SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): December 23, 1999
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NORTH VALLEY BANCORP
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(Exact name of registrant as specified in its charter)
California 0-10652 94-2751350
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(State or other jurisdiction of (File Number) (IRS Employer Identification
incorporation) No.)
880 East Cypress Avenue
Redding, California 96002
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (530) 221-8400
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This Form 8-K consists of 304 pages. The Exhibit Index is on Page 5.
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ITEM 5. OTHER EVENTS
North Valley Bancorp (the "Registrant") is a California corporation and
the registered bank holding company for North Valley Bank, a California banking
corporation with its headquarters in Redding, California. On October 3, 1999,
the Registrant entered into a certain Agreement and Plan of Reorganization and
Merger (the "Plan of Reorganization") with Six Rivers National Bank, a national
banking association with its headquarters in Eureka, California ("Six Rivers"),
and NVB Interim National Bank, an interim national banking association to be
formed at the direction of the Registrant to facilitate the business combination
contemplated by the parties. Under the terms of the Plan of Reorganization, Six
Rivers is expected to merge with and into NVB Interim National Bank and the
resulting national banking association will continue operations with the
national bank charter number of Six Rivers and the name "Six Rivers National
Bank" as a wholly owned subsidiary of the Registrant. The merger is intended to
qualify as a tax-free reorganization within the meaning of Section 368 of the
Internal Revenue Code of 1986, as amended, and is expected to be accounted for
as a "pooling of interests." Upon consummation of the transactions described in
the Plan of Reorganization, expected to occur on or before March 31, 2000,
unless extended by the parties, the Registrant would have two banking
subsidiaries: North Valley Bank and Six Rivers National Bank. The closing of
such transactions is subject to the prior approval of the shareholders of the
Registrant and Six Rivers, respectively, plus the receipt of all applicable
regulatory approvals.
Pursuant to the Plan of Reorganization, and with the cooperation of Six
Rivers, the Registrant intends to prepare and file with the Commission a
registration statement on Form S-4 under and pursuant to the Securities Act of
1933 to serve as the joint proxy statement/prospectus for the purpose of
submitting the terms of the Plan of Reorganization to a vote of the shareholders
of the Registrant and to a vote of the shareholders of Six Rivers at special
meetings called for the purpose. As permitted by Form S-4, the Registrant
intends to incorporate by reference certain reports and other information
regarding the Registrant previously filed and to be filed with the Commission
pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange
Act").
The Common Stock of Six Rivers is registered pursuant to Section 12(g)
of the Exchange Act and the reports and other information required of Six Rivers
under the Exchange Act are filed with the Office of the Comptroller of the
Currency, the federal agency vested with the powers, functions and duties of the
Commission with respect to national banks under Section 12(i) of the Exchange
Act. Six Rivers and the Registrant have agreed that certain reports and other
information regarding Six Rivers, including reports and other information
previously filed and to be filed with the Comptroller of the Currency pursuant
to the Exchange Act, should be incorporated by reference into the Form S-4
intended to be filed with the Commission by the Registrant in accordance with
the Plan of Reorganization. To accomplish this end, Six Rivers and the
Registrant have also agreed that each such report or other information, as and
when filed by Six Rivers with the Comptroller of the Currency, shall be filed
with the Commission as an exhibit to a Form 8-K Current Report of the
Registrant. Copies of certain reports and other information of Six Rivers are
filed as exhibits to this report and are incorporated herein by this reference
as if set forth in full.
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(c) EXHIBITS.
23 Consent of Deloitte & Touche LLP
99.1 Annual Report of Six Rivers National Bank on Form
10-KSB for the fiscal year ended December 31, 1998,
as filed with the Comptroller of the Currency
99.2 Amendment to Annual Report of Six Rivers National
Bank on Form 10-KSB/A for the fiscal year ended
December 31, 1998, as filed with the Comptroller of
the Currency
99.3 Quarterly Report of Six Rivers National Bank on Form
10-QSB for the quarterly period ended March 31, 1999,
as filed with the Comptroller of the Currency
99.4 Quarterly Report of Six Rivers National Bank on Form
10-QSB, as amended and restated in full, for the
quarterly period ended June 30, 1999, as filed with
the Comptroller of the Currency
99.5 Quarterly Report of Six Rivers National Bank on Form
10-QSB for the quarterly period ended September 30,
1999, as filed with the Comptroller of the Currency
99.6 Current Report of Six Rivers National Bank on Form
8-K, dated May 12, 1999, as filed with the
Comptroller of the Currency
99.7 Current Report of Six Rivers National Bank on Form
8-K, dated October 3, 1999, as filed with the
Comptroller of the Currency
99.8 Current Report of Six Rivers National Bank on Form
8-K, dated October 4, 1999, as filed with the
Comptroller of the Currency
99.9 Definitive Notice of Annual Meeting of Shareholders,
Proxy Statement dated April 21, 1999, and form of
Proxy of Six Rivers National Bank, as filed with the
Comptroller of the Currency pursuant to Section 14(a)
of the Exchange Act
99.10 Bylaws of Six Rivers National Bank, as amended to
March 22, 1999
99.11 Form of Indemnity Agreement dated as of September 30,
1999, between Six Rivers National Bank and each
Director of Six Rivers National Bank
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
NORTH VALLEY BANCORP
(Registrant)
Date: December 20, 1999. By: /s/ SHARON L. BENSON
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Sharon L. Benson
Senior Vice President and
Chief Financial Officer
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EXHIBIT INDEX
NO. IDENTITY PAGE NOS.
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23 Consent of Deloitte & Touche LLP
99.1 Annual Report of Six Rivers National Bank on Form 10-K SB
for the fiscal year ended December 31, 1998, as filed with
the Comptroller of the Currency
99.2 Amendment to Annual Report of Six Rivers National Bank on
Form 10-KSB/A for the fiscal year ended December 31, 1998,
as filed with the Comptroller of the Currency
99.3 Quarterly Report of Six Rivers National Bank on Form 10-QSB
for the quarterly period ended March 31, 1999, as filed
with the Comptroller of the Currency
99.4 Quarterly Report of Six Rivers National Bank on Form
10-QSB, as amended and restated in full, for the quarterly
period ended June 30, 1999, as filed with the Comptroller
of the Currency
99.5 Quarterly Report of Six Rivers National Bank on Form 10-QSB
for the quarterly period ended September 30, 1999, as filed
with the Comptroller of the Currency
99.6 Current Report of Six Rivers National Bank on Form 8-K,
dated May 12, 1999, as filed with the Comptroller of the
Currency
99.7 Current Report of Six Rivers National Bank on Form 8-K,
dated October 3, 1999, as filed with the Comptroller of the
Currency
99.8 Current Report of Six Rivers National Bank on Form 8-K,
dated October 4, 1999, as filed with the Comptroller of the
Currency
99.9 Definitive Notice of Annual Meeting of Shareholders, Proxy
Statement dated April 21, 1999, and form of Proxy of Six
Rivers National Bank, as filed with the Comptroller of the
Currency pursuant to Section 14(a) of the Exchange Act
99.10 Bylaws of Six Rivers National Bank, as amended to March 22,
1999
99.11 Form of Indemnity Agreement dated as of September 30, 1999,
between Six Rivers National Bank and each Director of Six
Rivers National Bank
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INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements No.
33-32787 and 33-361771 on Form S-8 of North Valley Bancorp of our report dated
February 24, 1999, on the financial statements of Six Rivers National Bank for
the year ended December 31, 1998, appearing herein.
/s/ DELOITTE & TOUCHE LLP
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San Francisco, California
December 21, 1999
EXHIBIT 99.1
FORM 10-K SB
OFFICE OF THE COMPTROLLER OF THE CURRENCY
WASHINGTON, D.C. 20219
[X] Annual Report Under Section 13 or 15(d) of the Securities Exchange Act of
1934 for the fiscal year ended DECEMBER 31, 1998.
SIX RIVERS NATIONAL BANK
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(Exact name of registrant as specified in its charter)
CALIFORNIA 68-0176905
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(State or other jurisdiction of (IRS Employer ID Number)
incorporation or organization)
402 F STREET, EUREKA, CALIFORNIA 95501
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(Address of principal executive offices)
Registrant's telephone number, including area code: (707) 443-8400
Former name, former address and former fiscal year, if changed since last
report: NOT APPLICABLE.
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Securities registered pursuant to Section 12(g) of the Act:
SIX RIVERS NATIONAL BANK - PAR VALUE $5.00 COMMON STOCK
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ ] No [X]
Aggregate market value of shares held by non-affiliates of the registrant (price
computed using last sale price displayed on the Nasdaq National Stock Market as
of the close of business on March 29, 1999):
$16,078,062
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Indicate the number of shares outstanding of the registrant's common
stock, as of March 29, 1999:
1,461,642
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DOCUMENTS INCORPORATED BY REFERENCE
PARTS OF FORM 10-K INTO WHICH
DOCUMENTS INCORPORATED INCORPORATED
Definitive proxy statement for the Company's 1999
Annual Meeting of Shareholders to be filed within
120 days of the end of the fiscal year ended
December 31, 1998. Part III
<PAGE>
PART I.
ITEM 1. BUSINESS
THIS ANNUAL REPORT ON FORM 10-K SB INCLUDES FORWARD-LOOKING INFORMATION WITHIN
THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND IS
SUBJECT TO THE "SAFE HARBOR" CREATED BY THOSE SECTIONS. THESE FORWARD-LOOKING
STATEMENTS (WHICH DO NOT INVOLVE THE HISTORICAL OR FINANCIAL STATEMENT
INFORMATION HEREIN) INVOLVE CERTAIN RISKS AND UNCERTAINTIES THAT COULD CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN THE FORWARD-LOOKING
STATEMENTS. SUCH RISKS AND UNCERTAINTIES INCLUDE, BUT ARE NOT LIMITED TO, THE
FOLLOWING FACTORS: COMPETITIVE PRESSURES IN THE BANKING INDUSTRY; CHANGES IN THE
INTEREST RATE ENVIRONMENT; GENERAL ECONOMIC CONDITIONS, EITHER NATIONALLY OR
REGIONALLY, ARE LESS FAVORABLE THAN EXPECTED, RESULTING IN, AMONG OTHER THINGS,
A DETERIORATION IN CREDIT QUALITY AND AN INCREASE IN THE PROVISION FOR POSSIBLE
LOAN LOSSES; THE ABILITY OF THE BANK TO IMPROVE OR MAINTAIN ASSET QUALITY WHILE
IMPLEMENTING ITS RECENT EMPHASIS ON COMMERCIAL LENDING; CHANGES IN THE
REGULATORY ENVIRONMENT; CHANGES IN BUSINESS CONDITIONS, PARTICULARLY IN
HUMBOLDT, DEL NORTE, TRINITY AND MENDOCINO COUNTIES AND IN THE TIMBER OR TIMBER
RELATED INDUSTRIES; CERTAIN OPERATIONAL RISKS INCLUDING DATA PROCESSING OR
FRAUD; VOLATILITY OF RATE SENSITIVE DEPOSITS; ASSET/LIABILITY MATCHING RISKS AND
LIQUIDITY RISKS; RISKS ASSOCIATED WITH THE YEAR 2000 DATE CHANGE; AND CHANGES IN
THE SECURITIES MARKETS.
GENERAL
Six Rivers National Bank (the "Bank"), a national banking association,
is a full service commercial bank formed in 1989 and headquartered in Eureka,
California, approximately 250 miles north of San Francisco. The Bank conducts a
community banking business through eight full-service offices in Eureka (2),
Crescent City, Ferndale, Garberville, McKinleyville, Weaverville and Willits. It
concentrates on obtaining low-cost core deposits from local customers and making
primarily commercial, consumer and real estate loans to local borrowers.
The Bank is chartered under the laws of the United States and is
governed by the National Bank Act and the regulations promulgated thereunder.
The Bank is a member of the FDIC, which currently insures the deposits of each
member bank to a maximum of $100,000 per depositor. For this protection, the
Bank pays a semi-annual assessment (currently set at a nominal amount) and is
subject to the rules and regulations of the FDIC pertaining to deposit insurance
and other matters. National banks are subject to regulation, supervision and
regular examination by the OCC. The regulations of the FDIC and the OCC govern
many aspects of the Bank's business and activities, including investments,
loans, borrowings, branching, mergers and acquisitions, reporting and numerous
other areas. All national banks are members of the Federal Reserve System. The
Bank is also subject to applicable provisions of California law to the extent
such provisions are not in conflict with or preempted by federal banking law.
On November 6, 1997, the Bank completed the purchase and conversion of
four branches of Bank of America ("the Acquisition"). The Acquisition of the
four branches increased the Bank's size from four locations to eight and
increased its presence outside of Humboldt and Del Norte counties to Trinity
County to the northeast and Mendocino County to the south. In order to finance
the purchase of the branches the Bank completed a secondary stock offering in
the fourth quarter of 1997, netting approximately $13.2 million on the sale of
862,500 shares of the Bank's common stock.
At December 31, 1998, the Bank had total assets of $203.2 million,
total net loans of $104.2 million, deposits of $182.9 million and shareholders'
equity of $18.5 million. The Bank competes with approximately 13 other banking
or savings institutions in its service areas. The Bank's market share of
FDIC-insured deposits in the four-county service area of Humboldt, Del Norte,
Mendocino and Trinity counties is approximately 8.3% at December 31, 1998 (based
upon information made available by the FDIC through June 30, 1998).
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STRATEGY
The geographic area served by the Bank is a rural market along
California's north coast and southern Oregon. The Bank's promotional activities
stress its specialized services and responsiveness to unique local needs.
The Bank accepts checking and savings deposits, offers money market
deposit accounts and certificates of deposit, makes secured and unsecured
commercial and other installment and term loans, and offers other customary
banking services. The Bank also makes real estate loans that consist primarily
of term and construction financing for both businesses and individuals. Included
in the bank's commercial product line are loans to businesses and professionals
for accounts receivable financing, equipment financing, letters of credit and
loans that are partially guaranteed by the U.S. Government (see "Management's
Discussion and Analysis - Loan Portfolio").
The Bank's business strategy is to continue to grow its assets and
increase profitability and shareholder value by: (i) developing or acquiring
low-cost deposits to fund existing loan demand; (ii) developing new lending
relationships in its recently expanded market areas; (iii) increasing market
share in existing markets and expanding its market area to similar nearby
communities; and (iv) by developing alternative sources of income.
EMPLOYEES
At December 31, 1998 the Bank had 94 full-time equivalent officers and
employees. None of the Bank's employees are represented by a union. Management
believes that employee relations are good.
THE EFFECT OF GOVERNMENT POLICY ON BANKING
The earnings and growth of the Bank are affected not only by local
market area factors and general economic conditions, but also by government
monetary and fiscal policies. The nature and impact of future changes in such
policies on the business and earnings of the Bank cannot be predicted.
Additionally, state and federal tax policies can impact banking organizations.
As a consequence of the extensive regulation of commercial banking activities in
the United States, the business of the Bank is particularly susceptible to being
affected by the enactment of federal and state legislation which may increase or
decrease the cost of doing business, modify permissible activities or enhance
the competitive position of other financial institutions. Any change in
applicable laws or regulations may have a material adverse effect on the
business and prospects of the Bank.
REGULATION AND SUPERVISION
REGULATORY ENVIRONMENT
The banking and financial services industry is heavily regulated.
Statutes, regulations and policies affecting the industry are frequently under
review by Congress and state legislatures, and by the federal and state agencies
charged with supervisory and examination authority over banking institutions.
Changes in the banking and financial services industry can be expected to occur
in the future. Some of the changes may create opportunities for the Bank to
compete in financial markets with less regulation. However, these changes also
may create new competitors in geographic and product markets that have
historically been limited by law to insured depository institutions such as the
Bank. Changes in the statutes, regulation, or policies that affect the Bank
cannot necessarily be predicted and may have a material effect on their business
and earnings.
The credit and monetary policies of the Federal Reserve Bank ("FRB")
affect the operations of banking institutions. An important function of the FRB
is to regulate the national supply of bank credit. Among the instruments of
monetary policy used by the FRB to implement its objectives are open market
operations in U.S. government securities, changes in the discount rate on bank
borrowings and changes in reserve requirements on bank deposits. These
instruments of monetary policy are used in varying combinations to influence the
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overall level of bank loans, investments and deposits, the interest rates
charged on loans and paid for deposits, the price of the dollar in foreign
exchange markets, and the level of inflation. The credit and monetary policies
of the FRB will continue to have a significant effect on the Bank.
Set forth below is a summary of significant statutes, regulations and
policies that apply to the operation of the Bank. This summary is qualified in
its entirety by reference to the full text of such statutes, regulations and
policies.
DIVIDENDS
The power of the board of directors of an insured depository
institution to declare a cash dividend or other distribution with respect to
capital is subject to statutory and regulatory restrictions which limit the
amount available for such distribution, depending upon the earnings, financial
condition and cash needs of the institution, as well as general business
conditions. The Federal Deposit Insurance Corporation Insurance Act ("FDICIA")
prohibits insured depository institutions from making capital distributions,
including dividends, if, after such transaction, the institution would be
undercapitalized. A bank is undercapitalized for this purpose if its leverage
ratio, Tier 1 risk-based capital ratio and total risk-based capital ratio are
not at least 4%, 4% and 8%, respectively (see "Regulatory Capital
Requirements").
In addition, the National Bank Act prohibits a national bank from
declaring a dividend on its shares of common stock unless its surplus fund
exceeds the amount of its common capital (total outstanding common shares times
the par value per share). Additionally, if losses have at any time been
sustained equal to or exceeding a bank's undivided profits then on hand, the
bank may not pay dividends. Moreover, even if a bank's surplus exceeded its
common capital and its undivided profits exceed its losses, the approval of the
OCC is required for the payment of dividends if the total of all dividends
declared by a national bank in any calendar year would exceed the total of its
net profits of that year combined with its retained net profits of the two
preceding years, less any required transfers to surplus or a fund for the
retirement of any preferred stock. A national bank must consider other business
factors in determining the payment of dividends. The payment of dividends by the
Bank is governed by the Bank's ability to maintain minimum required capital
levels and an adequate allowance for loan losses.
REGULATORY CAPITAL REQUIREMENTS
National banks are required to maintain a minimum risk-based capital
ratio of 8% (at least 4% in the form of Tier 1 capital) of risk-weighted assets
and off-balance sheet items. "Tier 1" capital consists of common equity,
noncumulative perpetual preferred stock and minority interests in the equity
accounts of consolidated subsidiaries and excludes goodwill. "Tier 2" capital
consists of cumulative perpetual preferred stock, limited-life preferred stock,
mandatory convertible securities, subordinated debt, (subject to a limit of
1.25% of risk-weighted assets) general loan loss reserves and 45% of unrealized
after-tax gains on securities classified as available for sale. In calculating
the relevant ratio, a bank's assets and off-balance sheet commitments are
risk-weighted: thus, for example, most commercial loans are included at 100% of
their book value while assets considered less risky are included at a percentage
of their book value (e.g., 20% for interbank obligations and 0% for U.S.
treasury securities).
The Bank is also subject to a leverage ratio standard. The leverage
ratio guidelines require maintenance of a minimum ratio of 3% Tier 1 capital to
total assets for the most highly rated organizations. Institutions that are less
highly rated, anticipating significant growth or subject to other significant
risks will be required to maintain capital levels ranging from 1% to 2% above
the 3% minimum.
Recent federal regulation established five tiers of capital measurement
ranging from "well capitalized" to "critically undercapitalized." Federal bank
regulatory authorities are required to take prompt corrective action with
respect to inadequately capitalized banks. If a bank does not meet the minimum
capital requirements set by its regulators, the regulators are compelled to take
certain actions, which may include a prohibition on payment of dividends (see
"Prompt Corrective Action and Other Enforcement Mechanisms").
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The following table presents the capital ratios for the Bank compared
to the standards for well and adequately capitalized depository institutions, as
of December 31, 1998.
WELL ADEQUATELY BANK'S
CAPITALIZED CAPITALIZED ACTUAL
Ratio: RATIO RATIO RATIO
Leverage 5.00% 4.00% 6.73%
Tier 1 Risk-based 6.00 4.00 11.05
Total Risk-based 10.00 8.00 12.30
Regulators must take into consideration concentrations of credit risk
and risks from non-traditional activities, as well as an institution's ability
to manage those risks, when determining the adequacy of an institution's
capital. This evaluation will be made as a part of the institution's regular
safety and soundness examination. Regulators must also consider interest rate
risk (when the interest rate sensitivity of an institution's assets does not
match the sensitivity of its liabilities or its off-balance-sheet position) in
evaluation of a bank's capital adequacy.
INSURANCE PREMIUMS AND ASSESSMENTS
The FDIC has authority to impose a special assessment on members of the
Bank Insurance Fund ("BIF") to insure that there will be sufficient assessment
income for repayment of BIF obligations and for any other purpose that it deems
necessary. The FDIC is authorized to set semi-annual assessment rates for BIF
members at levels sufficient to increase the BIF's reserve ratio to a designated
level of 1.25% of insured deposits. The BIF achieved this level in mid-1995.
Congress is considering various proposals to merge the BIF with the Savings
Association Insurance Fund ("SAIF") or otherwise to require banks to contribute
to the insurance funds for savings associations. Adoption of any of these
proposals might increase the cost of deposit insurance for all banks, including
the Bank.
The FDIC has developed a risk-based assessment system, under which the
assessment rate for an insured depository institution will vary according to the
level of risk incurred in its activities. An institution's risk category is
based upon whether the institution is well capitalized, adequately capitalized
or less than adequately capitalized. Each insured depository institution is also
to be assigned to one of the following "supervisory subgroups." Subgroup A, B or
C. Subgroup A institutions are financially sound institutions with few minor
weaknesses; Subgroup B institutions are institutions that demonstrate weaknesses
which, if not corrected, could result in significant deterioration; and Subgroup
C institutions are institutions for which there is a substantial probability
that the FDIC will suffer a loss in connection with the institution unless
effective action is taken to correct the areas of weakness. The FDIC assigns
each member institution an annual FDIC assessment rate which, as of the date of
this report, varies between $0.000 per $100 of insured deposits per annum with a
$2,000 minimum (for well capitalized Subgroup A institutions) and $0.0027 per
$100 of insured deposits per annum (for undercapitalized Subgroup C
institutions).
Under recent legislation, the cost of carrying bonds issued by the
Financing Corporation ("FICO") to cover losses of failed savings associations
will be allocated between BIF-insured institutions and SAIF-insured
institutions, with BIF-insured institutions paying 20% percent of the amount
paid by SAIF-insured institutions. The FDIC recently estimated that to cover
these costs BIF institutions will pay an assessment of approximately $.0128
annually per $100 insured deposits, and SAIF institutions will pay approximately
$.0644 annually per $100 of insured deposits. Starting in the year 2000, BIF and
SAIF institutions will share the FICO bond costs equally, with an estimated
assessment of $.0243 annually per $100 of insured deposits.
This legislation will increase the Bank's premiums, as it will be
required to share in the cost of carrying the FICO bonds. The increase will be
slight until the year 2000, at which time it will increase.
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COMMUNITY REINVESTMENT ACT
The Community Reinvestment Act ("CRA") requires each bank to identify the
communities served by the bank's offices and to identify the types of credit the
bank is prepared to extend within such communities. It also requires the bank's
regulators to assess the bank's performance in meeting the credit needs of its
community and to take such assessment into consideration in reviewing
application for mergers, acquisitions and other transactions such as the
Acquisition. An unsatisfactory rating may be the basis for denying such an
application. In 1996, new compliance and examination guidelines for the CRA were
promulgated by each of the federal banking regulatory agencies, fully replacing
the prior rules and regulatory expectations with new ones ostensibly more
performance based than before to be fully phased in as of July 1, 1997. The
guidelines provide for streamlined examinations of smaller institutions. The
Bank was rated "satisfactory" in its most recent CRA examination (May 5, 1998).
INTERSTATE BANKING
RIEGLE-NEAL INTERSTATE BANKING AND BRANCHING EFFICIENCY ACT OF 1994
INTERSTATE BANKING AND BRANCHING. The Riegle-Neal Interstate Banking
and Branching Efficiency Act of 1994 (the "Riegle-Neal Act") authorized
interstate banking and interstate branching, subject to certain state options.
o Interstate acquisition of banks by holding companies was permitted in
all states on and after September 29, 1995. However, states may continue to
prohibit acquisition of banks that have been in existence less than five years
and interstate chartering of new banks.
o Interstate mergers of banks were permitted as of June 1, 1997, unless
a state adopted legislation before June 1, 1997 to "opt out" of interstate
merger authority. Individual states were permitted to enact legislation to
permit interstate mergers earlier than that date.
o Interstate acquisition of branches is permitted to a bank only if the
law of the state where the branch is located expressly permits interstate
acquisition of a branch without acquiring the entire bank.
o Interstate DE NOVO branching is permitted to a bank only if a state
adopts legislation to "opt in" to interstate de novo branching authority.
LIMITATIONS ON CONCENTRATIONS. An interstate banking application may
not be approved if the applicant and its depository institution affiliates would
control more than 10% of insured deposits nationwide or more than 30% of insured
deposits in the state in which the bank to be acquired is located. These limits
do not apply to mergers solely between affiliates. States may waive the 30% cap
on a nondiscriminatory basis. Nondiscriminatory state caps on deposit market
share of a depository institution and its affiliates are not affected.
AGENCY AUTHORITY. A bank subsidiary of a bank holding company is
authorized to receive deposits, renew time deposits, close loans, service loans
and receive payments on loans as an agent for a depository institution affiliate
without being deemed a branch of the affiliate. A bank is not permitted to
engage, as agent for an affiliate, in any activity as agent that it could
conduct as a principal, or to have an affiliate, as its agent, conduct any
activity that it could not conduct directly, under federal or state law.
HOST STATE REGULATION. Out-of-state banks seeking to acquire or
establish a branch are required to comply with any nondiscriminatory filing
requirements of the host state where the branch is located. The host state may
set notification and reporting requirements for a branch of an out-of-state
bank. A branch of an out-of-state bank is subject to all of the laws of the host
state regarding intrastate branching, consumer protection, fair lending and
community reinvestment. A branch of an out-of-state bank is not permitted to
conduct any activities at the branch that are not permissible for a bank
chartered by the host state.
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MEETING LOCAL CREDIT NEEDS. CRA evaluations are required for each state
in which an interstate bank has a branch. Interstate banks are prohibited from
using out-of-state branches "primarily for the purpose of deposit production."
Federal banking agencies have adopted regulations to ensure that interstate
branches are being operated with a view to the needs of the host communities.
In October 1995, California enacted state legislation in accordance
with authority under the Riegle-Neal Act. State law permits banks headquartered
outside California to acquire or merge with California banks that have been in
existence for at least five years, and thereby establish one or more California
branch offices. An out-of-state bank may not enter California by acquiring one
or more branches of a California bank or other operations constituting less than
the whole bank. The law authorizes waiver of the 30% limit on statewide market
share for deposits as permitted by the Riegle-Neal Act. This law also authorizes
California state-licensed banks to conduct certain banking activities (including
receipt of deposits and loan payments and conducting loan closings) on an agency
basis on behalf of out-of-state banks and to have out-of-state banks conduct
similar agency activities on their behalf.
REGULATION OF CHANGE OF CONTROL
Individuals, acting alone or in concert with others, seeking to acquire
more than 10% of the voting securities of the Bank must comply with the Change
in Bank Control Act. Entities seeking to acquire 5% or more of any class of
voting securities of, or otherwise to control, the Bank must comply with the
Bank Holding Company Act of 1956, as amended (the "BHC Act").
PROMPT CORRECTIVE ACTION AND OTHER ENFORCEMENT MECHANISMS
"FDICIA" requires each federal banking agency to take prompt corrective
action to resolve the problems of insured depository institutions, including but
not limited to those that fall below one or more prescribed minimum capital
ratios. The law required each federal banking agency to promulgate regulations
defining the following five categories in which an insured depository
institution will be placed, based on the level of its capital ratios: well
capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized and critically undercapitalized.
Under the prompt corrective action provisions of FDICIA, an insured
depository institution generally will be classified in the following categories
based on the capital measures indicated below:
"Well capitalized" Total risk-based capital of 10%; Tier 1 risk-based
capital of 6%; and Leverage ratio of 5%.
"Adequately capitalized" Total risk-based capital of 8%; Tier 1
risk-based capital of 4%; and Leverage ratio of 4%.
"Undercapitalized" Total risk-based capital less than 8%; Tier 1
risk-based capital less than 4%; or Leverage ratio less than 4%.
"Significantly undercapitalized" Total risk-based capital less than 6%;
Tier 1 risk-based capital less than 3%; or Leverage ratio less than 3%.
"Critically undercapitalized" Tangible equity to total assets less than
2%.
An institution that, based upon its capital levels, is classified as
"well capitalized," "adequately capitalized" or "undercapitalized" may be
treated as though it were in the next lower capital category if the appropriate
federal banking agency, after notice and opportunity for hearing, determines
that an unsafe or unsound condition or practice warrants such treatment. At each
successive lower capital category, an insured depository institution is subject
to more restrictions. The federal banking agencies, however, may not treat an
institution as "critically undercapitalized" unless its capital ratios actually
warrant such treatment.
If an insured depository institution is undercapitalized, it will be
closely monitored by the appropriate federal banking agency. Undercapitalized
institutions must submit an acceptable capital restoration plan. Further
restrictions and sanctions are required to be imposed on insured depository
institutions that are critically undercapitalized. The most important additional
measure is that the appropriate federal banking agency is required to either
appoint a receiver for the institution within 90 days, or obtain the concurrence
of the FDIC in another form of action.
-7-
<PAGE>
In addition to measures taken under the prompt corrective action
provisions, commercial banking organizations may be subject to potential
enforcement actions by the federal regulators for unsafe or unsound practices in
conducting their businesses or for violations of any law, rule, regulation or
any condition imposed in writing by the agency or any written agreement with the
agency. Enforcement actions may include the imposition of a conservator or
receiver, the issuance of a cease-and-desist order that can be judicially
enforced, the termination of insurance of deposits (in the case of a depository
institution), the imposition of civil money penalties, the issuance of
directives to increase capital, the issuance of formal and informal agreements,
the issuance of removal and prohibition orders against institution-affiliated
parties and the enforcement of such actions through injunctions or restraining
orders based upon a judicial determination that the agency would be harmed if
such equitable relief was not granted. Additionally, a holding company's
inability to serve as a source of strength to its subsidiary banking
organizations could serve as an additional basis for a regulatory action against
the holding company. The Bank will be subject to a consent order issued by the
OCC with respect to certain of the Bank's operations (see footnote 17 of the
Bank's financial statements).
SAFETY AND SOUNDNESS STANDARDS
FDICIA also implemented certain specific restrictions on transactions
and required federal banking regulators to adopt overall safety and soundness
standards for depository institutions related to internal control, loan
underwriting and documentation and asset growth. Among other things, FDICIA
limits the interest rates paid on deposits by undercapitalized institutions,
restricts the use of brokered deposits, limits the aggregate extensions of
credit by a depository institution to an executive officer, director, principal
shareholder or related interest, and reduces deposit insurance coverage for
deposits offered by undercapitalized institutions for deposits by certain
employee benefits accounts.
Federal banking agencies may require an institution to submit to an
acceptable compliance plan as well as the flexibility to pursue other more
appropriate or effective courses of action given the specific circumstances and
severity of an institution's noncompliance with one or more standards.
RECENTLY ENACTED LEGISLATION
The Taxpayer Relief Act of 1997 provides for Education Individual
Retirement Accounts ("Education IRA"), a new type of tax-free savings vehicle to
pay qualified higher education expenses. A maximum of $500 per year may be
contributed to Education IRAs for any beneficiary under the age of 18 years,
provided the contributor has adjusted gross income for the year not exceeding
$95,000 ($150,000 for joint returns). No income tax deduction is provided for a
contribution to an Education IRA. Until a distribution is made from an Education
IRA, earnings on contributions to the account are not subject to tax. Additional
restrictions apply as well.
In 1997, California adopted the Environmental Responsibility Acceptance
Act (Cal. Civil Code ss.ss. 850-855) to facilitate (i) the notification of
government agencies and potentially responsible parties (e.g., for cleanup) of
the existence of contamination and (ii) the cleanup or other remediation of
contamination by the potentially responsible parties. The Act requires, among
other things, that owners of sites who have actual awareness of a release of a
hazardous material that exceeds a specified notification threshold to take all
reasonable steps to identify the potentially responsible parties and to send a
notice of potential liability to the parties and the appropriate oversight
agency.
During 1996, new federal legislation amended the Comprehensive
Environmental Response, Compensation, and Liability Act ("CERCLA") and the
underground storage tank provisions of the Resource Conservation and Recovery
Act to provide lenders and fiduciaries with greater protections from
environmental liability. In June 1997, the U.S. Environmental Protection Agency
("EPA") issued its official policy with regard to the liability of lenders under
CERCLA as a result of the enactment of the Asset Conservation, Lender Liability
and Deposit Insurance Protection Act of 1996. California law provides that,
subject to numerous exceptions, a lender acting in the capacity of a lender
-8-
<PAGE>
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.
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.
On September 16, 1997, the FDIC proposed two new rules governing
minimum capital levels that FDIC-supervised banks must maintain against the
risks to which they are exposed. The first proposed rule would make risk-based
capital standards consistent for two types of credit enhancements (i.e.,
recourse arrangements and direct credit substitutes) and would require different
amounts of capital for different risk positions in asset securitization
transactions. The second proposed rule would permit limited amounts of
unrealized gains on equity securities to be recognized for risk-based capital
purposes.
Certain other pending legislative proposals include bills to permit
banks to 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.
AUDIT REQUIREMENTS
All depository institutions are required to have an annual, full-scope
on-site examination. Those depository institutions with assets greater than $500
million are required to have annual independent audits and to prepare all
financial statements in accordance with generally accepted accounting
principles. Each institution is required to have an independent audit committee
comprised entirely of outside directors.
SEGMENT REPORTING
On January 1, 1998, the Bank adopted SFAS No. 131, DISCLOSURES ABOUT
SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION, which establishes annual and
interim reporting standards for an enterprise's business segments and related
disclosures about its products, services, geographic areas and major customers.
This statement will not impact the Bank's financial position, results of
operations or cash flows. Management evaluates the Bank's performance as a
whole, does not allocate resources based on the performance of different lending
or transaction activities and reports its operating results as a single business
segment.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998 the Financial Accounting Standards Board issued SFAS No.
133 ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. The statement
establishes accounting and reporting standards for derivative instruments and
hedging activities. The statement is effective for all fiscal quarters of fiscal
years beginning after June 15, 1999. The Bank is in the process of determining
what impact SFAS No. 133 will have on its financial position and results of
operations.
YEAR 2000
The inability of computers, software and other equipment utilizing
microprocessors to recognize and properly process data fields containing a
2-digit year is commonly referred to as the Year 2000 compliance issue. As the
year 2000 approaches, such systems may be unable to accurately process certain
date-based information.
The Bank has written a plan to mitigate the risks associated with the
impact of the Year 2000. The plan directs the Bank's Year 2000 activities under
the framework of the Federal Financial Institutions Examination Council
("FFIEC") Five-Step Program. The FFIEC's Five-Step Program includes the
following phases: Awareness, Assessment, Renovation, Validation and
-9-
<PAGE>
Implementation. The Awareness Phase, which is 100% complete, defines the Year
2000 problem and gains executive level support for the necessary resources to
prepare the Bank for Year 2000 compliance. The Assessment Phase, also 100%
complete, assesses the size and complexity of the problem and details the
magnitude of the effort necessary to address the Year 2000 issues. Although the
Awareness and Assessment Phases are complete, the Bank will continue to evaluate
any new issues as they arise. The Renovation Phase, now 90% complete, includes
the incremental changes to hardware and software components. The Validation
Phase, also 90% complete, includes the testing of hardware and software
components and is scheduled to be substantially complete by June 30, 1999. The
Implementation Phase, 80% complete, certifies that systems are Year 2000
compliant and will be accepted by the end users. The Implementation Phase is
scheduled to be substantially complete by June 30, 1999. The Bank has completed
the development of test and validation methodologies for its Information
Technology systems. Testing of applications was substantially completed by
December 31, 1998. In some cases, the bank will rely on service providers and
software vendors to facilitate proxy testing with a selected group of users. The
Bank will review the test plans and validate the results of the proxy testing to
ensure the Year 2000 compliance of those systems. The Bank's business also uses
non-IT products and services, some of which have embedded technology, which
might not be ready for the Year 2000 date change. Some non-IT products and
services involve infrastructure issues such as power, communications and water,
as well as ventilation, vault operations and air conditioning equipment. The
Bank classifies power and communications as non-IT products and considers them
to be of significant importance, giving them a high priority. Based on responses
from vendors and software providers, the Bank does not anticipate incurring any
material expenses owed to unpreparedness. The Bank has identified material third
party relationships to minimize the potential loss from unpreparedness of these
parties. The testing and validation of these systems was substantially completed
by December 31, 1998.
The Bank is making efforts to ensure that its customer base is aware of
the Year 2000 problem. Year 2000 correspondence has been sent to both deposit
and loan customers. The Bank has amended its credit authorizations and
documentation to include consideration regarding the Year 2000 problem.
Significant customer relationships have been identified, and such customers are
being contacted by the Bank's employees to determine whether they are aware of
Year 2000 risks and whether they are taking corrective actions.
The total cost to the Bank of these Year 2000 compliance activities was
approximately $10,000 for 1998, and an additional $90,000 is anticipated for
1999. Costs associated with the modifications necessary are being expensed by
the Bank during the period in which they are incurred. These costs and the date
on which the Bank plans to complete the Year 2000 modification and testing
processes are based on management's best estimates, which were derived utilizing
numerous assumptions of future events including the continued availability of
certain resources, third party modification plans and other factors. However,
there can be no guarantee that the estimates of costs for 1999 will be accurate
since actual results could differ from those planned. The costs incurred in 1998
did not have a material effect on the Bank's reported earnings for 1998 and the
Bank does not expect the costs incurred for the same period in 1999 to have a
material effect on net income. It is anticipated that any disruption of services
would be partial and brief, and that there will not be a material impact on
revenues or earnings.
The Bank is developing contingency plans to address the possibility
that efforts to mitigate Year 2000 risk are not successful either in whole or in
part. These plans will include remedial efforts up to and including complete
manual processing of information for critical IT systems in the event that there
is a failure after December 31, 1999. These plans, along with all associated
implementation training, should be completed by June 30, 1999.
The factors that may cause actual results to differ materially from
those contemplated may include the failure by third parties to adequately
remediate Year 2000 issues or the inability of the Bank to complete writing
and/or testing software changes on time schedules currently expected.
Nevertheless, the Bank expects that its Year 2000 compliance efforts will be
successful without any adverse effects on its business.
-10-
<PAGE>
ORGANIZATION OF BANK HOLDING COMPANY
THE BOARD OF DIRECTORS OF THE BANK IS CONSIDERING ORGANIZING A HOLDING
COMPANY FOR THE BANK (THE "REORGANIZATION"). UNDER THE REORGANIZATION,
SHAREHOLDERS OF THE BANK (INCLUDING PERSONS WHO BECOME SHAREHOLDERS AS A RESULT
OF THIS REORGANIZATION WOULD EXCHANGE THEIR SHARES OF COMMON STOCK OF THE BANK
FOR SHARES OF COMMON STOCK OF THE NEW HOLDING COMPANY. THE FOLLOWING DISCUSSION
DOES NOT CURRENTLY APPLY TO THE BANK, BUT WOULD APPLY TO THE BANK'S HOLDING
COMPANY, TO BE KNOWN AS SIX RIVERS FINANCIAL CORP., WHEN THE REORGANIZATION IS
COMPLETED. THE BANK WOULD CONTINUE TO BE REGULATED BY THE OCC.
On September 15, 1997, the Shareholders of the Bank approved a
recommendation by the Board of Directors to create a holding company for the
Bank (the "Reorganization"). The Board believes the Reorganization will provide
greater operating flexibility and position the organization to take advantage of
opportunities to: (i) expand business through acquisitions; (ii) raise capital
through borrowing; (iii) repurchase its securities; and (iv) acquire or
establish other businesses related to banking. The Bank does not have any
current plans to consummate any such acquisition, borrowings or repurchases.
Under the Reorganization, shareholders would exchange each share of Common Stock
of the Bank for a share of common stock of a proposed bank holding company. The
completion of the Reorganization is subject to the prior approval of the Board
of Governors of the Federal Reserve System (the "FRB"). The Bank anticipates
making an application to the FRB during 1999.
REGULATION AND SUPERVISION OF BANK HOLDING COMPANIES
Upon completion of the Reorganization, Six Rivers Financial Corp. would
become a bank holding company under the Bank Holding Company Act ("BHC Act") and
would be subject to regulation by the FRB. A bank holding company is required to
register as such with the FRB and to file with the FRB annual reports and other
information regarding its business operations and those of its subsidiaries.
Pursuant to the BHC Act, a bank holding company is subject to
limitations on the kinds of businesses in which it can engage directly or
through subsidiaries. It may of course manage or control banks. Generally,
however, it is prohibited, with certain exceptions, from acquiring direct or
indirect ownership or control of more than 5% of any class of voting shares of
an entity engaged in nonbanking activities, unless the FRB finds such activities
to be "so closely related to banking" as to be deemed "a proper incident
thereto" within the meaning of the BHC Act. Removal of many of the activity
limitations is currently under review by Congress, but whether any legislation
liberalizing permitted bank holding company activities will be enacted is not
known. Bank acquisitions by bank holding companies are also regulated. A bank
holding company may not acquire more than 5% of the voting shares of any
domestic bank without the prior approval of the FRB.
The BHC Act subjects bank holding companies to minimum capital
requirements similar to those for national banks (see "Regulatory Capital
Requirements"). Regulations and policies of the FRB also require a bank holding
company to serve as a source of financial and managerial strength to its
subsidiary banks. It is the FRB's policy that a bank holding company should
stand ready to use available resources to provide adequate capital funds to a
subsidiary bank during periods of financial stress or adversity and should
maintain the financial flexibility and capital-raising capacity to obtain
additional resources for assisting a subsidiary bank. Under certain conditions,
the FRB may conclude that certain actions of a bank holding company, such as a
payment of a cash dividend, would constitute an unsafe and unsound banking
practice.
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<PAGE>
ITEM 2. PROPERTIES
The following table sets forth information about the Bank's banking
offices.
Owned/ Operating
Location Office Type Leased Since
-------- ----------- ------ ---------
Eureka Main Office Owned 1996
Eureka Branch Leased 1989
Crescent City Branch Owned 1992
McKinleyville Branch Leased 1990
Ferndale Branch Owned 1997
Garberville Branch Leased 1997
Weaverville Branch Owned 1997
Willits Branch Owned 1997
The Bank's headquarters is located at 402 F Street, Eureka, California, 95501.
ITEM 3. LEGAL PROCEEDINGS
The Bank is involved in litigation in the ordinary course of its business,
particularly in connection with certain nonperforming loans, and in
administrative proceedings related to these loans. In 1998, legal expenses
related to nonperforming loans were significant, and such expenses, though
expected to decline, are likely to continue in 1999 (see "Management's
Discussion and Analysis - Noninterest Expenses"). In the opinion of management,
current pending and threatened litigation is not otherwise likely to have a
material adverse effect on the Bank's financial condition and results of
operations. The Bank will be subject to a consent order issued by the OCC. See
footnote 17 of the Bank's audited financial statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fourth quarter
of the fiscal year covered by this report.
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
As of December 31, 1998, the Bank had 1,461,642 shares of Common Stock
outstanding, held by approximately 1,500 shareholders. The Bank's Common Stock
has been included for quotation on the Nasdaq National Market System under the
symbol "SIXR" since October 21, 1997. Before that date it was traded on the OTC
Bulletin Board trading system. The market makers of the Common Stock are Hoefer
& Arnett, Inc., Pacific Crest Securities, Torrey Pines Securities, Inc., Sutro &
Company, and Stern, Agee, Leach.
The following table sets forth the high and low bid sale prices for the
Common Stock, as reported by Nasdaq since January 1, 1997 and by the principal
stock brokerage firms handling transactions in the Common Stock or otherwise
known to management since January 1, 1997. The Bank may not be aware of prices
at which certain private transactions in the Common Stock have occurred, and
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<PAGE>
therefore the prices shown may not necessarily represent the complete range of
prices at which transactions in the Common Stock have occurred during such
periods. Such prices also are not necessarily indicative of the price that may
be obtained in an active established market.
SALES PRICE
------------------------
High Low
-------- --------
1997
First Quarter $ 20.00 $ 14.00
Second Quarter 18.25 17.00
Third Quarter 17.50 16.50
Fourth Quarter 19.00 16.50
1998
First Quarter 19.25 16.38
Second Quarter 19.63 16.38
Third Quarter 18.27 9.75
Fourth Quarter 13.25 10.00
1999
First Quarter 12.25 10.00
DIVIDEND POLICY
The Bank has never paid a cash dividend and has no current intention of
paying a cash dividend in the near future. The current policy of the Board of
Directors is to retain earnings to support growth. The payment of cash dividends
in the future is solely within the discretion of the Bank's Board of Directors,
subject to compliance with regulatory requirements. There are certain
limitations on the payment of cash dividends by national banks. At December 31,
1998, no amounts were available for dividends without prior approval of the
Bank's regulator (see "Business - Dividends").
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<PAGE>
SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table presents selected historical financial data,
including per share data, for the Bank. The results of operations data and the
balance sheet data for each of the five years in the period ended December 31,
1998 has been derived from financial statements of the Bank and the notes
thereto. The following financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements of the Bank and notes thereto included
in this report as Item 7.
Average assets and equity are computed as the average of daily balances.
<TABLE>
<CAPTION>
As of and for the Year Ended December 31, 1998
---------------------------------------------------------------
1998 1997 1996 1995 1994
------------ ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Total interest income $ 14,915 $ 10,064 $ 8,267 $ 6,865 $ 5,280
Total interest expense 6,067 3,992 3,309 2,811 1,900
Net interest income 8,848 6,072 4,958 4,054 3,380
Provision for loan losses 3,904 2,241 276 225 228
Net interest income after provisions for 4,944 3,831 4,682 3,829 3,152
loan losses
Noninterest income 1,595 1,225 955 886 734
Noninterest expense 8,414 4,912 4,255 3,733 3,68
Income (loss) before provision for income (1,876) 144 1,382 981 205
taxes
(Provisions) benefit for income taxes 751 (26) (580) (412) --
Net Income (loss) (1,125) 118 802 569 205
PER SHARE DATA (1)
NET INCOME (LOSS):
Basic $ (0.77) $ 0.17 $ 1.42 $ 1.01 $ 0.37
Diluted (0.77) 0.16 1.35 1.00 0.32
Cash dividends
Book Value 12.67 13.45 10.18 8.92 7.59
Period end shares outstanding 1,461,642 1,430,442 564,840 564,744 553,898
Shares used to compute net
income per share
Basic (rounded) 1,453,000 712,000 565,000 565,000 554,000
Diluted (rounded) 1,453,000 752,000 592,000 569,000 644,000
BALANCE SHEET
Interest-bearing investments $ 77,817 $ 85,954 $ 15,020 $ 23,584 $ 21,979
Total loans 107,028 85,951 73,673 55,555 43,748
Allowance for loan losses 2,802 1,159 807 696 529
Total assets 203,236 193,807 100,019 87,189 72,196
Total deposits 182,932 172,733 91,986 79,888 66,949
Stockholders' equity 18,520 19,236 5,754 5,037 4,206
PERFORMANCE RATIOS
Return (loss) on average assets) (0.56)% .10% 0.87% 0.73% 0.31%
Return (loss) on average equity (5.75) 1.24 14.33 11.83 4.77
Net interest margin (2) 4.86 5.61 5.91 5.77 5.66
Efficiency ratio (3) 80.57 67.93 72.50 75.57 89.73
ASSET QUALITY PERFORMANCE
Nonperforming assets to total assets (4) 1.72% 1.74% 2.03% 1.23% 1.48%
Nonperforming loans to total loans (5) 2.94 3.48 2.41 1.29 2.43
Net loan charge-offs to average loans 2.21 2.38 0.25 0.12 0.22
Allowance for loan losses to nonpeforming 89.18 38.76 45.46 97.34 49.67
loans
Allowance for loan losses to total loans 2.62 1.35 1.10 1.25 1.21
CAPITAL RATIOS (6)
Total risk-based capital 12.30% 10.26% 9.46% 10.25% 10.70%
Tier 1 risk-based capital 11.05 9.49 8.32 9.01 9.56
Leverage ratio 6.73 8.69 5.91 5.98 6.19
</TABLE>
- ------------------------------
(1) All share and per share data for the periods 1994 through 1996 has been
adjusted to reflect stock dividends and warrants and has been restated in
accordance with SFAS No. 128, EARNINGS PER SHARE.
(2) Net interest margin is net interest income expressed as a percentage of
average total interest-earning assets.
(3) The efficiency ratio is the ratio of noninterest expense to the sum of net
interest income before provision for loan losses and total noninterest
income excluding securities gain and losses.
(4) Nonperforming assets consist of nonaccrual loans, loans past due 90 days or
more, restructured loans and other real estate owned.
(5) Nonperforming loans consist of nonaccrual loans, loans past due 90 days or
more and restructured loans.
(6) The risk-based and leverage capital ratios are defined in "Regulation and
Supervision-Regulatory Capital Requirements."
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<PAGE>
The following table sets forth the Bank's unaudited data regarding
operations for each quarter of 1998 and 1997. In the opinion of management of
the Bank, the data presented includes all adjustments (which are of a normal
recurring nature) considered necessary for a fair presentation of the results of
such periods. The results of operations for any quarter are not necessarily
indicative of the future operations of the Bank.
SELECTED QUARTERLY FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------
FOR THE THREE MONTHS ENDED
----------------------------------------------------------------------------
DECEMBER 31 SEPTEMBER 30, JUNE 30, MARCH 31,
----------------------------------------------------------------------------
1998 1997 1998 1997 1998 1997 1998 1997
--------- --------- -------- --------- -------- --------- --------- --------
RESULTS OF OPERATIONS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total interest income $ 3,797 $ 3,213 $ 3,864 $ 2,308 $ 3,755 $ 2,356 $3,499 $ 2,187
Total interest expenses 1,499 1,286 1,599 943 1,492 891 1,477 872
Net interest income 2,298 1,927 2,265 1,365 2,263 1,465 2,022 1,315
Provision for loan losses 1,400 1,563 1,084 74 1,280 445 140 159
Net interest income after provisions for 898 364 1,181 1,291 983 1,020 1,882 1,156
loan losses
Noninterest income 408 435 424 206 397 379 366 205
Noninterest expense 2,465 1,611 2,026 1,092 2,229 1,107 1,695 1,102
Income/(loss) before provision for income (1,159) (812) (421) 405 (849) 292 553 259
taxes
(Provisions)/benefit for income taxes (464) (342) (168) 168 (346) 118 227 82
Net Income/(loss) (695) (470) (253) 237 (503) 174 326 177
PER SHARE DATA (1)
Net Income (loss):
Basic $ (0.48) $ (0.41) $ (0.17) $ 0.42 $ (0.35) $ 0.31 $ 0.23 $ 0.31
Diluted $ (0.48) $ (0.41) $ (0.17) $ 0.42 $ (0.39) $ 0.29 $ 0.22 $ 0.29
Period end shares outstanding (000s) 1,462 1,430 1,462 568 1,456 565 1,447 565
Shares used to compute net income (loss)
per share:
Basic 1,462 1.148 1,460 566 1,454 565 1,436 565
Diluted (000s) 1,462 1,148 1,460 606 1,454 608 1,468 608
</TABLE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THE FOLLOWING MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS CONTAINS FORWARD-LOOKING STATEMENTS THAT
INVOLVE RISKS AND UNCERTAINTIES. THE BANK'S ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A
RESULT OF CERTAIN FACTORS, INCLUDING THOSE SET FORTH IN THE SECTION ENTITLED
"BUSINESS" AND ELSEWHERE IN THIS REPORT.
The following discussion provides information about the results of
operations and financial condition of the Bank for the years ended December 31,
1998 and 1997. The following discussion should be read in conjunction with the
"Selected Financial Data" of the Bank and the notes thereto.
OVERVIEW
For the year ended December 31, 1998, the Bank reported a net loss of
$(1,125,000) or $(0.77) per diluted share as compared to net income of $118,000
or $0.16 per diluted share for the year ended December 31, 1997. The net loss
was driven primarily by increased loan loss provisions related to the Bank's
commercial loan portfolio, as well as related noninterest expense, primarily
legal and professional fees. The Bank's provision for loan losses increased
74.2% to $3,904,000 from $2,241,000 for 1997. Noninterest expense rose to
$8,414,000, or 71.3%, from $4,912,000 for 1997. Somewhat offsetting these
expenses was higher net interest income, which jumped 47.0% to $8,848,000 in
1998 from 1997's $6,017,000.
For the year ended December 31, 1997, the Bank reported net income of
$118,000 or $0.16 per diluted share as compared to net income of $802,000 or
$1.35 per diluted share for the year ended December 31, 1996.
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<PAGE>
As of December 31, 1998, total assets of the Bank were $203.2 million,
net loans totaled $104.2 million, and deposits totaled $182.9 million. Total
assets increased 4.9%, or $9.4 million, during 1998. Net loans drove the
increase, rising 18.8% or $19.5 million. Deposits increased 5.9% or
approximately $10.2 million to $182.9 million as of December 31, 1998. At
December 31, 1997, total assets of the Bank were $193.8 million, net loans were
$84.6 million and deposits totaled $172.7 million.
In late 1997 the Bank completed an underwritten public offering. The
proceeds of the offering were used to support the acquisition of four branches
from Bank of America and for general business growth
RESULTS OF OPERATIONS
The Bank's primary source of income is net interest income, which is
the difference between interest income and fees derived from earning assets and
interest paid on liabilities obtained to fund those assets. The Bank's net
interest income is affected by changes in the volume of interest-earning assets
and interest-bearing liabilities. It is also affected by changes in yields
earned on interest-earning assets and rates paid on interest-bearing deposits
and other borrowed funds. The Bank also generates noninterest income, including
transactional fees, appraisal fees and loan origination fees. The Bank's
noninterest expenses consist primarily of employee compensation and benefits,
occupancy and equipment expenses and other operating expenses. The Bank's
results of operations are affected significantly by its provision for loan
losses. Results of operations may also be significantly affected by other
factors including general economic and competitive conditions, mergers and
acquisitions of other financial institutions within the Bank's market area,
changes in market interest rates, government policies and actions of regulatory
agencies.
NET INCOME / (LOSS). The net loss for the year ended December 31, 1998
was $(1,125,000) compared to net income of $118,000 for the year ended December
31, 1997. Earnings (loss) per diluted share were $(0.77) and $0.16 for the years
ended December 31, 1998 and 1997, respectively. Annualized return (loss) on
average assets was (0.56)% for the year ended December 31, 1998, compared with
0.10% for the year ended December 31, 1997. The Bank's annualized return (loss)
on average equity was (5.75)% and 1.24% for the year ended December 31, 1998 and
1997, respectively. The decline in earnings for the year ended December 31, 1998
compared with 1997 was the result of significant increases in both the Bank's
provision for loan losses and related noninterest expense (see "Provision for
Loan Losses").
For the year ended December 31, 1998, net interest income was
$8,848,000, an increase of $2,831,000 or 47.1% from $6,017,000 for the year
ended December 31, 1997. Net interest margin (net interest income as a
percentage of average interest-earning assets) was 4.86% for the year ended
December 31, 1998 and 5.61% for the year ended December 31, 1997. The increase
in net interest income was primarily the result of the Bank's larger average
earning asset base, which was offset somewhat by lower average rates.
For the year ended December 31, 1997, net interest income of $6,017,000
was a $1,060,000, or 21.4% increase over net interest income of $4,957,000
realized for the year ended December 31, 1996, primarily as a result of the
increase in the loan portfolio.
The increases in net interest income in 1996 and 1997 were attributable
primarily to the larger commercial loan portfolio. Average commercial loans were
approximately $56,788,000 for the year ended December 31, 1998 compared to
approximately $45,629,000 for the year ended December 31, 1997. For 1996,
commercial loans averaged approximately $33,998,000.
The following tables present condensed average balance sheet
information for the Bank, together with interest rates earned and paid on the
various sources and uses of its funds for each of the periods indicated.
Nonaccrual loans are included in the tables for computational purposes, but the
foregone interest on such loans is excluded.
-16-
<PAGE>
AVERAGE BALANCE SHEET AND ANALYSIS OF NET INTEREST INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997 1996
------------------------- ------------------------- ----------------------------
Interest Interest Interest
Average Income/ Average Average Income/ Average Average Income/ Average
Balance Expense Rate Balance Expense Rate Balance Expense Rate
-------- -------- ------- ------- -------- -------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
INTEREST-EARNING ASSETS:
Interest-bearing deposits in other
financial institutions $ 3,862 262 6.78% $ 1,611 $ 102 6.33% $ 774 $ 51 6.59%
Federal funds sold and repurchase
agreements 17,319 973 5.62 13,166 752 5.71 2,610 141 5.40
Taxable investment securities 56,543 3,561 6.30 13,729 831 6.05 15,161 942 6.21
Nontaxable investment securities (1) 1,927 106 5.50 426 20 4.69 135 7 5.19
LOANS:(2)
Commercial and Industrial 56,788 5,617 9.89 45,629 4,705 10.31 33,998 3,570 10.50
Real estate mortgage and construction 26,670 2,199 8.25 17,765 1,625 9.15 20,186 1,816 9.00
Installment and other 19,023 1,711 8.99 15,972 1,579 9.89 11,061 1,140 10.31
Fees on loans 486 450 600
------- ------- ------ ------- ------- ------- -------- ------- ------
Total Loans 102,481 10,013 9.77 79,366 8,359 10.53 65,245 7,126 10.92
------- ------- ------ ------- ------- ------- -------- ------- ------
Total earning assets 182,132 14,915 8.19 108,298 10,064 9.29 83,925 8,267 9.85
NON EARNING ASSETS:
Cash and due from banks 8,928 6,052 4,758
Premises and equipment 4,204 2,884 2,963
Interest receivable and other assets 6,984 2,056 1,382
Less allowance for loan losses (1,311) (922) (693)
Other real estate owned 386 317 271
------- -------- --------
Total nonearning assets 19,191 10,387 8,681
------- -------- --------
TOTAL ASSETS 201,323 118,685 92,606
======= ======== ========
LIABILITIES
INTEREST-BEARING LIABILITIES:
Demand, savings and money market
deposits $ 76,126 $ 2,056 2.70% 41,888 1,076 2.57% 33,048 758 2.29%
Time deposits 70,298 3,935 5.60 50,978 2,846 5.60 42,464 2,485 5.85
------- ------- ------ ------- ------- ------- -------- ------- ------
Total interest-bearing deposits 146,424 5,991 4.09 92,686 3,922 4.23 75,512 3,243 4.29
Other borrowed funds 1,311 76 5.80 1,121 70 6.24 2,038 66 3.24
------- ------- ------ ------- ------- ------- -------- ------- ------
Total interest-bearing liabilities 147,735 6,067 4.11 93,807 3,992 4.26 77,550 3,309 4.27
NONINTEREST-BEARING LIABILITIES
Demand deposits 32,378 15,060 7,905
Accrued interest, taxes and other
liabilities 1,643 3,374 1,554
------- -------- --------
Total noninterest-bearing liabilities 34,022 18,434 9,459
------- -------- --------
Total liabilities 181,757 112,241 87,009
Shareholders' equity 19,567 6,444 5,597
======= ======== ========
Total liabilities and shareholders'
equity 201,323 118,685 92,606
======= ======== ========
Net interest income 8,848 6,072 4,958
======= ======= ========
Net interest spread (3) 4.08% 5.04% 5.58%
====== ======== =======
Net interest margin (4) 4.86% 5.61% 5.91%
====== ======== =======
</TABLE>
(1) Interest on municipal securities is not computed on a tax-equivalent basis.
(2) Includes loans on nonaccrual status but excludes nonaccrual interest.
(3) Net interest spread is the difference between the yield on average total
interest-earning assets and the rate paid on average interest-bearing
liabilities.
(4) Net interest margin is computed by dividing net interest income by total
average interest-earning assets.
-17-
<PAGE>
Average noninterest-bearing deposits increased to $32,378,000 for 1998
from $15,060,000 for the year ended December 31, 1997. As a percent of average
total liabilities, average noninterest-bearing deposits were 17.8% and 13.4% for
the years ended December 31, 1998 and 1997, respectively. For 1996, average
noninterest-bearing deposits were $7,905,000, or 9.1% of average total
liabilities.
The following tables set forth, for the periods indicated, a summary of
the changes in average asset and liability balances and interest earned and
interest paid resulting from changes in average asset and liability balances
(volume) and changes in average interest rates. The changes in interest due to
both volume and rate have been allocated to volume. Nonaccrual loans are
included in the table for computational purposes, but the foregone interest on
such loans is excluded.
<TABLE>
<CAPTION>
RATE/VOLUME ANALYSIS OF NET INTEREST INCOME
(DOLLARS IN THOUSANDS)
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997 DECEMBER 31, 1996
COMPARED TO COMPARED TO COMPARED TO
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996 DECEMBER 31, 1995
----------------------------- ------------------------------ ----------------------------
CHANGE DUE TO
----------------------------- ------------------------------ ----------------------------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
VOLUME RATE TOTAL VOLUME RATE TOTAL VOLUME RATE TOTAL
--------- --------- --------- --------- ---------- --------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
Interest-bearing deposits
in other financial
institutions $ 143 $ 17 $ 160 $ 55 $ (4) $ 51 $ (34) (34)
Federal funds sold 237 (16) 221 570 41 611 21 $ (7) 14
Taxable investment securities 2,591 138 2,729 (89) (22) (111) (175) 19 (156)
Net loans 70 16 86 15 (2) 13 2 2
Total interest income 2,435 (781) 1,654 1,542 (309) 1,233 1,776 (84) 1,692
======== ========= ========= ========= ========== ======== ========= ======= =======
$ 5,476 $ (627)$ 4,849 $ 2,093 $ (296) $ 1,797 $ 1,590 $ (72) $ 1,518
======== ========= ========= ========= ========== ======== ========= ======= =======
INTEREST EXPENSE
Demand, savings
and money market deposits $ 879 $ 100 $ 979 $ 203 $ 115 $ 318 $ 126 $ 52 $ 178
Time deposits 1,093 (4) 1,089 488 (127) 361 287 (16) 271
Other borrowings 12 (6) 6 (30) 34 4 48 1 49
-------- --------- --------- --------- ---------- -------- --------- ------- -------
Total interest expense 1,984 90 2,074 661 22 683 461 37 498
-------- --------- --------- --------- ---------- -------- --------- ------- -------
Net interest margin $ 3,492 $ (717)$ 2,775 $ 1,432 $ (318) $ 1,114 $ 1,129 $ (109) $ 1,020
======== ======== ========= ========= ========= ======= ======== ======= =======
</TABLE>
During 1998 the Bank generated $8,848,000 in net interest income, an
increase of $2,776,000 or 45.7% over the $6,072,000 reported in 1997. The
increase was primarily the result of the $73,834,000 increase in average earning
assets driven by the realization of the full impact of the November 1997
acquisition, which was offset somewhat by lower yields and higher nonaccrual
loan levels. The acquisition had a similar impact on average interest-bearing
liabilities, which for 1998 increased $53,928,000 and increased deposit interest
expense 52.8% higher to $5,991,000, despite lower average rates paid.
From 1996 to 1997 the Bank's net interest income increased by
$1,114,000, primarily the result of a $14,121,000 increase in average loan
balances, which resulted in increased interest and fee income of $1,233,000
compared to 1996. That increase was partially offset by slightly declining
interest rates and an increase in loans on nonaccrual status, which had the
effect of reducing average rates on the net loan portfolio from 10.9% in 1996 to
10.5% in 1997. From 1996 to 1997 interest expense on deposits and borrowed funds
increased by $683,000, primarily resulting from an increase in average balances
of time deposits from $42,464,000 in 1996 to $50,798,000 in 1997. The average
rate paid on time deposits decreased from 5.85% in 1996 to 5.60% in 1997, and
had the effect of reducing interest expense on time deposits by $127,000 from
1996.
PROVISION FOR LOAN LOSSES. In 1998, the Bank's provision for loan
losses was $3,904,000, an increase of $1,633,000 or 74.2% from $2,241,000 for
the year ended December 31, 1997. The Bank increased the provision to replenish
-18-
<PAGE>
the allowance for loan losses after the write off of $1,953,000 in nonperforming
commercial loans and a general need to increase the overall level of commercial
loan loss reserves.
In 1997, the Bank's provision for loan losses was $2,241,000, an
increase of $1,965,000 or 712.0% from $276,000 for the year ended December 31,
1996. The Bank increased the provision primarily due to certain nonperforming
loans and, to a lesser extent, to compensate for growth in the loan portfolio
and the growth of commercial loans as a percentage of total loans.
In 1997 approximately $1,286,000 of the $2,241,000 loan loss provision
was attributable to the charge off of certain commercial loans against the
allowance for loan losses. The remainder of the provision was made to replenish
the allowance for commercial and consumer loan charge offs and to reserve for
general growth in the portfolio.
NONINTEREST INCOME. The following table sets forth the components of
noninterest income for the periods indicated.
NONINTEREST INCOME
(IN THOUSANDS)
For the Year
Ended December 31,
-----------------------------------
1998 1997 1996
------- ------ -----
Customer Service Fees $ 1,185 $ 646 $ 604
Gains on Sale of Loans 37 333 235
Other Income 373 246 116
------- ------ -----
Total $ 1,595 $1,225 $ 995
======= ====== =====
For the year ended December 31, 1998, noninterest income was
$1,595,000, an increase of $370,000 or 30.2% over the year ended December 31,
1997. The increase was owed to a higher number of deposit accounts, attributable
to both the acquisition and internal growth, and a change in the Bank's service
charge fee schedule. For the year ended December 31, 1997, noninterest income
was $1,225,000, an increase of $270,000 or 28.3% from $955,000 for the year
ended December 31, 1996. The increases in noninterest income have resulted
primarily from the focus on commercial loan and deposit relationships, consumer
demand deposits, the increase in transaction account balances due to the
acquisition of four new branches during the fourth quarter of 1997 and premiums
from the sale of mortgage and government guaranteed loans.
-19-
<PAGE>
NONINTEREST EXPENSE. The following table sets forth the components of
noninterest expense for the periods indicated.
NONINTEREST EXPENSE
(IN THOUSANDS)
FOR THE YEAR
ENDED DECEMBER 31,
--------------------------------------
1998 1997 1996
--------------------------------------
Salaries and employees benefits $ 3,512 $ 2,388 $ 2,136
Occupancy expense 1,197 890 919
Professional fees 966 254 134
Advertising 142 167 88
Supplies 290 150 169
ATM Expense 234 139 106
FDIC assessments 58 25 2
Amortization of intangible 248 37 --
Other real estate owned 30 -- --
Other 1,737 862 701
------- -------- --------
$ 8,414 $ 4,912 $ 4,255
======= ======== ========
For the year ended December 31, 1998, noninterest expense was
$8,414,000, an increase of $3,502,000 or 71.3% from $4,912,000 for the year
ended December 31, 1997. The increases in noninterest expense were primarily
attributable to higher salaries and occupancy expenses as a result of the first
full year of operations of the four acquired branches and significantly higher
legal and professional fees. Professional fees included legal expenses incurred
in litigation related to nonperforming loans. These expenses are expected to
continue in 1999. Other noninterest expense, which totaled approximately
$1,700,000 for the year ended December 31, 1998, included higher problem asset
workout costs, higher operating losses, as well as increased expenses owed to
the higher number of deposit accounts gained in the Acquisition. For the year
ended December 31, 1997, noninterest expense was $4,912,000, an increase of
$658,000 or 15.5% from $4,255,000 for the year ended December 31, 1996. The
increases in noninterest expense were primarily attributable to personnel
expenses associated with the Acquisition during the year and other staff
additions required as a result of growth, professional fees, increased
advertising expenses, and increased expenses associated with operating the ATMs
that were included with the Acquisition.
PROVISION (BENEFIT) FOR INCOME TAXES. For the year ended December 31,
1998, the benefit for income taxes was $(751,000) on a pre-tax net loss of
$(1,876,000) for an effective tax rate of (40.0%). For the year ended December
31, 1997, the provision for income taxes was $26,000 on net income before income
taxes of $144,000, for an effective tax rate of 17.8%. For the year ended
December 31, 1996, the provision of $580,000 on net income before income taxes
of $1,382,000 for an effective tax rate of 42.0%.
-20-
<PAGE>
FINANCIAL CONDITION
INVESTMENT PORTFOLIO. As of December 31, 1998, investment securities
comprised 38.3% of total assets and 42.1% of interest-earning assets. The
following table sets forth the composition of the investment portfolio by major
categories at the dates indicated. Included in corporate and other securities at
December 31, 1998 is an investment classified as held-to-maturity with an
amortized cost of $1,485,000 and an approximate fair value of $1,500,000 and a
maturity of November 1, 2028. All other securities are classified as available
for sale.
<TABLE>
<CAPTION>
INVESTMENT PORTFOLIO
(DOLLARS IN THOUSANDS)
At December 31, 1998 At December 31, 1997 At December 31, 1996
------------------------ -------------------- ------------------------
Amortized Fair Amortized Fair Amortized Fair
Cost Value Cost Value Cost Value
-------- --------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities $ 1,499 $ 1,504 $ 999 $ 1,003 $ -- $ 4,302
Federal National Mortgage
Association Securities 22,566 22,465 5,802 5,776 4,387 2,487
Federal Home Loan Mortgage
Corporation Securities 12,524 12,531 3,353 3,309 2,570 1,878
Corporate and other securities 12,630 12,645 1,129 1,161 1,876 1,878
Obligations of foreign
governments 507 529 524 537 540 544
Other U.S. government
agency securities 11,608 11,618 4,022 3,992 3,315 3,235
-------- -------- ------- ------- ------- --------
$ 61,334 $ 61,292 $15,829 $15,778 $12,688 $ 12,446
======== ======== ======= ======= ======= ========
</TABLE>
Scheduled maturities and/or repricing of the securities portfolio at
December 31, 1998 are shown below. The Bank invests in collateralized mortgage
obligations (CMOs) issued by the Federal National Mortgage Association, the
Federal Home Loan Mortgage Corporation and the Government National Mortgage
Association. Actual maturities of CMOs and other securities may differ from
contractual maturities because borrowers have the right to prepay mortgages
without penalty or call obligations with or without penalties. The Bank uses the
Wall Street consensus average life at the time the security is purchased to
schedule maturities of CMOs and adjusts maturities of its CMOs periodically
based upon changes in the Wall Street estimates. Yields on nontaxable securities
have not been calculated on a tax-equivalent basis.
MATURITY AND REPRICING SCHEDULE AND
WEIGHTED AVERAGE YIELD OF SECURITIES
(DOLLARS IN THOUSANDS)
At December 31, 1998
<TABLE>
<CAPTION>
AFTER ONE BUT AFTER FIVE BUT
WITHIN ONE YEAR WITHIN FIVE YEARS WITHIN TEN YEARS AFTER TEN YEARS
--------------- ----------------- ---------------- --------------- TOTAL
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT
------ ------ ------- ------- ------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
U.S. Treasury securities $ 1,009 5.95% $ 495 4.01% $ 1,504
Federal Nat'l Mortgage Assoc 1,249 6.40 18,076 6.24 $ 771 6.19% $ 2,369 6.34% 22,465
Federal Home Loan Mortgage Corp 1,024 5.96 8,864 6.44 2,643 6.70 12,531
Corporate and other securities 1,383 5.82 4,764 6.26 858 4.54 5,625 7.75 12,630
Obligations of foreign governments 529 5.83 529
Other U.S. gov't agency securities 681 5.95 6,723 4.14 4,214 6.34 11,618
------- ---- ------- ---- ------ ---- ------- ---- --------
Total Investments $ 5,346 6.02% $39,451 5.90% $8,486 6.26% $ 7,994 7.33% $ 61,277
======= ==== ======= ==== ====== ==== ======= ==== ========
</TABLE>
The Bank does not own securities of a single issuer (other than U.S.
Government agencies and corporations) whose aggregate book value is in excess of
10.0% of its total equity.
LOAN PORTFOLIO. The Bank's borrowers are primarily located in Northern
California. At December 31, 1998, 48.2% of the Bank's loan portfolio was
comprised of real estate mortgage loans of which 46.0% were one to four family
residential mortgage loans and 54.0% were secured by commercial real estate.
37.4% of the Bank's loans are for commercial loans, none of which were
concentrated in any particular industry. Installment and other types of consumer
loans comprised 9.0% of the loan portfolio. The Bank's service area has a
concentration of timber related businesses, and accordingly, the ability of some
-21-
<PAGE>
of the Bank's borrowers to repay loans may be affected by the performance of
this sector of the economy. Real estate construction loans comprise 5.6% of the
portfolio. The Bank has an insignificant amount of direct timber-related loans.
Virtually all loans are collateralized, and a significant portion carry
adjustable rates. Generally, real estate loans are secured by real property and
other loans are secured by bank deposits, real estate and business or personal
assets. Repayment is generally expected from the cash flow of the borrowers.
The following table shows the composition of the Bank's loan portfolio
by amount and percentage of total loans in each major loan category at the dates
indicated.
<TABLE>
<CAPTION>
COMPOSITION OF LOAN PORTFOLIO
(DOLLARS IN THOUSANDS)
At December 31, At December 31, At December 31,
1998 1997 1996
------------------ ------------------- -------------------
Amount Percent Amount Percent Amount Percent
-------- ------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Commercial $ 33,634 31.4% $ 33,216 38.6% $ 27,231 37.0%
Real estate-commercial 23,440 21.9 19,662 22.9 15,197 20.6
Real estate-mortgage (1) 36,956 34.5 19,418 22.6 18,142 24.6
Real estate-construction 4,907 4.6 4,507 5.3 4,383 6.0
Installment 8,091 7.6 9,148 10.6 8,721 11.8
-------- ----- -------- ----- -------- -----
TOTAL $107,028 100.0% $ 85,951 100.0% $ 73,673 100.0%
======== ===== ======== ===== ======== =====
</TABLE>
Commercial loans at December 31, 1998, included approximately
$13,000,000 in government-guaranteed loans. The table indicates the growth of
commercial loans in absolute dollar amount and as a percentage of the loan
portfolio as a whole.
At December 31, 1998 and 1997 the Bank serviced real estate loans and
loans guaranteed by the Small Business Administration which it had sold to the
secondary market of approximately $56,227,000 and $57,924,000, respectively.
Standby letters of credit were not significant at December 31, 1998 or December
31, 1997.
-22-
<PAGE>
The table that follows shows the maturity distribution of the loan
portfolio, including rate repricing intervals on variable rate loans, at
December 31, 1998.
STATED LOAN MATURITIES AND LOAN REPRICING INTERVALS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
At December 31, 1998
-----------------------------------------------------
Within After one but After Total
one year within five years five years Amount
-------- ----------------- ---------- ------
Commercial
<S> <C> <C> <C> <C>
Loans with variable interest rates $ 14,404 $ 8,997 $ 1,443 $ 24,844
Loans with fixed interest rates 228 994 7,567 8,789
-------- -------- -------- --------
Subtotal 14,632 9,991 9,010 33,633
Real estate-commercial
Loans with variable interest rates 8,995 2,952 2,403 14,350
Loans with fixed interest rates 396 3,931 4,763 9,090
-------- -------- -------- --------
Subtotal 9,391 6,883 7,166 23,440
Real estate-mortgage (1)
Loans with variable interest rates 7,318 2,026 17,583 26,927
Loans with fixed interest rates 262 797 8,971 10,030
-------- -------- -------- --------
Subtotal 7,580 2,823 26,554 36,957
Real estate-construction
Loans with variable interest rates 1,442 227 -- 1,669
Loans with fixed interest rates 2,807 22 409 3,238
-------- -------- -------- --------
Subtotal 4,249 249 409 4,907
Installment 2,339 4,470 1,282 8,091
-------- -------- -------- --------
TOTAL $ 38,191 $ 24,416 $ 44,421 $107,028
======== ======== ======== ========
</TABLE>
NONPERFORMING ASSETS. Nonperforming assets consist of nonperforming
loans and other real estate owned. Nonperforming loans are those in which the
borrower fails to perform under the original terms of the obligation and consist
of nonaccrual loans, accruing loans past due 90 days or more and restructured
loans. The following table summarizes the Bank's nonperforming assets at the
dates indicated.
NONPERFORMING ASSETS
(DOLLARS IN THOUSANDS)
At December 31,
------------------------------
1998 1997 1996
------- ------- -------
Nonaccrual Loans $ 2,896 $ 2,824 $ 1,519
Accruing loans past due 90 days or more 4 -- --
Restructured loans 242 166 256
------- ------- -------
Total nonperforming loans 3,142 2,990 1,775
Other real estate owned 354 384 260
------- ------- -------
Total nonperforming assets $ 3,496 $ 3,374 $ 2,035
======= ======= =======
Nonperforming loans to total loans 2.94% 3.48% 2.41%
Nonperforming assets to total assets 1.72% 1.74% 2.03%
-23-
<PAGE>
The Bank generally places loans on nonaccrual status and accrued but
unpaid interest is reversed against the current year's income when interest or
principal payments become 90 days or more past due unless the outstanding
principal and interest is adequately secured and, in the opinion of management,
is deemed in the process of collection. Interest income on nonaccrual loans is
recorded on a cash basis. Payments may be treated as interest income or return
of principal depending upon management's opinion of the ultimate risk of loss on
the individual loan. Cash payments are treated as interest income only when
management believes the remaining principal balance is fully collectible.
Additional loans not 90 days past due may also be placed on nonaccrual status if
management reasonably believes the borrower will not be able to comply with the
contractual loan repayment terms and collection of principal or interest is in
question.
A restructured loan is a loan on which interest accrues at a
below-market rate or upon which certain principal has been forgiven so as to aid
the borrower in the final repayment of the loan, with any interest previously
accrued, but not yet collected, being reversed against current income. Interest
is recorded on a cash basis until the borrower's ability to service the
restructured loan in accordance with its terms is established.
Management defines impaired loans as those loans, regardless of past
due status, on which principal and interest is not expected to be collected
under the original contractual loan repayment terms. An impaired loan is charged
off at the time management believes the collection process has been exhausted.
Impaired loans are valued on the present value of future cash flows discounted
at the loan's effective rate, the loan's observable market price, or the fair
value of collateral if the loan is collateral dependent. Impaired loans as of
December 31, 1998, and December 31, 1997 were approximately $3,137,000 and
$2,991,000. The portion of the allowance for loan losses related to those loans
was $869,000 and $386,000.
Included in the impaired loans are loans on nonaccrual status of
$2,896,000 and $2,824,000 at December 31, 1998 and 1997. Foregone interest on
nonaccrual loans was $213,000 and $383,000 in 1998 and 1997, respectively.
The Bank classifies its loans based on regulatory agency guidelines.
Loans classified "Substandard" and "Doubtful" were approximately $7,348,000 and
$2,839,000 at December 31, 1998 and December 31, 1997. For internal
classification purposes, management does not classify the portion of any
nonperforming loans that are guaranteed by the U. S. Government. At December 31,
1998, the Bank had $4,506,000 in loans that were classified "Substandard" but
were not included in nonperforming loans. Although these loans exhibit certain
weaknesses, the loans are generally performing in accordance with their terms
and the Bank does not currently have serious doubts about their prospects for
repayment in full.
A potential problem loan is defined as a loan on which information
about possible credit problems of the borrower is known, causing management to
have serious doubts as to the ability of the borrower to comply with the present
loan repayment terms and which may result in the inclusion of such a loan in one
of the nonperforming asset categories. The Bank is not aware of any potential
problem loans other than those reported in the nonperforming asset table above
or classified as "Substandard" or "Doubtful" as discussed above.
The Bank seeks to mitigate the risks inherent in its loan portfolio by
adhering to certain underwriting practices. They include analysis of prior
credit histories, financial statements, tax returns and cash flow projections of
its loan applicants, independent appraisals on real property and chattel taken
as collateral and audits of accounts receivable or inventory pledged as
security.
The Bank has an internal loan review system and also obtains periodic
external reviews. The Bank's audit committee assesses the results of these
external reviews. Collection of delinquent loans is generally the responsibility
of the Bank's credit administration staff. However, the originating loan officer
may deal with certain problem loans. The Board of Directors reviews the status
of delinquent and problem loans on a monthly basis. The Bank's underwriting and
review practices are intended to achieve and maintain a high level of asset
quality. However, they do not provide any assurance that the Bank will not
experience loan losses in the future.
In response to the increase in nonperforming assets and to regulatory
concern over such increase, the Bank is taking steps intended to improve its
underwriting and loan administration. In doing so, the Bank hopes to improve
-24-
<PAGE>
credit quality and to recognize and address problem loans sooner. The Bank
expects to become subject to a consent order to be issued by the OCC with
respect to certain of its operations, including loan operations. See footnote 17
to the Bank's audited financial statements. No assurance can be given that these
steps will be successful in accomplishing the Bank's goals or that the
regulators will not take formal or informal action with respect to the Bank's
underwriting, loan administration and related operations.
SUMMARY OF LOAN LOSS EXPERIENCE. The following table sets forth an
analysis of the allowance for loan losses and provisions for loan losses for the
periods indicated.
<TABLE>
<CAPTION>
ALLOWANCE FOR LOAN LOSSES
(DOLLARS IN THOUSANDS)
At December 31,
--------------------------------
1998 1997 1996
-------- ------- -------
<S> <C> <C> <C>
Balance at beginning of period $ 1,159 $ 807 $ 696
Loans charged off:
Commercial 1,952 1,686 37
Real estate-construction 3 -- --
Real estate-mortgage -- -- --
Installment 395 218 140
-------- ------- -------
Total charge-offs 2,350 1,904 177
Recoveries
Commercial 49 1 --
Real estate-construction -- -- --
Real estate-mortgage -- -- --
Installment 40 14 12
-------- ------- -------
Total recoveries 89 15 12
-------- ------- -------
Net charge-offs 2,261 1,889 165
Provision for loan losses 3,904 2,241 276
Balance at end of period $ 2,802 $ 1,159 $ 807
======== ======= =======
Total loans at end of period $107,028 $85,951 $73,673
======== ======= =======
Average total loans outstanding $102,481 $79,366 $65,245
Net charge-offs to average loans 2.21% 2.38% 0.25%
Allowance for Loan Losses to nonperforming loans 89.18% 38.76% 45.46%
Allowance for Loan Losses to total loans 2.62% 1.35% 1.10%
</TABLE>
The Bank maintains an allowance for loan losses to absorb inherent
losses in the portfolio. Management attributes general reserves to different
types of loans using percentages which are based upon perceived risk associated
with the portfolio and underlying collateral. The allowance for possible loan
losses is a general reserve available against the total loan portfolio and off
balance sheet items. While management uses available information to recognize
losses on loans, future additions to the allowance may be necessary based on
changes in economic conditions. In addition, various regulatory agencies, as an
integral part of their examination process, periodically review the Bank's
allowance for possible loan losses. Such agencies may require the Bank to
provide additions to the allowance based on their judgement of information
available to them at the time of their examination. December 31, 1998, based on
known information, management believed that the allowance for loan losses was
adequate to absorb losses inherent in existing loans and commitments to extend
credit, based on evaluations of the collectibility and prior loss experience of
loans and commitments to extend credit as of such date.
As of December 31, 1998, the allowance for possible loan losses was
approximately $2,800,000 compared to approximately $1,160,000 at December 31,
1997, an increase of 141.4%. When a loan is considered uncollectible by
management it is charged against the allowance for loan losses. Any recoveries
-25-
<PAGE>
of previously charged off loans are credited back to the allowance. Net
charge-offs for the year ended December 31, 1998 were approximately $2,261,000,
an increase of 19.7% compared with approximately $1,889,000 for the year ended
December 31, 1997. The increase was attributable to charge-offs related to
certain commercial loans (see "Provision for Loan Losses" and "Nonperforming
Assets") and other nonperforming commercial and consumer loans.
