporation, or (iv) a sale of the equity securities of the Bank representing
more than 80% of the aggregate voting power of all outstanding equity
securities of the Bank to any person or entity, or any group of persons
and/or entities acting in concert. Upon a Terminating Event all options granted
pursuant to this Plan shall completely vest and become immediately
exercisable as to all shares granted pursuant to the option immediately prior
to such Terminating Event, and upon such Terminating Event all outstanding
options and the Plan shall terminate; provided, however, that any outstanding
options not exercised by the time of the Terminating Event shall not
terminate if there is a successor corporation which assumes the outstanding
options or substitutes for such options, new options covering the stock of
the successor corporation with appropriate adjustments as to the number and
kind of shares and prices.
<PAGE>
14. AMENDMENT AND TERMINATION
The Board of Directors of the Bank may at any time suspend, amend, or
terminate the Plan and may, with the consent of the Optionee, make such
modification of the terms and conditions of the option as it shall deem
advisable; provided that, except as permitted under the provisions of
Sections 7, 12 and 13 hereof, no amendment or modification which would:
(a) increase the maximum number of shares which may be purchased
pursuant to options granted under the Plan either in the aggregate
or by an individual;
(b) change the minimum option price;
(c) increase the maximum term of options provided for herein;
(d) permit options to be granted to anyone other than a director, an
advisory director full-time salaried officer or employees of the
Bank or a subsidiary corporation; or
(e) otherwise materially modify the Plan within the meaning of certain
SEC Rules and Regulations.
may be adopted without the Bank having first obtained any necessary
regulatory approval and any shareholder approvals required by law.
No option may be granted during any suspension or after termination of
the Plan. Amendment, suspension, or termination of the Plan shall not (except
as otherwise provided in Section 12 hereof), without the consent of the
Optionee, alter or impair any rights or obligation under any option
theretofore granted.
15. TIME OF GRANTING OPTIONS
The time an option is granted, sometimes referred to as the date of
grant, shall be the day of the action of the Board of Directors (or action of
the Ethics/Stock Option Committee, if authorized) described in Sections 3(c)
and 4(c) hereof; provided, however, that if appropriate resolutions of the
Board of Directors (or the Ethics/Stock Option Committee, if authorized)
indicate that an option is
<PAGE>
granted as of and on some future date, the time such option is granted shall
be such future date. If action by the Board of Directors (or the Ethics/Stock
Option Committee, if authorized) is taken by unanimous written consent of its
members, the action of the Board of Directors (or the Ethics/Stock Option
Committee) shall be deemed to be at the time the last Board (or Ethics/Stock
Option Committee) member signs the consent.
16. PRIVILEGES OF STOCK OWNERSHIP; SECURITIES LAW COMPLIANCE; NOTICE OF SALE
No Optionee shall be entitled to the privileges of stock ownership as
to any shares of stock not actually issued. No shares shall be purchased upon
the exercise of any option unless and until all then applicable requirements
of any regulatory agencies having jurisdiction and all applicable
requirements of any exchanges upon which stock of the Bank may be listed,
shall have been fully complied with. The Optionee shall give the Bank notice
of any sale or disposition of any such shares not more than five (5) days
after such sale or disposition.
17. EFFECTIVE DATE OF THE PLAN
The Plan shall be deemed adopted by the Board of Directors as of January
18, 1991, and shall be effective immediately subject to approval by the
holders of a majority of the Bank's outstanding stock, as required in Section
422A of the Code or regulations promulgated thereunder, and the approval of
the State Banking Department.
18. TERMINATION
Unless previously terminated by the Board of Directors, the Plan shall
terminate at the close of business on a date ten (10) years from the earlier
of the date of approval by the Bank's outstanding shares or the date of
adoption of this Plan. No options shall be granted under the Plan thereafter,
but such termination shall not affect any option theretofore granted.