The evaluation process is designed to determine the adequacy of the
allowance for loan losses. This process attempts to assess the risk of losses
inherent in the portfolio by segregating the allowance for loan losses into two
components: "Specific" and "General." The specific component is established by
allocating a portion of the allowance for loan losses to individual classified
credits on the basis of specific circumstances and assessments. In determining
the general component of the allowance for loan loss, management takes into
consideration growth trends in the portfolio, examination results of financial
institution supervisory authorities, prior loan loss experience, concentrations
of credit risk, delinquency trends, collateral coverage, general economic
conditions, the interest rate environment and internal and external credit
reviews. In addition, the risks management considers vary depending on the
nature of the loan.
The allowance for loan losses is based on estimates. Realized future
losses may vary from current estimates. It is always possible that future
economic or other factors may adversely affect the Bank's borrowers, and thereby
cause loan losses to exceed the current allowance. In addition, there can be no
assurance that future economic or other factors will not adversely affect the
Bank's borrowers, or that the Bank's asset quality may not deteriorate through
rapid growth, failure to maintain appropriate underwriting standards, failure to
maintain an adequate number of qualified loan personnel, failure to identify and
monitor potential problem loans or for other reasons, and thereby cause loan
losses to exceed the current allowance. For additional discussion of problem
loans and the Bank's provisions for loan losses, see "Provision for Loan
Losses."
The following table summarizes the allocation of the allowance for loan
losses by loan category and the amount of the allocation in each category as a
percentage of total loans in each category at the dates indicated:
-26-
<PAGE>
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
At December 31,
----------------------------------------------------------------------------------
1998 1997 1996
--------------------- ------------------------ -----------------------
Amount Percent Amount Percent Amount Percent
-------- -------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Commercial $ 2,440 7.25% $ 919 1.79% $ 579 1.42%
Real estate-mortgage(1) 130 0.35% 65 0.36% 73 0.55%
Installment 232 2.86 175 1.08% 155 0.87%
-------- ---- ------ ---- -------- ----
Total $ 2,802 2.62% $1,159 1.35% $ 807 1.10%
======== ==== ====== ==== ======== ====
</TABLE>
(1) Includes loans held for sale
DEPOSITS. Deposits are the Bank's primary source of funds. At December
31, 1998, the Bank had a deposit mix of 39.5% in time deposits, 20.9% in
money-market accounts, 31.0% in demand accounts and 8.6% in savings deposits.
Approximately 52.0% of the Bank's demand deposit accounts are
noninterest-bearing, which serve to enhance the Bank's net interest income by
lowering its cost of funds.
The Bank obtains deposits primarily from the communities it serves. No
material portion of its deposits has been obtained from or is dependent on any
one person or industry. The Bank's business is not seasonal in nature. The Bank
accepts deposits in excess of $100,000 from customers. These deposits are priced
to remain competitive. At December 31, 1998, the Bank had no brokered deposits.
The following table sets forth the average balances and rates paid for the major
categories of deposits for the periods indicated:
AVERAGE DEPOSITS
(DOLLARS IN THOUSANDS)
Average Deposits
(Dollars in thousands)
<TABLE>
<CAPTION>
For the Year ended December 31,
----------------------------------------------------------
1998 1997 1996
---------------- ------------------ -----------------
Amount Rate Amount Rate Amount Rate
-------- ----- --------- ----- --------- -----
<S> <C> <C> <C> <C> <C> <C>
Noninterest-bearing demand $ 32,378 $ 15,060 $ 7,905
Interest-bearing demand 27,433 1.36% 15,106 1.36% 12,213 1.08%
Savings and money market 48,693 3.02 26,782 3.32 20,835 3.19
Timedeposits under 100,000 47,224 4.95 33,497 5.86 31,328 5.65
Time deposits over $100,000 23,074 5.01 17,301 5.09 11,136 6.05
-------- ----- --------- ----- --------- -----
Total deposits $178,802 2.99% $ 107,746 3.66% $ 83,417 3.88%
======== ===== ========= ===== ========= =====
</TABLE>
-27-
<PAGE>
The following table sets forth the maturities of time certificates of
deposit of $100,000 or more outstanding at December 31, 1998 and December 31,
1997:
$100,000 OR MORE TIME DEPOSIT MATURITIES
(DOLLARS IN THOUSANDS)
AT DECEMBER 31,
----------------------------
1998 1997
-------- --------
Three months or less $ 8,210 $ 7,700
Over three to six months 7,328 4,948
Over six months to one year 4,156 5,039
Over one year 3,594 4,826
-------- --------
$ 23,287 $ 22,513
======== ========
ASSET AND LIABILITY MANAGEMENT. Asset and liability management is an
integral part of managing a banking institution's primary source of income, net
interest income. The Bank manages the balance between rate-sensitive assets and
rate-sensitive liabilities being repriced in any given period with the objective
of stabilizing net interest income during periods of fluctuating interest rates.
The Bank considers its rate-sensitive assets to be those that either contain a
provision to adjust the interest rate periodically or mature within one year.
These assets include certain loans, investment securities and federal funds
sold. Rate-sensitive liabilities are those which allow for periodic interest
rate changes and include maturing time certificates, certain savings and
interest-bearing demand deposits. The difference between the aggregate amount of
assets and liabilities that are repricing at various time frames is called the
"gap." Generally, if repricing assets exceed repricing liabilities in any given
time period the Bank would be deemed to be "asset-sensitive." If repricing
liabilities exceed repricing assets in a time period the Bank would be deemed to
be "liability-sensitive." Generally, the Bank seeks to maintain a balanced
position in which it has no significant asset or liability sensitivity to ensure
net interest margin stability in times of volatile interest rates. This is
accomplished by maintaining a significant level of loans, investment securities
and deposits available for repricing within one year.
The following tables set forth the interest rate sensitivity of the
Bank's interest-earning assets and interest-bearing liabilities as of December
31, 1998, using the interest rate sensitivity gap ratio. For purposes of the
following table, an asset or liability is considered rate-sensitive within a
specified period when it can be repriced or matures within its contractual
terms. Actual payment patterns may differ from contractual payment patterns.
-28-
<PAGE>
<TABLE>
<CAPTION>
EARNING ASSET INTEREST RATE SENSITIVITY
(DOLLARS IN THOUSANDS)
At December 31, 1998
Amounts Subject to Repricing Within
-----------------------------------------------------------
0 to Over 3 to Over 1 to
3 months 12 months 5 years > 5 years Total
-------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
Interest-earning assets
Federal funds sold and repurchase agreements $ 9,330 $ 9,330
Interest-bearing deposits in other financial institutions 1,581 $ 788 $ 3,247 $ 580 6,196
Investment securities 2,310 3,036 39,451 16,480 61,277
Loans (1) 20,533 17,658 24,416 44,421 107,028
-------- ------- ------- ------- --------
Total interest-earning assets $ 33,754 $21,482 $67,113 $61,481 $183,831
======== ======= ======= ======= ========
Interest-earning liabilities
Interest-bearing demand and savings $ 85,468 $ 85,468
Time deposits 13,475 $18,763 $39,920 $ 45 72,203
Other interest-bearing liabilities 58 58 362 199 677
-------- ------- ------- ------- --------
Total interest-earning liabilities $ 99,001 $18,821 $40,282 $ 244 $158,348
======== ======= ======= ======= ========
Period rate-sensitivity gap $(65,247) $ 2,661 $26,831 $61,237
Cumulative rate-sensitivity gap (65,247) (62,586) (35,754) 25,483
Cumulative gap as a % of total assets (32.1)% (30.8)% (17.6)% 12.5 %
Cumulative interest-sensitive assets as a % of
cumulative interest-sensitive liabilities 34.1 % 46.9 % 77.4 % 116.1 %
</TABLE>
(1) Includes loans on nonaccrual status
At December 31, 1998, the Bank was liability-sensitive, with a negative
cumulative one-year gap of $62,586,000 or 30.8% of total assets. In general,
based upon the Bank's mix of deposits, loans and investments, increases in
interest rates over one year would be expected to decrease the Bank's net
interest margin. Decreases in interest rates would be expected to have the
opposite effect.
The change in net interest income may not always follow the general
expectations of an "asset-sensitive" or "liability-sensitive" balance sheet
during periods of changing interest rates. This possibility results from
interest rates earned or paid changing by differing increments and at different
time intervals for each type of interest-sensitive asset and liability. The
interest rate gaps reported in the tables arise when assets are funded with
liabilities having different repricing intervals. Since these gaps are actively
managed and change daily as adjustments are made in interest rate views and
market outlook, positions at the end of any period may not reflect the Bank's
interest rate sensitivity in subsequent periods. The Bank attempts to balance
longer-term economic views against prospects for short-term interest rate
changes in all repricing intervals.
Even though the Bank had a negative one-year gap as of December 31,
1998, the asset liability simulation model used by the Bank showed the Bank was
actually asset sensitive at the end of 1998. This is owed to the fact that that
Bank has control over interest-bearing deposit pricing. This means that if
interest rates were to decline, the Bank would expect yields on interest-earning
assets to decline faster than rates paid for deposits, causing the net interest
margin to decrease. Due to a slightly declining interest rate environment during
the latter part of 1998, the Bank's asset sensitive posture had a slightly
negative impact on the net interest margin as predicted by the asset liability
simulation model. In a rising rate environment the opposite impact would be
expected; i.e., the net interest margin should improve.
LIQUIDITY AND CAPITAL RESOURCES. Maintenance of adequate liquidity
requires that sufficient resources be available at all times to meet cash flow
requirements of the Bank. Liquidity in a banking institution is required
primarily to provide for deposit withdrawals and the credit needs of its
customers and to take advantage of investment opportunities as they arise. A
bank may achieve desired liquidity from both assets and liabilities. Cash and
deposits held in other banks, federal funds sold, other short term investments,
maturing loans and investments, payments of principal and interest on loans and
investments and potential loan sales are sources of asset liquidity. Deposit
growth and access to credit lines established with correspondent banks and
market sources of funds are sources of liability liquidity.
-29-
<PAGE>
The Bank reviews its liquidity position on a regular basis based upon
its current position and expected trends of loans and deposits. Management
believes that the Bank maintains adequate sources of liquidity to meet its
liquidity needs. The Bank's liquid assets (net of pledged securities) were
approximately $76,289,000 and $94,362,000 at December 31, 1998 and December 31,
1997, respectively, and constituted 38.5% and 48.7% respectively, of total
assets on those dates.
Although the Bank's primary sources of liquidity include liquid assets
and a stable deposit base, the Bank maintains lines of credit with the Federal
Home Loan Bank of San Francisco, the Federal Reserve Bank of San Francisco and
its correspondent banks. The total of these lines of credit was approximately
$8,560,000, of which $632,000 was outstanding as of December 31, 1998 and
$710,000 was outstanding as of December 31, 1997.
During 1997, as the result of an examination, the OCC asserted that the
Bank had committed a legal lending limit violation. As a result, the Bank
charged off two loans in the amount of $399,942, and the Board of Directors
voluntarily purchased the two loans. The cash purchase by the Directors was
treated for accounting purposes as a contribution to paid-in-capital of the
Bank. During 1998, as a result of a regulatory examination, the OCC asserted
that the Bank committed a second lending limit violation regarding a loan that
had been submitted to but not yet received approval for a guarantee from the
USDA. Subsequent to year end the Bank received approval from the USDA for the
guarantee.
For the Bank's regulatory capital ratios, see "Regulation and
Supervision - Regulatory Capital Requirements."
IMPACT OF INFLATION. The primary impact of inflation on the Bank is its
effect on interest rates. The Bank's primary source of income is net interest
income, which is affected by changes in interest rates. The Bank attempts to
limit inflation's impact on its net interest margin through management of
rate-sensitive assets and liabilities and the analysis of interest rate
sensitivity. The effect of inflation on premises and equipment as well as
noninterest expenses has not been significant for the periods covered in this
report.
-30-
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Bank's financial statements are included in this report beginning
on page 34.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III.
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Reference is made to the Company's Proxy Statement for the 1999 Annual
Meeting of Shareholders for incorporation of information concerning directors
and executive officers nominated to become directors of the Bank.
ITEM 10. EXECUTIVE COMPENSATION
Information concerning executive compensation is incorporated by
reference from the text under the caption "Executive Compensation" in the Proxy
Statement for the 1999 Annual Meeting of Shareholders.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT -
BENEFICIAL OWNERSHIP OF COMMON STOCK
Information concerning ownership of the equity stock of the Bank by
certain beneficial owners and management is incorporated by reference from page
4 and the text under the capital "Proposal One - Election of Directors" in the
Proxy Statement for the 1999 Annual Meeting of Shareholders.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information concerning certain relationships and related transactions
with officers, directors, and the Bank is incorporated by reference from the
text under the caption "Transactions with Management and Others" in the Proxy
Statement for the 1999 Annual Meeting of Shareholders.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
-31-
<PAGE>
SIX RIVERS NATIONAL BANK
Financial Statements as of December 31, 1998 and 1997 and for each of the Three
Years in the Period Ended December 31, 1998 and Independent Auditors' Report
-32-
<PAGE>
INDEPENDENT AUDITORS' REPORT
Six Rivers National Bank
Board of Directors and Stockholders
Eureka, California
We have audited the accompanying balance sheets of Six Rivers National Bank as
of December 31, 1998 and 1997, and the related statements of income,
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 1998. These financial statements are the responsibility of
the Bank's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Six Rivers National Bank at December 31,
1998 and 1997, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
- -------------------------
DELOITTE & TOUCHE LLP
February 24, 1999
-33-
<PAGE>
<TABLE>
<CAPTION>
SIX RIVERS NATIONAL BANK
BALANCE SHEETS
DECEMBER 31
===================================================================================================
ASSETS 1998 1997
------------- -------------
<S> <C> <C>
Cash and cash equivalents:
Cash and due from banks $ 8,357,082 $ 11,954,920
Federal funds sold and repurchase agreements 9,330,000 64,880,000
------------- -------------
Total cash and cash equivalents 17,687,082 76,834,920
Interest bearing deposits in other financial institutions (at cost
which approximates fair value) 6,195,724 4,637,447
Held to maturity securities, at amortized cost 1,485,000
Available for sale securities, at fair value 59,791,846 15,777,664
Loans held for sale 17,125,392 2,688,314
Loans receivable 89,902,869 83,263,101
Less: Allowance for loan losses 2,801,779 1,158,978
Deferred loan fees 75,318 171,139
------------- -------------
Net loans receivable 87,025,772 81,932,984
Accrued interest receivable 1,288,493 854,916
Premises and equipment, net of accumulated depreciation 4,518,958 4,165,671
Other real estate owned 353,971 383,971
FHLB, Federal Reserve Bank and other securities 1,014,776 659,345
Goodwill and core deposit intangibles, net of amortization 4,670,291 4,918,271
Other assets 2,078,541 953,814
------------- -------------
TOTAL ASSETS $ 203,235,846 $ 193,807,317
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits:
Noninterest-bearing $ 25,260,108 $ 22,480,080
Interest-bearing 134,384,521 127,740,712
Time, $100,000 and over 23,287,418 22,512,685
------------- -------------
Total deposits 182,932,047 172,733,477
Other borrowed funds 677,204 1,118,901
Accrued interest payable 532,055 424,685
Other liabilities 574,552 294,527
------------- -------------
Total liabilities 184,715,858 174,571,590
------------- -------------
STOCKHOLDERS' EQUITY:
Common stock, $5.00 par value, authorized 10,000,000
shares; outstanding, 1,461,642 and 1,430,442 at
December 31, 1998 and 1997 7,308,210 7,152,210
Additional paid in capital 12,062,715 11,805,261
Retained earnings (deficit) (816,383) 308,334
Accumulated other comprehensive loss, net of tax (34,554) (30,078)
------------- -------------
Total stockholders' equity 18,519,988 19,235,727
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 203,235,846 $ 193,807,317
============= =============
</TABLE>
See notes to financial statements
-34-
<PAGE>
<TABLE>
<CAPTION>
SIX RIVERS NATIONAL BANK
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31
=======================================================================================================
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
INTEREST INCOME:
Loans and loan fees $ 10,013,378 $ 8,358,889 $ 7,126,288
Securities:
U.S. Treasury securities and government agencies 3,281,683 753,625 849,791
Other 646,889 469,126 150,003
Federal funds sold and repurchase agreements 972,948 482,035 140,551
------------ ------------ ------------
Total interest income 14,914,898 10,063,675 8,266,633
INTEREST EXPENSE:
Deposits 5,991,474 3,922,009 3,242,629
Other borrowings 75,889 70,386 66,543
------------ ------------ ------------
Total interest expense 6,067,363 3,992,395 3,309,172
------------ ------------ ------------
NET INTEREST INCOME 8,847,535 6,071,280 4,957,461
PROVISION FOR LOAN LOSSES 3,904,111 2,240,708 276,000
------------ ------------ ------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 4,943,424 3,830,572 4,681,461
NONINTEREST INCOME:
Customer service fees 1,185,022 645,571 604,173
Gain on sale of loans 36,512 333,273 234,991
Other income 373,180 246,146 115,544
------------ ------------ ------------
Total noninterest income 1,594,714 1,224,990 954,708
NONINTEREST EXPENSE:
Salaries and employee benefits 3,512,152 2,387,694 2,136,397
Occupancy 1,196,676 890,271 918,802
Professional fees 966,460 253,941 134,315
Advertising 142,132 166,700 88,056
Supplies 289,575 150,143 168,741
ATM expense 234,180 138,707 105,657
FDIC assessment 58,082 25,349 1,500
Amortization of goodwill and core deposit intangibles 247,980 37,188
Other real estate owned 30,000
Other 1,737,049 862,031 700,988
------------ ------------ ------------
Total noninterest expense 8,414,286 4,912,024 4,254,456
------------ ------------ ------------
INCOME (LOSS) BEFORE PROVISION
FOR INCOME TAXES (1,876,148) 143,538 1,381,713
(PROVISION) BENEFIT FOR INCOME TAXES 751,431 (25,526) (580,193)
------------ ------------ ------------
NET INCOME (LOSS) $ (1,124,717) $ 118,012 $ 801,520
============ ============ ============
EARNINGS (LOSS) PER SHARE:
Basic $ (0.77) $ 0.17 $ 1.42
============ ============ ============
Diluted $ (0.77) $ 0.16 $ 1.35
============ ============ ============
See notes to financial statements
</TABLE>
-35-
<PAGE>
SIX RIVERS NATIONAL BANK
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL COMPREHENSIVE RETAINED OTHER
COMMON STOCK PAID-IN INCOME EARNINGS COMPREHENSIVE
SHARES AMOUNT CAPITAL (LOSS) (DEFICIT) INCOME (LOSS) TOTAL
------ ------ ------- ------ --------- ------------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996 513,404 $ 2,567,020 $ 2,417,358 $ 107,871 $ (55,094) $ 5,037,155
Comprehensive income:
Net income $ 801,520 801,520 801,520
Other comprehensive income
net of taxes of $(101,363)
Unrealized gain (loss) on
available-for-sale securities
net of reclassification
adjustment of $5,000 (84,882) (84,882) (84,882)
------------
Total comprehensive income 716,638
============
Common stock options exercised 210 1,050 1,050 2,100
Stock dividend on common stock (10%) 51,226 256,130 461,028 (717,158)
Cash paid in lieu of fractional shares (1,911) (1,911)
----------- ----------- ------------ ----------- ---------- -----------
Balance, December 31, 1996 564,840 2,824,200 2,879,436 190,332 (139,976) 5,753,982
Comprehensive income:
Net income 118,012 118,012 118,012
Other comprehensive income
net of taxes of $(21,032)
Unrealized gain (loss) on
available-for-sale securities
net of reclassification
adjustment of $0 109,898 109,898 109,898
------------
Total comprehensive income 227,910
============
Capital contribution 399,942 399,942
Common stock options exercised 3,102 15,510 12,545 28,055
Common stock issuance, net
of offering expenses 862,500 4,312,500 8,513,338 12,825,838
----------- ----------- ------------ ----------- ---------- -----------
Balance, December 31, 1997 1,430,442 7,152,210 11,805,261 308,334 (30,078) 19,235,727
Comprehensive income:
Net loss (1,124,717) (1,124,717) (1,124,717)
Other comprehensive income
net of taxes of $(24,989)
Unrealized gain (loss) on
available-for-sale securities
net of reclassification
adjustment of $0 (4,476) (4,476) (4,476)
------------
Total comprehensive income (loss) $ (1,129,193)
============
Tax benefit derived from the exercise
of stock options 96,917 96,917
Common stock options exercised 31,200 156,000 160,537 316,537
----------- ----------- ------------ ----------- ---------- -----------
Balance, December 31, 1998 1,461,642 $ 7,308,210 $ 12,062,715 $ (816,383) $ (34,554) $18,519,988
=========== =========== ============ =========== ========== ===========
</TABLE>
See notes to consolidated financial statements.
-36-
<PAGE>
<TABLE>
<CAPTION>
SIX RIVERS NATIONAL BANK
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31
=============================================================================================================
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (1,124,717) $ 118,012 $ 801,520
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 538,954 454,068 468,512
Amortization of goodwill and core deposit intangible 247,980 37,188
Amortization and accretion on securities 427,599 38,241 67,175
Originations of loans held for sale (23,521,483) (16,078,572) (14,611,933)
Proceeds from sale of loans 9,120,917 16,657,000 15,435,898
Gain on sale of loans (36,512) (333,273) (234,991)
Benefit for deferred taxes (518,970) (211) (14,415)
Gain on sale of premises and equipment (2,619)
Provision for losses on other real estate owned 30,000
Provision for loan losses 3,904,111 2,240,708 276,000
Effect of changes in:
Accrued interest receivable and other assets (1,039,334) (799,691) (218,560)
Accrued interest payable and other liabilities 420,293 (189,147) (293,883)
------------ ------------ ------------
Net cash provided by (used in) operating activities (11,553,781) 2,144,323 1,675,323
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of available-for-sale securities (51,305,789) (5,068,608) (2,860,939)
Proceeds from sales of available-for-sale securities 500,000
Proceeds from maturities, calls, or repayments of available
for sale securities 6,923,551 1,889,183 5,523,497
Purchases of held to maturity securities (1,500,000)
Proceeds from maturities of held to maturity securities 15,000
Purchases of FHLB Federal Reserve Bank and other securities (355,431) (82,249)
Proceeds from sale of other real estate owned 147,139
Net change in interest bearing deposits in other financial
institutions (1,558,277) (4,140,447) 788,000
Net increase in loans (8,996,899) (14,723,489) (18,757,756)
Increase in goodwill and core deposit intangibles (4,955,459)
Proceeds from sale of premises and equipment 3,800
Purchases of premises and equipment (893,422) (1,743,260) (492,175)
------------ ------------ ------------
Net cash used in investing activities (57,667,467) (28,677,190) (15,299,373)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 10,198,570 80,747,256 12,098,510
Net change in other borrowed funds (441,697) (251,827) 308,381
Proceeds from common stock issuance, net of expenses 12,825,838
Common stock options exercised 316,537 28,055 2,100
Capital contribution 399,942
Cash paid in lieu of fractional shares (1,911)
------------ ------------ ------------
Net cash provided by financing activities 10,073,410 93,749,264 12,407,080
------------ ------------ ------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (59,147,838) 67,216,397 (1,216,970)
CASH AND CASH EQUIVALENTS, beginning of year 76,834,920 9,618,523 10,835,493
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, end of year $17,687,082 $ 76,834,920 $ 9,618,523
============ ============ ============
ADDITIONAL INFORMATION:
Cash paid during the year for:
Interest $ 5,959,993 $ 3,785,725 $ 3,261,099
============ ============ ============
Income taxes $ 392,833 $ 582,800
============ ============
Noncash transactions:
Transfer of foreclosed loans from loans receivable
to other real estate owned $ 270,694
============
Tax benefit derived from the exercise of stock options $ 96,917
============
</TABLE>
See notes to financial statements.
-37-
<PAGE>
SIX RIVERS NATIONAL BANK
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
================================================================================
1. SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS - Six Rivers National (Bank) is a nationally
chartered bank which commenced banking operations on December 27, 1989.
In November 1997, the Bank completed the acquisition of four additional
branches, increasing operations to eight branches. The Bank operates
these eight branches in Humboldt, Mendocino, Trinity, and Del Norte
Counties in Northern California. The Bank operates as one business
segment providing business banking services to the Bank's clients in
Northern California. The Bank's principal business consists of
attracting deposits from the general public and using the funds to
originate commercial, real estate and installment loans to customers,
who are predominately small and middle market businesses and middle
income individuals. The Bank's primary source of revenues is interest
income from its loan and investment securities portfolios. The Bank is
not dependent on any single customer for more than ten percent of the
Bank's revenues.
GENERAL - The accounting and reporting policies of Six Rivers National
Bank conform with generally accepted accounting principles and
prevailing practices within the banking industry. The Bank follows the
accrual method of accounting.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS - The
preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
The more significant accounting and reporting policies are discussed
below.
CASH AND CASH EQUIVALENTS - For purposes of the statements of cash
flows, cash and cash equivalents have been defined as cash, demand
deposits with correspondent banks, repurchase agreements and federal
funds sold. Generally, repurchase agreements are sold for eight to
fourteen day periods and federal funds are sold for one day periods.
Cash equivalents have remaining terms to maturity of three months or
less from the date of acquisition.
INVESTMENTS - The Bank's policy with regard to investments is as
follows:
AVAILABLE FOR SALE SECURITIES are carried at fair value.
Unrealized gains and losses resulting from changes in fair value
are recorded, net of tax, as a separate component of
stockholders' equity. Gains or losses on disposition are
recorded in other operating income based on the net proceeds
received and the carrying amount of the securities sold, using
the specific identification method.
HELD TO MATURITY SECURITIES are carried at cost adjustment for
amortization of premiums and accretion of discounts, which are
recognized as adjustments to interest income. The Bank's policy
of carrying such investment securities at amortized cost is
based upon it's ability and management's intent to hold such
securities to maturity.
At December 31, 1998 and 1997, the Bank did not have any securities
considered to be held for trading. LOANS RECEIVABLE - Loans are
reported at the principal amount outstanding adjusted for any specific
charge-offs. Interest on loans is calculated by using the simple
interest method on the daily balance of the principal amount
outstanding.
The accrual of interest on impaired loans is discontinued when
reasonable doubt exists as to the full and timely collection of
interest and principal, or when a loan becomes contractually past due
by 90 days or more with respect to interest or principal (unless the
loan is well secured and in the process of collection) and such loans
are designated as nonaccrual loans. When a loan is placed on nonaccrual
status, all accrued but unpaid interest revenue is reversed by a charge
to earnings. Income on such loans is then recognized only to the extent
-38-
<PAGE>
that cash is received and where the future collection of principal is
determined by management to be probable. Interest accruals are resumed
on such loans when, in the judgment of management, the loans are
estimated to be fully collectible as to both principal and interest.
ALLOWANCE FOR LOAN LOSSES - The Bank provides for possible loan losses
by a charge to operating income based upon the composition of the loan
portfolio, past loan loss experience, current economic conditions and
other factors which, in management's judgment, deserve recognition in
estimating loan losses. Management will charge off loans when it
determines there has been a permanent impairment of the related
carrying values. Management attributes general reserves to different
types of loans using percentages which are based upon perceived risk
associated with the portfolio and underlying collateral, historical
loss experience, and vulnerability to changing economic conditions
which may affect the collectibility of the loans. Specific reserves are
allocated for impaired loans, for loans which have experienced a
decline in internal loan grading, and when management believes
additional loss exposure exists. Although the allowance for loan losses
is allocated to various portfolio segments, it is general in nature and
is available for the loan portfolio in its entirety. Management
believes that the allowance for loan losses is adequate to absorbed
losses inherent in existing loans and commitments to extend credit.
While management uses available information to estimate the allowance
for loan losses, future additions to the allowance may be necessary
based on changes in economic conditions. In addition, various
regulatory agencies, as an integral part of their examination process,
periodically review the Bank's allowance for losses on loans. Such
agencies may require the Bank to recognize additions to the allowance
based on their analysis of information available to them at the time of
their examination.
The Bank considers a loan impaired if, based on current information and
events, it is probable that the Bank will be unable to collect the
scheduled payments of principal or interest when due according to the
contractual terms of the loan agreement. The measurement of impaired
loans is generally based on the present value of expected future cash
flows discounted at the historical effective interest rate, except that
all collateral-dependent loans are measured of impairment based on the
fair value of the collateral.
DEFERRED LOAN FEES - Loan origination fees and related direct costs are
deferred and amortized to income by a method approximating the level
yield interest method over the estimated lives of the underlying loans.
LOANS HELD FOR SALE are stated at lower of cost or market value as
determined by outstanding commitments from investors or current
investor yield requirements calculated on an aggregate loan basis.
Valuation adjustments are charged against noninterest income.
PREMISES AND EQUIPMENT - Premises and equipment are carried at cost
less accumulated depreciation and amortization. Depreciation is
computed on the straight-line basis over the estimated useful lives of
the assets, generally 20 to 30 years for buildings and 4 to 10 years
for furniture, fixtures and equipment. Leasehold improvements are
amortized on the straight-line basis over the period of the leases or
the estimated useful lives, whichever is shorter. Expenditures for
major renewals and betterments of premises and equipment are
capitalized and those for maintenance and repairs are charged to
operations as incurred.
OTHER REAL ESTATE OWNED - Real estate properties acquired through, or
in lieu of, foreclosure are expected to be sold and are recorded at the
date of foreclosure at the lower of the recorded investment in the
property or its fair value less estimated costs to sell (fair value)
establishing a new cost basis through a charge to allowance for loan
losses, if necessary. Any subsequent write-downs are recorded as a
valuation allowance and charged against operating expenses. Operating
expenses of such properties, net of related income, are included in
noninterest expenses and gains and losses on their disposition are
included in noninterest income or noninterest expense.
GOODWILL AND CORE DEPOSIT INTANGIBLES - In November 1997, the Bank
purchased four additional branches. As a result of this acquisition the
Bank recorded goodwill and core deposit intangibles which are being
amortized over 20 years by the straight line method. Amortization
expense charged to operations for the years ended December 31, 1998 and
1997 was $247,980 and $37,188.
ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND
EXTINGUISHMENTS OF LIABILITIES - The Bank originates and sells
residential mortgage loans to the Federal National Mortgage Association
(FNMA) and others. The Bank retains the servicing on all loans sold.
Deferred origination fees and expenses are recognized at the time of
sale in the determination of the gain or loss. To calculate the gain
(loss) on sale of loans, the Bank's investment in a loan is allocated
-39-
<PAGE>
between the servicing retained and the loan, based on the relative fair
market value of each portion. The gain (loss) is recognized at the time
of sale based on the difference between the sale proceeds and the
allocated carrying value of the related loans sold. The fair value of
the contractual servicing is reflected as a servicing asset which is
amortized over the period of estimated net servicing income using a
method approximating the interest method. The servicing asset is
included in other assets, and is evaluated for impairment.
INCOME TAXES - The Bank accounts for income taxes based on the asset
and liability method. Deferred tax assets and liabilities are
calculated by applying applicable tax laws to the differences between
the financial statement basis and the tax basis of assets and
liabilities. The effect on deferred taxes of a change in tax rates is
recognized in income in the period that includes the enactment date.
OTHER BORROWED FUNDS - Other borrowed funds consist of amounts borrowed
from the Federal Reserve Bank (FRB) related to Treasury Tax and Loan
notes and amounts borrowed from the Federal Home Loan Bank (FHLB)
collateralized by certain real estate loans.
STOCK-BASED COMPENSATION - The Bank accounts for stock-based awards to
employees using the intrinsic value method in accordance with
Accounting Principles board (APB) No. 25, ACCOUNTING FOR STOCK ISSUED
TO EMPLOYEES. No compensation expense has been recognized in the
financial statements for employee stock arrangements. The Company
presents the required pro from disclosures of the effect of stock-based
compensation on net income and earnings per share in accordance with
Statement of Financial Accounting Standards (SFAS) No. 123, ACCOUNTING
FOR STOCK-BASED COMPENSATION.
EARNINGS (LOSSES) PER SHARE - Basic earnings (losses) per share is
computed by dividing net income (loss) available to common shareholders
by the weighted average common shares outstanding for the period.
Diluted earnings (loss) per share reflects the potential dilution that
could occur if options or other contracts to issue common stock were
exercised and converted into common stock.
COMPREHENSIVE INCOME - The Bank has retroactively adopted SFAS No. 130,
REPORTING COMPREHENSIVE INCOME, which requires that an enterprise
report and display, by major components and as a single total, the
change in its net assets during the period from nonowner sources. The
adoption of this Statement resulted in a change in the financial
statement presentation but did not have an impact on the Bank's
financial position, results of operations or cash flows.
DISCLOSURES ABOUT SEGMENTS OF AND ENTERPRISE - On January 1, 1998, the
Bank adopted SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE
AND RELATED INFORMATION, which establishes annual and interim reporting
standards for an enterprise's business segments and related disclosures
about its products, services, geographic areas and major customers.
This statement will not impact the Bank's financial position, results
of operations or cash flows. Management evaluates the Bank's
performance as a whole and does not allocate resources based on the
performance of different lending or transaction activities and reports
its operations on the basis of a single business segment.
NEW ACCOUNTING PRONOUNCEMENTS - In June 1998, the Financial Accounting
Standards Board issued SFAS No. 133 ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES. The statement establishes
accounting and reporting standards for derivative instruments and
hedging activities. The statement is effective for all fiscal quarters
of fiscal years beginning after June 15, 1999. The Bank is the process
of determining the impact of adopting SFAS No. 133, on the Bank's
financial position and results of operations.
RECLASSIFICATIONS - Certain reclassifications have been made to the
1997 and 1996 financial statements to conform with the 1998 financial
statement presentation.
2. CASH AND DUE FROM BANKS
At December 31, 1998, maintained a reserve of $320,000 with the Federal
Reserve Bank. At December 31, 1997 was not required to maintain reserve
balances with the Federal Reserve Bank.
-40-
<PAGE>
3. SECURITIES
At December 31, the amortized cost of securities and their approximate
fair values are as follows:
<TABLE>
<CAPTION>
Gross Gross Carrying
Amortized Unrealized Unrealized Amount
Cost Gains Losses (Fair Value)
------------ ---------- ---------- -------------
AVAILABLE FOR SALE SECURITIES:
<S> <C> <C> <C> <C>
DECEMBER 31, 1998
U.S. Treasury Securities $ 1,499,180 $ 9,454 $ (4,884) $ 1,503,750
Federal National Mortgage
Association notes 22,565,802 21,114 (122,381) 22,464,535
Federal Home Loan Mortgage
Corporation notes 12,524,494 27,125 (20,287) 12,531,332
Corporate and other securities 11,146,764 72,464 (74,206) 11,145,022
Obligations of foreign governments 507,106 21,644 528,750
Other U.S. Government Agency
securities 11,608,043 46,951 (36,537) 11,618,457
------------ -------- ---------- -------------
$ 59,851,389 $198,752 $ (258,295) $ 59,791,846
============ ======== ========== =============
DECEMBER 31, 1997
U.S. Treasury securities $ 998,752 $ 4,688 $ 1,003,440
Federal National Mortgage
Association notes 5,802,413 $ (26,761) 5,775,652
Federal Home Loan Mortgage
Corporation notes 3,353,400 (45,206) 3,308,194
Corporate and other securities 1,128,434 32,573 1,161,007
Obligations of foreign governments 523,496 13,854 537,350
Other U.S. Government Agency
securities 4,022,279 (30,258) 3,992,021
------------ -------- ---------- -------------
$ 15,828,774 $ 51,115 $ (102,225) $ 15,777,664
============ ======== ========== =============
Carrying
Amount Gross Gross
(Amortized Unrealized Unrealized Fair
Cost) Gains Losses Value
------------ -------- ---------- -------------
HELD TO MATURITY SECURITIES:
DECEMBER 31, 1998
Corporate and other securities $ 1,485,000 $ 14,850 $ 1,499,850
============ ======== ======== =============
</TABLE>
There were no gross realized gains on sales of securities or gross
realized losses on sales of securities in 1998 and 1997. Gross realized
gains on sales of available-for-sale securities was $2,500 in 1996.
-41-
<PAGE>
Scheduled maturities of held-to-maturity and available-for-sale
securities at December 31, 1998 are shown below. The Bank invests in
collateralized mortgage obligations (CMOs) issued by the Federal
National Mortgage Association, the Federal Home Loan Mortgage
Corporation and Government National Mortgage Association. Actual
maturities of CMOs and other securities may differ from contractual
maturities because borrowers have the right to prepay mortgages without
penalty or call obligations with or without call penalties. The Bank
uses the "Wall Street" consensus average life at the time the security
is purchased to schedule maturities of these CMOs and adjusts scheduled
maturities periodically based upon changes in the "Wall Street"
estimates.
<TABLE>
<CAPTION>
HELD TO MATURITY SECURITIES AVAILABLE-FOR-SALE SECURITIES
--------------------------- -----------------------------
AMORTIZED
COST FAIR VALUE
(CARRYING FAIR AMORTIZED (CARRYING
AMOUNT) VALUE COST AMOUNT)
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Due in one year or less $ 5,324,666 $ 5,346,164
Due from one year to five years 39,485,084 39,450,435
Due from five to ten years 8,488,406 8,486,456
Due after ten years $ 1,485,000 $1,499,850 6,553,233 6,508,791
----------- ---------- ----------- -----------
$ 1,485,000 $1,499,850 $59,851,389 $59,791,846
=========== ========== =========== ===========
</TABLE>
At December 31, 1998 and 1997, securities having carrying amounts of
approximately $2,675,000 and $2,888,000 were pledged as collateral for
treasury tax and loan balances, the U.S. Bankruptcy Court, and for
other purposes required by law or contract.
4. LOANS RECEIVABLE
The Bank's borrowers are primarily located in Humboldt, Mendocino,
Trinity and Del Norte Counties. At December 31, 1998, approximately 48%
of the Bank's loan portfolio is comprised of real estate mortgage loans
of which 46% are principally one to four family residential mortgage
loans and 54% is secured by commercial real estate. Approximately 37%
of the Bank's loans are for commercial loans, which are not
concentrated in any particular industry. Approximately 9% of the loan
portfolio is comprised of installment and other loans. The remaining 6%
of the portfolio are real estate construction loans. The Bank's service
area has a concentration of timber related companies, and accordingly,
the ability of some of the Bank's borrowers to repay loans may be
affected by the performance of this sector of the economy. The Bank has
an insignificant amount of direct timber-related loans. Virtually all
loans are collateralized, and a significant portion has adjustable
rates. Generally, real estate loans are secured by real property and
other loans are secured by bank deposits, real estate and business or
personal assets. Repayment is generally expected from the cash flow of
the borrowers.
-42-
<PAGE>
The major classifications of loans at December 31 are summarized as
follows:
1998 1997
-------------- --------------
Commercial $ 33,633,699 $ 33,215,817
Real estate-commercial 23,440,188 19,662,449
Real estate-mortgage 19,830,777 16,729,873
Real estate-construction 4,907,309 4,507,255
Installment and other 8,090,896 9,147,707
-------------- --------------
Total loans 89,902,869 83,263,101
Less: Allowance for loan losses 2,801,779 1,158,978
Deferred loan fees 75,318 171,139
-------------- --------------
Net loans receivable $ 87,025,772 $ 81,932,984
============== ==============
At December 31, 1998 and 1997, the Bank serviced real estate loans and
loans guaranteed by the Small Business Administration which it had sold
to the secondary market of $49,471,251 and $57,924,394, respectively.
Certain real estate loans receivable are pledged as collateral for
available borrowings with the FHLB and for public deposits as required
by law. Pledged loans totaled $5,784,367 and $7,615,027 at December 31,
1998 and 1997.
5. ALLOWANCE FOR LOAN LOSSES AND IMPAIRED LOANS
A summary of the activity in the allowance for loan losses for the
years ended December 31 is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- ---------
<S> <C> <C> <C>
Balance at beginning of year $ 1,158,978 $ 806,778 $ 695,712
Provision charged to operations 3,904,111 2,240,708 276,000
Loans charged off, net of recoveries (2,261,310) (1,888,508) (164,934)
----------- ----------- ---------
Balance at end of year $ 2,801,779 $ 1,158,978 $ 806,778
=========== =========== =========
</TABLE>
At December 31, 1998 and 1997, the recorded investment in loans for
which impairment has been recognized was approximately $3,137,188 and
$2,990,514. The total allowance for loan losses related to those loans
was $869,031 and $386,136 at December 31, 1998 and 1997. For the years
ended December 31, 1998, 1997 and 1996 the average recorded investment
in loans for which impairment has been recognized was approximately
$2,444,437, $2,516,383 and $1,543,554. During the portion of 1998, 1997
and 1996 that the loans were impaired, the Bank recognized $59,798,
$15,820, and $202,324 respectively, of interest income on such loans
for cash payments received. The Bank uses the cash basis method of
income recognition for impaired loans.
-43-
<PAGE>
Included in the impaired loans are loans on nonaccrual status of
$2,895,617, $2,823,945 and $1,519,414 at December 31, 1998, 1997 and
1996. Foregone interest on nonaccrual loans was $213,344, $382,935 and
$198,572 in 1998, 1997 and 1997, respectively. At December 31, 1998 and
1997, there were no commitments to lend additional funds to borrowers
whose loans were restructured or classified as nonaccrual.
6. PREMISES AND EQUIPMENT
Premises and equipment at December 31 are summarized as follows:
1998 1997
------------- ------------
Land $ 715,782 $ 715,782
Buildings 1,826,929 1,826,929
Leasehold improvements 190,959 190,959
Furniture, fixtures and equipment 3,932,771 3,444,382
Work in process 436,878 41,945
------------- ------------
7,103,319 6,219,997
Accumulated depreciation and amortization (2,584,361) (2,054,326)
------------- ------------
Premises and equipment, net $ 4,518,958 $ 4,165,671
============= ============
7. DEPOSITS
Included in interest-bearing and time, $100,000 and over deposits are
time deposits at December 31, 1998, with scheduled maturities as
follows:
1999 $ 60,732,822
2000 6,474,160
2001 3,521,373
2002 587,949
2003 and thereafter 887,471
--------------
$ 72,203,775
==============
8. OTHER BORROWED FUNDS
Other borrowed funds at December 31, 1998 represent amounts borrowed
from the Federal Reserve Bank and the Federal Home Loan Bank. Amounts
borrowed from the FRB of $39,125 consist of Treasury Tax and Loan notes
and generally are required to be repaid within 30 days from the
transaction date and are not included in the schedule below. The amount
borrowed from the FHLB of $638,079 bears interest at 6.55%, matures in
2005 and is collateralized by certain real estate loans. The Bank's
noncancelable payments (principal and interest) related to this
borrowing at December 31, 1998 are as follows:
1999 $ 116,079
2000 116,079
2001 116,079
2002 116,079
2003 and thereafter 328,890
-----------
$ 793,206
===========
-44-
<PAGE>
9. INCOME TAXES
The provision for income taxes for the years ended December 31 are
summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ---------- -----------
<S> <C> <C> <C>
Currently payable:
Federal $ (266,788) $ 28,222 $ 461,861
State 34,327 (2,485) 132,747
----------- ---------- -----------
Total (232,461) 25,737 594,608
Deferred:
Federal (262,215) 43,921 2,853
State (256,755) (44,132) (17,268)
----------- ---------- -----------
Total (518,970) (211) (14,415)
----------- ---------- -----------
Provision (benefit) for income taxes $ (751,431) $ 25,526 $ 580,193
=========== ========== ===========
</TABLE>
A reconciliation of the federal statutory tax rate to the effective tax
rate on income is as follows:
1998 1997 1996
----- ----- ----
Federal statutory tax rate (35.0)% 35.0% 35.0%
State income taxes, net of federal benefit (7.8)% (21.4)% 5.5
Other 2.7% 4.2% 1.5
----- ----- ----
(40.1)% 17.8% 42.0%
===== ===== ====
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
reporting purposes. The significant components of the Bank's net
deferred tax asset (liability), included in other assets at December
31, were as follows:
<TABLE>
<CAPTION>
1998 1997
---------- -----------
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses $ 724,789 $ 304,493
Securities marked to market for tax purposes 67,124 29,601
Unrealized loss on securities available for sale 25,021 21,032
Other 204,117 2,189
---------- -----------
Total deferred tax assets $1,021,051 $ 357,315
========== ===========
Deferred tax liabilities:
Deferred loan fee costs $ (221,676) $ (163,977)
Originated mortgage servicing rights (103,132) (103,132)
State taxes (102,799) (16,608)
Purchase premium and startup costs (44,810) (12,029)
Depreciation (20,895) (13,338)
FHLB stock dividends (10,493)
Cash to accrual adjustment (37,791)
Securities marked to market for tax purposes (16,153)
---------- -----------
Total deferred tax liabilities (503,805) (363,028)
---------- -----------
Deferred tax asset (liability) - net $ 517,246 $ (5,713)
========== ===========
</TABLE>
The Bank believes that it is more likely than not that it will realize
the above deferred net tax asset in the future periods; therefore, no
valuation allowance has been provided against its deferred tax assets.
-45-
<PAGE>
10. EARNINGS PER SHARE
There was no difference in the numerator used in the calculations of
basic earnings per share and diluted earnings per share. The following
reconciles the denominator used in the calculation of basic earnings
per common share and diluted earnings per common and equivalent share
for each of the years ended December 31, 1997 and 1996. For the year
ended December 31,1998, the effect of including outstanding options in
the calculation for diluted earnings per share would be antidilutive as
the Bank had a net loss. As a result, the effect of those outstanding
options has not been included in the calculations.
<TABLE>
<CAPTION>
1998 1997 1996
------------- ---------- -----------
<S> <C> <C> <C>
CALCULATION OF BASIC EARNINGS PER SHARE
Numerator - net income (loss) $ (1,124,717) $ 118,012 $ 801,520
Denominator - weighted average common
shares outstanding 1,453,094 712,093 564,840
------------- ---------- -----------
Basic Earnings (Loss) Per Share $ (0.77) $ 0.17 $ 1.42
============= ========== ===========
CALCULATION OF DILUTED EARNINGS PER SHARE
Numerator - net income (loss) $ (1,124,717) $ 118,012 $ 801,520
Denominator:
Weighted average common shares outstanding 1,453,094 712,093 564,840
Dilutive effect of outstanding options 40,386 27,269
------------- ---------- -----------
Weighted average common shares-diluted 1,453,094 752,479 592,109
------------- ---------- -----------
Diluted Earnings (Loss) Per Share $ (0.77) $ 0.16 $ 1.35
============= ========== ===========
</TABLE>
11. COMMITMENTS AND CONTINGENT LIABILITIES
The Bank is involved in certain legal actions arising from normal
business activities. Management, based upon the advice of legal
counsel, believes that the ultimate resolution of all pending actions
will not have a material effect on the financial statements.
The Bank has operating leases for certain premises and equipment. Rent
expense for the years ended December 31, 1998, 1997 and 1996 was
$189,770, $144,127, and $163,622, respectively.
The following schedule represents the Bank's noncancelable future
minimum scheduled lease payments for the McKinleyville and Garberville
branch premises at December 31, 1998:
1999 $ 150,324
2000 150,324
2001 150,324
2002 150,324
2003 and thereafter 675,000
------------
$ 1,276,296
============
The Bank was contingently liable under standby letters of credit issued
on behalf of its customers in the amount of $10,000 and $60,000 at
December 31, 1998 and 1997. Commercial and consumer lines of credit,
and real estate loans of approximately $14,729,000 and $13,776,000 were
undisbursed at December 31, 1998 and 1997. These instruments involve,
to varying degrees, elements of credit and market risk in excess of the
amounts recognized in the balance sheet. The contractual or notional
amounts of these transactions express the extent of the Bank's
involvement in these instruments and do not necessarily represent the
actual amount subject to credit loss. However, at December 31, 1998 and
1997, no losses are anticipated as a result of these commitments.
Loan commitments are typically contingent upon the borrower meeting
certain financial and other covenants, and such commitments typically
have fixed expiration dates and require payment of a fee. As many of
these commitments are expected to expire without being drawn upon, the
-46-
<PAGE>
total commitments do not necessarily represent future cash
requirements. The bank evaluates each potential borrower and the
necessary collateral on an individual basis. Collateral varies, but may
include real property, bank deposits, debt securities, equity
securities, or business assets.
Standby letters of credit are conditional commitments written by the
Bank to guarantee the performance of a customer to a third party. These
guarantees are issued primarily relating to inventory purchases by the
Bank's commercial and technology division customers, and such
guarantees are typically short-term. Credit risk is similar to that
involved in extending loan commitments to customers, and the Bank
accordingly uses evaluation and collateral requirements similar to
those for loan commitments. Virtually all of such commitments are
collateralized.
12. RELATED PARTY TRANSACTIONS
In the normal course of business, the Bank makes loans to directors,
executive officers and principal shareholders on substantially the same
terms, including interest rates and collateral, as comparable
transactions with unaffiliated persons. Loan activity with directors,
executive officers, principal shareholders and their associates for the
year ended December 31 was as follows (renewals are reflected as new
loans and repayments):
1998 1997
------------ -------------
Balance, at beginning of year $ 1,550,591 $ 1,008,374
Additions 394,262 1,216,259
Collections (706,393) (674,042)
------------ -------------
Balance, at end of year $ 1,238,460 $ 1,550,591
============ =============
13. STOCK BASED COMPENSATION
The Bank has a stock option plan under which directors, officers and
employees may be granted options to purchase shares of common stock at
a price not less than the fair market value on the date of grant.
Options vest when granted.
Unexercised options expire 10 years from the date of grant, currently
1999 to 2006. The exercise price for all options outstanding at
December 31, 1998 was $8.66 to $17.38 per share. Options for 14,797
shares remain available for grant under the plan.
-47-
<PAGE>
A summary of stock options follows:
WEIGHTED
STOCK AVERAGE
OPTIONS EXERCISE PRICE
------- --------------
Outstanding and exercisable
at January 1, 1996 70,409 $ 9.01
Options granted 24,050 $11.82
Options expired/canceled (840) $ 9.88
10% stock dividend 9,320 $ 9.73
Option exercised (210) $10.00
-------
Outstanding and exercisable at
December 31, 1996 102,729 $ 9.73
Options expired/canceled (115) $ 9.05
Options exercised (3,102) $ 9.05
-------
Outstanding and exercisable at
December 31, 1997 99,512 $ 9.76
Options granted 55,106 $16.21
Options expired/canceled (3,180) $16.78
Options exercised (31,200) $10.15
-------
Outstanding and exercisable at
December 31, 1998 120,238 $12.43
=======
Information about stock options outstanding at December 31, 1998 is
summarized as follows:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
AVERAGE AVERAGE
AVERAGE EXERCISE EXERCISE
RANGE OF REMAINING PRICE OF PRICE OF
EXERCISES OPTIONS CONTRACTUAL OPTIONS OPTIONS OPTIONS
PRICES OUTSTANDING LIFE (YEARS) OUTSTANDING EXERCISABLE EXERCISABLE
--------- ----------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
$8.65 - $8.69 12,551 3.25 $8.66 12,551 $8.66
$9.09 - $9.35 40,663 6.22 $9.18 40,663 $9.18
$11.25 - $12.88 26,824 8.42 $11.68 26,824 $11.68
$17.38 40,200 9.25 $17.38 40,200 $17.38
</TABLE>
The Bank applies APB Opinion 25 and related interpretations in
accounting for its stock option plan. Under the intrinsic value method
no compensation cost has been recognized for its stock option grants.
SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION requires
disclosure of pro forma net income and earnings per share had the Bank
adopted the fair value method as of the beginning of 1996. Had
compensation cost for the grants been determined based upon the fair
value method, the Bank's net income and earnings per share would have
been adjusted to the pro forma amounts indicated below.
-48-
<PAGE>
<TABLE>
<CAPTION>
1998 1997 1996
------------ -------- --------
Net income (loss):
<S> <C> <C> <C>
As reported $(1,125,000) $118,000 $802,000
Pro forma $(1,349,000) $118,000 $707,000
Basic earnings (loss) per common share:
As reported $ (0.77) $ 0.17 $ 1.42
Pro forma $ (0.93) $ 0.17 $ 1.25
Diluted earnings (loss) per common and equivalent share:
As reported $ (0.77) $ 0.16 $ 1.35
Pro forma $ (0.93) $ 0.16 $ 1.19
</TABLE>
No options were granted in 1997. The fair value of the options granted
during 1998 and 1996 is estimated as $385,285 and $163,307 on the date
of grant using a binomial option-pricing model with the following
assumptions: no annual dividend, volatility of 22.7% and 22.5%,
risk-free interest rate of 4.66% and 6.90%, assumed forfeiture rate of
zero, and an expected life of ten years. The weighted average per share
fair value of the 1998 and 1996 awards was $16.21 and $11.82,
respectively.
14. REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory - and, possibly,
additional discretionary - actions by regulators that, if undertaken,
could have a direct material effect on the Bank's financial statements.
Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Bank must meet specific capital
guidelines that involve quantitative measures of the Bank's assets,
liabilities and certain off-balance sheet items as calculated under
regulatory accounting practices. The Bank's capital amounts and
classification are also subject to qualitative judgments by the
regulators about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Bank to maintain minimum amounts and ratios (set
forth in the table below) of total and Tier 1 capital (as defined in
the regulations) to risk-weighted assets (as defined) and of Tier 1
capital (as defined) to average assets (as defined). Management
believes, as of December 31, 1998, that the Bank meets all capital
adequacy requirements to which it is subject.
The most recent notifications from the Federal Deposit Insurance
Corporation for the Bank as of December 31, 1998 and 1997, categorized
the Bank as well capitalized under the regulatory framework for prompt
correction action. To be categorized as well capitalized the Bank must
maintain minimum total risk-based, Tier I risk-based, Tier I leverage
ratios as set forth in the table. There are no conditions or events
since that notification that management believes have changed the
Bank's category. Subsequent to year end, the Bank was notified that it
would be required to enter into a Consent Order Agreement with the
Office of the Comptroller of the Currency ("OCC") (see Note 17).
-49-
<PAGE>
The Bank's capital ratios at December 31 are shown as follows:
<TABLE>
<CAPTION>
TO BE CATEGORIZED
AS WELL
CAPITALIZED
UNDER PROMPT
FOR CAPITAL CORRECTION ACTION
ACTUAL ADEQUACY PURPOSES PROVISIONS
------------------ MINIMUM MINIMUM MINIMUM MINIMUM
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------ ----- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1998:
Total capital
(to risk weighted assets) $ 15,454,997 12.30% $ 10,049,842 8.0% $ 12,562,365 10.0%
Tier I capital
(to risk weighted assets) $ 13,884,251 11.05% $ 5,024,946 4.0% $ 7,537,419 6.0%
Tier I capital
(to average assets) $ 13,884,251 6.73% $ 8,255,391 4.0% $ 10,319,239 5.0%
As of December 31, 1997:
Total capital
(to risk weighted assets) $ 15,506,512 10.26% $ 12,089,336 8.0% $ 15,111,670 10.0%
Tier I capital
(to risk weighted assets) $ 14,347,534 9.49% $ 6,044,668 4.0% $ 9,067,002 6.0%
Tier I capital
(to average assets) $ 14,347,534 8.69% $ 6,606,098 4.0% $ 8,257,622 5.0%
</TABLE>
Under federal and California state banking laws, dividends paid by the
Bank in any calendar year may not exceed certain limitations without
the prior written approval of the appropriate bank regulatory agency.
At December 31, 1998, no amounts were available for dividends without
prior approval of the Bank's regulators.
During 1997, as a result of a regulatory examination, the OCC asserted
that the Bank committed a lending limit violation. During the fourth
quarter of 1997, the Bank charged off four loans in the amount of
$799,942. The Board of Directors of the Bank voluntarily purchased two
of the loans alleged to be in violation of the Bank's lending limit in
the amount of $399,942 by providing additional paid-in capital to the
Bank.
During 1998, as a result of a regulatory examination, the OCC asserted
that the Bank committed a second lending limit violation regarding a
loan that had been submitted to but not yet received approval for a
guarantee by the United States Department of Agriculture (USDA).
Subsequent to year end, the Bank received approval for the guarantee
from the USDA.
15. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following are certain disclosures regarding the estimated fair
value of financial instruments for which it is practicable to estimate.
Although management uses its best judgment in assessing fair value,
there are inherent weaknesses in any estimating technique that may be
reflected in the fair values disclosed. The fair value estimates are
made at a discrete point in time based on relevant market data,
information about the financial instruments, and other factors.
Estimates of fair value of instruments without quoted market prices are
subjective in nature and involve various assumptions and estimates that
are matters of judgment. Changes in the assumptions used could
significantly affect these estimates. Fair value has not been adjusted
to reflect changes in market conditions subsequent to December 31,
1998, therefore, estimates presented herein are not necessarily
indicative of amounts which could be realized in a current transaction.
-50-
<PAGE>
The following estimates and assumptions were used as of December 31,
1998 and 1997 to estimate the fair value of each class of financial
instrument for which it is practicable to estimate that value.
(a) CASH AND CASH EQUIVALENTS AND INTEREST BEARING DEPOSITS IN OTHER
FINANCIAL INSTITUTIONS - The carrying amount represents a
reasonable estimate of fair value.
(b) SECURITIES - Held to maturity securities are based on quoted
market prices, if available. If a quoted market price is not
available, fair value is estimated using quoted market prices
for similar securities. Available for sale securities are
carried at fair value, FHLB, federal reserve, and other
securities are based on the carrying amount which represents a
reasonable estimate of fair value.
(c) LOANS RECEIVABLE AND LOANS HELD FOR SALE - Commercial loans,
residential mortgages, and construction loans, are segmented by
fixed and adjustable rate interest terms, by maturity, and by
performing and nonperforming loans and loans held for sale.
The fair value of performing loans is estimated by discounting
contractual cash flows using the current interest rates at which
similar loans would be made to borrowers with similar credit
ratings and for the same remaining maturities. Assumptions
regarding credit risk, cash flow, and discount rates are
judgmentally determined using available market information. The
fair value of loans held for sale is estimated based on current
market information for similar loans.
The fair value of nonperforming loans and loans delinquent more
than 30 days is estimated by discounting estimated future cash
flows using current interest rates with an additional risk
adjustment reflecting the individual characteristics of the
loans.
(d) DEPOSIT LIABILITIES - Noninterest bearing and interest bearing
demand deposits and savings accounts are payable on demand and
are assumed to be at fair value. Time deposits are based on the
discounted value of contractual cash flows. The discount rate is
based on rates currently offered for deposits of similar size
and remaining maturities.
(e) OTHER BORROWED FUNDS - The fair value of other borrowed funds is
estimated by discounting the contractual cash flows using the
current interest rate at which similar borrowing for the same
remaining maturities could be made.
(f) COMMITMENTS TO FUND LOANS/STANDBY LETTERS OF CREDIT -
Commitments are estimated using the fees currently charged to
enter into similar agreements, taking into account the remaining
terms of the agreements and the present creditworthiness of the
counterparties. The differences between the carrying value of
commitments to fund loans or stand by letters of credit and
their fair value is not significant and, therefore, not included
in the following table.
-51-
<PAGE>
The estimated fair values of the Bank's financial instruments as
of December 31 are as follows:
<TABLE>
<CAPTION>
1998 1997
------------------------------- ----------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
FINANCIAL ASSETS:
Cash and cash equivalents $ 17,687,082 $ 17,687,082 $ 76,834,920 $ 76,834,920
Interest bearing deposits in other
financial institutions 6,195,724 6,195,724 4,637,447 4,637,447
Held to maturity securities 1,485,000 1,485,000
Available-for-sale securities 59,791,846 59,791,846 15,777,664 15,777,664
FHLB, federal reserve, and
other securities 1,014,776 1,014,776 659,345 659,345
Loans receivable and loans held
for sale 107,028,261 106,487,000 85,951,415 86,112,700
FINANCIAL LIABILITIES:
Deposits 182,932,047 182,367,000 172,733,477 172,596,890
Other borrowed funds 677,204 677,204 1,118,901 1,118,901
</TABLE>
16. BRANCH ACQUISITION
In November 1997, Six Rivers National Bank completed the acquisition of
four branches located in Humboldt, Mendocino, and Trinity Counties. As
a result of the branch acquisition and under the terms of the Purchase
and Assumption Agreement dated June 27, 1997, the Bank paid the net
book value of the branch fixtures and equipment, the fair market value
of the branch real property owned, and a premium on the deposits. The
Bank recorded cash of approximately $1,688,000, recorded premises and
equipment and intangible assets of approximately $6,046,000 and
recorded liabilities, primarily consisting of deposits, of
approximately $69,053,000.
17. SUBSEQUENT EVENT
On February 24, 1999 the Office of the Comptroller of the Currency
notified the Bank that it would be required to enter into a Consent
Order ("Order"). The final Order has not been issued, however, the
draft language of the Order requires that the Bank formulate and
implement a plan to strengthen its policies and procedures relative to
its loan administration, credit and collateral exceptions, classified
assets, allowances for loan losses and violations of law related to
lending limits. The Board of Directors has agreed to execute the Order
once finalized. At that time, the Board is expected to adopt an action
plan detailing the actions necessary to comply with the Order.
******
-52-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchanged Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, on March 29, 1999.
SIX RIVERS NATIONAL BANK
(Registrant)
By /s/ MICHAEL W. MARTINEZ
-------------------------------------
Michael W. Martinez
President/Chief Executive Officer
and Principal Financial Officer
By /s/ WILLIAM T. KAY March 30, 1999
--------------------------------------------
William T. Kay, Director
By /s/ DOLORES M. VELLUTINI March 29, 1999
--------------------------------------------
Dolores M. Vellutini, Director
By /s/ KEVIN D. HARTWICK March 29, 1999
--------------------------------------------
Kevin D. Hartwick, Director
By /s/ WARREN L. MURPHY March 26, 1999
--------------------------------------------
Warren L. Murphy, Director
By March ____, 1999
--------------------------------------------
Michael McGowan, Director
By March ____, 1999
--------------------------------------------
Michael W. Martinez, Interim President/
Chief Executive Officer and Principal
Financial Officer
-53-
EXHIBIT 99.2
FORM 10-K SB / A
OFFICE OF THE COMPTROLLER OF THE CURRENCY
WASHINGTON, D.C. 20219
AMENDMENT TO FORM 10-KSB
[X] Annual Report Under Section 13 or 15(d) of the Securities Exchange Act of
1934 for the fiscal year ended DECEMBER 31, 1998.
SIX RIVERS NATIONAL BANK
------------------------------------------------------
(Exact name of registrant as specified in its charter)
CALIFORNIA 68-0176905
------------------------------- ------------------------
(State or other jurisdiction of (IRS Employer ID Number)
incorporation or organization)
402 F STREET, EUREKA, CALIFORNIA 95501
----------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code: (707) 443-8400
--------------
Former name, former address and former fiscal year, if changed since last
report: NOT APPLICABLE.
Securities registered pursuant to Section 12(g) of the Act:
SIX RIVERS NATIONAL BANK - PAR VALUE $5.00 COMMON STOCK
-------------------------------------------------------
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ ]No [X]
Aggregate market value of shares held by non-affiliates of the registrant (price
computed using last sale price displayed on the Nasdaq National Stock Market as
of the close of business on March 29, 1999):
$16,078,062
-----------
Indicate the number of shares outstanding of the registrant's common
stock, as of March 29, 1999:
1,461,642
---------
DOCUMENTS INCORPORATED BY REFERENCE
PARTS OF FORM 10-K INTO WHICH
DOCUMENTS INCORPORATED INCORPORATED
Definitive proxy statement for the Company's 1999
Annual Meeting of Shareholders to be filed within
120 days of the end of the fiscal year ended
December 31, 1998. Part III
<PAGE>
Six Rivers National Bank hereby amends its Form 10-K SB for the year ended
December 31, 1998 to include Item 13, Exhibits and Financial Statement Schedules
and Reports on Form 8-K.
Accordingly, the undersigned registrant hereby files the following exhibits as
set forth in the pages attached hereto:
PART III
ITEM 13. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Exhibits.
Exhibits Description of Exhibits
- -------- -----------------------
2.1 Branch Purchase and Assumption Agreement dated September 25,
1997, between Six Rivers National Bank and Bank of America
2.2 Form of Reorganization Agreement among Six Rivers National
Bank, Six Rivers Interim National Bank and Six Rivers
Financial Corp. and related Merger Agreement between Six
Rivers National Bank and Six Rivers Interim National Bank
3.1 Articles of Incorporation
3.2 Bylaws
10.1 Six Rivers National Bank 1989 Stock Option Plan
10.2 Indemnification Agreement between John F. Burger and Six
Rivers National Bank dated June 23, 1992
10.3 Transition Agreement between John F. Burger and Six Rivers
National Bank dated June 16, 1997
10.4 Transition Agreement between Eugene Ulrich and Six Rivers
National Bank dated June 16, 1997
10.5 Transition Agreement between Michael W. Martinez and Six
Rivers National Bank dated June 16, 1997
(b) Financial Statement Schedules.
Not applicable.
-2-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, on October 15, 1999.
SIX RIVERS NATIONAL BANK
(Registrant)
By /s/ MICHAEL W. MARTINEZ
-------------------------------------
Michael W. Martinez
President/Chief Executive Officer
and Principal Financial Officer
By /s/ WILLIAM T. KAY October 18, 1999
-------------------------------------
William T. Kay, Director
By /s/ DOLORES M. VELLUTINI October 18, 1999
-------------------------------------
Dolores M. Vellutini, Director
By /s/ KEVIN D. HARTWICK October 18, 1999
-------------------------------------
Kevin D. Hartwick, Director
By /s/ WARREN L. MURPHY October 18, 1999
-------------------------------------
Warren L. Murphy, Director
By /s/ MICHAEL MCGOWAN October 18, 1999
-------------------------------------
Michael McGowan, Director
By /s/ MICHAEL W. MARTINEZ October 15, 1999
-------------------------------------
Michael W. Martinez, President/
Chief Executive Officer and Principal
Financial Officer
-3-
<PAGE>
EXHIBIT INDEX
Exhibits Description of Exhibits
- -------- -----------------------
2.1 Branch Purchase and Assumption Agreement dated September 25,
1997, between Six Rivers National Bank and Bank of America *
2.2 Form of Reorganization Agreement among Six Rivers National
Bank, Six Rivers Interim National Bank and Six Rivers
Financial Corp. and related Merger Agreement between Six
Rivers National Bank and Six Rivers Interim National Bank *
3.1 Articles of Incorporation *
3.2 Bylaws *
10.1 Six Rivers National Bank 1989 Stock Option Plan *
10.2 Indemnification Agreement between John F. Burger and Six
Rivers National Bank dated June 23, 1992 *
10.3 Transition Agreement between John F. Burger and Six Rivers
National Bank dated June 16, 1997 *
10.4 Transition Agreement between Eugene Ulrich and Six Rivers
National Bank dated June 16, 1997 *
10.5 Transition Agreement between Michael W. Martinez and Six
Rivers National Bank dated June 16, 1997 *
11 Statement re computation of earnings per share, included in
Note 1 and Note 10 of the Bank's financial statements
* Incorporated by reference from exhibits to Registration Statement on
Form S-1 filed with the OCC on August 21, 1997
-4-
<PAGE>
EXHIBIT 2.1
EXECUTION COPY
------------------------------------
BRANCH PURCHASE AND ASSUMPTION AGREEMENT
dated as of
June 27, 1997
between
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION
and
SIX RIVERS NATIONAL BANK
------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE 1 Definitions.........................................................1
1.1 Definitions.........................................................1
ARTICLE 2 Purchase and Sale....................................................6
2.1 Purchase and Sale....................................................6
2.2 Closing..............................................................6
2.3 Transitional Matters.................................................8
2.4 Employee Considerations.............................................11
ARTICLE 3 Price and Adjustments...............................................13
3.1 Price...............................................................13
3.2 Adjustments.........................................................14
ARTICLE 4 Additional Covenants................................................17
4.1 Seller's Covenants..................................................17
4.2 Buyer's Covenants...................................................20
4.3 Consents............................................................21
4.4 Environmental Matters...............................................21
4.5 Valuation of the Assets.............................................27
4.6 Clearing Items......................................................27
4.7 IRA Deposits and Keogh Accounts.....................................27
4.8 Interest Reporting and Withholding..................................28
4.9 Eminent Domain or Taking............................................28
4.10 Damage or Destruction...............................................29
ARTICLE 5 Representations and Warranties......................................30
5.1 Seller's Representations and Warranties.............................30
5.2 Buyer's Representations and Warranties..............................31
ARTICLE 6 Understandings......................................................33
6.1 Depositors'Rights...................................................33
6.2 Unclaimed Property..................................................33
6.3 Head Office Accounts................................................33
6.4 Limitation of Warranties............................................34
ARTICLE 7 Conditions to the Closing...........................................34
7.1 Seller's Conditions.................................................34
7.2 Buyer's Conditions..................................................35
ARTICLE 8 Termination.........................................................36
8.1 Events of Termination...............................................36
8.2 Liability for Termination...........................................37
ARTICLE 9 Survival, Indemnification...........................................37
9.1 Survival............................................................37
9.2 Seller's Indemnity..................................................37
9.3 Buyer's Indemnity...................................................38
9.4 Arbitration of Disputes.............................................38
9.5 Limit on Indemnities................................................40
-i-
- --------------------------------------------------------------------------------
<PAGE>
ARTICLE 10 Taxes..............................................................40
10.1 Obligations of the Buyer and the Seller.............................40
10.2 Access to Information...............................................40
10.3 Allocation of Consideration.........................................41
ARTICLE 11 Miscellaneous......................................................41
11.1 Public Notice.......................................................41
11.2 Assignment..........................................................41
11.3 Notices.............................................................41
11.4 Time................................................................42
11.5 Expenses............................................................43
11.6 Communications......................................................43
11.7 Entire Agreement....................................................43
11.8 Amendment...........................................................43
11.9 Governing Law, Severability.........................................43
11.10 Waiver..............................................................43
11.11 Confidentiality.....................................................44
11.12 Third Party Rights..................................................44
11.13 Headings............................................................44
11.14 Counterparts........................................................44
SCHEDULES
A List of Branches
1.1(a) Branch Real Estate
1.1(b) Furniture, Fixtures and Equipment
1.1(c) Other Liabilities
1.1(d) Deposit Summary
2.2(b)(i)(A) Form of Grant Deed
2.2(b)(i)(B) Form of Bill of Sale
2.2(b)(i)(C) Form of Assignment and Assumption
2.2(d) Contracts
2.2(e) Leases
3.1 Leasehold Improvements
4.4(c) Phase I Environmental Site
Assessments and Asbestos Surveys
5.1(e) Litigation
5.1(h) Employees
5.2(j) Real Estate Disclosures
6.3 Head Office Accounts
-ii-
- --------------------------------------------------------------------------------
<PAGE>
BRANCH PURCHASE AND ASSUMPTION AGREEMENT
THIS BRANCH PURCHASE AND ASSUMPTION AGREEMENT ("Agreement") is made as
of June 27, 1997, by and between BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION, a national banking association established under the laws of the
United States (the "Seller"), and SIX RIVERS NATIONAL BANK, a bank organized
under the laws of the United States (the "Buyer").
WHEREAS, the Seller maintains the branch or branches
listed on Schedule A hereto (sometimes referred to herein
collectively as the "Branches" and individually as a
"Branch");
WHEREAS, the Buyer wishes to purchase certain of the
assets and assume certain of the liabilities of the Branches
and the Seller is willing to sell and transfer the same upon
the terms and subject to the conditions hereinafter set
forth; and
WHEREAS, the Buyer intends that retail and business
banking services will be offered in the geographic areas
served by the Branches.
NOW, THEREFORE, in consideration of the premises and the respective
representations, warranties, covenants, agreements and conditions contained
herein, the Seller and the Buyer hereby agree as follows:
ARTICLE 1
DEFINITIONS
1.1 DEFINITIONS. For purposes of this Agreement:
"Account" means, as of any date, a deposit liability of the Seller
which (i) is not represented by a certificate of deposit having a fixed maturity
and (ii) is maintained at one of the Branches.
"Accrued Expenses" means the accrued and unpaid expenses appearing as a
liability on the Financial Statements pursuant to Section 3.2(c).
"Accrued Interest" on any Deposits at any date means interest which is
accrued on such Deposits to and including such date and not yet posted to such
deposit accounts.
"Affiliate" of a person means any person directly or indirectly
controlling or controlled by or under direct or indirect common control with
such person.
-1-
- --------------------------------------------------------------------------------
<PAGE>
"Agreement" means this Branch Purchase and Assumption Agreement,
including all schedules, exhibits and addenda, as modified, amended or extended
from time to time.
"Allocation" shall have the meaning set forth in Section 10.3.
"Assets" means the Branch Real Estate, the Furniture, Fixtures and
Equipment, Improvements, Leasehold Improvements, Cash on Hand, safe deposit
boxes located at the Branches (exclusive of the contents thereof), Prepaid
Expenses, Overdrafts and all books, records, files and documentation relating to
the foregoing.
"Assumed Contracts" shall have the meaning set forth in Section 2.2(d).
"Assumed Deposits" means all Deposits existing on the Closing Date in
one or more of the Branches, together with all Accrued Interest thereon as of
the Closing Date; PROVIDED, HOWEVER, that Assumed Deposits shall not include any
of the following, which shall be retained by Seller: (i) Deposits which secure
loans, (ii) Deposits not assumed pursuant to Sections 3.2(f), 3.2(g), or 6.3,
(iii) Deposits which secure Visa card accounts, and (iv) other Deposits, if any,
which the Buyer has advised the Seller, at least thirty (30) Business Days prior
to the Closing Date, it cannot legally accept.
"Branch Real Estate" means all real property owned by the Seller on
which any of the Branches is located and which is identified in the preliminary
title reports included in Schedule 1.1(a).
"Break-up Fee" means an amount to be paid by Buyer to Seller pursuant
to Section 5.2(i) hereof calculated by multiplying $75,000 times the number of
Branches listed on Schedule A hereto which are not acquired due to the failure
of Buyer to raise sufficient capital.
"Business Day" means a day on which the Seller is open for business in
California and which is not a Saturday or Sunday.
"Cash on Hand" means, as of any date, all petty cash, vault cash,
teller cash, automated teller machine cash and prepaid postage maintained at the
Branches.
"Closing" and "Closing Date" refer to the closing of the sale,
purchase, transfer and assumption provided for herein to be held at the time and
date provided for in Section 2.2(a) hereof.
"Closing Financial Statement" means the estimated balance sheet of the
Branches prepared by the Seller as of the close of business at the Branches on
the Closing Date and on which are recorded as of such date, in accordance with
the Seller's normal practices and procedures, the Assets and the Liabilities
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(except that such normal practices and procedures shall be modified as necessary
to implement prorations required by, or other provisions of, this Agreement).
"Continuation Coverage" shall have the meaning set forth in Section
2.4(g).
"Deposits" means, as of any date, all deposit liabilities of the Seller
that are Accounts or certificates of deposit maintained at the Branches,
including, without limitation, Time Deposits, and including all uncollected
items included in depositors' balances, as of such date.
"Direct Deposit Cut-off Date" shall have the meaning set forth in
Section 4.1(g).
"Employee" means any employee employed on the Closing Date at one of
the Branches by Seller or its subsidiaries or Affiliates, including without
limitation, those employees on medical leave, family leave, military leave or
personal leave under Seller's policies.
"Federal Funds Rate" on any day means the per annum rate of interest
(rounded upward to the nearest 1/100 of 1%) which is the weighted average of the
rates on overnight federal funds transactions arranged on such day or, if such
day is not a banking day, the previous banking day, by federal funds brokers
computed and released by the Federal Reserve Bank of New York (or any successor)
in substantially the same manner as such Federal Reserve Bank currently computes
and releases the weighted average it refers to as the "Federal Funds Effective
Rate" at the date of this Agreement.
"Final Financial Statement" means the balance sheet of the Branches
prepared by the Seller as of the close of business at the Branches on the
Closing Date, and delivered by the Seller to the Buyer pursuant to Section
3.2(a)(ii). The Final Financial Statement is to be prepared in accordance with
the Seller's normal practices and procedures (except that such normal practices
and procedures shall be modified as necessary to implement prorations required
by, or other provisions of, this Agreement) and in a manner consistent with the
Closing Financial Statement.
"Financial Statements" shall mean collectively the Closing Financial
Statement, the Pre-Final Financial Statement and the Final Financial Statement.
"Furniture, Fixtures and Equipment" means all furniture, fixtures and
equipment that are listed on Schedule 1.1(b) under the caption "Sold to Buyer."
Buyer acknowledges that there shall be excluded from this definition any and all
other items, including those listed on Schedule 1.1(b) under the caption
"Retained by Seller (Items Excluded from Sale)."
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"Improvements" means all improvements to the Branch Real Estate
purchased, installed or constructed by or on behalf of, and owned by, the Seller
and used in connection with the operation or maintenance of the Branches,
including, without limitation, buildings, structures, parking facilities and
drive-up teller facilities.
"Individual Retirement Account" or "IRA" means an account created by
trust for the exclusive benefit of an individual or his or her beneficiaries in
accordance with the provisions of Section 408 of the IRC.
"Initial Base Amount" shall have the meaning set forth in Section 3.1.
"IRA Deposits" shall have the meaning set forth in Section 3.2(f).
"IRC" means the Internal Revenue Code of 1986, as amended.
"Keogh Accounts" shall have the meaning set forth in Section 3.2(g).
"Lease" means any lease or sublease of a lease by which Seller has
rights to occupy and use Leased Real Estate or Leasehold Improvements or both.
"Leased Real Estate" means all real property on which any of the
Branches is located, which is occupied and used by the Seller pursuant to a
lease.
"Leasehold Improvements" means all improvements on or constituting a
portion of Leased Real Estate, purchased, installed or constructed by or on
behalf of, and owned by, Seller and used in connection with the operation or
maintenance of the Branches, including, without limitation, buildings,
structures, parking facilities and drive-up teller facilities.
"Liabilities" means (i) the Assumed Deposits, (ii) the Assumed
Contracts, if any, (iii) the Seller's obligations to provide services from and
after the Closing Date in connection with the Assets and the Assumed Deposits,
including obligations with respect to safe deposit boxes, (iv) the Leases, if
any, and (v) such other liabilities of the Seller with respect to the operations
of the Branches as may be described on Schedule 1.1(c) (the "Other
Liabilities"); excluding, however, any Leases or Assumed Contracts as to which
any consents required to transfer the same to the Buyer at Closing cannot be
obtained; and no other duty, obligation or liability whatsoever (including,
without limitation, any and all penalties, fines, compensatory or punitive
damages of any kind whatsoever) of the Seller, its Affiliates or any other
person or with respect to the Assets or Liabilities.
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"Magnetic Tapes" shall mean the computer data storage tapes (which may
be in reel-to-reel or cartridge form) prepared by Seller which contain the
information to be used for an automated conversion of the Assumed Deposits.
"Market Value" shall mean, with respect to any Branch Real Estate and
any Improvements with respect thereto, the appraised market value thereof on an
"as is" basis, reflecting the highest and best use thereof in the condition
observed by the appraiser upon inspection and as such property physically and
legally exists without hypothetical conditions, assumptions or qualifications.
Market Value is the most probable price which a property should bring in a
competitive and open market under all conditions requisite to a fair sale, the
Buyer and the Seller each acting prudently and knowledgeably, and assuming the
price is not affected by undue stimulus. Implicit in this definition is the
consummation of a sale as of a specified date and the passing of title from the
Seller to the Buyer under conditions whereby: (i) the Buyer and the Seller are
typically motivated; (ii) both parties are well informed or well advised, and
acting in what they consider their own best interests; (iii) a reasonable time
is allowed for exposure in the open market; (iv) payment is made in cash in U.S.
dollars or in terms of financial arrangements comparable thereto; and (v) the
price represents the normal consideration for the property sold, unaffected by
special or creative financing or sales concessions granted by anyone associated
with the sale. The appraisal shall be set forth in a report of appraisal by an
independent appraiser to be selected by the Buyer from a list of no more than
five (5) appraisers to be provided by the Seller. The cost of such appraisal
shall be borne equally by the Buyer and the Seller.
"Overdrafts" means only overdrafts in Transaction Accounts (other than
overdrafts extended pursuant to a formal line of credit or similar arrangement)
maintained at the Branches.
"Pre-Final Financial Statement" means the balance sheet of the Branches
prepared by the Seller as of the close of business at the Branches on the
Closing Date, and delivered by the Seller to the Buyer pursuant to Section
3.2(a)(i). The Pre-Final Financial Statement is to be prepared in accordance
with the Seller's normal practices and procedures (except that such normal
practices and procedures shall be modified as necessary to implement prorations
required by, or other provisions of, this Agreement) and in a manner consistent
with the Closing Financial Statement, and shall, to the extent practicable,
reflect actual Deposits and Cash on Hand as of the Closing Date, and any
third-party invoices (such as from communication vendors) available by the time
the Seller prepares the Pre-Final Financial Statement.
"Prepaid Expenses" means the prepaid expenses appearing as an asset on
the Financial Statements pursuant to Section 3.2(c).
"Purchase Premium" means, as of the Closing Date, the sum of the
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following: (i) 8.02% times the average over the twenty (20) Business Days
preceding the Closing of the Assumed Deposits located in the Ferndale Branch;
plus (ii) 8.02% times the average over the twenty (20) Business Days preceding
the Closing of the Assumed Deposits located in the Garberville Branch; plus
(iii) 6.00% times the average over the twenty (20) Business Days preceding the
Closing of the Assumed Deposits located in the Weaverville Branch; plus (iv)
8.02% times the average over the twenty (20) Business Days preceding the Closing
of the Assumed Deposits located in the Willits Branch; provided, however, in the
event that (w) the Assumed Deposits for any Branch on the Closing Date are equal
to or greater than 70% and less than 80% of the aggregate Deposits for such
Branch as reflected in the Deposit summary figures set forth on Schedule 1.1(d),
then the percentage multiplier to be used in calculating the Purchase Premium
attributable to such Branch shall be reduced by 100 basis points, or (x) the
Assumed Deposits for any Branch on the Closing Date are equal to or greater than
60% and less than 70% of the aggregate Deposits for such Branch as reflected in
the Deposit summary figures set forth on Schedule 1.1(d), then the percentage
multiplier to be used in calculating the Purchase Premium attributable to such
Branch shall be reduced by 200 basis points, or (y) the Assumed Deposits for any
Branch on the Closing Date are equal to or greater than 50% and less than 60% of
the aggregate Deposits for such Branch as reflected in the Deposit summary
figures set forth on Schedule 1.1(d), then the percentage multiplier to be used
in calculating the Purchase Premium attributable to such Branch shall be reduced
by 300 basis points, or (z) the Assumed Deposits for any Branch on the Closing
Date are less than 50% of the aggregate Deposits for such Branch as reflected in
the Deposit summary figures set forth on Schedule 1.1(d), then the percentage
multiplier to be used in calculating the Purchase Premium attributable to such
Branch shall be reduced by 400 basis points; provided further, that if, as the
result of hiring additional Employees in a Branch as permitted in Section
2.3(a)(v) hereof, the total of the salaries paid to Employees for any Branch as
of the Closing Date exceeds 125% of the total salaries reflected on Schedule
5.1(h) (the "Initial Employee Expenses"), then the Purchase Premium attributable
to such Branch shall be reduced by an amount equal to two (2) times the
annualized amount by which such total of Employee salaries exceeds 125% of the
Initial Employee Expenses. The aggregate sum of the foregoing calculation shall
be the Purchase Premium as of the Closing Date.
"Returned Items" shall have the meaning set forth in Section 3.2(h).
"Seller's Knowledge" or other similar phrases shall mean the actual
knowledge, without having conducted any independent inquiry or investigation, of
the regional manager of the Seller responsible for a Branch (but only as to
information as to such Branch) and Brian A. Dunne, Vice President of the Seller.
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"Settlement Date" means the sixtieth (60th) calendar day following the
Closing Date.
"Time Deposit" means a certificate of deposit which is not transferable
or negotiable, and earns interest at a fixed rate for a specific term.