<PAGE>
19. OPTION AGREEMENT
Each option shall be evidenced by a written Stock Option Agreement
executed by the Bank and the Optionee and shall contain each of the
provisions and agreements herein specifically required to be contained
therein, and such other terms and conditions as are deemed desirable and are
not inconsistent with the Plan. Each Incentive Stock Option Agreement shall
contain such terms and provisions as the Ethics/Stock Option Committee may
determine to be necessary in order to qualify such option as any incentive
stock option within the meaning of Section 422A of the Code. No option may
vest over a period that is greater than five years. Nor any option vest at a
rate that is less than 20% per year.
20. OPTION PERIOD
Each option and all rights or obligations thereunder shall expire on
such date as the Board of Directors (or the Ethics/Stock Option Committee, if
authorized) may determine, but not later than ten (10) years from the date
such option is granted, and shall be subject to earlier termination as
provided elsewhere in the Plan.
21. EXCULPATION AND INDEMNIFICATION
To the extent permitted by applicable law in effect from time to time,
no member of the Board of Directors or Ethics/Stock Option Committee shall be
liable for any action or omission of any other member of the Board of
Directors or Ethics/Stock Option Committee nor for any act or omission on the
member's own part, except the member's own willful misconduct or gross
negligence. The Board of Directors of the Bank and its subsidiary
corporations shall pay expenses incurred by, and satisfy a judgment or fine
rendered or levied against, a present or former director or member of the
Ethics/Stock Option Committee in any action brought by a third party against
such person (whether or not the Bank is joined as
<PAGE>
a party defendant) to impose a liability or penalty on such person while a
director or member of the Ethics/Stock Option Committee arising with respect
to the Plan or administration thereof or out of membership on the
Ethics/Stock Option Committee or of the Bank, or all or any combination of
the preceding; provided, the Board of Directors determines in good faith that
such director or member was acting in good faith, within what such director
or member reasonably believed to be the scope of his or her employment or
authority, and for a purpose which he or she reasonably believed to be in the
best interests of the Bank or its shareholders. Payments authorized hereunder
include amounts paid and expenses incurred in settling any such action or
threatened action. This Section does not apply to any action instituted or
maintained in the right of the Bank by a shareholder or holder of a voting
trust certificate representing shares of the Bank or any subsidiary
corporation thereof. The provisions of this Section shall apply to the
estate, executor, administrator, heirs, legatees or devisees of a director or
member of the Ethics/Stock Option Committee, and the term "person" as used in
this Section shall include the estate, executor, administrator, heirs,
legatees or devisees of such person.
REDLANDS CENTENNIAL BANK
By /s/ Stephen L. Guggisberg
--------------------------
By /s/ William E. Diethrich
--------------------------
By /s/ Beth Sanders
--------------------------
<PAGE>
AMENDMENT TO THE
REDLANDS CENTENNIAL BANK
1990 STOCK OPTION PLAN
This Amendment to the Redlands Centennial Bank 1990 Stock Option Plan was
approved by the Board of Directors of Redlands Centennial Bank as of February
19, 1999 and is subject to the approval of the shareholders of Redlands
Centennial Bank.
RECITALS AND UNDERTAKINGS
A. WHEREAS, the Redlands Centennial Bank 1990 Stock Option Plan (the
"Plan") originally provided for 119,674 shares of the Bank's common
stock to be allocated to the Plan;
B. WHEREAS, the number of shares available for grant under the Plan has
been exhausted, and it is the desire of the Bank to increase the number of
shares of the Bank's common stock available for stock options under the
Plan to 200,723 shares (30% of 669,077), subject to shareholder approval.
NOW, THEREFORE, the Section 5 of the Plan is amended in the entirety as
follows:
5. STOCK SUBJECT TO THE PLAN. Subject to adjustments as provided
in Section 12, hereof, the stock to be offered under the Plan shall be
shares of the Bank's authorized but unissued common stock (hereinafter
called "stock") and the aggregate amount of stock to be delivered upon
exercise of all options granted under this Plan shall not exceed 200,723
shares. If any option shall be canceled, surrendered or expire for any
reason without having been exercised in full, the unpurchased shares
subject thereto shall again be available for purposes of this Plan.
This amendment shall be effective February 19, 1999 subject to approval by
the shareholders of the Bank.
REDLANDS CENTENNIAL BANK
By: /s/ Patrick J. Meyer
------------------------------------
Patrick J. Meyer, Chairman
<PAGE>
NOTWITHSTANDING ANY OTHER PROVISION OF THIS AGREEMENT, NO SHARES OF THE
BANK'S STOCK SHALL BE ISSUED PURSUANT HERETO UNLESS THE BANK'S 1990 STOCK
OPTION PLAN SHALL HAVE FIRST BEEN APPROVED BY THE SHAREHOLDERS OF THE BANK
HOLDING NOT LESS THAN A MAJORITY OF THE OUTSTANDING SHARES OF THE BANK'S
COMMON STOCK REPRESENTED AND VOTING AT A MEETING OF SHAREHOLDERS AND BY A
MAJORITY OF THE DISINTERESTED SHARES REPRESENTED AND VOTING AT THE MEETING.
REDLANDS CENTENNIAL BANK
INCENTIVE STOCK OPTION AGREEMENT
This Incentive Stock Option Agreement dated the ___ day of ________,
199 , entered into by and between Redlands Centennial Bank (the "Bank"), and
_____________ ("Optionee");
WHEREAS, pursuant to the 1990 Stock Option Plan of the Bank (the
"Plan"), a copy of which is attached hereto, the Board of Directors of the
Bank (or the Ethics/Stock Option Committee, if authorized by the Board of
Directors) has authorized granting to Optionee, an Incentive Stock Option to
purchase all or any part of __________ (_____) authorized but unissued shares
of the Bank's Common Stock for cash at the price of _________ Dollars
($______) per share, such option to be for the term and upon the terms and
conditions hereinafter stated;
NOW, THEREFORE, it is hereby agreed:
1. GRANT OF OPTION. Pursuant to said action of the Board of Directors
(or the Ethics/Stock Option Committee) and pursuant to authorizations granted
by all appropriate regulatory and governmental agencies, the Bank hereby
grants to Optionee the option to purchase, upon and subject to the terms and
conditions of the Plan, as amended, which is incorporated in full herein by
this reference, all or any part of __________ (_____) shares of the Bank's
Common Stock (hereinafter called "stock") at the price of _________ Dollars
($_____) per share, which price is not less than 100% of the fair market
value of the stock
<PAGE>
(or not less than 110% of the fair market value for optionee-shareholders who
possess more than 10% of the Bank's stock) as of the date of action of the
Board of Directors (or the Ethics/Stock Option Committee) granting this
option.
2. EXERCISABILITY. This option shall be exercisable as to _____________
______________________________________________________________________________
____________________________________________. This option shall remain
exercisable as to all of such shares until ___________ __, , (but not
later than ten (10) years from the date this option is granted) unless this
option has expired or terminated earlier in accordance with the provisions
hereof. Shares as to which this option becomes exercisable pursuant to the
foregoing provision may be purchased at any time prior to expiration of this
option.
3. EXERCISE OF OPTION. This option may be exercised by written notice
delivered to the Bank stating the number of shares with respect to which this
option is being exercised, together with cash in the amount of the purchase
price of such shares. Not less than ten (10) shares may be purchased at any
one time unless the number purchased is the total number which may be
purchased under this option and in no event may the option be exercised with
respect to fractional shares. Upon exercise, Optionee shall make appropriate
arrangements and shall be responsible for the withholding of any federal and
state taxes then due.