"Transaction Account" means any Account in respect of which deposits
therein are withdrawable in practice upon demand or upon which third party
drafts may be drawn by the depositor, including checking accounts, Alpha
accounts, NOW accounts and money market deposit accounts.
"Validation Run" shall have the meaning set forth in Section
2.2(b)(i)(F).
ARTICLE 2
PURCHASE AND SALE
2.1 PURCHASE AND SALE. Upon the terms and subject to the conditions of
this Agreement, the Seller agrees to sell and transfer and the Buyer agrees to
purchase and assume the Assets and the Liabilities at the Closing as provided in
Section 2.2.
2.2 CLOSING.
(a) CLOSING DATE AND PLACE. The closing of the transactions provided
for herein will be held at the offices of the Seller, 315 Montgomery Street,
Suite 1300, San Francisco, California 94104; PROVIDED, THAT transfer of the
Branch Real Estate shall be effected through a real estate escrow to be opened
with Chicago Title Company, 388 Market Street, San Francisco, California 94111.
The closing shall be held on a Thursday that is mutually agreeable to the Buyer
and the Seller as soon as practicable following the receipt of all government
and other approvals and consents necessary for the consummation of the
transactions contemplated hereby (including the expiration of any statutory
waiting periods) and the satisfaction (or waiver) of all other conditions to
closing provided for herein. Notwithstanding the foregoing, the Seller may, for
any proper business reason, adjourn the date and time of the Closing, upon
written notice to the Buyer; PROVIDED, HOWEVER, that the Seller shall use all
reasonable efforts to reschedule the Closing to take place at a time agreeable
to the Buyer, which agreement shall not be unreasonably withheld; PROVIDED
FURTHER, HOWEVER, that the parties shall agree in any event upon a date for the
Closing which shall be on or prior to March 31, 1998, or such other date as the
Seller and the Buyer shall agree upon in writing.
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(b) CONVEYANCES; PAYMENT.
(i) The following shall be delivered by the parties at the Closing,
subject to Sections 2.2(d), 2.2(e), 3.2(b), 4.3 and the final paragraph
of Section 7.2:
(A) The Seller shall deliver to the Buyer one or more
grant deeds for the Branch Real Estate, if any, in the form
attached hereto as Schedule 2.2(b)(i)(A) and shall cooperate
with the Buyer in assisting the Buyer to obtain (at the
Buyer's expense) one or more CLTA policies of title insurance
with respect to the Branch Real Estate (or portions thereof)
if the Buyer determines to obtain such insurance;
(B) The Seller shall deliver to the Buyer one or more
bills of sale in the form attached hereto as Schedule
2.2(b)(i)(B) for the Leasehold Improvements, if any, and the
Furniture, Fixtures and Equipment;
(C) The Seller shall deliver to the Buyer one or more
assignments in the form attached hereto as Schedule
2.2(b)(i)(C) for the Leases, if any, and the Assumed
Contracts, if any;
(D) The Seller shall make the payment to the Buyer
required by Section 3.1 in immediately available funds (such
payment to be made no later than 11:00 a.m.(Pacific Time));
(E) The Seller shall use its reasonable efforts to have
available for pick-up at 1455 Market Street, San Francisco,
California, by the Buyer by approximately 6:00 a.m. on the
morning following the Closing Date (I) hard copy (printed)
lists of Assumed Deposits maintained at each Branch, which
lists shall identify each Assumed Deposit by type of Account,
with appropriate information regarding the depositor and the
terms of the Account and (II) Magnetic Tapes. The Buyer shall
have the responsibility of making and paying for the
appropriate courier arrangements to pick up from the Seller
the items referred to in (I) and (II) above and to deliver
the items referred to in (I) to the appropriate Branches and
the items referred to in (II) to the Buyer's system vendor;
(F) The Seller shall prepare, separately for each
Branch, a readable set of the Magnetic Tapes and printed
reports referred to in Section 2.2(b)(i)(E) to be used for a
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validation (practice) run ("Validation Run") on a mutually
agreed-upon date thirty (30) to sixty (60) calendar days
prior to the Closing Date, at no cost to the Buyer, PROVIDED
THAT, depending on the number and locations of the Branches,
the parties may agree to conduct more than one Validation
Run. If the Buyer thereafter requests any additional Magnetic
Tapes (whether or not Buyer also concurrently requests
printed reports) for Validation Run purposes, the Seller will
provide the Magnetic Tapes (and printed reports if requested
by Buyer) at a cost to Buyer of $2,000 for each set of
Magnetic Tapes (whether or not accompanied by printed
reports);
(G) The Seller shall deliver to the Buyer copies of
written consents to the assignment of any Assumed Contracts
or Leases requiring such consent; and
(H) The Buyer shall pay to the Seller the amount of the
interest which would accrue at the Federal Funds Rate in
effect on the Closing Date on the cash payment by the Seller
pursuant to Section 2.2(b)(i)(D).
(c) CLOSING COSTS; PRORATION. The Seller and the Buyer shall each pay
one-half of any documentary, stamp, deed, sales, use or other transfer taxes,
recording fees and escrow fees relating to the sale of the Assets and assumption
of the Liabilities, including but not limited to the assignment of the Leases.
On the Closing Date, (i) all real and personal property taxes and current
installments of special assessments levied or assessed with respect to the
Branch Real Estate, the Improvements, the Leasehold Improvements and the
Furniture, Fixtures and Equipment shall be prorated between the Seller and the
Buyer on a daily basis as of the Closing Date based upon the fiscal year of the
appropriate taxing authority, and (ii) utilities and any other normal
maintenance and operating expenses relating to the Branch Real Estate, the
Leases, the Improvements, the Leasehold Improvements and the Furniture, Fixtures
and Equipment shall be prorated between the Seller and the Buyer as of the
Closing Date on a daily basis.
(d) CONTRACTS. At the Closing, the Seller shall assign to the Buyer all
of the Seller's right, title and interest in those equipment leases and service
and maintenance contracts, if any, relating to the operations of one or more of
the Branches which are set forth in Schedule 2.2(d) and which the Buyer
indicates in writing to the Seller not later than thirty (30) Business Days
prior to Closing the Buyer wishes to assume (collectively, the "Assumed
Contracts"). The Seller shall not be required to provide Buyer with any
information regarding, or to set forth in Schedule 2.2(d), equipment leases or
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service and maintenance contracts which it believes are not legally assignable
and the Seller shall have no liability to the Buyer as the result of its
inability to accomplish assignments thereof. After the date of this Agreement,
the Seller shall not enter into, except with the prior written consent of the
Buyer, any service, maintenance or other contracts, or any equipment lease,
relating to the operations of the Branches for which the Buyer shall have any
responsibility after the Closing.
(e) LEASES. At the Closing, the Seller shall assign to the Buyer all of
the Seller's right, title and interest in the Leases, if any, set forth in
Schedule 2.2(e); PROVIDED, HOWEVER, that if the Seller notifies the Buyer not
later than thirty (30) Business Days prior to the Closing Date that one or more
such Leases are legally nonassignable without the consent of one or more third
parties, and that such consents have not been obtained, then (i) the Seller
shall not be required to assign such Lease or Leases at Closing, (ii) Seller
shall have no liability to the Buyer as the result of its inability to
accomplish such assignment and (iii) either (A) the Seller at its sole
discretion may elect to exercise its right under the final paragraph of Section
7.2 to exclude the affected Branch from the Closing, and the parties shall
continue to be obligated to carry out the provisions of this Agreement as to the
remaining Branch or Branches or (B) if the Lease permits the Seller to sublease
the premises and the related Leasehold Improvements to the Buyer, the Seller in
its sole discretion may elect to sublease such premises and Leasehold
Improvements to Buyer for the maximum term permitted under the Lease, on
substantially the same terms and conditions as the terms and conditions of the
Lease, in which case the consideration payable under Article 3 shall be adjusted
to reflect the Leasehold Improvements which will not be transferred to the Buyer
and the parties shall continue to be obligated to carry out the provisions of
this Agreement as to the remaining Branch or Branches.
2.3 TRANSITIONAL MATTERS.
(a) CONDUCT OF BUSINESS PRIOR TO THE CLOSING. From the date hereof
until the Closing, except as expressly permitted by this Agreement or otherwise
consented to or approved by the Buyer in writing (such consent or approval not
to be unreasonably withheld):
(i) The Seller shall not permit the Branches to incur
any material liabilities or material obligations (whether
directly or by way of guaranty, endorsement, surety contract
or otherwise) including without limitation any obligation for
borrowed money or evidenced by any note, bond, debenture or
similar instrument, except for deposit liabilities incurred
in the ordinary course of business pursuant to the Seller's
customary rate schedules, and except for other liabilities
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and obligations incurred in the ordinary course of business;
(ii) The Seller shall not sell, transfer, mortgage,
encumber or otherwise dispose of any of the Assets except for
the disposition of Assets (other than the Branch Real Estate,
Improvements or Leasehold Improvements) in the ordinary
course of business;
(iii) Except as provided in Article 6, the Seller will
not cause the transfer from one or more of the Branches to
the Seller's other operations (except to another Branch) of
any deposits of the type included in the Liabilities;
PROVIDED, HOWEVER, that the Seller may transfer deposits to
the Seller's other branches or offices upon request of the
depositors and may transfer to its other branches or offices
other deposits which are not to be transferred to Buyer
pursuant to this Agreement; PROVIDED, FURTHER, that, except
in connection with a general solicitation or general
advertising not targeted specifically at the depositors of
the Assumed Deposits, Seller will not solicit or encourage
depositors to transfer deposits to Seller's other branch
offices;
(iv) The Seller shall not make any capital commitments
with respect to the Branch Real Estate, the Improvements and
the Leasehold Improvements except aggregate capital
commitments made in the ordinary course of business not
exceeding $25,000 for each Branch;
(v) The Seller shall not grant any increase in the rate
of compensation or in the benefits payable or to become
payable to any current officer or employee of the Branches,
or to any current agent or consultant thereof, over the
levels in effect as of the date hereof, other than any
regularly scheduled increases, including bonuses,
contemplated under contracts, policies or programs existing
on the date hereof or under any benefit program generally
applicable to the Seller's employees; provided that the
Seller shall retain the right to hire additional branch
employees at comparable rates of compensation as necessary
for the operation of the Branches; provided, further, that
if, as the result of hiring additional Employees, the
compensation, benefits and other employment related expenses
for any Branch exceed 125% of the Initial Employee Expenses,
the Purchase Premium for such Branch shall be reduced as set
forth in Section 1.1 "Purchase Premium";
(vi) The Seller will maintain the Branch Real Estate,
Improvements, Leasehold Improvements and Furniture, Fixtures
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and Equipment substantially in accordance with its normal
practices, and keep such property in its present condition,
ordinary wear and tear excepted;
(vii) The Seller shall operate the Branches and the
businesses thereof in accordance with its normal practices
and will use reasonable efforts to preserve for the benefit
of the Buyer after the Closing its business, goodwill and
relationships with customers and suppliers; and
(viii) The Seller shall provide the Buyer reasonable
access during normal business hours to and the opportunity to
review and inspect the Branch Real Estate, Improvements,
Leased Real Estate, Leasehold Improvements, Furniture,
Fixtures and Equipment of the Branches, and the books,
records, files, documentation and accounts of the Branches;
shall furnish to the Buyer such reports and compilations
pertaining thereto as the Buyer shall reasonably request from
time to time; and shall furnish to the Buyer all such other
information pertaining to the Assets and the Liabilities and
the business of the Branches as the Buyer may reasonably
request. In addition, the Seller shall provide the Buyer
reasonable access to the Branches during the thirty (30)
calendar day period immediately preceding the Closing Date
for the purpose of installing teller terminals and other
equipment, PROVIDED THAT (A) Seller shall not be required to
provide such access to any Branch until after all consents,
approvals and authorizations referred to in Sections 7.1(c)
and 7.2(c) hereof have been obtained with respect to all
Branches and (B) Buyer shall give Seller at least twenty-four
(24) hours advance notice that it wishes to have such access.
The Buyer agrees to cause the installation of such teller
terminals and other equipment to be effected in a manner
intended to minimize disruption to the operations of the
Branches.
(b) BUYER'S ACCESS TO BRANCH PREMISES. The Buyer will indemnify,
defend, and hold Seller harmless for, from and against any and all claims,
damages, costs, liabilities and losses (including mechanics' liens) arising out
of any entry by Buyer or its agents, designees or representatives on the Branch
Real Estate or Leased Real Estate for purposes of the review, inspection and
installation provided for in Section 2.3(a)(viii) or for any other purpose
(other than for the purposes set forth in Section 4.4(d), which shall be
governed by the provisions of that Section). Without limiting the scope of the
foregoing, Buyer also will restore the Branch Real Estate, Improvements, Leased
Real Estate, Leasehold Improvements, Furniture, Fixtures and Equipment, books,
records, files, and documentation of the Branches at its sole cost and expense
if one or more of the transactions contemplated by this Agreement do not close.
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Until restoration is complete, Buyer will take all steps necessary to ensure
that any conditions at the Branches created by any testing, review, inspection,
installation or other actions performed by or for Buyer will not unreasonably
interfere with the normal operation of the Branches or create any dangerous,
unhealthy, unsightly or noisy conditions at the Branches. Buyer shall comply
with any requirements or restrictions contained in the Leases regarding any
actions it takes at the Leased Real Estate, including, without limitation, any
requirements of notice to the landlord. The provisions of this Section 2.3(b)
shall survive the Closing or any earlier termination of this Agreement.
(c) DATA PROCESSING CONVERSION. The conversion of the data processing
with respect to the Branches and the Assets and the Liabilities to be
transferred hereunder will commence on the Closing Date and continue during the
night on the Closing Date and the following morning. The Seller shall use its
reasonable efforts to make available the required hard copy (printed) reports
(and Magnetic Tapes, if applicable) in connection therewith for pick up at 1455
Market Street, San Francisco, California, from the Seller by 6:00 a.m. on such
morning, subject to any production problems that are beyond the Seller's
reasonable control. The arrangements for pickup, delivery and payment for
courier services shall be as provided in Section 2.2(b)(i)(E). In connection
with the conversion of the data processing, the Seller and the Buyer shall each
cooperate with the other and shall each pay their own costs and expenses
associated with the conversion of the data processing and shall bear equally the
duties and responsibilities relating to the conversion. Seller will not migrate
(transfer) existing PINs used for ATM cards to the Buyer.
2.4 EMPLOYEE CONSIDERATIONS.
(a) Buyer shall offer employment as of the Closing Date to all
Employees. Following the Closing Date, such Employees will be "at will"
employees of Buyer under the same conditions as Buyer's other employees. All
Employees shall be offered employment at base wages and salaries no less
favorable than the wages and salaries currently being paid by Seller to such
Employees. To the extent consistent with Buyer's existing structure for
comparable positions and comparable officer titles and its current policies
regarding officer titles, Employees shall be offered positions with
responsibilities and officer titles comparable to those they currently have with
Seller and, unless agreed upon by any such Employee, within a reasonable
geographic proximity to such Employee's work location before the Closing Date.
(b) All Employees who accept employment with Buyer as of the Closing
Date shall be eligible to participate in the employee benefit plans and other
fringe benefits of Buyer on the same basis as such plans and benefits are
offered to employees of Buyer with comparable positions with Buyer, except as
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provided in the penultimate sentence of Section 2.4(e). Buyer shall credit such
Employees for their length of service with Seller or its Affiliates for all
purposes under each employee benefit plan and fringe benefit to be provided by
Buyer to such Employees, to the same extent such service was recognized under a
similar plan of Seller, based on information provided by Seller. However, such
service need not be counted for purposes of calculating accrued benefits under a
pension benefit plan, except that in determining the rate of prospective benefit
accrual, service shall be counted where such rate increases with service. For
purposes of this Section 2.4, "employee benefit plans and other fringe benefits"
includes, without limitation, pension and profit sharing plans, retirement and
post retirement welfare benefits, health insurance benefits (medical, dental and
vision), disability, life and accident insurance, sickness benefits, vacation,
employee loans and banking privileges.
(c) If Buyer offers a salary continuation or similar program for
employees unable to work for medical reasons, the Employees who accept
employment with Buyer shall be credited under any program of Buyer with at least
the number of sickness benefit days accrued under Seller's program at the
Closing Date.
(d) Seller agrees to remain responsible for the payment of all benefits
accrued during the period of employment by the Seller under the terms of the
Seller's retirement plans with respect to any Employee. Buyer shall not at any
time assume any liability for the benefits of any active or any terminated,
vested or retired participants in the Seller's retirement plans.
(e) Seller shall be responsible for payments for accrued vacation not
taken by an Employee prior to the Closing Date and for timely payment as
required by law of all wages, salaries, bonuses, if any, and other compensation
with respect to service completed on or prior to the Closing Date. Seller shall
offer Employees who accept employment with Buyer the option to receive cash or
to transfer to Buyer their accrued vacation days or fractions thereof earned but
unused while employed by Seller. In the event any Employee elects to receive
cash upon employment by Buyer, Seller shall make a cash payment to such Employee
in accordance with applicable law. In the event any such Employee elects to have
his or her accrued vacation transferred upon employment by Buyer, Buyer shall
give such Employee credit after the Closing Date for the same number of vacation
days or fractions thereof he or she has accrued with Seller as of the Closing
Date. For purposes of this Section, personal choice days or fractions thereof
will be treated as vacation days. In the event Employees elect to have their
accrued vacation carried over to Buyer, Seller shall pay to Buyer, not later
than the date of the Final Financial Statement, an amount equal to the net cash
value of each such Employee's accrued vacation before payroll deductions. In the
calendar year in which the Closing Date occurs, Employees shall be eligible to
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earn at least the prorated annual vacation amount Employees were eligible to
earn under Seller's vacation policy. In subsequent calendar years, Employees
will be eligible to earn vacation according to the schedule specified in Buyer's
policy and subject to the maximum accruals permitted under Buyer's policies.
(f) Seller shall retain the responsibility for payment of all medical,
dental, vision, health and disability claims incurred by any Employee prior to
the Closing Date, and Buyer shall not assume any liability with respect to such
claims. On or after the Closing Date, all medical, dental, vision, health and
disability claims incurred by Employees in Buyer's employ shall be determined
under Buyer's benefit plans. Buyer agrees that Employees and their eligible
dependents will receive credit for their periods of coverage under Seller's
health or disability plans towards satisfying any preexisting condition clause
in any of Buyer's health or disability plans, provided such Employee or eligible
dependent is enrolled in Seller's plans on the Closing Date. Buyer also agrees
that Employees and their eligible dependents shall receive credit under Buyer's
health care plans for any deductibles paid by such Employee and enrolled
dependents for the current plan year under a health care plan maintained by
Seller.
(g) Seller shall be responsible for providing any Employee whose
"qualifying event," within the meaning of Section 4980B(f) of the IRC, occurs on
or prior to the Closing Date (and such Employee's "qualified beneficiaries"
within the meaning of Section 4980B(f) of the IRC) with the continuation of
group health coverage required by Section 4980B(f) of the IRC ("Continuation
Coverage") under the terms of the health plan maintained by Seller. Buyer shall
be responsible for Continuation Coverage to any Employee in Buyer's employ (and
each Employee's qualified beneficiaries) whose qualifying event occurs after the
Closing Date to the extent required by law.
(h) Seller agrees that it shall retain, consistent with its normal
employment practices, all liability and obligation, if any (including, without
limitation, the liability and obligation for all wages, salary, vacation pay and
unemployment, medical, dental, vision, health and disability benefits) for those
former employees of the Branches who retired or terminated employment prior to
the Closing Date or who otherwise do not become employees of Buyer.
(i) Effective as of the Closing Date, Buyer shall assume liability for
severance pay and similar obligations payable to any Employee who accepts
employment with Buyer and who is terminated by Buyer on or after the Closing
Date. Such payment shall be made pursuant to Buyer's normal severance policy and
Buyer shall compute severance pay by giving Employees full credit for all years
of service that would have been recognized under Seller's severance policy. In
addition, for an Employee whose job with Buyer is eliminated within twelve (12)
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months of the Closing Date, Buyer agrees to pay to such Employee the difference,
if any, between the amount of severance pay received by the Employee under
Buyer's severance policy and the amount such Employee would have received upon
his or her separation from the Seller under Seller's severance policy in effect
on the Closing Date.
(j) For Employees who accept employment with Buyer and who as of the
Closing Date are absent from work due to sickness or short-term disability,
Seller shall have no further liability or obligation for short-term disability
benefits, sick pay or salary continuation to the extent attributable to periods
after the Closing Date (or any medical, dental, vision and health claims
incurred after the Closing Date). Such Employees shall be eligible for such
benefits as are provided by Buyer under its policies and this Agreement.
(k) The Buyer shall make the offers of employment as soon as possible
after all the consents, approvals and authorizations referred to in Sections
7.1(c) and 7.2(c) hereof have been obtained (and in no event more than ten (10)
Business Days after the last of such consents, approvals and authorizations has
been obtained). Such offers shall be made in person to each Employee at a
meeting at which representatives of Buyer and Seller are present. The
information provided to each Employee at such meeting shall include a discussion
of Buyer's employee benefit plans and policies, together with a written summary
thereof. Buyer shall be responsible for advising Employees of the details of any
offers and terms of employment, and answering any questions relating thereto,
but Seller shall be allowed to review and approve, prior to its distribution,
(i) any communication with Employees prior to the Closing Date, and (ii) any
communication with such Employees after the Closing Date which describes or
refers to Seller's employee benefit plans and policies. Buyer shall not at any
time have access to Employee personnel files of Seller.
(l) Prior to the Closing Date, the Buyer may train the Seller's
Employees who have accepted Buyer's offers of employment, at a time mutually
agreed upon by Buyer and Seller, and the Buyer will reimburse the Seller for
such Employees' salaries for the time they are engaged in such training and for
all of their expenses incurred in connection with such training for which they
are reimbursed by Seller.
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ARTICLE 3
PRICE AND ADJUSTMENTS
3.1 PRICE. The Seller agrees that in the event the Initial Base Amount
(as hereinafter defined) is less than the sum of (i) the amount of the Assumed
Deposits and (ii) the amount of the Accrued Expenses, the Seller shall transfer
to the Buyer cash in the amount equal to the deficit. The Buyer agrees that in
the event the Initial Base Amount is greater than the sum of (i) the amount of
the Assumed Deposits and (ii) the amount of the Accrued Expenses, the Buyer
shall transfer to the Seller cash in an amount equal to such excess.
Calculations and payments pursuant to this Section 3.1 shall be as of the date
and time of the Closing Financial Statement. The "Initial Base Amount" shall be
equal to the sum of (i) the amount of Cash on Hand, (ii) the Market Value of the
Branch Real Estate and the Improvements, (iii) the amount of $0 for the
Leasehold Improvements (which amount is allocated among the Branches, if any, as
listed on Schedule 3.1), (iv) the amount of $156,214.26 for the Furniture,
Fixtures and Equipment (which amount is allocated as listed on Schedule 1.1(b)),
(v) the amount of Prepaid Expenses at the Branches, (vi) the amount of the
Overdrafts, (vii) the amount of any fees, charges or accrued interest receivable
on such Overdrafts, (viii) the amount of the Purchase Premium, and (ix) the
Seller's pro rata portion of IRA Deposit and Keogh Account trustee fees accrued
on such accounts held in the Branches through the Closing Date, less the amount
of the safe deposit key deposits referred to in Section 3.2(e).
3.2 ADJUSTMENTS. Subject to the provisions of Section 4.4 and Article
9, the assignments, transfers, acceptances and assumptions of the Assets and the
Liabilities and the payment of the amounts due in respect thereof in accordance
with Sections 2.2 and 3.1 shall be final and without recourse and not subject to
any claim for reimbursement, repayment, rescission or avoidance; PROVIDED,
HOWEVER, that:
(a) The following adjustments shall be made:
(i) As soon as practicable after the Closing Date, but
in no event later than ten (10) calendar days thereafter, the
Seller shall deliver the Pre-Final Financial Statement to the
Buyer. After delivery of the Pre-Final Financial Statement,
the Seller shall pay the Buyer or the Buyer shall pay the
Seller, as appropriate, by wire transfer no later than the
next Business Day after delivery of the Pre-Final Financial
Statement, the difference between the amount paid at the
Closing and the amount calculated on the Pre-Final Financial
Statement, plus interest accrued from the Closing Date at the
Federal Funds Rate in effect on the Closing Date.
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(ii) As soon as practicable after the Closing Date, but
in no event later than sixty (60) calendar days thereafter,
the Seller shall deliver the Final Financial Statement to the
Buyer. Subject to the Seller's and Buyer's rights of
indemnification pursuant to Section 4.4 and Article 9, the
Final Financial Statement shall become final and binding on
the Buyer and the Seller ten (10) calendar days after its
delivery to the Buyer, unless the Buyer gives written notice
to the Seller of its disagreement with respect to any item
included in such Final Financial Statement. The Seller and
the Buyer shall use their respective reasonable efforts to
resolve the disagreement during the ten (10) calendar day
period following receipt by the Seller of the notice. If the
disagreement is not resolved during such ten (10) calendar
day period, the parties shall follow the procedures set forth
in Section 9.4 to resolve such dispute and such Final
Financial Statement shall be modified by any such resolution,
whereupon the Final Financial Statement shall become final
and binding. When the Final Financial Statement becomes final
and binding, and after giving effect to any payment made
based on the Pre-Final Financial Statement, the Seller shall
pay the Buyer or the Buyer shall pay the Seller, as
appropriate, the difference between the amount paid at the
Closing and the amount calculated on the Final Financial
Statement, plus interest accrued from the Closing Date at the
Federal Funds Rate in effect on the Closing Date.
(b) If any non-material Asset (materiality to be determined by Seller
in good faith) shall not have been assigned to the Buyer at the Closing, then
the Seller shall use its reasonable efforts to assign such Asset to the Buyer as
soon as possible after the Closing Date but in any event no later than on the
Settlement Date. In the event the Seller for any reason is unable to assign any
such Asset to the Buyer prior to or on the Settlement Date, then the Seller
shall no longer have any obligation to assign such Asset to the Buyer and the
Seller shall refund to the Buyer the value of such Asset as reflected on the
Closing Financial Statement together with interest from the Closing Date through
the date of such refund at a rate equal to the Federal Funds Rate in effect on
the Closing Date;
(c) All operating expenses and fees accrued or prepaid prior to the
Closing Date, including, without limitation, wages, salaries, rents, Bank
Insurance Fund ("BIF") premiums, utility payments, personal property taxes,
non-delinquent real property taxes and assessments relating to the Assets and
the Liabilities transferred at the Closing, but excluding fees for use of safe
deposit boxes, shall be prorated between the parties. With respect to the BIF
premiums, the proration shall be on the basis of the amount of the Assumed
Deposits. To the extent that the Seller has paid expenses that are expenses
allocable to the Buyer pursuant to this Section 3.2(c), such expenses shall
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appear as an asset on the Financial Statements. To the extent that expenses have
been accrued and not paid by the Seller prior to the Closing Date, they shall
appear as a liability on the Financial Statements;
(d) As soon as practicable after the Closing Date, the Seller will
provide to the Buyer a report of customer data for the Branches showing the
names, addresses, tax identification numbers (where available from the Seller's
records) and deposit balances of each and all of the customers of the Branches
as of such date; the customer data shall include the signature cards for all
Assumed Deposits and a list of Accounts and certificates of deposit subject as
of the Closing Date to annual Taxpayer Identification Number solicitation by
Seller in the normal course of its business;
(e) At the Closing Date, the Seller shall pay to the Buyer the amount
of cash deposits held by the Seller at the Closing Date received for keys issued
in connection with safe deposit box rentals at the Branches that are transferred
to the Buyer hereunder;
(f) With respect to Deposits which are Individual Retirement Accounts
("IRA Deposits") created by a trust for the exclusive benefit of an individual
or his or her beneficiaries in accordance with the provisions of Section 408 of
the IRC, the Seller will use reasonable efforts and will cooperate with the
Buyer, both before and after the Closing, in taking whatever actions are
reasonably necessary to accomplish either the appointment of the Buyer as
successor custodian or the delegation to the Buyer (or an affiliate of the
Buyer) of the Seller's authority and responsibility as custodian of all such IRA
Deposits except self-directed IRA Deposits (and, for those customers with
self-directed IRA Deposits, any other IRA Deposits), including but not limited
to, sending to the depositors thereof appropriate notices, cooperating with the
Buyer (or such affiliate) in soliciting consents from such depositors, and
filing any appropriate applications with applicable regulatory authorities. If
any such delegation is made to the Buyer (or such affiliate), the Buyer (or such
affiliate) will perform all of the duties so delegated and comply with the terms
of the Seller's agreement with the depositor of the IRA Deposits affected
thereby;
(g) With respect to Deposits which are BankAmerica Basic Retirement
Plan Accounts ("Keogh Accounts") created by a trust for the benefit of employees
(some or all of whom are owner-employees) and that comply with the provisions of
Section 401 of the IRC, the Seller will use reasonable efforts and cooperate
with the Buyer to invite depositors thereof to direct a transfer of each such
depositor's Keogh Account and the related Deposit to the Buyer (or an affiliate
of the Buyer), as trustee thereof, and to adopt the Buyer's (or such
affiliate's) form of Keogh Master Plan as a successor to that of the Seller. The
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Buyer (or such affiliate) will assume no Deposits which are Keogh Accounts
unless the Buyer (or such affiliate) has received the documents necessary for
such assumption or transfer at or before the Closing. With respect to any
depositors who do not transfer such accounts to the Buyer's (or such
affiliate's) form of Keogh Master Plan, the Seller will use reasonable efforts
in order to enable the Buyer (or such affiliate) to retain such Keogh Accounts
at the Branches at which such accounts were maintained;
(h) Any items that were credited for deposit to or cashed against an
Assumed Deposit prior to the Closing and are returned unpaid on or within sixty
(60) calendar days after the Closing Date ("Returned Items") will be handled as
set forth herein. If the Seller's bank account is charged for the Returned Item,
the Seller shall forward such Returned Item to the Buyer. If upon the Buyer's
receipt of such Returned Item there are sufficient funds in the Assumed Deposit
to which such Returned Item was credited or any other Assumed Deposit
transferred at the Closing standing in the name of the party liable for such
Returned Item, the Buyer will debit any or all of such Assumed Deposits an
amount equal in the aggregate to the Returned Item, and shall repay that amount
to the Seller. If there are not sufficient funds in the Assumed Deposit because
of the Buyer's failure to honor holds placed on such Assumed Deposit, the Buyer
shall repay the amount of the Returned Item to the Seller. If there are not
sufficient funds in the Assumed Deposit for any other reason, the Buyer shall
repay the balance of the Assumed Deposit to the Seller and create an overdraft
for the unrecovered portion of the Returned Item. Any items that were credited
for deposit to or cashed against an Assumed Deposit at a Branch prior to the
Closing Date and are returned unpaid more than sixty (60) calendar days after
the Closing Date will be the responsibility of the Buyer, except that for a
period of eighteen (18) months after the Closing Date checks drawn on the United
States Treasury, checks issued by state governments and municipalities and
checks returned for endorsement irregularities will be the responsibility of the
Seller; and
(i) As soon as practicable, but in any event no later than fifteen (15)
calendar days after the Closing Date, the Buyer shall mail to each depositor in
respect of a Transaction Account (included in the Assumed Deposits) a letter
approved in writing by the Seller (which approval will be delivered as soon as
practicable and will not be unreasonably withheld) requesting that such
depositor promptly cease writing the Seller's drafts against such Transaction
Account. At such time as the Buyer mails each such notice to each depositor, the
Buyer shall also forward to each such depositor new drafts which such depositor
may draw upon the Buyer for the purpose of effecting transactions with respect
to such Transaction Accounts.
The parties hereto shall use reasonable efforts to develop procedures
which cause the Seller's form of drafts against Transaction Accounts which are
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received after the Closing Date to be cleared through the Buyer's then current
clearing procedures.
During the one hundred eighty (180) calendar day period from the
Closing Date, if it is not possible to clear Transaction Account drafts through
the Buyer's then current clearing procedures after the Closing Date, the Seller
shall forward to the Buyer no later than the next Business Day after receipt
thereof all such Transaction Account drafts drawn against Transaction Accounts
domiciled at one of the Branches and transferred on the Closing Date. The Seller
shall have no obligation to pay such Transaction Account drafts. Upon the
expiration of such one hundred eighty (180) calendar day period, the Seller
shall cease forwarding drafts against Transaction Accounts transferred on the
Closing Date and shall instead return them to the originators marked "Account
Closed." The Buyer will compensate the Seller for processing of drafts as
described in this Section according to the compensation arrangement set forth in
Section 4.6.
(j) The Seller will pay the Buyer for such portion of any overdraft on
an Assumed Deposit (including interest at the Federal Funds Rate in effect on
the Closing Date) created by Returned Items received by the Seller and passed on
to the Buyer during the sixty (60) calendar days that follow the Closing Date,
which is not recovered by the Buyer within sixty (60) calendar days after the
Closing Date.
ARTICLE 4
ADDITIONAL COVENANTS
4.1 SELLER'S COVENANTS. The Seller (and, to the extent specifically
indicated below, the Buyer) agrees:
(a) To use reasonable efforts to sign and deliver to the Buyer such
additional agreements and other documents, and to do such other acts and things,
as may be required to complete the transactions contemplated by this Agreement;
(b) To reasonably cooperate with the Buyer in obtaining all
governmental and regulatory consents, approvals, licenses, waivers and the like
required to be fulfilled or obtained for the completion of the transactions
contemplated by this Agreement;
(c) To deliver to the Buyer those books, records, accounts and other
documents relating solely to the Assets and the Liabilities as soon as
practicable after the Closing and to store the other books, records and accounts
of the Branches relating to the Seller's former operation of the Branches in
accordance with Seller's normal records retention policy;
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(d) Until Closing or the earlier termination of this Agreement, to
cause the business of the Branches to be conducted in accordance with Section
2.3 above;
(e) To remove all signage from the Branches at the expense of the
Seller on or before the Closing Date, it being understood that the Buyer shall
be responsible for installation of its signage at its expense;
(f) As soon as practicable after the receipt of all regulatory
approvals required by Sections 7.1(c) and 7.2(c) with respect to all Branches,
and no later than thirty (30) calendar days prior to the Closing Date (unless
earlier required by law, regulation or regulatory policy), each of the Seller
and the Buyer shall provide, or join in providing where appropriate, all
notices, separately as to each Branch, to holders of Deposits and other persons
that the Seller or the Buyer, as the case may be, is required to give by any
regulatory authority having jurisdiction or under applicable law or the terms of
any other agreement between the Seller and any customer in connection with the
transactions contemplated hereby. A party proposing to send or publish any
notice or communication pursuant to any provision of this Section 4.1(f) or
Section 4.2(f) shall furnish to the other party a copy of the proposed form of
such notice or communication as soon as practicable in advance of the proposed
date of the first mailing, posting, or other dissemination thereof to customers,
and shall not unreasonably refuse to amend such notice to incorporate any
changes that the other such party proposes as necessary to comply with
applicable statutes, rules, regulations or requirements of any regulatory
authority having jurisdiction. All costs and expenses of any notice or
communication sent or published by the Buyer or the Seller shall be the
responsibility of the party sending such notice or communication. All
out-of-pocket costs and expenses of any joint notice or communication which
Buyer or Seller pays to a third-party vendor shall be shared equally by the
Seller and the Buyer. Each party shall bear the costs and expenses of its own
employees or agents engaged in any joint notice or communication;
(g) The Seller will use reasonable efforts to transfer to the Buyer on
the Closing Date all of those automated clearing house and fed wire direct
deposit arrangements which are tied by agreement or other standing arrangement
to Assumed Deposits. For a period of one hundred eighty (180) calendar days
after the Closing Date, in the case of automated clearing house direct deposits
to Assumed Deposits, and thirty (30) calendar days after the Closing Date, in
the case of fed wire direct deposits to Assumed Deposits (each, a "Direct
Deposit Cut-off Date"), the Seller will, no later than the next Business Day
following the date of receipt thereof, remit and transfer to the Buyer all
direct deposits intended for Accounts which are Assumed Deposits. After the
applicable Direct Deposit Cut-off Date, the Seller may discontinue accepting and
forwarding automated clearing house and fed wire entries and funds and return
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such direct deposits to the originators. The Seller shall not be liable for any
account overdrafts that may thereby be created or for any other matter. The
Buyer and the Seller shall agree on a reasonable period of time prior to the
Closing during which the Seller will no longer be obligated to accept new direct
deposit arrangements. At the time of each Direct Deposit Cut-off Date, the Buyer
will provide automated clearing house originators with account numbers and
conversion tapes relating to Assumed Deposits; and
(h) As soon as practicable after the receipt of all regulatory
approvals required by Sections 7.1(c) and 7.2(c) with respect to all Branches
(except for statutory waiting periods), and after the notice provided in Section
4.1(f) above, the Buyer will send appropriate notice, separately as to each
Branch, to all holders of Deposits which are to be assumed by the Buyer at the
Closing the terms of which provide for direct debit of such accounts by third
parties, instructing such customers concerning transfer of customer direct debit
authorizations from the Seller to the Buyer. The Seller shall cooperate in
soliciting the transfer of such authorizations. Such notice shall be in a form
agreed to by the parties. For a period of one hundred eighty (180) calendar days
following the Closing Date, the Seller will, on the Business Day following the
date of receipt thereof, forward to the Buyer all direct debits on Accounts
which are Assumed Deposits transferred on the Closing Date and will give the
Buyer a daily accounting of such debits to its clearing account. Thereafter, the
Seller may discontinue forwarding such entries and return them to the
originators. The Buyer and the Seller shall agree on a reasonable period of time
prior to the Closing during which the Seller will no longer be obligated to
accept new direct debit arrangements. At the time of the Closing Date, the Buyer
will provide automated clearing house originators of such direct debits with
account numbers and conversion tapes.
(i) In addition to the requirements and procedures set forth in
Sections 4.1(g) and 4.1(h), the Buyer shall, commencing on the first Business
Day following the Closing Date, deliver to the originators of the direct
deposits of Assumed Deposits and the originators of direct debits of Assumed
Deposits specified in such sections, notices of change instructing such
originators to change the routing transit number for such deposits and debits
from the Seller's routing transit number to the Buyer's routing transit number.
(j) The Seller agrees that for a period of twelve (12) months following
the Closing Date, it will not establish a "Full-Service Branch" (as defined in
the immediately following sentence) within ten (10) miles of a Branch which is
included in the Closing (the "Protected Area"). "Full-Service Branch" shall mean
a branch which includes tellers and which transacts all business related to
deposits and loans. Seller shall not be deemed to have established a
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Full-Service Branch for purposes of this Section 4.1(j) solely because Seller or
any successor in interest does one or more of the following: (i) it exercises
any rights or performs any obligations it has or may have to establish banking
facilities pursuant to any existing or future agreements with a third party or
parties for the installation, location and operation of banking facilities in or
in connection with retail stores or supermarkets owned or operated, or both, by
such third party or parties, (ii) it acquires one or more banking facilities
within the Protected Area as a result of a merger, consolidation, purchase or
sale of all or substantially all of the assets of a party, or other
reorganization to which Seller or BankAmerica Corporation ("Parent") is a party,
(iii) it maintains one or more ATM facilities or conducts courier operations
within the Protected Area, (iv) it takes any action to satisfy any obligations
or commitments Seller or Parent may have arising out of the approval by the
Federal Reserve Board of the merger of Security Pacific Corporation ("Security
Pacific") into Parent on April 22, 1992, including without limitation any
commitment to maintain or enhance all existing levels of services provided at
the time of the merger by Seller or Security Pacific branches in all service
areas (for example, where branches are sold, service levels will be maintained
through placing branches in grocery stores, mobile vans, increasing access to
automated teller machines and increasing multilingual services), or (v) it
continues to maintain within the Protected Area after the Closing Date one or
more branches which it maintained therein on the Closing Date.
(k) For a period of twelve (12) months following the Closing Date (or
such shorter period as Employees may continue to be employed by the Buyer
following the Closing Date), neither the Seller nor any Affiliate shall solicit
the employment (including the solicitation of any transfer of employment) of any
Employees; PROVIDED, HOWEVER, that nothing herein shall prevent the Seller or
its Affiliates from advertising generally any employment opportunities, or from
hiring any Employees who seek employment without inducement from the Seller.
4.2 BUYER'S COVENANTS. The Buyer agrees:
(a) To use reasonable efforts to sign and deliver to the Seller such
additional agreements and other documents, and to do such other acts and things,
as may be required to complete the transactions contemplated by this Agreement;
(b) To use its best efforts to fulfill all governmental, regulatory and
other requirements (including, without limitation, obtaining the approval of all
California and federal bank or other financial institution regulatory agencies
and any other governmental entity having jurisdiction over the Buyer's
acquisition of the Branches or the Buyer) required to be fulfilled by the Buyer
for the completion of the transactions contemplated by this Agreement, and to
take the initial drafting responsibility therefor. The Seller shall have the
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right to review and comment upon all applications to, and filings with,
governmental and regulatory agencies and entities made for the above purpose,
prior to their filing; PROVIDED THAT, the Seller shall have no responsibility
for any such application or filing. Without limiting the generality of the
foregoing, Buyer agrees to file all required regulatory applications within
thirty (30) calendar days after the date of this Agreement;
(c) To pay, honor, discharge and perform all liabilities and
obligations in respect of the Assets and the Liabilities and any other
liabilities of the Branches arising, accruing or subsisting after the Closing
which the Buyer is obligated to assume pursuant to this Agreement, subject to
applicable indemnification rights of the Buyer;
(d) Not to use, keep or claim any registered or unregistered trademark,
service mark or other identification commonly associated with the Seller, or any
sign, display or similar material of the Seller or any banking or other forms,
stationery, passbooks, checks, traveler's checks, cashier's checks, manager's
checks or similar banking material of the Seller or bearing the Seller's name or
other similar marks or identification (except to the extent necessary to conduct
business operations, and then only if the Seller's name, marks or identification
are obliterated from such material, and such material is clearly identified as
that of the Buyer), or any proprietary material of the Seller including, without
limitation, operating manuals, training manuals and public relations,
explanatory or advertising materials; and
(e) As of the Closing Date, to become the "holder," as that term is
defined in the California Unclaimed Property Law (Code of Civil Procedure ss.
1500, et seq.), of all Assumed Deposits and safe deposit boxes which the Buyer
assumes under this Agreement. The Buyer will be responsible for the escheat of
any property for which it becomes the holder and which becomes abandoned during
the calendar year in which the Closing occurs.
(f) As soon as practicable after the receipt of all regulatory
approvals required by Sections 7.1(c) and 7.2(c) with respect to all Branches,
and no later than thirty (30) calendar days prior to the Closing Date (unless
earlier required by law, regulation or regulatory policy), the Buyer shall,
subject to Section 11.1 hereof, (i) send a notice to all holders of safe deposit
boxes at each Branch and (ii) notify the holders of Deposits to be transferred
on the Closing Date that, subject to Closing, the Buyer will be assuming
liability for such Deposits, and following or concurrently with such notices the
Buyer may communicate with and deliver information, brochures, bulletins and
other communications to holders of Deposits and safe deposit boxes concerning
the transactions contemplated by this Agreement and concerning the business and
operations of the Buyer.
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(g) Continue to operate each of the Branches at its current location
for a period of at least ninety (90) calendar days after the Closing Date
(unless Buyer has provided Seller written confirmation from Buyer's appropriate
banking regulatory agency that any earlier change in location by Buyer would be
exempt from the notice and other requirements of 12 U.S.C. Sec. 1831r-1).
(h) To obtain approval of this Agreement and the transactions
contemplated hereby by the requisite vote or consent of the holders of
outstanding securities of the Buyer if such approval is required by applicable
law, contract, the Buyer's Articles of Incorporation or Bylaws, or otherwise.
4.3 CONSENTS. The Seller shall use its reasonable efforts to obtain any
nongovernmental consents required for the transfer or assignment of the Assets
and Liabilities to Buyer pursuant to this Agreement, including (a) Leases, if
any, and (b) Assumed Contracts, if any; PROVIDED, HOWEVER, that (a) the Seller
shall not be required to pay any additional compensation or fee to any person or
entity to obtain any such consent, (b) the Buyer agrees that it shall provide
reasonable assistance to the Seller to obtain such consents, and (c) Seller
shall be entitled to rely on the provisions of Section 2.2(e) and the final
paragraph of Section 7.2 hereof if it does not obtain one or more such consents.
4.4 ENVIRONMENTAL MATTERS.
(a) SCOPE. The provisions of this Section 4.4 shall exclusively govern
the rights and obligations of the Seller and Buyer with regard to Hazardous
Substances.
(b) DEFINITIONS. For purposes of this Section 4.4, the following terms
have the following meanings:
(i) "Environmental Assessments" means environmental audits,
investigations, reviews or testing of the Branch Real Estate,
Improvements, Leased Real Estate or Leasehold Improvements (sometimes
referred to collectively in this Section 4.4 as the "Subject Assets")
performed by Buyer or any third party or consultant engaged by Buyer to
conduct such study.
(ii) "Environmental Due Diligence Period" means the forty-five
(45) Business Day period starting on the date of this Agreement during
which Buyer must complete its due diligence as described in Section
4.4(d).
(iii) "Environmental Law" means any law, statute, ordinance or
regulation pertaining to health, industrial hygiene or the environment
in effect as of the date of this Agreement, including but not limited
to Title 42 of the United States Code, Section 6901 ET SEQ. (commonly
known as "RCRA") or Section 9601 ET SEQ. (commonly known as "CERCLA" or
"Superfund").
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(iv) "Hazardous Substance" means any substance, material or
waste that is or becomes designated or regulated as "toxic,"
"hazardous," "pollutant," or "contaminant" or a similar designation or
regulation under any federal, state or local law (whether under common
law, statute, regulation or otherwise) or judicial or administrative
interpretation of such, including without limitation, petroleum or
natural gas.
(c) SELLER'S ENVIRONMENTAL REPRESENTATIONS AND WARRANTIES. Seller has
delivered to the Buyer copies of a Phase I Environmental Site Assessment ("Phase
I") and an Asbestos Survey ("Asbestos Survey") regarding each Branch; PROVIDED
THAT Seller has not delivered an Asbestos Survey regarding any Branch where
construction of all Improvements and Leasehold Improvements was completed after
December 31, 1980. The dates of such Phase I's and Asbestos Surveys and the
names of the persons by whom they were prepared are listed on Schedule 4.4(c).
The cost of such Phase I's and Asbestos Surveys shall be borne by the Seller. As
of the date of this Agreement, to the Seller's Knowledge and except as disclosed
in the Phase I's and Asbestos Surveys:
(i) during the time the Seller has owned the Branch Real Estate
or leased the Leased Real Estate, no Hazardous Substances are now
or have been used or stored on or within any portion of the
Subject Assets except those Hazardous Substances which are or
have been used or stored in the normal course of use and
operation of the Subject Assets in compliance with all applicable
Environmental Laws;
(ii) during the time the Seller has owned the Branch Real Estate
or leased the Leased Real Estate, there are and have been no
federal, state, or local enforcement, clean-up, removal, remedial
or other governmental or regulatory actions instituted or
completed pursuant to Environmental Laws or pertaining to
Hazardous Substances and affecting the Subject Assets;
(iii) no claims have been made by any third party against Seller
relating to any Hazardous Substances on or within the Subject
Assets; and
(iv) Seller has obtained and is in compliance with all permits,
licenses and other authorizations required with respect to the
operation of its prior business at the Branch Real Estate and
Leased Real Estate under all applicable Environmental Laws.
(d) ENVIRONMENTAL DUE DILIGENCE.
(i) BUYER'S COVENANTS. The Buyer acknowledges and agrees that:
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(A) Seller is furnishing copies of the Phase I's and Asbestos
Surveys to Buyer for informational purposes only and without
representation or warranty as to the accuracy or completeness
of the contents of such materials except as otherwise provided
in this Section 4.4;
(B) Buyer will not rely on the Phase I's or Asbestos Surveys
and will conduct its own due diligence on the matters
contained in the documents; and
(C) Buyer is not purchasing the Branch Real Estate,
Improvements and Leasehold Improvements and accepting
assignment of the Leases in reliance upon any representations
or warranties of any kind whatsoever made by the Seller (or
any representatives, agents or employees of the Seller) except
those made or contained in this Agreement.
(ii) BUYER'S ENVIRONMENTAL DUE DILIGENCE. During the
Environmental Due Diligence Period, Buyer shall have the right to
conduct Environmental Assessments of the Subject Assets, and
Buyer and Buyer's representatives, agents and designees will have
the right, at reasonable times and upon reasonable notice to
Seller (which notice must describe the scope of the planned
testing and investigations) to enter upon the Branch Real Estate
and Leased Real Estate provided:
(A) Any Environmental Assessment performed by or on behalf of
Buyer shall be conducted pursuant to standard quality
control/quality assurance procedures.
(B) The persons or entities performing such tests shall be
properly licensed and qualified and will have obtained all
appropriate permits for performing such tests.
(C) Prior to any entry involving physical testing, drilling or
other physical disturbance, Buyer will obtain, maintain and
provide Seller, or shall cause any consultant, contractor or
other person entering Branch premises to obtain, maintain and
provide Seller, with proof of comprehensive general liability
insurance in the amount of at least $1,000,000 combined,
single limit coverage, naming Seller as an additional insured
and with coverages reasonably satisfactory to Seller.
(D) Buyer shall give Seller at least five (5) Business Days'
prior notice of any physical testing or drilling.
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(E) Buyer shall schedule any tests outside normal business
hours whenever feasible unless otherwise approved by Seller.
(F) Seller shall have the right of approval (which shall not
be unreasonably withheld or delayed) of any proposed physical
testing or drilling.
(G) Seller shall have the right to have a representative of
Seller accompany Buyer and Buyer's representatives, agents or
designees while they are on the Branch Real Estate or Leased
Real Estate.
(H) Any entry by Buyer, its representatives, agents or
designee shall not unreasonably interfere with Seller's or any
tenant's use of the Subject Assets.
(I) Buyer shall indemnify, defend, and hold Seller harmless
for, from and against any and all claims, damages, costs,
liabilities and losses (including mechanics' liens) arising
out of any entry by Buyer or its agents, designees or
representatives. Without limiting the scope of the foregoing,
Buyer also at its sole expense shall repair, replace or
otherwise correct any damages caused by Buyer or its agents,
designees or representatives to the Subject Assets if the
transactions contemplated by this Agreement do not close.
Until this correction is complete, Buyer will take all steps
necessary to ensure that any conditions created by Buyer's
entry will not interfere with the normal operation of the
Branches or create any dangerous, unhealthy, unsightly or
noisy conditions at the Branches. This indemnity provision
shall survive the Closing or any earlier termination of this
Agreement.
(J) Any groundwater, soil, or other samples taken from the
Subject Assets shall be properly disposed of by Buyer at
Buyer's sole cost and in accordance with all applicable laws.
(K) Any Environmental Assessment conducted by Buyer shall be
at the Buyer's sole expense and Buyer shall provide to Seller
a copy of all results generated by any Environmental
Assessment, including without limitation, any reports or other
summaries.
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(L) Seller has provided to Buyer copies of the Leases and
Buyer shall comply with any requirements or restrictions
contained in the Leases regarding testing and investigations
to be performed at the Leased Real Estate, including, without
limitation, any requirements of notice to the landlord.
(iii) NOTICE OF OBJECTIONS. During the Environmental Due
Diligence Period, Buyer may notify Seller in writing of any
objections relating to any aspects of the Subject Assets relating
to one or more Branches (the "Affected Branches") pertaining to
physical condition, presence of any Hazardous Substances,
compliance with all applicable Environmental Laws, any matters
disclosed in the Phase I's or Asbestos Surveys, any matters
disclosed by Seller or about which Seller provided
representations or warranties in this Section 4.4, or any matters
disclosed in any Environmental Assessments.
(A) In the event that Buyer fails to so notify Seller of any
such objections, Buyer shall be deemed to have approved such
items.
(B) In the event, however, that Buyer notifies Seller in
writing and within the Environmental Due Diligence Period of
any such objections, the parties will have a period of ten
(10) Business Days to agree upon a resolution of the
objection(s). If the parties cannot agree within such period
of ten (10) Business Days, then within five (5) Business Days
after the expiration of such period either party may initiate
a proceeding to resolve such objections pursuant to the
procedures set forth in Section 9.4 of this Agreement;
PROVIDED, HOWEVER, that within such five (5) Business Days the
Seller in its sole discretion may, in a case where Buyer has
notified Seller of objections with respect to Branch Real
Estate or Improvements, elect to remove the Branch Real Estate
and Improvements relating to the Affected Branches from the
Assets to be sold and transferred to Buyer, in which event (I)
the consideration payable under Article 3 shall automatically
be adjusted accordingly and (II) commencing on the Closing
Date Buyer shall lease the Branch Real Estate and Improvements
relating to the Affected Branches from Seller for a period of
at least six (6) months, at a rental rate and on terms to be
agreed upon by Buyer and Seller, which rate and terms shall be
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commercially reasonable and comparable to those for similar
properties in the vicinities of the Affected Branches, and
PROVIDED, FURTHER, that if Buyer and Seller do not agree upon
the rental rate or one or more such terms within an additional
ten (10) Business Days after expiration of the five (5)
Business Days referred to above, then the determination of
such rate and/or term(s) shall be immediately submitted to
arbitration pursuant to the procedures set forth in Section
9.4 of this Agreement. In a case where Buyer has notified
Seller of objections with respect to Leased Real Estate or
Leasehold Improvements, then if neither party has initiated a
proceeding to resolve such objections pursuant to the
procedures set forth in Section 9.4 of this Agreement within
the five (5) Business Days referred to in the immediately
preceding sentence, then the Seller in its sole discretion may
elect to exercise its right under the final paragraph of
Section 7.2 to exclude the Affected Branch from the Closing.
(C) If this Agreement is not amended or otherwise modified
pursuant to the provisions of the foregoing Section
4.4(d)(iii)(B), Buyer shall be deemed to have waived its
objections and this Agreement will continue in full force and
effect.
(e) MUTUAL ENVIRONMENTAL INDEMNIFICATIONS.
(i) Subject to Subsection 4.4(e)(iv) and Article 9 below, if
there are any third party claims against Buyer that arise out of
any Hazardous Substances that became located in, on or under
Branch Real Estate during Seller's ownership of the Branch Real
Estate, or in, on or under Leased Real Estate during the term of
Seller's Lease, Seller will (to the extent the Seller is liable
for such Hazardous Substances under any federal, state or local
law pertaining to or concerning Hazardous Substances) indemnify,
defend (by counsel reasonably acceptable to Buyer), protect and
hold Buyer harmless for, from and against any and all claims,
liabilities, penalties, forfeitures, losses or expenses
(including without limitation reasonable expenses of
investigation and attorney's fees and expenses in connection with
any action, suit or proceeding brought against the Buyer) arising
therefrom (to the extent that any such third party claims are
attributable to the portion of the Hazardous Substances which
occurred or were in existence at the Branch Real Estate or Leased
Real Estate on or prior to the Closing Date) in an amount which
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(together with any amount for which Seller may become liable to
provide indemnification pursuant to Section 9.2 or otherwise),
shall not exceed the amount of the Initial Base Amount, and
PROVIDED THAT notwithstanding any other provision hereof, Seller
shall not be liable under this Section 4.4(e)(i) for any losses
sustained by the Buyer unless and until the aggregate amount of
all losses with respect to a Branch sustained by the Buyer to be
indemnified by the Seller under this Agreement (including any
amount for which Seller may become liable to provide
indemnification pursuant to Section 9.2 or otherwise), shall
exceed $25,000, in which event the Seller shall be liable only
for such losses in excess of $25,000 with respect to that Branch
(it being the intention of the parties that losses sustained by
the Buyer with respect to one Branch shall not be combined with
losses sustained with respect to another Branch to satisfy such
minimum $25,000 amount).
(ii) Subject to Subsection 4.4(e)(iv) and Article 9 below, if
there are any third party claims against Seller that arise out of
any Hazardous Substances that became located in, on or under the
Subject Assets at any time after the Closing, Buyer will
indemnify, defend (by counsel reasonably acceptable to Seller),
protect and hold Seller harmless for, from and against any and
all claims, liabilities, penalties, forfeitures, losses or
expenses (including without limitation reasonable expenses of
investigation and attorney's fees and expenses in connection with
any action, suit or proceeding brought against the Seller)
arising therefrom, PROVIDED THAT notwithstanding any other
provision hereof, Buyer shall not be liable under this Section
4.4(e)(ii) for any losses sustained by the Seller unless and
until the aggregate amount of all losses with respect to a Branch
sustained by the Seller to be indemnified by the Buyer under this
Agreement (including any amount for which Buyer may become liable
to provide indemnification pursuant to Section 9.3 or otherwise),
shall exceed $25,000, in which event the Buyer shall be liable
only for such losses in excess of $25,000 with respect to that
Branch (it being the intention of the parties that losses
sustained by the Seller with respect to one Branch shall not be
combined with losses sustained with respect to another Branch to
satisfy such minimum $25,000 amount).
(iii) As used in this Subsection 4.4(e), "third party claims" are
defined as any claims or rights of recovery by any person or
entity (including governmental agencies):
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(A) which result from injury, damage or loss to or of any
person or property;
(B) for cost recovery, removal or remedial action; or
(C) third party claims will also include any costs paid or
payable by either party for damage, loss, injury,
investigation, removal, remediation or other liability in
response to any third party claim or in anticipation of any
enforcement or remedial action undertaken or threatened by any
governmental agency or private party.
(iv) Nothing in this Section 4.4(e) is meant to diminish any
party's rights or obligations under any federal, state or local
law pertaining to or concerning Hazardous Substances; but Seller
will not be liable to Buyer under this Agreement, and Buyer
hereby releases Seller from any and all liability under any such
law, for any third party claims which are attributable to any
environmental condition which:
(A) was described or referred to in the Phase I's, Asbestos
Surveys or any Environmental Assessments obtained or conducted
by Buyer;
(B) was reasonably discoverable by prudent investigation
during the Environmental Due Diligence Period; or
(C) was otherwise disclosed by Seller to Buyer or discovered
by Buyer at any time prior to the Closing.
(v) The above release includes claims of which Buyer is presently
unaware or which Buyer does not presently suspect to exist which,
if known by Buyer, would materially affect Buyer's release(s) to
Seller. Buyer expressly waives and relinquishes any and all
rights which it may have under the provisions of Section 1542 of
the California Civil Code, to the extent applicable, which
Section reads as follows:
"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE
CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE
TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE
MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR".
It is understood and agreed that the purchase price has been
adjusted by prior negotiations to reflect that all of the Subject
Assets and the Furniture Fixtures and Equipment are sold by
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Seller and purchased by Buyer and Buyer is accepting assignment
of the Leases subject to the foregoing. It is not contemplated
that the purchase price will be increased if costs to Buyer
associated with the Subject Assets, the Furniture Fixtures and
Equipment and the Leases prove to be less than expected nor will
the purchase price be reduced if the Buyer's plan for the same
leads to higher cost projections. The sole remedy of the Buyer
will be to exercise its rights under Section 4.4(d) prior to the
end of the Environmental Due Diligence Period.
Buyer's Initials J.B. Seller's Initials B.A.D.
------- --------
4.5 VALUATION OF THE ASSETS. Buyer agrees that it is relying solely
upon its own judgment, after such investigation and inspection as it deems
necessary or appropriate, as to the quality, condition, fitness and value of the
Assets and the nature and amount of the Liabilities, and Seller hereby disclaims
any representations or warranties made by Seller as to their condition, value,
nature or amount except those made in Section 5.1 of this Agreement, and subject
to the provisions of Section 4.4 of this Agreement, which shall exclusively
govern the rights and obligations of the parties with regard to Hazardous
Substances.
4.6 CLEARING ITEMS. From the Closing Date and for one hundred eighty
(180) calendar days thereafter, items drawn on Transaction Accounts assumed by
the Buyer may continue to be presented to the Seller. The Seller will make
provisional settlement to the presenting institution and will present such items
to the Buyer within the Seller's midnight deadline. For the first ninety (90)
calendar days following the Closing Date, the Seller shall perform its
obligations under the first two sentences of this Section 4.6 at no cost to the
Buyer. For the remaining ninety (90) calendar day period, the Buyer shall pay
the Seller $0.50 for each item so processed. After one hundred eighty (180)
calendar days from the Closing Date, the Seller shall return to the sender any
items presented. Upon timely presentation to the Buyer, the Buyer will assume
all responsibility for such items (except for such items which have not been
handled by the Seller in accordance with applicable law or regulation, or with
ordinary care), including but not limited to determining whether to honor or
dishonor such items and giving any required notification for the return of large
items.
4.7 IRA DEPOSITS AND KEOGH ACCOUNTS. The Seller will deliver to the
Buyer, on the Closing Date, copies of the Seller's documents for each IRA
Deposit and Keogh Account which is included in the Assumed Deposits. The Seller
will prepare and file all reports to government authorities required to be filed
for the period ending on the Closing Date and all prior periods. The Buyer will
be responsible for all such reporting for periods commencing on the day after
the Closing.
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4.8 INTEREST REPORTING AND WITHHOLDING. Unless otherwise agreed to by
the parties, the Seller will report to applicable taxing authorities and holders
of Assumed Deposits transferred on the Closing Date, with respect to the period
from January 1 of the year in which the Closing occurs through and including the
Closing Date, all interest credited to, withheld from and any early withdrawal
penalties imposed upon the Assumed Deposits. The Buyer will report to the
applicable taxing authorities and holders of Assumed Deposits, with respect to
all periods from the day after the Closing Date, all such interest credited to,
withheld from and any early withdrawal penalties imposed upon such Assumed
Deposits. Any amounts required by any governmental agencies to be withheld from
any of the Assumed Deposits through the Closing Date will be withheld by the
Seller in accordance with applicable law or appropriate notice from any
governmental agency and will be remitted by the Seller to the appropriate agency
on or prior to the applicable due date. Any such withholding required to be made
subsequent to the Closing Date shall be withheld by the Buyer in accordance with
applicable law or the appropriate notice from any governmental agency and will
be remitted by the Buyer to the appropriate agency on or prior to the applicable
due date. Promptly after the Closing Date, but in no event later than the date
the Buyer is obligated to remit such amounts to the applicable governmental
agency, the Seller will pay to the Buyer that portion of any sums theretofore
withheld by the Seller from any Assumed Deposits transferred on the Closing Date
which are or may be required to be remitted by the Buyer pursuant to the
foregoing and shall directly remit to the applicable governmental agency that
portion of any such sums which are required to be remitted by the Seller.
4.9 EMINENT DOMAIN OR TAKING. If proceedings under a power of eminent
domain relating to a specific Branch or any part thereof (the "Affected Branch")
are commenced prior to the Closing Date, Seller will promptly inform Buyer in
writing.
(a) If such proceedings involve the taking of all of or a material
interest in the Affected Branch, Buyer may elect to terminate this Agreement
with respect to such Affected Branch by notice in writing sent within ten (10)
calendar days of Seller's written notice to Buyer, in which case neither party
will have any further obligation to or rights against the other with respect to
the Affected Branch except any rights or obligations of either party which are
expressly stated to survive termination of this Agreement.
(b) If the proceedings do not involve the taking of all of or a
material interest in the Affected Branch, or if Buyer does not elect to
terminate this Agreement as to the Affected Branch, this transaction will be
consummated as described herein, and, subject to the Lease, if any, or other
encumbrances, if any, relating to the Affected Branch, any award or settlement
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payable with respect to such proceeding will be paid or assigned to Buyer on the
Closing Date.
(c) If the Closing contemplated by this Agreement is not consummated
for any reason, Buyer will have no claim to any condemnation award or settlement
with respect to the Affected Branch.
4.10 DAMAGE OR DESTRUCTION. Except as provided in this Section 4.10,
prior to the Closing Date, as between Seller and Buyer the entire risk of loss
or damage by earthquake, flood, landslide, fire or other casualty is borne and
assumed by Seller. If, prior to the Closing Date, any part of the Improvements
or Leasehold Improvements at a specific Branch (the "Affected Improvements") is
damaged or destroyed by earthquake, flood, landslide, fire or other casualty,
Seller will promptly inform Buyer of such fact in writing and advise Buyer as to
the extent of the damage and whether it is, in Seller's reasonable opinion,
"MATERIAL."
(a) If the parties determine that such damage or destruction is
"MATERIAL", Buyer has the option to terminate this Agreement with respect to
such Branch (the "Affected Branch") upon written notice to the Seller given not
later than ten (10) calendar days after receipt of Seller's written notice to
Buyer advising of such damage or destruction.
(b) For purposes of this Section 4.10, "MATERIAL" shall mean any damage
or destruction to the Affected Improvements where the cost of repair or
replacement is estimated to be (i) in the case of damage or destruction to
Improvements, more than twenty-five (25) percent of the Market Value of the
Branch Real Estate and Improvements, or (ii) in the case of damage or
destruction to Leasehold Improvements, more than twenty-five (25) percent of the
amount indicated in Section 3.1 and Schedule 3.1 for the Leasehold Improvements
at the Affected Branch ("Leasehold Improvements Value"), and that in either case
will take more than sixty (60) calendar days to repair.
(c) If this Agreement is so terminated, neither party will have any
further obligation to or rights against the other with respect to the Affected
Branch except any rights or obligations of either party which are expressly
stated to survive termination of this Agreement.
(d) Subject to the Lease, if any, or other encumbrances, if any, if the
Buyer does not elect to terminate this Agreement as to the Affected Branch, or
if the casualty is not material, Seller shall EITHER (i) reduce the Market Value
of the Branch Real Estate or the Leasehold Improvements Value at the Affected
Branch, as the case may be, by the value reasonably estimated by the parties to
repair or restore the damaged portion of the Affected Improvements, less any
sums expended by Seller to make emergency repairs to the Affected Improvements
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OR (ii) repair or restore the damaged portion of the Affected Improvements, and
in either case this transaction will close pursuant to the terms of this
Agreement, and the Buyer will accept the Affected Branch as is, where is,
without recourse, with all faults and with no warranties other than as expressly
provided in Section 5.1 of this Agreement, and subject to the provisions of
Section 4.4 of this Agreement, which shall exclusively govern the rights and
obligations of the parties with regard to Hazardous Substances.
(e) If the damage is not material, Seller's notice to Buyer of the
damage or destruction will also set forth the reduced Market Value of the Branch
Real Estate or the reduced Leasehold Improvements Value at the Affected Branch,
as the case may be, and Seller's allocation of value to the damaged portion of
the Affected Improvements. If Buyer does not accept Seller's reduced valuation,
Buyer's sole remedy will be to submit the issue to arbitration pursuant to
Section 9.4 hereof.
(f) Whether or not the sale of the Affected Branch is consummated
hereunder, Buyer shall have no rights to insurance claims or proceeds in respect
of damage or destruction to the Affected Improvements occurring prior to the
Closing Date.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES
5.1 SELLER'S REPRESENTATIONS AND WARRANTIES. The Seller represents and
warrants to the Buyer that, as of the date of this Agreement (or, as to any
information specified in a Schedule to have been compiled as of some earlier
date, as of such earlier date), and subject to Section 4.4 (a):
(a) The Seller is a national banking association, duly organized and in
good standing under the laws of the United States;
(b) The Seller has the requisite power and authority to execute,
deliver and perform this Agreement and to consummate the transactions
contemplated hereby; all corporate action necessary to be taken by or on the
part of the Seller to execute, deliver and perform this Agreement and to
consummate the transactions contemplated hereby has been duly and validly taken;
and this Agreement has been duly executed and delivered by, and constitutes the
valid and binding agreement of the Seller, enforceable in accordance with its
terms except as limited by bankruptcy, insolvency, reorganization, fraudulent
transfer, moratorium and similar laws affecting creditors generally and by the
availability of equitable remedies;
(c) The execution, delivery and performance by the Seller of this
Agreement do not, and the consummation by the Seller of the transactions
contemplated hereby will not, violate or conflict with the articles of
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association or bylaws of the Seller, or any law or regulation currently
applicable to the Seller, or any material agreement or instrument, or currently
applicable award, order, judgment or decree to which the Seller is a party or by
which it is bound, or require any filing by the Seller with, or authorization,
approval, consent or other action with respect to the Seller by, any
governmental or regulatory agency except such as have been made or obtained and
are in full force and effect;
(d) Schedule 2.2(d) sets forth a list of all material written
contracts, agreements and other obligations known to the Seller to which the
Seller is a signatory which relate to the operation of the Branches (other than
those giving rise to the Assets and the Liabilities), including without
limitation equipment leases and service and maintenance contracts, consulting
contracts, agency agreements and licensing agreements; PROVIDED, HOWEVER, THAT
equipment leases and service and maintenance contracts which the Seller does not
believe are assignable are not listed;
(e) Except as set forth in Schedule 5.1(e): (i) there is no litigation,
claim, action, suit or proceeding pending which, if adversely determined, would
adversely affect the use of the Assets or the Liabilities; and (ii) to the
Seller's knowledge, there is no litigation, claim, action, suit or proceeding
threatened by any organization, person, individual or governmental agency which,
if adversely determined, would, individually or in the aggregate, materially and
adversely affect the use of the Assets or the Liabilities;
(f) The Seller has not in any manner whatsoever paid or agreed to pay
any fee or commission to any agent, broker, finder or other person for or on
account of services rendered as a broker or finder in connection with this
Agreement or the transactions covered and contemplated hereby. All negotiations
relating to this Agreement have been conducted by the Seller directly and
without the intervention of any person in such manner as to give rise to any
valid claim against the Seller for any brokerage commission or like payment;
(g) Schedule 2.2(e) contains an accurate and complete list of all
Leases, if any. True and correct copies of all Leases referred to in such
Schedule have been provided to Buyer;
(h) Schedule 5.1(h) lists for each Branch all employees thereof and
states for each such individual his or her position, dates of employment with
the Seller and present compensation;
(i) A certificate of occupancy or equivalent is in effect permitting
the occupancy of each Branch for its present use. The Seller holds all licenses
materially required in connection with the use or occupancy of each Branch;
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(j) The Seller has not in any manner whatsoever paid or agreed to pay
any fee or commission to any agent, broker, finder or other person for or on
account of services rendered as a broker or finder in connection with this
Agreement or the transactions covered and contemplated hereby. All negotiations
relating to this Agreement have been conducted by the Seller directly and
without the intervention of any person in such manner as to give rise to any
valid claim against the Seller for any brokerage commission or like payment; and
(k) The Branch Real Estate and the Improvements have been owned,
operated and used in material compliance with all laws, regulations and
ordinances (excluding Environmental Laws, which are exclusively governed by
Section 4.4 hereof); to the knowledge of the Seller, the Improvements were
constructed in material compliance with all applicable laws and regulations
(excluding Environmental Laws, which are exclusively governed by Section 4.4
hereof), including zoning, land use and other requirements and all building
permits; the Seller has received no notice of, or is not otherwise aware of, any
proposed condemnation or eminent domain proceeding with respect to the Branch
Real Estate, or any portion thereof.
5.2 BUYER'S REPRESENTATIONS AND WARRANTIES. The Buyer represents and
warrants to the Seller that, as of the date of this Agreement, and subject to
Section 4.4(a):
(a) The Buyer is a national bank, duly established and in good standing
under the laws of the United States;
(b) Subject to the satisfaction of any applicable governmental or
regulatory requirements referred to in Section 4.2(b) and to approval of this
Agreement and the transactions contemplated hereby by the requisite vote or
consent of the holders of outstanding securities of the Buyer if such approval
is required by applicable law, contract, the Buyer's Articles of Incorporation
or Bylaws, or otherwise, the Buyer has the requisite power and authority to
execute, deliver and perform this Agreement and to consummate the transactions
contemplated hereby; all acts and other proceedings required to be taken by or
on the part of the Buyer to execute, deliver and perform this Agreement and to
consummate the transactions contemplated hereby have been duly and validly
taken; and this Agreement has been duly executed and delivered by, and
constitutes the valid and binding agreement of, the Buyer, enforceable in
accordance with its terms except as limited by bankruptcy, insolvency,
reorganization, fraudulent transfer, moratorium and similar laws affecting
creditors generally and by the availability of equitable remedies;
(c) Subject to the satisfaction of any applicable governmental or
regulatory requirements referred to in Section 4.2(b), the execution, delivery
and performance by the Buyer of this Agreement do not, and the consummation by
the Buyer of the transactions contemplated hereby will not, violate or conflict
with the articles of incorporation or bylaws of the Buyer, or any law or
regulation currently applicable to the Buyer, or any material agreement or
instrument, or currently applicable order, judgment or decree to which the Buyer
is a party or by which it is bound or require any prior filing by the Buyer
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with, or authorization, approval, consent or other action with respect to the
Buyer by, any governmental or regulatory agency except such as have been made or
obtained and are in full force and effect or will be made or obtained and in
full force and effect as of the Closing;
(d) There are no actions, suits or proceedings pending or, to the
knowledge of the Buyer, threatened against or affecting, the Buyer, which may
cause a material adverse change in the Buyer's business or financial condition;
(e) The Buyer has not paid or agreed to pay any fee or commission to
any agent, broker, finder or other person for or on account of services rendered
as a broker or finder in connection with this Agreement or the transactions
covered and contemplated hereby. All negotiations relating to this Agreement
have been conducted by the Buyer directly and without the intervention of any
person in such manner as to give rise to any valid claim against the Seller for
any brokerage commission or like payment;
(f) The Buyer has not received written notice from any federal or
California governmental or regulatory agency indicating that it would oppose or
not grant or issue its consent or approval, if required, with respect to the
transactions contemplated by this Agreement;
(g) The Buyer satisfies each and all of the standards and requirements
lawfully within the control of the Buyer of which it is aware (and, as of the
Closing Date, will satisfy each and all of the standards and requirements
lawfully within the control of the Buyer) imposed as a condition to obtaining or
necessary to comply with and in order to obtain any of the governmental or
regulatory approvals referred to in Section 4.2(b) of this Agreement;
(h) At the time of the most recent regulatory evaluation of Buyer's
performance under the Community Reinvestment Act (the "CRA"), Buyer's record of
performance was deemed to be "outstanding" or "satisfactory", and no proceedings
are pending or to the knowledge of Buyer, threatened, that would result in a
change in such evaluation. Buyer has not received any adverse public comments
with respect to its compliance under the CRA since the date of its most recent
regulatory evaluation of its performance under the CRA;
(i) The Buyer has available sufficient cash or other liquid assets or
financing pursuant to binding agreements or commitments which may be used to
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fund the transactions contemplated hereby and has provided to Seller a copy of
an engagement letter from Hoefer & Arnett, a reputable investment banking firm,
to act as managing underwriter of a firm commitment underwritten equity capital
offering which will be completed before the Closing Date in a sufficient
principal amount with which to consummate such transactions; provided that if
the transactions contemplated hereby are not consummated due to Buyer's failure
to raise sufficient capital, then, promptly upon demand, Buyer shall pay to
Seller the Break-up Fee; and
(j) Buyer acknowledges and is aware of the disclosures made by Seller
with respect to the Branch Real Estate and set forth in Schedule 5.2(j) attached
hereto.
ARTICLE 6
UNDERSTANDINGS
Buyer and Seller understand and agree as follows:
6.1 DEPOSITORS' RIGHTS. The Buyer and the Seller understand and agree
that all transfers to the Buyer of Assumed Deposits are subject to the
individual depositors' continuing rights to withdraw, and the Seller makes no
representation or warranty to the Buyer concerning the continuing maintenance of
such deposits at the Branches.
6.2 UNCLAIMED PROPERTY. With respect to safe deposit boxes that have
been opened by the Seller and whose contents have been inventoried and are being
held by the Seller in safekeeping in preparation for escheat to the State of
California, the Seller shall remove any and all such contents from the Branches
prior to the Closing Date.
6.3 HEAD OFFICE ACCOUNTS. Schedule 6.3 sets forth certain Accounts at
the Branches which have been designated by the Seller as "Head Office Accounts."
The Buyer and the Seller understand and agree that the Seller may remove from
the Branches prior to the Closing Date any and all Head Office Accounts and
deposits of the types described in the proviso in Section 2.3(a)(iii) and any
Head Office Accounts and any such deposits so removed shall not be included in
the Assumed Deposits.
6.4 LIMITATION OF WARRANTIES. Except as may be expressly represented or
warranted by Seller in Section 5.1 of this Agreement, and subject to the
provisions of Section 4.4 of this Agreement which shall exclusively govern the
rights and obligations of the parties with regard to Hazardous Substances,
Seller makes no representation or warranty whatsoever with regard to any Asset,
any Liability or the business or operation of any of the Branches, it being
expressly understood that such Assets and Liabilities are being transferred AS
IS, WHERE IS, WITHOUT RECOURSE, WITH ALL FAULTS AND WITH NO WARRANTIES OTHER
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THAN AS EXPRESSLY PROVIDED IN SECTION 5.1 OF THIS AGREEMENT. Buyer agrees that
it is relying solely upon its own judgment, after such investigation and
inspection as it deems necessary or appropriate, as to the quality, condition,
fitness and value of the Assets and the nature and amount of the Liabilities,
and Seller hereby disclaims any representations or warranties made by Seller as
to their condition, value, nature or amount except those made in Section 5.1 of
this Agreement, subject to Section 4.4 of this Agreement. Notwithstanding any
other provision of this Agreement, Buyer and Seller understand and agree that
Seller is making, and shall make, no representations or warranties with respect
to title to the Branch Real Estate other than those, if any, contained in the
grant deed the form of which is attached hereto as Schedule 2.2(b)(i)(A).
ARTICLE 7
CONDITIONS TO THE CLOSING
7.1 SELLER'S CONDITIONS. The obligations of the Seller to consummate
the Closing shall be subject to the satisfaction at or prior to Closing of all
of the following conditions, any one or more of which may be waived, in whole or
in part, by the Seller:
(a) The Buyer shall have complied in all material respects with each of
its covenants and agreements contained herein to be performed at or prior to the
Closing Date, and each of the representations and warranties of the Buyer in
Section 5.2 hereof shall be true and correct in all material respects as if made
at and as of the Closing;
(b) The Buyer shall have delivered to the Seller a duly authorized and
signed officer's certificate, dated as of the Closing Date, certifying as to the
matters specified in Section 7.1(a), and further that (i) the methodology and
accounting procedures used by the Seller in preparing the Closing Financial
Statement have been reviewed and are acceptable to the Buyer, and (ii) the
Buyer, to and including the Closing Date, has performed such review of the
books, records, files, documentation and accounts of the Branches as it has
deemed appropriate;
(c) All consents, approvals and authorizations required to be obtained
prior to the Closing from governmental and regulatory authorities in connection
with the execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby to be consummated at the Closing shall have
been made or obtained, and shall remain in full force and effect, all waiting
periods applicable to the consummation of the transactions contemplated hereby
shall have expired or been terminated and all required regulatory filings shall
have been made; PROVIDED, HOWEVER, that no governmental or regulatory consent,
approval or authorization shall have imposed any condition or requirement that
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the Seller in good faith determines to be materially burdensome upon the
business of the Seller or upon the consummation of the transactions contemplated
hereby;
(d) There shall not be in effect any nonappealable final order, decree
or judgment of any court or governmental body having competent jurisdiction that
would be violated by consummation of the transactions contemplated hereby, nor
any material pending or threatened action, proceeding or investigation, the
adverse determination of which would result in such order, decree or judgment;
provided, that in the case of such material pending or threatened action,
proceeding or investigation, neither party shall decline to proceed with the
Closing pending final resolution thereof without exercising its reasonable
efforts promptly to determine jointly with the other party the merit thereof and
the likelihood of an adverse determination in such proceeding; and
(e) This Agreement and the transactions contemplated hereby shall have
been approved by the requisite vote or consent of the holders of outstanding
securities of the Buyer if such approval is required by applicable law,
contract, the Buyer's Articles of Incorporation or Bylaws, or otherwise.
7.2 BUYER'S CONDITIONS. The obligations of the Buyer to consummate the
Closing shall be subject to the satisfaction at or prior to Closing of all of
the following conditions, any one or more of which may be waived, in whole or in
part, by the Buyer:
(a) The Seller shall have complied in all material respects with each
of its covenants and agreements herein to be performed at or prior to the
Closing Date and each of the representations and warranties of the Seller
contained in this Agreement and the Schedules shall be true and correct in all
material respects as if made at and as of Closing except to the extent of
changes that have occurred prior to Closing that are consistent with the
provisions of Section 2.3(a);
(b) The Seller shall have delivered to the Buyer a duly authorized and
signed officer's certificate, dated as of the Closing Date, certifying that (i)
the representations and warranties of the Seller contained in this Agreement and
the Schedules are true and correct as of the Closing Date, and (ii) the Seller
has complied in all material respects with each of its covenants and agreements
herein to be performed at or prior to the Closing Date;
(c) As to each of the Branches, there shall have been given, obtained
or satisfied in final form any notice, approval, permit or other requirement of
law or any competent governmental or regulatory authority that is necessary to
proceed with the Closing, including without limitation such approvals as may be
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required of any California or federal bank or other financial institution
regulatory agency and any other entity or entities having jurisdiction over the
Branches, the Buyer or the Seller, and no such agency or entity shall, in
connection therewith, have imposed any condition or requirement that would
result in a material adverse effect on the business or prospects of the Branches
or the Buyer, or on the consummation of the transactions contemplated hereby;
and
(d) There shall not be in effect any nonappealable final order, decree
or judgment of any court or governmental body having competent jurisdiction that
would be violated by consummation of the transactions contemplated hereby, nor
any material pending or threatened action, proceeding or investigation, the
adverse determination of which would result in such order, decree or judgment;
provided, that in the case of such material pending or threatened action,
proceeding or investigation, neither party shall decline to proceed with the
Closing pending final resolution thereof without exercising its reasonable
efforts promptly to determine jointly with the other party the merit thereof and
the likelihood of an adverse determination in such proceeding.
Notwithstanding any other provision of this Agreement, in the event
that, at the Closing, there shall be a failure of any condition specified in
this Section 7.2 or elsewhere in this Agreement, including without limitation
any failure of condition specified in Section 2.2(d), 2.2(e), 4.3, 4.4, 4.9 or
4.10 to the obligations of the Buyer in respect of the acquisition of any
specific Branch or Branches, the Buyer nevertheless shall be obligated to
consummate the transactions contemplated by this Agreement upon the Closing
Date, and the Seller may, upon written notice to the Buyer, exclude from the
Closing the Branch or Branches in respect of which the failure of condition
shall exist, in which case, appropriate adjustment shall be made in the
consideration payable pursuant to Article 3, the Schedules hereto, the Financial
Statements and the other documents to be delivered pursuant hereto so as to duly
reflect the deletion of such Branch or Branches from the Closing.
ARTICLE 8
TERMINATION
8.1 EVENTS OF TERMINATION. This Agreement may be terminated at any time
prior to Closing:
(a) By the mutual written agreement of the Seller and the Buyer;
(b) By the Seller or by the Buyer in the event that the Closing has not
occurred on or before the date indicated in the third proviso in Section 2.2(a),
or such other date as the Seller and the Buyer shall agree in writing, unless
the failure to so consummate by such time is due to a breach of this Agreement
by the party seeking to terminate;
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(c) By the Seller or by the Buyer if consummation of the transactions
contemplated hereby would violate any nonappealable final order, decree or
judgment of any court or governmental body having competent jurisdiction;
(d) By the Seller or the Buyer, in the event of a material breach by
the other of any representation, warranty or agreement contained herein which is
not cured or cannot be cured within thirty (30) calendar days after written
notice of such termination has been delivered to the breaching party; PROVIDED,
HOWEVER, that (i) termination pursuant to this Section 8.1(d) shall not relieve
the breaching party of liability for such breach or otherwise and (ii) this
Section 8.1(d) shall not under any circumstances provide the Buyer with a basis
for termination due to any actual or alleged breach relating to Hazardous
Substances, Buyer's sole remedies with respect to Hazardous Substances being
contained in Section 4.4; and
(e) By the Seller, in the event that the Buyer's equity capital
offering shall not have been consummated by November 14, 1997.
Any party desiring to terminate this Agreement pursuant to any of the
foregoing clauses shall give written notice of such termination to the other
party.
8.2 LIABILITY FOR TERMINATION. If this Agreement is terminated as
permitted by Section 8.1, except as provided in Sections 5.2(i) and 8.1(d), such
termination shall be without liability of either party (or any shareholder,
director, officer, employee, agent, consultant or representative of such party)
to the other party to this Agreement, except that, subject to Section 4.4, if
such termination shall result from the willful failure of a party to fulfill a
condition to the performance of the obligations of the other party or to perform
a covenant of this Agreement or from a willful misrepresentation or breach of a
warranty, covenant or agreement hereunder by either party to this Agreement,
such party shall be fully liable for any and all damages, costs and expenses
(including, but not limited to, reasonable attorney's fees) sustained or
incurred by the other party as a result of such failure or breach.
ARTICLE 9
SURVIVAL, INDEMNIFICATION
9.1 SURVIVAL. The covenants, agreements, representations and warranties
of the parties hereto made, contained in or to be performed pursuant to this
Agreement, the Schedules hereto or the officers' certificates delivered pursuant
hereto or in connection herewith shall survive Closing and remain operative and
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in full force and effect until the first anniversary of the Closing Date, except
for the provisions of Sections 2.4, 3.2(h), 4.4(e)(ii), 10.1 and 11.11, which
shall survive such first anniversary. Notwithstanding the preceding sentence,
any covenant, agreement, representation, warranty or claim in respect of which
indemnity may be sought under Sections 9.2 or 9.3 shall survive the time at
which it would otherwise terminate pursuant to the preceding sentence if notice
of the claim, inaccuracy or breach giving rise to such right to indemnity shall
have been given to the party against whom such indemnity may be sought prior to
such time. After Closing, the sole and exclusive remedy of the Buyer and the
Seller for any breach of any covenant or agreement or any inaccuracy of any such
representation or warranty by the Seller or the Buyer shall be the indemnities
contained in Sections 9.2 and 9.3, respectively, which shall survive Closing,
PROVIDED HOWEVER, THAT the provisions of Section 4.4 shall exclusively govern
the rights and obligations of the Seller and Buyer with regard to Hazardous
Substances.
9.2 SELLER'S INDEMNITY. Subject to the proviso in the final sentence of
Section 9.1, the Seller hereby indemnifies the Buyer against and agrees to hold
it harmless from any and all damage, loss, liability and expense (including,
without limitation, reasonable expenses of investigation and attorney's fees and
expenses in connection with any action, suit or proceeding brought against the
Buyer) demanded, claimed or threatened in writing against the Buyer or incurred
or suffered by the Buyer arising out of (i) any action taken or omitted to be
taken by the Seller prior to the Closing relating to the ownership or operation
of the Branches or their business and properties prior to Closing, but excluding
any damage, loss, liability or expense resulting from actions taken by the
Seller at the written direction of the Buyer or resulting from defects in title
to the Branch Real Estate; (ii) any misrepresentation or breach of warranty,
covenant or agreement made, contained in or to be performed by the Seller
pursuant to this Agreement, the Schedules hereto or the Seller's officer's
certificate; and (iii) any claim or demand by any Branch employee of the Seller
who shall not become an employee of the Buyer (except as may be the result of
any action or inaction of the Buyer). Any direct claim by the Buyer against the
Seller, as distinguished from a claim against the Buyer by a third party, shall
be settled by arbitration pursuant to Section 9.4. The Seller shall not be
liable under this Section 9.2 for any settlement effected without its consent
(which consent shall not be unreasonably withheld) of any claim, litigation or
proceeding in respect of which indemnity may be sought hereunder. The Buyer
agrees to give prompt notice to the Seller of the assertion of any claim, or the
commencement of any suit, action or proceeding in respect of which indemnity may
be sought hereunder. The Seller may, and at the request of the Buyer shall,
participate in and control the defense of any such suit, action or proceeding at
its own expense.
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9.3 BUYER'S INDEMNITY. Subject to the proviso in the final sentence of
Section 9.1, the Buyer hereby indemnifies the Seller against and agrees to hold
it harmless from any and all damage, loss, liability and expense (including,
without limitation, reasonable expenses of investigation and attorney's fees and
expenses in connection with any action, suit or proceeding brought against the
Seller) demanded, claimed or threatened in writing against the Seller or
incurred or suffered by the Seller arising out of (i) ownership or operation of
the Branches or their business and properties on and after Closing (except as to
such damage, liability, loss or expense resulting from actions taken by the
Buyer at the written direction of the Seller); and (ii) any misrepresentation or
breach of warranty, covenant or agreement made, contained in or to be performed
by the Buyer pursuant to this Agreement, the Schedules hereto or the Buyer's
officer's certificate. Any direct claim by the Seller against the Buyer, as
distinguished from a claim against the Seller by a third party, shall be settled
by arbitration pursuant to Section 9.4. The Buyer shall not be liable under this
Section 9.3 for any settlement effected without its consent (which consent shall
not be unreasonably withheld) of any claim, litigation or proceeding in respect
of which indemnity may be sought hereunder. The Seller agrees to give prompt
notice to the Buyer of the assertion of any claim, or the commencement of any
suit, action or proceeding in respect of which indemnity may be sought
hereunder. The Buyer may, and at the request of the Seller shall, participate in
and control the defense of any such suit, action or proceeding at its own
expense.
9.4 ARBITRATION OF DISPUTES. (A) ANY CONTROVERSY OR CLAIM ARISING OUT
OF OR RELATING TO THIS AGREEMENT OR ANY AGREEMENTS OR INSTRUMENTS RELATING
HERETO OR DELIVERED IN CONNECTION HEREWITH, INCLUDING, BUT NOT LIMITED TO A
CLAIM BASED ON OR ARISING FROM AN ALLEGED TORT WILL, AT THE REQUEST OF ANY
PARTY, BE DETERMINED BY ARBITRATION IN ACCORDANCE WITH THE FEDERAL ARBITRATION
ACT (9 U.S.C. SECTION 1 ET SEQ.) UNDER THE AUSPICES AND RULES OF THE AMERICAN
ARBITRATION ASSOCIATION ("AAA"). THE AAA WILL BE INSTRUCTED BY EITHER OR BOTH
PARTIES TO PREPARE A LIST OF THREE (3) JUDGES WHO HAVE RETIRED FROM THE SUPERIOR
COURT OF THE STATE OF CALIFORNIA, A HIGHER CALIFORNIA COURT OR ANY FEDERAL
COURT. WITHIN TEN (10) CALENDAR DAYS OF RECEIPT OF THE LIST, EACH PARTY MAY
STRIKE ONE (1)NAME FROM THE LIST. THE AAA WILL THEN APPOINT THE ARBITRATOR FROM
THE NAME(S) REMAINING ON THE LIST. THE ARBITRATION WILL BE CONDUCTED IN SAN
FRANCISCO, LOS ANGELES OR SAN DIEGO, WHICHEVER IS THE CLOSEST CITY TO THE NEXUS
OF THE DISPUTE. ANY CONTROVERSY IN INTERPRETATION OR ENFORCEMENT OF THIS
PROVISION OR WHETHER A DISPUTE IS ARBITRABLE, WILL BE DETERMINED BY THE
ARBITRATOR. JUDGMENT UPON THE AWARD RENDERED BY THE ARBITRATOR MAY BE ENTERED IN
ANY COURT HAVING JURISDICTION. THE INSTITUTION AND MAINTENANCE OF AN ACTION FOR
JUDICIAL RELIEF OR IN PURSUIT OF AN ANCILLARY REMEDY DOES NOT CONSTITUTE A
WAIVER OF THE RIGHT OF ANY PARTY, INCLUDING THE PLAINTIFF, TO SUBMIT THE
CONTROVERSY OR CLAIM TO ARBITRATION.
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(B) IN ANY ARBITRATION PROCEEDING, THE ARBITRATOR IS AUTHORIZED TO
APPORTION COSTS AND EXPENSES, INCLUDING INVESTIGATION, LEGAL AND OTHER EXPENSES,
WHICH WILL INCLUDE, IF APPLICABLE, A REASONABLE ESTIMATE OF ALLOCATED COSTS AND
EXPENSE OF IN-HOUSE LEGAL COUNSEL AND LEGAL STAFF. SUCH COSTS AND EXPENSES ARE
TO BE AWARDED ONLY AFTER THE CONCLUSION OF THE ARBITRATION AND WILL NOT BE
ADVANCED DURING THE COURSE OF SUCH ARBITRATION.
NOTICE: BY INITIALING IN THE SPACE BELOW YOU ARE AGREEING TO HAVE ANY DISPUTE
ARISING OUT OF THE MATTERS INCLUDED IN THE "ARBITRATION" PROVISION DECIDED BY
NEUTRAL ARBITRATION AS PROVIDED BY CALIFORNIA LAW AND YOU ARE GIVING UP ANY
RIGHTS YOU MIGHT POSSESS TO HAVE THE DISPUTE LITIGATED IN A COURT OR BY JURY
TRIAL. BY INITIALING IN THE SPACE BELOW YOU ARE GIVING UP YOUR JUDICIAL RIGHTS
TO DISCOVERY AND APPEAL UNLESS SUCH RIGHTS ARE SPECIFICALLY INCLUDED IN THE
"ARBITRATION OF DISPUTES" PROVISION. IF YOU REFUSE TO SUBMIT TO ARBITRATION
AFTER AGREEING TO THIS PROVISION, YOU MAY BE COMPELLED TO ARBITRATE UNDER THE
AUTHORITY OF THE CALIFORNIA CODE OF CIVIL PROCEDURE.
YOUR AGREEMENT TO THIS ARBITRATION PROVISION IS VOLUNTARY.
WE HAVE READ AND UNDERSTAND THE FOREGOING AND AGREE TO SUBMIT DISPUTES ARISING
OUT OF THE MATTERS INCLUDED IN THE "ARBITRATION OF DISPUTES" PROVISION TO
NEUTRAL ARBITRATION.
BUYER'S INITIALS /s/ J.B. SELLER'S INITIALS /s/ B.A.D.
-------- ----------
9.5 LIMIT ON INDEMNITIES. (a) Notwithstanding any other provision
hereof, an indemnifying party shall not be liable under this Article 9 for any
losses sustained by the indemnified party with respect to a Branch unless and
until the aggregate amount of all such losses sustained by the indemnified party
with respect to that Branch (including any amount for which the indemnifying
party may become liable to provide indemnification pursuant to Section 4.4),
shall exceed $25,000, in which event the indemnifying party shall be liable only
for such losses in excess of $25,000 (it being the intention of the parties that
losses sustained by a party with respect to one Branch shall not be combined
with losses sustained with respect to another Branch to satisfy such minimum
$25,000 amount). The minimum $25,000 amount shall not apply to amounts which one
party may be required to pay to the other under Sections 2.4, 3.2, 4.1(g),
4.1(h), 4.6 and 10.1 of this Agreement or other provisions dealing with
customary and foreseeable post-closing adjustments. In no event shall the
aggregate losses for which the Seller may be liable under this Article 9 or
Section 4.4 or any other basis exceed the amount of the Initial Base Amount. IN
ADDITION, THE INDEMNIFYING PARTY SHALL HAVE NO OBLIGATIONS UNDER THIS AGREEMENT
FOR ANY CONSEQUENTIAL LIABILITY, DAMAGE OR LOSS OF THE INDEMNIFIED PARTY THAT
THE INDEMNIFIED PARTY MAY SUFFER.
(b) Each party's right to indemnification under this Article 9 shall
preclude any other monetary award (whether at law or in equity) and shall
preclude assertion by such party of any right to any such monetary award from
the indemnifying party.
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ARTICLE 10
TAXES
10.1 OBLIGATIONS OF THE BUYER AND THE SELLER. The Buyer and the Seller
shall each assume and pay one-half of the following: any documentary, stamp,
deed, sales, use or other transfer taxes, recording fees and escrow fees
relating to the sale of the Assets and assumption of the Liabilities, including
but not limited to the assignment of the Leases. On the Closing Date, all real
and personal property taxes and current installments of special assessments
levied or assessed with respect to the Branch Real Estate, the Improvements, the
Leasehold Improvements and the Furniture, Fixtures and Equipment shall be
prorated between the Seller and the Buyer on a daily basis as of the Closing
Date based upon the fiscal year of the appropriate taxing authority.
10.2 ACCESS TO INFORMATION. For the applicable period required by law, the
Seller and the Buyer shall have a right to have access to and to copy all of the
records of the other party relevant to the Assets and the Liabilities and
necessary for the preparation of income tax returns, employee tax returns,
employee reports, employee benefits calculations, and for customary accounting
functions and other similar bona fide purposes. Additionally, the Buyer and the
Seller each agree to make available to the other party, at reasonable times and
upon reasonable advance notice, relevant records and personnel in connection
with an investigation or the preparation of or participation in a defense,
negotiation or settlement relating to any pending, future, or threatened
litigation or government agency proceeding (including a tax audit) involving the
conduct or interest of such other party.
10.3 ALLOCATION OF CONSIDERATION. The Buyer and the Seller shall use
reasonable efforts to allocate the consideration payable hereunder at the
Closing among the Assets, tangible and intangible, on the basis of an allocation
(the "Allocation") to be agreed upon by the Buyer and the Seller prior to the
Closing.
ARTICLE 11
MISCELLANEOUS
11.1 PUBLIC NOTICE. All written notices to third parties, including
customers of the Branches, all oral or written notices or general communications
to employees of the Branches, and all public announcements and press releases
concerning the transactions contemplated by this Agreement made prior to Closing
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shall be jointly planned and coordinated by the Buyer and the Seller. Neither
party shall act unilaterally in this regard without the prior approval of the
other party, which shall not be unreasonably withheld or delayed; PROVIDED,
HOWEVER, that in the event that a party reasonably concludes that a public
announcement or release is required by applicable law and the parties cannot
reach agreement upon a mutually acceptable release, the party releasing the
information, announcement or public statement shall not be deemed to be in
breach of this Agreement.
11.2 ASSIGNMENT. Neither party shall assign this Agreement or any of
its rights, duties or obligations hereunder without the prior written consent of
the other party.
11.3 NOTICES. Notices and legal process to be delivered to or served
upon either party hereto shall be deemed to have been duly delivered or served
when delivered in written form by hand or by telegraph, telex or facsimile
transmission, or the day after being sent from within the continental United
States by overnight delivery or courier service, or three (3) calendar days
after posting by registered mail or certified mail with return receipt
requested, to the parties hereto at the following addresses:
If to the Seller:
BankAmerica Corporation
Corporate Development Department #13262
315 Montgomery Street, Suite 1300
San Francisco, CA 94104
Attention: Director of Corporate Development
Fax: (415) 953-0390
With copies to:
Bank of America NT&SA
Legal Department #3017
555 California Street, 8th Floor
San Francisco, CA 94104
Attention: Legal Department - Corporate Advice
Fax: (415) 622-6291
And to:
Pillsbury Madison & Sutro LLP
235 Montgomery Street, 14th Floor
San Francisco, CA 94104
Attention: James C. Olson, Esq.
Fax: (415) 983-1200
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<PAGE>
If to the Buyer:
Six Rivers National Bank
402 F Street
Eureka, CA 95501
Attention: John F. Burger
President and Chief Executive Officer
Fax: (707) 443-1897
With a copy to:
McCutchen, Doyle, Brown & Enersen
3 Embarcadero Center
San Francisco, CA 94111
Attention: James M. Rockett, Esq.
Fax: (415) 393-2286
or to such other authorized agent or address as either party may hereafter
select by written notice to the other party.
11.4 TIME. Time shall be of the essence for all purposes connected with
this Agreement.
11.5 EXPENSES. Except as otherwise expressly provided herein, the Buyer
and the Seller shall each bear its own out-of-pocket expenses incurred in
connection with the transactions contemplated by this Agreement.
11.6 COMMUNICATIONS. If for any reason any payment or communication to
which one party is entitled is received by the other party hereto, the receiving
party shall promptly forward such payment or communication to the other party.
11.7 ENTIRE AGREEMENT. This Agreement embodies the entire agreement and
understanding between the parties hereto and supersedes all prior agreements and
understandings, except that certain Confidentiality Agreement between the
parties hereto which was executed by the Seller as of March 24, 1997 (the
"Confidentiality Agreement"), relating to the subject matter of this Agreement.
The Confidentiality Agreement shall survive, in accordance with its own terms,
the execution, delivery and performance of this Agreement.
11.8 AMENDMENT. Neither this Agreement nor any provision hereof may be
changed, waived, discharged or terminated orally. Any such change, waiver,
discharge or termination may be effected only by an instrument in writing signed
by the party against which enforcement of such change, waiver, discharge or
termination is sought.
11.9 GOVERNING LAW, SEVERABILITY. This Agreement shall be governed by
and construed in accordance with the laws of the State of California. If any one
or more of the provisions of this Agreement shall for any reason be held to be
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<PAGE>
invalid, illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision of this Agreement, and
this Agreement shall be construed as if such invalid, illegal or unenforceable
provision were not contained herein.
11.10 WAIVER. No delay or omission to exercise any right, power or
remedy accruing to either party upon any breach or default under this Agreement
shall impair any such right, power or remedy of such party, nor shall it be
construed to be a waiver of any such breach or default, or an acquiescence
therein, or in any similar breach or default thereafter occurring; nor shall any
waiver of any single breach or default be deemed a waiver of any other breach of
default theretofore or thereafter occurring. Any waiver, permit, consent or
approval or any kind or character of any breach or default under this Agreement,
or any waiver of any provision or condition of this Agreement, must be in
writing and shall be effective only to the extent specifically set forth in such
writing. All rights and remedies, either under this Agreement or by law or
otherwise afforded to a party, shall be cumulative and not alternative.
11.11 CONFIDENTIALITY. The Buyer and its representatives, agents and
designees shall keep confidential and shall not disclose to any person or
entity, without Seller's prior written consent: the amount of the Purchase
Premium, the fact that confidential information has been made available to
Buyer, the existence of this Agreement or any of the terms or conditions hereof,
the status of the transactions contemplated hereby, all information concerning
the books, records, accounts and documents of Seller to which it has access
under this Agreement and any information developed in connection with any
Environmental Assessments that are performed by or on behalf of the Buyer
(including without limitation any reports or sampling results and analysis).
These restrictions, however, shall not apply to any such information (i) that
becomes public knowledge through no fault, act or omission of Buyer or its
representatives, agents or designees (for purposes of this Section 11.11
collectively the "Buyer"), (ii) that Buyer lawfully acquires from an entity not
under an obligation of confidentiality to Seller, (iii) that is independently
developed by Buyer, (iv) where the Buyer is legally compelled to disclose such
information, provided that the Seller is provided with advance written notice of
the intention of Buyer to disclose to allow the Seller to contest the proposed
disclosure before any court or agency with jurisdiction unless such notice
impedes a duty or obligation of the Buyer under applicable laws, regulations or
legal requirements to timely report such information, in which event Buyer shall
concurrently advise Seller of Buyer's disclosure, or (v) where the Buyer, upon
advice of counsel, is required to disclose such information in connection with a
public offering of its equity securities. In case of any actual or purported
inconsistency or conflict between the provisions of this Agreement and the
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<PAGE>
provisions of the Confidentiality Agreement with respect to obligations of the
Buyer to maintain confidentiality as to any information, the provisions which
impose a higher standard of confidentiality on the Buyer with respect to such
information shall control and govern as to such actual or purported
inconsistency or conflict.
11.12 THIRD PARTY RIGHTS. Other than the provisions of Section 2.4,
nothing contained in this Agreement, whether express or implied, is intended to
(i) confer any rights or remedies upon any persons other than the parties hereto
and their respective successors and assigns, (ii) relieve or discharge the
obligations or liabilities of any third person to either party to this
Agreement, or (iii) give any third person any right of subrogation or action
over either party to this Agreement.
11.13 HEADINGS. The headings and captions used herein and in the
Schedules are included for purposes of convenience of reference only and shall
not limit or define the meaning of any provisions of this Agreement.
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<PAGE>
11.14 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original instrument, but
all of which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers or representatives as of the date
first above written.
SELLER:
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION
By /s/ Brian A. Dunne
--------------------
Brian A. Dunne
Its VICE PRESIDENT
BUYER:
SIX RIVERS NATIONAL BANK
By /s/ JOHN F. BURGER
---------------------
John F. Burger
Its PRESIDENT/CHIEF EXECUTIVE OFFICER
By /s/ MICHAEL W. MARTINEZ
------------------------
Michael W. Martinez
Its SR. VICE PRESIDENT/CHIEF FINANCIAL
OFFICER
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<PAGE>
SCHEDULE A
LIST OF BRANCHES
Ferndale
Garberville
Weaverville
Willits
<PAGE>
EXHIBIT 2.2
PLAN OF REORGANIZATION AND MERGER
This Plan of Reorganization and Merger (the "Agreement") is entered
into as of the _____ day of ______, 199__, by and among Six Rivers National
Bank, a national banking association ("Six Rivers"); Six Rivers Interim National
Bank, a national banking association (the "Interim Bank"); and Six Rivers
Financial Corp., a California corporation ("Financial Corp.").
RECITALS AND UNDERTAKINGS
A. As of the DATE OF THIS agreement, Six Rivers has 10,000,000 shares
of common stock authorized AND, ______ shares of common stock issued and
outstanding.
B. As of the date hereof, the Interim Bank has 1,000 shares of common
stock authorized and, immediately prior to the Effective Date (as such term is
defined below), 50 shares of such common stock will be issued and outstanding,
all of which will be owned by Financial Corp.
C. As of the date hereof, Financial Corp, has 30,000,000 shares of
common stock authorized. Immediate prior to the Effective Date, 1,000 shares of
the Financial Corp.'s common stock will be issued and outstanding, and no shares
of Financial Corp.'s preferred stock will be issued and outstanding.
D. For Federal income tax purposes, it is intended that the transaction
contemplated hereby shall qualify as a reorganization under the provisions
of Section 368 of the Internal Revenue Code of 1986, as amended.
AGREEMENT
Section 1. General
1.1 THE MERGER. On the Effective Date, as such term is defined below,
Six Rivers shall be merged with an into the Interim Bank with the Interim Bank
being the survivor (the "Merger").
1.2 EFFECTIVE DATE. The Merger shall become effective as specified in
the merger approval to be issued by the Office of the Comptroller of the
Currency (the "OCC") (the "Effective Date").
1.3 ARTICLES OF INCORPORATION. Bylaws and Name. On the Effective Date,
the Articles of Association of Six Rivers, as in effect immediately prior to the
Effective Date, shall become the Articles of Association of the Interim Bank
until amended; the Bylaws of Six Rivers, as in effect immediately prior to the
Effective Date, shall become the Bylaws of the Interim Bank until amended; the
charter issued by the OCC to Six Rivers shall, with the approval of the OCC,
become the Interim Bank; Six Rivers' deposit insurance coverage by the Federal
Deposit Insurance Corporation shall become the deposit insurance of the Interim
Banks; and the Interim Bank shall change its name to "Six Rivers National Bank."
1.4 DIRECTORS AND OFFICERS. On the Effective Date, the directors and
officers of Six Rivers immediately prior to the Effective Date shall become the
directors and officers of the Interim
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Bank, and the directors of the Interim Bank shall then serve until the
shareholders of the Interim Bank or until such time as their successor are
elected and have been qualified.
1.5 EFFECT OF THE MERGER
(a) ASSETS AND RIGHTS. On the Effective Date and thereafter, all
rights, privileges, franchises and property of Six Rivers and all debts and
liabilities due or to become due to the Six Rivers, including choses in action
and every interest or asset of conceivable value or benefit, shall be deemed
fully and financially and without any right of reversion vested in the Interim
Bank without act or deed; and the Interim Bank shall have and hold the same in
its own right as fully as the same was possessed and held by Six Rivers.
(b) LIABILITIES. On the Effective Date and thereafter, all debts,
liabilities and obligations due or to become due of, and all claims and demands
for any cause existing against, the Interim Bank in the same manner as if the
Interim Bank had itself incurred or become liable for them.
(c) CREDITORS' RIGHTS AND LIENS. On The Effective Date and
thereafter, all rights of creditors of Six Rivers and all liens upon the
property of Six Rivers shall be preserved unimpaired, and shall be limited to
the property affected by such liens immediately prior to the Effective Date.
(d) PENDING ACTIONS. On the Effective Date and thereafter, any
action or proceeding pending by or against Six Rivers Bank shall not be deemed
to have abated or been discontinued, but may be pursued to judgment with full
right to appeal or review. Any such action or proceeding may be pursued as if
the Merger had not occurred, or with the Interim Bank substituted in place of
Six Rivers as the case may be.
1.6 FURTHER ASSURANCE. Six Rivers agrees that at any time, or from time
to time, as and when requested by the Interim Bank, or by its successors or
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
Interim Bank, all such conveyances, assignments, transfers, deeds and other
instruments, and will take or cause to be taken such further or other action as
the Interim Bank, or its successors or assigns, may deem necessary or desirable
in order to carry out the vesting, perfecting, confirming, assignment,
devolution or other transfer of the interests, property, privileges, powers,
immunities, franchises and other rights transferred to the Interim Bank in the
Section 1, or otherwise to carry out the intent and purposes of this Agreement.
Section 2. STOCK
2.1 STOCK OF THE INTERIM BANK. On the Effective Date, each share of
common stock of the Interim Bank issued and outstanding immediately prior to the
Effective Date shall remain outstanding.
2.2 STOCK OF FINANCIAL CORP. On the Effective Date, each share of
common stock of Financial Corp, issued and outstanding immediately prior to the
Effective Date shall be repurchased by Financial Corp. for the amount paid for
such shares upon their original issuance.
2.3 STOCK OF SIX RIVERS. On the Effective Date, each share of common
stock Rivers issued and outstanding immediately prior to the Effective Date,
other than shares for which
2
<PAGE>
dissenters' rights have been perfected under federal law, shall, by virtue of
the Merger, be deemed to be exchanged for and converted into the right to
receive one share of fully paid and nonassessable common stock of Financial
Corp., in accordance with the provisions of Paragraph 2.4 hereof. Thereafter,
the right to receive shares of Financial Corp. shall be the sole right of the
shareholders of Six Rivers.
2.4 EXCHANGE OF STOCK BY SIX RIVERS SHAREHOLDERS. On the Effective Date
or as soon as practical thereafter, the following actions shall be taken to
effectuate the exchange and conversion specified in Paragraph 2.3 hereof:
(a) The Shareholders Of Six Rivers Shareholders of record
immediately prior to the Effective Date shall be allocated and entitled to
receive for each share of common stock of Six Rivers then held by them
respectively (other than shares for which dissenters' rights have been perfected
under federal law) one share of common stock of Financial Corp.
(b) Subject to the provisions of Paragraph 2.4(c) hereof Financial
Corp. shall issue to the shareholders of Six Rivers the shares of Six Rivers the
shares of common stock of Financial Corp. which said shareholders are entitled
to receive.
(c) Thereafter, outstanding certificates representing shares of
common stock of Six Rivers (other than shares for which dissenters' rights have
been perfected under federal law) shall represent shares of the common stock of
Financial Corp. and such certificates may, but need not, be exchanged by the
holders thereof for new certificates for the appropriate number of shares of
Financial Corp.
(d) Notwithstanding anything in this Agreement to the contrary,
Shares of Six Rivers which are outstanding immediately prior to the Effective
Date and which are held by stockholders who have complied with the requirements
of Section 215a of the National Bank Act, shall be entitled to all of the rights
as set forth therein with respect with dissenters rights.
2.5 OTHER RIGHTS TO STOCK.
(a) On the Effective Date and thereafter, Six Rivers' 1989 Stock
Option Plan (the "Option Plan"), as amended shall be administered in an
appropriate manner to reflect the Merger; any outstanding options to purchase
shares of common stock of Six Rivers shall be deemed to be options granted by
Financial Corp., upon the same terms conditions, except that appropriate
adjustments shall be deemed to be made to such terms and conditions to reflect
the Merger; and any options thereafter granted pursuant to the Option Plan shall
be deemed to be options granted by Financial Corp.
(b) Not later than the Effective Date, Six Rivers' 401(k) Pension
and Profit-Sharing Plan (the "401(k) Plan") shall have been amended, to the
extent necessary, to provide for the use of Financial Corp.'s common stock in
place of common stock of Six Rivers. On the Effective Date and thereafter, all
Six Rivers employees eligible to participate in the 401(k) Plan and other
employee benefit plans will continue to be eligible to so participate with the
same rights, privileges, and preferences as before the Effective Date.
(c) Not later than the Effective Date, the Employee Stock Ownership
Plan ("ESOP") of Six Rivers shall have been amended, to the extent necessary, to
provide for the use of Financial Corp.'s common stock in place of common stock
of Six Rivers. On the Effective Date and thereafter, all Six Rivers employees
eligible to participate in the ESOP will continue to be eligible to so
participate with the same rights, privileges, and preferences as before the
Effective Date.
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<PAGE>
(d) From time to time as and when required by the provisions of any
agreement to which the Six Rivers or Financial Corp. shall become a party after
the date hereof that provides for the issuance of shares of common stock or
other securities, either debt or equity, of Six Rivers or Financial Corp. in
connection with a merger into Six Rivers of any other banking institution or the
acquisition by Six Rivers of the assets or stock of any other banking
institution or other corporation, Financial Corp. shall issue in accordance with
the terms of any such agreement shares of its commons stock or other debt or
equity securities as required by such agreement or in substitution for the
shares of common stock or other debt or equity securities of Six Rivers required
to be issued by such agreement, as the case may be, which the shareholders of
any other such banking institution or other corporation shall be entitled to
receive by virtue of any such agreement.
Section 3. APPROVALS
3.1 Shareholder Approval. This Agreement shall be submitted to the
shareholder(s) of Financial Corp., the Interim Bank and Six Rivers for
ratification and confirmation to the extent required by, and in accordance with,
applicable provisions of law.
3.2 Regulatory Approvals. Each of the parties to this Agreement shall
proceed expeditiously and cooperate fully in procuring all other consents and
approvals, and in satisfying all other requirements, prescribed by law or
otherwise, necessary or desirable for the Merger to be consummated, including
without limitation the consents and approvals referred to in Paragraphs 4.1(b),
4.1(c) and 4.1(d) hereof.
Section 4. CONDITIONS PRECEDENT, TERMINATION AND PAYMENT OF EXPENSES
4.1 CONDITIONS PRECEDENT TO THE MERGER. Consummation of the Merger is
conditioned upon the following:
(a) Ratification and confirmation of this agreement by the
shareholders of Financial Corp., the Interim Bank and Six Rivers in accordance
with applicable provisions of law;
(b) Procuring all the consents and approvals an satisfying all
other requirements, prescribe by law or otherwise, which are necessary for the
Merger to be consummated, including without limitation: (i) such approvals or
conditions as may be legally required from the Federal Deposit Insurance
Corporation, the OCC, and the Board of Governors of the Federal Reserve System;
and (ii) approvals required under applicable securities laws with respect to
securities of Financial Corp. issuable upon consummation of the Merger;
(c) Upon request of any party to this Agreement, receipt of an
opinion of counsel and/or accountants with respect to the tax consequences to
the parties and their shareholders of the Merger;
(d) Procuring all consents or approvals, governmental or otherwise,
which in the opinion of Six Rivers are or may be necessary to permit or to
enable Six Rivers to conduct, upon and after the Merger, all or any part of the
businesses and other activities that Six Rivers engages in immediately prior to
such merger, in the same manner and to the same extent that Six Rivers engaged
in such businesses and other activities immediately prior to such merger; and
(e) Performance by each of the parties to this Agreement of all
obligations under this Agreement which are to be performed prior to the
consummation of the Merger.
4
<PAGE>
4.2 TERMINATION OF THE MERGER. In the event that any condition
specified in Paragraph 4.1 hereof cannot be fulfilled, or prior to the Effective
Date the Board of Directors of the Bank reaches any of the following
determinations:
(a) The number of shares of common stock of Six Rivers voting
against the merger described herein makes consummation of the Merger
inadvisable; or
(b) Any action, suit, proceeding or claim relating to the Merger,
whether initiated or threatened, makes consummation of the Merger inadvisable;
or
(c) Consummation of the merger is inadvisable for any other reason;
then this Agreement shall terminate. 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 hereof on the part of any of the parties hereto or
their respective directors, officers, employees, agents or shareholders.
4.3 EXPENSES OF THE MERGER. Pursuant to requirements of the Federal
Reserve Board, all expenses incurred by Six Rivers, the Interim Bank and
Financial Corp. in connection with the Merger, including without limitation
filing fees, printing costs, mailing costs, accountant's fees and legal fees,
shall be borne by Financial Corp. It is anticipated that Financial Corp. will
obtain a loan from a financial institution other than Six Rivers to fund the
expenses of the merger, and that the loan to Financial Corp. will be personally
guaranteed by the directors of Financial Corp.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers as of the day and year first above
written.
Dated: , 199 SIX RIVERS NATIONAL BANK
By:
----------------------------------
John F. Burger
President and CEO
By:
----------------------------------
Jack L. Russ
Secretary
Dated: , 199 Six Rivers INTERIM NATIONAL BANK
By:
----------------------------------
John F. Burger
President and CEO
By:
----------------------------------
Jack L. Russ
Secretary
5
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Dated: , 199 SIX RIVERS FINANCIAL CORP.
By:
----------------------------------
John F. Burger
President and CEO
By:
----------------------------------
Jack L. Russ
Secretary
6
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF ASSOCIATION
OF
SIX RIVERS NATIONAL BANK
JOHN F. BURGER. AND MARGIE L. PLUM certify that:
1. They are the President and Assistant Secretary of Six Rivers National Bank, a
national banking association (the "Bank").
2. Article TWELFTH of the Bank's Articles of Association, which delineates the
vote required to amend the Bank's Articles, shall become new Article THIRTEENTH
and the text thereof shall Remain the same. A new ARTICLE TWELFTH shall be added
to the Bank's Articles of Association and shall read in its entirety as follows:
"TWELFTH. The Board of Directors of this Association, when evaluating
any offer of another party to (a) make a tender or exchange offer for any equity
security of the Association with another corporation or association, or (b)
merge or consolidate the Association with another corporation or association, or
(c) purchase or otherwise acquire all or substantially all of the properties and
assets of the Association, shall, in connection with the exercise of its
judgement and fiduciary duty in determining what is in the best interest of the
Association and its shareholders, give due consideration to (i) the social,
legal and economic effects on the Association's employees, depositors, customers
and other affected persons, and on the communities served by the Association,
(ii) the value of the Association in relation to the Board of Directors'
estimate of the Association's future value as an independent going concern;
(iii) the competence, experience and integrity of the proposed purchaser; (iv)
the financial condition, earnings prospects and strategic plan of the proposed
purchaser; and (v) such other factors as the Board of Directors may deem
relevant under the circumstances."
3. The foregoing amendment has been approved by the Board of Directors of this
Association.
4. The foregoing amendment was duly approved by the required vote of the
shareholders of this Association in accordance with the Comptroller's Rules and
Regulations- the total number of outstanding shares entitled to vote with
respect to the foregoing amendment was 347,340 shares; and the number of shares
voting in favor of the foregoing amendment exceeded the vote required, such
required vote being at least 173,671,or a majority of the outstanding shares
entitled to vote.
/s/ John F. Burger
-----------------------
John F. Burger
President
<PAGE>
/s/ Margie L. Plum
-----------------------
Margie L. Plum
Assistant Secretary
Each of the undersigned declares under penalty of perjury that the matters set
forth in the foregoing certificate are true and correct of his/her knowledge.
Executed at Eureka, California on June 11, 1996
/s/ John F. Burger
-----------------------
John F. Burger
President
/s/ Margie L. Plum
-----------------------
Margie L. Plum
Assistant Secretary
2
<PAGE>
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF ASSOCIATION
OF
SIX RIVERS NATIONAL BANK
TIMOTHY D. COCHRANE and MARGIE L. JEFFERS certify that:
1. They are the President and Assistant Secretary of Six Rivers
National Bank, a national banking association (the "Bank")
2. Article TWELFTH of the Articles of Association of the Bank which
presently reads as follows:
"These Articles of Association may be amended at any regular or special
meeting of the shareholders by the affirmative vote of the holders of a
majority of the stock of this Association, unless the vote of the
holders of a greater amount of stock is required by law, and in that
case by the vote of the holders of such greater amount."
shall be amended to read in full as follows:
"Subject to the provisions of the laws of the United States, these
Articles of Association may be amended at any meeting of the
shareholders for which adequate notice has been give, by the
affirmative vote of the owners of a majority of the stock of this
Association, voting in person or by proxy, or by the written consent of
the owners of a majority of the stock of this Association, unless the
vote of the holders of a greater amount of stock is required by law,
and in that case by the vote or written consent of such greater amount"
3. The foregoing amendment has been approved by the Board of Directors
of this Association.
4. The foregoing amendment was duly approved by the required vote of
the shareholders of this Association in accordance with the Comptroller's Rules
and Regulations; the total number of outstanding shares entitled to vote with
respect to the foregoing amendment was 304,325 shares; and the number of shares
voting in favor of the foregoing amendment exceeded the vote required, such
3
<PAGE>
required vote being at least 152,163 shares, or a majority of the outstanding
shares entitled to vote.
/s/ Timothy D. Cochrane
-----------------------
Timothy D. Cochrane
President
/s/ Margie L. Jeffers
-----------------------
Margie L. Jeffers,"
Assistant Secretary
Each of the undersigned declares under penalty of perjury that the matters
set forth in the foregoing certificate are true and correct of his knowledge.
Executed at Eureka, California, on April 18, 1991.
/s/ Timothy D. Cochrane
-----------------------
Timothy D. Cochrane
/s/ Margie L. Jeffers
-----------------------
Margie L. Jeffers
4
<PAGE>
SIX RIVERS NATIONAL BANK
Resolutions Regarding Amendment of
Articles of Association
WHEREAS, Article TWELFTH of the Articles of Association of the Bank
presently provides that the Articles of Association may be amended at any
regular or special meeting of the shareholders by the affirmative vote of the
holders of a majority of the shares of the Bank;
WHEREAS, the current policies of the Office of the Comptroller of the
Currency allow amendments to the Articles of Association of a national bank to
be approved by the written consent of the holders of at least a majority of such
a bank's shares if such a procedure is specifically provided for in the Bank's
Articles of Association;
WHEREAS, the Board of Directors believes that amending the Bank's
Articles of Association in order to allow future amendments of such Articles of
Association to be adopted by the written consent of at least a majority of the
Bank's shareholders would, among other things and in certain circumstances,
permit such actions to be taken with out the expense of conducting a
shareholders' meeting and that such amendment of the Articles of Association
would, therefore, be in the best interests of the Bank and its shareholders;
NOW, THEREFORE, BE IT RESOLVED, that, subject to approval by the
holders of a majority of the Bank's shares entitled to vote, Article TWELFTH of
the Articles of Association of the Bank be, and it hereby is, amended in its
entirety to read as follows:
"Subject to the provisions of the laws of the United States,
these Articles of Association may be amended at any meeting
of the shareholders for which adequate notice has been given,
by the affirmative vote of the owners of a majority of the
stock of this Association, voting in person or by proxy, or
by the written consent of the owners of a majority of the
stock of this Association, unless the vote of the holders of
a greater amount of stock is required by law, and in that
case by the vote or written consent of such greater amount."
BE IT FURTHER RESOLVED, that the foregoing amendment to the Articles of
Association of the Bank be submitted to the shareholders for approval at the
Bank's 1991 Annual Meeting of Shareholders.
5
<PAGE>
ARTICLES OF ASSOCIATION OF
SIX RIVERS NATIONAL BANK
For the purposes of organizing an Association to carry on the business
of banking under the laws of the United States, the undersigned do enter into
the following Articles of Association:
FIRST. The title of this Association shall be:
SIX RIVERS NATIONAL BANK.
SECOND. The Main Office of the Association shall be in the City of
Eureka, County of Humboldt, State of California. The general business of the
Association shall be conducted at its Main office and its legally established
branches.
THIRD. The Board of Directors of this Association shall consist of
not less than five (5) nor more than twenty-five (25) shareholders, the exact
number of directors within such minimum and maximum limits to be fixed and
determined from time to time by resolution of a majority of the full Board of
Directors or by resolution of the shareholders at any annual or special meeting
thereof. Each director, during the full term of his or her directorship, shall
own a minimum of $1,000 par value of stock of this Association. Any vacancy in
the Board of Directors for any reason, including an increase in the number
thereof, may be filled by action of the Board of Directors.
FOURTH. There shall be an annual meeting of the shareholders the
purpose of which shall be the election of directors and the transaction of
whatever other business may be brought before said meeting. It shall be held at
the Main Office or such other convenient place as the Board of Directors may
designate, on the day of each year specified therefor in the Bylaws, but if no
election is held on that day, it may be held on any subsequent day according to
such lawful rules as may be prescribed by the Board of Directors.
Nominations for election to the Board of Directors may be made by the
Board of Directors or by any stockholder of any outstanding class of capital
stock of the Bank entitled to vote for election of directors. Nominations, other
than those made by or on behalf of the existing management of the Bank, shall be
made in writing and shall be
<PAGE>
delivered or mailed to the President of the Bank and to the Comptroller of the
Currency, Washington, D.C., not less than fourteen (14) days nor more than fifty
(50) days prior to any meeting of stockholders called for the election of
directors, PROVIDED, HOWEVER, that if less than twenty-one (21) days' notice of
the meeting is given to shareholders, such nomination shall be mailed or
delivered to the President of the Bank and to the Comptroller of the Currency
not later than the close of business on the seventh (7th) day following the day
on which the notice of meeting was mailed. 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 total number of shares of capital stock of the Bank
beneficially owned by each proposed nominee; (d) the name and residence address
of the notifying shareholder; and (e) the number of shares of capital stock of
the Bank owned by the notifying shareholder. Nominations not made in accordance
herewith may, in his discretion, be disregarded by the Chairman of the meeting,
and upon his instructions, the vote tellers may disregard all votes cast for
each such nominee.
FIFTH. The amount of authorized capital stock of this Association
shall be $50,000,000 divided into 10,000,000 shares of Common Stock of the par
value of $5.00 each; but said capital stock may be increased or decreased from
time to time in accordance with the provisions of the laws of the United States.
No holder of shares of the capital stock of any class of this
Association shall have any preemptive or preferential right of subscription to
any shares of any class of stock of the Association, whether now or hereafter
authorized, or to any obligations convertible into stock of the Association,
issued or sold, nor any right of subscription to any thereof other than such, if
any, as the Board of Directors, in its discretion, may from time to time
determine and at such price as the Board of Directors may from time to time fix.
The Association, at any time and from time to time, may authorize and
issue debt obligations, whether or not subordinated, without the approval of
shareholders.
SIXTH. The Board of Directors shall appoint one of its members
President of this Association, who shall be Chairman of the Board, unless the
Board appoints another director to be the Chairman. The Board of Directors shall
have the power to appoint one or more Vice Presidents, at least one of whom
shall be authorized, in the absence of the President, to perform all acts and
duties pertaining to the office of the President; and to appoint a cashier and
such
2
<PAGE>
other officers and employees as may be required to transact the business of this
Association.
The Board of Directors shall have the power to define the duties of the
officers and employees of the Association; to fix the salaries to be paid to
them; to dismiss them; to require bonds from them and to fix the penalty
thereof; to regulate the manner in which any increase of the capital of the
Association shall be made; to manage and administer the business and affairs of
the Association; to make all Bylaws that it may be lawful for them to make; and
generally to do and perform all acts that it may be legal for a Board of
Directors to do and perform.
SEVENTH. The Board of Directors shall have the power to change the
location of the Main Office of this Association to any authorized branch
location within the limits of Eureka, California, without the approval of the
shareholders of this Association, upon written notice to the Comptroller of the
Currency; and shall have the power to establish or change the location of any
branch or branches of this Association to any other location, without the
approval of the shareholders of this Association but subject to the approval of
the Comptroller of the Currency.
EIGHTH. The corporate existence of this Association shall continue
until terminated in accordance with the laws of the United States.
NINTH. The Board of Directors of this Association, or any ten (10)
or more shareholders owning, in the aggregate, not less than twenty percent
(20%) of the stock of this Association, may call a special meeting of
shareholders at any time.
Unless otherwise provided by the laws of the United States, a notice of
the time, place, and purpose of every regular annual and every special meeting
of the shareholders shall be given by first-class mail, postage prepaid, mailed
at least ten (10) days prior to the date of such meeting to each shareholder of
record at his or her address as shown upon the books of this Association.
TENTH. The Association may indemnify its agents against expenses,
judgments, fines, settlements and other amounts actually and reasonably incurred
by such person having been made or having been threatened to be made a party to
a proceeding to the fullest extent possible by the provisions of the California
General Corporation Law and the Association may advance the expenses reasonably
expected to be incurred by such agent in defending any such proceeding upon
receipt of the undertaking required by the California General Corporation Law;
provided, however, that the Association may not indemnify such persons against
expenses, penalties,
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or other payments incurred in an administrative proceeding or action instituted
by an appropriate bank regulatory agency which proceeding or action results in a
final order assessing civil money penalties or requiring affirmative action by
an individual or individuals in the form of payments to the Association.
The Association may, upon the affirmative vote of a majority of its
Board of Directors, purchase insurance for the purpose of indemnifying its
agents to the extent that such indemnification is allowed in the preceding
paragraph. Such insurance may, but need not, be for the benefit of all
directors, officers, employees or other agents.
The Association is authorized to provide indemnification of its agents
for breach of duty to the Association and its stockholders through bylaw
provisions or through agreements with the agents, or both, in excess of the
indemnification otherwise permitted by Section 317 of the California
Corporations Code, subject to the limits on such excess indemnification set
forth in Section 204 of the Corporations Code.
The terms, "agent," "proceeding" and "expense" as used herein shall
have the same meaning as such terms in Section 317 of the California General
Corporation Law, as amended.
ELEVENTH. The liability of the directors of the Association for
monetary damages shall be eliminated to the fullest extent permissible under
California law.
TWELFTH. These Articles of Association may be amended at any regular
or special meeting of the share-holders by the affirmative vote of the holders
of a majority of the stock of this Association, unless the vote of the holders
of a greater amount of stock is required by law, and in that case by the vote of
the holders of such greater amount.
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IN WITNESS WHEREOF, we have hereunto set our hands this 9TH day of
FEBRUARY, 1989.
/s/ Pattison J. Christensen /s/ Dorothy A. Linville
- --------------------------- -------------------------
Pattison J. Christensen Dorothy A. Linville
/s/ Timothy D. Cochrane
- --------------------------- -------------------------
Timothy D. Cochrane Warren L. Murphy
/s/ Suzanne M. Dockal /s/ Jack L. Russ
- --------------------------- -------------------------
Suzanne M. Dockal Jack L. Russ
/s/ James M. Rynearson
- --------------------------- -------------------------
Rudolph S. Hansen James M. Rynearson
/s/ Marjorie L. Jeffers /s/ William F. Thorington
- --------------------------- -------------------------
Marjorie L. Jeffers William F. Thorington
/s/ William T. Kay, Jr. /s/ Dolores M. Vellutini
- --------------------------- -------------------------
William T. Kay, Jr. Dolores M. Vellutini
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<PAGE>
IN WITNESS WHEREOF, we have hereunto set our hands this 10TH day of
FEBRUARY, 1989.
- --------------------------- -------------------------
Pattison J. Christensen Dorothy A. Linville
- --------------------------- -------------------------
Timothy D. Cochrane Warren L. Murphy
- --------------------------- -------------------------
Suzanne M. Dockal Jack L. Russ
/s/ Rudolph S. Hansen
- --------------------------- -------------------------
Rudolph S. Hansen James M. Rynearson
- --------------------------- -------------------------
Marjorie L. Jeffers William F. Thorington
- --------------------------- -------------------------
William T. Kay, Jr. Dolores M. Vellutini
5
<PAGE>
IN WITNESS WHEREOF, we have hereunto set our hands this 10TH day of
FEBRUARY, 1989.
/s/ Rudolph S. Hansen
---------------------------
Rudolph S. Hansen
6
<PAGE>
IN WITNESS WHEREOF, I have hereunto set my hand this 15TH day of FEBRUARY, 1989.
/s/ Warren L. Murphy
------------------------------------------
Warren L. Murphy
Date Accepted: 2/27/89
--------------------------
/s/ Timothy M. Sullivan
-----------------------------------------
Timothy M. Sullivan, Director for Analysis
Office of the Comptroller of the Currency
Western District
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EXHIBIT 3.2
BYLAWS OF
SIX RIVERS NATIONAL BANK
EUREKA, CALIFORNIA
ORGANIZED UNDER THE BANKING LAWS
OF THE UNITED STATES
ADOPTED MARCH 6, 1989
<PAGE>
INDEX
PAGE
ARTICLE I - Meetings of Shareholders.
Section 1.1 Annual Meeting 1
Section 1.2 Special Meetings 1
Section 1.3 Notice of Shareholders'
Meetings 1
Section 1.4 Proxies 1
Section 1.5 Voting 2
Section 1.6 Quorum 2
Section 1.7 Judges of Election 2
Section 1.8 Nominations for Directors 2
ARTICLE II - Directors. 3
Section 2.1 Powers 3
Section 2.2 Number 3
Section 2.3 Term 3
Section 2.4 Oath of Office 3
Section 2.5 Vacancies 3
Section 2.6 Chairman of the Board 4
Section 2.7 Vice Chairman of the Board 4
Section 2.8 Organization Meeting 4
Section 2.9 Regular Meeting 4
Section 2.10 Special Meeting 4
Section 2.11 Quorum 5
Section 2.12 Voting 5
Section 2.13 Waivers 5
ARTICLE III - Officers and Employees 5
Section 3.1 Officers 5
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Section 3.2 Tenure 5
Section 3.3 Fidelity Bond 6
Section 3.4 President 6
Section 3.5 Vice President 6
Section 3.6 Cashier 6
Section 3.7 Secretary 6
Section 3.8 Other Officers 7
ARTICLE IV - Committees. 7
Section 4.1 Investment Committee 7
Section 4.2 Loan Committee 7
Section 4.3 Audit Committee 7
Section 4.4 Other Committees 8
ARTICLE V - Corporate Seal 8
Section 5.1 Seal 8
ARTICLE VI - Stock and Stock Certificates 9
Section 6.1 Transfers 9
Section 6.2 Transfer Agent and Registrar 9
Section 6.3 Stock Certificates 9
Section 6.4 Lost Certificates 9
ARTICLE VII - Miscellaneous Provisions 9
Section 7.1 Fiscal Year 9
Section 7.2 Execution of Instruments 10
Section 7.3 Records 10
ARTICLE VIII - Bylaws. 10
Section 8.1 Inspection 10
Section 8.2 Amendments 10
ii
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ARTICLE I
MEETINGS OF SHAREHOLDERS
Section 1.1 ANNUAL MEETING. The regular annual meeting of the
shareholders of this Association, for the election of directors and for the
transaction of such other business as may properly come before the meeting,
shall be held at its Main Office in Eureka, California, or any other convenient
place duly authorized by the Board of Directors, at 6:00 o'clock p.m. on the
third Monday of June of each year in accordance with the provisions of its
Articles of Association and the laws of the United States. If for any cause, an
election of directors is not made on said day, the Board of Directors shall
order the election to be held on some subsequent day, as soon thereafter as
practicable, according to the provisions of law. In the absence of the Chairman
of the Board or the Secretary of the Association, the holders of a majority of
the outstanding shares entitled to vote, and represented at any meeting of the
shareholders, may choose persons to act as Chairman and as Secretary of the
meeting. Unless waived by a majority of the shareholders entitled to vote, the
President of the Association shall then make a report to the shareholders
regarding the condition of the Association and shall review the business of the
preceding year.
Section 1.2 SPECIAL MEETING. Unless otherwise provided by the laws of
the United States, or by the Articles of Association, the Board of Directors of
this Association, or any ten (ten) or more shareholders owning, in the
aggregate, not less than twenty percent (20%) of the stock of this Association,
may call a special meeting of the shareholders at any time.
Section 1.3 NOTICE OF SHAREHOLDERS' MEETINGS. Unless otherwise provided
by the laws of the United States or by the Articles of Association, a notice of
the time, place and purpose of every regular meeting, and every special meeting
of the shareholders, shall be given by first-class mail, postage prepaid, mailed
at least ten (ten) days prior to the date of such meeting to each shareholder of
record at his or her address as shown on the books of the Association.
Section 1.4 PROXIES. Shareholders may vote at any meeting of the
shareholders by proxies duly authorized in writing, but no officer or employee
of this Association shall act as proxy. Proxies shall be valid only for one
meeting, to be specified therein, and any adjournments of such meeting. Proxies
shall be dated and shall be filed with the records of the meeting.
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<PAGE>
Section 1.5 VOTING. In deciding on questions at meetings of
shareholders, except in the election of directors, each shareholder shall be
entitled to one vote for each share of stock held. A majority of votes cast
shall decide each matter submitted to the shareholders at the meeting, except in
cases where by law a larger vote is required. In all elections of directors,
each shareholder shall have the right to vote the number of shares owned by such
shareholder for as many persons as there are directors to be elected, or to
accumulate such shares and give one candidate as many votes as the number of
directors multiplied by the number of his shares shall equal, or to distribute
them on the same principal among as many candidates as he shall deem
appropriate.
Section 1.6 QUORUM. A majority of the outstanding capital stock,
represented in person or by proxy, shall constitute a quorum at any meeting of
shareholders, unless otherwise provided by law. The shareholders present or
represented by proxy at a duly called or held meeting at which a quorum is
present may continue to do business until adjournment, notwithstanding the
withdrawal of enough shareholders to leave less than a quorum, if any action
taken (other than adjournment) is approved by at least a majority of the shares
required to constitute a quorum, unless otherwise provided by law. Any meeting
of shareholders, whether or note a quorum is present, maybe adjourned from time
to time by the vote of a majority of the shareholders present or represented by
proxy, and the meeting maybe held, as adjourned, without further notice.
Section 1.7 JUDGES OF ELECTION. Every election of directors shall be
managed by three (3) judges, who shall be appointed from among the shareholders
by the Board of Directors. The judges of election shall hold and conduct the
election at which they are appointed to serve; and, after the election, they
shall file with the Cashier or Secretary a certificate under their hands,
certifying the result thereof and the names of the directors elected. The judges
of election, at the request of the Chairman of the meeting, shall act as tellers
of any other vote by ballot taken at such meeting, and shall certify the result
thereof.
Section 1.8 NOMINATIONS FOR DIRECTORS. Nominations for election to the
Board of Directors may be made by the Board of Directors or by any stockholder
of any outstanding class of capital stock of the Association entitled to vote
for the election of directors. Nominations, other than those made by or on
behalf of the existing management of this Association, shall be made in writing
and shall be delivered or mailed to the President of the Association and to the
Comptroller of the Currency, Washington, D.C., not less than fourteen (14) days
nor more than fifty (50) days prior to any meeting of stock holders called for
the election of directors; provided, however, that if less than twenty-one (21)
days' notice of the meeting is given to shareholder, such nomination shall be
mailed
2
<PAGE>
or delivered to the President of this Association and to the Comptroller of the
Currency not later than the close of business on the seventh (7th) day following
the day on which the notice of meeting was mailed. 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 total number of shares of
capital stock of the Association beneficially owned by each proposed nominee;
(d) the name and residence address of the notifying shareholder; and (e) the
number of shares of capital stock of the Association owned by the notifying
shareholder. Nominations not made in accordance herewith may, in his discretion,
be disregarded by the Chairman of the Meeting, and upon his instructions, the
vote tellers may disregard all votes cast for each such nominee.
Article II
DIRECTORS
Section 2.1 POWERS. The Board of Directors shall have the power to
manage and administer the business and affairs of this Association. Except as
limited by the laws of the United States, all corporate powers of the
Association shall be vested in and may be exercised by the Board of Directors.
Section 2.2 NUMBER. The Board of Directors shall consist of not less
than five (5) nor more than twenty-five (25)shareholders, the exact number
within such minimum and maximum limits to be fixed and determined from time to
time by resolution of a majority of the full Board or by resolution of the
shareholders at any meeting thereof; Provided, however, that a majority of the
full Board of Directors may not increase the number of directors to a number
which (i) exceeds by more than two (2) the number of directors last elected by
shareholders where such number was fifteen (15) or less or (ii) exceeds by more
than four (4) them number of directors last elected by shareholders where such
number was sixteen (16) or more, but in no event shall the number of directors
exceed twenty-five (25).
Section 2.3 TERM. The directors of this Association shall hold office
for one year and until their successors are elected and have qualified.
Section 2.4 OATH OF OFFICE. Each person elected or appointed a director
of this Association must take the oath of such office in the form prescribed by
the Comptroller of the Currency. No person elected or appointed a director of
this Association shall exercise the functions of such office until he or she has
taken such oath and the same has been transmitted to the Comptroller of the
Currency.
Section 2.5 VACANCIES. Any vacancies occurring in the Board of
Directors shall be filled, in accordance with the laws
3
<PAGE>
of the United States, by appointment by the remaining directors then in office,
at any regular meeting of the Board, or at a special meeting called for that
purpose, and any directors so appointed shall hold office until their successors
are elected and qualified.
Section 2.6 CHAIRMAN OF THE BOARD. The Board of Directors shall appoint
one of its members to be Chairman of the Board to serve at the pleasure of the
Board. The Chairman of the Board shall preside at all meetings of the Board of
Directors and shareholder, and shall also perform such other duties as may be
assigned, from time to time, by the Board of Directors.
Section 2.7 VICE CHAIRMAN of the Board. The Board of Directors may
appoint one of its members to be Vice Chairman of the Board to serve at the
pleasure of the Board. In the absence of the Chairman of the Board, the Vice
Chairman shall perform the duties of the Chairman, and shall also perform such
other duties as may be assigned, from time to time, by the Board of Directors.
Section 2.8 ORGANIZATION MEETING. Following the annual meeting of the
shareholders, the Chairman or the Secretary of the meeting shall notify promptly
the Directors-Elect of their election and of the time and place (within the
limits of Six Rivers) at which they are required to meet for the purpose of
taking their oaths, organizing the new Board, appointing committees of the Board
and appointing officers, fixing salaries for the ensuing year, and transacting
such other business as properly may come before the meeting.
Section 2.9 REGULAR MEETING. The regular meeting of the Board of
Directors shall be held, without notice, on the third Thursday of each month at
3:00 p.m., at the Main Office or such other location designated by the Board of
Directors. When any regular meeting of the Board falls on a holiday, the meeting
shall be held on the next business day unless the Board shall designate some
other day.
Section 2.10 SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by the Chairman of the Board, the President, or at the
request of three (3) or more directors. Written notice of the time and place of
special meetings shall be delivered personally to each director or communicated
to each director by telephone, or by telegraph or mail, charges prepaid,
addressed to such director at his or her address as it is shown upon the records
of the Association or, if it is not shown on such records or if not readily
ascertainable, at the place at which the meetings of the directors are regularly
held. In case such notice is mailed or telegraphed, it shall be deposited in the
United States mail or delivered to the telegraph company in the place in which
the Main Office of the Association is located at least seventy-two (72) hours
prior to the time of the holding of the meeting. In case such notice is
delivered personally or by telephone, as above provided, it shall be so
delivered at least twenty-four (24) hours prior to the time of the holding of
the meeting. Such mailing, telegraphing or delivery, personally
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<PAGE>
or by telephone, as above provided, shall constitute due, legal and personal
notice to such director. Any notice shall state the date, place and hour of the
meeting and the general nature of the business to be transferred.
Section 2.11 QUORUM. A majority of the authorized number of Directors
shall be necessary to constitute a quorum for the transaction of business at any
Director's meeting. If, at the time fixed for the meeting, including the meeting
to organize the new Board following the Annual Meeting of Shareholders, a quorum
is not present, the directors in attendance may adjourn the meeting from time to
time until a quorum is obtained.
Section 2.12 VOTING. Except as otherwise provided herein, a majority of
those directors present and voting at any meeting of the Board of Directors,
shall decide each matter considered. A director cannot vote by proxy, or
otherwise act by proxy at a meeting of the Board of Directors or at a meeting of
a committee of the Board of Directors established pursuant to Article IV of
these Bylaws.
Section 2.13 WAIVERS. The transactions of any meeting of the Board of
Directors, however called and noticed or wherever held, shall be as valid as
though had at a meeting duly held after regular call and notice, if a quorum is
present and if, either before or after the meeting, each of the directors note
present or whom, though present, has prior to the meeting or at its
commencement, protested the lack of proper notice to him, signs a written waiver
of notice or a consent to holding such 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. In addition,
attendance of a director at any meeting shall constitute a waiver of notice of
such meeting, unless a director attends for the express purpose of objecting to
the transaction of any business because the meeting is not lawfully called,
noticed, or convened; provided, however, if after stating his objection, the
objecting director continues to attend and by his attention participates in any
matters other than those to which he objected, he shall be deemed to have waived
notice of such meeting and withdrawn his objections.
ARTICLE III
OFFICERS AND EMPLOYEES
Section 3.1 OFFICERS. The officers of this Association shall be the
President, one or more Vice Presidents, a Cashier, a Secretary and such other
officers as may be appointed by the Board of Directors. The President shall be a
member of the Board of Directors.
Section 3.2 TENURE. The President and all other officers shall hold
office for the current year for which the
5
<PAGE>
Board was elected, unless they shall resign, become disqualified, or be removed;
and any vacancy occurring in the Office of President shall be filled promptly by
the Board of Directors.
Section 3.3 FIDELITY BOND. Each officer and employee of the Association
shall give bond of suitable amount with security to be approved by the Board of
Directors, conditioned for the honest and faithful discharge of his or her
duties as such officer or employee. At the discretion of the Board, such bonds
may be schedule or blanket form, and the premiums shall be paid by the
Association. The amount of such bonds, the form of coverage, and the name of the
company providing the surety therefor shall be reviewed by the Board of
Directors each year at the first regular meeting of the Board following the
Organizational Meeting of the new Board. Action shall be taken by the Board at
that time approving the amount of the bond to be provided by each officer and
employee of the Association for the ensuing year.
Section 3.4 PRESIDENT. The Board of Directors shall appoint one of its
members to be President of the Association. In the absence of the Chairman and
Vice Chairman, the President shall preside at all meetings of the shareholders
and the Board of Directors. The President shall have general executive powers,
and shall have and may exercise any and all other powers and duties pertaining
by law regulation, or practice, to the Office of President, or imposed by these
Bylaws. The President shall also have and may exercise such further powers and
duties as from time to time may be conferred or assigned by the Board of
Directors.
Section 3.5 VICE PRESIDENT. The Board of Directors shall appoint one or
more Vice Presidents who shall have such powers and duties as may be assigned to
them, from time to time, by the Board of Directors. In the absence of the
President of the Association, one Vice President shall be designated by the
Board of Directors to perform the duties of the President.
Section 3.6 CASHIER. The Cashier of this Association shall be
responsible for all assets and documents of this Association and shall keep
proper records of all the transactions of the Association, except as otherwise
herein provided. The Cashier shall have and may exercise any and all other
powers and duties pertaining by law, regulation or practice to the Office of
Cashier or imposed by these Bylaws, and shall also perform such other duties as
may be assigned, from time to time, by the Board of Directors.
Section 3.7 SECRETARY. The Board of Directors shall appoint a Corporate
Secretary who shall be the Secretary of the Board and of the Association and who
shall act as Secretary of all meetings of the Board and of the Shareholders. The
Secretary shall attend to the giving of all notices required by these Bylaws to
be given. He shall be responsible for the Minutes of the Association in which he
shall maintain and preserve the
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organization papers of the Association, the Articles of Association, the returns
of elections, the Bylaws, the proceedings of regular and special meetings of the
Directors and shareholders of the Association and reports of the committees and
Board of Directors. He shall also perform such other duties as may be assigned,
from time to time, by the Board of Directors.
Section 3.8 OTHER OFFICERS. The Board of Directors may appoint one or
more Assistant Vice Presidents, one or more Assistant Secretaries, one or more
Assistant Cashier, one or more Managers and Assistant Managers of Branches and
such other officers and Attorneys-in-fact as from time to time may appear to the
Board of Directors to required or desirable to transact the business of the
Association. Such officers shall respectively exercise such powers and perform
such duties as pertain to their several offices, or as may be conferred or
assigned by the Board of Directors or the President.
ARTICLES IV
COMMITTEES
Section 4.1 INVESTMENT COMMITTEE. There shall be an Investment
Committee composed of three (3) or more directors, one of who shall serve as
chairman, appointed by the Board annually or more often. The Investment
Committee shall review, on a regular basis, the internal financial reports of
the Association and shall provide policy guidance to the Association's internal
investment committee. The Investment Committee shall have the responsibility to
examine and approve internal financial reports, to exercise authority regarding
investment policy, and to see that the policies prescribed by the Board in these
two areas are carried out. The Committee shall keep minutes of its meetings, and
such minutes shall be submitted at the next regular meeting of the Board at
which a quorum is present, and any action taken with respect thereto shall be
entered in the minutes of the Board meeting.
Section 4.2 LOAN COMMITTEE. There shall be a Loan Committee composed of
three (3) or more directors, one of whom shall serve as chairman, appointed by
the Board annually or more often. The Loan Committee shall have the power to
examine and approve loans, to exercise authority regarding loans, and to see
that loan policies prescribed by the Board are carried out. The Committee shall
keep minutes of its meetings and such minutes shall be submitted at the next
regular meeting of the Board at which a quorum is present, and any action taken
by the Board with respect thereto shall be entered in the minutes of the Board
meeting.
Section 4.3 AUDIT COMMITTEE. There shall be a standing committee of
this Association known as the Audit Committee, appointed annually by the Board
of Directors. Each member of this Committee shall serve until his or her
successor
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is appointed, and the Committee shall consist of three (3) or more directors,
one of whom shall serve as chairman. None of the members of the Audit Committee
shall be active officers of the Association. The duties of this Committee shall
be to make an examination at least once during each calendar year and within
fifteen (15) months of the last such examination into the affairs of the
Association or cause suitable examinations to be made by auditors responsible
only to the Board of Directors and to report the result of such examination in
writing to the Board at the next regular meeting thereafter. Such report shall
state whether the Association is in a sound condition, whether adequate internal
controls and procedures are being maintained and shall recommend to the Board
such changes in the manner of conducting the affairs of the Association as shall
be deemed advisable.
Section 4.4 OTHER COMMITTEES. The Board of Directors may appoint, from
time to time, other special committees, for such purposes and with such powers
as the Board may determine.
ARTICLE V
CORPORATE SEAL
The President, the Cashier, the Secretary or any Assistant Cashier or
Assistant Secretary, or other officer thereunto designated by the Board of
Directors, shall have authority to affix the corporate seal to any document
requiring such seal, and to attest the same. Such seal shall be substantially in
the following form:
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ARTICLE VI
STOCK AND STOCK CERTIFICATES
Section 6.1 TRANSFERS. The stock of this Association shall be
transferable only on the books of this Association. A stock certificate book
shall be maintained in which all transfers of stock shall be made. When the
stock is transferred, the certificate thereof shall be returned to the
Association and new certificates issued. The returned certificates shall be
cancelled and be preserved for record purposes. Every person becoming a
shareholder by transfer shall, in proportion to his or her shares, succeed to
all rights of the prior holder of such shares.
Section 6.2 TRANSFER AGENT AND REGISTRAR. A majority of the Board of
Directors at any meeting of the Board may designate a duly qualified bank, trust
company or other corporation to act as its Stock Transfer Agent and Registrar to
maintain the stock transfer book, record all assignments and transfers of stock
and otherwise maintain and preserve stock records of the Association.
Section 6.3 STOCK CERTIFICATES. A certificate of stock shall bear the
signature of the President (which may be engraved, printed or impressed), and
shall be signed manually or by facsimile process by the Cashier, Assistant
Cashier, Secretary, Assistant Secretary, or any other officer appointed by the
Board of Directors for that purpose, to be known as an Authorized Officer, and
the seal of the Association shall be engraved thereon. Each certificate of stock
shall state upon the face thereof that the stock represented thereby is
transferable only upon the books of the Association properly endorsed.
Section 6.4 LOST CERTIFICATES. Except as hereinafter provided in this
section, no new certificates for shares shall be issued in lieu of an old one
unless the latter is surrendered and cancelled at the same time. The Board of
Directors or such officers of the Association as may be designated from time to
time by the Board of Directors, may, however, in case any certificate for shares
is lost, stolen, mutilated or destroyed, authorize the issuance of a new
certificate in lieu thereof, upon such terms and conditions, including
reasonable indemnification of the Association, as the Board or such officers
shall determine.
ARTICLE VII
MISCELLANEOUS PROVISIONS
Section 7.1 FISCAL YEAR. The fiscal year of the Association shall be
the calendar year.
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Section 7.2 EXECUTION OF INSTRUMENTS. The Board of Directors, except as
otherwise provided in these Bylaws, may authorize any directors, officer(s), or
agent(s), to enter into any contract or execute any instrument in the name of
and on behalf of the Association, and such authority may be general or confined
to specific instances; and, unless so authorized or ratified by the Board of
Directors or within the agency power of an officer, no director, officer, agent
or employee shall have any power or authority to bind the Association, by any
contract or engagement or to pledge its credit or to render it liable for any
purpose or to any amount. However, any contract or other instrument in writing
executed or entered into between the Association and any other person, when
signed by 1) the Chairman of the Board, the President or any Vice President, and
2) the Secretary, any Assistant Secretary, the Cashier or any Assistant Cashier,
is not invalid as to the Association by any lack of authority of the signing
officers in the absence of actual knowledge on the part of the other person that
the signing officers had no authority to execute such contract or other
instrument.
Section 7.3 RECORDS. The Articles of Association, the Bylaws and the
proceedings of all meeting of the shareholder, the Board of Directors, and
standing committees of the Board shall be recorded in appropriate minutes
provided for that purpose. The minutes of each meeting of the Board of Directors
and of the shareholders of the Association shall be signed by the Chairman of
the Board or such other person designated Chairman of the meeting and attested
by the Secretary or such other person designated as Secretary of the meeting.
ARTICLE VIII
BYLAWS
Section 8.1 INSPECTION. A copy of the Bylaws, with all amendments
thereto, shall at all times be kept in a convenient place at the Main Office of
the Association, and shall be open for inspection to all shareholders, during
banking hours.
Section 8.2 AMENDMENTS. These Bylaws may be amended, altered or
repealed, at any meeting of the Board of Directors, duly called, by a vote of a
majority of the total number of the Directors.
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CERTIFICATE OF SECRETARY
I, Dorothy A. Linville, CERTIFY that: (1) I am the duly constituted
Secretary of SIX RIVERS NATIONAL BANK and Secretary of its Board of Directors,
and as such officer am the official custodian of its records; (2) the foregoing
Bylaws are the Bylaws of said Bank, and all of them are now lawfully in force
and effect.
IN TESTIMONY WHEREOF, I have hereunto affixed my official signature and
the seal of the said Bank, in the City of Eureka, on this 6th day of March,
1989.
/s/ Dorothy A. Linville
-----------------------------------
Dorothy A. Linville
Secretary
(seal)
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SIX RIVERS NATIONAL BANK
Resolution Amending Bylaws
Adopted March 21, 1994
WHEREAS, Section 1.1 of the Bank's Bylaws provides that the Annual Meeting of
Shareholders be held each year on a date and at a time designed by the Board of
Directors;
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SIX RIVERS NATIONAL BANK
RESOLUTIONS AMENDING BYLAWS
WHEREAS, the first sentence of Article 1, Section 1.1 of the Bank's Bylaws
currently provides that the regular annual meeting of the shareholders shall be
held at 6:00 p.m. on the third Monday of June of each year;
BE IT HEREBY RESOLVED, that Article 1, Section 1.1 of the Bank's Bylaws be, and
it hereby is, amended to read in full as follows:
"Section 1.1 ANNUAL MEETING. The regular annual meeting of the shareholders of
this Association, for the election of directors and for the transaction of such
other business as may properly come before the meeting, shall be held each year
at the Association's Main Office in Eureka, California, or any other convenient
place duly authorized by the Board of Directors, on a date and at a time
designated by the Board of Directors. The date so designated shall be within
fifteen (15) months of the last Annual Meeting. If for any cause, an election of
directors is not made on said day, the Board of Directors shall order the
election to be held on some subsequent day, as soon thereafter as practicable,
according to the provisions of law. In the absence of the Chairman of the Board
or the Secretary of the Association, the holders of a majority of the
outstanding shares entitled to vote, and represented at any meeting of the
shareholders, may choose persons to act as Chairman and as Secretary of the
meeting. Unless waived by a majority of the shareholders entitled to vote, the
President of the Association shall then make a report to the shareholders
regarding the condition of the Association and shall review the business of the
preceding year."
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AMENDMENT TO BYLAWS
FEBRUARY 15, 1990
Section 1.1 Annual Meeting. The regular annual meeting of the
shareholders of this Association, for the election of directors and for the
transaction of such other business as may properly come before the meeting,
shall be held at its Main Office in Eureka, California, or any other convenient
place duly authorized by the Board of Directors, at 6:00 o'clock p.m. on the
second Monday of April of each year in accordance with the provisions of its
Articles of Association and the laws of the United States. If for any cause, an
election of directors is note made on said day, the Board of Directors shall
order the election practicable, according to the provisions of law. In the
absence of the Chairman of the Board or the Secretary of the Association, the
holders of a majority of the outstanding shares entitled to vote, and
represented at any meeting of the shareholders, may choose persons to act as
Chairman and as Secretary of the meeting. Unless waived by a majority of the
shareholders entitled to vote, the President of the Association shall then make
a report to the shareholders regarding the condition of the Association and
shall review the business of the preceding year.
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EXHIBIT 10.1
SIX RIVERS NATIONAL BANK
1989 STOCK OPTION PLAN
ADOPTED JUNE 15, 1989
AMENDED MARCH 18, 1997
1. PURPOSE. The purpose of the 1989 Stock Option Plan, as amended
(the "Plan"), is to strengthen SIX RIVERS NATIONAL BANK (the "Bank") and those
corporations which are or hereafter become subsidiary corporations of the Bank,
within the meaning of Section 424(f) of the Internal Revenue Code of 1986, as
amended (the "Code"), by providing to participating employees and directors
added incentive for high levels of performance and for unusual efforts to
increase the earnings of the Bank and its subsidiary corporations. The Plan
seeks to accomplish these purposes and results by providing a means whereby such
employees and directors may purchase shares of the common stock of the Bank
pursuant to (a) options granted pursuant to the Incentive Stock Option Plan (the
"Incentive Plan")(Division A hereof) which will qualify as incentive stock
options under Section 422of the Code ("Incentive Options"), or (b) options
granted pursuant to the Non-Qualified Stock Option Plan (the "Non-Qualified
Plan") (Division B hereof) which are intended to be non-qualified stock options
described in Treas. Reg. ss. 1.83 -7 to which Section 421 of the Code does not
apply ("Non-Qualified Options"). (Hereinafter, the term "Options" shall
collectively refer to incentive Options and Non-Qualified Options.)
2. ADMINISTRATION. This Plan shall be administered by the Board of
Directors of the Bank (the "Board of Directors"). Any action of the Board of
Directors with respect to administration of the Plan shall be taken pursuant to
a majority vote of its members; provided, however, that with respect to action
taken by the Board of Directors in granting an Option to an individual director,
such action must be authorized by the required number of directors without
counting the
EXHIBIT "A"
<PAGE>
interested director, who shall abstain as to any vote on his Option. An
interested director may be counted in determining the presence of a quorum at a
meeting of the Board of Directors where such action will be taken.
The Board of Directors may, in its sole discretion, from time to
time, establish a Stock Option Committee composed of not less than three (3)
persons who must be directors of the Bank and, by appropriate resolution,
delegate to the Stock Option Committee such power and authority over the
administration of the Plan as the Board of Directors deems appropriate. Nothing
contained herein shall prevent the Board of Directors from delegating to the
Stock Option Committee full power and authority over the administration of the
Plan.
Subject to the express provisions of the Plan, the Board of
Directors (or the Stock Option Committee, if authorized) shall have the
authority to construe and interpret the Plan, and to define the terms used
therein, to prescribe, amend, and rescind rules and regulations relating to
administration of the Plan, to determine the duration and purposes of leaves of
absence which may be granted to participants without constituting a termination
of their employment for purposes of the Plan, and to make all other
determinations necessary or advisable for administration of the Plan.
Determinations of the Board of Directors (or the Stock Option Committee, if
authorized) on matters referred to in this section shall be final and
conclusive.
3. PARTICIPATION. All full-time salaried employees of the Bank and
its subsidiary corporations shall be eligible for selection to receive both
incentive and Non-Qualified Options. Directors of the Bank and its subsidiary
corporations who are not also full-time salaried officers or employees of the
Bank or a subsidiary corporation shall be eligible to receive only Non-Qualified
Options under the Plan. Subject to the express provisions of the Plan, the Board
of Directors (or the Stock Option Committee, if authorized) shall select from
the eligible class and determine
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the individuals who shall receive Options, whether such Options shall be
Incentive or Non-Qualified Options, and the terms and provisions of the Options,
and shall grant such Options to such individuals. An individual who has been
granted an Option (an "Optionee") may, if such individual is otherwise eligible,
be granted additional Options if the Board of Directors (or the Stock Option
Committee, if authorized) shall so determine.
4. STOCK SUBJECT TO THE PLAN. Subject to adjustment as provided in
Section 13 hereof, the stock to be offered under the Plan shall be shares of the
Bank's authorized but unissued common stock, par value five dollars ($5.00) per
share (hereinafter called "stock"), and the aggregate amount of stock to be
delivered upon exercise of all Options granted under the Plan, whether Incentive
or Non-Qualified Options, shall not exceed One Hundred Sixty-Nine Thousand Four
Hundred Fifty-Two (169,452) shares (thirty percent (30%) of the number of shares
of the Bank's stock issued and outstanding on March 18, 1997). Two-thirds of
such shares shall be reserved exclusively for the grant of Options to fun-time
salaried officers and employees of the Bank. The remaining one-third of such
shares may be granted to anyone eligible to participate in the Plan, including
directors, officers and employees. If any Option shall expire for any reason
without having been exercised in full, the unpurchased shares subject thereto
shall again be available for purposes of the Plan.
5. OPTION PRICE. The purchase price of stock subject to each Option
shall be determined by the Board of Directors (or the 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. As to any
incentive Option granted to an Optionee who, immediately before the Option is
granted, owns beneficially more than ten percent (10%) of the outstanding stock
of the Bank, the purchase price must be at least one hundred ten percent (110%)
of the fair market value of the stock at the time such Option is granted. The
fair market value of
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such stock shall be determined in accordance with any reasonable valuation
method, including the valuation methods described in Treas. Reg. ss. 20.2031-2.
The purchase price of any shares purchased shall be paid in full in cash at the
time of each such purchase.
6. OPTION PERIOD. Each Option and all rights or obligations there
under shall expire on such date as the Board of Directors (or the 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. As to any Incentive Option granted to an
Optionee who, immediately before the Option is granted, owns beneficially more
than ten percent (10%) of the outstanding stock of the Bank (whether acquired
upon exercise of Options or otherwise), such Option must not be exercisable by
its terms after five (5) years from the date of its grant.
7. CONTINUATION OF EMPLOYMENT. In the case of employees, nothing
contained in the Plan (or in any Option agreement) shall obligate the Bank or
its subsidiary corporations to employ any Optionee for any period or interfere
in any way with the right of the Bank or its subsidiary corporations to reduce
such Optionee's compensation.
8. EXERCISE OF OPTIONS. Each Option shall be exercisable in such
installments, which need not be equal, and upon such contingencies as the Board
of Directors (or the 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 such Optionee is entitled to purchase in such
installment period, such Optionee's right to purchase any shares not purchased
in such installment period shall continue until the expiration of such Option.
No Option or installment thereof shall be exercisable except in respect of whole
shares, and fractional share interests shall be disregarded except that they may
be accumulated in accordance
4
<PAGE>
with the next preceding sentence. Options may be exercised by ten (10) days
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. No fewer than ten (10) shares may be purchased at
one time unless the number purchased is the total number which may be purchased
under the Option.
9. NON-TRANSFERABILITY 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 such Optionee's lifetime only by
the Optionee.
10. CESSATION OF EMPLOYMENT; DISABILITY. Except as provided in
Sections 6 and 11 hereof, if an Optionee ceases to be employed by or to serve as
a director of the Bank or a subsidiary corporation for any reason other than
death or disability, such Optionee's Option shall expire not later than sixty
(60) days thereafter, and during such period after such Optionee ceases to be an
employee or director, such Option shall be exercisable only as to those shares
with respect to which installments, if any, had accrued as of the date on which
the Optionee ceased to be employed by or ceased to serve as a director of the
Bank or such subsidiary corporation. Except as provided in Sections 6 and 11
hereof, if an Optionee ceases to be employed by or ceases to serve as a director
of the Bank or a subsidiary corporation by reason of disability (within the
meaning of Section 22(e)(3) of the Code), such Optionee's Option shall expire
not later than one (1) year thereafter, and during such period after such
Optionee ceases to be an employee or director such Option shall be exercisable
only as to those shares with respect to which installments, if any, had accrued
as of the date on which the Optionee ceased to be employed by or ceased to serve
as a director of the Bank or such subsidiary corporation.
5
<PAGE>
11. TERMINATION OF EMPLOYMENT FOR CAUSE: REMOVAL OF DIRECTOR FOR
CAUSE.If an Optionee's employment by or service as a director of the Bank or a
subsidiary corporation is terminated for cause, such Optionee's option shall
expire immediately; provided, however, that the Board of Directors may, in its
sole discretion, within thirty (30) days of such termination, waive the
expiration of the Option by giving written notice of such waiver to the Optionee
at such Optionee's last known address. In the event of such waiver, the Optionee
may exercise the Option only to such extent, for such time, and upon such terms
and conditions as if such Optionee had ceased to be employed by or ceased to
serve as a director of the Bank or such subsidiary corporation upon the date of
such termination for a reason other than cause, disability, or death. In the
case of an employee, termination for cause shall include termination for
malfeasance or gross misfeasance in the performance of duties, conviction of
illegal activity in connection therewith, any conduct seriously detrimental to
the interests of the Bank or a subsidiary corporation, or removal pursuant to
the exercise of regulatory authority by the Comptroller of the Currency or other
bank supervisory agency; and in any event, the determination of the Board of
Directors with respect thereto shall be final and conclusive. In the case of a
director, termination for cause shall include removal pursuant to Sections 302
or 304 of the California Corporations Code or removal pursuant to the exercise
of regulatory authority by the Comptroller of the Currency or other bank
supervisory agency.
12. DEATH OF OPTIONEE. Except as provided in Section 6 hereof, if any
Optionee dies while employed by or serving as a director of the Bank or a
subsidiary corporation or during the sixty-day or one-year period referred to in
Section 10 hereof, such Optionee's Option shall expire one (1) year after the
date of such death. After such 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 shall have the right to exercise
such Option to the extent that installments, if any, had accrued as of the date
on which
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<PAGE>
the Optionee ceased to be employed by or ceased to serve as a director of the
Bank or such subsidiary corporation.
13. ADJUSTMENTS 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,
without receipt of consideration by the Bank, through reorganization, merger,
recapitalization, reclassification, stock split-up, stock dividend, stock
consolidation, or otherwise, an appropriate and proportionate adjustment shall
be made in the number and kind of shares as to which Options may be granted. A
corresponding adjustment changing the number or kind of shares and the exercise
price per share allocated to unexercised Options, or portions thereof, which
shall have been granted prior to any such change shall likewise be made. Any
such adjustment, however, in an outstanding Option shall be made without change
in the total price applicable to the unexercised portion of the Option but with
a corresponding adjustment in the price for each share subject to the Option.
Adjustments under this 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
under the Plan on account of any such adjustment.