4. CESSATION OF EMPLOYMENT. Except as provided in Paragraphs 2 and 5
hereof, if Optionee shall cease to be employed by the Bank or a subsidiary
corporation for any reason other than Optionee's death or disability (as
defined in Section 105(d)(4) of the Internal Revenue Code of 1986, as amended
from time to time), this option shall expire ninety (90) days thereafter.
During the three-month period this option shall be exercisable only as to
those installments, if any, which had accrued as of the date when the
Optionee ceased to be employed by the Bank or the subsidiary corporation.
<PAGE>
5. TERMINATION OF EMPLOYMENT FOR CAUSE. If Optionee's employment by
the Bank or a subsidiary corporation is terminated for cause, this option
shall expire immediately, unless reinstated by the Board of Directors within
thirty days (30) days of such termination by given written notice of such
reinstatement to Optionee at his last known address. In the event of such
reinstatement, Optionee may exercise this option only to such extent, for
such time, and upon such terms and conditions as if Optionee had ceased to be
employed by the Bank or a subsidiary corporation upon the date of such
termination for a reason other than cause or death or disability. Termination
for cause shall include, but shall not be limited to, termination for
malfeasance or gross misfeasance in the performance of duties or conviction
of illegal activity in connection therewith and, in any event, the
determination of the Board of Directors with respect thereto shall be final
and conclusive.
6. NONTRANSFERABILITY; DEATH OF OPTIONEE. This option shall not be
transferable except by Will or by the laws of descent and distribution and
shall be exercisable during Optionee's lifetime only by Optionee. If Optionee
dies while employed by the Bank or a subsidiary corporation, or during the
three-month period referred to in Paragraph 4 hereof, this option shall
expire one (1) year after the date of Optionee's death or on the day
specified in Paragraph 2 hereof, whichever is earlier. After Optionee's death
but before such expiration, the persons to whom Optionee's rights under this
option shall have passed by Will or by the applicable laws of descent and
distribution or the executor or administrator of Optionee's estate shall
have the right to exercise this option as to those shares for which
installments had accrued under Paragraph 2 hereof as of the date on which
Optionee ceased to be employed by the Bank or a subsidiary corporation.
<PAGE>
If the optionee shall terminate employment because of disability (as
defined in Section 105(d)(4) of the Internal Revenue Code of 1986, as amended
from time to time), the optionee may exercise this option to the extent he or
she is entitled to do so at the date of termination, at any time within 12
months of the date of termination, but in no event later than the expiration
date in paragraph 2.
7. EMPLOYMENT. This Agreement shall not obligate the Bank or a
subsidiary corporation to employ Optionee for any period, nor shall it
interfere in any way with the right of the Bank or a subsidiary corporation
to reduce Optionee's compensation.
8. PRIVILEGES OF STOCK OWNERSHIP. Optionee shall have no rights as a
stockholder with respect to the Bank's stock subject to this option until the
date of issuance of stock certificates to Optionee. Except as provided in
Section 14 of the Plan, no adjustment will be made for dividends or other
rights for which the record date is prior to the date such stock certificates
are issued.
9. MODIFICATION AND TERMINATION BY BOARD OF DIRECTORS. The rights of
Optionee are subject to modification and termination upon the occurrence of
certain events as provided in Sections 15 and 16 of the Plan.
10. NOTIFICATION OF SALE. Optionee agrees that Optionee, or any person
acquiring shares upon exercise of this option, will notify the Bank not more
than five (5) days after any sale or other disposition of such shares.
11. NOTICES. Any notice to the Bank provided for in this Agreement shall
be addressed to it in care of its President or Cashier at its main office and
any notice to Optionee shall be addressed to Optionee's address on file with
the Bank or a subsidiary corporation, or to such other address as either may
designate to the other in writing. Any notice shall be deemed to be duly
given if and when enclosed in a properly sealed envelope and addressed as
stated above and deposited, postage prepaid, with the United States Postal
Service. In lieu of
<PAGE>
giving notice by mail as aforesaid, any written notice under this Agreement
may be given to Optionee in person, and to the Bank by personal delivery to
its President or Cashier.
12. INCENTIVE STOCK OPTION. This Stock Option Agreement is intended to
be an Incentive Stock Option Agreement as defined in Section 422A of the
Internal Revenue Code of 1986, as amended from time to time.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement.
OPTIONEE REDLANDS CENTENNIAL BANK
By___________________________ By_______________________________
By________________________________
<PAGE>
REDLANDS CENTENNIAL BANK
ADDENDUM TO STOCK OPTION AGREEMENT
WHEREAS, Sections 7 and 13 of the Redlands Centennial Bank 1990
Stock Option Plan (the "Plan") were amended by the Board of Directors on
today's date;
WHEREAS, ________________________ ("Optionee") entered into a Stock
Option Agreement with Redlands Centennial Bank (the "Bank") on today's date
pursuant to the Plan, as amended; and
WHEREAS, the Bank has prepared this Addendum to Stock Option
Agreement to reflect the above-referenced amendments to the Plan;
NOW, THEREFORE, the Bank and Optionee do hereby agree that the
Option Agreement shall be modified as follows:
(1) Paragraph 2 shall be amended to read in full as follows:
2. EXERCISABILITY. This option shall become exercisable as to _____
_______________________________________________________________________________
________________________________________________________________________. This
option shall remain exercisable as to all of such shares until _______, ____
unless this option has expired or terminated earlier in accordance with the
provisions hereof. Shares as to which this option becomes exercisable
pursuant to the foregoing provisions may be purchased at any time prior to
the expiration of this option. Notwithstanding the preceding provisions of
this paragraph, upon delivery of notice to Optionee from the Stock Option
Committee or Board of Directors of the pendency of a "Terminating Event,"
i.e., a dissolution or liquidation of the Bank, a reorganization, merger, or
consolidation of the Bank with one or more corporations as a result of which
the Bank will not be the surviving corporation, a sale of substantially all
the assets and property of the Bank to another person, or any other
transaction involving the Bank where there is a change in ownership of at
least twenty-five percent (25%), except as may result from a transfer of
shares to another corporation in exchange for at least eighty percent (80%)
control of that corporation, this option shall be exercisable in full and not
only as to those shares with respect to which installments, if any, have then
accrued, subject, however, to earlier termination or expiration as provided
elsewhere in the Plan. Upon
<PAGE>
the date thirty (30) days after receipt of said notice, this option or any
portion hereof not exercised shall terminate, unless provision is made in
connection with the Terminating Event for assumption of this option or for
substitution for this option of new options covering stock of a successor
employer corporation, or a parent or subsidiary corporation thereof with
appropriate adjustments as to the number and kind of shares and prices.
IN WITNESS WHEREOF, the parties hereto have executed this Addendum
this ____ day of ________, ____
_____________________________________
_____________________________________
Optionee
REDLANDS CENTENNIAL BANK
By:___________________________________
2
<PAGE>
NOTWITHSTANDING ANY OTHER PROVISION OF THIS AGREEMENT, NO SHARES OF THE
BANK'S STOCK SHALL BE ISSUED PURSUANT HERETO UNLESS: THE BANK'S 1990 STOCK
OPTION PLAN SHALL HAVE FIRST BEEN APPROVED BY SHAREHOLDERS OF THE BANK
HOLDING NOT LESS THAN A MAJORITY OF THE OUTSTANDING SHARES OF THE BANK'S
COMMON STOCK REPRESENTED AND VOTING AT A MEETING OF SHAREHOLDERS AND BY A
MAJORITY OF THE DISINTERESTED SHARES REPRESENTED AND VOTING AT THE MEETING.