14. TERMINATING EVENTS. Not less than thirty (30) days prior to
dissolution or liquidation of the Bank, or 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, or a sale of substantially all the
assets and property of the Bank to another person, or in the event of 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 (a "Terminating Event"), the Stock Option Committee or the
Board of Directors shall notify each Optionee of the pendency of the Terminating
Event. Upon delivery of said notice, any Option
7
<PAGE>
granted prior to the Terminating Event shall be, notwithstanding the provisions
of Section 8 hereof, exercisable in full and not only as to those shares with
respect to which installments, if any, have then accrued, subject, however, to
earlier expiration or termination as provided elsewhere in the Plan. Upon the
date thirty (30) days after delivery of said notice, any Option or portion
thereof not exercised shall terminate, and upon the effective date of the
Terminating Event, the Plan and any Options granted thereunder shall terminate,
unless provision is made in connection with the Terminating Event for assumption
of Options theretofore granted, or substitution for such Options of new Options
covering stock of a successor employer corporation, or a parent or subsidiary
corporation thereof, with appropriate adjustments as to number and kind of
shares and prices.
15. AMENDMENT AND TERMINATION BY BOARD OF DIRECTORS. The Board of
Directors may at any time suspend, amend, or terminate the Plan and may, with
the consent of an Optionee, make such modification of the terms and conditions
of such Optionee's Option as it shall deem advisable; provided that, except as
permitted under the provisions of Section 13 hereof, any amendment or
modification which would:
(a) increase the maximum number of shares which may be
purchased pursuant to Options granted under the Plan;
(b) change the minimum Option price;
(c) increase the maximum term of Options provided for herein;
or
(d) permit Options to be granted to anyone other than
directors or full-time salaried employees of the Bank or a subsidiary
corporation, shall be deemed adopted as of the date of the action of
the Board of Directors effecting such amendment or modification and
shall be effective immediately, unless otherwise provided therein,
subject to approval thereof within twelve (12) months before or after
the effective date by shareholders of the Bank holding not less than a
majority of the voting power of the Bank.
8
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Notwithstanding the above, the Board of Directors (or the Stock
Option Committee, if authorized) may grant to an Optionee, if such Optionee is
otherwise eligible, additional Options or, with the consent of the Optionee,
grant a new Option in lieu of an outstanding Option for a number of shares, at a
purchase price and for a term which in any respect is greater or less than that
of the earlier Option, subject to the limitations of Sections 5, 6 and A-2
hereof.
No Option may be granted during any suspension of the Plan or
after termination of the Plan. Amendment, suspension, or termination of the Plan
shall not, without the consent of the Optionee, alter or impair any rights or
obligations under any Option outstanding prior to such amendment, suspension or
termination of the Plan.
16. TIME OF GRANTING QPTIONS. 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 Stock Option Committee, if authorized) described in
the second paragraph of Section 2 hereof; provided, however, that if appropriate
resolutions of the Board of Directors (or the Stock Option Committee, if
authorized) indicate that an Option is to be granted as of and on some future
date, the time such Option is granted shall be such future date, the time such
Option is granted shall be such future date. If action by the Board of Directors
(or the Stock Option Committee, if authorized to take such action) is taken by
unanimous written consent of its members, the action of the Board of Directors
(or the Stock Option Committee) shall be deemed to be at the time the last Board
(or Stock Option Committee) member signs the consent.
17. PRIVILEGES OF STOCK OWNERSHIP; SECURITIES LAWS COMPLIANCE; NOTICE
OF SALE. No Optionee shall be entitled to the privileges of stock ownership as
to any shares of stock not actually issued and delivered. No shares shall be
issued upon
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<PAGE>
the exercise of any Option unless and until any then applicable requirements of
any regulatory agencies having jurisdiction, and of any exchanges upon which
stock of the Bank may be listed, shall have been fully complied with. The Bank
will diligently endeavor to comply with all applicable securities laws before
any Options are granted under the Plan and before any stock is issued pursuant
to Options. Specifically, the Bank intends to comply with the requirements of
SEC Rule 701, promulgated under the Securities Act of 1933, as amended (the
"1933 Act"), which provides an exemption from registration for stock option
grants and exercises under the Plan. However, the Bank has not registered the
securities reserved under the Plan (and has no present intention to do so), and
the subsequent resale by Optionees of shares issued upon the exercise of stock
options is therefore NOT exempt from registration under the 1933 Act.
Accordingly, prior to any resale of shares issued upon the exercise of options
under the Plan, Optionees must comply with the requirements of SEC Rule 144,
also promulgated under the 1933 Act. The Bank will endeavor to comply with the
"current public information" requirements thereof in order to facilitate
Optionees' compliance with Rule 144. In the event the Bank should ever register
the securities under the Plan, the Bank will so notify Optionees that they no
longer need comply with the requirements of Rule 144 upon resale of option
shares. In such event, the Optionee shall give the Bank notice of any sale or
other disposition of any such shares not more than five (5) days after such sale
or other disposition.
18. EFFECTIVE DATE OF THE PLAN. The effective date of the Plan is June
15,1989.
19. TERMINATION. Unless previously terminated by the Board of
Directors or as provided in Section 14 hereof, the Plan shall terminate at the
close of business on June 15, 1999, and no Options shall be granted under it
thereafter, but such termination shall not affect any Option theretofore
granted.
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20. 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, including whether the Option is an Incentive or Non-Qualified
Option, and such other terms and conditions as are deemed desirable and are not
inconsistent with the Plan.
21. EXCULPATION AND INDEMNIFICATION. The Bank shall indemnify and hold
harmless a member or members of the Board of Directors (or Stock Option
Committee), in any action brought against such member or members to the maximum
extent permitted by then applicable law and the Articles of Association and
Bylaws of the Bank and any amendments thereto.
DIVISION A
INCENTIVE STOCK OPTION PLAN
A-1. ELIGIBLE PERSONS. All full-time salaried officers and employees of
the Bank and its subsidiary corporations shall be eligible for selection to
participate in the Incentive Plan. Notwithstanding any other provisions of the
Plan to the contrary, no director of the Bank or a subsidiary corporation who is
not a full-time salaried employee of the Bank or a subsidiary corporation and no
member of the Stock Option Committee may be granted Options under the Incentive
Plan.
A-2. LIMIT ON EXERCISABILITY OF OPTIONS. The aggregate fair market
value (determined as of the time the Option is granted) of the stock for which
any full-time salaried officer or employee may be granted incentive Options
which are FIRST EXERCISABLE during any one calendar year (under all Incentive
Stock Option Plans of such employee's employer corporation and its parent and
subsidiary corporations) shall not exceed One Hundred Thousand Dollars
($100,000).
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A-3. INCORPORATION BY REFERENCE. The provisions of Sections 5, 6, 9, 10
and 15 of the Plan are hereby incorporated by this reference into this Incentive
Stock Option Plan.
A-4. INTERPRETATION OF PLAN. Options granted pursuant to the Incentive
Plan are intended to be "incentive stock Options" within the meaning of Section
422 of the Code, and the Incentive Plan shall be construed to implement that
intent. If all or any part of an Incentive Option shall not be deemed an
"incentive stock Option" within the meaning of Section 422 of the Code, said
Option shall nevertheless be valid and carried into effect.
DIVISION B
NON-QUALIFIED STOCK OPTION PLAN
B-1. ELIGIBLE PERSONS. All employees and all directors of the Bank and
its subsidiary corporations, except members of the Stock Option Committee, shall
be eligible for selection to participate in the Non-Qualified Plan.
B-2. INTERPRETATION OF PLAN. Options granted pursuant to the
Non-Qualified Plan are intended to be non-qualified stock Options described in
Treas. Reg. ss. 1.83-7 to which Section 421 of the Code does not apply, and the
Non-Qualified Plan shall be construed to implement that intent.
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EXHIBIT 10.2
INDEMNIFICATION AGREEMENT
This Indemnification Agreement is entered into this 23rd day of JUNE,
1992, by and between SIX RIVERS NATIONAL BANK, a national banking association
(the "Bank"), and JOHN F. BURGER (the "Indemnitee").
WITNESSETH:
WHEREAS, the Board of Directors of the Bank has determined, after due
consideration and investigation of this Agreement and various other options
available in lieu hereof, that the following Agreement is reasonable, prudent
and necessary to promote and ensure the best interests of the Bank and its
shareholders; and
WHEREAS, this Agreement is intended to: (1) induce and encourage highly
experienced and capable persons such as the Indemnitee to serve as executive
officers and/ or directors of the Bank: (2) encourage such persons to resist
unjustifiable lawsuits and claims made against them in connection with the good
faith performance of their duties to the Back, secure in the knowledge that
certain expenses, costs and liabilities as such persons will receive the maximum
protection against such risks and liabilities as legally may be available to
them; and (3) encourage executive officers and directors to undue concern for
the risk that claims may be made against them on account of their position with
the Bank; and
WHEREAS, the Indemnitee is an executive officer and/ or director of the
Bank, and the Bank desires to have the Indemnitee continue to serve the Bank as
an executive officer and / or director free from concern for unpredictable,
inappropriate, or unreasonable legal risk and personal liability by reason of
his acting in good faith in the performance of his duty to the Bank and the
Indemnitee desires to continue to serve as an executive officer and/ or director
of the Bank and be furnished with the indemnity set forth herein;
NOW; THEREFORE. In consideration of the mutual covenants set forth
herein, and intending to be legally bound, the parties hereto agree as follows:
1. DEFINITIONS. For the purposes of this Agreement, the following
definitions apply:
(a) The term "Agent" shall mean any person who is or was acting
in his capacity as a director or officer of the Bank or is or was serving as a
director, officer, employee or agent of any other enterprise at the request of
the Bank, whether or not he is serving in any such capacity at the time any
liability or expense is incurred for which indemnification or reimbursement can
be provided under this Agreement.
<PAGE>
(b) The term "Applicable Standard" shall mean that a person
acted in good faith in a manner such person reasonable believed to be in the
best interests of the Bank; except that in a criminal proceeding, such person
must also have had no reasonable cause to believe that such person's conduct was
unlawful. The termination of any Proceeding by judgment, order, settlement,
conviction or upon a plea of nolo contendere or its equivalent shall not, of
itself, create any presumption, or establish, that the person did not meet the
"Applicable Standard."
(c) The term "Expenses" shall include all direct and indirect
costs (including, without limitation, attorneys' fees, retainers, court costs,
transcripts, fees of telephone charges, postage, delivery service fees, all
other disbursements and out-of-pocket expenses and reasonable compensation for
time spent by the Indemnitee for which he is otherwise not compensated by the
Bank or any third party) actually and reasonable incurred by or on behalf of the
Indemnitee in connection with either the investigation, defense, settlement or
appeal of a Proceeding or the establishment or enforcement of a right to
indemnification under this Agreement, applicable law or otherwise. "Expenses"
shall not include the amount of any judgment, fines or penalties actually levied
against the Indemnitee or amounts paid in settlement of a Proceeding by or on
behalf of the Indemnitee.
(d) The term "Independent Legal Counsel" shall mean a law firm
or member of a law firm that neither is presently nor in the past five (5) years
has been retained to represent: (i) the Bank or the Indemnitee in any matter
material to either party, or (ii) any other party to the Proceeding giving rise
to a claim for indemnification hereunder. Notwithstanding the foregoing, the
term "Independent Legal Counsel" shall not include any person who, under the
applicable standards of professional conduct then prevailing, would have a
conflict of interest in representing either the Bank or the Indemnitee in any
action to determine the Indemnitee's right to indemnification under this
Agreement.
(e) The term "Liabilities" shall mean all liabilities of any
nature whatsoever, including, but not limited to, judgments, fines, penalties
and amounts paid in settlement.
(f) The term "Proceeding" shall include any threatened, pending
or completed action, suit, arbitration, alternative dispute resolution
mechanism, investigation, administrative hearing or other proceeding, whether
brought in the name of the Bank or otherwise and whether of a civil, criminal,
administrative or investigative nature, in which Indemnitee may be or may have
been involved as a party or otherwise (other than as plaintiff against the
Bank), by reason of the fact that Indemnitee is or was an Agent of the Bank or
by reason of any action taken by him or of any inaction on his part while acting
as such Agent.
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<PAGE>
2. SERVICES OF INDEMNITEE. In consideration of the protection afforded
by this Agreement, Indemnitee agrees to serve at least for the balance of his
current term and his entire succeeding term, if any, as an officer and/ or
director of the Bank, as the case may be, and not to resign voluntarily during
such period(s) without the written consent of a majority of the Board of
Directors. Following the applicable period(s) set forth above, Indemnitee agrees
to serve or continue to serve or continue to serve in such capacity to the best
of his abilities at the will of the Bank, for so long as Indemnitee is duly
elected or appointed and qualified or until such time as he tenders his
resignation in writing.
3. INDEMNITY IN THIRD PARTY PROCEEDINGS. The Bank shall indemnify the
Indemnitee, to the fullest extent permitted by applicable law in effect on the
date hereof or as such law may from time to time be amended (but, in the case of
any such amendment, only to the extent such amendment permits the Bank to
provide before such amendment), if the Indemnitee is made a party to or
threatened to be made a party to, or is otherwise involved in, and Proceeding
(other than a Proceeding, which is an action by or in the right of the Bank to
procure a judgment in its favor) by reason of the fact that Indemnitee is or was
an Agent of the Bank. Subject to the provisions of Paragraph 10 hereof, this
indemnity shall apply against all Expenses of Liabilities, so long as it is
determined pursuant to Paragraph 7 of this Agreement or by the court before
which such action was brought, that the Indemnitee met the Applicable Standard.
4. INDEMNITY IN PROCEEDINGS BY OR IN THE NAME OF THE BANK. The Bank
shall indemnify the Indemnitee, to the fullest extent permitted by applicable
law in effect on the date hereof or as such law may from time to time be amended
(but, in the case of any such amendment, only to the extent such amendment
permits the Bank to provide broader indemnification rights than the law
permitted the Bank to provide before such amendment), if the Indemnitee is made
a party to, or threatened to be made a party to, or is otherwise involved in,
and Proceeding which is an action by or in the right of or was on Agent of the
Bank to procure a judgment in its favor by reason of the fact that the
Indemnitee is or was an Agent of the Bank. Subject to the provisions of
Paragraph 10 hereof, this indemnity shall apply against all Expenses, but only
if: (a) it is determined pursuant to Paragraph 7 of this Agreement or by the
court before which such action was brought that the Indemnitee met the
Applicable Standard; (b) the Indemnitee also acted in a manned he believed to be
in the best interests of the Bank's shareholders; and (c) the action is not
settled or otherwise disposed of without court approval. No indemnification
shall be made under this Paragraph 4 in respect of any claim, issue or matter as
to which such proceeding is or was pending shall determine upon application
that, in view of all the circumstances of the case, the Indemnitee is fairly and
reasonably entitled to indemnification for the expenses which such court shall
determine.
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<PAGE>
5. MANDATORY INDEMNIFICATION. Notwithstanding any other provision of
this Agreement with the exception of subparagraph 10(h) hereof, to the extent
that the Indemnitee has been successful on the merits in defense of any
Proceeding or in defense of any claim, issue or matter therein, including the
dismissal of an action or portion thereof without prejudice, the Indemnitee
shall be indemnified against all Expenses actually and reasonably incurred in
connection therewith.
6. ADVANCEMENT OF EXPENSES. The expenses incurred by the Indemnitee in
any Proceeding shall be advanced by the Bank prior to the final disposition of
such Proceeding, at the written request of the Indemnitee, subject to the
restrictions set forth in this Paragraph 6. If required by law at the time of
such advance, the Indemnitee shall undertake to repay such advances if a final
order is entered in any Proceeding assessing civil money penalties against the
Indemnitee, or requiring payments by the Indemnitee to the Bank, or it is
ultimately determined that the Indemnitee is not otherwise entitled to
indemnification. The Bank shall only make advances of Expenses to the Indemnitee
or continue paying Expenses on behalf of the Indemnitee, as the case may be, if
the Board of Directors of the Bank makes a determination, in good faith, that
all of the following conditions are met: (i) the Indemnitee has a substantial
likelihood of prevailing on the merits of the Proceeding; (ii) the Indemnitee
has the financial capability to reimburse the Bank, if necessary; and (iii)
payment of such Expenses by the Bank will not adversely affect the safety and
soundness of the Bank.
7. DEMAND OF INDEMNITEE FOR MANDATORY INDEMNIFICATION OR ADVANCE;
PROCEDURE FOR DETERMINING OTHER CLAIM OF INDEMNIFICATION. The Indemnitee shall
make a written demand on the Bank for any requested indemnification or advance
pursuant to Paragraph 5 or Paragraph 6 hereof, as the case may be. If the Bank
determine that such indemnification is permissible because such payment by the
Bank will not adversely affect the safety and soundness of the Bank or such
advance is permissible because the Board of Directors has determined that the
three conditions set forth in Paragraph 6 have been met, such payment shall be
made by the Bank to the Indemnitee no later than thirty (30) days after receipt
of such demand by the Indemnitee. With respect to indemnification which may be
made by the Bank pursuant to Paragraph 3 or 4 hereof, upon receipt of a written
claim made by the Indemnitee for such indemnification, the Bank shall make a
determination whether indemnification of the Indemnitee is proper under the
circumstances and terms of the Agreement by: (a) majority vote of a quorum of
the Board of Directors (or duly constituted committee thereof), consisting of
directors who are not parties to such Proceeding; (b) approval of the
shareholders (as defined in Section 153 of the California Corporations Code),
with the Indemnitee's shares not being entitled to vote thereon; (c) application
made to the court in which such Proceeding is or was pending by the Bank, the
Indemnitee or any person rendering services in connection with Indemnitee's
defense, whether or not the Bank opposes such application; or (d) to the extent
permitted by law, Independent Legal Counsel in a written opinion.
4
<PAGE>
8. RIGHTS AND REMEDIES OF INDEMNITEE. If a demand made by the
Indemnitee pursuant to Paragraph 5 or 6 hereof and in accordance with Paragraph
7 is not paid in full by the Bank within thirty (30) days after such demand has
been received by the Bank, or if a claim made by the Indemnitee pursuant to
Paragraph 3 or 4 hereof and in accordance with Paragraph 7 is not paid in full
by the Bank within ninety (90) days after such claim has been received by the
Bank, the Indemnitee shall be entitled to a final adjudication of his rights
under this Agreement and under applicable law in a appropriate court of the
State of California. The Bank shall not oppose the Indemnitee's right to seek
such adjudication. The burden of proving that indemnification or advances are
not appropriate shall be on the Bank. In the event a determination previously
has been made, in whole or in part, that the Indemnitee is not entitled to
indemnification, the decision in the judicial proceeding in which the Indemnitee
seeks a final adjudication of his rights shall be made de novo. It shall not be
a defense to an action or create presumption that the Indemnitee has not met the
Applicable Standard merely because (i) the Bank (including its Board of
Directors, Independent Legal Counsel or its shareholders) has not made a
determination prior to the commencement of such action that indemnification or
advances are proper in the circumstances because Indemnitee has met the
Applicable Standard, or (ii) an actual determination was made by the Bank
(including its Board of Directors or Independent Legal Counsel) that the
Indemnitee has not met such Applicable Standard. The Indemnitee's Expenses
incurred in connection with successfully establishing his right to
indemnification or advances, in whole or in part, in any such Proceeding shall
also be indemnified by the Bank; provided, however, that if Indemnitee is only
partially successful, only an equitably allocated portion of such Expenses shall
be indemnified.
If a determination previously has been made or deemed to have been
made pursuant to the terms of this Agreement that the Indemnitee is entitled to
indemnification, the Bank shall be bound by such determination in the absence of
(i) a misrepresentation of a material fact by the Indemnitee or (ii) a specific
finding (which has become final) be an appropriate court of the State of
California that all or any part of such indemnification is expressly prohibited
by law.
If the Indemnitee is entitled under any provision of this Agreement
to indemnification by the Bank for some or a portion of the Expenses or
Liabilities but not, however, for the total amount thereof, the Bank shall
nevertheless indemnify Indemnitee for the portion (determine on an equitable
basis) of such Expenses or Liabilities to which Indemnitee is entitled.
9. INDEMNIFICATION HEREUNDER NOT EXCLUSIVE. The indemnification
provided by this Agreement shall not be deemed exclusive of any other rights to
which the Indemnitee may be entitled under the Articles of Association or the
Bylaws of the Bank, any agreement, any vote of shareholders or disinterested
directors, the General Corporation Law of the State of California, or otherwise,
both as to action in his official capacity and as to action in another capacity
while holding such office. The indemnification under this Agreement shall
continue as to the Indemnitee even though
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<PAGE>
he may have ceased to be an officer and/or director, as the case may be, and
shall inure to the benefit of the heirs and personal representatives of the
Indemnitee.
10. LIMITATIONS. The Bank shall not be liable under this Agreement to
make any payment in connection with a claim made against the Indemnitee:
(a) for which payment is actually made to the Indemnitee under a
valid and collectable insurance policy, except in respect of any excess beyond
the amount of payment under such insurance;
(b) if any final order is entered in a Proceeding assessing civil
money penalties against the Indemnitee or requiring payments be made by the
Indemnitee to the Bank;
(c) for which the Indemnified by the Bank otherwise than pursuant
to this Agreement;
(d) for acts or omissions that involve intentional misconduct or
a knowing and culpable violation of law;
(e) for any transaction from which the Indemnitee derived an
improper personal benefit;
(f) for acts or omissions that show a reckless disregard for the
Indemnitee's duty to the Bank or its shareholders in circumstances in which the
Indemnitee was aware, or should have been aware, in the ordinary course of
performing his duties, of a serious injury to the Bank or its shareholders; or
(g) for acts or omissions that constitute an unexcused pattern of
inattention that amounts to an abdication of the Indemnitee's duty to the Bank
or its shareholders; or
(h) if payment by the Bank will adversely affect the safety and
soundness of the Bank.
11. SUBROGATION. In the event of any payment under this Agreement, the
Bank shall be subrogated to the extent of such payment to all the rights of
recovery of the Indemnitee, who shall execute all documents required and take
all action necessary to secure such rights, including execution of such
documents as are necessary to enable to the Bank to bring suit to enforce such
rights
12. NOTICE BY INDEMNITEE AND DEFENSE OF CLAIMS. The Indemnitee shall
promptly notify the Bank in writing upon being served with any summons,
citation, subpoena, complain, indictment, information, or other document
relating to any matter which may be subject to indemnification hereunder,
whether civil, criminal, administrative, or investigative; but the
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<PAGE>
omission so to notify the Bank shall not relieve the Bank from any liability
which it may have to the Indemnitee if such omission does not prejudice the
Bank's rights. If such failure does prejudice the Bank's rights, the Bank shall
be relieved from liability only to the extent of such prejudice. Such failure
shall not relieve the Bank from any liability which it may have to the
Indemnitee apart from this Agreement. With respect to any Proceeding as to which
the Indemnitee gives such notice to the Bank:
(a) The bank shall be entitled to participate therein at its own
expense.
(b) Except as otherwise provided below, the Bank shall be
entitles to assume the defense of the Indemnitee therein, with counsel
reasonable satisfactory to the Indemnitee. After notice from the Bank to the
Indemnitee of its election to assume the defense of the Indemnitee, the Bank
shall not be liable to the Indemnitee under this Agreement for any expenses
subsequently incurred by the Indemnitee in connection with the defense thereof
other than the Indemnitee's reasonable costs of investigation or as otherwise
provided below. The Indemnitee shall have the right to employ his counsel in
such Proceeding, but the fees and expenses of such counsel incurred after notice
from the Bank of its assumption of the Indemnitee's defense shall be at the
expense of the Indemnitee unless (i) the employment of counsel by the Indemnitee
has been authorized by the Bank, (ii) The Indemnitee shall have reasonably
concluded that there may be a conflict of interest between the Bank and the
Indemnitee in the conduct of the defense of such Proceeding or that counsel
retained by the Bank may not adequately represent the Indemnitee's interest, or
(iii) the Bank shall not in fact have employed counsel to assume the defense of
the Indemnitee in such Proceeding, in each of which cases the fees and expenses
of counsel shall be at the expense of the Bank. The Bank shall not be entitled
to assume the defense of the Indemnitee in any Proceeding as to which the
Indemnitee shall have reached the conclusion provided in (ii) above.
(c) The Bank shall not be liable to indemnify the Indemnitee
under this Agreement for any amounts paid by the Indemnitee in settlement of any
Proceeding effected without the Bank's written consent. The Bank shall not
settle any Proceeding in any manner which would impose any penalty or limitation
on the Indemnitee without the Indemnitee's written consent. Neither the Bank nor
the Indemnitee will unreasonably withhold their consent to any proposed
settlement.
13. NOTICES. All notices, requests, demands and other communications
(collectively "notices") provided for under this Agreement shall be made in
writing (including communications by telephone, telex or telecommunications
facilities providing facsimile transmission) and mailed (postage prepaid and
return receipt requested), telegraphed, telexed, transmitted or personally
served to each party affected may designate in a written notice to the other
party in compliance with this Paragraph. All such notices shall be effective
when received; provided, however, that receipt shall be
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<PAGE>
deemed to be effective within three (3) business days of any properly addressed
notice having been deposited in the United States mail, within twenty-four (24)
hours from the time electronic transmission was made, or upon actual receipt of
electronic delivery, whichever occurs first.
14. CHOICE OF LAW. Except to the extent governed by the laws of the
United States, this Agreement shall be interpreted and enforced in accordance
with the laws of the State of California, including applicable statutes of
limitation and other procedural statutes.
15. ATTORNEYS' FEES. If any legal action is necessary to enforce the
terms of this Agreement, the prevailing party shall be entitled to recover, in
addition to other amounts to which the prevailing party may be entitled, actual
attorneys' fees and court costs as may be awarded by the court.
16. AMENDMENTS. Provisions of this Agreement may be waived, altered,
amended or repealed in whole or in part only by the written consent of all
parties.
17. PARTIES IN INTEREST. Nothing gin this Agreement, whether express or
implied, is intended to confer any right or remedies under or by reason of this
Agreement to any persons other that the parties to it and their respective
successors and assigns (including an estate of the Indemnitee), nor is anything
in this Agreement intended to relieve or discharge the obligation or liability
of any third persons to either party hereto. Furthermore, no provision of this
Agreement shall give any third persons any right subrogation or action against
either party hereto.
18. SEVERABILITY. If any provision or provisions of this Agreement (or
any portion thereof) shall be held to be invalid, illegal or unenforceable for
any reason whatsoever (a) the validity, legality and enforceability of the
remaining provisions of this Agreement shall not in any way be affected or
impaired thereby, and (b) so far as legally permitted, the remaining provisions
of this Agreement shall be construed so as to give effect to the intent
manifested by the provision(s) held invalid, illegal or unenforceable.
19. SUCCESSOR AND ASSIGNS. All of the terms and conditions of this
Agreement shall be binding upon and shall inure to the benefit of the parties
and their respective transferees, successors and assigns; provided, however,
that this Agreement and all rights, privileges, duties and obligations of the
parties, may not be assigned or delegated by either party without the prior
written consent of the other party.
20. COUNTERPARTS. This Agreement may be executed simultaneously in one
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
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21. ENTIRE AGREEMENT. Except as provided in Paragraph 9 hereof, this
Agreement represents and contains the entire agreement and understanding between
the parties, and all previous statements or understandings, whether express or
implied, oral or written, relating to the subject matter hereof are fully and
completely extinguished and superseded by this Agreement. This Agreement shall
not be altered or varied except by a writing duly signed by both of the parties
hereto.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first written above.
"BANK"
SIX RIVERS NATIONAL BANK,
a national banking association
By: /s/ Margie Plum
-------------------------------
Margie Plum
By: /s/ Timothy D. Cochrane
-------------------------------
Timothy D. Cochrane
"INDEMNITEE"
/s/ John F. Burger
- --------------------------------
Address: 919 Alston Rd
-----------------------
Santa Barbara, CA 93108
-----------------------
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<PAGE>
EXHIBIT 10.3
TRANSITION AGREEMENT
THIS TRANSITION AGREEMENT (this "Agreement") is entered into as of this
16th day of June, 1997, by and between Six Rivers National Bank (the "Bank") and
John F. Burger ("Executive").
WITNESSETH:
WHEREAS, Executive has been employed by the Bank since March 2, 1992
and currently holds the title and office of President and Chief Executive
Officer; and
WHEREAS, although the Bank is not currently involved in any
negotiations or discussions regarding a possible sale of the Bank, the Bank
desires to ensure that Executive has certain severance benefits as delineated
below so that he can focus his entire energy on performing the functions and
discharging the responsibilities of his office without concern of the potential
consequences of any such sale.
NOW THEREFORE, in consideration of the above premises and the mutual
covenants contained herein, including Executive's agreement to continue his
employment with the Bank, and intending to be legally bound, the parties hereto
agree as follows:
1. In the event of. (i) a merger where the Bank is not the surviving
entity; (ii) a transfer of all or substantially all of the assets of the Bank;
or (iii) any other corporate reorganization where there is a change of ownership
in the Bank of at least fifty-one percent (51 %), except as may result from a
transfer of shares to another corporation in exchange for at least eighty
percent (80%)control of that corporation (any of the events described in clauses
(i) through (iii) being referred to herein as a "Sale Transaction"), as a result
of which either (A) Executive's employment is terminated at any time without
cause (defined below), (B) Executive's annual base compensation is reduced by
more than 25% over the previous year, or (C) Executive resigns from the Bank and
terminates his employment, at any time within two (2) years from the effective
date of the Sale Transaction, Executive (or his estate, representative or
administrators) shall be entitled to receive from the Bank or its successor
entity, as the case may be, at the option of Executive either (X) a lump sum
cash payment on such date of termination or (Y) periodic payments in accordance
with the Bank's normal payroll practices, in either case equal to 35 months of
Executive's then current base salary plus Executive's last two year-end bonuses.
For purposes of ties Agreement, "cause" shall be defined as the
occurrence of any of the following events: (a) Executive fails to perform or
habitually neglects the duties which he is required to perform by the Board of
Directors and/or in accordance with the Bank's then existing policies; (b)
Executive engages in illegal activity which materially adversely affects the
Bank's reputation in the community or which evidences the lack of Executive's
fitness or ability to perform Executives duties as determined by the Board of
Directors in good faith; or (c) Executive commits any act which would cause
termination of coverage under the Bank's Banker's Blanket Bond as to Executive
(as distinguished from termination of coverage as to the Bank as a whole).
<PAGE>
2. In the event that Executive shall be entitled to the severance
payment contemplated by Paragraph I above, the Bank shall at its expense, (i)
continue paying the group rate premiums for Executive's existing medical
benefits with the Bank for a period not to exceed eighteen (18) months and (ii)
pay all direct costs of sale of Executive's primary residence, provided such
sale is consummated within two years of the date of termination.
3. The parties hereto acknowledge that Executive's employment with the
Bank is "at will" and may be terminated by either party with or without cause or
prior notice. In the event that Executive's employment with the Bank is
terminated for cause, disability, death, voluntary resignation by Executive, or
other reasons unrelated to a Sale Transaction, then all of the Bank's
obligations under Paragraphs 1 and 2 herein shall cease and be of no further
force or effect.
4. Executive acknowledges that during the course of his employment by
the Bank, Executive has had access to, and has become acquainted with, what
Executive and the Bank acknowledge are trade secrets, to wit, knowledge or data
concerning the Bank, customers of the Bank, including knowledge of their
financial condition, their financial needs, and their methods of doing business.
Executive agrees that he shall not disclose any of the aforementioned trade
secrets, directly or indirectly, or use them in any way, for a period of two (2)
years after the date of his termination of employment.
5. Executive acknowledges and agrees that the payments set forth in
Paragraphs 1 and 2 hereof represent payments to which Executive would not
otherwise be entitled under the terms of his employment with the Bank, and that
such payments constitute consideration for there leases described herein.
Executive further acknowledges and agrees that the release set forth in
Paragraph 6 hereof includes, without limiting its general nature, any such
claims which arise out of or are related to his employment or the termination of
that employment, including, for example, any and all claims for unemployment or
wrongful discharge (in violation of any public policy or otherwise), and any and
all claims arising under California's Fair Employment and Housing Act, as
amended; Title VII of the Civil Rights Act of 1964, as amended; the Age
Discrimination in Employment Act, as amended; the Age Disabilities Act; or any
similar state or federal statute governing the employment relationship.
Executive further acknowledges and agrees that he has neither reported nor, as
of the date hereof, is he aware of any injury he might have suffered while
working at the Bank.
6. In consideration of the provisions of this Agreement, Executive
does hereby release and forever discharge the Bank and its past and present
officers, directors, agents, servants, employees and attorneys, from any and all
claims, debts, accounts reckonings, obligations, costs, and causes of action, of
every kind and nature whatsoever, whether known or unknown, suspected or
unsuspected, that Executive now owns or holds, or at any time heretofore had,
owned, or held, or could, shall or may own or hold to the date hereof or at any
time in the future. Executive acknowledges that Executive is familiar with the
provisions of California Civil Code Section 1542and expressly waives and
relinquishes any and all rights or benefits Executive may have under said
Section 1542, to the full extent permitted by law. Said Section states:
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<PAGE>
"A general release does not extend to claims which the
creditor does not know or suspect to exist in his favor at
the time of executing there lease, which if known by him must
have materially affected his settlement with the debtor."
7. Executive represents and warrants to the Bank that he has been
advised to consult with an attorney prior to signing this Agreement, and that he
has had this Agreement reviewed by independent legal counsel of his choice, or
if he has not, that he has had the opportunity to do so; and hereby waives any
claim, objection or defense on the grounds that this Agreement has not been
reviewed by legal counsel of his choice.
8. Executive acknowledges that he has been given twenty-one (21) days
from the date of receipt of this Agreement to decide whether to sign it, and
further that he has seven (7) days after execution of the Agreement in which to
revoke his signature if he so chooses. Accordingly, this Agreement shall not
become final and enforceable until the 8th day after it is signed by Executive.
9. Should any provision of this Agreement for any reason be declared
invalid, void, or unenforceable by a court of competent jurisdiction or by any
regulatory authority because of violation of applicable law or safety and
soundness concerns, the validity and binding effect of any remaining portion
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(s) eliminated.
10. This Agreement constitutes the entire agreement of the parties
hereto, and each of them warrants and represents to the other than no
representations, warranties, statements or assurances, oral or written, other
than as specifically set forth herein, have been relied upon in entering into
this Agreement.
11. This Agreement is binding upon the parties hereto and shall be
binding upon their successors, heirs and assigns, and each of theme, and their
agents, servants and employees, past or present and cannot be modified, altered
or amended orally, but only in writing executed by duly authorized
representatives of the parties to be charged therewith.
12. This Agreement may be executed in one or more counterparts, all of
which taken together shall constitute one instrument.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
SIX RIVERS NATIONAL BANK
By /s/ William T. Kay, Jr.
--------------------------------
William T. Kay, Jr.
Chairman of the Board
/s/ John F. Burger
- --------------------------
Executive
I received a copy of this Agreement on 6/18/97.
-------
/s/ John F. Burger
--------------------------------
Executive
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<PAGE>
EXHIBIT 10.4
TRANSITION AGREEMENT
THIS TRANSITION AGREEMENT (this "Agreement") is entered into as of this
16th day of June, 1997, by and between Six Rivers National Bank (the "Bank") and
Eugene Ulrich ("Executive").
WITNESSETH:
WHEREAS, Executive has been employed by the Bank since December 1, 1993
and currently holds the title and office of Senior Vice President and Loan
Administrator; and
WHEREAS, although the Bank is not currently involved in any
negotiations or discussions regarding a possible sale of the Bank, the Bank
desires to ensure that Executive has certain severance benefits as delineated
below so that he can focus his entire energy on performing the functions and
discharging the responsibilities of his office without concern of the potential
consequences of any such sale.
NOW THEREFORE, in consideration of the above premises and the mutual
covenants contained herein, including Executive's agreement to continue his
employment with the Bank, and intending to be legally bound, the parties hereto
agree as follows:
1. In the event of: (i) a merger where the Bank is not the surviving
entity; (ii) a transfer of all or substantially all of the assets of the Bank;
or (iii) any other corporate reorganization where there is a change of ownership
in the Bank of at least fifty-one percent (51%), except as may result from a
transfer of shares to another corporation in exchange for at least eighty
percent (80%)control of that corporation (any of the events described in clauses
(i) through (iii) being referred to herein as a "Sale Transaction"), as a result
of which either (A) Executive's employment is terminated at any time without
cause (defined below), (B) Executive's annual base compensation is reduced by
more than 25% over the previous year, or (C) Executive resigns from the Bank and
terminates his unemployment, at any time within two (2) years from the effective
date of the Sale Transaction, Executive (or his estate, representative or
administrators) shall be entitled to receive from the Bank or its successor
entity, as the case may be, at the option of Executive either (X) a lump sum
cash payment on such date of termination or (Y) periodic payments in accordance
with the Bank's normal payroll practices, in either case equal to 35 months of
Executive's then current base salary plus Executive's last two year-end bonuses.
For purposes of this Agreement, "cause" shall be defined as the
occurrence of any of the following events: (a) Executive fails to perform or
habitually neglects the duties which he is required to perform by the Board of
Directors and/or in accordance with the Bank's then existing policies; (b)
Executive engages in illegal activity which materially adversely affects the
Bank's reputation in the community or which evidences the lack of Executive's
fitness or ability to perform Executive's duties as determined by the Board of
Directors in good faith; or (e) Executive commits any act which would cause
termination of coverage under the Bank's Banker's Blanket Bond as to Executive
(as distinguished from termination of coverage as to the Bank as a whole).
<PAGE>
2. In the event that Executive shall be entitled to the severance
payment contemplated by Paragraph 1 above, the Bank shall at its expense, (i)
continue paying the group rate premiums for Executive's existing medical
benefits with the Bank for a period not to exceed eighteen (18) months and (ii)
pay all direct costs of sale of Executive's primary residence, provided such
sale is consummated within two years of the date of termination.
3. The parties hereto acknowledge that Executive's employment with the
Bank is "at will" and may be terminated by either party with or without cause or
prior notice. In the event that Executive's employment with the Bank is
terminated for cause, disability, death, voluntary resignation by Executive, or
other reasons unrelated to a Sale Transaction, then all of the Bank's
obligations under Paragraphs 1 and 2 herein shall cease and be of no further
force or effect.
4. Executive acknowledges that during the course of his employment by
the Bank, Executive has had access to, and has become acquainted with, what
Executive and the Bank acknowledge are trade secrets, to wit, knowledge or data
concerning the Bank, customers of the Bank, including knowledge of their
financial condition, their financial needs, and their methods of doing business.
Executive agrees that he shall not disclose any of the aforementioned trade
secrets, directly or indirectly, or use them in any way, for a period of two (2)
years after the date of his termination of employment.
5. Executive acknowledges and agrees that the payments set forth in
Paragraphs 1 and 2 hereof represent payments to which Executive would not
otherwise be entitled under the terms of his employment with the Bank, and that
such payments constitute consideration for there leases described herein.
Executive further acknowledges and agrees that the release set forth in
Paragraph 6 hereof includes, without limiting its general nature, any such
claims which arise out of or are related to his employment or the termination of
that employment, including, for example, any and all claims for unemployment or
wrongful discharge (in violation of any public policy or otherwise), and any and
all claims arising under California's Fair Employment and Housing Act, as
amended; Title VII of the Civil Rights Act of 1964, as amended; the Age
Discrimination in Employment Act, as amended; the Age Disabilities Act; or any
similar state or federal statute governing the employment relationship.
Executive further acknowledges and agrees that he has neither reported nor, as
of the date hereof, is he aware of any injury he might have suffered while
working at the Bank.
6. In consideration of the provisions of this Agreement, Executive
does hereby release and forever discharge the Bank and its past and present
officers, directors, agents, servants, employees and attorneys, from any and all
claims, debts, accounts reckonings, obligations, costs, and causes of action, of
every kind and nature whatsoever, whether known or unknown, suspected or
unsuspected, that Executive now owns or holds, or at any time heretofore had,
owned, or held, or could, shall or may own or hold to the date hereof or at any
time in the future. Executive acknowledges that Executive is familiar with the
provisions of California Civil Code Section 1542and expressly waives and
relinquishes any and all rights or benefits Executive may have under said
Section 1542, to the full extent permitted by law. Said Section states:
2
<PAGE>
"A general release does not extend to claims which the
creditor does not know or suspect to exist in his favor at
the time of executing there lease, which if known by him must
have materially affected his settlement with the debtor."
7. Executive represents and warrants to the Bank that he has been
advised to consult with an attorney prior to signing this Agreement, and that he
has had this Agreement reviewed by independent legal counsel of his choice, or
if he has not, that he has had the opportunity to do so; and hereby waives any
claim, objection or defense on the grounds that this Agreement has not been
reviewed by legal counsel of his choice.
8. Executive acknowledges that he has been given twenty-one (21) days
from the date of receipt of this Agreement to decide whether to sign it, and
further that he has seven (7) days after execution of the Agreement in which to
revoke his signature if he so chooses. Accordingly, this Agreement shall not
become final and enforceable until the 8th day after it is signed by Executive.
9. Should any provision of this Agreement for any reason be declared
invalid, void, or unenforceable by a court of competent jurisdiction or by any
regulatory authority because of violation of applicable law or safety and
soundness concerns, the validity and binding effect of any remaining portion
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(s) eliminated.
10. This Agreement constitutes the entire agreement of the parties
hereto, and each of them warrants and represents to the other than no
representations, warranties, statements or assurances, oral or written, other
than as specifically set forth herein, have been relied upon in entering into
this Agreement.
11. This Agreement is binding upon the parties hereto and shall be
binding upon their successors, heirs and assigns, and each of them, and their
agents, servants and employees, past or present and cannot be modified, altered
or amended orally, but only in writing executed by duly authorized
representatives of the parties to be charged therewith.
12. This Agreement may be executed in one or more counterparts, all of
which taken together shall constitute one instrument.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
SIX RIVERS NATIONAL BANK
By /s/ John F. Burger
--------------------------------
John F. Burger
President and
Chief Executive Officer
/s/ Eugene Ulrich
- --------------------------
"Executive"
I received a copy of this Agreement on 6/16/97.
-------
/s/ Eugene Ulrich
--------------------------------
Executive
4
<PAGE>
EXHIBIT 10.5
TRANSITION AGREEMENT
THIS TRANSITION AGREEMENT (this "Agreement") is entered into as of this
16th day of June, 1997, by and between Six Rivers National Bank (the "Bank") and
Michael W. Martinez ("Executive").
WITNESSETH:
WHEREAS, Executive has been employed by the Bank since December 7, 1992
and currently holds the title and office of Senior Vice President and Chief
Financial Officer; and
WHEREAS, although the Bank is not currently involved in any
negotiations or discussions regarding a possible sale of the Bank, the Bank
desires to ensure that Executive has certain severance benefits as delineated
below so that he can focus his entire energy on performing the functions and
discharging the responsibilities of his office without concern of the potential
consequences of any such sale.
NOW THEREFORE, in consideration of the above premises and the mutual
covenants contained herein, including Executive's agreement to continue his
employment with the Bank, and intending to be legally bound, the parties hereto
agree as follows:
1. In the event of: (i) a merger where the Bank is not the surviving
entity; (ii) a transfer of all or substantially all of the assets of the Bank;
or (iii) any other corporate reorganization where there is a change of ownership
in the Bank of at least fifty-one percent (51%), except as may result from a
transfer of shares to another corporation in exchange for at least eighty
percent (80%)control of that corporation (any of the events described in clauses
(i) through (iii) being referred to herein as a "Sale Transaction"), as a result
of which either (A) Executive's employment is terminated at any time without
cause (defined below), (B) Executive's annual base compensation is reduced by
more than 25% over the previous year, or (C) Executive resigns from the Bank and
terminates his employment, at any time within two (2) years from the effective
date of the Sale Transaction, Executive (or his estate, representative or
administrators) shall be entitled to receive from the Bank or its successor
entity, as the case may be, at the option of Executive either (X) a lump sum
cash payment on such date of termination or (Y) periodic payments in accordance
with the Bank's normal payroll practices, in either case equal to 35 months of
Executive's then current base salary plus Executive's last two year-end bonuses.
For purposes of ties Agreement, "cause" shall be defined as the
occurrence of any of the following events: (a) Executive fails to perform or
habitually neglects the duties which he is required to perform by the Board of
Directors and/or in accordance with the Bank's then existing policies; (b)
Executive engages in illegal activity which materially adversely affects the
Bank's reputation in the community or which evidences the lack of Executive's
fitness or ability to perform Executive's duties as determined by the Board of
Directors in good faith; or (c) Executive commits any act which would cause
termination of coverage under the Bank's Banker's Blanket Bond as to Executive
(as distinguished from termination of coverage as to the Bank as a whole).
<PAGE>
2. In the event that Executive shall be entitled to the severance
payment contemplated by Paragraph 1 above, the Bank shall at its expense, (i)
continue paying the group rate premiums for Executives existing medical benefits
with the Bank for a period not to exceed eighteen (18) months and (ii) pay all
direct costs of sale of Executive's primary residence, provided such sale is
consummated within two years of the date of termination.
3. The parties hereto acknowledge that Executive's employment with the
Bank is "at will" and may be terminated by either party with or without cause or
prior notice. In the event that Executive's employment with the Bank is
terminated for cause, disability, death voluntary resignation by Executive, or
other reasons unrelated to a Sale Transaction, then all of the Bank's
obligations under Paragraphs 1 and 2 herein shall cease and be of no further
force or effect.
4. Executive acknowledges that during the course of his employment by
the Bank, Executive has had access to, and has become acquainted with, what
Executive and the Bank acknowledge are trade secrets, to wit, knowledge or data
concerning the Bank, customers of the Bank, including knowledge of their
financial condition, their financial needs, and their methods of doing business.
Executive agrees that he shall not disclose any of the aforementioned trade
secrets, directly or indirectly, or use them in any way, for a period of two (2)
years after the date of his termination of employment.
5. Executive acknowledges and agrees that the payments set forth in
Paragraphs 1 and 2 hereof represent payments to which Executive would not
otherwise be entitled under the terms of his employment with the Bank, and that
such payments constitute consideration for there leases described herein.
Executive further acknowledges and agrees that the release set forth in
Paragraph 6 hereof includes, without limiting its general nature, any such
claims which arise out of or are related to his employment or the termination of
that employment, including, for example, any and all claims for unemployment or
wrongful discharge (in violation of any public policy or otherwise), and any and
all claims arising under California's Fair Employment and Housing Act, as
amended; Title VII of the Civil Rights Act of 1964, as amended; the Age
Discrimination in Employment Act, as amended; the Age Disabilities Act; or any
similar state or federal statute governing the employment relationship.
Executive further acknowledges and agrees that he has neither reported nor, as
of the date hereof, is he aware of any injury he might have suffered while
working at the Bank.
6. In consideration of the provisions of this Agreement, Executive
does hereby release and forever discharge the Bank and its past and present
officers, directors, agents, servants, employees and attorneys, from any and all
claims, debts, accounts reckonings, obligations, costs, and causes of action, of
every kind and nature whatsoever, whether known or unknown, suspected or
unsuspected, that Executive now owns or holds, or at any time heretofore had,
owned, or held, or could, shall or may own or hold to the date hereof or at any
time in the future. Executive acknowledges that Executive is familiar with the
provisions of California Civil Code Section 1542 and expressly waives and
relinquishes any and all rights or benefits Executive may have under said
Section 1542, to the full extent permitted by law. Said Section states:
2
<PAGE>
"A general release does not extend to claims which the
creditor does not know or suspect to exist in his favor at
the time of executing there lease, which if known by him must
have materially affected his settlement with the debtor."
7. Executive represents and warrants to the Bank that he has been
advised to consult with an attorney prior to signing this Agreement, and that he
has had this Agreement reviewed by independent legal counsel of his choice, or
if he has not, that he has had the opportunity to do so; and hereby waives any
claim, objection or defense on the grounds that this Agreement has not been
reviewed by legal counsel of his choice.
8. Executive acknowledges that he has been given twenty-one (21) days
from the date of receipt of this Agreement to decide whether to sign it, and
further that he has seven (7) days after execution of the Agreement in which to
revoke his signature if he so chooses. Accordingly, this Agreement shall not
become final and enforceable until the 8th day after it is signed by Executive.
9. Should any provision of this Agreement for any reason be declared
invalid, void, or unenforceable by a court of competent jurisdiction or by any
regulatory authority because of violation of applicable law or safety and
soundness concerns, the validity and binding effect of any remaining portion
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(s) eliminated.
10. This Agreement constitutes the entire agreement of the parties
hereto, and each of them warrants and represents to the other than no
representations, warranties, statements or assurances, oral or written, other
than as specifically set forth herein, have been relied upon in entering into
this Agreement.
11. This Agreement is binding upon the parties hereto and shall be
binding upon their successors, heirs and assigns, and each of them, and their
agents, servants and employees, past or present, and cannot be modified, altered
or amended orally, but only in writing executed by duly authorized
representatives of the parties to be charged therewith.
12. This Agreement may be executed in one or more counterparts, all of
which taken together shall constitute one instrument.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
SIX RIVERS NATIONAL BANK
By /s/ John F. Burger
--------------------------------
John F. Burger
President and
Chief Executive Officer
/s/ Michael W. Martinez
- -----------------------
"Executive"
I received a copy of this Agreement on 6/16/97.
-------
/s/ Michael W. Martinez
--------------------------------
Executive
4
EXHIBIT 99.3
FORM 10-QSB
OFFICE OF THE COMPTROLLER OF THE CURRENCY
Washington, D.C. 20219
[X] Quarterly Report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the Quarterly Period Ended March 31, 1999.
or
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Transition Period from _____________ to
___________
OCC File Number:
-------------------------
SIX RIVERS NATIONAL BANK
------------------------------------------------------
(Exact name of registrant as specified in its charter)
United States 68-0176905
------------------------------- ----------------------
(State or other jurisdiction of IRS Employer ID Number
incorporation or organization)
402 F Street, Eureka, California 95501
----------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code: (707) 443-8400
--------------
Former name, former address and former fiscal year, if changed since last
report: Not applicable.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of March 31,1999: 1,461,642.
Transitional Small Business Disclosure Format (check one) Yes [ ] No [X]
<PAGE>
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SIX RIVERS NATIONAL BANK
CONDENSED BALANCE SHEETS
(in thousands except share amounts)
MARCH 31,
1999 DECEMBER 31,
(UNAUDITED) 1998
----------- ------------
<S> <C> <C>
ASSETS
Cash and Cash Equivalents:
Cash and due from banks $ 8,205 $ 8,357
Federal funds sold & repurchase agreements 2,000 9,330
--------- ---------
Total cash and cash equivalents 10,205 17,687
Interest bearing deposits in other financial
institutions, at fair value 6,486 6,196
Hed to maturity securities, at cost 1,485 1,485
Available for sale securities, at fair value 64,543 64,792
--------- ---------
Total securities 66,028 61,277
Loans held for sale 20,951 17,125
Loans receivable 87,417 89,903
Less: Allowance for loan losses (2,925) (2,802)
Deferred loan fees, net (45) (75)
--------- ---------
Net loans receivable 84,447 87,026
Interest receivable and other assets 5,026 3,586
Premises and equipment, net of accumulated
depreciation and amortization 4,612 5,094
Goodwill and core deposit intangible, net of amortization 4,815 4,891
Other real estate owned 275 354
--------- ---------
TOTAL ASSETS $ 202,844 $ 203,236
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits:
Noninterest-bearing $ 22,917 $ 25,260
Interest-bearing 128,176 134,385
Time, $100,000 and over 23,072 23,287
--------- ---------
Total deposits 174,165 182,932
Other borrowed funds 8,847 677
Interest payable and other liabilities 1,051 1,107
--------- ---------
Total liabilities $ 184,062 $ 184,716
--------- ---------
STOCKHOLDERS' EQUITY:
Common stock, $5.00 par value, authorized
10,000 shares; outstanding, 1,461,642
at March 31, 1999 and December 31, 1998 7,308 7,308
Additional paid in capital 12,063 12,063
Accumulated deficit (495) (816)
Accumulated other comprehensive loss, net of tax: (95) (35)
--------- ---------
Total stockholders' equity 18,781 18,520
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 202,843 $ 203,236
========= =========
</TABLE>
See notes to condensed financial statements (unaudited).
-2-
<PAGE>
SIX RIVERS NATIONAL BANK
CONDENSED STATEMENTS OF INCOME
(Unaudited)
(in thousands except for earnings per share)
THREE MONTHS ENDED MARCH 31,
----------------------------
1999 1998
------ ------
INTEREST INCOME
Loans and loan fees $2,479 $2,245
Securities:
U.S. Treasury securities and government agencies 813 673
Other 262 72
Federal funds sold & repurchase agreements 57 509
------ ------
Total interest income 3,611 3,499
INTEREST EXPENSE:
Deposits 1,368 1,458
Other borrowings 89 19
------ ------
Total interest expense 1,457 1,477
------ ------
NET INTEREST INCOME 2,154 2,022
PROVISION FOR LOAN LOSSES 150 140
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 2,004 1,882
NONINTEREST INCOME:
Customer service fees 298 279
Other income 109 87
------ ------
Total noninterest income 407 366
NONINTEREST EXPENSE:
Salaries and employee benefits 1,010 815
Occupancy 279 269
Other 576 611
------ ------
Total noninterest expense 1,865 1,695
------ ------
INCOME BEFORE PROVISION
FOR INCOME TAXES 546 553
PROVISION FOR INCOME TAXES 225 227
------ ------
NET INCOME $ 321 $ 326
====== ======
EARNINGS PER SHARE
Basic $ 0.22 $ 0.23
====== ======
Diluted $ 0.22 $ 0.22
====== ======
See notes to condensed financial statements (unaudited).
-3-
<PAGE>
<TABLE>
<CAPTION>
SIX RIVERS NATIONAL BANK
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands except for earnings per share)
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
1999 1998
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 321 $ 326
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 138 203
Amortization and accretion on securities 31
Origination of loans held for sale (3,826) (6,699)
Provision for deferred taxes 15
Provision for loan losses 150 140
Effect of changes in:
Accrued interest receivable and other assets 295 76
Accrued interest payable and other liabilities (56) 48
-------- --------
Net cash used in operating activities (2,978) (5,860)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of available-for-sale securities (4,829) (48,240)
Proceeds from maturities, calls, or repayments of available
for sale securities 641
Purchases of FHLB, Fed Reserve & other securities (1,006)
Net change in interest bearing deposits in other financial institutions (290) (198)
Net change in loans receivable 2,370 (6,120)
Proceeds from sale of repossessed property 79
Purchases of premises and equipment (231) (116)
-------- --------
Net cash used in investing activities (3,907) (54,033)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits (8,767) 236
Net change in other borrowed funds 8,170 1,091
Common stock options exercised 161
-------- --------
Net cash provided by (used in) financing activities (597) 1,488
-------- --------
DECREASE IN CASH AND CASH EQUIVALENTS (7,482) (58,405)
CASH AND CASH EQUIVALENTS, beginning of period 17,687 76,835
-------- --------
CASH AND CASH EQUIVALENTS, end of period $ 10,205 $ 18,430
======== ========
ADDITIONAL INFORMATION:
Cash paid during the period for:
Interest $ 1,393 $ 971
======== ========
</TABLE>
See notes to condensed financial statements (unaudited).
-4-
<PAGE>
SIX RIVERS NATIONAL BANK
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1999 and MARCH 31, 1998
AND THE THREE MONTHS ENDED MARCH 31, 1999 and 1998
NOTE A-BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements of Six Rivers National
Bank (the Bank) have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-QSB and Article 10 of Regulation S-X. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation of the results for the interim periods
presented have been included. They do not, however, include all the information
and footnotes required by generally accepted accounting principles for annual
financial statements. For further information refer to the Bank's financial
statements and notes thereto included in the Bank's annual report on Form 10-KSB
for the fiscal year ended December 31, 1998. Operating results for the three
months ended March 31, 1999 are not necessarily indicative of the results that
may be expected for the year ended December 31, 1999.
NOTE B-COMPREHENSIVE INCOME
Comprehensive income consists of net income and other comprehensive income. The
Bank's only source of other comprehensive income is derived from unrealized
gains and losses on investment securities held-for-sale. Reclassification
adjustments resulting from gains or losses on investment securities that were
realized and included in net income of the current period that also had been
included in other comprehensive income as unrealized holding gains or losses in
the period in which they arose are excluded from comprehensive income of the
current period. The Bank's total comprehensive earnings were as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
(IN THOUSAND)
-----------------------------
1999 1998
------------ ------------
<S> <C> <C>
Net Income $ 321 $ 326
Other comprehensive Income (loss)
Unrealized holding loss on available
for sale securities (net of taxes of $69 and $38) (95) (53)
------------ ------------
Total Comprehensive Income $ 226 $ 273
============ ============
</TABLE>
-5-
<PAGE>
NOTE C-EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income available to common
shareholders by the weighted average common shares outstanding for the period.
Diluted earnings per share reflect the potential dilution that could occur if
options or other contracts to issue common stock were exercised and converted
into common stock.
There was no difference in the numerator used in the calculation of basic
earnings per share and diluted earnings per share. The following reconciles the
denominator used in the calculation of basic earnings per common share and
diluted earnings per common and equivalent share for each of the periods
indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
(DOLLARS IN THOUSANDS)
--------------------------------
1999 1998
------------ -------------
<S> <C> <C>
Calculation of Basic Earnings Per Share
Numerator - net income $ 321 $ 326
Denominator - weighted average common
shares outstanding 1,461,642 1,436,438
------------ -------------
Total Comprehensive Income $ 0.22 $ 0.23
============ =============
Calculation of Basic Earnings Per Share
Numerator - net income $ 321 $ 326
Denominator:
Weighted average common shares outstanding 1,461,642 1,436,438
Dilutive effect of outstanding options 10,482 31,917
------------ -------------
Weighted average common shares outstanding -
diluted 1,472,124 1,468,355
============ =============
Diluted Earning Per Share $ 0.22 $ 0.22
============ =============
</TABLE>
NOTE D-CONSENT ORDER
On April 12, 1999 the Office of the Comptroller of the Currency required the
Bank to enter into a Consent Order ("Order"). The language of the Order requires
that the Bank formulate and implement a plan to strengthen its policies and
procedures relative to its loan administration, credit and collateral
exceptions, classified assets, allowances for loan losses and violations of law
related to lending limits. The Board of Directors has agreed to execute this
Order and is in the process of completing an action plan detailing the actions
necessary to comply with the Order.
-6-
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition and
Results of Operations contains forward-looking statements that involve risks and
uncertainties. The Bank's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including, but not limited to, the following factors: risks related to the
Bank's ability to manage growth, particularly growth in its commercial loan
portfolio, competition from other financial institutions in the Bank's markets,
changes in the general economic climate, the results of regulatory oversights of
the Bank, changes in the interest rate environment and adverse changes in the
general economic conditions, either nationally or regionally, which may impact
the credit quality and therefore impact the Bank's level of provisions for
possible loan losses.
The following discussion provides additional information about the results of
operations and financial condition of the Bank for the three-month period ended
March 31, 1999 and 1998. The following discussion should be read in conjunction
with the financial statements of the Bank and the notes thereto.
-7-
<PAGE>
SUMMARY OF FINANCIAL RESULTS
As of March 31, 1999, total assets of the Bank were $202.8 million, net loans
totaled $105.4 million (including loans held for sale) and deposits totaled
$174.2 million. Total assets remained stable while net loans increased 1.2% or
approximately $1.2 million from $104.2 million as of December 31, 1998
(including loans held for sale). Deposits decreased 4.8% or approximately $8.7
million to $174.2 million from $182.9 million as of December 31, 1998.
NET INCOME
Net income for the three months ending March 31, 1999 and 1998 totaled $321,000
and $326,000, respectively, a decrease of 1.5%. Diluted earnings per share were
$0.22 for the three months ending March 31, 1999 and 1998. The Bank's annualized
return on average assets for March 31, 1999 and 1998 was 0.63% and 0.67%
respectively. The Bank's annualized return on average equity was 6.94% and 6.70%
for March 31, 1999 and 1998, respectively.
NET INTEREST INCOME AND NET INTEREST MARGIN
For the three months ended March 31, 1999, net interest income was $2,154,000,
an increase of $132,000 or 6.5% from $2,022,000 for the three months ended March
31, 1998. Net interest margin (net interest income as a percentage of average
interest-earning assets) was 4.61% for the three months ended March 31, 1999 and
4.64% for the three months ended March 31, 1998. The decrease in net interest
margin is due primarily to a decline in interest rates. The increase in net
interest income resulted from higher average earning asset levels. The average
rate on interest earning assets as of March 31, 1999 was 7.73% compared with
8.04% for the first quarter of 1998. The decrease in the average rate on earning
assets was partially offset by a decrease in the average rate paid on
interest-bearing liabilities. For the quarter ending March 31, 1999, the average
rate paid on interest-bearing liabilities was 3.69%, compared with 4.01% for the
quarter ended March 31, 1998. At March 31, 1999 loans as a percentage of total
deposits were 62.2% and at March 31, 1998, the ratio was 57.0%.
-8-
<PAGE>
The following tables present condensed average balance sheet information for the
Bank, together with interest rates earned and paid on the various sources and
uses of its funds for each of the periods indicated. Nonaccrual loans are
included in the tables for computational purposes, but the foregone interest on
such loans is excluded.
<TABLE>
<CAPTION>
AVERAGE BALANCE SHEET AND ANALYSIS OF NET INTEREST INCOME
(Dollars in thousands)
MARCH 31, 1999 MARCH 31, 1998
------------------------------- ------------------------------
INTEREST INTEREST
AVERAGE INCOME/ AVERAGE AVERAGE INCOME/ AVERAGE
BALANCE EXPENSE RATE BALANCE EXPENSE RATE
-------- --------- ------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
INTEREST-EARNING ASSETS
Interst-bearing deposits in other
financial institutions $ 6,458 $ 94 5.82% $ 3,895 $ 65 6.68%
Federal funds sold and repurchase
agreements 4,795 57 4.72 35,680 509 5.71
Taxable investment securities 63,787 922 5.78 42,692 673 6.31
Nontaxable investment securities (1) 4,165 59 5.70 511 7 5.48
LOANS:(2)
CommerciaL 54,464 1,221 8.96 53,314 1,288 9.66
Real estate mortgage and construction 34,733 679 7.82 21,235 457 8.61
Installment and other 18,479 429 9.29 16,857 400 9.49
Fees on Loans 150 100
-------- --------- ------- -------- --------- --------
Total Loans 107,677 2,479 9.21 91,406 2,245 9.82
-------- --------- ------- -------- --------- --------
Total earning assets 186,881 3,611 7.73 174,184 3,499 8.04
NONEARNING ASSETS
Cash and due from banks 5,876 9,477
Premises and equipment 4,575 4,436
Interest receivable and other assets 9,445 5,173
Allowance for loan losses (2,925) (1,107)
Other real estate owned 406 384
-------- --------
Total nonearning assets 17,377 18,363
-------- --------
TOTAL ASSETS $204,258 $192,547
======== ========
LIABILITIES
INTEREST-BEARING LIABILITIES:
Demand, savings and money
market deposits $ 82,418 $ 481 2.34% $ 75,693 $ 507 2.68%
Time deposits 70,924 887 5.00 70,291 951 5.41
-------- --------- ------- -------- --------- --------
Total interest-bearing deposits 153,342 1,368 3.57 145,984 1,458 3.99
Other borrowed funds 4,771 89 7.46 1,222 19 6.22
-------- --------- ------- -------- --------- --------
Total interest-bearing liabilities 158,113 1,457 3.69% 147,206 1,477 4.01%
-------- --------- ------- -------- --------- --------
NONINTEREST-BEARING LIABILITIES
Demand deposits 23,699 24,652
Accrued interest, taxes and other
liabilities 3,968 921
-------- --------
Total noninterest-bearing
liabilities 27,667 25,573
-------- --------
Total liabilities 185,780 172,779
Shareholders' equity 18,478 19,768
-------- --------
Total liabilities and shareholders'
equity $204,258 $192,547
======== ========
Net interest income $ 2,154 $ 2,022
========= =========
Net interest spread (3) 4.04% 4.02%
======= ========
Net interest margin (4) 4.61% 4.64%
======= ========
</TABLE>
(1) Interest on municipal securities is not computed on a tax-equivalent basis.
(2) Includes loans on nonaccrual but excludes nonaccrual interest.
(3) Net interest spread is the difference between the yield on average total
interest-earning assets and the rate paid on average interest-bearing
liabilities.
(4) Net interest margin is computed by dividing net interest income by total
average interest-earning assets.
-9-
<PAGE>
The following table sets forth, for the period indicated, a summary of the
changes in average asset and liability balances and interest earned and interest
paid resulting from changes in average asset and liability balances (volume) and
changes in average interest rates. Nonaccrual loans are included in the table
for computational purposes, but the foregone interest on such loans is excluded.
<TABLE>
<CAPTION>
RATE/VOLUME ANALYSIS OF NET INTEREST INCOME
(Dollars in thousands)
THREE MONTHS ENDED
MARCH 31, 1999
COMPARED TO
THREE MONTHS ENDED
MARCH 31, 1998
---------------------------------------
CHANGE DUE TO
---------------------------------------
AVERAGE AVERAGE
VOLUME RATE TOTAL
---------- ---------- ----------
<S> <C> <C> <C>
INTEREST INCOME
Interest-bearing deposits in other financial
institutions $ 43 $ (14) $ 29
Federal funds sold (441) (12) (453)
Taxable investment securities 333 (83) 250
Nontaxable investment securities 50 2 52
Total loans 400 (166) 234
---------- ---------- ----------
Total interest income $ 385 $ (273) $ 112
========== ========== ==========
INTEREST EXPENSE
Demand, savings and money market deposits $ 45 $ (71) $ (26)
Time deposits 9 (73) (64)
Other borrowings 55 15 80
---------- ---------- ----------
Total interest expense 109 (129) (20)
---------- ---------- ----------
Net interest margin $ 276 $ (144) $ 132
========== ========== ==========
</TABLE>
NONINTEREST INCOME AND EXPENSE
Non Interest Income
For the three months ended March 31, 1999, noninterest income was $407,000, an
increase of 11.2% or $41,000 from the same period in 1998. The increase was
mainly due to an increase in other fee income, primarily the realization of the
increased value of the Bank's mortgage servicing asset.
Non Interest Expense
For the three months ended March 31, 1999, noninterest expenses totaled
$1,865,000, compared with $1,695,000 for the three months ended March 31, 1998.
The increase in noninterest expense was primarily due to an increase in
personnel expenses which increased 23.9% or $195,000 from $815,000 as of March
31, 1998 to $1,010,000 for the quarter ended March 31, 1999. The increase in
personnel expense was due primarily to an increase in employees related to the
commercial lending and credit administration functions. The decrease in "other"
noninterest expenses to $576,000 in the first quarter of 1999 from $611,000 for
the same period in 1998 was the result of lower problem loan expenses and
reduced correspondent bank service charges.
Provision for Income Taxes
For the three months ended March 31, 1999, the provision for income taxes was
$225,000 on income before income taxes of $546,000, for an effective tax rate of
41.2%. For the three months ended March 31, 1998, the provision for income taxes
was $227,000 on income before income taxes of $553,000, for an effective tax
rate of 41.0%.
-10-
<PAGE>
Financial Condition
Investment Portfolio
As of March 31, 1999, investment securities comprised 33.6% of total assets and
36.8% of interest-earning assets. The Bank classifies all of its securities as
available-for-sale except equity securities of the Federal Home Loan Bank, the
Federal Reserve and others that the Bank does not intend to sell. Such equity
securities are included in other assets and carried at amortized cost. The
following table sets forth the composition of the investment portfolio by major
categories at March 31, 1999 and December 31, 1998.
<TABLE>
<CAPTION>
INVESTMENT PORTFOLIO
(Dollars in thousands)
AT MARCH 31, 1999 AT DECEMBER 31, 1998
------------------- --------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
--------- -------- --------- --------
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE SECURITIES: $ 1,499 $ 1,497 $ 1,499 $ 1,504
U.S. Treasury securities 23,968 23,958 22,566 22,465
Federal National Mortgage Association Securities 18,467 18,467 12,524 12,531
Federal Home Loan Mortgage Corporation Securities 14,310 14,361 11,147 11,145
Corporate and other securities 506 522 507 529
Obligations of foreign governments 5,790 5,738 11,608 11,618
======== ======== ======== ========
Other U.S. government agency securities $ 64,540 $ 64,543 $ 59,851 $ 59,792
======== ======== ======== ========
Total Investments
HELD TO MATURITY SECURITIES:
Corporate and other securities $ 1,485 $ 1,485 $ 1,485 $ 1,500
======== ======== ======== ========
</TABLE>
The Bank does not own securities of a single issuer (other than U.S. Government
agencies and corporations) whose aggregate book value is in excess of 10% of its
total equity.
Loan Portfolio
The following table shows the composition of the Bank's loan portfolio by amount
and percentage of total loans in each major loan category at the dates
indicated.
COMPOSITION OF LOAN PORTFOLIO
(Dollars in thousands)
AT MARCH 31, 1999 AT DECEMBER 31, 1998
------------------------ ------------------------
AMOUNT PERCENT AMOUNT PERCENT
----------- ----------- ---------- -----------
Commercial $ 34,085 31.5% $ 33,634 31.4%
Real estate-commercial 22,042 20.3 23,440 21.9
Real estate-mortgage (1) 41,007 37.8 36,956 34.5
Real estate-construction 4,007 3.7 4,907 4.6
Installment 7,227 6.7 8,091 7.6
----------- ----------- ---------- -----------
Total $ 108,368 100.0% $ 107,028 100.0%
=========== =========== ========== ===========
Commercial loans at March 31, 1999 included approximately $13,400,000 in loans
with government-guarantees ranging from 64% to 90% of the principal balance.
-11-
<PAGE>
At March 31, 1999, the Bank had approximately $12,000,000 in undisbursed loan
commitments. This compares with undisbursed commitments of approximately
$14,279,000 at December 31, 1998. Standby letters of credit were not significant
at March 31, 1999 or December 31, 1998.
Summary of Loan Loss Experience
The following table sets forth an analysis of the allowance for loan losses and
provisions for loan losses for the periods indicated.
<TABLE>
<CAPTION>
ALLOWANCE FOR LOAN LOSSES
(Dollars in thousands)
FOR THE THREE FOR THE YEAR
MONTHS ENDED ENDED
MARCH 31, DECEMBER 31,
1999 1998
------------- ------------
<S> <C> <C>
Balance at beginning of period $ 2,802 $ 1,159
Loans charged off:
Commercial 1 1,952
Real estate-construction -- 3
Real estate-mortgage -- --
Installment 45 395
-------- --------
Total charge-offs 46 2,350
Recoveries
Commercial 6 49
Real estate-construction 2 --
Real estate-mortgage -- --
Installment 11 40
-------- --------
Total recoveries 19 89
-------- --------
Net charge-offs 27 2,261
Provision for loan losses 150 3,904
-------- --------
Balance at end of period $ 2,925 $ 2,802
======== ========
Total loans at end of period $108,368 $107,028
======== ========
Average total loans outstanding $107,677 $102,481
Net charge-offs to average loans 0.10% 2.21%
Allowance for Loan Losses to nonperforming loans 94.75% 89.18%
Allowance for Loan Losses to total loans 2.70% 2.62%
</TABLE>
The Bank maintains an allowance for loan losses to absorb inherent losses in the
portfolio. Management attributes general reserves to different types of loans
using percentages which are based upon perceived risk associated with the
portfolio and underlying collateral. The allowance for possible loan losses is a
general reserve available against the total loan portfolio and off balance sheet
items. While management uses available information to recognize losses on loans,
future additions to the allowance may be necessary based on changes in economic
conditions. In addition, various regulatory agencies, as an integral part of
their examination process, periodically review the Bank's allowance for possible
loan losses. Such agencies may require the Bank to provide additions to the
allowance based on their judgement of information available to them at the time
of their examination. At March 31, 1999, based on known information, management
believed that the allowance for loan losses was adequate to absorb losses
inherent in existing loans and commitments to extend credit, based on
evaluations of the collectibility and prior loss experience of loans and
commitments to extend credit as of such date.
The evaluation process is designed to determine the adequacy of the allowance
for loan losses. This process attempts to assess the risk of losses inherent in
the portfolio by segregating the allowance for loan losses into two components:
"Specific" and "General." The specific component is established by allocating a
portion of the allowance for loan losses to individual classified credits on the
basis of specific circumstances and assessments. In determining the general
component of the allowance for loan loss, management takes into consideration
growth trends in the portfolio, examination results of financial institution
-12-
<PAGE>
supervisory authorities, prior loan loss experience, concentrations of credit
risk, delinquency trends, collateral coverage, general economic conditions, the
interest rate environment and internal and external credit reviews. In addition,
the risks management considers vary depending on the nature of the loan.
The allowance for loan losses is based on estimates. Realized future losses may
vary from current estimates. It is always possible that future economic or other
factors may adversely affect the Bank's borrowers, and thereby cause loan losses
to exceed the current allowance. In addition, there can be no assurance that
future economic or other factors will not adversely affect the Bank's borrowers,
or that the Bank's asset quality may not deteriorate through rapid growth,
failure to maintain appropriate underwriting standards, failure to maintain an
adequate number of qualified loan personnel, failure to identify and monitor
potential problem loans or for other reasons, and thereby cause loan losses to
exceed the current allowance.
As of March 31, 1999, the allowance for possible loan losses was approximately
$2,925,000 compared to approximately $2,802,000 at December 31, 1998, an
increase of 4.4%. When a loan is considered uncollectible by management it is
charged against the allowance for loan losses. Any recoveries of previously
charged off loans are credited back to the allowance. Net charge-offs for the
quarter ended March 31, 1999 were approximately $27,000, a decrease of 69.7%
compared to approximately $89,000 for March 31, 1998. For the three months
ending March 31, 1999 the Bank's provision for loan losses totaled $150,000, an
increase of $10,000 from $140,000 for the quarter ending March 31, 1998.
NONPERFORMING ASSETS
Nonperforming assets consist of nonperforming loans and other real estate owned.
Nonperforming loans are those in which the borrower fails to perform under the
original terms of the obligation and consist of nonaccrual loans, accruing loans
past due 90 days or more and restructured loans.
The following table summarizes the Bank's nonperforming assets at the dates
indicated.
AT MARCH 31, AT DECEMBER 31,
1999 1998
------------ ---------------
Nonaccrual Loans $ 2,832 $ 2,896
Accruing loans past due 90 days or more 17 4
Restructured loans 238 242
Total nonperforming loans 3,087 3,142
Other real estate owned 275 354
-------- --------
Total nonperforming assets $ 3,362 $ 3,496
======== ========
Nonperforming loans to total loans 2.85% 2.94%
Nonperforming assets to total assets 1.66% 1.72%
The Bank generally places loans on nonaccrual status and accrued but unpaid
interest is reversed against the current year's income when interest or
principal payments become 90 days or more past due unless the outstanding
principal and interest is adequately secured and, in the opinion of management,
is deemed in the process of collection. Interest income on nonaccrual loans is
recorded on a cash basis. Payments may be treated as interest income or return
of principal depending upon management's opinion of the ultimate risk of loss on
the individual loan. Cash payments are treated as interest income only when
management believes the remaining principal balance is fully collectible. Loans
not 90 days past due may also be placed on nonaccrual status if management
reasonably believes the borrower will not be able to comply with the contractual
loan repayment terms and collection of principal or interest is in question.
A restructured loan is a loan on which interest accrues at a below-market rate
or upon which certain principal has been forgiven so as to aid the borrower in
the final repayment of the loan, with any interest previously accrued, but not
yet collected, being reversed against current income. Interest is recorded on a
cash basis until the borrower's ability to service the restructured loan in
accordance with its terms is established.
Management defines impaired loans as those loans, regardless of past due status,
on which principal and interest is not expected to be collected under the
original contractual loan repayment terms. An impaired loan is charged off at
-13-
<PAGE>
the time management believes the collection process has been exhausted. Impaired
loans are valued on the present value of future cash flows discounted at the
loan's effective rate, the loan's observable market price, or the fair value of
collateral if the loan is collateral dependent. Impaired loans as of March 31,
1999, and December 31, 1998 were $3,087,000 and $3,137,000. The total allowance
for loan losses related to those loans at March 31, 1999 was $1,283,000,
compared to $869,000 at December 31, 1998. Zero income was recognized for
impaired loans for the three months ended March 31, 1999.
LIQUIDITY
Maintenance of adequate liquidity requires that sufficient resources be
available at all times to meet the cash flow requirements of the Bank. Liquidity
in a banking institution is required primarily to provide for deposit
withdrawals and the credit needs of its customers and to take advantage of
investment opportunities as they arise. A bank may achieve desired liquidity
from both assets and liabilities. Cash and deposits held in other banks, federal
funds sold, other short term investments, maturing loans and investments,
payments of principal and interest on loans and investments and potential loan
sales are sources of asset liquidity. Deposit growth and access to credit lines
established with correspondent banks and market sources of funds are sources of
liability liquidity.
The Bank reviews its liquidity position on a regular basis based upon its
current position and expected trends of loans and deposits. Management believes
that the Bank maintains adequate sources of liquidity to meet its liquidity
needs. The Bank's liquid assets (net of pledged assets) totaled approximately
$62,000,000 and $76,289,000 at March 31, 1999 and December 31, 1998,
respectively, and constituted 30.6% and 38.5% of total assets on those dates.
Although the Bank's primary sources of liquidity include liquid assets and a
stable deposit base, the Bank maintains lines of credit with the Federal Home
Loan Bank, the Federal Reserve Bank of San Francisco and its correspondent
banks. The total of these lines of credit was $14,052,000, of which $8,847,000
was outstanding as of March 31, 1999 and $677,000 was outstanding as of December
31, 1998.
CAPITAL RESOURCES
A strong capital base is essential to the Bank's ability to continue to serve
the needs of its customers and shareholders. Capital protects depositors and is
a source of funds for the significant investments necessary for the Bank to
operate competitively. Additionally, adequate capital and earnings enable the
Bank to continue to have access to the capital markets to supplement internal
growth of equity. Capital is generated internally in the form of earnings and
retention of those earnings.
Total shareholders' equity was $18,781,000 at March 31, 1999, an increase of
$261,000 or 1.4% from $18,520,000 at December 31, 1998. No options to purchase
shares of the Bank's Common Stock were exercised during the first quarter of
1999. The increase in equity is due primarily to net earnings for the quarter.
Federal regulations establish guidelines for calculating "risk-adjusted" capital
ratios and minimum ratio requirements. Under these regulations, national banks
are required to maintain a total risk-based capital ratio of 8.0% and Tier 1
risk-based capital (primarily shareholders' equity) of at least 4% of total
qualifying capital. The Bank had Total and Tier 1 risk-based capital ratios of
12.75% and 11.50%, respectively, at March 31, 1999, and 12.30% and 11.05%,
respectively, at December 31, 1998.
In addition, regulators have adopted a minimum leverage ratio standard for Tier
1 risk-based capital to total assets. As of March 31, 1999 and December 31,
1998, the Bank's leverage ratio was 6.86% and 6.73%, respectively, exceeding the
minimum guidelines of 3 to 5%.
-14-
<PAGE>
YEAR 2000 COMPLIANCE
The inability of computers, software and other equipment utilizing
microprocessors to recognize and properly process data fields containing a
2-digit year is commonly referred to as the Year 2000 compliance issue. As the
year 2000 approaches, such systems may be unable to accurately process certain
date-based information.
The Bank has written a plan to mitigate the risks associated with the impact of
the Year 2000. The plan directs the Bank's Year 2000 activities under the
framework of the Federal Financial Institutions Examination Council ("FFIEC")
Five-Step Program. The FFIEC's Five-Step Program includes the following phases:
Awareness, Assessment, Renovation, Validation and Implementation. The Awareness
Phase, which is 100% complete, defines the Year 2000 problem and gains executive
level support for the necessary resources to prepare the Bank for Year 2000
compliance. The Assessment Phase, also 100% complete, assesses the size and
complexity of the problem and details the magnitude of the effort necessary to
address the Year 2000 issues. Although the Awareness and Assessment Phases are
complete, the Bank will continue to evaluate any new issues as they arise. The
Renovation Phase, now 90% complete, includes the incremental changes to hardware
and software components. The Validation Phase, also 90% complete, includes the
testing of hardware and software components and is scheduled to be substantially
complete by June 30, 1999. The Implementation Phase, 80% complete, certifies
that systems are Year 2000 compliant and will be accepted by the end users. The
Implementation Phase is scheduled to be substantially complete by June 30, 1999.
The Bank has completed the development of test and validation methodologies for
its Information Technology systems. Testing of applications was substantially
completed by December 31, 1998. In some cases, the bank will rely on service
providers and software vendors to facilitate proxy testing with a selected group
of users. The Bank will review the test plans and validate the results of the
proxy testing to ensure the Year 2000 compliance of those systems. The Bank's
business also uses non-IT products and services, some of which have embedded
technology, which might not be ready for the Year 2000 date change. Some non-IT
products and services involve infrastructure issues such as power,
communications and water, as well as ventilation, vault operations and air
conditioning equipment. The Bank classifies power and communications as non-IT
products and considers them to be of significant importance, giving them a high
priority. Based on responses from vendors and software providers, the Bank does
not anticipate incurring any material expenses owed to unpreparedness. The Bank
has identified material third party relationships to minimize the potential loss
from unpreparedness of these parties. The testing and validation of these
systems was substantially completed by December 31, 1998.
The Bank is making efforts to ensure that its customer base is aware of the Year
2000 problem. Year 2000 correspondence has been sent to both deposit and loan
customers. The Bank has amended its credit authorizations and documentation to
include consideration regarding the Year 2000 problem. Significant customer
relationships have been identified, and such customers are being contacted by
the Bank's employees to determine whether they are aware of Year 2000 risks and
whether they are taking corrective actions.
The total cost to the Bank of these Year 2000 compliance activities was
approximately $10,000 for 1998, and none through the first quarter of 1999. The
Bank is expensing all costs associated with the necessary modifications during
the period in which they are incurred. These costs and the date on which the
Bank plans to complete the Year 2000 modification and testing processes are
based on management's best estimates, which were derived utilizing numerous
assumptions of future events including the continued availability of certain
resources, third party modification plans and other factors. The costs incurred
in 1998 did not have a material effect on the Bank's reported earnings for 1998
and the Bank does not expect the costs incurred for the same period in 1999 to
have a material effect on net income. It is anticipated that any disruption of
services would be partial and brief, and that there will not be a material
impact on revenues or earnings.
The Bank is developing contingency plans to address the possibility that efforts
to mitigate Year 2000 risk are not successful either in whole or in part. These
plans will include remedial efforts up to and including complete manual
processing of information for critical IT systems in the event that there is a
failure after December 31, 1999. These plans, along with all associated
implementation training, should be completed by June 30, 1999.
The factors that may cause actual results to differ materially from those
contemplated may include the failure by third parties to adequately remediate
Year 2000 issues or the inability of the Bank to complete writing and/or testing
software changes on time schedules currently expected. Nevertheless, the Bank
expects that its Year 2000 compliance efforts will be successful without any
adverse effects on its business.
-15-
<PAGE>
PART II
Item 1. LEGAL PROCEEDINGS
The Bank is involved in litigation in the ordinary course of its business,
particularly in connection with certain nonperforming loans. In the first
quarter of 1999, legal expenses related to nonperforming loans were significant,
and such expenses are likely to continue into the remainder of 1999. See
"Management's Discussion and Analysis - Other Operating Expense." In the opinion
of management, the ultimate outcome of current pending and threatened litigation
is not expected to have a material adverse effect on the Bank's financial
condition and results of operations.
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS - NONE
Item 3. DEFAULTS UPON SENIOR SECURITIES - NONE
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - NONE
Item 5. OTHER INFORMATION - NONE
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - None
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the period ended
March 31, 1999.
-16-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
SIX RIVERS NATIONAL BANK
(Registrant)
By /s/ MICHAEL W. MARTINEZ
-----------------------------------------
Michael W. Martinez
President, Chief Executive Officer
and Principal Financial Officer
-17-
EXHIBIT 99.4
FORM 10-QSB/A
AMENDMENT NO. 1
OFFICE OF THE COMPTROLLER OF THE CURRENCY
WASHINGTON, D.C. 20219
[X] Quarterly Report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the Quarterly Period Ended June 30, 1999.