REDLANDS CENTENNIAL BANK
NON-QUALIFIED STOCK OPTION AGREEMENT
THIS AGREEMENT, dated the ____ day of _________, 199 by and between
Redlands Centennial Bank, a California corporation (the "Bank"), and _______
______________, ("Optionee"):
WHEREAS, pursuant to the 1990 Stock Option Plan of the Bank (the
"Plan"), a copy of which is attached hereto, the Board of Directors of the
Bank (or the Ethics/Stock Option Committee, if authorized by the Board of
Directors) has authorized granting to Optionee a stock option to purchase all
or any part of __________ (__________) authorized but unissued shares of the
Bank's common stock for cash at the price of ___________ Dollars ($_______)
per share, such option to be for the term and upon the terms and conditions
hereinafter stated;
NOW, THEREFORE, it is hereby agreed:
1. GRANT OF OPTION. Pursuant to said action of the Board of
Directors or the Ethics/Stock Option Committee) and pursuant to
authorizations granted by all appropriate regulatory and governmental
agencies, the Bank hereby grants to Optionee the option to purchase, upon and
subject to the terms and conditions of the Plan, which is incorporated in
full herein by this reference, all or any part of ________________ (________)
shares of the Bank's Common Stock (hereinafter called "stock") at the price
of ______________ Dollars ($_________) per share, which price is not less
than one hundred percent (100%) of the fair market value of the stock as of
the date of action of the Board of Directors (or the Ethics/Stock Option
Committee) granting this option.
<PAGE>
2. EXERCISABILITY: This option shall be exercisable as to ____________
______________________________________________________________________________
______________________________________________________________________________
________________________________________________________________. This option
shall remain exercisable as to all of such shares until _______, __ (but not
after the expiration of ten (10) years from the date this option is granted)
unless this option has expired earlier in accordance with the provisions
hereof. Shares as to which this option becomes exercisable pursuant to the
foregoing provision may be purchased at any time prior to expiration of this
option.
3. EXERCISE OF OPTION. This option may be exercised by written notice
delivered to the Bank stating the number of shares with respect to which this
option is being exercised, together with cash in the amount of the purchase
price of such shares. Not less than ten (10) shares may be purchased at any
one time unless the number purchased is the total number which may be
purchased under this option and in no event may the option be exercised with
respect to fractional shares. Upon exercise, Optionee shall make appropriate
arrangements and shall be responsible for the withholding of any federal and
state taxes then due.
4. CESSATION OF EMPLOYMENT OR DIRECTORSHIP. Except as provided in
Paragraphs 2 and 5 hereof, if Optionee shall cease to be employed by or a
director of the Bank or a subsidiary corporation for any reason other than
Optionee's death or disability, this option shall expire ninety (90) days
thereafter. During the three-month period this option shall be exercisable
only as to those installments, if any, which had accrued as of the date when
the Optionee ceased to be employed by or a director of the Bank or the
subsidiary corporation.
5. TERMINATION OF EMPLOYMENT FOR CAUSE. If Optionee's employment by
the Bank or a subsidiary corporation is terminated for cause, this option
shall expire immediately, unless reinstated by the Board of Directors within
thirty (30)
<PAGE>
days of such termination by giving written notice of such reinstatement to
Optionee at his last known address. In the event of such reinstatement,
Optionee may exercise this option only to such extent, for such time, and
upon such terms and conditions as if Optionee had ceased to be employed by
the Bank or a subsidiary corporation upon the date of such termination for a
reason other than cause or death. Termination for cause shall include, but
shall not be limited to, termination for malfeasance or gross misfeasance in
the performance of duties or conviction of illegal activity in connection
therewith and, in any event, the determination of the Board of Directors with
respect thereto shall be final and conclusive.