--------------
or
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Transition Period from _____________ to ___________
OCC File Number:
-----------------------
SIX RIVERS NATIONAL BANK
------------------------------------------------------
(Exact name of registrant as specified in its charter)
United States 68-0176905
------------------------------- ----------------------
(State or other jurisdiction of IRS Employer ID Number
incorporation or organization)
402 F Street, Eureka, California 95501
----------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code: (707) 443-8400
--------------
Former name, former address and former fiscal year, if changed since last
report: Not applicable.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of July 13, 1999: 1,463,258.
Transitional Small Business Disclosure Format (check one) Yes [ ] No [X]
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SIX RIVERS NATIONAL BANK
CONDENSED BALANCE SHEETS
(in thousands except share amounts)
- --------------------------------------------------------------------------------
See notes to condensed financial statements (unaudited).
-2-
<PAGE>
<TABLE>
<CAPTION>
SIX RIVERS NATIONAL BANK
CONDENSED BALANCE SHEET
(Unaudited)
(In thousands except share amounts)
- --------------------------------------------------------------------------------
June 30, 1999 December 31,
(Unaudited) 1998
------------- ------------
<S> <C> <C>
ASSETS
Cash and Cash Equivalents:
Cash and due from banks $ 10,154 $ 8,357
Federal funds sold & repurchase agreements -- 9,330
--------- ---------
Total cash and cash equivalents 10,154 17,687
Interest bearing deposits in other financial
institutions, at fair value 6,581 6,196
Held to maturity securities, at cost 1,485 1,485
Available for sale securities, at fair value 63,655 59,792
--------- ---------
Total securities 65,140 61,277
Loans held for sale -- 17,125
Loans receivable 108,360 89,903
Less: Allowance for loan losses (2,960) (2,802)
Deferred loan fees, net (56) (75)
--------- ---------
Net loans receivable 105,344 87,026
Interest receivable and other assets 3,203 3,586
Premises and equipment, net of accumulated
depreciation and amortization 4,544 5,094
Goodwill and core deposit intangible, net of amortization 4,739 4,891
Other real estate owned 278 354
--------- ---------
TOTAL ASSETS $ 199,983 $ 203,236
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits:
Noninterest-bearing $ 23,386 $ 25,260
Interest-bearing 124,521 134,385
Time, $100,000 and over 22,833 23,287
--------- ---------
Total deposits 170,740 182,932
Other borrowed funds 9,238 677
Interest payable and other liabilities 1,379 1,107
--------- ---------
Total liabilities 181,357 184,716
--------- ---------
</TABLE>
See notes to condensed financial statements (unaudited)
-3-
<PAGE>
SIX RIVERS NATIONAL BANK
CONDENSED STATEMENTS OF INCOME / (LOSS)
(Unaudited)
(in thousands except for earnings per share)
- --------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30,
-------------------------
1999 1998
------- -------
INTEREST INCOME
Loans and loan fees $ 4,801 $ 4,866
Securities:
U.S. Treasury securities and government agencies 1,591 1,577
Other 566 238
Federal funds sold & repurchase agreements 91 571
------- -------
Total interest income 7,049 7,252
INTEREST EXPENSE:
Deposits 2,697 2,923
Other borrowings 168 44
------- -------
Total interest expense 2,865 2,967
------- -------
NET INTEREST INCOME 4,184 4,285
PROVISION FOR LOAN LOSSES 220 1,420
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 3,964 2,865
NONINTEREST INCOME:
Customer service fees 604 556
Other income 265 207
------- -------
Total noninterest income 869 763
NONINTEREST EXPENSE:
Salaries and employee benefits 1,977 1,587
Occupancy 589 556
Other 1,271 1,782
------- -------
Total noninterest expense 3,837 3,925
------- -------
INCOME / (LOSS) BEFORE PROVISION /
(BENEFIT) FOR INCOME TAXES 996 (297)
PROVISION / (BENEFIT) FOR INCOME TAXES 414 (119)
------- -------
NET INCOME / (LOSS) $ 582 $ (178)
======= =======
EARNINGS / (LOSS) PER SHARE
Basic $ 0.40 $ (0.12)
======= =======
Diluted $ 0.40 $ (0.12)
======= =======
See notes to condensed financial statements (unaudited)
-4-
<PAGE>
SIX RIVERS NATIONAL BANK
CONDENSED STATEMENTS OF INCOME / (LOSS)
(Unaudited)
(in thousands except for earnings per share)
- --------------------------------------------------------------------------------
THREE MONTHS ENDED JUNE 30,
---------------------------
1999 1998
------- -------
INTEREST INCOME
Loans and loan fees $ 2,363 $ 2,621
Securities:
U.S. Treasury securities and government agencies 777 904
Other 304 166
Federal funds sold & repurchase agreements 34 62
------- -------
Total interest income 3,478 3,753
INTEREST EXPENSE:
Deposits 1,329 1,465
Other borrowings 79 25
------- -------
Total interest expense 1,408 1,490
------- -------
NET INTEREST INCOME 2,070 2,263
PROVISION FOR LOAN LOSSES 70 1,280
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 2,000 983
NONINTEREST INCOME:
Customer service fees 306 277
Other income 116 120
------- -------
Total noninterest income 422 397
NONINTEREST EXPENSE:
Salaries and employee benefits 967 772
Occupancy 310 287
Other 695 1,171
------- -------
Total noninterest expense 1,972 2,230
------- -------
INCOME / (LOSS) BEFORE PROVISION /
(BENEFIT) FOR INCOME TAXES 450 (850)
PROVISION / (BENEFIT) FOR INCOME TAXES 189 (346)
------- -------
NET INCOME / (LOSS) $ 261 $ (504)
======= =======
EARNINGS / (LOSS) PER SHARE
Basic $ 0.18 $ (0.35)
======= =======
Diluted $ 0.18 $ (0.35)
======= =======
-5-
<PAGE>
<TABLE>
<CAPTION>
SIX RIVERS NATIONAL BANK
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
SIX MONTHS ENDED JUNE 30, 1999 AND 1998
- -----------------------------------------------------------------------------------------------------
1999 1998
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income / (loss) $ 582 $ (178)
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 436 413
Amortization and accretion on securities 109 61
Origination of loans held for sale (3,826) (13,723)
Proceeds from sales of loans 657 4,917
Gain on the sale of loans 2 16
Benefit for deferred taxes (355) (71)
Provision for loan losses 220 1,890
Effect of changes in:
Accrued interest receivable and other assets 297 (508)
Accrued interest payable and other liabilities 272 424
-------- --------
Net cash used in operating activities (1,606) (6,843)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of available-for-sale securities (6,032) (49,195)
Proceeds from maturities, calls, or repayments of available
for sale securities 3,579 2,713
Purchases of FHLB, Fed Reserve & other securities (994) (1,500)
Net change in interest bearing deposits in other financial institutions (385) (208)
Net change in loans receivable 1,754 (16,012)
Proceeds from sale of other real estate owned 76 --
Purchases of premises and equipment (308) (231)
-------- --------
Net cash provided by / (used in) investing activities (2,310) (64,433)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits (12,192) 4,820
Net change in other borrowed funds 8,561 145
Common stock options exercised 14 261
-------- --------
Net cash provided by / (used in) financing activities (3,617) 5,226
-------- --------
DECREASE IN CASH AND CASH EQUIVALENTS (7,533) (66,050)
CASH AND CASH EQUIVALENTS, beginning of period 17,687 76,835
-------- --------
CASH AND CASH EQUIVALENTS, end of period $ 10,154 $ 10,785
======== ========
ADDITIONAL INFORMATION:
Cash paid during the period for:
Interest $ 2,936 $ 2,850
======== ========
Taxes $ 49 $ --
======== ========
Noncash transactions:
Transfer of foreclosed loans from loans receivable to
other real estate owned $ -- $ 84
======== ========
Transfer of held for sale loans to loans held for
investment $ 21,115 $ --
======== ========
See notes to condensed financial statements (unaudited).
</TABLE>
-6-
<PAGE>
SIX RIVERS NATIONAL BANK
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1999 AND DECEMBER 31, 1998
AND THE THREE AND SIX MONTHS ENDED JUNE 30, 1999 AND 1998
NOTE A-BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements of Six Rivers National
Bank ("the Bank") have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-QSB and Article 10 of Regulation S-X. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation of the results for the interim periods
presented have been included. They do not, however, include all the information
and footnotes required by generally accepted accounting principles for annual
financial statements. For further information refer to the Bank's financial
statements and notes thereto included in the Bank's annual report on Form 10-KSB
for the fiscal year ended December 31, 1998. Operating results for the six
months ended June 30, 1999 are not necessarily indicative of the results that
may be expected for the year ended December 31, 1999.
NOTE B-COMPREHENSIVE INCOME
Comprehensive income consists of net income and other comprehensive income. The
Bank's only sources of other comprehensive income are derived from unrealized
gains and losses on investment securities available-for-sale. Reclassification
adjustments resulting from gains or losses on investment securities that were
realized and included in net income of the current period that also had been
included in other comprehensive income as unrealized holding gains or losses in
the period in which they arose are excluded from comprehensive income of the
current period. The Bank's total comprehensive earnings were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30,
(IN THOUSANDS) (IN THOUSANDS)
-------------------- -------------------
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net Income / (loss) $ 582 $ (178) $ 261 $ (504)
Other comprehensive income / (loss):
Unrealized holding loss on available for sale securities
(net of taxes of $355 and $49 for the six months ended
June 30, 1999 and 1998 and net of taxes of $381 and $11
for the three months ended June 30, 1999 and 1998) (525) (67) (527) (14)
------- ------- ------- -------
Total Comprehensive Income / (loss) $ 57 $ (245) $ (266) $ (518)
======= ======= ======= =======
</TABLE>
-7-
<PAGE>
NOTE C-EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income available to common
shareholders by the weighted average common shares outstanding for the period.
Diluted earnings per share reflect the potential dilution that could occur if
options or other contracts to issue common stock were exercised and converted
into common stock.
There was no difference in the numerator used in the calculation of basic
earnings per share and diluted earnings per share. The following reconciles the
denominator used in the calculation of basic earnings per common share and
diluted earnings per common and equivalent share for each of the periods
indicated:
<TABLE>
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30,
(DOLLARS IN THOUSANDS (DOLLARS IN THOUSANDS
EXCEPT PER SHARE AMOUNTS) EXCEPT PER SHARE AMOUNTS)
------------------------- -------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Calculation of Basic Earnings Per Share:
Numerator - net income / (loss) $ 582 $ (178) $ 261 $ (503)
Denominator - weighted average common
shares outstanding 1,461,872 1,454,246 1,462,100 1,436,438
----------- ----------- ----------- -----------
Basic Earnings / (Loss) Per Share $ 0.40 $ (0.12) $ 0.18 $ (0.35)
=========== =========== =========== ===========
Calculation of Diluted Earnings Per Share:
Numerator - net income / (loss) $ 582 $ (178) $ 261 $ (503)
Denominator:
Weighted average common shares outstanding 1,461,872 1,454,246 1,462,100 1,436,438
Dilutive effect of outstanding options 8,497 15,521
----------- ----------- ----------- -----------
Weighted average common shares outstanding -
diluted 1,470,369 1,454,246 1,477,621 1,436,438
=========== =========== ----------- ===========
Diluted Earnings / (Loss) Per Share $ 0.40 $ (0.12) $ 0.18 $ (0.35)
=========== =========== =========== ===========
</TABLE>
NOTE D-NEW ACCOUNTING PRONOUNCEMENTS
In June 1999, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 137, Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133. This statement defers the effective date of FASB Statement No
133, which shall now be effective for all fiscal quarters of all fiscal years
beginning after June 15, 2000. The Bank is in the process of determining the
impact of adopting SFAS No. 133 on the Bank's financial position and results of
operations.
NOTE E-CONSENT ORDER
On April 12, 1999 the Office of the Comptroller of the Currency required the
Bank to enter into a Consent Order ("Order"). The language of the Order requires
that the Bank formulate and implement a plan to strengthen its policies and
procedures relative to its loan administration, credit and collateral
exceptions, classified assets, allowances for loan losses and violations of law
related to lending limits. The Board of Directors has agreed to execute this
Order and is following an action plan that details the steps necessary to comply
with the Order.
-8-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THE FOLLOWING MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. WORDS SUCH AS "EXPECTS", "ANTICIPATES", "BELIEVES", "ESTIMATES",
VARIATIONS OF SUCH WORDS AND OTHER SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY
SUCH FORWARD-LOOKING STATEMENTS. THE BANK'S ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A
RESULT OF CERTAIN FACTORS, INCLUDING, BUT NOT LIMITED TO, THE FOLLOWING FACTORS:
RISKS RELATED TO THE BANK'S ABILITY TO MANAGE GROWTH, PARTICULARLY GROWTH IN ITS
COMMERCIAL LOAN PORTFOLIO; COMPETITION FROM OTHER FINANCIAL INSTITUTIONS IN THE
BANK'S MARKETS; CHANGES IN THE GENERAL ECONOMIC CLIMATE; THE RESULTS OF
REGULATORY OVERSIGHTS OF THE BANK; CHANGES IN THE INTEREST RATE ENVIRONMENT; AND
ADVERSE CHANGES IN THE GENERAL ECONOMIC CONDITIONS, EITHER NATIONALLY OR
REGIONALLY, WHICH MAY IMPACT THE CREDIT QUALITY AND THEREFORE IMPACT THE BANK'S
LEVEL OF PROVISIONS FOR POSSIBLE LOAN LOSSES.
The following discussion provides additional information about the results of
operations and financial condition of the Bank for the three- and six-month
periods ended June 30, 1999 and 1998. The following discussion should be read in
conjunction with the financial statements of the Bank and the notes thereto.
SUMMARY OF FINANCIAL RESULTS
As of June 30, 1999, total assets of the Bank were $200.0 million, net loans
totaled $105.3 million and deposits totaled $170.7 million. Total assets
decreased $3.3 million or (1.6%) while net loans increased 1.1% or approximately
$1.2 million from $104.2 million as of December 31, 1998. Deposits decreased
6.7% or approximately $12.2 million from $182.9 million as of December 31, 1998.
NET INCOME
Net income for the six months ended June 30, 1999 was $582,000, or $0.40 per
diluted share compared to a net loss of ($178,000), or ($0.12) per share for the
six months ended June 30, 1998. The Bank's annualized return on average assets
for the six months ended June 30, 1999 and 1998 was 0.58% and (0.18%),
respectively. The Bank's annualized return on average equity for the six months
ended June 30, 1999 and 1998 was 6.20% and (1.79%), respectively. The increase
in net earnings was attributable primarily to far lower loan loss provisions and
reduced problem asset expense. Net income for the three months ending June 30,
1999 was $261,000, a $765,000 increase over the three months ended June 30,
1998. Diluted earnings per share were $0.18 for the three months ending June 30,
1999 compared to a ($0.35) loss per diluted share at June 30, 1998.
NET INTEREST INCOME AND NET INTEREST MARGIN
For the six months ended June 30, 1999, net interest income was $4,184,000, a
decrease of approximately $101,000 or (2.4%) from $4,285,000 for the six months
ended June 30, 1998. The net interest margin (net interest income as a
percentage of average interest-earning assets) was 4.51% for the six months
ended June 30, 1999 and 4.89% for the six months ended June 30, 1998. The
decrease in net interest margin is due primarily to a decline in interest rates.
The average rate on interest earning assets for the six months ended June 30,
1999 was 7.60% compared with 8.28% for the six months ended June 30, 1998. The
decrease in the average rate on earning assets was partially offset by a
decrease in the average rate paid on interest-bearing liabilities. For the six
months ended June 30, 1999, the average rate paid on interest-bearing
liabilities was 3.61%, compared with 3.96% for the six months ended June 30,
1998. For the six months ended June 30, 1999 and June 30, 1998, average total
loans as a percentage of average total deposits were 61.5% and 56.8%,
respectively.
For the three months ended June 30, 1999, net interest income was $2,070,000, a
decrease of approximately $193,000 or (8.5%) from $2,263,000 for the three
months ended June 30, 1998. The net interest margin (net interest income as a
percentage of average interest-earning assets) was 4.49% for the three months
ended June 30, 1999 and 5.12% for the three months ended June 30, 1998. The
decrease in net interest margin is due primarily to a decline in interest rates.
The average rate on interest earning assets for the three months ended June 30,
1999 was 7.55% compared with 8.49% for the three months ended June 30, 1998. For
the three months ended June 30, 1999, the average rate paid on interest-bearing
-9-
<PAGE>
liabilities was 3.58%, compared with 3.94% for the three months ended June 30,
1998. For the three months ended June 30, 1999 and June 30, 1998, average total
loans as a percentage of average total deposits were 62.2% and 60.4%,
respectively.
The following tables present condensed average balance sheet information for the
Bank, together with interest rates earned and paid on the various sources and
uses of its funds for each of the periods indicated. Nonaccrual loans are
included in the tables for computational purposes, but the foregone interest on
such loans is excluded.
<TABLE>
<CAPTION>
AVERAGE BALANCE SHEET AND ANALYSIS OF NET INTEREST INCOME
(Dollars in thousands)
FOR THE SIX MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, 1999 ENDED JUNE 30, 1998
------------------------------- -----------------------------
Interest Interest
Average Income/ Average Average Income/ Average
Balance Expense Rate Balance Expense Rate
---------- ------- ----- --------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
INTEREST-EARNING ASSETS:
Interest-bearing deposits in other financial institutions $ 5,707 $ 189 6.62 % $ 3,853 $ 129 6.70%
Federal funds sold and repurchase agreements 3,819 91 4.77 19,646 571 5.81
Taxable investment securities 63,931 1,849 5.78 52,849 1,661 6.29
Nontaxable investment securities (1) 4,165 119 5.71 952 25 5.25
LOANS: (2)
Commercial and industrial 53,448 2,390 8.94 55,573 2,866 10.31
Real estate mortgage and construction 36,539 1,406 7.70 24,335 935 7.68
Installment and other 17,979 843 9.38 18,067 879 9.73
Fees on loans 162 186
---------- ------- ----- --------- ------- -------
Total Loans 107,966 4,801 8.89 97,975 4,866 9.93
---------- ------- ----- --------- ------- -------
Total earning assets 185,588 7,049 7.60 175,275 7,252 8.28
NONEARNING ASSETS:
Cash and due from banks 7,369 9,310
Premises and equipment 4,581 4,404
Interest receivable and other assets 7,292 6,654
Allowance for loan losses (2,903) (1,127)
Other real estate owned 341 384
---------- ---------
Total nonearning assets 16,680 19,625
---------- ---------
TOTAL ASSETS $ 202,268 $ 194,900
========== =========
LIABILITIES
INTEREST-BEARING LIABILITIES:
Demand, savings and money market deposits $ 81,324 $ 958 2.36 % $ 77,672 $ 1,004 2.59%
Time deposits 70,374 1,739 4.94 70,535 1,919 5.44
---------- ------- ----- --------- ------- -------
Total interest-bearing deposits 151,698 2,697 3.56 148,207 2,923 3.94
Other borrowed funds 7,131 168 4.71 1,560 44 5.64
---------- ------- ----- --------- ------- -------
Total interest-bearing liabilities 158,829 2,865 3.61 149,767 2,967 3.96
---------- ------- ----- --------- ------- -------
NONINTEREST-BEARING LIABILITIES
Demand deposits 23,783 24,351
Accrued interest, taxes and other liabilities 908 953
---------- ---------
Total noninterest-bearing liabilities 24,691 25,304
---------- ---------
Total liabilities 183,520 175,071
Shareholders' equity 18,748 19,829
---------- ---------
Total liabilities and shareholders' equity $ 202,268 $ 194,900
========== =========
Net interest income $ 4,184 $ 4,285
======= =======
Net interest spread (3) 3.99% 4.31%
===== =======
Net interest margin (4) 4.51% 4.89%
===== =======
</TABLE>
(1) Interest on municipal securities is not computed on a tax-equivalent basis.
(2) Includes loans on nonaccrual but excludes nonaccrual interest.
(3) Net interest spread is the difference between the yield on average total
interest-earning assets and the rate paid on average interest-bearing
liabilities.
(4) Net interest margin is computed by dividing net interest income by total
average interest-earning assets.
-10-
<PAGE>
<TABLE>
<CAPTION>
AVERAGE BALANCE SHEET AND ANALYSIS OF NET INTEREST INCOME
(Dollars in thousands)
FOR THE THREE MONTHS FOR THE THREE MONTHS
ENDED JUNE 30, 1999 ENDED JUNE 30, 1998
------------------------------- -----------------------------
Interest Interest
Average Income/ Average Average Income/ Average
Balance Expense Rate Balance Expense Rate
---------- ------- ----- --------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
INTEREST-EARNING ASSETS:
Interest-bearing deposits in other financial institutions $ 6,416 $ 95 5.92% $ 4,918 $ 64 5.21%
Federal funds sold and repurchase agreements 2,852 34 4.77 3,804 62 6.52
Taxable investment securities 62,604 926 5.92 61,900 988 6.38
Nontaxable investment securities (1) 4,164 60 5.76 1,393 18 5.17
LOANS: (2)
Commercial and industrial 52,441 1,172 8.94 58,010 1,521 10.49
Real estate mortgage and construction 38,326 725 7.57 27,398 553 8.07
Installment and other 17,485 414 9.47 19,360 460 9.50
Fees on loans 52 87
---------- ------- ----- --------- ------- -------
Total Loans 108,252 2,363 8.73 104,768 2,621 10.01
---------- ------- ----- --------- ------- -------
Total earning assets 184,288 3,478 7.55 176,783 3,753 8.49
NONEARNING ASSETS:
Cash and due from banks 7,232 8,577
Premises and equipment 4,586 4,365
Interest receivable and other assets 7,505 7,150
Allowance for loan losses (2,932) (1,143)
Other real estate owned 278 426
---------- ---------
Total nonearning assets 16,669 19,375
---------- ---------
TOTAL ASSETS $ 200,957 $ 196,158
========== =========
LIABILITIES
INTEREST-BEARING LIABILITIES:
Demand, savings and money market deposits $ 80,779 $ 476 2.36% $ 78,230 $ 498 2.55%
Time deposits 69,784 853 4.89 71,102 967 5.44
---------- ------- ----- --------- ------- -------
Total interest-bearing deposits 150,563 1,329 3.53 149,332 1,465 3.92
Other borrowed funds 6,794 79 4.65 1,903 25 5.25
---------- ------- ----- --------- ------- -------
Total interest-bearing liabilities 157,357 1,408 3.58 151,235 1,490 3.94
---------- ------- ----- --------- ------- -------
NONINTEREST-BEARING LIABILITIES
Demand deposits 23,377 24,049
Accrued interest, taxes and other liabilities 1,325 982
---------- ---------
Total noninterest-bearing liabilities 24,702 25,031
---------- ---------
Total liabilities 182,059 176,266
Shareholders' equity 18,898 19,892
---------- ---------
Total liabilities and shareholders' equity $ 200,957 $ 196,158
========== =========
Net interest income $ 2,070 $ 2,263
======= =======
Net interest spread (3) 3.97% 4.55%
===== =======
Net interest margin (4) 4.49% 5.12%
===== =======
</TABLE>
(1) Interest on municipal securities is not computed on a tax-equivalent basis.
(2) Includes loans on nonaccrual but excludes nonaccrual interest.
(3) Net interest spread is the difference between the yield on average total
interest-earning assets and the rate paid on average interest-bearing
liabilities.
(4) Net interest margin is computed by dividing net interest income by total
average interest-earning assets.
-11-
<PAGE>
The following table sets forth, for the period indicated, a summary of the
changes in average asset and liability balances and interest earned and interest
paid resulting from changes in average asset and liability balances (volume) and
changes in average interest rates. Nonaccrual loans are included in the table
for computational purposes, but the foregone interest on such loans is excluded.
<TABLE>
<CAPTION>
RATE/VOLUME ANALYSIS OF NET INTEREST INCOME
(Dollars in thousands)
SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30, 1999 JUNE 30, 1999
COMPARED TO COMPARED TO
SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30, 1998 JUNE 30, 1998
------------------------------ -----------------------------
CHANGE DUE TO CHANGE DUE TO
------------------------------ -----------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
VOLUME RATE TOTAL VOLUME RATE TOTAL
-------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
Interest-bearing deposits
in other financial institutions $ 62 $ (2) $ 60 $ 19 $ 12 $ 31
Federal funds sold (460) (20) (480) (16) (12) (28)
Taxable investment securities 348 (160) 188 11 (73) (62)
Nontaxable investment securities 84 10 94 36 6 42
Total loans 496 (561) (65) 87 (345) (258)
-------- ------- ------- ------- ------- -------
Total interest income $ 530 $ (733) $ (203) $ 137 $ (412) $ (275)
======== ======= ======= ======= ======= =======
INTEREST EXPENSE
Demand, savings and
money market deposits $ 47 $ (93) $ (46) $ 16 $ (38) $ (22)
Time deposits (4) (176) (180) (18) (96) (114)
Other borrowings 157 (33) 124 64 (10) 54
-------- ------- ------- ------- ------- -------
Total interest expense 200 (302) (102) 62 (144) (82)
-------- ------- ------- ------- ------- -------
Net interest margin $ 330 $ (431) $ (101) $ 75 $ (268) $ (193)
======== ======= ======= ======= ======= =======
</TABLE>
NON INTEREST INCOME AND EXPENSE
Non Interest Income
Noninterest income for the six months ended June 30, 1999 was $869,000, an
increase of $106,000 or 13.9% from the $763,000 for the six months ended June
30, 1998. Primarily driving the increase was higher fees charged for deposit
accounts and an increase in the value of the Bank's mortgage servicing asset.
Noninterest income for the three months ended June 30, 1999 was $422,000, an
increase of $25,000 or 6.3% from $397,000 for the quarter ended June 30, 1998.
Higher fees charged for deposit accounts were primarily responsible for the
increase.
Non Interest Expense
For the six months ended June 30, 1999 total noninterest expense was $3,837,000,
compared with $3,925,000 for the six months ended June 30, 1998. The decrease in
total noninterest expense was primarily due to lower problem loan expense and
reduced correspondent bank service charges included in other noninterest
expense, which decreased $511,000, or (28.6%), to $1,271,000 for the six months
ended June 30, 1999 from $1,782,000 for the six months ended June 30, 1998.
-12-
<PAGE>
These improvements were offset by higher personnel expense, which increased
24.6% or $390,000, to $1,977,000 for the six months ended June 30, 1999 from
$1,587,000 for the six months ended June 30, 1998. The increase in personnel
expense was due primarily to an increase in the number of employees included in
the commercial lending and credit administration functions.
For the three months ended June 30, 1999 total noninterest expense was
$1,972,000, compared with $2,230,000 for the three months ended June 30, 1998.
The decrease in total noninterest expense was primarily due to lower problem
loan expense and reduced correspondent bank service charges included in other
noninterest expense, which decreased approximately $476,000, or (40.6%), to
$695,000 for the three months ended June 30, 1999 from $1,171,000 for the three
months ended June 30, 1998. These improvements were offset by higher personnel
expense, which increased 25.2% or $195,000, to $967,000 for the three months
ended June 30, 1999 from $772,000 for the three months ended June 30, 1998. The
increase in personnel expense was due primarily to an increase in the number of
employees included in the commercial lending and credit administration
functions.
Provision (Benefit) for Income Taxes
For the six months ended June 30, 1999, the provision for income taxes was
$414,000 on income before income taxes of $996,000, for an effective tax rate of
41.6%. For the six months ended June 30, 1998, the benefit for income taxes was
$(119,000) on a pre-tax net loss of $(297,000), for an effective tax rate of
(40.1%). For the three months ended June 30, 1999, the provision for income
taxes was $189,000 on income before income taxes of $450,000, for an effective
tax rate of 42.0%. For the three months ended June 30, 1998, the benefit for
income taxes was $(346,000) on a pre-tax net loss of $(850,000), for an
effective tax rate of (40.7%).
FINANCIAL CONDITION
Investment Portfolio
As of June 30, 1999, investment securities comprised 32.6% of total assets and
36.3% of interest-earning assets. Certain equity securities of the Federal Home
Loan Bank, the Federal Reserve and others that the Bank does not intend to sell
are included in other assets and carried at amortized cost. The following table
sets forth the composition of the investment portfolio by major categories at
June 30, 1999 and December 31, 1998.
<TABLE>
<CAPTION>
INVESTMENT PORTFOLIO
(Dollars in thousands)
AT JUNE 30, 1999 AT DECEMBER 31, 1998
---------------------- ----------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
--------- --------- --------- --------
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE SECURITIES:
U.S. Treasury securities $ 1,500 $ 1,492 $ 1,499 $ 1,504
Federal National Mortgage Association Securities 21,955 21,676 22,566 22,465
Federal Home Loan Mortgage Corporation Securities 16,914 16,782 12,524 12,531
Corporate and other securities 18,434 18,147 11,147 11,145
Obligations of foreign governments 505 517 507 529
Other U.S. government agency securities 5,251 5,041 11,608 11,618
--------- --------- --------- --------
Total Investments $ 64,559 $ 63,655 $ 59,851 $ 59,792
========= ========= ========= ========
HELD TO MATURITY SECURITIES:
Corporate and other securities $ 1,485 $ 1,559 $ 1,485 $ 1,500
========= ========= ========= ========
</TABLE>
The Bank does not own securities of a single issuer (other than U.S. Government
agencies and corporations) whose aggregate book value is in excess of 10% of its
total equity.
-13-
<PAGE>
Loan Portfolio
The following table shows the composition of the Bank's loan portfolio by amount
and percentage of total loans in each major loan category at the dates
indicated.
<TABLE>
<CAPTION>
COMPOSITION OF LOAN PORTFOLIO
(Dollars in thousands)
AT JUNE 30, 1999 AT DECEMBER 31, 1998
--------------------- ----------------------
AMOUNT PERCENT AMOUNT PERCENT
--------- ------- ---------- -------
<S> <C> <C> <C> <C>
Commercial $ 31,378 29.0% $ 33,559 31.4%
Real estate-commerical 21,239 19.6 23,440 21.9
Real estate-mortgage 45,503 42.0 36,956 34.6
Real estate-construction 3,382 3.1 4,907 4.6
Installment 6,802 6.3 8,091 7.6
--------- ------- ---------- ------
Total $ 108,304 100.0% $ 106,953 100.0%
========= ======= ========== ======
</TABLE>
(1) Amounts include Deferred Loan Fees
Commercial loans at June 30, 1999 included approximately $11,600,000 in loans
with government guarantees ranging from 64% to 90% of the principal balance.
On April 21, 1999 the Bank transfered approximately $21.0 million of real estate
loans formerly classified as held-for-sale to held-to-maturity status. These
assets were transferred at cost, which was approximately equal to fair market
value at the time of transfer. This decision followed a change in policy, the
primary purpose of which was to enable this pool of assets to serve as pledgable
collateral for future Federal Home Loan Bank borrowings.
During the second quarter of 1999 the Bank formed strategic alliances with two
companies that specialize in the origination of consumer loans. These loans are
extended to borrowers with strong credit ratings and add both geographic and
product diversity to the loan portfolio mix. Under both arrangements the bank
will establish the credit criteria and carefully manage credit exposure.
At June 30, 1999 the Bank had approximately $12,300,000 in undisbursed loan
commitments. This compares with undisbursed commitments of approximately
$14,279,000 at December 31, 1998. Standby letters of credit were not significant
at either June 30, 1999 or December 31, 1998.
-14-
<PAGE>
Summary of Loan Loss Experience
The following table sets forth an analysis of the allowance for loan losses and
provisions for loan losses for the periods indicated.
<TABLE>
<CAPTION>
ALLOWANCE FOR LOAN LOSSES
(Dollars in thousands)
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
JUNE 30, DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
Balance at beginning of period $ 2,802 $ 1,159
Loans charged off:
Commercial 33 1,952
Real estate-construction -- 3
Real estate-mortgage -- --
Installment 62 395
---------- ---------
Total charge-offs 95 2,350
Recoveries
Commercial 10 49
Real estate-construction 2 --
Real estate-mortgage -- --
Installment 21 40
---------- ---------
Total recoveries 33 89
---------- ---------
Net charge-offs 62 2,261
Provision for loan losses 220 3,904
---------- ---------
Balance at end of period $ 2,960 $ 2,802
========== =========
Total loans at end of period $ 108,360 $ 107,028
========== =========
Average total loans outstanding $ 107,966 $ 102,481
Net charge-offs to average loans 0.11% 2.21%
Allowance for Loan Losses to nonperforming loans 81.72% 89.18%
Allowance for Loan Losses to total loans 2.73% 2.62%
</TABLE>
The Bank maintains an allowance for loan losses to absorb inherent losses in the
portfolio. Management attributes general reserves to different types of loans
using percentages which are based upon perceived risk associated with the
portfolio and underlying collateral. The allowance for loan losses is a general
reserve available against the total loan portfolio and off balance sheet items.
While management uses available information to recognize losses on loans, future
additions to the allowance may be necessary based on changes in economic
conditions. In addition, various regulatory agencies, as an integral part of
their examination process, periodically review the Bank's allowance for possible
loan losses. Such agencies may require the Bank to provide additions to the
allowance based on their judgement of information available to them at the time
of their examination. At June 30, 1999, based on known information, management
believed that the allowance for loan losses was adequate to absorb losses
inherent in existing loans and commitments to extend credit, based on
evaluations of the collectibility and prior loss experience of loans and
commitments to extend credit as of such date.
The evaluation process is designed to determine the adequacy of the allowance
for loan losses. This process attempts to assess the risk of losses inherent in
the portfolio by segregating the allowance for loan losses into two components:
"Specific" and "General." The specific component is established by allocating a
portion of the allowance for loan losses to individual classified credits on the
basis of specific circumstances and assessments. In determining the general
component of the allowance for loan loss, management takes into consideration
growth trends in the portfolio, examination results of financial institution
supervisory authorities, prior loan loss experience, concentrations of credit
risk, delinquency trends, collateral coverage, general economic conditions, the
interest rate environment and internal and external credit reviews. In addition,
the risks management considers vary depending on the nature of the loan.
-15-
<PAGE>
The allowance for loan losses is based on estimates. Realized future losses may
vary from current estimates. It is always possible that future economic or other
factors may adversely affect the Bank's borrowers, and thereby cause loan losses
to exceed the current allowance. In addition, there can be no assurance that
future economic or other factors will not adversely affect the Bank's borrowers,
or that the Bank's asset quality may not deteriorate through rapid growth,
failure to maintain appropriate underwriting standards, failure to maintain an
adequate number of qualified loan personnel, failure to identify and monitor
potential problem loans or for other reasons, and thereby cause loan losses to
exceed the current allowance.
As of June 30, 1999, the allowance for loan losses was $2,960,000 compared to
$2,802,000 at December 31, 1998, an increase of 5.6%. When a loan is considered
uncollectible by management it is charged against the allowance for loan losses.
Any recoveries of previously charged off loans are credited back to the
allowance. Net charge-offs for the six months ended June 30, 1999 were
approximately $62,000, a decrease of (96.5%) compared to approximately
$1,759,000 for the six months ended June 30, 1998. For the six months ended June
30, 1999 the Bank's provision for loan losses totaled $220,000, a (84.5%)
decrease from $1,420,000 for the six months ended ended June 30, 1998. Net
charge-offs for the three months ended June 30, 1999 were approximately $35,000,
a decrease of (97.8%) compared to approximately $1,617,000 for the three months
ended June 30, 1998. For the three months ended June 30, 1999 the Bank's
provision for loan losses totaled $70,000, a (94.5%) decrease from $1,280,000
for the three months ended ended June 30, 1998.
NONPERFORMING ASSETS
Nonperforming assets consist of nonperforming loans and other real estate owned.
Nonperforming loans are those in which the borrower fails to perform under the
original terms of the obligation and consist of nonaccrual loans, accruing loans
past due 90 days or more and restructured loans.
The following table summarizes the Bank's nonperforming assets at the dates
indicated.
AT JUNE 30, AT DECEMBER 31,
1999 1998
----------- ----------------
Nonaccrual Loans $ 3,424 $ 2,896
Accruing loans past due 90 days or more -- 4
Restructured loans 198 242
-------- --------
Total nonperforming loans 3,622 3,142
Other real estate owned 278 354
-------- --------
Total nonperforming assets $ 3,900 $ 3,496
======== ========
Nonperforming loans to total loans 3.34% 2.94%
Nonperforming assets to total assets 1.95% 1.72%
The Bank generally places loans on nonaccrual status and accrued but unpaid
interest is reversed against the current year's income when interest or
principal payments become 90 days or more past due unless the outstanding
principal and interest is adequately secured and, in the opinion of management,
is deemed in the process of collection. Interest income on nonaccrual loans is
recorded on a cash basis. Payments may be treated as interest income or return
of principal depending upon management's opinion of the ultimate risk of loss on
the individual loan. Cash payments are treated as interest income only when
management believes the remaining principal balance is fully collectible. Loans
not 90 days past due may also be placed on nonaccrual status if management
reasonably believes the borrower will not be able to comply with the contractual
loan repayment terms and collection of principal or interest is in question.
A restructured loan is a loan on which interest accrues at a below-market rate
or upon which certain principal has been forgiven so as to aid the borrower in
the final repayment of the loan, with any interest previously accrued, but not
yet collected, being reversed against current income. Interest is recorded on a
cash basis until the borrower's ability to service the restructured loan in
accordance with its terms is established.
-16-
<PAGE>
Management defines impaired loans as those loans, regardless of past due status,
on which principal and interest is not expected to be collected under the
original contractual loan repayment terms. An impaired loan is charged off at
the time management believes the collection process has been exhausted. Impaired
loans are valued on the present value of future cash flows discounted at the
loan's effective rate, the loan's observable market price, or the fair value of
collateral if the loan is collateral dependent. Impaired loans as of June 30,
1999, and December 31, 1998 were $3,622,000 and $3,142,000. The total allowance
for loan losses related to those loans at June 30, 1999 was $1,313,000, compared
to $869,000 at December 31, 1998. No interest income was recognized on impaired
loans for the six months ended June 30, 1999.
LIQUIDITY
Maintenance of adequate liquidity requires that sufficient resources be
available at all times to meet the cash flow requirements of the Bank. Liquidity
in a banking institution is required primarily to provide for deposit
withdrawals and the credit needs of its customers and to take advantage of
investment opportunities as they arise. A bank may achieve desired liquidity
from both assets and liabilities. Cash and deposits held in other banks, federal
funds sold, other short term investments, maturing loans and investments,
payments of principal and interest on loans and investments and potential loan
sales are sources of asset liquidity. Deposit growth and access to credit lines
established with correspondent banks and market sources of funds are sources of
liability liquidity.
The Bank reviews its liquidity position on a regular basis based upon its
current position and expected trends of loans and deposits. Management believes
that the Bank maintains adequate sources of liquidity to meet its liquidity
needs. The Bank's liquid assets (net of pledged assets) totaled approximately
$67,887,000 and $76,289,000 at June 30, 1999 and December 31, 1998,
respectively, and constituted 34.0% and 38.5% of total assets on those dates.
Although the Bank's primary sources of liquidity include liquid assets and a
stable deposit base, the Bank maintains lines of credit with the Federal Home
Loan Bank, the Federal Reserve Bank of San Francisco and its correspondent
banks. The total of these lines of credit was $13,887,000, of which $9,238,000
was outstanding as of June 30, 1999 and $677,000 was outstanding as of December
31, 1998.
CAPITAL RESOURCES
A strong capital base is essential to the Bank's ability to continue to serve
the needs of its customers and shareholders. Capital protects depositors and is
a source of funds for the significant investments necessary for the Bank to
operate competitively. Additionally, adequate capital and earnings enable the
Bank to continue to have access to the capital markets to supplement internal
growth of equity. Capital is generated internally in the form of earnings and
retention of those earnings.
Total shareholders' equity was $18,188,000 at June 30, 1999, a decrease of
$(322,000) or (1.8%) from $18,520,000 at December 31, 1998. During the second
quarter of 1999 1,616 options to purchase shares of the Bank's Common Stock were
exercised. The decrease in equity is due primarily to a reduction in the current
market value of securities available for sale owing to a general decline in
market rates.
Federal regulations establish guidelines for calculating "risk-adjusted" capital
ratios and minimum ratio requirements. Under these regulations, national banks
are required to maintain a total risk-based capital ratio of 8.0% and Tier 1
risk-based capital (primarily shareholders' equity) of at least 4% of total
qualifying capital. The Bank had Total and Tier 1 risk-based capital ratios of
13.03% and 11.78%, respectively, at June 30, 1999, and 12.30% and 11.05%,
respectively, at December 31, 1998.
In addition, regulators have adopted a minimum leverage ratio standard for Tier
1 risk-based capital to total assets. As of June 30, 1999 and December 31, 1998,
the Bank's leverage ratio was 7.33% and 6.73%, respectively, exceeding the
minimum guidelines of 3 to 5%.
-17-
<PAGE>
YEAR 2000 COMPLIANCE
The inability of computers, software and other equipment utilizing
microprocessors to recognize and properly process data fields containing a
2-digit year is commonly referred to as the Year 2000 compliance issue. As the
year 2000 approaches, such systems may be unable to accurately process certain
date-based information.
The Bank has written a plan to mitigate the risks associated with the impact of
the Year 2000. The plan directs the Bank's Year 2000 activities under the
framework of the Federal Financial Institutions Examination Council ("FFIEC")
Five-Step Program. The FFIEC's Five-Step Program includes the following phases:
Awareness, Assessment, Renovation, Validation and Implementation. The Awareness
Phase, which is 100% complete, defines the Year 2000 problem and gains executive
level support for the necessary resources to prepare the Bank for Year 2000
compliance. The Assessment Phase, also 100% complete, assesses the size and
complexity of the problem and details the magnitude of the effort necessary to
address the Year 2000 issues. Although the Awareness and Assessment Phases are
complete, the Bank will continue to evaluate any new issues as they arise. The
Renovation Phase, now 100% complete, includes the incremental changes to
hardware and software components. The Validation Phase, also 100% complete,
includes the testing of hardware and software components. The Implementation
Phase, 100% complete, certifies that systems are Year 2000 compliant and will be
accepted by the end users. The Implementation Phase was substantially completed
June 30, 1999. The Bank has completed the development of test and validation
methodologies for its Information Technology systems. Testing of applications
was substantially completed by December 31, 1998. In some cases, the bank will
rely on service providers and software vendors to facilitate proxy testing with
a selected group of users. The Bank will review the test plans and validate the
results of the proxy testing to ensure the Year 2000 compliance of those
systems. The Bank's business also uses non-IT products and services, some of
which have embedded technology, which might not be ready for the Year 2000 date
change. Some non-IT products and services involve infrastructure issues such as
power, communications and water, as well as ventilation, vault operations and
air conditioning equipment. The Bank classifies power and communications as
non-IT products and considers them to be of significant importance, giving them
a high priority. Based on responses from vendors and software providers, the
Bank does not anticipate incurring any material expenses owed to unpreparedness.
The Bank has identified material third party relationships to minimize the
potential loss from unpreparedness of these parties. The testing and validation
of these systems was substantially completed by December 31, 1998.
The Bank continues to make efforts to ensure that its customer base is aware of
the Year 2000 problem. Year 2000 correspondence has been sent to both deposit
and loan customers. Customer communication and correspondence efforts will
continue for the balance of 1999. The Bank has amended its credit authorizations
and documentation to include consideration regarding the Year 2000 problem.
Significant customer relationships have been identified, and such customers are
being contacted by the Bank's employees to determine whether they are aware of
Year 2000 risks and whether they are taking corrective actions.
The total cost to the Bank of these Year 2000 compliance activities was
approximately $10,000 for 1998, none for the first quarter of 1999 and $6,977
during the second quarter of 1999. The Bank is expensing all costs associated
with the necessary modifications during the period in which they are incurred.
Other expense items originally identified for Year 2000 reasons that have a
broader scope than just the Year 2000 have been allocated to other expense
catagories and may or may not have been capitalized. These costs and the date on
which the Bank plans to complete the Year 2000 modification and testing
processes are based on management's best estimates, which were derived utilizing
numerous assumptions of future events including the continued availability of
certain resources, third party modification plans and other factors. The costs
incurred in 1998 did not have a material effect on the Bank's reported earnings
for 1998 and the Bank does not expect the costs incurred for the same period in
1999 to have a material effect on net income. It is anticipated that any
disruption of services would be partial and brief, and that there will not be a
material impact on revenues or earnings.
The Bank has developed contingency plans to address the possibility that efforts
to mitigate Year 2000 risk are not successful either in whole or in part. These
plans include remedial efforts up to and including complete manual processing of
information for critical IT systems in the event that there is a failure after
December 31, 1999.
The factors that may cause actual results to differ materially from those
contemplated may include the failure by third parties to adequately remediate
Year 2000 issues or the inability of the Bank to complete writing and/or testing
software changes on time schedules currently expected. Nevertheless, the Bank
expects that its Year 2000 compliance efforts will be successful without any
adverse effects on its business.
-18-
<PAGE>
Registrant is amending this report to include its
amended Bylaws as an exhibit.
PART II
ITEM 1. LEGAL PROCEEDINGS
The Bank is involved in litigation in the ordinary course of its business,
particularly in connection with certain nonperforming loans. In the second
quarter of 1999, legal expenses related to nonperforming loans were significant,
and such expenses are likely to continue into the remainder of 1999. See
"Management's Discussion and Analysis - Other Operating Expense." In the opinion
of management, the ultimate outcome of current pending and threatened litigation
is not expected to have a material adverse effect on the Bank's financial
condition and results of operations.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS - NONE
ITEM 3. DEFAULTS UPON SENIOR SECURITIES - NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) New Board member
Mike McGowan was voted to the Board of Directors at the 1999
annual Shareholder meeting, replacing Jack Russ. John Burger
no longer serves as a Director as he is no longer employed
with the Bank. All other Directors were re-elected.
(b) Election of Public Accounting Firm
The accounting firm of Deloitte and Touche was ratified as the
Bank's independent public accountants for 1999.
ITEM 5. OTHER INFORMATION
(c) Change in corporate governance
In April 1999 the Board elected to be governed under Delaware
law.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - None
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the period ended June
30, 1999.
-19-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SIX RIVERS NATIONAL BANK
(Registrant)
By
--------------------------------------
Michael W. Martinez
President, Chief Executive Officer
and Principal Financial Officer
August 26, 1999
-20-
<PAGE>
Exhibit
3 Bylaws of Six Rivers National Bank as amended to May 12, 1999.
-21-
<PAGE>
EXHIBIT 3
RESOLUTIONS OF THE
BOARD OF DIRECTORS OF
SIX RIVERS NATIONAL BANK
WHEREAS, it is in the best interest of the Bank and its shareholders to
set forth appropriate standards for service as a member of the Board of
Directors of this Bank; and
WHEREAS, this may be done by the addition of a new section to the
Bank's Bylaws;
NOW, THEREFORE, BE IT RESOLVED, that a new section 2.14 be added to
Article II of the Bank's Bylaws as follows:
SECTION 2.14. QUALIFICATION OF DIRECTORS. No person
shall be a member of the Board of Directors (a) who
is a director, officer, employee, agent, nominee or
attorney for any other financial institution,
lender, or bank holding company, or affiliate or
subsidiary thereof, engaged in business in
California, or (b) who has been or is the nominee of
anyone who has any contract, arrangement or
understanding with any other financial institution,
lender, or bank holding company, or affiliate or
subsidiary thereof, engaged in business in
California, or with any officer, director, employee,
agent, nominee, attorney or other representation
thereof, pursuant to which he will reveal or in any
way utilize information obtained as a director or
that he will, directly or indirectly, attempt to
effect or encourage any action of this Bank, or (c)
who has not maintained beneficial ownership of at
least 250 shares of the Bank's Common Stock for at
least one year prior to the date of any notice of
nomination pursuant to Article I, Section 1.8 of
these Bylaws or their election as a director,
whichever is sooner.
Subparagraph (c) shall not apply to an individual
hired by the Bank's Board of Directors to be
President and Chief Executive. Officer of this Bank
until such time as that individual has been employed
by the Bank for a period of two years.
The Board of Directors of this Bank or a committee
thereof, shall make the determination whether any
person who seeks to become a director complies with
the provisions of this Article 11, Section 2.14.
RESOLVED FURTHER, that the requirements set forth in Article II,
Section 2.14 (a) are reasonable as they will assist in the prevention of any
potential conflicts of interest between the interests of a director of this Bank
and the Bank;
RESOLVED FURTHER, that the requirements set forth in Article II,
Section 2.14 (b) are reasonable as they prevent an individual who would
1
<PAGE>
otherwise have conflicts of interest with the interests of the Bank from using a
nominee to evade the provisions of Article II, Section 2.14 (a) or to use
confidential information which may be discussed at meetings of the Bank's Board
of Directors for a committee thereof for their own purposes; and
RESOLVED FURTHER, the requirements set forth in Article II, Section
2.14 (c) are reasonable as they establish a minimum ownership of the Bank's
Common Stock and duration of ownership in order to insure that a member of the
Bank's Board of Directors has sufficient ownership that their interests are
common to those of the shareholders of the Bank and that they will properly
exercise their fiduciary duties as a director of the Bank.
* * *
WHEREAS, Section 1.8 of the Bylaws of the Bank requires persons other
than management to make nominations in writing prior to a meeting of stock
shareholders; and
WHEREAS, it is in the best interest of the Bank and its shareholders to
require such writings to include information allowing the Bank to determine
whether a nominee meets the qualifications for a director as set forth in
Section 2.14 of the Bank's Bylaws; and
WHEREAS, this may be done by the addition of a new section to the
Bank's Bylaws;
NOW, THEREFORE, BE IT RESOLVED, that Section 1.8 of the Bylaws shall be
amended and replaced in its entirety as follows:
SECTION 1.8 NOMINATIONS FOR DIRECTORS. Nominations
for election to the Board of Directors may be made
by the Board of Directors or by any stockholder of
any outstanding class of capital stock of the
Association entitled to vote for the election of
directors. Nominations, other than those made by or
on behalf of the existing management of this
Association, shall be made in writing and shall be
delivered or mailed to the President of this
Association and to the Comptroller of the Currency,
Washington, D.C., not less than 14 days nor more
than 50 days prior to any meeting of stockholders
called for the election of directors; provided,
however, that if less than 21 days' notice of the
meeting is given to shareholders, such nomination
2
<PAGE>
shall be mailed or delivered to the President of
this Association and to the Comptroller of the
Currency not later than the close of business on the
seventh day following the day on which the notice of
the meeting was mailed. 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 total
number of shares of capital stock of the Association
beneficially 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 Association owned by the notifying
shareholder; and (f) a statement of facts
demonstrating that the nominee meets the
qualifications for a director set forth in Section
2.14 of these Bylaws. Nominations not made in
accordance herewith may, in his discretion, be
disregarded by the Chairman of the Meeting, and upon
his instructions, the vote letters may disregard all
votes cast for each such nominee.
* * *
WHEREAS, it is in the best interest of the Bank and its shareholders to
require shareholders to provide advance notice of any business to be brought
before a shareholder meeting; and
WHEREAS, this may be done by the addition of a new section to the
Bank's Bylaws;
NOW, THEREFORE, BE IT RESOLVED, that a new section 1.9 be
added to Article I of the Bank's Bylaws as follows:
SECTION 1.9 OTHER BUSINESS.
(1) The proposal of business to be considered by the
shareholders may be made at an annual meeting of
shareholders (a) pursuant to the Association's
notice of meeting, (b) by or at the direction of the
Board of Directors or (c) by any shareholder of the
Association who was a shareholder of record at the
time of giving of notice provided for in this Bylaw,
who is entitled to vote at the meeting and who
complied with the notice procedures set forth in
this Bylaw.
(2) For other business to be properly brought before
an annual meeting by a shareholder, the shareholder
must have given timely notice thereof in writing to
the Chairman or Secretary of the Association and
such other business must be a proper matter for
shareholder action. To be timely, a shareholder's
notice shall be delivered to the Chairman or
Secretary at the principal executive offices of the
Association not later than the close of business on
the 90th day nor earlier than the close of business
on the 120th day prior to the first anniversary of
the preceding year's annual meeting; provided,
3
<PAGE>
however, that in the event that the date of the
annual meeting is more than 30 days before or more
than 60 days after such anniversary date, notice by
the shareholder to be timely must be so delivered
not earlier than the 120th day prior to such annual
meeting and not later than the close of business on
the later of the 90th day prior to such annual
meeting or the 10th day following the day on which
public announcement of the date of such meeting is
first made. In no event shall the public
announcement of an adjournment of an annual meeting
commence a new time period for the giving of a
shareholder's notice as described above. Such
shareholder's notice shall set forth (a) a brief
description of the business desired to be brought
before the meeting, the reasons f6r conducting such
business at the meeting and any material interest in
such business of such shareholder and the beneficial
owner, if any, on whose behalf the proposal is made;
and (b) as to the shareholder giving the notice and
the beneficial owner, if any, on whose behalf the
nomination or proposal is made (i) the name and
address of such shareholder, as they appear on the
Association's books, and of such beneficial owner
and (ii) the class and number of shares of the
Association which are owned beneficially and of
record by such shareholder and such beneficial
owner.
(3) Only such business shall be conducted at a
special meeting of shareholders as shall have been
brought before the meeting pursuant to the
Association's notice of meeting.
(4) Except as otherwise provided by law, the
Articles of Association or the Bylaws of the
Association, the Chairman of the meeting shall have
the power and duty to determine whether a nomination
or any business proposed to be brought before the
meeting was made, or proposed, as the case may be,
in accordance with the procedures set forth in this
Bylaw and, if any proposed nomination or business is
not in compliance with this Bylaw, to declare that
such defective proposal or nomination shall be
disregarded.
(5) Notwithstanding the foregoing provisions of this
Bylaw, a shareholder shall also comply with all
applicable requirements of the Securities Exchange
Act of 1934, as amended, and the rules and
regulations thereunder with respect to the matters
set forth in this Bylaw. Nothing in this Bylaw shall
be deemed to affect any rights of (i) shareholders
to request inclusion of proposals in the
Association's proxy statement pursuant to Rule l4a-8
under such Act.
* * *
RESOLVED FURTHER, that officers of this Bank be, and they hereby are,
authorized and directed to take such actions as are necessary and appropriate to
carry out the purpose and intent of these resolutions.
4
EXHIBIT 99.5
FORM 10-QSB
OFFICE OF THE COMPTROLLER OF THE CURRENCY
WASHINGTON, D.C. 20219
[X] Quarterly Report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the Quarterly Period Ended September 30, 1999.
-------------------
or
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Transition Period from _____________ to
___________
OCC File Number:
-----------------------
SIX RIVERS NATIONAL BANK
------------------------------------------------------
(Exact name of registrant as specified in its charter)
United States 68-0176905
------------------------------- ----------------------
(State or other jurisdiction of IRS Employer ID Number
incorporation or organization)
402 F Street, Eureka, California 95501
----------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code: (707) 443-8400
--------------
Former name, former address and former fiscal year, if changed since last
report: Not applicable.
---------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of November 12,1999: 1,524,000.
Transitional Small Business Disclosure Format (check one) Yes [ ] No [X]
<PAGE>
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SIX RIVERS NATIONAL BANK
CONDENSED BALANCE SHEETS
(in thousands except share amounts)
- -----------------------------------------------------------------------------------------------
September 30, 1999 December 31,
(Unaudited) 1998
------------------ ------------
<S> <C> <C>
ASSETS
Cash and Cash Equivalents:
Cash and due from banks $ 6,820 $ 8,357
Federal funds sold & repurchase agreements 9,330
--------- ---------
Total cash and cash equivalents 6,820 17,687
Interest bearing deposits in other financial
institutions 7,454 6,196
Held to maturity securities, at cost 1,485 1,485
Available for sale securities, at fair value 69,027 59,792
--------- ---------
Total securities 70,512 61,277
Loans held for sale 17,125
Loans receivable 109,636 89,903
Less: Allowance for loan losses (3,044) (2,802)
Deferred loan fees, net 153 (75)
--------- ---------
Net loans receivable 106,745 87,026
Interest receivable and other assets 5,306 4,161
Premises and equipment, net of accumulated
depreciation and amortization 4,408 4,519
Goodwill and core deposit intangible, net of amortization 4,664 4,891
Other real estate owned 278 354
--------- ---------
TOTAL ASSETS $ 206,187 $ 203,236
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits:
Noninterest-bearing $ 26,574 $ 25,260
Interest-bearing 127,671 134,385
Time, $100,000 and over 22,761 23,287
--------- ---------
Total deposits 177,006 182,932
Other borrowed funds 8,401 677
Interest payable and other liabilities 1,703 1,107
--------- ---------
Total liabilities 187,110 184,716
--------- ---------
STOCKHOLDERS' EQUITY:
Common stock, $5.00 par value, authorized
10,000,000 shares; outstanding, 1,476,128 and 1,461,642
at September 30, 1999 and December 31, 1998, respectively 7,381 7,308
Additional paid in capital 12,138 12,063
Retained earnings (deficit) 122 (816)
Accumulated other comprehensive loss, net of tax: (564) (35)
--------- ---------
Total stockholders' equity 19,077 18,520
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 206,187 $ 203,236
========= =========
- -----------------------------------------------------------------------------------------------
See notes to condensed financial statements (unaudited).
</TABLE>
-2-
<PAGE>
<TABLE>
<CAPTION>
SIX RIVERS NATIONAL BANK
CONDENSED STATEMENTS OF INCOME / (LOSS)
(Unaudited)
(in thousands except for earnings per share)
- --------------------------------------------------------------------------------------
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1999 1998
-------- --------
<S> <C> <C>
INTEREST INCOME
Loans and loan fees $ 7,236 $ 7,483
Securities:
U.S. Treasury securities and government agencies 2,435 2,462
Other 892 411
Federal funds sold & repurchase agreements 150 762
-------- --------
Total interest income 10,713 11,118
INTEREST EXPENSE:
Deposits 4,034 4,507
Other borrowings 267 61
-------- --------
Total interest expense 4,301 4,568
-------- --------
NET INTEREST INCOME 6,412 6,550
PROVISION FOR LOAN LOSSES 220 2,504
-------- --------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 6,192 4,046
NONINTEREST INCOME:
Customer service fees 893 865
Other income 379 322
-------- --------
Total noninterest income 1,272 1,187
NONINTEREST EXPENSE:
Salaries and employee benefits 2,935 2,576
Occupancy 897 856
Other 2,022 2,518
-------- --------
Total noninterest expense 5,854 5,950
-------- --------
INCOME (LOSS) BEFORE PROVISION
(BENEFIT) FOR INCOME TAXES 1,610 (717)
PROVISION (BENEFIT) FOR INCOME TAXES 672 (287)
-------- --------
NET INCOME (LOSS) $ 938 $ (430)
======== ========
EARNINGS (LOSS) PER SHARE
Basic $ 0.64 $ (0.30)
======== ========
Diluted $ 0.64 $ (0.30)
======== ========
- --------------------------------------------------------------------------------------
</TABLE>
See notes to condensed financial statements (unaudited).
-3-
<PAGE>
<TABLE>
<CAPTION>
SIX RIVERS NATIONAL BANK
CONDENSED STATEMENTS OF INCOME / (LOSS)
(Unaudited)
(in thousands except for earnings per share)
- --------------------------------------------------------------------------------------
Three Months Ended September 30,
--------------------------------
1999 1998
------- -------
<S> <C> <C>
INTEREST INCOME
Loans and loan fees $ 2,435 $ 2,617
Securities:
U.S. Treasury securities and government agencies 846 883
Other 325 173
Federal funds sold & repurchase agreements 59 191
------- -------
Total interest income 3,665 3,864
INTEREST EXPENSE:
Deposits 1,338 1,582
Other borrowings 99 17
------- -------
Total interest expense 1,437 1,599
------- -------
NET INTEREST INCOME 2,228 2,265
PROVISION FOR LOAN LOSSES 1,084
------- -------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 2,228 1,181
NONINTEREST INCOME:
Customer service fees 289 309
Other income 114 115
------- -------
Total noninterest income 403 424
NONINTEREST EXPENSE:
Salaries and employee benefits 958 989
Occupancy 308 300
Other 751 737
------- -------
Total noninterest expense 2,017 2,026
------- -------
INCOME (LOSS) BEFORE PROVISION
(BENEFIT) FOR INCOME TAXES 614 (421)
PROVISION (BENEFIT) FOR INCOME TAXES 258 (168)
------- -------
NET INCOME (LOSS) $ 356 $ (253)
======= =======
EARNINGS (LOSS) PER SHARE
Basic $ 0.24 $ (0.17)
======= =======
Diluted $ 0.24 $ (0.17)
======= =======
- --------------------------------------------------------------------------------------
</TABLE>
See notes to condensed financial statements (unaudited)
-4-
<PAGE>
<TABLE>
<CAPTION>
SIX RIVERS NATIONAL BANK
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
1999 1998
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income / (loss) $ 938 $ (430)
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 659 629
Amortization and accretion on securities 91 138
Origination of loans held for sale (6,140) (18,552)
Proceeds from sales of loans 2,145 9,484
Gain on the sale of loans 5 (36)
Benefit for deferred taxes 383 (187)
Provision for loan losses 220 2,504
Effect of changes in:
Accrued interest receivable and other assets (147) (1,600)
Accrued interest payable and other liabilities 596 347
-------- --------
Net cash used in operating activities (1,250) (7,703)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of available-for-sale securities (16,304) (50,491)
Purchases of held-to-maturity securities (1,500)
Proceeds from maturities, calls, or repayments of available
for sale securities 6,066 9,181
Purchases of FHLB, Fed Reserve & other securities (1,000)
Net change in interest bearing deposits in other financial institutions (1,258) (486)
Net change in loans receivable 1,176 (12,000)
Proceeds from sale of other real estate owned 76
Purchases of premises and equipment (319) (494)
-------- --------
Net cash used in investing activities (11,563) (55,790)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits (5,926) 14,747
Net change in other borrowed funds 7,724 (224)
Common stock options exercised 148 317
-------- --------
Net cash provided by financing activities 1,946 14,840
-------- --------
DECREASE IN CASH AND CASH EQUIVALENTS (10,867) (48,653)
CASH AND CASH EQUIVALENTS, beginning of period 17,687 76,835
-------- --------
CASH AND CASH EQUIVALENTS, end of period $ 6,820 $ 28,182
======== ========
ADDITIONAL INFORMATION:
Cash paid during the period for:
Interest $ 4,397 $ 4,478
======== ========
Taxes $ 49 $
======== ========
Noncash transactions:
Transfer of foreclosed loans from loans receivable to
other real estate owned $ $
======== ========
Transfer of held for sale loans to loans held for
investment $ 21,115 $
======== ========
</TABLE>
See notes to condensed financial statements (unaudited).
-5-
<PAGE>
SIX RIVERS NATIONAL BANK
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
AND THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
NOTE A-BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements of Six Rivers National
Bank ("the Bank") have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-QSB and Article 10 of Regulation S-X. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation of the results for the interim periods
presented have been included. They do not, however, include all the information
and footnotes required by generally accepted accounting principles for annual
financial statements. For further information refer to the Bank's financial
statements and notes thereto included in the Bank's annual report on Form 10-KSB
for the fiscal year ended December 31, 1998. Operating results for the nine
months ended September 30, 1999 are not necessarily indicative of the results
that may be expected for the year ended December 31, 1999.
NOTE B-COMPREHENSIVE INCOME
Comprehensive income consists of net income and other comprehensive income. The
Bank's only sources of other comprehensive income are derived from unrealized
gains and losses on investment securities available-for-sale. Reclassification
adjustments resulting from gains or losses on investment securities that were
realized and included in net income of the current period that also had been
included in other comprehensive income as unrealized holding gains or losses in
the period in which they arose are excluded from comprehensive income of the
current period. The Bank's total comprehensive earnings were as follows:
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
(In thousands) (In thousands)
------------------ ------------------
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net Income / (loss) $ 938 $ (430) $ 356 $ (253)
Other comprehensive income / (loss):
Unrealized holding loss on available for sale securities (net of
taxes of $408 and $(165) for the nine months ended September
30, 1999 and 1998 and net of taxes of $27 and $(203) for the
three months ended September 30, 1999 and 1998) (529) 257 (39) 189
------- ------- ------- -------
Total Comprehensive Income / (loss) $ 409 $ (173) $ 317 $ (64)
======= ======= ======= =======
</TABLE>
-6-
<PAGE>
NOTE C-EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income available to common
shareholders by the weighted average common shares outstanding for the period.
Diluted earnings per share reflect the potential dilution that could occur if
options or other contracts to issue common stock were exercised and converted
into common stock.
There was no difference in the numerator used in the calculation of basic
earnings per share and diluted earnings per share. The following reconciles the
denominator used in the calculation of basic earnings per common share and
diluted earnings per common and equivalent share for each of the periods
indicated:
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
(Dollars in thousands (Dollars in thousands
except per share amounts) except per share amounts)
------------------------- -------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Calculation of Basic Earnings Per Share:
Numerator - net income / (loss) $ 938 $ (430) $ 356 $ (253)
Denominator - weighted average common
shares outstanding 1,464,602 1,450,214 1,469,973 1,459,741
----------- ----------- ----------- -----------
Basic Earnings / (Loss) Per Share $ 0.64 $ (0.30) $ 0.24 $ (0.17)
=========== =========== =========== ===========
Calculation of Diluted Earnings Per Share:
Numerator - net income / (loss) $ 938 $ (430) $ 356 $ (253)
Denominator:
Weighted average common shares outstanding 1,464,602 1,450,214 1,469,973 1,459,741
Dilutive effect of outstanding options 4,742 13,395
----------- ----------- ----------- -----------
Weighted average common shares outstanding -
diluted 1,469,344 1,450,214 1,483,368 1,459,741
=========== =========== =========== ===========
Diluted Earnings / (Loss) Per Share $ 0.64 $ (0.30) $ 0.24 $ (0.17)
=========== =========== =========== ===========
</TABLE>
NOTE D-NEW ACCOUNTING PRONOUNCEMENTS
In June 1999, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 137, Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133. This statement defers the effective date of FASB Statement No
133, which shall now be effective for all fiscal quarters of all fiscal years
beginning after June 15, 2000. The Bank is in the process of determining the
impact of adopting SFAS No. 133 on the Bank's financial position and results of
operations.
NOTE E-CONSENT ORDER
On April 12, 1999 the Office of the Comptroller of the Currency required the
Bank to enter into a Consent Order ("Order"). The language of the Order requires
that the Bank formulate and implement a plan to strengthen its policies and
procedures relative to its loan administration, credit and collateral
exceptions, classified assets, allowances for loan losses and violations of law
related to lending limits. The Board of Directors has agreed to execute this
Order and is following an action plan that details the steps necessary to comply
with the Order.
NOTE F- SUBSEQUEST EVENT - PROPOSED MERGER
On October 4, 1999, the Bank and North Valley Bancorp (headquartered in Redding,
CA) announced the signing of a proposed merger agreement and plan of
reorganization which, if approved by the shareholders of the two organizations
and by the regulatory authorities, will result in the merger into North Valley
-7-
<PAGE>
Bancorp, with the Bank, to be operated as a wholly-owned subsidiary of North
Valley Bancorp. The transaction is expected to be completed by the end of the
first quarter of the year 2000 or early in the second quarter. The agreement
provides for the Bank's shareholders to receive shares of North Vaklley Bancorp
in exchange for Bank stock based on a formula which is dependent on the average
closing price of North Valley Bancorp stock in a tax-free exchange to be
accounted for as a pooling of interest.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THE FOLLOWING MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. WORDS SUCH AS "EXPECTS", "ANTICIPATES", "BELIEVES", "ESTIMATES",
VARIATIONS OF SUCH WORDS AND OTHER SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY
SUCH FORWARD-LOOKING STATEMENTS. THE BANK'S ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A
RESULT OF CERTAIN FACTORS, INCLUDING, BUT NOT LIMITED TO, THE FOLLOWING FACTORS:
RISKS RELATED TO THE BANK'S ABILITY TO MANAGE GROWTH, PARTICULARLY GROWTH IN ITS
COMMERCIAL LOAN PORTFOLIO; COMPETITION FROM OTHER FINANCIAL INSTITUTIONS IN THE
BANK'S MARKETS; CHANGES IN THE GENERAL ECONOMIC CLIMATE; THE RESULTS OF
REGULATORY OVERSIGHTS OF THE BANK; CHANGES IN THE INTEREST RATE ENVIRONMENT; AND
ADVERSE CHANGES IN THE GENERAL ECONOMIC CONDITIONS, EITHER NATIONALLY OR
REGIONALLY, WHICH MAY IMPACT THE CREDIT QUALITY AND THEREFORE IMPACT THE BANK'S
LEVEL OF PROVISIONS FOR POSSIBLE LOAN LOSSES.
The following discussion provides additional information about the results of
operations and financial condition of the Bank for the three- and nine-month
periods ended September 30, 1999 and 1998. The following discussion should be
read in conjunction with the financial statements of the Bank and the notes
thereto.
SUMMARY OF FINANCIAL RESULTS
As of September 30, 1999, total assets of the Bank were $206.2 million, net
loans totaled $106.7 million and deposits totaled $177.0 million. Total assets
increased $3.0 million or 1.5% while net loans increased 2.4% or approximately
$2.5 million from $104.2 million as of December 31, 1998. Deposits decreased
3.2% or approximately $5.9 million from $182.9 million as of December 31, 1998.
NET INCOME
Net income for the nine months ended September 30, 1999 was $938,000, or $0.64
per diluted share compared to a net loss of ($430,000), or ($0.30) per share for
the nine months ended September 30, 1998. The Bank's annualized return on
average assets for the nine months ended September 30, 1999 and 1998 was 0.61%
and (0.29%), respectively. The Bank's annualized return on average equity for
the nine months ended September 30, 1999 and 1998 was 6.67% and (2.87%),
respectively. The increase in net earnings was attributable primarily to a lower
loan loss provison and reduced problem asset expense. Net income for the three
months ending September 30, 1999 was $356,000, a $609,000 increase over the
three months ended September 30, 1998. Diluted earnings per share were $0.24 for
the three months ending September 30, 1999 compared to a ($0.17) loss per
diluted share for the three months ended September 30, 1998.
NET INTEREST INCOME AND NET INTEREST MARGIN
For the nine months ended September 30, 1999, net interest income was
$6,412,000, a decrease of approximately $138,000 or 2.1% from $6,550,000 for the
nine months ended September 30, 1998. The net interest margin (net interest
income as a percentage of average interest-earning assets) was 4.59% for the
nine months ended September 30, 1999 and 4.84% for the nine months ended
September 30, 1998. The decrease in net interest margin is due primarily to a
decline in interest rates and the prepayment or refinancing of higher coupon
loans by customers to take advantage of the lower rate environment. The average
rate on interest earning assets for the nine months ended September 30, 1999 was
7.66% compared with 8.21% for the nine months ended September 30, 1998. The
decrease in the average rate on earning assets was partially offset by a
decrease in the average rate paid on interest-bearing liabilities. For the nine
months ended September 30, 1999, the average rate paid on interest-bearing
-8-
<PAGE>
liabilities was 3.77%, compared with 4.00% for the nine months ended September
30, 1998. For the nine months ended September 30, 1999 and September 30, 1998,
average total loans as a percentage of average total deposits were 61.8% and
57.4%, respectively.
For the three months ended September 30, 1999, net interest income was
$2,228,000, a decrease of approximately $37,000 or 1.6% from $2,265,000 for the
three months ended September 30, 1998. The net interest margin (net interest
income as a percentage of average interest-earning assets) was 4.74% for the
three months ended September 30, 1999 and 4.76% for the three months ended
September 30, 1998. The slight decrease in net interest margin is due primarily
to lower loan product interest rates. The average rate on interest earning
assets for the three months ended September 30, 1999 was 7.80% compared with
8.12% for the three months ended September 30, 1998. For the three months ended
September 30, 1999, the average rate paid on interest-bearing liabilities was
3.76%, compared with 3.99% for the three months ended September 30, 1998. For
the three months ended September 30, 1999 and September 30, 1998, average total
loans as a percentage of average total deposits were 61.7% and 58.1%,
respectively.
The following tables present condensed average balance sheet information for the
Bank, together with interest rates earned and paid on the various sources and
uses of its funds for each of the periods indicated. Nonaccrual loans are
included in the tables for computational purposes, but the foregone interest on
such loans is excluded.
-9-
<PAGE>
<TABLE>
<CAPTION>
AVERAGE BALANCE SHEET AND ANALYSIS OF NET INTEREST INCOME
(Dollars in thousands)
FOR THE NINE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1999 ENDED SEPTEMBER 30, 1998
------------------------------- ------------------------------
INTEREST INTEREST
AVERAGE INCOME/ AVERAGE AVERAGE INCOME/ AVERAGE
BALANCE EXPENSE RATE BALANCE EXPENSE RATE
--------- -------- ------- --------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
INTEREST-EARNING ASSETS:
Interest-bearing deposits in
other financial institutions $ 6,089 $ 292 6.39 % $ 3,851 $ 173 5.99%
Federal funds sold and repurchase agreements 4,058 150 4.93 17,694 762 5.74
Taxable investment securities 63,900 2,856 5.96 55,748 2,650 6.34
Nontaxable investment securities (1) 4,164 179 5.73 1,503 50 4.44
LOANS: (2)
Commercial and Industrial 52,458 3,555 9.04 57,381 4,240 9.85
Real estate mortgage and construction 38,082 2,192 7.67 25,618 1,609 8.37
Installment and other 17,617 1,252 9.48 18,766 1,305 9.27
Fees on loans 237 329
--------- ------- ------- --------- ------- -------
Total Loans 108,157 7,236 8.92 101,765 7,483 9.80
--------- ------- ------- --------- ------- -------
Total earning assets 186,368 10,713 7.66 180,561 11,118 8.21
NONEARNING ASSETS:
Cash and due from banks 7,114 9,106
Premises and equipment 4,746 4,414
Interest receivable and other assets 7,807 7,138
Allowance for loan losses (2,932) (1,207)
Other real estate owned 320 386
--------- ---------
Total nonearning assets 17,055 19,837
--------- ---------
TOTAL ASSETS $ 203,423 $ 200,398
========= =========
LIABILITIES
INTEREST-BEARING LIABILITIES:
Demand, savings and money market deposits $ 75,143 $ 1,465 2.60% $ 78,946 $ 1,563 2.64%
Time deposits 69,420 2,569 4.93 71,844 2,944 5.46
--------- ------- ------- --------- ------- -------
Total interest-bearing deposits 144,563 4,034 3.72 150,790 4,507 3.99
Other borrowed funds 7,532 267 4.73 1,402 61 5.80
--------- ------- ------- --------- ------- -------
Total interest-bearing liabilities 152,095 4,301 3.77 152,192 4,568 4.00
--------- ------- ------- --------- ------- -------
NONINTEREST-BEARING LIABILITIES
Demand deposits 30,602 26,635
Accrued interest, taxes and other liabilities 1,974 1,600
--------- ---------
Total noninterest-bearing liabilities 32,576 28,235
--------- ---------
Total liabilities 184,671 180,427
Shareholders' equity 18,752 19,971
--------- ---------
Total liabilities and shareholders' equity $ 203,423 $ 200,398
========= =========
Net interest income $ 6,412 $ 6,550
======= =======
Net interest spread (3) 3.89% 4.21%
======= =======
Net interest margin (4) 4.59% 4.84%
======= =======
</TABLE>
(1) Interest on municipal securities is not computed on a tax-equivalent basis.
(2) Includes loans on nonaccrual but excludes nonaccrual interest.
(3) Net interest spread is the difference between the yield on average total
interest-earning assets and the rate paid on average interest-bearing
liabilities.
(4) Net interest margin is computed by dividing net interest income by total
average interest-earning assets.
-10-
<PAGE>
<TABLE>
<CAPTION>
AVERAGE BALANCE SHEET AND ANALYSIS OF NET INTEREST INCOME
(Dollars in thousands)
FOR THE THREE MONTHS FOR THE THREE MONTHS
ENDED SEPTEMBER 30, 1999 ENDED SEPTEMBER 30, 1998
------------------------------- ------------------------------
INTEREST INTEREST
AVERAGE INCOME/ AVERAGE AVERAGE INCOME/ AVERAGE
BALANCE EXPENSE RATE BALANCE EXPENSE RATE
--------- -------- ------- --------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
INTEREST-EARNING ASSETS:
Interest-bearing deposits in
other financial institutions $ 6,840 $ 103 6.02% $ 4,267 $ 44 4.12%
Federal funds sold and repurchase agreements 4,524 59 5.22 13,955 191 5.47
Taxable investment securities 63,877 1,008 6.31 61,776 988 6.40
Nontaxable investment securities (1) 4,163 60 5.77 1,665 25 6.00
LOANS: (2)
Commercial and Industrial 50,313 1,165 9.26 61,232 1,373 8.97
Real estate mortgage and construction 41,114 786 7.65 27,338 673 9.85
Installment and other 17,104 409 9.57 20,026 426 8.51
Fees on loans 75 143
--------- ------- ------- --------- ------- -------
Total Loans 108,531 2,435 8.97 108,596 2,615 9.63
--------- ------- ------- --------- ------- -------
Total earning assets 187,935 3,665 7.80 190,259 3,863 8.12
NONEARNING ASSETS:
Cash and due from banks 7,454 8,698
Premises and equipment 4,665 4,402
Interest receivable and other assets 7,972 7,610
Allowance for loan losses (2,989) (1,235)
Other real estate owned 278 386
--------- ---------
Total nonearning assets 17,380 19,861
--------- ---------
TOTAL ASSETS $ 205,315 $ 210,120
========= =========
LIABILITIES
INTEREST-BEARING LIABILITIES:
Demand, savings and money market deposits $ 82,343 $ 508 2.47% $ 84,467 $ 557 2.64%
Time deposits 67,603 830 4.91 74,566 1,025 5.50
--------- ------- ------- --------- ------- -------
Total interest-bearing deposits 149,946 1,338 3.57 159,033 1,582 3.98
Other borrowed funds 8,288 99 4.78 1,090 17 6.24
--------- ------- ------- --------- ------- -------
Total interest-bearing liabilities 158,234 1,437 3.63 160,123 1,599 3.99
--------- ------- ------- --------- ------- -------
NONINTEREST-BEARING LIABILITIES
Demand deposits 25,956 28,008
Accrued interest, taxes and other liabilities 2,348 1,740
--------- ---------
Total noninterest-bearing liabilities 28,304 29,748
--------- ---------
Total liabilities 186,538 189,871
Shareholders' equity 18,777 20,249
--------- ---------
Total liabilities and shareholders' equity $ 205,315 $ 210,120
========= =========
Net interest income $ 2,228 $ 2,264
======= =======
Net interest spread (3) 4.17% 4.13%
======= =======
Net interest margin (4) 4.74% 4.76%
======= =======
</TABLE>
(1) Interest on municipal securities is not computed on a tax-equivalent basis.
(2) Includes loans on nonaccrual but excludes nonaccrual interest.
(3) Net interest spread is the difference between the yield on average total
interest-earning assets and the rate paid on average interest-bearing
liabilities.
(4) Net interest margin is computed by dividing net interest income by total
average interest-earning assets.
-11-
<PAGE>
The following table sets forth, for the period indicated, a summary of the
changes in average asset and liability balances and interest earned and interest
paid resulting from changes in average asset and liability balances (volume) and
changes in average interest rates. Nonaccrual loans are included in the table
for computational purposes, but the foregone interest on such loans is excluded.
<TABLE>
<CAPTION>
RATE/VOLUME ANALYSIS OF NET INTEREST INCOME
(Dollars in thousands)
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1999
COMPARED TO COMPARED TO
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1998
------------------------------------- -------------------------------------
CHANGE DUE TO CHANGE DUE TO
------------------------------------- -------------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
VOLUME RATE TOTAL VOLUME RATE TOTAL
----------- ----------- --------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
Interest-bearing deposits
in other financial institutions $ 101 $ 18 $ 119 $ 27 $ 32 $ 59
Federal funds sold (587) (25) (612) (129) (3) (132)
Taxable investment securities 388 (182) 206 34 (14) 20
Nontaxable investment securities 89 40 129 37 (2) 35
Total loans 470 (717) (247) 2 (182) (180)
----------- ----------- --------- ----------- --------- ---------
Total interest income $ 461 $ (866) $ (405) $ (29) $ (169) $ (198)
=========== =========== ========= =========== ========= =========
INTEREST EXPENSE
Demand, savings and
money market deposits $ (75) $ (23) $ (98) $ (48) $ (1) $ (49)
Time deposits (99) (276) (375) (96) (99) (195)
Other borrowings 267 (61) 206 112 (30) 82
----------- ----------- --------- ----------- --------- ---------
Total interest expense 93 (360) (267) (32) (130) (162)
----------- ----------- --------- ----------- --------- ---------
Net interest margin $ 368 $ (506) $ (138) $ 3 $ (39) $ (36)
=========== =========== ========= =========== ========= =========
</TABLE>
NON INTEREST INCOME AND EXPENSE
Non Interest Income
Noninterest income for the nine months ended September 30, 1999 was $1,272,000,
an increase of $85,000 or 7.2% from the $1,187,000 for the nine months ended
September 30, 1998. Primarily driving the increase was higher fees charged for
deposit accounts and an increase in the value of the Bank's mortgage servicing
asset. Noninterest income for the three months ended September 30, 1999 was
$403,000, a decrease of $21,000 or 5.0% from $424,000 for the quarter ended
September 30, 1998. Losses realized on the sale of loans and slightly lower
deposit account service charges were primarily responsible for the increase.
Non Interest Expense
For the nine months ended September 30, 1999 total noninterest expense was
$5,854,000, compared with $5,950,000 for the nine months ended September 30,
1998. The decrease in total noninterest expense was due primarily to lower
problem loan expense and reductions in other operating expense items included in
other noninterest expense, which decreased $496,000, or 19.7%, to $2,022,000 for
the nine months ended September 30, 1999 from $2,518,000 for the nine months
ended September 30, 1998. This improvement was somewhat offset by higher
personnel expense, which increased 13.9% or $359,000, to $2,935,000 for the nine
months ended September 30, 1999 from $2,576,000 for the nine months ended
-12-
<PAGE>
September 30, 1998. The increase in personnel expense was due primarily to an
increase in the number of employees included in the commercial lending and
credit administration functions.
For the three months ended September 30, 1999 total noninterest expense was
$2,017,000, virtually unchanged from the $2,026,000 for the three months ended
September 30, 1998. Personnel expense for the quarter ended September 30, 1999
was $958,000 compared to $989,000 for the quarter ended September 30, 1998, a
decrease of $31,000 or 3.1%.
Provision (Benefit) for Income Taxes
For the nine months ended September 30, 1999, the provision for income taxes was
$672,000 on income before income taxes of $1,610,000, for an effective tax rate
of 41.7%. For the nine months ended September 30, 1998, the benefit for income
taxes was $(287,000) on a pre-tax net loss of $(717,000), for an effective tax
rate of 40.0%. For the three months ended September 30, 1999, the provision for
income taxes was $258,000 on income before income taxes of $614,000, for an
effective tax rate of 42.0%. For the three months ended September 30, 1998, the
benefit for income taxes was $(168,000) on a pre-tax net loss of $(421,000), for
an effective tax rate of 39.9%.
FINANCIAL CONDITION
Investment Portfolio
As of September 30, 1999, investment securities comprised 34.2% of total assets
and 37.6% of interest-earning assets. Certain equity securities of the Federal
Home Loan Bank, the Federal Reserve and others that the Bank does not intend to
sell are included in other assets and carried at amortized cost. The following
table sets forth the composition of the investment portfolio by major categories
at September 30, 1999 and December 31, 1998.
INVESTMENT PORTFOLIO
(Dollars in thousands)
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1999 AT DECEMBER 31, 1998
----------------------- -----------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
--------- -------- --------- --------
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE SECURITIES:
U.S. Treasury securities $ 1,491 $ 1,483 $ 1,499 $ 1,504
Federal National Mortgage Association Securities 21,278 20,986 22,566 22,465
Federal Home Loan Mortgage Corporation Securities 16,278 16,063 12,524 12,531
Corporate and other securities 17,331 16,993 11,147 11,145
Obligations of foreign governments 504 514 507 529
Other U.S. government agency securities 13,117 12,988 11,608 11,618
--------- -------- -------- --------
Total Investments $ 69,999 $ 69,027 $ 59,851 $ 59,792
========= ======== ======== ========
HELD TO MATURITY SECURITIES:
Corporate and other securities $ 1,485 $ 1,823 $ 1,485 $ 1,500
========= ======== ======== ========
</TABLE>
The Bank does not own securities of a single issuer (other than U.S. Government
agencies and corporations) whose aggregate book value is in excess of 10% of its
total equity.
-13-
<PAGE>
Loan Portfolio
The following table shows the composition of the Bank's loan portfolio by amount
and percentage of total loans in each major loan category at the dates
indicated.
<TABLE>
<CAPTION>
COMPOSITION OF LOAN PORTFOLIO
(Dollars in thousands)
AT SEPTEMBER 30, 1999 AT DECEMBER 31, 1998
----------------------------- ---------------------------
AMOUNT PERCENT AMOUNT PERCENT
-------------- ---------- ------------- -----------
<S> <C> <C> <C> <C>
Commercial $ 31,805 29.0% $ 33,559 31.4%
Real estate-commercial 21,273 19.4 23,440 21.9
Real estate-mortgage 37,385 34.1 36,956 34.6
Real estate-construction 2,956 2.7 4,907 4.6
Installment 16,370 14.9 8,091 7.6
Total (1) $ 109,789 100.0% $ 106,953 100.0%
</TABLE>
(1) Amounts include Deferred Loan Fees
Commercial loans at September 30, 1999 included approximately $14,027,000 in
loans with government guarantees ranging from 39% to 90% of the principal
balance.
On April 21, 1999 the Bank transfered approximately $21.0 million of real estate
loans formerly classified as held-for-sale to held-to-maturity status. These
assets were transferred at fair value, which was approximately equal to fair
market value at the time of transfer. This decision followed a change in policy,
the primary purpose of which was to enable this pool of assets to serve as
pledgable collateral for future Federal Home Loan Bank borrowings.
During the second quarter of 1999 the Bank formed strategic alliances with two
companies that specialize in the origination of consumer loans. These loans are
extended to borrowers with strong credit ratings and add both geographic and
product diversity to the loan portfolio mix. Under both arrangements the bank
will establish the credit criteria and carefully manage credit exposure by
underwriting these loans using internal Bank policy.
At September 30, 1999 the Bank had approximately $18,317,000 in undisbursed loan
commitments. This compares with undisbursed commitments of approximately
$14,279,000 at December 31, 1998. Standby letters of credit were not significant
at either September 30, 1999 or December 31, 1998.
-14-
<PAGE>
Summary of Loan Loss Experience
The following table sets forth an analysis of the allowance for loan losses and
provisions for loan losses for the periods indicated.
ALLOWANCE FOR LOAN LOSSES
(Dollars in thousands)
<TABLE>
<CAPTION>
FOR THE NINE FOR THE YEAR
MONTHS ENDED ENDED
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------------ ----------------
<S> <C> <C>
Balance at beginning of period $ 2,802 $ 1,159
Loans charged off:
Commercial 51 1,952
Real estate-construction -- 3
Real estate-mortgage -- --
Installment 86 395
Total charge-offs 137 2,350
Recoveries
Commercial 130 49
Real estate-construction 2 --
Real estate-mortgage -- --
Installment 27 40
Total recoveries 159 89
Net (recoveries) charge-offs (22) 2,261
Provision for loan losses 220 3,904
Balance at end of period $ 3,044 $ 2,802
Total loans at end of period $ 109,636 $ 107,028
Average total loans outstanding $ 108,157 $ 101,765
Net charge-offs to average loans -0.02% 2.22%
Allowance for Loan Losses to nonperforming loans 97.91% 89.19%
Allowance for Loan Losses to total loans 2.78% 2.62%
</TABLE>
The Bank maintains an allowance for loan losses to absorb inherent losses in the
portfolio. Management attributes general reserves to different types of loans
using percentages which are based upon perceived risk associated with the
portfolio and underlying collateral. The allowance for loan losses is a general
reserve available against the total loan portfolio and off balance sheet items.
While management uses available information to recognize losses on loans, future
additions to the allowance may be necessary based on changes in economic
conditions. In addition, various regulatory agencies, as an integral part of
their examination process, periodically review the Bank's allowance for possible
loan losses. Such agencies may require the Bank to provide additions to the
allowance based on their judgement of information available to them at the time
of their examination. At September 30, 1999, based on known information,
management believed that the allowance for loan losses was adequate to absorb
losses inherent in existing loans and commitments to extend credit, based on
evaluations of the collectibility and prior loss experience of loans and
commitments to extend credit as of such date.
The evaluation process is designed to determine the adequacy of the allowance
for loan losses. This process attempts to assess the risk of losses inherent in
the portfolio by segregating the allowance for loan losses into two components:
"Specific" and "General." The specific component is established by allocating a
portion of the allowance for loan losses to individual classified credits on the
basis of specific circumstances and assessments. In determining the general
component of the allowance for loan loss, management takes into consideration
growth trends in the portfolio, examination results of financial institution
supervisory authorities, prior loan loss experience, concentrations of credit
-15-
<PAGE>
risk, delinquency trends, collateral coverage, general economic conditions, the
interest rate environment and internal and external credit reviews. In addition,
the risks management considers vary depending on the nature of the loan.
The allowance for loan losses is based on estimates. Realized future losses may
vary from current estimates. It is always possible that future economic or other
factors may adversely affect the Bank's borrowers, and thereby cause loan losses
to exceed the current allowance. In addition, there can be no assurance that
future economic or other factors will not adversely affect the Bank's borrowers,
or that the Bank's asset quality may not deteriorate through rapid growth,
failure to maintain appropriate underwriting standards, failure to maintain an
adequate number of qualified loan personnel, failure to identify and monitor
potential problem loans or for other reasons, and thereby cause loan losses to
exceed the current allowance.
As of September 30, 1999, the allowance for loan losses was $3,044,000 compared
to $2,802,000 at December 31, 1998, an increase of 8.6%. When a loan is
considered uncollectible by management it is charged against the allowance for
loan losses. Any recoveries of previously charged off loans are credited back to
the allowance. Net recoveries for the nine months ended September 30, 1999 were
approximately $22,000, a decrease of 101.1% compared to net charge-offs of
approximately $2,031,000 for the nine months ended September 30, 1998. For the
nine months ended September 30, 1999 the Bank's provision for loan losses
totaled $220,000, a 91.2% decrease from $2,504,000 for the nine months ended
September 30, 1998. For the three months ended September 30, 1999 the Bank made
no additional provision for loan losses, a 100% decrease from $1,084,000 for the
three months ended ended September 30, 1998.
NONPERFORMING ASSETS
Nonperforming assets consist of nonperforming loans and other real estate owned.
Nonperforming loans are those in which the borrower fails to perform under the
original terms of the obligation and consist of nonaccrual loans, accruing loans
past due 90 days or more and restructured loans.
The following table summarizes the Bank's nonperforming assets at the dates
indicated.
AT SEPTEMBER 30, AT DECEMBER 31,
1999 1998
------- -------
Nonaccrual Loans $ 2,917 $ 2,896
Accruing loans past due 90 days or more 2 4
Restructured loans 190 242
------- -------
Total nonperforming loans 3,109 3,142
Other real estate owned 278 354
------- -------
Total nonperforming assets $ 3,387 $ 3,496
======= =======
The Bank generally places loans on nonaccrual status and accrued but unpaid
interest is reversed against the current year's income when interest or
principal payments become 90 days or more past due unless the outstanding
principal and interest is adequately secured and, in the opinion of management,
is deemed in the process of collection. Interest income on nonaccrual loans is
recorded on a cash basis. Payments may be treated as interest income or return
of principal depending upon management's opinion of the ultimate risk of loss on
the individual loan. Cash payments are treated as interest income only when
management believes the remaining principal balance is fully collectible. Loans
not 90 days past due may also be placed on nonaccrual status if management
reasonably believes the borrower will not be able to comply with the contractual
loan repayment terms and collection of principal or interest is in question.
A restructured loan is a loan on which interest accrues at a below-market rate
or upon which certain principal has been forgiven so as to aid the borrower in
the final repayment of the loan, with any interest previously accrued, but not
yet collected, being reversed against current income. Interest is recorded on a
cash basis until the borrower's ability to service the restructured loan in
accordance with its terms is established.
-16-
<PAGE>
Management defines impaired loans as those loans, regardless of past due status,
on which principal and interest is not expected to be collected under the
original contractual loan repayment terms. An impaired loan is charged off at
the time management believes the collection process has been exhausted. Impaired
loans are valued on the present value of future cash flows discounted at the
loan's effective rate, the loan's observable market price, or the fair value of
collateral if the loan is collateral dependent. Impaired loans as of September
30, 1999, and December 31, 1998 were $3,109,000 and $3,142,000. The total
allowance for loan losses related to those loans at September 30, 1999 was
$1,323,000, compared to $869,000 at December 31, 1998. No interest income was
recognized on impaired loans for the nine months ended September 30, 1999.
LIQUIDITY
Maintenance of adequate liquidity requires that sufficient resources be
available at all times to meet the cash flow requirements of the Bank. Liquidity
in a banking institution is required primarily to provide for deposit
withdrawals and the credit needs of its customers and to take advantage of
investment opportunities as they arise. A bank may achieve desired liquidity
from both assets and liabilities. Cash and deposits held in other banks, federal
funds sold, other short term investments, maturing loans and investments,
payments of principal and interest on loans and investments and potential loan
sales are sources of asset liquidity. Deposit growth and access to credit lines
established with correspondent banks and market sources of funds are sources of
liability liquidity.
The Bank reviews its liquidity position on a regular basis based upon its
current position and expected trends of loans and deposits. Management believes
that the Bank maintains adequate sources of liquidity to meet its liquidity
needs. The Bank's liquid assets (net of pledged assets) totaled approximately
$71,685,000 and $76,289,000 at September 30, 1999 and December 31, 1998,
respectively, and constituted 34.8% and 37.5% of total assets on those dates.
Although the Bank's primary sources of liquidity include liquid assets and a
stable deposit base, the Bank maintains lines of credit with the Federal Home
Loan Bank, the Federal Reserve Bank of San Francisco and its correspondent
banks. The total of these lines of credit was $21,675,000, of which $8,381,000
was outstanding as of September 30, 1999 and $632,000 was outstanding as of
December 31, 1998.
CAPITAL RESOURCES
A strong capital base is essential to the Bank's ability to continue to
serve the needs of its customers and shareholders. Capital protects depositors
and is a source of funds for the significant investments necessary for the Bank
to operate competitively. Additionally, adequate capital and earnings enable the
Bank to continue to have access to the capital markets to supplement internal
growth of equity. Capital is generated internally in the form of earnings and
retention of those earnings.
Total shareholders' equity was $19,077,000 at September 30, 1999, an increase of
$557,000 or 3.0% from $18,520,000 at December 31, 1998. During the third quarter
of 1999 12,870 options to purchase shares of the Bank's Common Stock were
exercised. The increase in equity is due primarily to earnings retention, which
was somewhat offset by a reduction in the current market value of securities
available for sale owing to a general decline in market rates.
Federal regulations establish guidelines for calculating "risk-adjusted" capital
ratios and minimum ratio requirements. Under these regulations, national banks
are required to maintain a total risk-based capital ratio of 8.0% and Tier 1
risk-based capital (primarily shareholders' equity) of at least 4% of total
qualifying capital. The Bank had Total and Tier 1 risk-based capital ratios of
12.85% and 11.60%, respectively, at September 30, 1999, and 12.30% and 11.05%,
respectively, at December 31, 1998.
-17-
<PAGE>
In addition, regulators have adopted a minimum leverage ratio standard for Tier
1 risk-based capital to total assets. As of September 30, 1999 and December 31,
1998, the Bank's leverage ratio was 7.48% and 6.73%, respectively, exceeding the
minimum guidelines of 3 to 5%.
YEAR 2000 COMPLIANCE
The inability of computers, software and other equipment utilizing
microprocessors to recognize and properly process data fields containing a
2-digit year is commonly referred to as the Year 2000 compliance issue. As the
year 2000 approaches, such systems may be unable to accurately process certain
date-based information.
The Bank has written a plan to mitigate the risks associated with the impact of
the Year 2000. The plan directs the Bank's Year 2000 activities under the
framework of the Federal Financial Institutions Examination Council ("FFIEC")
Five-Step Program. The FFIEC's Five-Step Program includes the following phases:
Awareness, Assessment, Renovation, Validation and Implementation. The Awareness
Phase, which is 100% complete, defined the Year 2000 problem and gained
executive level support for the necessary resources to prepare the Bank for Year
2000 compliance. The Assessment Phase, also 100% complete, assessed the size and
complexity of the problem and detailed the magnitude of the effort necessary to
address the Year 2000 issues. Although the Awareness and Assessment Phases are
complete, the Bank will continue to evaluate any new issues as they arise. The
Renovation Phase, now 100% complete, included the incremental changes to
hardware and software components. The Validation Phase, also 100% complete,
included the testing of hardware and software components. The Implementation
Phase, 100% complete, certified that systems are Year 2000 compliant and will be
accepted by the end users. The Implementation Phase was substantially completed
by June 30, 1999. The Bank has completed the development of test and validation
methodologies for its Information Technology systems. Testing of applications
was substantially completed by December 31, 1998. In some cases, the Bank relied
on service providers and software vendors to facilitate proxy testing with a
selected group of users. The Bank reviewed the test plans and validated the
results of the proxy testing, ensuring the Year 2000 compliance of those
systems. The Bank's business also uses non-IT products and services, some of
which have embedded technology, which might not be ready for the Year 2000 date
change. Some non-IT products and services involve infrastructure issues such as
power, communications and water, as well as ventilation, vault operations and
air conditioning equipment. The Bank classifies power and communications as
non-IT products and considers them to be of significant importance, giving them
a high priority. Based on responses from vendors and software providers, the
Bank does not anticipate incurring any material expenses owed to unpreparedness.
The Bank has identified material third party relationships to minimize the
potential loss from unpreparedness of these parties. The testing and validation
of these systems was substantially completed by December 31, 1998.
The Bank continues to make efforts to ensure that its customer base is aware of
the Year 2000 problem. Year 2000 correspondence has been sent to both deposit
and loan customers. Customer communication and correspondence efforts will
continue for the balance of 1999. The Bank has amended its credit authorizations
and documentation to include consideration regarding the Year 2000 problem.
Significant customer relationships have been identified, and such customers are
being contacted by the Bank's employees to determine whether they are aware of
Year 2000 risks and whether they are taking corrective actions.
The total cost to the Bank of these Year 2000 compliance activities was
approximately $10,000 for 1998 and approximately $12,000 as of September 30,
1999. The Bank is expensing all costs associated with the necessary
modifications during the period in which they are incurred. Other expense items
originally identified for Year 2000 reasons that have a broader scope than just
the Year 2000 have been allocated to other expense catagories and may or may not
have been capitalized. These costs and the date on which the Bank plans to
complete the Year 2000 modification and testing processes are based on
management's best estimates, which were derived utilizing numerous assumptions
of future events including the continued availability of certain resources,
third party modification plans and other factors. The costs incurred in 1998 did
not have a material effect on the Bank's reported earnings for 1998 and the Bank
does not expect the costs incurred for the same period in 1999 to have a
material effect on net income. It is anticipated that any disruption of services
would be partial and brief, and that there will not be a material impact on
revenues or earnings.
The Bank has developed contingency plans to address the possibility that efforts
to mitigate Year 2000 risk are not successful either in whole or in part. These
plans include remedial efforts up to and including complete manual processing of
information for critical IT systems in the event that there is a failure after
December 31, 1999.
-18-
<PAGE>
The factors that may cause actual results to differ materially from those
contemplated may include the failure by third parties to adequately remediate
Year 2000 issues or the inability of the Bank to complete writing and/or testing
software changes on time schedules currently expected. Nevertheless, the Bank
expects that its Year 2000 compliance efforts will be successful without any
adverse effects on its business.
PART II
ITEM 1. LEGAL PROCEEDINGS
The Bank is involved in litigation in the ordinary course of its business,
particularly in connection with certain nonperforming loans. In the third
quarter of 1999, legal expenses related to nonperforming loans were significant,
and such expenses are likely to continue into the remainder of 1999. See
"Management's Discussion and Analysis - Other Operating Expense." In the opinion
of management, the ultimate outcome of current pending and threatened litigation
is not expected to have a material adverse effect on the Bank's financial
condition and results of operations.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS - NONE
ITEM 3. DEFAULTS UPON SENIOR SECURITIES - NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - NONE
ITEM 5. OTHER INFORMATION - NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - None
Amendment to Agreement between Six Rivers National Bank and American Securities
Transfer and Trust, Inc., dated as of October 1, 1999, including an amended
Summary of Rights to Purchase Common Shares attached thereto as Exhibit A.
(Incorporated by reference to Exhibit 4.2 to Current Report on Form 8-K of
Registrant dated October 3, 1999.)
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the period ended
September 30, 1999.
-19-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SIX RIVERS NATIONAL BANK
(Registrant)
By /s/ MICHAEL W. MARTINEZ
---------------------------------------
Michael W. Martinez
President, Chief Executive Officer
and Principal Financial Officer
-20-
EXHIBIT 99.6
OFFICE OF THE COMPTROLLER OF THE CURRENCY
WASHINGTON, D.C. 20219
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 Date of Report (Date of earliest event
reported): May 12, 1999
SIX RIVERS NATIONAL BANK
(Exact name of registrant as specified in its charter)
__UNITED STATES___ (Commission File No.) __68-0176905___
(State of or other (IRS Employer ID Number)
juris- diction of incorporation)
__402 F STREET, EUREKA, CALIFORNIA 95501___
(Address, including zip code, of registrant's principal executive office)
(707) 443-8400
Registrant's telephone number, including area code
<PAGE>
ITEM 5. OTHER EVENTS.
At the Annual Meeting of the Bank the shareholders elected J. Mike McGowan to
the Board of Directors. At the time of the meeting the number of directors
authorized to serve was fixed at six and all six positions were filled. As a
result of Mr. McGowan's election, Jack L. Russ was removed from the Board of
Directors. Mr. McGowan's application to serve as a director is on file with the
Office of the Comptroller.
2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has caused this current report to be signed on its behalf by the
undersigned duly authorized person.
Date: July 28, 1999 Six Rivers National Bank
By: /s/ MICHAEL W. MARTINEZ
-----------------------------------------
Michael W. Martinez
President and Chief Executive Officer
3
EXHIBIT 99.7
OFFICE OF THE COMPTROLLER OF THE CURRENCY
WASHINGTON, D.C. 20219
------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): October 3, 1999
SIX RIVERS NATIONAL BANK
(Exact name of registrant as specified in its charter)
UNITED STATES _______ 68-0176905
(State or Other Jurisdiction of (Commission File No.) (IRS Employer
Identification Number)
Incorporation)
402 F STREET, EUREKA, CALIFORNIA 95501
(Address of registrant's principal executive office) (Zip Code)
(707) 443-8487
(Registrant's telephone number, including area code)
--------------------------------------------------
(Former name or former address, if changed since last report)
1
<PAGE>
ITEM 5. OTHER EVENTS.
On September 30, 1998, the Board of Directors of Six Rivers National
Bank (the "Bank") declared a dividend of one common share purchase right (a
"Right") for each outstanding share of common stock, par value $5.00 per share
(the "Common Shares" or "Common Stock"), of the Bank. The dividend was payable
on October 12, 1998 (the "Record date") to the shareholders of record on that
date. Each Right entitles the registered holder to purchase from the Bank one
share of Common Stock at a price of $30.00 per Common Share (the "Purchase
Price"), subject to adjustment. The description and terms of the Rights are set
forth in a Rights Agreement dated as of October 1, 1998 (the "Rights Agreement")
between the Bank and American Securities Transfer and Trust, Inc., as Rights
agent (the "Rights Agent").
Initially, the Rights will be attached to all certificates representing
Common shares then outstanding, regardless of whether any such certificate has a
copy of this Summary of Rights attached thereto, and no separate Right
Certificates will be distributed. The Rights will separate from the Common
Shares and a Distribution Date will occur upon the earlier of (i) 10 days
following a public announcement that, without prior consent of the Board of
Directors, a person or group of affiliated or associated persons have acquired
beneficial ownership of 10% or more of the outstanding Common Shares (an
"Acquiring Person"); provided, however, a person or group holding 10% or more of
the outstanding shares as of October 1, 1998 will become a "Grandfathered
Person" and such Grandfathered Person will be treated as an Acquiring Person
upon public announcement or knowledge by the Bank's Board of Directors that such
Grandfathered Person has acquired beneficial ownership of an additional 1% of
the outstanding Common Shares; or (ii) 10 business days (or such later date as
may be determined by action of the Board of Directors prior to such time as any
Person becomes an Acquiring Person) following the commencement of, or
announcement of an intention to make, a tender offer or exchange offer the
consummation of which would result in the beneficial ownership by a person or
group of 10% or more of such outstanding Common Shares (unless the Bank's Board
of Directors has approved the offer. On October 1, 1999, the Rights Agreement
was amended (the "Amendment") to allow the Bank and North Valley Bancorp, a
California corporation ("North Valley") to enter into and engage in the
transactions described in an Agreement and Plan of Merger dated October 3, 1999
between the Bank and North Valley pursuant to which the Bank will merge with
North Valley (the "North Valley Merger") and a related Stock Option Agreement by
the Bank and North Valley (such agreements collectively, the "North Valley
Merger Agreements"). As amended, the Rights Agreement provides that North Valley
and its Affiliates and Associates will not be Acquiring Persons as a result of
the North Valley Merger Agreements or the transactions described in those
agreements, nor will consummation of any of the transactions contemplated by the
North Valley Merger Agreements trigger the exercisability of the Rights
described herein.
The Rights Agreement provides that, until the Distribution Date, the
Rights will be transferred with and only with the Common Shares. Until the
distribution Date (or earlier redemption or expiration of the Rights), new
Common Share certificates issued after the Record Date, upon transfer or new
issuance of Common Shares, will contain a notation incorporating the Rights
Agreement by reference. Until the Distribution Date (or earlier redemption or
expiration of the Rights), the surrender for transfer of any certificates for
Common Shares outstanding as of the Record Date, even without such notation or a
copy of this Summary of Rights being attached thereto, will also constitute the
2
<PAGE>
transfer of the Rights associated with the Common Shares represented by such
certificate. As soon as practicable following the Distribution Date, separate
certificates evidencing the Rights ("Right Certificates") will be mailed to
holders of record of the Common Shares as of the close of business on the
Distribution Date and such separate Right Certificates alone will evidence the
Rights.
The Rights are not exercisable until the Distribution Date. The Rights
will expire on October 2, 2002 (the "Final Expiration Date"), unless the Rights
are earlier redeemed or exchanged by the Bank, in each case as described below.
The Purchase Price payable, and the number of Common Shares or other
securities or property issuable, upon exercise of the Rights are subject to
adjustment from time to time to prevent dilution (i) in the event of a stock
dividend on, or a subdivision, combination or reclassification of, the Common
Shares, (ii) upon the grant to holders of the Common Shares of certain rights or
warrants to subscribe for or purchase Common Shares at a price, or securities
convertible into Common Shares with a conversion price, less than the then
current market price of the Common Shares or (iii) upon the distribution to
holders of the Common Shares of evidences of indebtedness or assets (excluding
regular periodic cash dividends paid out of earnings or retained earnings or
dividends payable in Common Shares) or of subscription rights or warrants (other
than those referred to above). The number of outstanding Rights and the number
of Common Shares issuable upon exercise of each Right are also subject to
adjustment in the event of a stock split of the Common Shares or a stock
dividend on the Common Shares payable in Common Shares or a subdivision,
consolidation or combination of the Common Shares occurring, in any such case,
prior to the Distribution Date.
Common Shares purchasable upon exercise of the Rights will not be
redeemable.
In the event that (i) any person or group of affiliated or associated
persons (other than the transactions contemplated by the North Valley Merger
Agreements) becomes an Acquiring Person, or (ii) during such time as there is an
Acquiring Person, there shall be a reclassification of securities or a
recapitalization or reorganization of the Bank or other transaction or series of
transactions involving the Bank which has the effect of increasing by more than
1% the proportionate share of the outstanding shares of any class of equity
securities of the Bank or any of its subsidiaries beneficially owned by the
Acquiring Person (each a "flip-in" event), proper provision shall be made so
that each holder of a Right, other than Rights beneficially owned by the
Acquiring Person (which will thereafter be void), will thereafter have the right
to receive upon exercise that number of Common Shares (or, in the event that
there are insufficient authorized Common Shares, substitute consideration such
as cash, property, or other securities of the Bank) having a market value of two
times the exercise price of the Right. In the event that the Bank is acquired in
a merger or other business combination transaction or 50% or more of its
consolidated assets or earning power are sold (a "flip-over event"), proper
provision will be made so that each holder of a Right will thereafter have the
right to receive, upon the exercise thereof at the then current exercise price
of the Right, that number of shares of common stock of the acquiring company
which at the time of such transaction will have a market value of two times the
exercise price of the Right.
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At any time after the acquisition by a person or group of affiliate or
associated persons (other than the transactions contemplated by the North Valley
Merger Agreements) of beneficial ownership of 10% or more of the outstanding
Common Shares and prior to the acquisition by such person or group of 50% or
more of the outstanding Common Shares, the Board of Directors of the Bank may
exchange the Rights (other than Rights owned by such person or group which have
become void), in whole or in part, at an exchange ratio of one Common Share per
Right (subject to adjustment).
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price. No fractional Common Shares will be issued under the Plan
and in lieu thereof, an adjustment in cash will be made based on the market
price of the Common Shares on the last trading day prior to the date of
exercise.
At any time before a person becomes an Acquiring Person, the Board of
Directors of the Bank may redeem the Rights in whole, but not in part, at a
price of $0.001 per Right (the "Redemption Price"), subject to limitations which
may be imposed on the Bank by the federal banking laws. After the redemption
period has expired, the Bank's rights of redemption may be reinstated if, prior
to completion of certain recapitalizations, mergers or other business
combinations, an Acquiring Person reduces its beneficial ownership to less than
10% of the outstanding Common Shares in a transaction or series of transactions
not involving the Bank. The redemption of the rights may be made effective at
such time, on such basis and with such conditions as the Board of Directors in
its sole discretion may establish. Immediately upon any redemption of the
Rights, the right to exercise the Rights will terminate and the only right of
the holders of Rights will be to receive the Redemption Price.
The terms of the Rights may be amended by the board of Directors of the
Bank without the consent of the holders of the Rights, including an amendment to
lower certain thresholds described above to not less than the greater of (i) any
percentage greater than the largest percentage of the outstanding Common Shares
then known to the Bank to be beneficially owned by any person or group of
affiliated or associated persons (unless such person or group is excluded from
the effect of such reduction) and (ii) 10%, except that from and after such time
as any person becomes an Acquiring Person no such amendment may adversely affect
the interests of the holders of the Rights.
Until a Right is exercised, the holder of a Right will not, by reason
of being such a holder, have rights as a shareholder of the Bank, including,
without limitation, the right to vote or to receive dividends.
Copies of the Rights Agreement and the Amendment have been filed with
the Office of the Comptroller of the Currency as Exhibits to a Registration
Statement on Form 8-A. Copies of the Rights Agreement and the Amendment are
available to shareholders free of charge from the Bank. This summary description
of the Rights does not purport to be complete and is qualified in its entirety
by reference to the Rights Agreement, as amended (Exhibits 4.1 and 4.2 hereto),
which is hereby incorporated herein by reference.
Item 7. FINANCIAL STATEMENTS AND EXHIBITS.
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(c) EXHIBITS.
The Exhibit Index on page E-1 of this Report is incorporated herein by
reference.
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this current report to be signed on its behalf by
the undersigned hereunto duly authorized.
Date: November 3, 1999 Six Rivers National Bank
By: /s/ MICHAEL W. MARTINEZ
-----------------------------------------
Michael W. Martinez
President and Chief Executive Officer
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EXHIBIT INDEX
EXHIBIT DESCRIPTION
4.1 Rights Agreement between Six Rivers National Bank and American
Securities Transfer and Trust, Inc. dated as of October 1, 1998,
including Form of Right Certificate attached thereto as Exhibit A.
(previously filed).
4.2 Amendment to Agreement between Six Rivers National Bank and
American Securities Transfer and Trust, Inc., dated as of October 1,
1999, including an amended Summary of Rights to Purchase Common Shares
attached thereto as Exhibit A.
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EXHIBIT 4.1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SIX RIVERS NATIONAL BANK
and
AMERICAN SECURITIES TRANSFER AND TRUST, INC.
Rights Agent
RIGHTS AGREEMENT
Dated as of October 1, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
PAGE
Section 1. Certain Definitions ..................................... 1
Section 2. Appointment of Rights Agent ............................. 4
Section 3. Issue of Right Certificates ............................. 5
Section 4. Form of Right Certificates .............................. 6
Section 5. Countersignature and Registration ....................... 6
Section 6. Transfer, Split Up, Combination and Exchange of Right
Certificates; Mutilated, Destroyed, Lost or Stolen Right
Certificates ............................................ 7
Section 7. Exercise of Rights; Purchase Price; Expiration Date of
Rights .................................................. 7
Section 8. Cancellation and Destruction of Right Certificates ...... 8
Section 9. Availability of Common Shares ........................... 9
Section 10. Common Shares Record Date ............................... 9
Section 11. Adjustment of Purchase Price, Number of Shares or Number
of Rights ............................................... 9
Section 12. Certificate of Adjusted Purchase Price or Number of Shares
Section 13. Consolidation, Merger or Sale or Transfer of Assets or
Earning Power ...........................................15
Section 14. Fractional Rights and Fractional Shares .................18
Section 15. Rights of Action ........................................19
Section 16. Agreement of Right Holders ..............................19
Section 17. Right Certificate Holder Not Deemed a Shareholder .......20
Section 18. Concerning the Rights Agent .............................20
Section 19. Merger or Consolidation or Change of Name of Rights
Agent ...................................................20
Section 20. Duties of Rights Agent ..................................21
Section 21. Change of Rights Agent ..................................22
Section 22. Issuance of New Right Certificates ......................23
Section 23. Redemption ..............................................23
Section 24. Exchange ................................................24
Section 25. Notice of Certain Events ................................25
Section 26. Notices .................................................26
Section 27. Supplements and Amendments ..............................26
Section 28. Registration of Securities ..............................27
Section 29. Determinations and Actions by the Board of Directors ....27
Section 30. Successors ..............................................27
Section 31. Benefits of this Agreement ..............................27
Section 32. Severability ............................................27
Section 33. Governing Law ...........................................28
Section 34. Counterparts ............................................28
Section 35. Descriptive Headings ....................................28
<PAGE>
RIGHTS AGREEMENT
Agreement, dated as of October 1, 1998 between Six Rivers National Bank, a
California corporation (the "Bank"), and American Securities Transfer and Trust,
Inc. (the "Rights Agent"). Pursuant to this Agreement, the Board of Directors of
the Bank has authorized and declared a dividend of one common share purchase
right (a "Right") for each Common Share (as hereinafter defined) of the Bank
outstanding on October 12, 1998 (the "Record Date"), each Right representing the
right to purchase one Common Share, upon the terms and subject to the conditions
herein set forth, and has further authorized and directed the issuance of one
Right with respect to each Common Share that shall become outstanding between
the Record Date and the earliest of the Distribution Date, the Redemption Date
and the Final Expiration Date (as such terms are hereinafter defined).
Accordingly, in consideration of the premises and the mutual agreements herein
set forth, the parties hereby agree as follows:
I. SECTION 1. CERTAIN DEFINITIONS
For purposes of this Agreement, the following terms have the meanings indicated:
(a) "Acquiring Person" shall mean any Person (as such term is
hereinafter defined) who or which, together with all Affiliates and Associates
(as such terms are hereinafter defined) of such Person, shall be the Beneficial
Owner (as such term is hereinafter defined) of 10% or more of the Common Shares
of the Bank then outstanding (other than as the result of a Permitted Offer (as
such term is hereinafter defined)), but shall not include the Bank, any
Subsidiary (as such term is hereinafter defined) of the Bank, any employee
benefit plan of the Bank (including without limitation the Employee Plans) or of
any Subsidiary of the Bank, or of any entity holding Common Shares for or
pursuant to the terms of any such plan, PROVIDED, HOWEVER, that the term
"Acquiring Person" shall not include any Grandfathered Person (as such term is
hereinafter defined), unless such Grandfathered Person subsequently becomes the
Beneficial Owner of more than the Grandfathered Percentage (as such term is
hereinafter defined) of the Common Shares of the Bank; and PROVIDED, FURTHER,
that any person who first obtains the written approval of a majority of the
Board of Directors of the Bank for the acquisition of 10% or more of the Common
Shares of the Bank and therefore accumulates at least 10% of the Common Shares,
within six months of the date of such written approval shall not be an
"Acquiring Person." Any Grandfathered Person who subsequently becomes the
Beneficial Owner of less than 10% of the Common Shares of the Bank shall cease
to be a Grandfathered Person. Notwithstanding the foregoing, no Person shall
become an "Acquiring Person" as the result of either (x) an acquisition of
Common Shares by the Bank which, by reducing the number of shares outstanding,
increases the proportionate number of shares beneficially owned by such Person
to 10% or more of the Common Shares of the Bank then outstanding; PROVIDED,
HOWEVER, that if a Person shall become the Beneficial Owner of 10% or more of
the Common Shares of the Bank then outstanding by reason of share purchases by
the Bank and shall, after such share purchases by the Bank, become the
Beneficial Owner of any additional Common Shares of the Bank, then such Person
shall be deemed to be an "Acquiring Person" or (y) if (i) within 8 days after
such Person would otherwise have become an Acquiring Person (but for the
operation of this subclause y), such Person notifies the Board of Directors that
such Person did so inadvertently and (ii)
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within 5 days after such notification, such Person is the Beneficial Owner of
less than 10% of the outstanding Common Shares or, if the Person is a
Grandfathered Person, such Person is the Beneficial Owner of less than the
Grandfathered Percentage.
(b) "Adjusted Shares" shall have the meaning set forth in Section
11(a)(ii) hereof.
(c) "Affiliate" and "Associate" shall have the
respective meanings ascribed to such terms in Rule 12b-2 of the General Rules
and Regulations under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), as in effect on the date of this Agreement.
(d) A Person shall be deemed the "Beneficial Owner" of and shall be
deemed to "beneficially own" any securities:
(i) which such Person or any of such Person's Affiliates or
Associates beneficially owns, directly or indirectly;
(ii) which such Person or any of such Person's Affiliates or
Associates has (A) the right to acquire (whether such right is exercisable
immediately or only after the passage of time) pursuant to any agreement,
arrangement or understanding (other than customary agreements with and between
underwriters and selling group members with respect to a bona fide public
offering of securities), or upon the exercise of conversion rights, exchange
rights, rights (other than these Rights), warrants or options, or otherwise;
PROVIDED, HOWEVER, that a Person shall not be deemed the Beneficial Owner of, or
to beneficially own, securities tendered pursuant to a tender or exchange offer
made by or on behalf of such Person or any of such Person's Affiliates or
Associates until such tendered securities are accepted for purchase or exchange;
or (B) the right to vote pursuant to any agreement, arrangement or
understanding; PROVIDED, HOWEVER, that a Person shall not be deemed the
Beneficial Owner of, or to beneficially own, any security if the agreement,
arrangement or understanding to vote such security (1) arises solely from a
revocable proxy or consent given to such Person in response to a public proxy or
consent solicitation made pursuant to, and in accordance with, the applicable
rules and regulations promulgated under the Exchange Act and (2) is not also
then reportable on Schedule 13D under the Exchange Act (or any comparable or
successor report); or
(iii) which are beneficially owned, directly or indirectly, by any
other Person with which such Person or any of such Person's Affiliates or
Associates has any agreement, arrangement or understanding (other than customary
agreements with and between underwriters and selling group members with respect
to a bona fide public offering of securities) for the purpose of acquiring,
holding, voting (except to the extent contemplated by the proviso in Section
l(d)(ii)(B)) or disposing of any securities of the Bank; PROVIDED, HOWEVER, that
in no case shall an officer or director of the Bank be deemed the Beneficial
Owner of securities held of record by the trustee of any employee benefit plan
of the Bank (including without limitation the Plans) or any Subsidiary of the
Bank for the benefit of any employee of the Bank or any Subsidiary of the Bank,
other than the officer or director, by reason of any influence that such officer
or director may have over the voting of the securities held in the plan.
Notwithstanding anything in this definition of Beneficial Ownership to the
contrary, the phrase "then outstanding," when used with reference to a Person's
Beneficial Ownership of securities of the Bank, shall mean the number of such
securities then issued and outstanding together with the number of such
securities not then actually issued and outstanding which such Person would be
deemed to own beneficially hereunder.
(e) "Business Day" shall mean any day other than a Saturday, a Sunday,
or a day on which banking institutions in the State of California are authorized
or obligated by law or executive order to close.
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(f) "Close of business" on any given date shall mean 5:00 P.M., San
Francisco time, on such date; PROVIDED, HOWEVER, that if such date is not a
Business Day it shall mean 5:00 P.M., San Francisco time, on the next succeeding
Business Day.
(g) "Common Shares" when used with reference to the Bank shall mean the
shares of common stock, par value $5.00 per share, of the Bank. "Common Shares"
when used with reference to any Person other than the Bank shall mean the
capital stock (or equity interest) with the greatest voting power of such other
Person or, if such other Person is a Subsidiary of another Person, the Person or
Persons which ultimately control such first-mentioned Person.
(h) "Current Value" shall have the meaning set forth in Section
11(a)(iv) hereof.
(i) "Distribution Date" shall have the meaning set forth in Section 3
hereof.
(j) "Employee Plans" shall mean the Six Rivers National Bank Employee
Stock Ownership Plan and the Six Rivers National Bank 401(k) Plan and any other
tax-qualified employee benefit plan of the Bank, or any of them, and any
successor to any of them.
(k) "Final Expiration Date" shall have the meaning set forth in Section
7 hereof.
(l) "Federal Banking Laws" shall mean the National Bank Act, as
amended, the Federal Deposit Insurance Corporation Improvement Act of 1991, as
amended, the Financial Institution Reform, Recovery and Enforcement Act of 1989,
as amended, and the regulations of the Comptroller of the Currency and the
Federal Deposit Insurance Corporation promulgated under such laws, to the extent
such laws and regulations are applicable to the Bank.
(m) "Grandfathered Percentage" shall mean, with respect to any
Grandfathered Person (as such term is hereinafter defined), the percentage of
the outstanding Common Shares that such Grandfathered Person beneficially owned
on October 1, 1998, plus one percentage point.
(n) "Grandfathered Person" shall mean any Person who or which, together
with all Affiliates and Associates of such Person, was, on October 1, 1998, the
Beneficial Owner of 10% or more of the Common Shares of the Bank outstanding on
such date.
(o) "Permitted Offer" shall mean a tender or exchange offer which is
for all outstanding Common Shares at a price and on terms determined, prior to
the purchase of shares under such tender or exchange offer, by at least a
majority of the members of the Board of Directors who are not officers of the
Bank and who are not Acquiring Persons or Affiliates, Associates, nominees or
representatives of an Acquiring Person, to be adequate (taking into account all
factors that such Director deem relevant including, without limitation, prices
that could reasonably be achieved of the Bank or its assets were sold on an
orderly basis designed to realize maximum value) and otherwise in the best
interest of the Bank and its shareholders (other than the Person or any
Affiliates or Associate thereof on whose basis the offer is being make) taking
into account all factors that such directors may deem relevant.
(p) "Person" shall mean any individual, firm, association, partnership,
joint venture, corporation or other entity, and shall include any successor (by
merger or otherwise) of such entity.
(q) "Principal Party" shall have the meaning set forth in Section 13(b)
hereof.
(r) "Purchase Price" shall have the meaning set forth in Section 4
hereof.
(s) "Redemption Date" shall have the meaning set forth in Section 7
hereof.
(t) "Registered Common Shares" shall have the meaning set forth in
Section 13(d) hereof.
(u) "Shares Acquisition Date" shall mean the first date of public
announcement (which, for purposes of this definition, shall include, without
limitation, a report filed pursuant to Section 13(d) of the Exchange Act) by the
Bank or an Acquiring Person that an Acquiring Person has become such or such
earlier date as a majority of the directors of the Bank shall become aware of
the existence of an Acquiring Person.
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(v) "Spread" shall have the meaning set forth in Section 11(a)(iv)
hereof.
(w) "Subsidiary" of any Person shall mean any corporation or other
entity of which a majority of the voting power of the voting equity securities
or equity interest is owned, directly or indirectly, by such Person.
(x) "Substitution Period" shall have the meaning set forth in Section
11(a)(iv) hereof.
(y) "Trading Day" shall have the meaning set forth in Section 11(a)(iv)
hereof.
(z) A "Trigger Event" shall be deemed to have occurred upon any Person,
together with all Affiliates and Associates of such Person, becoming an
Acquiring Person.
II. SECTION 2. APPOINTMENT OF RIGHTS AGENT
The Bank hereby appoints the Rights Agent to act as agent for the Bank in
accordance with the terms and conditions hereof, and the Rights Agent hereby
accepts such appointment. The Bank may from time to time appoint such co-Rights
Agents as it may deem necessary or desirable.
III. SECTION 3. ISSUE OF RIGHT CERTIFICATES
(a) Until the earlier of the close of business on (i) the tenth day
after the Shares Acquisition Date, or (ii) the tenth Business Day (or such later
date as may be determined by action of the Board of Directors prior to such time
as any Person becomes an Acquiring Person) after the date of the commencement by
any Person (other than the Bank, any Subsidiary of the Bank, any employee
benefit plan of the Bank (including without limitation the Employee Plans) or of
any Subsidiary of the Bank or any entity holding Common Shares for or pursuant
to the terms of any such plan) of, or of the first public announcement of the
intention of any Person (other than the Bank, any Subsidiary of the Bank, any
employee benefit plan of the Bank (including without limitation the Employee
Plans) or of any Subsidiary of the Bank or any entity holding Common Shares for
or pursuant to the terms of any such plan) to commence, a tender or exchange
offer the consummation of which would result in any Person becoming the
Beneficial Owner of Common Shares aggregating 10% or more of the then
outstanding Common Shares (irrespective of whether any Common Shares are
actually purchased pursuant to such offer) (including any such date which is
after the date of this Agreement and prior to the issuance of the Rights), (the
earliest of such dates being herein referred to as the "Distribution Date"), (x)
the Rights will be evidenced (subject to the provisions of Section 3(b) hereof)
by the certificates for Common Shares registered in the names of the holders
thereof (which certificates shall also be deemed to be Right Certificates) and
not by separate Right Certificates, and (y) the right to receive Right
Certificates will be transferable only in connection with the transfer of Common
Shares. As soon as practicable after the Distribution Date, the Bank will
prepare and execute, the Rights Agent will countersign, and the Bank will send
or cause to be sent (and the Rights Agent will, if requested, send) by
first-class, insured, postage-prepaid mail, to each record holder of Common
Shares as of the close of business on the Distribution Date, at the address of
such holder shown on the records of the Bank, a Right Certificate, in
substantially the form of Exhibit A hereto (a "Right Certificate"), evidencing
one Right for each Common Share so held. As of the Distribution Date, the Rights
will be evidenced solely by such Right Certificates.
(b) On the Record Date, or as soon as practicable thereafter, the Bank
will send a copy of a Summary of Rights to Purchase Common Shares, in
substantially the form of Exhibit B hereto (the "Summary of Rights"), by
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first-class, postage-prepaid mail, to each record holder of Common Shares as of
the close of business on the Record Date, at the address of such holder shown on
the records of the Bank. With respect to certificates for Common Shares
outstanding as of the Record Date, until the Distribution Date, the Rights will
be evidenced by such certificates registered in the names of the holders thereof
regardless of whether a copy of the Summary of Rights is attached thereto. Until
the Distribution Date (or the earlier of the Redemption Date or the Final
Expiration Date), the surrender for transfer of any certificate for Common
Shares outstanding on the Record Date, with or without a copy of the Summary of
Rights attached thereto, shall also constitute the transfer of the Rights
associated with the Common Shares represented thereby.
(c) Certificates for Common Shares which become outstanding (including,
without limitation, reacquired Common Shares referred to in the last sentence of
this paragraph (c)) after the Record Date but prior to the earliest of the
Distribution Date, the Redemption Date or the Final Expiration Date shall have
impressed on, printed on, written on or otherwise affixed to them the following
legend:
This certificate also evidences and entitles the holder hereof to
certain rights as set forth in a Rights Agreement between Six
Rivers National Bank and American Securities Transfer and Trust,
Inc., dated as of October 1, 1998 (the "Rights Agreement"), the
terms of which are hereby incorporated herein by reference and a
copy of which is on file at the principal executive offices of Six
Rivers National Bank. Under certain circumstances, as set forth in
the Rights Agreement, such Rights will be evidenced by separate
certificates and will no longer be evidenced by this certificate.
Six Rivers National Bank will mail to the holder of this
certificate a copy of the Rights Agreement without charge after
receipt of a written request therefor. Under certain
circumstances, as set forth in the Rights Agreement, Rights issued
to any Person who becomes an Acquiring Person (as defined in the
Rights Agreement) may become null and void.
With respect to such certificates containing the foregoing legend,
until the Distribution Date, the Rights associated with the Common Shares
represented by such certificates shall be evidenced by such certificates alone,
and the surrender for transfer of any such certificate shall also constitute the
transfer of the Rights associated with the Common Shares represented thereby. In
the event that the Bank purchases or acquires any Common Shares after the Record
Date but prior to the Distribution Date, the Bank shall not be entitled to
exercise any Rights associated with such Common Shares while they are not
outstanding.
IV. SECTION 4. FORM OF RIGHT CERTIFICATES
The Right Certificates (and the forms of election to purchase Common
Shares and of assignment to be printed on the reverse thereof) shall be
substantially the same as Exhibit A hereto and may have such marks of
identification or designation and such legends, summaries or endorsements
printed thereon as the Bank may deem appropriate and as are not inconsistent
with the provisions of this Agreement, or as may be required to comply with any
applicable law or with any rule or regulation made pursuant thereto or with any
rule or regulation of any stock exchange or other organization on which the
Rights may from time to time be listed or quoted, or to conform to usage.
Subject to the provisions of
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Section 22 hereof, the Right Certificates shall entitle the holders
thereof to purchase such number of Common Shares as shall be set forth therein
at the price per Common Share set forth therein (the "Purchase Price"), but the
number of such Common Shares and the Purchase Price shall be subject to
adjustment as provided herein.
V. SECTION 5. COUNTERSIGNATURE AND REGISTRATION
The Right Certificates shall be executed on behalf of the Bank by its
Chairman of the Board, its Chief Executive Officer, its President, it Chief
Financial Officer or any of its Executive Vice Presidents, either manually or by
facsimile signature and shall be attested by the Secretary or an Assistant
Secretary of the Bank, either manually or by facsimile signature. The Right
Certificates shall be manually countersigned by the Rights Agent and shall not
be valid for any purpose unless countersigned. In case any officer of the Bank
who shall have signed any of the Right Certificates shall cease to be such
officer of the Bank before countersignature by the Rights Agent and issuance and
delivery by the Bank, such Right Certificates, nevertheless, may be
countersigned by the Rights Agent and issued and delivered by the Bank with the
same force and effect as though the person who signed such Right Certificates
had not ceased to be such officer of the Bank; and any Right Certificate may be
signed on behalf of the Bank by any person who, at the actual date of the
execution of such Right Certificate, shall be a proper officer of the Bank to
sign such Right Certificate, although at the date of the execution of this
Rights Agreement any such person was not such an officer.
Following the Distribution Date, the Rights Agent will keep or cause to
be kept, at its principal office, books for registration and transfer of the
Right Certificates issued hereunder. Such books shall show the names and
addresses of the respective holders of the Right Certificates, the number of
Rights evidenced on its face by each of the Right Certificates and the date of
each of the Right Certificates.
VI. SECTION 6. TRANSFER, SPLIT UP, COMBINATION AND EXCHANGE OF RIGHT
CERTIFICATES; MUTILATED, DESTROYED, LOST OR STOLEN RIGHT CERTIFICATES
Subject to the provisions of Section 14 hereof, at any time after the
close of business on the Distribution Date, and at or prior to the close of
business on the earlier of the Redemption Date or the Final Expiration Date, any
Right Certificate or Right Certificates (other than Right Certificates
representing Rights that have become void pursuant to Section 11(a)(ii) hereof
or that have been exchanged pursuant to Section 24 hereof) may be transferred,
split up, combined or exchanged for another Right Certificate or Right
Certificates, entitling the registered holder to purchase a like number of
Common Shares as the Right Certificate or Right Certificates surrendered then
entitled such holder to purchase. Any registered holder desiring to transfer,
split up, combine or exchange any Right Certificate or Right Certificates shall
make such request in writing delivered to the Rights Agent, and shall surrender
the Right Certificate or Right Certificates to be transferred, split up,
combined or exchanged at the principal office of the Rights Agent. Thereupon the
Rights Agent shall countersign and deliver to the person entitled thereto a
Right Certificate or Right Certificates, as the case may be, as so requested.
The Bank may require payment of a sum sufficient to cover any tax or
governmental charge that may be imposed in connection with any transfer, split
up, combination or exchange of Right Certificates. Upon receipt by the Bank and
the Rights Agent of evidence reasonably satisfactory to them of the loss, theft,
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<PAGE>
destruction or mutilation of a Right Certificate, and, in case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to them and
reimbursement to the Bank and the Rights Agent of all reasonable expenses
incidental thereto, and upon surrender to the Rights Agent and cancellation of
the Right Certificate if mutilated, the Bank will make and deliver a new Right
Certificate of like tenor to the Rights Agent for delivery to the registered
holder in lieu of the Right Certificate so lost, stolen, destroyed or mutilated.
VII. SECTION 7. EXERCISE OF RIGHTS; PURCHASE PRICE; EXPIRATION DATE OF RIGHTS
(a) The registered holder of any Right Certificate may exercise the
Rights evidenced thereby (except as otherwise provided herein) in whole or in
part at any time after the Distribution Date upon surrender of the Right
Certificate, with the form of election to purchase on the reverse side thereof
duly executed, to the Rights Agent at the principal office of the Rights Agent,
together with payment of the Purchase Price for each Common Share as to which
the Rights are exercised, at or prior to the earliest of (i) the close of
business on October 2, 2002 (the "Final Expiration Date"), (ii) the time at
which the Rights are redeemed as provided in Section 23 hereof (the "Redemption
Date"), or (iii) the time at which such Rights are exchanged as provided in
Section 24 hereof.
(b) The Purchase Price for each Common Share pursuant to the exercise
of a Right shall initially be $30.00, shall be subject to adjustment from time
to time as provided in Sections 11 and 13 hereof and shall be payable in lawful
money of the United States of America in accordance with paragraph (c) below.
(c) Upon receipt of a Right Certificate representing exercisable
Rights, with the form of election to purchase duly executed, accompanied by
payment of the Purchase Price for the shares to be purchased and an amount equal
to any applicable transfer tax required to be paid by the holder of such Right
Certificate in accordance with Section 9 hereof by cash, certified check,
cashier's check or money order payable to the order of the Bank, the Rights
Agent shall thereupon promptly (i) (A) requisition from any transfer agent of
the Common Shares certificates for the number of Common Shares to be purchased
and the Bank hereby irrevocably authorizes its transfer agent to comply with all
such requests, or (B) requisition from the depository agent depository receipts
representing such number of Common Shares as are to be purchased (in which case
certificates for the Common Shares represented by such receipts shall be
deposited by the transfer agent with the depository agent) and the Bank hereby
directs the depository agent to comply with such request, (ii) when appropriate,
requisition from the Bank the amount of cash to be paid in lieu of issuance of
fractional shares in accordance with Section 14 hereof, (iii) after receipt of
such certificates or depository receipts, cause the same to be delivered to or
upon the order of the registered holder of such Right Certificate, registered in
such name or names as may be designated by such holder and (iv) when
appropriate, after receipt, deliver such cash to or upon the order of the
registered holder of such Right Certificate.
(d) In case the registered holder of any Right Certificate shall
exercise less than all the Rights evidenced thereby, a new Right Certificate
evidencing Rights equivalent to the Rights remaining unexercised shall be issued
by the Rights Agent to the registered holder of such Right Certificate or to his
duly authorized assigns, subject to the provisions of Section 14 hereof.
(e) The Bank covenants and agrees that it will cause to be reserved and
kept available out of its authorized and unissued Common Shares or any Common
Shares held in its treasury the number of Common Shares that will be sufficient
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to permit the exercise in full of all outstanding Rights in accordance with this
Section 7.
VIII. SECTION 8. CANCELLATION AND DESTRUCTION OF RIGHT CERTIFICATES
A11 Right Certificates surrendered for the purpose of exercise,
transfer, split up, combination or exchange shall, if surrendered to the Bank or
to any of its agents, be delivered to the Rights Agent for cancellation or in
canceled form, or, if surrendered to the Rights Agent, shall be canceled by it,
and no Right Certificates shall be issued in lieu thereof except as expressly
permitted by any of the provisions of this Rights Agreement. The Bank shall
deliver to the Rights Agent for cancellation and retirement, and the Rights
Agent shall so cancel and retire, any other Right Certificate purchased or
acquired by the Bank otherwise than upon the exercise thereof. The Rights Agent
shall deliver all canceled Right Certificates to the Bank, or shall, at the
written request of the Bank, destroy such canceled Right Certificates, and in
such case shall deliver a certificate of destruction thereof to the Bank.
IX. SECTION 9. AVAILABILITY OF COMMON SHARES
The Bank covenants and agrees that it will take all such action as may
be necessary to ensure that all Common Shares delivered upon exercise of Rights
shall, at the time of delivery of the certificates for such Common Shares
(subject to payment of the Purchase Price), be duly and validly authorized and
issued and fully paid shares.
The Bank further covenants and agrees that it will pay when due and
payable any and all federal and state transfer taxes and charges which may be
payable in respect of the issuance or delivery of the Right Certificates or of
any Common Shares upon the exercise of Rights. The Bank shall not, however, be
required to pay any transfer tax which may be payable in respect of any transfer
or delivery of Right Certificates to a person other than, or the issuance or
delivery of certificates or depository receipts for the Common Shares in a name
other than that of, the registered holder of the Right Certificate evidencing
Rights surrendered for exercise or to issue or to deliver any certificates or
depository receipts for Common Shares upon the exercise of any Rights until any
such tax shall have been paid (any such tax being payable by the holder of such
Right Certificate at the time of surrender) or until it has been established to
the Bank's reasonable satisfaction that no such tax is due.
X. SECTION 10. COMMON SHARES RECORD DATE
Each person in whose name any certificate for Common Shares is issued
upon the exercise of Rights shall for all purposes be deemed to have become the
holder of record of the Common Shares represented thereby on, and such
certificate shall be dated, the date upon which the Right Certificate evidencing
such Rights was duly surrendered and payment of the Purchase Price (and any
applicable transfer taxes) was made; PROVIDED, HOWEVER, that if the date of such
surrender and payment is a date upon which the Common Shares transfer books of
the Bank are closed, such person shall be deemed to have become the record
holder of such shares on, and such certificate shall be dated, the next
succeeding Business Day on which the Common Shares transfer books of the Bank
are open. Prior to the exercise of the Rights evidenced thereby, the holder of a
Right Certificate shall not be entitled to any rights of a holder of Common
Shares for which the Rights shall be exercisable, including, without limitation,
the right to vote, to receive dividends or other distributions or to exercise
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any preemptive rights, and shall not be entitled to receive any notice of any
proceedings of the Bank, except as provided herein.
SECTION 11. ADJUSTMENT OF PURCHASE PRICE, NUMBER OF SHARES OR NUMBER OF RIGHTS
The Purchase Price, the number of Common Shares covered by each Right
and the number of Rights outstanding are subject to adjustment from time to time
as provided in this Section 11.
(a) (i) In the event the Bank shall at any time after the date of this
Agreement (A) declare a dividend on the Common Shares payable in Common Shares,
(B) subdivide the outstanding Common Shares, (C) combine the outstanding Common
Shares into a smaller number of Common Shares or (D) issue any shares of its
capital stock in a reclassification of the Common Shares (including any such
reclassification in connection with a consolidation or merger in which the Bank
is the continuing or surviving corporation), except as otherwise provided in
this Section 11(a), the Purchase Price in effect at the time of the record date
for such dividend or of the effective date of such subdivision, combination or
reclassification, and the number and kind of shares of capital stock issuable on
such date, shall be proportionately adjusted so that the holder of any Right
exercised after such time shall be entitled to receive the aggregate number and
kind of shares of capital stock which, if such Right had been exercised
immediately prior to such date and at a time when the Common Shares transfer
books of the Bank were open, he would have owned upon such exercise and been
entitled to receive by virtue of such dividend, subdivision, combination or
reclassification.
(ii) Subject to Section 24 of this Agreement, in the event:
(A) a Trigger Event shall have occurred (other than through an
acquisition described in subparagraph (iii) of this paragraph (a)); or
(B) during such time as there is an Acquiring Person, there shall be
any reclassification of securities (including any reverse stock split), or
recapitalization or reorganization of the Bank or other transaction or series of
transactions involving the Bank which has the effect, directly or indirectly, of
increasing by more than 1% the proportionate share of the outstanding shares of
any class of equity securities of the Bank or any of its Subsidiaries
beneficially owned by any Acquiring Person or any Affiliate or Associate
thereof,
each holder of a Right shall thereafter have a right to receive, upon exercise
thereof at a price equal to the then current Purchase Price multiplied by the
number of Common Shares for which a Right is then exercisable, in accordance
with the terms of this Agreement and in lieu of the number of Common Shares for
which the Right would otherwise be exercisable, such number of Common Shares of
the Bank (such number of shares being referred to herein as the "Adjustment
Shares") as shall equal the result obtained by (x) multiplying the then current
Purchase Price by the number of Common Shares for which a Right is then
exercisable and dividing that product by (y) 50% of the then current per share
market price of the Bank's Common Shares (determined pursuant to Section 11(d)
hereof) on the date of the occurrence of the earliest of the events described in
clauses (A) and (B) above.
From and after the occurrence of the earliest of the events described in clauses
(A) and (B) above, any Rights that are or were acquired or are or were
beneficially owned by any Acquiring Person (or any Associate or Affiliate of
such Acquiring Person) shall be void and any holder of such Rights (including
any subsequent transferee) shall thereafter have no right to exercise such
Rights under any provision of this Agreement. No Right Certificate shall be
issued pursuant to Section 3 that represents Rights beneficially owned by an
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Acquiring Person whose Rights would be void pursuant to the preceding
sentence or any Associate or Affiliate thereof; no Right Certificate shall be
issued at any time upon the transfer of any Rights to an Acquiring Person whose
Rights would be void pursuant to the preceding sentence or any Associate or
Affiliate thereof or to any nominee of such Acquiring Person, Associate or
Affiliate; and any Right Certificate delivered to the Rights Agent for transfer
to an Acquiring Person whose Rights would be void pursuant to the preceding
sentence shall be canceled.
(iii) The right to buy Common Shares of the Bank pursuant to
subparagraph (ii) of this paragraph (a) shall not arise as a result of any
Person becoming an Acquiring Person through a purchase of Common Shares pursuant
to a tender offer made in the manner prescribed by Section 14(d) of the Exchange
Act and the rules and regulations promulgated thereunder; PROVIDED, HOWEVER,
that such tender offer shall provide for the acquisition of all of the
outstanding Common Shares held by any Person other than such Person and its
Affiliates or Associates at a price and on terms determined by at least a
majority of the members of the Board of Directors who are not officers of the
Bank and who are not representatives, nominees, Affiliates or Associates of an
Acquiring Person, after receiving advice from one or more investment or
financial advisers, to be (A) fair to shareholders (taking into account all
factors which such members of the Board deem relevant including, without
limitation, prices which could reasonably be achieved if the Bank or its assets
were sold on an orderly basis designed to realize maximum value) and (B)
otherwise in the best interests of the Bank and its shareholders, employees,
customers and communities in which the Bank does business.
(iv) In the event that there shall not be sufficient Common Shares
authorized but unissued to permit the exercise in full of the Rights in
accordance with the foregoing subparagraph (ii), the Bank shall: (A) determine
the excess of (1) the value of the Adjustment Shares issuable upon the exercise
of a Right (the "Current Value"), over (2) the Purchase Price (such excess being
hereinafter referred to as the "Spread"), and (B) with respect to each Right,
make adequate provision to substitute for such unavailable Adjustment Shares
either (1) cash, (2) a reduction in the Purchase Price, (3) other equity
securities of the Bank, (4) debt securities of the Bank, (5) other assets, or
(6) any combination of the foregoing, having, together with the Adjustment
Shares issued upon exercise of such Right, an aggregate value equal to the
Current Value, where such aggregate value has been determined by the Board of
Directors of the Bank based upon the advice of a reputable investment banking
firm selected by the Board of Directors of the Bank; PROVIDED, HOWEVER, if,
within 30 days following the date of the occurrence of the earliest of the
events described in clauses (A) and (B) of Section 11(a)(ii) above, the Bank
shall have not made adequate provision to deliver value pursuant to clause (B)
above, then the Bank shall be obligated to deliver, upon the surrender for
exercise of a Right and without requiring payment of the Purchase Price, cash
and then, if necessary, evidence of indebtedness, which cash and/or evidence of
indebtedness have an aggregate value equal to the Spread. If the Board of
Directors of the Bank shall determine in good faith that it is likely that
sufficient additional Common Shares or other equity securities of the Bank could
be authorized for issuance upon exercise in full of the Rights, the 30-day
period set forth above may be extended to the extent necessary, but not more
than 120 days following the date of the occurrence of the earliest of the events
described in clauses (A) and (B) of Section 11(a)(ii) above, in order that the
Bank may seek shareholder approval for the authorization of such additional
shares (such period, as it may be extended, hereinafter referred to as the
"Substitution Period"). To the extent that the Bank determines that action need
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be taken pursuant to the first and/or second sentences of this Section
11(a)(iv), the Bank (x) shall provide, subject to Section 11(a)(ii) hereof, that
such action shall apply uniformly to all outstanding Rights, and (y) may suspend
the exercisability of the Rights until the expiration of the Substitution Period
in order to seek any authorization of additional shares and/or to decide the
appropriate form of distribution to be made pursuant to such first sentence and
to determine the value thereof. In the event of any such suspension, the Bank
shall issue a public announcement stating that the exercisability of the Rights
has been temporarily suspended, as well as a public announcement at such time as
the suspension is no longer in effect. For purposes of this Section 11(a)(iv),
the value of the Common Shares shall be the current per share market price (as
determined pursuant to Section 11(d) hereof) per Common Share on the date of the
occurrence of the earliest of the events described in clauses (A) and (B) of
Section 11(a)(ii) above.
(b) In case the Bank shall fix a record date for the issuance of
rights, options or warrants to all holders of Common Shares entitling them (for
a period expiring within 45 calendar days after such record date) to subscribe
for or purchase Common Shares (or shares or fractions of shares having the same
rights, privileges and preferences as the Common Shares ("equivalent common
shares")) or securities convertible into Common Shares or equivalent common
shares at a price per Common Share or equivalent common share (or having a
conversion price per share, if a security convertible into Common Shares or
equivalent common shares) less than the then current per share market price of
the Common Shares (as defined in Section 11(d)) on such record date, the
Purchase Price to be in effect after such record date shall be determined by
multiplying the Purchase Price in effect immediately prior to such record date
by a fraction, the numerator of which shall be the number of Common Shares
outstanding on such record date plus the number of Common Shares which the
aggregate offering price of the total number of Common Shares and/or equivalent
common shares so to be offered (and/or the aggregate initial conversion price of
the convertible securities so to be offered) would purchase at such current
market price and the denominator of which shall be the number of Common Shares
outstanding on such record date plus the number of additional Common Shares
and/or equivalent common shares to be offered for subscription or purchase (or
into which the convertible securities so to be offered are initially
convertible). In case such subscription price may be paid in a consideration
part or all of which shall be in a form other than cash, the value of such
consideration shall be as determined in good faith by the Board of Directors of
the Bank, whose determination shall be described in a statement filed with the
Rights Agent. Common Shares owned by or held for the account of the Bank shall
not be deemed outstanding for the purpose of any such computation. Such
adjustment shall be made successively whenever such record date is fixed; and in
the event that such rights, options or warrants are not so issued, the Purchase
Price shall be adjusted to be the Purchase Price which would then be in effect
if such record date had not been fixed.
(c) In case the Bank shall fix a record date for the making of a
distribution to all holders of the Common Shares (including any such
distribution made in connection with a consolidation or merger in which the Bank
is the continuing or surviving corporation) of evidences of indebtedness or
assets (other than a regular quarterly cash dividend or a dividend payable in
Common Shares) or subscription rights or warrants (excluding those referred to
in Section 11(b) hereof), the Purchase Price to be in effect after such record
date shall be determined by multiplying the Purchase Price in effect immediately
prior to such record date by a fraction, the numerator of which shall be the
then current per share market price of the Common Shares on such record date,
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<PAGE>
less the fair market value (as determined in good faith by the Board of
Directors of the Bank, whose determination shall be described in a statement
filed with the Rights Agent) of the portion of the assets or evidences of
indebtedness so to be distributed or of such subscription rights or warrants
applicable to one Common Share and the denominator of which shall be such
current per share market price of the Common Shares. Such adjustments shall be
made successively whenever such a record date is fixed; and in the event that
such distribution is not so made, the Purchase Price shall again be adjusted to
be the Purchase Price which would then be in effect if such record date had not
been fixed.
(d) (i) For the purpose of any computation hereunder, the "current per
share market price" of any security (a "Security" for the purpose of this
Section 11(d)(i)) on any date shall be deemed to be the average of the daily
closing prices per share of such Security for the 20 consecutive Trading Days
(as such term is hereinafter defined) immediately prior to such date; PROVIDED,
HOWEVER, that in the event that the current per share market price of the
Security is determined during a period following the announcement by the issuer
of such Security of (A) a dividend or distribution on such Security payable in
shares of such Security or securities convertible into such shares, or (B) any
subdivision, combination or reclassification of such Security and prior to the
expiration of 20 Trading Days after the ex-dividend date for such dividend or
distribution, or the record date for such subdivision, combination or
reclassification, then, and in each such case, the current per share market
price shall be appropriately adjusted to reflect the current market price per
share equivalent of such Security. The closing price for each day shall be the
last sale price or, in case no such sale takes place on such day, the average of
the closing bid and asked prices in either case as reported in the principal
consolidated transaction reporting system with respect to securities listed or
admitted to trading on the New York Stock Exchange or, if the Security is not
listed or admitted to trading on the New York Stock Exchange, as reported in the
principal consolidated transaction reporting system with respect to securities
listed on the principal national securities exchange on which the Security is
listed or admitted to trading or, if the Security is not listed or admitted to
trading on any national securities exchange, the last reported trade in the
over-the-counter market, as reported by the Nasdaq National Market ("Nasdaq") or
such other system then in use, or, if on any such date the Security is not
quoted by any such organization, the average of the closing bid and asked prices
as furnished by a professional market maker making a market in the Security
selected by the Board of Directors of the Bank. The term "Trading Day" shall
mean a day on which the principal national securities exchange on which the
Security is listed or admitted to trading is open for the transaction of
business or, if the Security is not listed or admitted to trading on any
national securities exchange, a Business Day. If the Security is not publicly
held or so listed or traded, "current per share market price" shall mean the
fair value per share as determined in good faith by the Board of Directors of
the Bank, whose determination shall be described in a statement filed with the
Rights Agent.
(e) No adjustment in the Purchase Price shall be required unless such
adjustment would require an increase or decrease of at least 1% in the Purchase
Price; PROVIDED, HOWEVER, that any adjustments which by reason of this Section
11(e) are not required to be made shall be carried forward and taken into
account in any subsequent adjustment. All calculations under this Section 11
shall be made to the nearest cent or to the nearest one one-hundredth of a
Common Share or one one-hundredth of any other share or security, as the case
may be. Notwithstanding the first sentence of this Section 11(e), any adjustment
required by this Section 11 shall be made no later than the earlier of (i) three
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years from the date of the transaction which requires such adjustment or (ii)
the date of the expiration of the right to exercise any Rights.
(f) [Reserved].
(g) All Rights originally issued by the Bank subsequent to any
adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of Common Shares
purchasable from time to time hereunder upon exercise of the Rights, all subject
to further adjustment as provided herein.
(h) Unless the Bank shall have exercised its election as provided in
Section 11(i), upon each adjustment of the Purchase Price as a result of the
calculations made in Sections 11(b) and (c), each Right outstanding immediately
prior to the making of such adjustment shall thereafter evidence the right to
purchase, at the adjusted Purchase Price, that number of Common Shares
(calculated to the nearest Common Share) obtained by (i) multiplying (x) the
number of shares covered by a Right immediately prior to this adjustment by (y)
the Purchase Price in effect immediately prior to such adjustment of the
Purchase Price and (ii) dividing the product so obtained by the Purchase Price
in effect immediately after such adjustment of the Purchase Price.
(i) The Bank may elect on or after the date of any adjustment of the
Purchase Price to adjust the number of Rights, in substitution for any
adjustment in the number of Common Shares purchasable upon the exercise of a
Right. Each of the Rights outstanding after such adjustment of the number of
Rights shall be exercisable for the number of Common Shares for which a Right
was exercisable immediately prior to such adjustment. Each Right held of record
prior to such adjustment of the number of Rights shall become that number of
Rights (calculated to the nearest one one-hundredth) obtained by dividing the
Purchase Price in effect immediately prior to adjustment of the Purchase Price
by the Purchase Price in effect immediately after adjustment of the Purchase
Price. The Bank shall make a public announcement of its election to adjust the
number of Rights, indicating the record date for the adjustment, and, if known
at the time, the amount of the adjustment to be made. This record date may be
the date on which the Purchase Price is adjusted or any day thereafter, but, if
the Right Certificates have been issued, shall be at least 10 days later than
the date of the public announcement. If Right Certificates have been issued,
upon each adjustment of the number of Rights pursuant to this Section 11(i), the
Bank shall, as promptly as practicable, cause to be distributed to holders of
record of Right Certificates on such record date Right Certificates evidencing,
subject to Section 14 hereof, the additional Rights to which such holders shall
be entitled as a result of such adjustment, or, at the option of the Bank, shall
cause to be distributed to such holders of record in substitution and
replacement for the Right Certificates held by such holders prior to the date of
adjustment, and upon surrender thereof, if required by the Bank, new Right
Certificates evidencing all the Rights to which such holders shall be entitled
after such adjustment. Right Certificates so to be distributed shall be issued,
executed and countersigned in the manner provided for herein and shall be
registered in the names of the holders of record of Right Certificates on the
record date specified in the public announcement.
(j) Irrespective of any adjustment or change in the Purchase Price or
the number of Common Shares issuable upon the exercise of the Rights, the Right
Certificates previously and thereafter issued may continue to express the
Purchase Price and the number of Common Shares that were expressed in the
initial Right Certificates issued hereunder.
(k) Before taking any action that would cause an adjustment reducing
the Purchase Price below the then par value, if any, of the Common Shares
issuable upon exercise of the Rights, the Bank shall take any corporate action
which may, in the opinion of its counsel, be necessary in order that the Bank
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may validly and legally issue fully paid and non-assessable Common Shares at
such adjusted Purchase Price, to the extent permitted by the Federal Banking
Laws.
(1) In any case in which this Section 11 shall require that an
adjustment in the Purchase Price be made effective as of a record date for a
specified event, the Bank may elect to defer until the occurrence of such event
the issuing to the holder of any Right exercised after such record date of the
Common Shares and other capital stock or securities of the Bank, if any,
issuable upon such exercise over and above the Common Shares and other capital
stock or securities of the Bank, if any, issuable upon such exercise on the
basis of the Purchase Price in effect prior to such adjustment; PROVIDED,
HOWEVER that the Bank shall deliver to such holder a due bill or other
appropriate instrument evidencing such holder's right to receive such additional
shares upon the occurrence of the event requiring such adjustment.
(m) Anything in this Section 11 to the contrary notwithstanding, the
Bank shall be entitled to make such reductions in the Purchase Price, in
addition to those adjustments expressly required by this Section 11, as and to
the extent that it in its sole discretion shall determine to be advisable in
order that any consolidation or subdivision of the Common Shares, issuance
wholly for cash of any Common Shares at less than the current market price,
issuance wholly for cash of Common Shares or securities which by their terms are
convertible into or exchangeable for Common Shares, dividends on Common Shares
payable in Common Shares or issuance of rights, options or warrants referred to
hereinabove in Section 11(b), hereafter made by the Bank to holders of its
Common Shares shall not be taxable to such shareholders.
(n) The Bank covenants and agrees that it shall not, at any time after
the Distribution Date, (i) consolidate with, or merge with and into, any other
Person (other than a Subsidiary of the Bank in a transaction that complies with
Section 11(o)), (ii) permit or cause any Person to consolidate with the Bank, or
merge with and into the Bank (other than a Subsidiary of the Bank in a
transaction that complies with Section 11(o)), or (iii) sell or otherwise
transfer (or permit any Subsidiary to sell or transfer), in one or more
transactions, assets or earning power aggregating 50% or more of the assets or
earning power of the Bank and its Subsidiaries (taken as a whole) to any other
Person or Persons (other than the Bank and/or any of its Subsidiaries in one or
more transactions each of which complies with Section 11(o)), if at the time of
or immediately after such consolidation, merger or sale there are any rights,
warrants or other instruments or securities outstanding or agreements in effect
that would substantially diminish or otherwise eliminate the benefits intended
to be afforded by the Rights.
(o) The Bank covenants and agrees that, after the Distribution Date, it
will not, except as permitted by Section 23, Section 24 or Section 27 hereof,
take (or permit any Subsidiary of the Bank to take) any action if at the time
such action is taken it is reasonably foreseeable that such action will diminish
substantially or otherwise eliminate the benefits intended to be afforded by the
Rights.
XII. SECTION 12. CONSOLIDATION, MERGER OR SALE OR TRANSFER OF ASSETS OR EARNING
POWER
(a) If, following the Distribution Date, directly or indirectly, (i)
the Bank shall consolidate with, or merge with and into, any other Person and
the Bank shall not be the continuing or surviving corporation of such
consolidation or merger, (ii) any Person shall consolidate with the Bank, or
merge with and into the Bank and the Bank shall be the continuing or surviving
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corporation of such merger and, in connection with such merger, all or part of
the Common Shares shall be changed into or exchanged for stock or other
securities of any other Person (or the Bank) or cash or any other property,
(iii) any Person shall acquire all or a majority of the Common Shares pursuant
to a statutory plan of exchange, or (iv) the Bank shall sell or otherwise
transfer (or one or more of its Subsidiaries shall sell or otherwise transfer),
in one or more transactions, assets or earning power aggregating 50% or more of
the assets or earning power of the Bank and its Subsidiaries (taken as a whole)
to any other Person other than the Bank or one or more of its wholly-owned
Subsidiaries, then, and in each such case, proper provision shall be made so
that (A) each holder of a Right (except as otherwise provided herein) shall
thereafter have the right to receive, upon the exercise thereof at a price equal
to the then current Purchase Price multiplied by the number of Common Shares for
which a Right is then exercisable, in accordance with the terms of this
Agreement and in lieu of Common Shares, such number of Common Shares of the
Principal Party (as hereinafter defined), not subject to any liens,
encumbrances, rights of first refusal or other adverse claims, as shall equal
the result obtained by (1) multiplying the then current Purchase Price by the
number of Common Shares for which a Right is then exercisable and dividing that
product by (2) 50% of the then current per share market price of the Common
Shares (determined pursuant to Section 11(d) hereof) of such Principal Party on
the date of consummation of such consolidation, merger, sale or transfer; (B)
such Principal Party shall thereafter be liable for, and shall assume, by virtue
of such consolidation, merger, sale or transfer, all the obligations and duties
of the Bank pursuant to this Agreement; (C) the term "Company" shall thereafter
be deemed to refer to such Principal Party, it being specifically intended that
the provisions of Section 11 shall apply only to such Principal Party after the
first occurrence of an event described in this Section 13(a); (D) such Principal
Party shall take such steps (including, but not limited to, the reservation of a
sufficient number of its Common Shares in accordance with Section 9 hereof) in
connection with such consummation as may be necessary to assure that the
provisions hereof shall thereafter be applicable, as nearly as reasonably may
be, in relation to the Common Shares thereafter deliverable upon the exercise of
the Rights; and (E) the provisions of Section 11(a)(ii) shall be of no further
effect following the first occurrence of any event described in this Section
13(a).
(b) "Principal Party" shall mean:
(i) in the case of any transaction described in clause (i), (ii)
or (iii) of Section 13(a), (A) the Person that is the issuer of any
securities into which Common Shares of the Bank are converted in such
merger, consolidation or for which they are exchanged in such statutory
plan of exchange, or, if there is more than one such issuer, the issuer
of Common Shares that has the highest aggregate current market price
(determined in accordance with Section 11(d)) and (B) if no securities
are so issued, the Person that is the other party to such merger,
consolidation or statutory plan of exchange, or, if there is more than
one such Person, the Person the Common Shares of which has the highest
15
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aggregate current market price (determined in accordance with Section
11(d)); and
(ii) in the case of any transaction described in clause (iv) of
Section 13(a), the Person that is the party receiving the largest
portion of the assets or earning power transferred pursuant to such
transaction or transactions, or, if each Person that is a party to such
transaction or transactions receives the same portion of the assets or
earning power transferred pursuant to such transaction or transactions
or if the Person receiving the largest portion of the assets or earning
power cannot be determined, whichever Person the Common Shares of which
has the highest aggregate current market price (determined in
accordance with Section 11(d));
provided, however, that in any such case, (A) if the Common Shares of such
Person are not at such time and have not been continuously over the preceding
twelve-month period registered under Section 12 of the Exchange Act ("Registered
Common Shares"), or such Person is not a corporation, and such Person is a
direct or indirect Subsidiary of another Person that has Registered Common
Shares outstanding, "Principal Party" shall refer to such other Person; (B) if
the Common Shares of such Person are not Registered Common Shares or such Person
is not a corporation, and such Person is a direct or indirect Subsidiary of
another Person but is not a direct or indirect Subsidiary of another Person
which has Registered Common Shares outstanding, "Principal Party" shall refer to
the ultimate parent entity of such first-mentioned Person; (C) if the Common
Shares of such Person are not Registered Common Shares or such Person is not a
corporation, and such Person is directly or indirectly controlled by more than
one Person, and one or more of such other Persons has Registered Common Shares
outstanding, "Principal Party" shall refer to whichever of such other Persons is
the issuer of the Registered Common Shares having the highest aggregate current
market price (determined in accordance with Section 11(d)); and (D) if the
Common Shares of such Person are not Registered Common Shares or such Person is
not a corporation, and such Person is directly or indirectly controlled by more
than one Person, and none of such other Persons have Registered Common Shares
outstanding, "Principal Party" shall refer to whichever ultimate parent entity
is the corporation having the greatest shareholders' equity or, if no such
ultimate parent entity is a corporation, shall refer to whichever ultimate
parent entity is the entity having the greatest net assets.
(c) The Bank shall not consummate any such consolidation, merger,
statutory plan of exchange, sale or transfer unless prior thereto the Bank and
the Principal Party shall have executed and delivered to the Rights Agent a
supplemental agreement confirming that (i) such Principal Party shall, upon
consummation of such consolidation, merger, statutory plan of exchange or sale
or transfer of assets or earning power, assume this Agreement in accordance with
Section 13, (ii) all rights of first refusal or preemptive rights in respect of
the issuance of Common Shares of such Principal Party upon exercise of
outstanding Rights have been waived, (iii) any provision of the authorized
securities of such Principal Party or of its charter, bylaws or other
instruments governing its corporate affairs which would obligate such Principal
Party to issue in connection with, or as a consequence of, the consummation of a
transaction referred to in Section 13(a), Common Shares of such Principal Party
at less than the then-current per share market price (determined in accordance
with Section 11(d)(i)) or securities exercisable for, or convertible into, such
Common Shares at less than such then-current per share market price (other than
to the holders of Rights pursuant to this Section 13) have been waived or
canceled, and (iv) such transaction shall not result in a default by such
Principal Party under this Agreement and further providing that, as soon as
practicable after the date of any consolidation, merger, statutory plan of
exchange or sale or transfer of assets or earning power referred to in Section
13(a), such Principal Party will:
(A) prepare and file a registration statement under the
Securities Act of 1933, as amended, with respect to the Rights and the
securities purchasable upon exercise of the Rights on an appropriate form,
use its best efforts to cause such registration statement to become
effective as soon as practicable after such filing and use its best efforts
to cause such registration statement to remain effective (with a prospectus
at all times meeting the requirements of the Securities Act of 1933, as
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amended) until the Final Expiration Date of the Rights, and similarly
comply with applicable state securities laws:
(B) use its best efforts to list (or continue the listing of)
the Rights and the securities purchasable upon exercise of the Rights or to
meet the eligibility requirements for quotation of the Rights and such
securities on Nasdaq or other system then in use; and
(C) deliver to holders of the Rights historical financial
statements for such Principal Party which comply in all respects with the
requirements for registration on Form 10 (or any successor form) under the
Exchange Act.
In the event that at any time after the occurrence of an event
described in Section 11(a)(ii) hereof some or all of the Rights shall not have
then been exercised at the time of the occurrence of an event described in
Section 13(a) hereof, the Rights which have not therefore been exercised shall
thereafter be exercisable in the manner described in Section 13(a) (without
taking into account any prior adjustment required by Section 11(a)(ii)).
(d) The provisions of this Section 13 shall similarly apply to
successive mergers or consolidations or sales or other transfers.
(e) Notwithstanding anything in this Agreement to the contrary, this
Section 13 shall not be applicable to a transaction described in Section
13(a)(i), (ii) or (iii) if: (i) such transaction is consummated with a Person or
Persons who acquired Common Shares pursuant to a tender offer described in
Section 11(a)(iii) (or with a wholly-owned Subsidiary of any such Person or
Persons), (ii) the price per Common Share offered in such transaction is not
less than the price per Common Share paid to all holders of Common Shares whose
shares were purchased pursuant to such tender or exchange offer, and (iii) the
form of consideration being offered to the remaining holders of Common Shares
pursuant to such transaction is the same as the form of consideration paid
pursuant to such tender offer. Upon consummation of any such transaction
contemplated by this Section 13(e), all Rights shall expire.
XIII. SECTION 13. FRACTIONAL RIGHTS AND FRACTIONAL SHARES
(a) The Bank shall not be required to issue fractions of Rights or to
distribute Right Certificates which evidence fractional Rights. In lieu of such
fractional Rights, there shall be paid to the registered holders of the Right
Certificates with regard to which such fractional Rights would otherwise be
issuable, an amount in cash equal to the same fraction of the current market
value of a whole Right. For the purposes of this Section 14(a), the current
market value of a whole Right shall be the closing price of the Rights for the
Trading Day immediately prior to the date on which such fractional Rights would
have been otherwise issuable. The closing price for any day shall be the last
sale price, or, in case no such sale takes place on such day, the average of the
closing bid and asked prices, in either case as reported in the principal
consolidated transaction reporting system with respect to securities listed or
admitted to trading on the New York Stock Exchange or, if the Rights are not
listed or admitted to trading on the New York Stock Exchange, as reported in the
principal consolidated transaction reporting system with respect to securities
listed on the principal national securities exchange on which the Rights are
listed or admitted to trading or, if the Rights are not listed or admitted to
trading on any national securities exchange, the last reported trade in the
over-the-counter market, as reported by Nasdaq or such other system then in use
or, if on any such date the Rights are not quoted by any such organization, the
average of the closing bid and asked prices as furnished by a professional
market maker making a market in the Rights selected by the Board of Directors of
the Bank. If on any such date no such market maker is making a market in the
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Rights, the fair value of the Rights on such date as determined in good faith by
the Board of Directors of the Bank shall be used.