6. NONTRANSFERABILITY; DEATH OR DISABILITY OF OPTIONEE. This option
shall not be transferable except by Will or by the laws of descent and
distribution and shall be exercisable during Optionee's lifetime only by
Optionee. If Optionee dies while employed by or while being a director of
the Bank or a subsidiary corporation, or during the three-month period
referred to in Paragraph 4 hereof, this option shall expire one (1) year
after the date of Optionee's death or on the day specified in Paragraph 2
hereof, whichever is earlier. After Optionee's death but before such
expiration, the persons to whom Optionee's rights under this option shall
have passed by Will or by the applicable laws of descent and distribution or
the executor or administrator of Optionee's estate shall have the right to
exercise this option as to those shares for which installments had accrued
under Paragraph 2 hereof as of the date on which Optionee ceased to be
employed by or director of the Bank or a subsidiary corporation. If the
Optionee terminates his employment or directorship because of a disability,
the Optionee may exercise this option to the extent he is entitled to do so
at the date of termination at any time within 12 months of the date of
termination, or before the expiration date specified in Paragraph 2 hereof,
whichever is earlier.
<PAGE>
7. EMPLOYMENT. This Agreement shall not obligate the Bank or a
subsidiary corporation to employ Optionee for any period, nor shall it
interfere in any way with the right of the Bank or a subsidiary corporation
to reduce Optionee's compensation.
8. PRIVILEGES OF STOCK OWNERSHIP. Optionee shall have no rights as a
stockholder with respect to the Bank's stock subject to this option until the
date of issuance of stock certificates to Optionee. Except as provided in
the Plan, no adjustment will be made for dividends or other rights for which
the record date is prior to the date such stock certificates are issued.
9. MODIFICATION AND TERMINATION BY BOARD OF DIRECTORS. The rights of
Optionee are subject to modification and termination upon the occurrence of
certain events as provided in Sections 13 and 14 of the Plan.
10. NOTIFICATION OF SALE. Optionee agrees that Optionee, or any person
acquiring shares upon exercise of this option, will notify the Bank not more
than five (5) days after any sale or other disposition of such shares.
11. NOTICES. Any notice to the Bank provided for in this Agreement
shall be addressed to it in care of its President or Chief Financial Officer
at its main office and any notice to Optionee shall be addressed to
Optionee's address on file with the Bank or a subsidiary corporation, or to
such other address as either may designate to the other in writing. Any
notice shall be deemed to be duly given if and when enclosed in a properly
sealed envelope and addressed as stated above and deposited, postage prepaid,
with the United States Postal Service. In lieu of giving notice by mail as
aforesaid, any written notice under this Agreement may be given to Optionee
in person, and to the Bank by personal delivery to its President or Chief
Financial Officer.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement.
OPTIONEE REDLANDS CENTENNIAL BANK
By___________________________ By___________________________
By___________________________
<PAGE>
REDLANDS CENTENNIAL BANK
ADDENDUM TO STOCK OPTION AGREEMENT
WHEREAS, Sections 7 and 13 of the Redlands Centennial Bank 1990 Stock
Option Plan (the "Plan") were amended by the Board of Directors on today's
date:
WHEREAS, _______________________________________ ("Optionee") entered
into a Stock Option Agreement with Redlands Centennial Bank (the "Bank") on
today's date pursuant to the Plan, as amended, and
WHEREAS, the Bank has prepared this Addendum to Stock Option Agreement
to reflect the above-referenced amendments to the Plan,
NOW, THEREFORE, the Bank and Optionee do hereby agree that the Option
Agreement shall be modified as follows:
(1) Paragraph 2 shall be amended to read in full as follows:
2. EXERCISABILITY. This option shall become exercisable as to__________
______________________________________________________________________________
_______________________________________________________________________. This
option shall remain exercisable as to all of such shares until________________,
_________ unless this option has expired or terminated earlier in accordance
with the provisions hereof. Shares as to which this option becomes
exercisable pursuant to the foregoing provisions may be purchased at any time
prior to the expiration of this option. Notwithstanding the preceding
provisions of this paragraph, upon delivery of notice to Optionee from the
Stock Option Committee or Board of Directors of the pendency of a
"Terminating Event," i.e., a dissolution or liquidation of the Bank, a
reorganization, merger, or consolidation of the Bank with one or more
corporations as a result of which the Bank will not be the surviving
corporation, a sale of substantially all the assets and property of the Bank
to another person, or any other transaction involving the Bank where there
is a change in ownership of at least twenty-five percent (25%), except as may
result from a transfer of shares to another corporation in exchange for at
least eighty percent (80%) control of that corporation, this option shall be
exercisable in full and not only as to those shares with respect to which
installments, if any, have then accrued, subject, however, to earlier
termination or expiration as provided elsewhere in the Plan. Upon
<PAGE>
the date thirty (30) days after receipt of said notice, this option or any
portion hereof not exercised shall terminate, unless provision is made in
connection with the Terminating Event for assumption of this option or for
substitution for this option of new options covering stock of a successor
employer corporation, or a parent or subsidiary corporation thereof with
appropriate adjustments as to the number and kind of shares and prices.
IN WITNESS WHEREOF, the parties hereto have executed this Addendum this
_____ day of _________________, 1997.
------------------------------
------------------------------
Optionee
REDLANDS CENTENNIAL BANK
By:
---------------------------
2
<PAGE>
[LETTERHEAD]
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
We hereby consent to the use in this Registration Statement on Form S-4
for Redlands Centennial Bank of our report dated February 2, 1999 relating to
the financial statements of Redlands Centennial Bank for the years ended
December 31, 1998 and 1997.
/s/ Hutchinson and Bloodgood LLP
October 19, 1999
<PAGE>
Exhibit 99
THIS PROXY IS SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS. The undersigned
hereby appoints Bruce J. Bartells,
Carole H. Beswisk and Patrick J. Meyer
as proxies and with full power of
PROXY substitution, to represent, vote and act
with respect to all shares of common
stock of Redlands Centennial Bank (the
REDLANDS CENTENNIAL BANK "Bank") which the undersigned would be
entitled to vote at the meeting of
shareholders to be held on December 1,
1999 at 6:00 p.m., at the Bank's main
office located at 218 E. State Street,
Redlands, California or any adjournments
thereof, with all the powers the
undersigned would possess if personally
present as follows:
1. Approval of the Plan of Reorganization and Agreement of Merger dated
September 24, 1999 by and between Redlands Centennial Bank, RCB Merger
Company and Centennial First Financial Services.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting and any adjournments
or adjournments thereof.
<PAGE>
PLEASE SIGN AND DATE BELOW
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED "FOR" APPROVAL OF ALL OF THE PROPOSALS SET FORTH HEREIN. IF ANY OTHER
BUSINESS IS PRESENTED AT THE MEETING, THIS PROXY CONFERS AUTHORITY TO AND SHALL
BE VOTED IN ACCORDANCE WITH THE RECOMMENDATIONS OF THE PROXIES. THE BOARD OF
DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF THE PROPOSALS SET FORTH HEREIN.
(Please date this Proxy and sign your name exactly as it appears on your stock
certificates. Executors, administrators, trustees, etc., should give their full
title. If a corporation, please sign in full corporate name by President or
other authorized officer. If a partnership, please sign in partnership name by
an authorized person. All joint owners should sign.)
[ ] I DO [ ] I DO NOT EXPECT TO ATTEND THE MEETING
---------------------------------------
(Number of Shares)
---------------------------------------
(Please Print Your Name)
---------------------------------------
(Please Print Your Name)
---------------------------------------
(Date)
---------------------------------------
(Signature of Shareholder)
---------------------------------------
(Signature of Shareholder)
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS AND MAY BE REVOKED
PRIOR TO ITS EXERCISE BY FILING WITH THE SECRETARY OF THE BANK A DULY EXECUTED
PROXY BEARING A LATER DATE OR AN INSTRUMENT REVOKING THIS PROXY.