(b) The Bank shall not be required to issue fractions of Common Shares
upon exercise of the Rights or to distribute certificates which evidence
fractional Common Shares. In lieu of fractional Common Shares, the Bank shall
pay to the registered holders of Right Certificates at the time such Rights are
exercised as herein provided an amount in cash equal to the same fraction of the
current market value of one Common Share, unless prohibited by the Federal
Banking Laws in which case the Bank may issue evidence of indebtedness in lieu
of cash. For the purposes of this Section 14(b), the current market value of a
Common Share shall be the closing price of a Common Share (as determined
pursuant to the second sentence of Section 11(d)(i) hereof) for the Trading Day
immediately prior to the date of such exercise.
(c) The holder of a Right by the acceptance of the Right expressly
waives his right to receive any fractional Rights or any fractional shares upon
exercise of a Right (except as provided above).
XIV. SECTION 14. RIGHTS OF ACTION
All rights of action in respect of this Agreement, excepting the rights
of action given to the Rights Agent under Section 18 hereof, are vested in the
respective registered holders of the Right Certificates (and, prior to the
Distribution Date, the registered holders of the Common Shares); and any
registered holder of any Right Certificate (or, prior to the Distribution Date,
of the Common Shares), without the consent of the holder of any other Right
Certificate (or, prior to the Distribution Date, of the Common Shares), may, in
his own behalf and for his own benefit, enforce, and may institute and maintain
any suit, action or proceeding against the Bank to enforce, or otherwise act in
respect of, his right to exercise the Rights evidenced by such Right Certificate
in the manner provided in such Right Certificate and in this Agreement. Without
limiting the foregoing or any remedies available to the holders of Rights, it is
specifically acknowledged that the holders of Rights would not have an adequate
remedy at law for any breach of this Agreement and will be entitled to specific
performance of the obligations under, and injunctive relief against actual or
threatened violations of the obligations of any Person subject to, this
Agreement.
XV. SECTION 15. AGREEMENT OF RIGHT HOLDERS
Every holder of a Right, by accepting the same, consents and agrees
with the Bank and with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights will be transferable
only in connection with the transfer of the Common Shares;
(b) after the Distribution Date, the Right Certificates are
transferable only on the registry books of the Rights Agent if surrendered at
the principal office of the Rights Agent, duly endorsed or accompanied by a
proper instrument of transfer; and
(c) the Bank may deem and treat the person in whose name the Right
Certificate (or, prior to the Distribution Date, the associated Common Shares
certificate) is registered as the absolute owner thereof and of the Rights
evidenced thereby (notwithstanding any notations of ownership or writing on the
Right Certificates or the associated Common Shares certificate made by anyone
other than the Bank or the Rights Agent) for all purposes whatsoever, and
neither the Bank nor the Rights Agent shall be affected by any notice to the
contrary.
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XVI. SECTION 16. RIGHT CERTIFICATE HOLDER NOT DEEMED A SHAREHOLDER
No holder of any Right Certificate, by reason of being a holder of such
Right Certificate, shall be entitled to vote, receive dividends or be deemed for
any purpose the holder of the Common Shares or any other securities of the Bank
which may at any time be issuable on the exercise of the Rights represented
thereby, nor shall anything contained herein or in any Right Certificate be
construed to confer upon the holder of any Right Certificate, by reason of being
a holder of such Right Certificate, any of the rights of a shareholder of the
Bank or any right to vote for the election of directors or upon any matter
submitted to shareholders at any meeting thereof, or to give or withhold consent
to any corporate action, or to receive notice of meetings or other actions
affecting shareholders (except as provided in Section 25 hereof), or to receive
dividends or subscription rights, or otherwise, until the Right or Rights
evidenced by such Right Certificate shall have been exercised in accordance with
the provisions hereof.
XVII. SECTION 17. CONCERNING THE RIGHTS AGENT
The Bank agrees to pay to the Rights Agent reasonable compensation for
all services rendered by it hereunder and, from time to time, on demand of the
Rights Agent, its reasonable expenses and counsel fees and other disbursements
incurred in the administration and execution of this Agreement and the exercise
and performance of its duties hereunder. The Bank also agrees to indemnify the
Rights Agent for, and to hold it harmless against, any loss, liability, or
expense, incurred without negligence, bad faith or willful misconduct on the
part of the Rights Agent, for anything done or omitted by the Rights Agent in
connection with the acceptance and administration of this Agreement, including
the costs and expenses of defending against any claim of liability in the
premises.
The Rights Agent shall be protected and shall incur no liability for,
or in respect of any action taken, suffered or omitted by it in connection with,
its administration of this Agreement in reliance upon any Right Certificate or
certificate for the Common Shares or for other securities of the Bank,
instrument of assignment or transfer, power of attorney, endorsement, affidavit,
letter, notice, direction, consent, certificate, statement, or other paper or
document believed by it to be genuine and to be signed, executed and, where
necessary, verified or acknowledged, by the proper person or persons, or
otherwise upon the advice of counsel as set forth in Section 20 hereof.
XVIII. SECTION 18. MERGER OR CONSOLIDATION OR CHANGE OF NAME OF RIGHTS AGENT
Any corporation into which the Rights Agent or any successor Rights
Agent may be merged or with which it may be consolidated, or any corporation
resulting from any merger or consolidation to which the Rights Agent or any
successor Rights Agent shall be a party, or any corporation succeeding to the
stock transfer or corporate trust business of the Rights Agent or any successor
Rights Agent, shall be the successor to the Rights Agent under this Agreement
without the execution or filing of any paper or any further act on the part of
any of the parties hereto, provided that such corporation would be eligible for
appointment as a successor Rights Agent under the provisions of Section 21
hereof. In case at the time such successor Rights Agent shall succeed to the
agency created by this Agreement any of the Right Certificates shall have been
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countersigned but not delivered, any such successor Rights Agent may adopt the
countersignature of the predecessor Rights Agent and deliver such Right
Certificates so countersigned; and in case at that time any of the Right
Certificates shall not have been countersigned, any successor Rights Agent may
countersign such Right Certificates either in the name of the predecessor Rights
Agent or in the name of the successor Rights Agent; and in all such cases such
Right Certificates shall have the full force provided in the Right Certificates
and in this Agreement.
In case at any time the name of the Rights Agent shall be changed and
at such time any of the Right Certificates shall have been countersigned but not
delivered, the Rights Agent may adopt the countersignature under its prior name
and deliver Right Certificates so countersigned; and in case at that time any of
the Right Certificates shall not have been countersigned, the Rights Agent may
countersign such Right Certificates either in its prior name or in its changed
name; and in all such cases such Right Certificates shall have the full force
provided in the Right Certificates and in this Agreement.
XIX. SECTION 19. DUTIES OF RIGHTS AGENT
The Rights Agent undertakes the duties and obligations imposed by this
Agreement upon the following terms and conditions, by all of which the Bank and
the holders of Right Certificates, by their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel (who may be legal
counsel for the Bank), and the opinion of such counsel shall be full and
complete authorization and protection to the Rights Agent as to any action taken
or omitted by it in good faith and in accordance with such opinion.
(b) Whenever in the performance of its duties under this Agreement the
Rights Agent shall deem it necessary or desirable that any fact or matter be
proved or established by the Bank prior to taking or suffering any action
hereunder, such fact or matter (unless other evidence in respect thereof be
herein specifically prescribed) may be deemed to be conclusively proved and
established by a certificate signed by any one of the Chairman of the Board, the
Chief Executive Officer, the President, any Executive Vice President, or the
Secretary of the Bank and delivered to the Rights Agent; and such certificate
shall be full authorization to the Rights Agent for any action taken or suffered
in good faith by it under the provisions of this Agreement in reliance upon such
certificate.
(c) The Rights Agent shall be liable hereunder to the Bank and any
other Person only for its own negligence, bad faith or willful misconduct.
Anything in this Agreement to the contrary notwithstanding, in no event shall
the Rights Agent be liable for special, indirect or consequential loss or damage
of any kind whatsoever (including, but not limited to, lost profits), even if
the Rights Agent has been advised of the likelihood of such loss or damage and
regardless of the form of action.
(d) The Rights Agent shall not be liable for or by reason of any of the
statements of fact or recitals contained in this Agreement or in the Right
Certificates (except its countersignature thereof) or be required to verify the
same, but all such statements and recitals are and shall be deemed to have been
made by the Bank only.
(e) The Rights Agent shall not be under any responsibility in respect
of the validity of this Agreement or the execution and delivery hereof (except
the due execution hereof by the Rights Agent) or in respect of the validity or
execution of any Right Certificate (except its countersignature thereof); nor
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shall it be responsible for any breach by the Bank of any covenant or condition
contained in this Agreement or in any Right Certificate; nor shall it be
responsible for any change in the exercisability of the Rights (including the
Rights becoming void pursuant to Section 11(a)(ii) hereof) or any adjustment in
the terms of the Rights (including the manner, method or amount thereof)
provided for in Section 3, 11, 13, 23 or 24, or the ascertaining of the
existence of facts that would require any such change or adjustment (except with
respect to the exercise of Rights evidenced by Right Certificates after actual
notice that such change or adjustment is required); nor shall it by any act
hereunder be deemed to make any representation or warranty as to the
authorization or reservation of any Common Shares to be issued pursuant to this
Agreement or any Right Certificate or as to whether any Common Shares will, when
issued, be validly authorized and issued, fully paid and nonassessable.
(f) The Bank agrees that it will perform, execute, acknowledge and
deliver or cause to be performed, executed, acknowledged and delivered all such
further and other acts, instruments and assurances as may reasonably be required
by the Rights Agent for the carrying out or performing by the Rights Agent of
the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from any
one of the Chairman of the Board, the Chief Executive Officer, the President,
any Executive Vice President, or the Secretary of the Bank, and to apply to such
officers for advice or instructions in connection with its duties, and it shall
not be liable for any action taken or suffered by it in good faith in accordance
with instructions of any such officer or for any delay in acting while waiting
for those instructions.
(h) The Rights Agent and any shareholder, director, officer or employee
of the Rights Agent may buy, sell or deal in any of the Rights or other
securities of the Bank or become pecuniarily interested in any transaction in
which the Bank may be interested, or contract with or lend money to the Bank or
otherwise act as fully and freely as though it were not Rights Agent under this
Agreement. Nothing herein shall preclude the Rights Agent from acting in any
other capacity for the Bank or for any other legal entity.
(i) The Rights Agent may execute and exercise any of the rights or
powers hereby vested in it or perform any duty hereunder either itself or by or
through its attorneys or agents, and the Rights Agent shall not be answerable or
accountable for any act, default, neglect or misconduct of any such attorneys or
agents or for any loss to the Bank resulting from any such act, default, neglect
or misconduct, provided reasonable care was exercised in the selection and
continued employment thereof.
XX. SECTION 20. CHANGE OF RIGHTS AGENT
The Rights Agent or any successor Rights Agent may resign and be
discharged from its duties under this Agreement upon 30 days' notice in writing
mailed to the Bank and to each transfer agent of the Common Shares by registered
or certified mail, and to the holders of the Right Certificates by first-class
mail. The Bank may remove the Rights Agent or any successor Rights Agent upon 30
days' notice in writing, mailed to the Rights Agent or successor Rights Agent,
as the case may be, and to each transfer agent of the Common Shares by
registered or certified mail, and to the holders of the Right Certificates by
first-class mail. If the Rights Agent shall resign or be removed or shall
otherwise become incapable of acting, the Bank shall appoint a successor to the
Rights Agent. If the Bank shall fail to make such appointment within a period of
30 days after giving notice of such removal or after it has been notified in
writing of such resignation or incapacity by the resigning or incapacitated
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Rights Agent or by the holder of a Right Certificate (who shall, with such
notice, submit his Right Certificate for inspection by the Bank), then the
registered holder of any Right Certificate may apply to any court of competent
jurisdiction for the appointment of a new Rights Agent. Any successor Rights
Agent, whether appointed by the Bank or by such a court, shall be a corporation
(or an affiliate of a corporation) organized and doing business under the laws
of the United States or any state of the United States so long as such
corporation is authorized to do business as a banking institution, is authorized
under such laws to exercise corporate trust or stock transfer powers, is in good
standing, and is subject to supervision or examination by federal or state
authority, and has at the time of its appointment as Rights Agent a combined
capital and surplus of at least $50 million. After appointment, the successor
Rights Agent shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named as Rights Agent without
further act or deed; but the predecessor Rights Agent shall deliver and transfer
to the successor Rights Agent any property at the time held by it hereunder, and
execute and deliver any further assurance, conveyance, act or deed necessary for
the purpose. Not later than the effective date of any such appointment the Bank
shall file notice with the predecessor Rights Agent and each transfer agent of
the Common Shares, and mail a notice thereof in writing to the registered
holders of the Right Certificates. Failure to give any notice provided for in
this Section 21, however, or any defect therein, shall not affect the legality
or validity of the resignation or removal of the Rights Agent or the appointment
of the successor Rights Agent, as the case may be.
XXI. SECTION 21. ISSUANCE OF NEW RIGHT CERTIFICATES
Notwithstanding any of the provisions of this Agreement or of the
Rights to the contrary, the Bank may, at its option, issue new Right
Certificates evidencing Rights in such form as may be approved by its Board of
Directors to reflect any adjustment or change in the Purchase Price and the
number or kind or class of shares or other securities or property purchasable
under the Right Certificates made in accordance with the provisions of this
Agreement.
XXII. SECTION 22. REDEMPTION
(a) The Board of Directors of the Bank may, at its option, at any time
prior to such time as any Person becomes an Acquiring Person, redeem all but not
less than all the then outstanding Rights at a redemption price of $0.001 per
Right, appropriately adjusted to reflect any stock split, stock dividend or
similar transaction occurring after the date hereof (such redemption price being
hereinafter referred to as the "Redemption Price"); PROVIDED, HOWEVER, that if,
following the occurrence of a Shares Acquisition Date and following the
expiration of the right of redemption hereunder but prior to any event described
in clause (B) of Section 11(a)(ii) or clauses (i), (ii), (iii) or (iv) of
Section 13(a) hereof, (i) a Person who is an Acquiring Person shall have
transferred or otherwise disposed of a number of shares of Common Shares in one
transaction or series of transactions, not directly or indirectly involving the
Bank or any of its Subsidiaries, which did not result in the occurrence of an
event described in clause (B) of Section 11(a)(ii) or clauses (i), (ii), (iii)
or (iv) of Section 13(a) hereof such that such Person is thereafter a Beneficial
Owner of less than 10% of the outstanding Common Shares, and (ii) there are no
other Persons, immediately following the occurrence of the event described in
clause (i), who are Acquiring Persons, then the right of redemption shall be
reinstated and thereafter be subject to the provisions of this Section 23;
PROVIDED, FURTHER, that if the Federal Banking Laws prohibit the Bank from
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redeeming Rights for cash because the Bank is undercapitalized or would become
undercapitalized as a result of such redemption, the Bank may, at its option, in
lieu of cash pay the redemption price of $0.001 per Right in the form of
evidence of indebtedness, other securities of the Bank and/or other property,
with the value of such other securities of the Bank and/or other property
determined in good faith by the Board of Directors of the Bank, whose
determination shall be described in a statement filed with the Rights Agent. The
redemption of the Rights by the Board of Directors may be made effective at such
time, on such basis and with such conditions as the Board of Directors in its
sole discretion may establish. The Bank may, in its discretion, round up the
redemption price to be paid to any holder of Rights to the nearest whole cent.
(b) Immediately upon the action of the Board of Directors of the Bank
ordering the redemption of the Rights pursuant to paragraph (a) of this Section
23, and without any further action and without any notice, the right to exercise
the Rights will terminate and the only right thereafter of the holders of Rights
shall be to receive the Redemption Price. The Bank shall promptly give public
notice of any such redemption; PROVIDED, HOWEVER, that the failure to give, or
any defect in, any such notice shall not affect the validity of such redemption.
Within 10 days after such action of the Board of Directors ordering the
redemption of the Rights, the Bank shall mail a notice of redemption to all the
holders of the then outstanding Rights at their last addresses as they appear
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upon the registry books of the Rights Agent or, prior to the Distribution Date,
on the registry books of the transfer agent for the Common Shares. Any notice
which is mailed in the manner herein provided shall be deemed given, whether or
not the holder receives the notice. Each such notice of redemption will state
the method by which the payment of the Redemption Price will be made.
XXIII. SECTION 23. EXCHANGE
(a) The Board of Directors of the Bank may, at its option, at any time
after any Person becomes an Acquiring Person, exchange all or part of the then
outstanding and exercisable Rights (which shall not include Rights that have
become void pursuant to the provisions of Section 11(a)(ii) hereof) for Common
Shares at an exchange ratio of one Common Share per Right, appropriately
adjusted to reflect any stock split, stock dividend or similar transaction
occurring after the date hereof (such exchange ratio being hereinafter referred
to as the "Exchange Ratio"). Notwithstanding the foregoing, the Board of
Directors shall not be empowered to effect such exchange at any time after any
Person (other than the Bank, any Subsidiary of the Bank, any employee benefit
plan of the Bank (including without limitation the Employee Plans) or of any
such Subsidiary, or of any entity holding Common Shares for or pursuant to the
terms of any such plan), together with all Affiliates and Associates of such
Person, becomes the Beneficial Owner of 50% or more of the Common Shares then
outstanding.
(b) Immediately upon the action of the Board of Directors of the Bank
ordering the exchange of any Rights pursuant to subsection (a) of this Section
24 and without any further action and without any notice, the right to exercise
such Rights shall terminate and the only right thereafter of a holder of such
Rights shall be to receive that number of Common Shares equal to the number of
such Rights held by such holder multiplied by the Exchange Ratio. The Bank shall
promptly give public notice of any such exchange; PROVIDED, HOWEVER, that the
failure to give, or any defect in, such notice shall not affect the validity of
such exchange. The Bank promptly shall mail a notice of any such exchange to all
of the holders of such Rights at their last addresses as they appear upon the
registry books of the Rights Agent. Any notice which is mailed in the manner
herein provided shall be deemed given, whether or not the holder receives the
notice. Each such notice of exchange will state the method by which the exchange
of the Common Shares for Rights will be effected and, in the event of any
partial exchange, the number of Rights which will be exchanged. Any partial
exchange shall be effected pro rata based on the number of Rights (other than
Rights which have become void pursuant to the provisions of Section 11(a)(ii)
hereof) held by each holder of Rights.
(c) In the event that there shall not be sufficient Common Shares
issued but not outstanding or authorized but unissued to permit any exchange of
Rights as contemplated in accordance with this Section 24, the Bank shall use
its best efforts to cause all such action to be taken as may be necessary to
authorize additional Common Shares or other securities of the Bank for issuance
upon exchange of the Rights.
(d) The Bank shall not be required to issue fractions of Common Shares
or to distribute certificates which evidence fractional Common Shares. In lieu
of such fractional Common Shares, the Bank shall pay to the registered holders
of the Right Certificates with regard to which such fractional Common Shares
would otherwise be issuable an amount in cash equal to the same fraction of the
current market value of a whole Common Share. For the purposes of this paragraph
(e), the current market value of a whole Common Share shall be the closing price
of a Common Share (as determined pursuant to the second sentence of Section
11(d)(i) hereof) for the Trading Day immediately prior to the date of exchange
pursuant to this Section 24.
XXIV. SECTION 24. NOTICE OF CERTAIN EVENTS
(a) In case the Bank shall propose (i) to offer to the holders of its
Common Shares rights or warrants to subscribe for or to purchase any additional
Common Shares or shares of stock of any class or any other securities, rights or
options, (ii) to effect any reclassification of its Common Shares (other than a
reclassification involving only the subdivision of outstanding Common Shares),
(iii) to effect any consolidation or merger into or with, or to effect any sale
or other transfer (or to permit one or more of its Subsidiaries to effect any
sale or other transfer), in one or more transactions, of 50% or more of the
assets or earning power of the Bank and its Subsidiaries (taken as a whole) to,
any other Person or (iv) to effect the liquidation, dissolution or winding up of
the Bank, then, in each such case, the Bank shall give to each holder of a Right
Certificate, in accordance with Section 26 hereof, a notice of such proposed
action, which shall specify the record date for the purposes of such stock
dividend, or distribution of rights or warrants, or the date on which such
reclassification, consolidation, merger, sale, transfer, liquidation,
dissolution, or winding up is to take place and the date of participation
therein by the holders of the Common Shares, if any such date is to be fixed,
and such notice shall be so given in the case of any action covered by clause
(i) or (ii) above at least 10 days prior to the record date for determining
holders of the Common Shares for purposes of such action, and in the case of any
such other action, at least 10 days prior to the date of the taking of such
proposed action or the date of participation therein by the holders of the
Common Shares, whichever shall be the earlier.
(b) In case any of the events set forth in Section 11(a)(ii) hereof
shall occur, then the Bank shall as soon as practicable thereafter give to each
holder of a Right Certificate, in accordance with Section 26 hereof, a notice of
the occurrence of such event, which notice shall describe such event and the
consequences of such event to holders of Rights under Section 11(a)(ii) hereof.
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XXV. SECTION 25. NOTICES
Notices or demands authorized by this Agreement to be given or made by
the Rights Agent or by the holder of any Right Certificate to or on the Bank
shall be sufficiently given or made if sent by first-class mail, postage
prepaid, addressed (until another address is filed in writing with the Rights
Agent) as follows:
Six Rivers National Bank
402 F Street
Eureka, CA 95501
Attn: Chief Financial Officer
Subject to the provisions of Section 21 hereof, any notice or demand
authorized by this Agreement to be given or made by the Bank or by the holder of
any Right Certificate to or on the Rights Agent shall be sufficiently given or
made if sent by first-class mail, postage prepaid, addressed (until another
address is filed in writing with the Bank) as follows:
American Securities Transfer and Trust, Inc.
938 Quail Street, Suite 304
Lakewood, Colorado 80215
------------------
Notices or demands authorized by this Agreement to be given or made by
the Bank or the Rights Agent to the holder of any Right Certificate shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed to such holder at the address of such holder as shown on the registry
books of the Bank.
XXVI. SECTION 26. SUPPLEMENTS AND AMENDMENTS
The Bank may from time to time supplement or amend this Agreement
without the approval of any holders of Right Certificates in order to cure any
ambiguity, to correct or supplement any provision contained herein which may be
defective or inconsistent with any other provisions herein, or to make any other
provisions with respect to the Rights which the Bank may deem necessary or
desirable, any such supplement or amendment to be evidenced by a writing signed
by the Bank and the Rights Agent; PROVIDED, HOWEVER, that from and after such
time as any Person becomes an Acquiring Person, this Agreement shall not be
amended in any manner which would adversely affect the interests of the holders
of Rights. Without limiting the foregoing, the Bank may at any time prior to
such time as any Person becomes an Acquiring Person amend this Agreement to
raise or lower the thresholds set forth in Sections l(a) and 3(a), provided the
threshold may not be lowered to less than the greater of (i) any percentage
greater than the largest percentage of the outstanding Common Shares then known
by the Bank to be beneficially owned by any Person (other than the Bank, any
Subsidiary of the Bank, any employee benefit plan of the Bank or of any
Subsidiary of the Bank or any entity holding Common Shares for or pursuant to
the terms of any such plan or a person excluded from the definition of
"Acquiring Person" by the provision such definition) and (ii) 10%.
XXVII. SECTION 27. REGISTRATION OF SECURITIES
The Bank may temporarily suspend, for a period of time not to exceed
ninety (90) days, the exercisability of the Rights in order to prepare and file,
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if deemed necessary by the Bank, such registration statements and other filings
under the Securities Act of 1933, as amended, and the securities or "blue sky"
laws of any state, with respect to any securities purchasable upon the exercise
of the Rights, and to permit the same to become effective. Upon any such
suspension, the Bank shall issue a public announcement stating that the
exercisability of the Rights has been temporarily suspended, as well as a public
announcement at such time as the suspension is no longer in effect.
Notwithstanding any provision of this Agreement to the contrary, the Rights
shall not be exercisable in any jurisdiction unless the requisite qualification
in such jurisdiction has been obtained.
XXVIII. SECTION 28. DETERMINATIONS AND ACTIONS BY THE BOARD OF DIRECTORS
The Board of Directors of the Bank shall have the exclusive power and
authority to administer this Agreement and to exercise all rights and powers
specifically granted to the Board or to the Bank, or as may be necessary or
advisable in the administration of this Agreement, including, without
limitation, the right and power to (i) interpret the provisions of this
Agreement, and (ii) make all determinations deemed necessary or advisable for
the administration of this Agreement (including a determination to redeem or to
not redeem the Rights or to amend the Agreement). All such actions,
calculations, interpretations and determinations (including, for purposes of
clause (y) below, all omissions with respect to the foregoing) which are done or
made by the Board in good faith, shall (x) be final, conclusive and binding on
the Bank, the Rights Agent, the holders of the Rights and all other parties, and
(y) not subject the Board to any liability to the holders of the Rights.
XXIX. SECTION 29. SUCCESSORS
All the covenants and provisions of this Agreement by or for the
benefit of the Bank or the Rights Agent shall bind and inure to the benefit of
their respective successors and assigns hereunder.
XXX. SECTION 30. BENEFITS OF THIS AGREEMENT
Nothing in this Agreement shall be construed to give to any person or
corporation other than the Bank, the Rights Agent and the registered holders of
the Right Certificates (and, prior to the Distribution Date, the Common Shares)
any legal or equitable right, remedy or claim under this Agreement; but this
Agreement shall be for the sole and exclusive benefit of the Bank, the Rights
Agent and the registered holders of the Right Certificates (and, prior to the
Distribution Date, the Common Shares).
XXXI. SECTION 31. SEVERABILITY
If any term, provision, covenant or restriction of this Agreement is
held by a court of competent jurisdiction or other authority to be invalid, void
or unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated.
XXXII. SECTION 32. GOVERNING LAW
This Agreement and each Right Certificate issued hereunder shall be
deemed to be a contract made under the laws of the State of California and shall
26
<PAGE>
be governed by and construed in accordance with the laws of such State
applicable to contracts to be made and performed entirely within such State,
provided however, that the foregoing is not intended to modify, restrict or
supplement the corporate powers, rights or governance procedures of the Bank or
its shareholders existing under the Federal Banking Laws or any other corporate
laws which may otherwise be applicable to the Bank or its shareholders.
XXXIII. SECTION 33. COUNTERPARTS
This Agreement may be executed in any number of counterparts and each
of such counterparts shall for all purposes be deemed to be an original, and all
such counterparts shall together constitute but one and the same instrument.
XXXIV. SECTION 34. DESCRIPTIVE HEADINGS
Descriptive headings of the several Sections of this Agreement are
inserted for convenience only and shall not control or affect the meaning or
construction of any of the provisions hereof. IN WITNESS WHEREOF, the parties
hereto have caused this Agreement to be duly executed and attested, all as of
the day and year first above written.
SIX RIVERS NATIONAL BANK
By
-----------------------
William T. Kay, Jr.
Chairman
TRANSFER AGENT
American Securities Transfer and Trust, Inc.
By
-----------------------
Title
---------------------
27
<PAGE>
EXHIBIT 4.2
AMENDMENT TO RIGHTS AGREEMENT
This Amendment, dated as of October 1, 1999 (the "Amendment"), is to
the Rights Agreement dated as of October 1, 1998 (the "Rights Agreement"),
between Six Rivers National Bank, a corporation organized under the laws of the
United States (the "Bank"), and American Securities Transfer & Trust Co. (the
"Rights Agent").
WHEREAS, the Board of Directors of the Bank has approved an Agreement
and Plan of Reorganization and Merger dated as of October 3, 1999 between North
Valley Bancorp ("North Valley"), a California corporation and the Bank providing
for the merger of the Bank with and into North Valley and a related Merger
Agreement in the form of an exhibit thereto (such agreements together, the
"Merger Agreements");
WHEREAS, the Merger Agreements contemplate that the Bank, at the time
such agreements are executed, shall have taken all actions necessary to prevent
the Merger Agreements and the transactions contemplated therein from triggering
the Rights (as defined in the Rights Agreement) outstanding under the Rights
Agreement;
WHEREAS, the Board of Directors has determined that this Amendment is
in the best interests of the Bank and its shareholders; and
WHEREAS, the Bank and the Rights Agent have determined that, pursuant
to Section 26 of the Rights Agreement, the Rights Agreement may be amended as
set forth herein without the approval of the holders of the Rights.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements set forth herein, the Bank and the Rights Agent hereby agree as
follows:
1. This Amendment shall become effective on the date that the Bank and
North Valley have both executed the Merger Agreements, immediately before such
execution.
2. Subsection 1(a) of the Rights Agreement is hereby amended to include
the following additional sentence to immediately follow the current language
therein: "Notwithstanding the foregoing, neither North Valley Bancorp, a
California corporation ("North Valley"), nor any of its Affiliates or
Associates, shall be an `Acquiring Person.'"
3. Section 1 of the Rights Agreement is hereby amended to include a new
Subsection 1(aa) which shall read as follows: "`Section 11(a)(ii) Event' shall
mean any Trigger Event as defined in Section 11(a)(ii)."
4. Section 1 of the Rights Agreement is hereby amended to include a new
Subsection 1(bb) which shall read as follows:
"Section 12 Event" shall mean any event described in clause (i), (ii),
(iii) or (iv) of Section 12(a) of this Agreement, other than the
delivery, execution or performance or consummation of any of the
transactions contemplated in the Agreement and Plan of Reorganization
and Merger dated as of October 3, 1999 between North Valley Bancorp, a
1
<PAGE>
California corporation ("North Valley") and the Bank and the Agreement
of Merger in the form attached thereto as Exhibit A.
5. Section 1 of the Rights Agreement is hereby amended to include a new
Subsection 1(cc) which shall read as follows: "`Triggering Event'" shall mean
any Section 11(a)(ii) Event or any Section 12 Event."
6. The Rights Agreement is hereby amended to include a new Subsection
(v) to Section 11(a) thereof which shall read as follows:
(v) Notwithstanding anything in this Agreement to the contrary, the
execution, delivery, performance or consummation of any of the
transactions contemplated in the Agreement and Plan of Reorganization
and Merger dated as of October 3, 1999 between North Valley and the
Bank and the Merger Agreement in the form attached thereto as Exhibit A
will not be deemed Trigger Events.
7. Section 12 of the Rights Agreement is hereby amended to include a
new Subsection 12(f) which shall read as follows:
(f) Notwithstanding anything in this Agreement to the contrary, this
Section 12 shall not be applicable to the execution, delivery, or the
performance or consummation of any of the transactions contemplated in,
the Agreement and Plan of Reorganization and Merger dated as of October
3, 1999 between North Valley and the Bank and the Merger Agreement in
the form attached thereto as Exhibit A.
8. Section 32 of the Rights Agreement is hereby amended to change the
reference therein to "State of California" to "State of Delaware."
9. The form of Summary of Rights to Purchase Common Shares attached as
Exhibit B to the Rights Agreement is hereby replaced in its entirety by the form
of Summary of Rights to Purchase Common Shares attached as Exhibit A hereto.
10. As promptly as practicable following the date of this Amendment,
the Bank shall take all appropriate actions to cause the legend on the
certificates for the Common Stock referring to the Rights Agreement to make
reference to this Amendment.
11. This Amendment shall be limited solely to the matters expressly set
forth herein and shall not (a) prejudice any right or rights which the Bank may
now have or may in the future have under or in connection with the Agreement or
any instruments or agreements referred to therein or (b) except to the extent
expressed as set forth herein, modify the Agreement or any Rights, or any
instruments or agreements referred to therein.
12. Unless defined herein, all capitalized terms shall have the
meanings provided in the Rights Agreement.
13. This Amendment shall be deemed to be a contract under the laws of
the State of Delaware and for all purposes shall be governed by and construed in
accordance with the laws of such State applicable to contracts to be made and
performed entirely within such State, provided however, that the foregoing is
not intended to modify, restrict or supplement the corporate powers, rights or
2
<PAGE>
governance procedures of the Bank or its shareholders existing under the Federal
Banking Laws or any other corporate laws which may otherwise be applicable to
the Bank or its shareholders.
14. This Amendment may be executed in any number of counterparts and
each of such counterparts shall for all purposes be deemed to be an original,
and all such counterparts shall together constitute but one and the same
instrument. Signatures by facsimile transmission are deemed acceptable.
15. This Amendment shall be for the sole and exclusive benefit of the
Bank, the Rights Agent and the registered holders of the Rights Certificates
(and, prior to the Distribution Date, the Bank's common shares). Nothing in this
Amendment shall be construed to give any person other than the Bank, the Rights
Agent and the registered holders of the Rights Certificates (and, prior to the
Distribution Date, the Bank's common shares) any legal or equitable right,
remedy or claim under this Amendment and the Merger Agreement.
IN WITNESS WHEREOF, the parties have caused this Amendment to be duly
executed and their respective corporate seals to be hereto affixed and attested,
all as of the date and year first above written.
SIX RIVERS NATIONAL BANK
By: MICHAEL W. MARTINEZ
Its: PRESIDENT AND CHIEF EXECUTIVE OFFICER
AMERICAN SECURITIES TRANSFER AND TRUST CO.
3
EXHIBIT 99.8
OFFICE OF THE COMPTROLLER OF THE CURRENCY
WASHINGTON, D.C. 20219
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): October 4, 1999
SIX RIVERS NATIONAL BANK
(Exact name of registrant as specified in its charter)
UNITED STATES _______ 68-0176905
Jurisdiction of Incorporation Commission File No. IRS Employer ID Number
402 F STREET, EUREKA, CALIFORNIA 95501
Address, including zip code, of registrant's principal executive office
(707) 443-8400
Registrant's telephone number, including area code
-------------------------------------------------------
Former name or former address, if changed since last report
1
<PAGE>
ITEM 5. OTHER EVENTS
On October 4, 1999, the Registrant, Six Rivers National Bank, and North
Valley Bancorp a state chartered banking association with its head office in
Redding, California, issued a joint news release announcing the signing of an
Agreement and Plan of Reorganization and Merger dated October 3, 1999 (the
"Agreement") by and among North Valley Bancorp, Six Rivers National Bank and NVB
Interim National Bank, an interim national banking association to be formed at
the direction of North Valley Bancorp to facilitate a tax-free merger intended
to be accounted for as a pooling of interests (the "Merger"). A copy of the
October 4, 1999, news release is attached hereto as Exhibit 99.1.
Pursuant to the Agreement, it is expected that Six Rivers National Bank
will merge with and into NVB Interim National Bank and the resulting national
banking association will continue as a wholly owned subsidiary of North Valley
Bancorp, with the name "Six Rivers National Bank." North Valley Bancorp is
currently the holding company for North Valley Bank, a California banking
corporation with its head office in Redding, California. Thus, upon consummation
of the transactions contemplated by the Agreement, North Valley Bancorp would
have two banking subsidiaries: Six Rivers National Bank and North Valley Bank.
Under the terms of the Agreement, the shareholders of Six Rivers
National Bank will be entitled to exchange their shares of Six Rivers National
Bank Common Stock, held on the record date, for shares of North Valley Bancorp
Common Stock. The number of shares exchanged will depend on the average price of
North Valley Bancorp Common Stock on The Nasdaq National Market for a 20-day
period prior to the closing. If the average price is not less than $10.00 and is
not more than $12.06, the conversion ratio will be 1.450. If the average price
is not less than $12.07 and is not more than $12.50, the conversion ratio will
be determined by dividing $17.50 by the average price. If the average price is
more than $12.50 but is not more than $15.00, the conversion ratio will be
1.400, and if the average price is more than $15.00, the conversion ratio will
be determined according to a formula intended to give the shareholders of Six
Rivers National Bank approximately 40 percent of the appreciation. If the
average price is less than $10.00, the Board of Directors of Six Rivers National
Bank will have the right to terminate the Agreement or to accept a conversion
ratio of 1.450 and proceed with the closing.
The Agreement has been approved by the Boards of Directors of North
Valley Bancorp and Six Rivers National Bank. The Merger is subject to the
approval of the North Valley Bancorp shareholders, the approval of the Six
Rivers National Bank shareholders, all applicable regulatory approvals and other
terms and conditions customary for transactions of this type. Subject to
satisfaction of the conditions set forth in the Agreement, it is estimated that
the closing of the Merger will occur in the first or second quarter of the year
2000.
The foregoing summary is qualified in its entirety by reference to the
Agreement attached hereto as Exhibit 2.1 and incorporated herein by this
reference.
2
<PAGE>
Item 7. Financial Statements and Exhibits
(c) Exhibits.
2.1 Agreement and Plan of Reorganization and Merger dated October 3, 1999
99.1 Joint News Release of October 4, 1999
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
SIX RIVERS NATIONAL BANK
(Registrant)
Date: October 12 , 1999. By: ___________________
Michael W. Martinez
President and Chief Executive Officer
3
<PAGE>
Len Cereghino & Co. CONTACTS: Six Rivers National Bank
corporate investor relations William Kay, Chairman
2605 Western Avenue, Seattle, WA 98121 (707) 822-2971
(206) 448-1996 Michael Martinez,
President & CEO
(707) 443-8400
NEWS RELEASE North Valley Bancorp
Rudy Balma, Chairman
(530) 221-8400
Michael Cushman,
President & CEO
(530) 221-8400
NORTH VALLEY BANCORP TO ACQUIRE SIX RIVERS NATIONAL BANK;
COMBINED COMPANY WILL HAVE DOMINANT POSITION IN NORTHERN CALIFORNIA
Eureka and Redding, CA - October 14, 1999 - North Valley Bancorp
(Nasdaq: NOVB), parent company of North Valley Bank, and Six Rivers
National Bank (Nasdaq: SIXR), today jointly announced the signing of a
definitive merger agreement for North Valley Bancorp to acquire Eureka-
based Six Rivers. The combined institution company, located throughout
Shasta, Trinity, Humboldt, Del Norte and Medocino counties, will be the
largest bank holding company headquartered in the northern counties of
Shasta, Trinity, Humboldt, Del Norte and Mendocino, California with 20
branch offices and approximately $500 million in total assets.
Headquartered in Redding, California, North Valley Bank operates
twelve banking offices in Shasta and Trinity counties and reported had
approximately $300 million in assets at June 30, 1999. Headquartered in
Eureka, California, Six Rivers is a full service commercial bank with eight
branch offices in Humboldt, Mendocino, Del Norte and Trinity counties with
approximately $200 million in assets.
Highlights of the merger include:
Creation of the largest bank holding company headquartered in the
northern counties of Shasta, Trinity, Humboldt, Del Norte and Mendocino,
California California with 20 branches
Pro Forma balance sheet:
$500 million in total assets
$311 million in total loans
$431 million in total deposits
$50 million in total equity
Transaction accretive to 2001 earnings per share of North Valley after
cost savings
Strong capital ratios and credit quality
Excess capital available to support additional expansion or return to
shareholders (equity/assets ratio of approximately 10%)
Pooling of interests accounting
Annual cost savings of approximately $2.25 million, expected to be
fully phased in by year-end 2000
Under the terms of the agreement, Six Rivers' shareholders will
receive a tax-free exchange of shares of North Valley for each share of Six
Rivers common stock they hold on the record date. The number of shares
exchanged will depend on the average closing price of North Valley stock
for a twenty day period prior to the closing of the transaction, which is
expected late in the first quarter of 2000. If the average North Valley
closing price is between $12.079 and $12.50 the shareholders of Six Rivers
will receive a number of North Valley shares designed to give them a $17.50
value. If North Valley's average closing price is more than $12.50 but
less than or equal to $15.00, shareholders of Six Rivers will receive 1.40
shares of North Valley. Shareholders of Six Rivers will capture 40% of the
appreciation of North Valley above $15.00. If the average closing price of
North Valley is less than $12.079 the shareholders of Six Rivers will
receive 1.45 shares of North Valley for each share of Six Rivers. In the
last twelve months the common stock of North Valley has traded between
$10.00 and $16.00. In the last three months North Valley has traded
between $10.00 and $12.25. On October 1, 1999, NOVB closed the trading day
at $11.06. Using that value as the average closing price for NOVB stock in
the twenty days prior to the closing of the transaction, each share of Six
Rivers stock is worth $16.05 in exchange.
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<PAGE>
North Valley Bancorp To Acquire Six Rivers
October 4, 1999
Page Two
The transaction is expected to close in the first quarter half of
2000, following shareholder and regulatory approval. Upon completion of
the transaction Six Rivers National Bank will become a separate subsidiary
of North Valley Bancorp.
"This is a great opportunity for customers and shareholders of both
institutions," said Rudy Balma, North Valley Bancorp Chairman. "Six Rivers
gives us the opportunity to expand our banking reach west into the northern
California coastal counties and the Highway 101 corridor. This acquisition
gives customers of both banks an increased branch network, additional
services and a broader depth of management. It also establishes a solid
platform from which to continue North Valley's expansion into other
attractive Northern California and Southern Oregon markets."
Six Rivers Chairman William Kay added, "Our Board has considered a
number of strategic alternatives in the past year and found a merger with
North Valley to hold the greatest opportunity for our shareholders. We are
very excited about the prospects for the common stock of North Valley,
which we believe to be substantially undervalued in today's market.,"
stated William Kay, Chairman of Six Rivers. "There is no question in our
minds that North Valley and Six Rivers will prove an excellent match for
all parties involved. Our shareholders are getting an attractive premium,
great potential for future appreciation, a strong history of dividends and
significantly increased trading liquidity."
"The combination of Six Rivers and North Valley is a key move in our
company's overall strategic plan," said Michael Cushman, North Valley
President and CEO. "North Valley has positioned itself over the past 18
months to grow through acquisition. We have been looking at opportunities
to better employ our capital and grow our company and this is just the
first step in that process. I have tremendous respect for what the Six
Rivers management has accomplished there in the past year, and I have no
doubt that together we can create Northern California's finest community
bank, and eventually build the valuations that are so important to our
shareholders."
"We are more focused on building shareholder valueequity than at any
time in our history. and tThis acquisition will add shareholder value. It
will be accretive to our 2001 earnings per share, after we bring Six Rivers
to our levels of efficiency by the end of 2000."
Mike Martinez, President and CEO of Six Rivers, will remain in his
current post. "We have worked hard to return Six Rivers to profitability,
and our efforts are being rewarded today," he said. "We have built a strong
franchise here, and this transaction gives us the opportunity to maintain
the strength and identity of Six Rivers, while using the capital base and
banking expertise of North Valley Bancorp to create a platform for future
growth."
The companies will host a joint conference call for investors on
Monday, October 4, 1999 at 811:00 am Pacific Daylight Time. For information
regarding the conference call replay, please visit www.sixrivers.com or
www.northvalleybank.com..
Since its formation in 1989, Six Rivers has concentrated on providing
a high level of personal service and provides traditional deposit products
to local customers and offers primarily commercial, consumer, and real
estate loans. After making significant changes to upper management and the
lending culture, Six Rivers has returned to profitability with a
strengthened balance sheet. Headquartered in Eureka, California, Six Rivers
is a full-service commercial bank with eight branch offices in Northern
California.
North Valley Bancorp is a holding company headquartered in Redding,
California. The Company's principal subsidiary, North Valley Bank, operates
twelve commercial banking offices in Shasta and Trinity Counties in
Northern California including two in-store supermarket branches and a
Business Banking Center. The Bank offers a wide range of consumer and
business banking products and services. In addition to depository services
North Valley Bank engages in a full complement of lending activities,
including consumer, commercial and real estate loans, with particular
emphasis on short and medium term loans. In addition to its direct lending
activities, the Bank processes loans through its Dealer Finance Division
and has SBA Preferred Lender status.
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North Valley Bancorp To Acquire Six Rivers
October 4, 1999
Page Three
This report contains certain forward-looking statements that are subject to
risks and uncertainties and include information about possible or assumed
financial condition, results of operations and business of North Valley
Bancorp and Six Rivers National Bank. We accept no obligation to update
these statements. Many possible events or factors could affect the future
results and performance and cause results or performance to differ
materially and adversely from the statements made here. Our assumptions and
projections are based on anticipation of future events. Words such as
"expects", "anticipates", "believes", "estimates", variations of such words
and other similar expressions are intended to identify such forward-looking
statements. These statements are not guarantees of future performance.
Risks and uncertainties, which assume the acquisition will be consummated,
include: (a) cost savings and earnings accretion/dilution; (b) revenue
impact;(c) restructuring charges; (d) effective/cost-effective integration
of Six Rivers, (e) retention of key employees, (f) service improvement, (g)
continued growth, expense reduction, profitability improvement, (h) smooth
computer operations in 2000; (i) lower than expected revenues, increase in
competition, interest rate changes reduce margins, economic conditions are
less favorable and deteriorate credit quality or cause reduce credit
demand, and legislative/regulatory changes adversely affect the business.
Do not rely solely on the forward-looking statements in evaluating an
investment. Consider all uncertainties and risks in our respective OCC, SEC
and FDIC filings. Forms 10-K for the year ended December 31, 1998 discuss a
number of factors that may contribute to variances from expectations.
NOTE: Transmitted on PR Newswire at 3:00 a.m. PDT, October 4, 1999.
EXHIBIT 99.9
SIX RIVERS NATIONAL BANK
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
May 12, 1999
6:00 p.m.
To Our Shareholders:
The Annual Meeting of Shareholders of Six Rivers National Bank will be
held at 6:00 p.m. on Wednesday, May 12, 1999 at the main office of the Bank,
located at 402 F Street, Eureka, California. The Record Date for determining
shareholders eligible to vote at the Annual Meeting is April 20, 1999. We hope
you will plan to attend.
The matters to be considered and voted upon at the Meeting will be:
1. Electing five nominees to the Board of Directors to serve
until the next Annual Meeting of Shareholders and until their
successors are elected and have qualified;
2. Approving the selection of the Bank's independent auditors for
1999; and
3. Transacting such other business as may properly come before
the Annual Meeting.
Please sign and return the enclosed proxy as promptly as possible so
that your shares may be represented at the Annual Meeting. If you attend, you
may vote in person even though you previously returned your proxy.
You will find the proxy card in the window of the large envelope in
which this letter and accompanying materials were mailed. We look forward to
seeing you at the Annual Meeting on Wednesday, May 12, 1999.
Sincerely,
William T. Kay
CHAIRMAN OF THE BOARD
SIX RIVERS NATIONAL BANK
402 F Street
Eureka, California 95501
(707) 443-8400
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
To Be Held May 12, 1999
INTRODUCTION
This Proxy Statement is furnished in connection with the solicitation
of proxies for use at the Annual Meeting of Shareholders (the "Meeting") of Six
Rivers National Bank (the "Bank") to be held at the Bank's Main Office, 402 F
Street, Eureka, California 95501, at 6:00 p.m., on Wednesday, May 12, 1999, and
at any and all adjournments to this Meeting. The solicitation of the proxy
accompanying this Proxy Statement is made by the Board of Directors of the Bank.
<PAGE>
This Proxy Statement and the accompanying Notice are being mailed to
shareholders on approximately April 21, 1999.
The matters to be considered and voted upon at the Meeting will be:
1. Electing five nominees to the Board of Directors to serve
until the next Annual Meeting of Shareholders and until their
successors are elected and have qualified;
2. Approving the selection of the Bank's independent auditors for
1999; and
3. Transacting such other business as may properly come before
the Meeting.
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 the Bank an instrument revoking
it or a duly executed proxy bearing a later date, or by attending the Meeting
and voting in person. Subject to such revocation, all shares represented by a
properly executed proxy received in time for the Meeting will be voted by the
proxyholders in accordance with the instructions on the proxy. If no instruction
is specified with respect to a matter to be acted upon, the shares represented
by the proxy will be voted in favor of the election of the nominees for
directors set forth herein and, if any other business is properly presented at
the Meeting, in accordance with the recommendations of the Board of Directors.
Abstentions and broker nonvotes are not counted in determining the number of
shares voted for or against any nominee for director or any proposal.
YOUR VOTE IS IMPORTANT.
YOU ARE URGED TO VOTE BY SIGNING AND RETURNING THE ENCLOSED PROXY AS
PROMPTLY AS POSSIBLE, WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON.
VOTING SECURITIES
The Record Date for the purpose of determining the shareholders
entitled to notice of, and to vote at, the Meeting is April 20, 1999. There were
1,461,642 shares of the Bank's common stock issued and outstanding on the Record
Date.
Each holder of common stock will be entitled to one vote, in person or
by proxy, for each share of common stock standing in his or her name on the
books of the Bank as of the Record Date on any matter submitted to the vote of
the shareholders, except that in connection with the election of directors, the
shares are entitled to be voted cumulatively if a candidate's or candidates'
name(s) have been properly placed in nomination prior to the voting. Cumulative
voting entitles a shareholder to give one nominee as many votes as is equal to
the number of directors to be elected multiplied by the number of shares owned
by such shareholder, or to distribute his or her votes on the same principle
among two or more nominees as he or she deems appropriate. To exercise
cumulative voting rights, a shareholder must declare his or her intention to
cumulate votes at the Meeting before the opening of polls. After the Chairman
has acknowledged the declaration, all shareholders will be entitled to cumulate
their votes without notifying the Chairman. The five candidates receiving the
highest number of votes will be elected. If cumulative voting is declared at the
Meeting, votes represented by proxies delivered pursuant to this Proxy Statement
may be cumulated in the discretion of the proxy holders, in accordance with the
recommendations of the Board of Directors.
2
<PAGE>
Any shareholder giving a proxy may revoke it prior to the time it is
voted by notifying the Secretary of the Bank in writing of revocation of the
proxy, by filing a duly executed proxy bearing a later date, or by attending the
meeting and voting in person after advising the Chairman of the meeting of that
election.
PRINCIPAL SHAREHOLDERS
The following table lists the persons or groups owning more than 5% of
the Bank's common stock on March 31, 1999 of which Management is aware, other
than Warren L. Murphy, a nominee for election to the Board of Directors. See
"Election of Directors".
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT OF CLASS
- ------------------------ -------------------- ----------------
<S> <C> <C>
Financial Institution Partners, L.P., Financial Institutions Partners II,
L.P., Hovde Capital, Inc., Hovde Capital, L.L.C. and Eric D. Hovde
(collectively, "Financial Institution Partners")................................ 133,700(1) 9.1%
Charles Dan Aalfs................................................................. 117,000(1) 8.0%
Heartland Adivsors, Inc........................................................... 93,300(1) 6.4%
</TABLE>
- -----------
(1) Based on the beneficial owners' Schedule 13D (Amendment No. 3) filed
with the Office of the Comptroller of the Currency (the "OCC") on
September 28, 1998.
ELECTION OF DIRECTORS
The Bank's bylaws provide that the authorized number of directors shall
be not less than five nor more than 25 with the exact number to be fixed from
time to time by resolution of the Board of Directors or the shareholders. The
exact number of directors is currently fixed at five. The persons named below,
all of whom are present members of the Board of Directors of the Bank, will be
nominated for election to serve as directors until the next Annual Meeting of
Shareholders and until their successors are elected and have qualified. Votes
will be cast pursuant to the enclosed proxy in such a way as to effect the
election of these five nominees, or as many thereof as possible under the rules
of cumulative voting. In the event any of the nominees should be unable or
unwilling to serve as a director, it is intended that the proxy will be voted
for the election of such substitute nominees, if any, as shall be designated by
the Board of Directors. Management has no reason to believe that any nominee
will become unavailable. Any nomination must be in accordance with the Bank's
bylaws which provide, among other requirements, that such nomination shall be
delivered or mailed to the President of the Bank not less than 14 days nor more
than 50 days prior to the Meeting. Because the Bank has been determined by the
OCC to be in "troubled condition" for purposes of Section 914 of the Financial
Institutions Reform, Recovery and Enforcement Act of 1989, any shareholder
nominee elected to the Board will be required to provide written notice with
detailed biographical and financial information to the OCC.
3
<PAGE>
The following table sets forth certain information, as of April 12,
1999, with respect to those persons to be nominated by the Board of Directors
for election as directors. Management is not aware of any arrangements which
may, at a subsequent date, result in a change of control of the Bank.
<TABLE>
<CAPTION>
COMMON STOCK
BENEFICIALLY OWNED
AS OF APRIL 12, 1999
YEAR FIRST ---------------------
NAME AND OFFICE PRINCIPAL OCCUPATION FOR ELECTED OR NUMBER OF PERCENTAGE OF
HELD WITH BANK(1) PAST FIVE YEARS APPOINTED DIRECTOR SHARES(2) SHARES OUTSTANDING(3)
- ----------------- ------------------------ ------------------ --------- ---------------------
<S> <C> <C> <C> <C> <C>
Kevin D. Hartwick Managing Partner, 37 1996 10,691(4) 0.7%
Director Cholwell, Benz &
Hartwick, Certified
Public Accountants
William T. Kay, Jr. Partner, Harland Law 54 1989 23,611(5) 1.5%
Chairman of the Board Firm, Attorneys at Law
Warren L. Murphy Owner, Private 46 1989 92,202(6) 6.0%
Director Investments
Jack L. Russ Manager, Ocean View Ranch 61 1989 19,315(7) 1.3%
Director
Dolores M. Vellutini Owner and President, 61 1989 26,977(8) 1.8%
Director Eureka Baking Company,
Inc.
Directors and Executive 204,550(9) 13.31%
Officers as a Group (Six
in Number)
</TABLE>
- -----------
(1) The address for all persons is c/o Six Rivers National Bank, 402 F
Street, Eureka, California, 95501.
(2) Except as otherwise noted, may include shares held by or with such
person's spouse (except where legally separated) and minor children;
shares held by any other relative of such person who has the same home;
shares held by a family trust as to which such person is a beneficiary
and trustee with sole voting and investment power (or shared with a
spouse); or shares held in an Individual Retirement Account or pension
plan of which such person is the sole beneficiary, and as to which
shares such person has pass-through voting rights and investment power.
(3) Based on 1,461,642 shares outstanding on April 20, 1999. The shares
"beneficially owned" are determined under Securities and Exchange
Commission Rules, and do not necessarily indicate ownership for any
other purpose. In general, beneficial ownership includes shares over
which a person has sole or shared voting or investment power and shares
which such person has the right to acquire within 60 days of April 20,
1999.
(4) Includes 4,191 shares which Mr. Hartwick has the right to acquire upon
the exercise of stock options within 60 days of the Record Date.
(5) Includes 12,235 shares which Mr. Kay has the right to acquire upon the
exercise of stock options within 60 days of the Record Date.
4
<PAGE>
(6) Includes 11,541 shares which Mr. Murphy has the right to acquire upon
the exercise of stock options within 60 days of the Record Date.
(7) Includes 11,541 shares which Mr. Russ has the right to acquire upon the
exercise of stock options within 60 days of the Record Date.
(8) Includes 11,311 shares which Mrs. Vellutini has the right to acquire
upon the exercise of stock options within 60 days of the Record Date.
(9) Includes 75,133 shares which the Directors and Officers have the right
to acquire upon the exercise of stock options within 60 days of the
Record Date.
THE BOARD OF DIRECTORS AND COMMITTEES
The Board of Directors has a standing Audit Committee, of which
directors Hartwick (Chairman), Kay, Murphy, Russ and Vellutini are members.
During the fiscal year ended December 31, 1998, the Audit Committee met 11
times. The purpose of the Audit Committee is to meet with outside auditors of
the Bank in order to fulfill the legal and technical requirements necessary to
adequately protect the directors, shareholders, employees and depositors of the
Bank. In addition, it is the responsibility of the Audit Committee to recommend
to the Board of Directors the selection of independent accountants and to make
certain that the independent accountants have the necessary freedom and
independence to thoroughly examine all Bank records.
The Bank also has a standing Compensation Committee of which directors
Kay, Hartwick and Murphy are members. This committee makes decisions concerning
employee compensation. The committee met seven times during 1998. The
Compensation Committee is also responsible for considering and making
recommendations to the Board of Directors regarding the compensation of the
Bank's officers and grants of stock options and Employee Stock Ownership Plan
awards.
The Bank also has a standing Nominating Committee, consisting of
directors Kay, Murphy and Russ, which met once during 1998. The purpose of the
Nominating Committee is to select the individuals to be nominated by the Board
of Directors at the Bank's Annual Meeting of Shareholders. The procedures for
nominating directors, other than by or on behalf of the Board of Directors
itself, are set forth in the Bank's bylaws.
The Bank also has a standing Loan Committee (chaired by the Chief
Credit Officer) of which all directors are members. This committee reviews loan
policy and makes decisions concerning extensions of credit to all borrowers
whose aggregate borrowings exceed $200,000. The committee met 17 times during
1998.
The Bank also has a standing Asset/Liability Management Committee,
consisting of Michael W. Martinez (Chairman), Director Vellutini and Shelton J.
Francis and Marjorie L. Plum, which met four times during 1998. The purpose of
the Asset/Liability Management Committee is to monitor interest rate risk,
review financial performance, review individual transactions with respect to the
impact on the Bank's balance sheet, monitor liquidity and to report the results
of such activity to the full Board of Directors.
During the fiscal year ended December 31, 1998, the Board of Directors
of the Bank held a total of 12 regular and 14 special meetings. Each incumbent
director who served as a director during 1998 attended at least 75% of the
aggregate of (i) the total number of such meetings and (ii) the total number of
meetings held by all committees of the Board of Directors on which such director
served during 1998.
5
<PAGE>
COMPENSATION OF DIRECTORS
During 1998, the Chairman of the Board received $650 and all other
directors of the Bank received $500 for each full Board meeting and all
directors received $250 for each committee meeting of the Board that he or she
attended.
TRANSACTIONS WITH DIRECTORS AND MANAGEMENT
Certain of the directors, executive officers and their associates have
had banking relationships with the Bank in the ordinary course of business. All
outstanding loans and commitments included in such transactions were made on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with other persons, did not
involve more than the normal risk of collectibility and did not present other
unfavorable features.
EXECUTIVE OFFICER
The following table sets forth information regarding the Bank's current
executive officer(10).
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE BANK HELD SINCE
<S> <C> <C> <C>
Michael W. Martinez........ 38 Interim President, Chief Executive Officer, 1992(11)
Executive Vice President and Chief Financial
Officer
</TABLE>
- -----------
(10) As used in this table, the term "executive officer" means the Interim
President/Chief Executive Officer and Executive Vice President/Chief
Financial Officer.
(11) Mr. Martinez has been the Bank's Chief Financial Officer since 1992. He
was appointed Interim President and Chief Executive Officer of the Bank
on September 9, 1998.
SUMMARY COMPENSATION TABLE
The following table sets forth a summary of the compensation paid
during the Bank's past three fiscal years ended December 31, 1998 to the Bank's
former President and Chief Executive Officer and its Interim President and Chief
Financial Officer.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION (STOCK OPTIONS)
----------------------------- --------------- ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS (# OF SHARES) COMPENSATION(1)
- --------------------------- ---- ------ ----- ------------- ---------------
<S> <C> <C> <C> <C> <C>
John F. Burger................................. 1998 $115,528 4,500
President and Chief 1997 $132,092 $2,321
Executive Officer 1996 $124,615 $51,575 5,940 $2,891
Michael W. Martinez............................ 1998 $103,461 3,500 $1,880
Interim President and Chief Executive 1997 $ 84,759 $1,490
Officer; Senior Vice President and 1996 $ 79,961 $34,384 3,986 $1,855
Chief Financial Officer
</TABLE>
- -----------
(1) Represents amounts contributed by the Bank to its Employee Stock
Ownership Plan on behalf of such individual (see "Employee Stock
Ownership Plan").
6
<PAGE>
EMPLOYMENT AND CHANGE IN CONTROL AGREEMENTS
The Bank and Mr. Martinez entered into an employment agreement on April
1, 1999 describing his responsibilities, titles and compensation. Mr. Martinez's
employment agreement provides that, subject to non-disapproval by the OCC, he
will be the Bank's Chief Executive Officer or, if not approved by the OCC, he
will continue to serve as Chief Financial Officer for a term of three years. His
base salary is $137,000. He will be considered for annual increases in base
salary at the discretion of the Board of Directors. He is eligible to receive a
bonus at the end of each year and stock options, to be determined in the sole
discretion of the Board of Directors. He is also entitled to reimbursement of
business expenses, a car allowance of $500 per month, participation in all
employee benefit plans maintained by the Bank, and term life insurance equal to
three times his base salary but no more than $300,000. If he is terminated
without cause, he will be entitled to receive a lump sum cash payment equal to
the amount of the base salary that he would have received during the remainder
of the term of his employment. For purposes of the employment agreement,
"without cause" means assignment of duties of substantially less responsibility
than those described in the employment agreement, a material adverse change in
the position of Interim President and Chief Executive Officer, such as title,
lines of reporting, responsibilities or authority or a reduction of base salary.
In August, 1996, the Bank entered into transition agreements with Mr.
Martinez and Mr. Burger to provide them with certain severance benefits allowing
them to focus their entire energy on performing their functions and discharging
the responsibilities of their offices without concern for the potential
consequences of any possible sale of the Bank. Under the terms of Mr. Martinez's
employment agreement, the rights granted under his transition agreement are in
addition to those granted under his employment agreement. The transition
agreements provide that, in the event of a merger, sale of assets or other
corporate reorganization, if the executive officer is terminated without cause
(or has his annual base compensation reduced by more than 25% compared to the
previous year) within two years from the effective date of such event, he will
be entitled to receive a cash payment in an amount equal to 35 months' of his
then current base salary plus the average of his two most recent year-end
bonuses. In such event, the Bank or its successor entity shall also continue
paying the Bank rate premiums for the executive officer's then existing medical
benefits for up to 18 months and pay all real estate commissions and title fees
on the sale of his residence, provided such sale is consummated within two years
of the date of termination.
STOCK OPTION PLAN
The Bank's Stock Option Plan (the "Option Plan") is intended to advance
the interests of the Bank by encouraging stock ownership on the part of key
employees and was adopted by the shareholders on December 13, 1989. The Option
Plan provides for the issuance of both "non-qualified" and "incentive" stock
options to full-time salaried officers and employees of the Bank, and of
"non-qualified" stock options to non-employee directors of the Bank. All options
must be granted at an exercise price of not less than 100% of the fair market
value of the stock on the date of grant. Each option granted under the Option
Plan expires not later than 10 years from the date the option was granted, and
is exercisable in installments as provided in individual stock option
agreements; provided, however, that if an optionee fails to exercise his or her
rights under the options within the year such rights arise, the optionee may
accumulate them and exercise the same at any time thereafter during the term of
the option. In addition, in the event of a "Terminating Event," i.e., a merger
or consolidation of the Bank as a result of which the Bank will not be the
surviving corporation, a sale of substantially all of the Bank's assets, or a
7
<PAGE>
change in ownership of at least 25% of the Bank's stock, all outstanding options
under the Option Plan shall become exercisable in full (subject to certain
notification requirements), and shall terminate if not exercised within a
specified period of time, unless provision is made in connection with the
Terminating Event for assumption of such options, or substitution of new options
covering stock of a successor corporation. As of December 31, 1998, the Bank had
options outstanding to purchase a total of 120,238 shares of its common stock
under the Option Plan, with an average exercise price of $12.43 per share with
respect to all such options. Information concerning stock options to the Bank's
non-employee directors is included in the footnotes to the table on page 3.
STOCK OPTION GRANTS AND EXERCISES
The following table sets forth information concerning the grant of
stock options under the Option Plan for the 1998 fiscal year to executive
officers. The table also lists potential realizable values of those options on
the basis of assumed annual computed stock appreciation rates of 5% and 10% over
the life of the options which are set at a maximum of 10 years.
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
POTENTIAL REALIZABLE
% OF TOTAL VALUE AT ASSUMED ANNUAL
OPTIONS/SARS EXERCISE RATES OF STOCK PRICE
OPTIONS/ GRANTED TO OR BASE APPRECIATION FOR
SARS EMPLOYEES IN PRICE EXPIRATION OPTION TERM
SARS EMPLOYEES IN PRICE EXPIRATION -----------------------
NAME GRANTED FISCAL YEAR ($/SH) DATE 5%($) 10%($)
- ---- -------- ------------ -------- ---------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
John F. Burger........................... 4,500 8.2% $17.38 3/18/2008 $49,186 $124,650
Michael W. Martinez...................... 3,500 6.5% $17.38 3/18/2008 $38,255 $96,950
</TABLE>
The following table sets forth information with respect to the
executive officers concerning the exercise of options during the last fiscal
year and unexcercised options held at the end of the last fiscal year.
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS/
OPTIONS/SARS AT FYE SARS AT FYE
--------------------- ---------------------
SHARES ACQUIRED EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) VALUE REALIZED ($) UNEXERCISABLE UNEXERCISABLE
- ---- ---------------- ------------------ ------------- -------------
<S> <C> <C>
John F. Burger.................... 16370/-0- $17,059
Michael W. Martinez............... 9,796/-0- $ 5,856
</TABLE>
8
<PAGE>
EMPLOYEE STOCK OWNERSHIP PLAN
The Board of Directors of the Bank established an Employee Stock
Ownership Plan (the "ESOP") which became effective on January 1, 1995. The
purpose of the ESOP, qualified under Section 401(a) of the Internal Revenue Code
of 1986, as amended, is to provide eligible employees with an additional
incentive to maximize their job performance by providing them with an
opportunity to acquire or increase their proprietary interest in the Bank and to
provide supplemental income upon retirement. Eligible employees are those with
at least 780 hours of service with the Bank per year, who complete 12 months of
service and are at least 21 years of age.
The ESOP is designed primarily to invest the Bank's contributions for
the benefit of eligible employees in shares of the Bank's common stock. All
assets of the ESOP are held in trust for the exclusive benefit of participants
and are administered by trustees, currently directors Kevin Hartwick and William
T. Kay, Jr., who are directed by a committee composed of officers Michael W.
Martinez and Marjorie L. Plum. All Bank stock allocated to participants'
accounts is voted by the trustees. The Bank has made and intends to continue to
make periodic contributions in the future to the ESOP in amounts determined by
the Board of Directors of the Bank. It is anticipated that as contributions are
made by the Bank, shares of the Bank's common stock will be acquired from time
to time through open market purchases and privately negotiated transactions. Any
effect on the market for the Bank's common stock which could result from the
fact that the ESOP may make acquisitions of the Bank's shares in the future is
not possible to determine in advance. The Bank's contribution to the ESOP for
the year ended December 31, 1998 was approximately $24,000. The Bank's
contributions to the accounts of its executive officers pursuant to the ESOP for
1996 through 1998 are included in the Summary Compensation Table above.
401 PLAN
The Board of Directors has established an employee profit sharing plan
under Section 401(k) of the Internal Revenue Code. The purpose of the employee
profit sharing plan is to provide all eligible employees with supplemental
income upon retirement and to increase their proprietary interest in the Bank.
Eligible employees may make contributions to the plan subject to the limitations
of Section 401(k). The Bank may provide a discretionary matching contribution
equal to a percentage of the amount the employee elected to contribute. The
401(k) plan trustees, consisting of members of Bank Management, administer the
plan.
RELATIONSHIP WITH INDEPENDENT ACCOUNTANTS
The Board of Directors has appointed Deloitte & Touche LLP as
independent accountants for the Bank for the fiscal year ending December 31,
1999. At the Meeting, shareholders will be asked to ratify the appointment.
Deloitte & Touche LLP audited the Bank's financial statements for the fiscal
year ended December 31, 1998 and have been the Bank's accountants since its
inception. It is not anticipated that any representative of Deloitte & Touche
LLP will be present at the Meeting. If a representative of Deloitte & Touche LLP
attends the Meeting, the representative will be given the opportunity to make a
statement and respond to questions. All professional services rendered by
Deloitte & Touche LLP concerning the fiscal year ended December 31, 1998 were
furnished at customary rates and terms. If shareholders do not approve of the
Board's selection, the Board will reconsider its retention but reserves the
right to retain Deloitte & Touche LLP as independent accountants if it believes
doing so will be in the Bank's best interests.
OTHER INFORMATION
ADJOURNMENT
Notice of any adjournment need not be given if the date, time and place
of the adjournment are announced at the Meeting at which the adjournment is
taken. However, if the adjournment is for more than 45 days, or if a new Record
Date is fixed for the adjourned Meeting, a notice of the adjourned Meeting shall
be given to each shareholder entitled to vote at the Meeting. At adjourned
9
<PAGE>
Annual Meetings, any business may be transacted which might have been transacted
at the original Annual Meeting.
COST OF PROXY SOLICITATION
The expense of preparing, assembling, printing, and mailing this Proxy
Statement and the materials used in the solicitation of proxies for the Meeting
will be borne by the Bank. It is contemplated that proxies will be solicited
principally through the use of the mail, but officers, directors, and employees
of the Bank may solicit proxies personally or by telephone, without receiving
special compensation for these activities. The Bank will reimburse banks,
brokerage houses and other custodians, nominees and fiduciaries for their
reasonable expenses in forwarding these proxy materials to shareholders whose
stock in the Bank is held of record by such entities. In addition, the Bank may
use the services of individuals or companies it does not regularly employ in
connection with this solicitation of proxies, if Management determines it
advisable. AST, Inc. was hired to assist in the distribution of proxy materials
and solicitation of votes for $2,000, plus out-of-pocket expenses.
SECTION 16 BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Bank's directors, certain officers and persons who own more than 10% of a
registered class of the Bank's equity securities, to file reports of ownership
and changes in ownership with the Securities and Exchange Commission. Directors,
certain officers and greater than 10% shareholders ("Reporting Persons") are
required by SEC regulation to furnish the Bank with copies of all Section 16(a)
forms they file.
Based solely on its review of the copies of such forms received by it,
or written representations from certain Reporting Persons that no such forms
were required for those persons, the Bank believes that from January 1, 1998, to
December 31, 1998, and, with respect to Forms 5, since December 31, 1998, all
filing requirements applicable to its Reporting Persons were complied with,
except that all Forms 5 for the year ended December 31, 1998 were not timely
filed.
SHAREHOLDER PROPOSALS
Shareholder proposals intended to be considered at the 2000 Annual
Meeting of Stockholders must be received by the Bank no later than December 21,
1999. The proposal must be mailed to the Bank's offices at 402 F Street, Eureka,
California 95501, Attn: William T. Kay, Chairman. Proposals may be included in
next year's Proxy Statement if they comply with the SEC's rules governing
shareholder proposals.
OTHER MATTERS
The Board is not aware of any matters to come before the Meeting other
than the proposals for the election of directors and the ratification of the
selection of independent auditors. If any other matters should be brought before
the Meeting, or any adjournment thereof, upon which a vote properly may be
taken, the shares represented by the proxies solicited by the Board will be
voted in accordance with the discretion of the proxy holders insofar as such
proxies are not limited to the contrary.
OTHER INFORMATION
This Proxy Statement is accompanied by the Bank's Annual Report on Form
10-KSB for the year ended December 31, 1998. For an additional copy of the Form
10-KSB, call or write the Bank at the address and telephone number on the first
page of this Proxy Statement no later than 10 days before the date of the
Meeting.
10
<PAGE>
Dated: April 21, 1999
Six Rivers National Bank
William T. Kay
CHAIRMAN OF THE BOARD OF DIRECTORS
11
<PAGE>
SIX RIVERS NATIONAL BANK
PROXY FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD MAY 12, 1999
THE PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
REVOCABLE PROXY
The undersigned holder of common stock acknowledges receipt of the
Notice of Annual Meeting of Shareholders of Six Rivers National Bank (the
"Bank"), and the accompanying Proxy Statement dated April 21, 1999, and revoking
any proxy heretofore given, hereby constitutes and appoints Warren L. Murphy and
William T. Kay, Jr., or either of them, with full power of substitution, as
attorney and proxy to appear and vote all of the shares of common stock of the
Bank standing in the name of the undersigned which the undersigned could vote if
personally present and acting at the Annual Meeting of the Shareholders of the
Bank to be held at the Bank's main office, 402 F Street, Eureka, California, on
May 12, 1999, at 6:00 p.m. local time or at any adjournments thereof, upon the
following items as set forth in the Notice of Annual Meeting of Shareholders and
more fully described in the Proxy Statement.
1. ELECTION OF DIRECTORS. To vote for the election of the following
persons as directors of the Bank, to serve a one-year term or until their
successors are elected and qualified: Kevin D. Hartwick, William T. Kay, Jr.,
Warren L. Murphy, Jack L. Russ and Dolores M. Vellutini.
Instructions: To withhold a vote for one or more nominees, strike a
line through that nominee's name above. To vote for all nominees except one
whose name is struck, check "FOR" below. To vote against or withhold a vote as
to all nominees, check "WITHHOLD" below.
[ ] FOR [ ] WITHHOLD
2. SELECTION OF AUDITORS. To approve the selection of Deloitte and
Touche LLP as the Bank's independent auditors for 1999.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. OTHER BUSINESS: The proxies are authorized to vote in their
discretion on such other business as may properly come before the Meeting or any
adjournment thereof.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
THE PROXY IS SOLICITED BY, AND ON BEHALF OF, THE BOARD OF DIRECTORS AND
MAY BE REVOKED PRIOR TO ITS EXERCISE. THE BOARD OF DIRECTORS RECOMMENDS A VOTE
FOR THE ELECTION AS DIRECTORS OF THE NOMINEES NAMED ABOVE. THE PROXY, WHEN
PROPERLY EXECUTED AND RETURNED TO SIX RIVERS NATIONAL BANK, WILL BE VOTED IN THE
MANNER DIRECTED. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED "FOR" THE
ELECTION AS DIRECTORS OF THE NOMINEES NAMED ABOVE. IF OTHER BUSINESS IS
PRESENTED, THIS PROXY SHALL BE VOTED IN ACCORDANCE WITH THE BEST JUDGMENT OF THE
PROXYHOLDERS.
12
<PAGE>
SHAREHOLDER(S)
---------------------
(Signature)
---------------------
(Signature)
---------------------
(No. of Common Shares)
Date , 1997
I/We do or do not
expect to attend
this meeting.
Please sign exactly as your name(s) appear(s). When signing as attorney,
executor, administrator, trustee, officer, partner, or guardian, please give
full title. If more than one trustee, all should sign. WHETHER OR NOT YOU PLAN
TO ATTEND THIS MEETING, PLEASE SIGN AND RETURN THIS PROXY AS PROMPTLY AS
POSSIBLE IN THE ENCLOSED POST-PAID ENVELOPE.
To assure a quorum, you are urged to date and sign this proxy and mail it
promptly in the enclosed envelope, which requires no additional postage if
mailed in the United States or Canada.
13
EXHIBIT 99.10
BYLAWS
OF
SIX RIVERS NATIONAL BANK
(EUREKA, CALIFORNIA)
ORGANIZED UNDER THE BANKING LAWS
OF THE UNITED STATES
(As amended through March 22, 1999)
<PAGE>
TABLE OF CONTENTS
PAGE NO.
ARTICLE I MEETINGS OF SHAREHOLDERS.........................................1
Section 1.1 ANNUAL MEETING..............................................1
Section 1.2 SPECIAL MEETING.............................................1
Section 1.3 NOTICE OF SHAREHOLDERS' MEETINGS............................1
Section 1.4 PROXIES.....................................................1
Section 1.5 VOTING......................................................1
Section 1.6 QUORUM......................................................2
Section 1.7 JUDGES OF ELECTION..........................................2
Section 1.8 NOMINATIONS FOR DIRECTORS...................................2
Section 1.9 OTHER BUSINESS..............................................3
ARTICLE II DIRECTORS.......................................................4
Section 2.1 POWERS......................................................4
Section 2.2 NUMBER......................................................4
Section 2.3 TERM........................................................4
Section 2.4 OATH OF OFFICE..............................................4
Section 2.5 VACANCIES...................................................4
Section 2.6 CHAIRMAN OF THE BOARD.......................................4
Section 2.7 VICE CHAIRMAN OF THE BOARD..................................5
Section 2.8 ORGANIZATION MEETING........................................5
Section 2.9 REGULAR MEETING.............................................5
Section 2.10 SPECIAL MEETINGS...........................................5
Section 2.11 QUORUM.....................................................5
Section 2.12 VOTING.....................................................6
Section 2.13 WAIVERS....................................................6
Section 2.14 QUALIFICATION OF DIRECTORS.................................6
ARTICLE III OFFICERS AND EMPLOYEES.........................................6
Section 3.1 OFFICERS....................................................6
Section 3.2 TENURE......................................................6
Section 3.3 FIDELITY BOND...............................................7
Section 3.4 PRESIDENT...................................................7
Section 3.5 VICE PRESIDENT..............................................7
Section 3.6 CASHIER.....................................................7
Section 3.7 SECRETARY...................................................7
Section 3.8 OTHER OFFICERS..............................................8
ARTICLE IV COMMITTEES......................................................8
Section 4.1 INVESTMENT COMMITTEE........................................8
Section 4.2 LOAN COMMITTEE..............................................8
Section 4.3 AUDIT COMMITTEE.............................................8
Section 4.4 OTHER COMMITTEES............................................9
ARTICLE V CORPORATE SEAL...................................................9
ARTICLE VI STOCK AND STOCK CERTIFICATES....................................9
Section 6.1 TRANSFERS...................................................9
Section 6.2 TRANSFER AGENT AND REGISTRAR................................9
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Section 6.3 STOCK CERTIFICATES..........................................9
Section 6.4 LOST CERTIFICATES...........................................9
ARTICLE VII MISCELLANEOUS PROVISIONS......................................10
Section 7.1 FISCAL YEAR................................................10
Section 7.2 EXECUTION OF INSTRUMENTS...................................10
Section 7.3 RECORDS....................................................10
ARTICLE VIII BYLAWS.......................................................10
Section 8.1 INSPECTION.................................................10
Section 8.2 AMENDMENTS.................................................10
ARTICLE IX CORPORATE GOVERNANCE...........................................11
Section 9.1 CORPORATE GOVERNANCE.......................................11
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ARTICLE I.
MEETINGS OF SHAREHOLDERS
Section 1.1 ANNUAL MEETING. The regular annual meeting of the
shareholders of this Association, for the election of directors and for the
transaction of such other business as may properly come before the meeting,
shall be held each year at the Association's Main Office in Eureka, California,
or any other convenient place duly authorized by the Board of Directors, on a
date and at a time designated by the Board of Directors. The date so designated
shall be within fifteen (15) months of the last Annual Meeting. If for any
cause, an election of directors is not made on said day, the Board of Directors
shall order the election to be held on some subsequent day, as soon thereafter
as practicable, according to the provisions of law. In the absence of the
Chairman of the Board or the Secretary of the Association, the holders of a
majority of the outstanding shares entitled to vote, and represented at any
meeting of the shareholders, may choose persons to act as Chairman and as
Secretary of the meeting. Unless waived by a majority of the shareholders
entitled to vote, the President of the Association shall then make a report to
the shareholders regarding the condition of the Association and shall review the
business of the preceding year. [Approved March 21, 1994]
Section 1.2 SPECIAL MEETING. Unless otherwise provided by the laws of
the United States, or by the Articles of Association, the Board of Directors of
this Association, or any ten (ten) or more shareholders owning, in the
aggregate, not less than twenty percent (20%) of the stock of this Association,
may call a special meeting of the shareholders at any time.
Section 1.3 NOTICE OF SHAREHOLDERS' MEETINGS. Unless otherwise provided
by the laws of the United States or by the Articles of Association, a notice of
the time, place and purpose of every regular meeting, and every special meeting
of the shareholders, shall be given by first-class mail, postage prepaid, mailed
at least ten (ten) days prior to the date of such meeting to each shareholder of
record at his or her address as shown on the books of the Association.
Section 1.4 PROXIES. Shareholders may vote at any meeting of the
shareholders by proxies duly authorized in writing, but no officer or employee
of this Association shall act as proxy. Proxies shall be valid only for one
meeting, to be specified therein, and any adjournments of such meeting. Proxies
shall be dated and shall be filed with the records of the meeting.
Section 1.5 VOTING. In deciding on questions at meetings of
shareholders, except in the election of directors, each shareholder shall be
entitled to one vote for each share of stock held. A majority of votes cast
shall decide each matter submitted to the shareholders at the meeting, except in
cases where by law a larger vote is required. In all elections of directors,
each shareholder shall have the right to vote the number of shares owned by such
shareholder for as many persons as there are directors to be elected, or to
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accumulate such shares and give one candidate as many votes as the number of
directors multiplied by the number of his shares shall equal, or to distribute
them on the same principal among as many candidates as he shall deem
appropriate.
Section 1.6 QUORUM. A majority of the outstanding capital stock,
represented in person or by proxy, shall constitute a quorum at any meeting of
shareholders, unless otherwise provided by law. The shareholders present or
represented by proxy at a duly called or held meeting at which a quorum is
present may continue to do business until adjournment, notwithstanding the
withdrawal of enough shareholders to leave less than a quorum, if any action
taken (other than adjournment) is approved by at least a majority of the shares
required to constitute a quorum, unless otherwise provided by law. Any meeting
of shareholders, whether or note a quorum is present, maybe adjourned from time
to time by the vote of a majority of the shareholders present or represented by
proxy, and the meeting maybe held, as adjourned, without further notice.
Section 1.7 JUDGES OF ELECTION. Every election of directors shall be
managed by three (3) judges, who shall be appointed from among the shareholders
by the Board of Directors. The judges of election shall hold and conduct the
election at which they are appointed to serve; and, after the election, they
shall file with the Cashier or Secretary a certificate under their hands,
certifying the result thereof and the names of the directors elected. The judges
of election, at the request of the Chairman of the meeting, shall act as tellers
of any other vote by ballot taken at such meeting, and shall certify the result
thereof.
Section 1.8 NOMINATIONS FOR DIRECTORS. Nominations for election to the
Board of Directors may be made by the Board of Directors or by any stockholder
of any outstanding class of capital stock of the Association entitled to vote
for the election of directors. Nominations, other than those made by or on
behalf of the existing management of this Association, shall be made in writing
and shall be delivered or mailed to the President of this Association and to the
Comptroller of the Currency, Washington, D.C., not less than 14 days nor more
than 50 days prior to any meeting of stockholders called for the election of
directors; provided, however, that if less than 21 days' notice of the meeting
is given to shareholders, such nomination shall be mailed or delivered to the
President of this Association and to the Comptroller of the Currency not later
than the close of business on the seventh day following the day on which the
notice of the meeting was mailed. 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 total number of shares of capital stock of the Association
beneficially 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
Association owned by the notifying shareholder; and (f) a statement of facts
demonstrating that the nominee meets the qualifications for a director set forth
in Section 2.14 of these Bylaws. Nominations not made in accordance herewith
may, in his discretion, be disregarded by the Chairman of the Meeting, and upon
his instructions, the vote letters may disregard all votes cast for each such
nominee. [Approved March 22, 1999]
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Section 1.9 OTHER BUSINESS.
(1) The proposal of business to be considered by the shareholders may
be made at an annual meeting of shareholders (a) pursuant to the
Association's notice of meeting, (b) by or at the direction of the
Board of Directors or (c) by any shareholder of the Association who was
a shareholder of record at the time of giving of notice provided for in
this Bylaw, who is entitled to vote at the meeting and who complied
with the notice procedures set forth in this Bylaw.
(2) For other business to be properly brought before an annual meeting
by a shareholder, the shareholder must have given timely notice thereof
in writing to the Chairman or Secretary of the Association and such
other business must be a proper matter for shareholder action. To be
timely, a shareholder's notice shall be delivered to the Chairman or
Secretary at the principal executive offices of the Association not
later than the close of business on the 90th day nor earlier than the
close of business on the 120th day prior to the first anniversary of
the preceding year's annual meeting; provided, however, that in the
event that the date of the annual meeting is more than 30 days before
or more than 60 days after such anniversary date, notice by the
shareholder to be timely must be so delivered not earlier than the
120th day prior to such annual meeting and not later than the close of
business on the later of the 90th day prior to such annual meeting or
the 10th day following the day on which public announcement of the date
of such meeting is first made. In no event shall the public
announcement of an adjournment of an annual meeting commence a new time
period for the giving of a shareholder's notice as described above.
Such shareholder's notice shall set forth (a) a brief description of
the business desired to be brought before the meeting, the reasons for
conducting such business at the meeting and any material interest in
such business of such shareholder and the beneficial owner, if any, on
whose behalf the proposal is made; and (b) as to the shareholder giving
the notice and the beneficial owner, if any, on whose behalf the
nomination or proposal is made (i) the name and address of such
shareholder, as they appear on the
Association's books, and of such beneficial owner and (ii) the class
and number of shares of the Association which are owned beneficially
and of record by such shareholder and such beneficial owner.
(3) Only such business shall be conducted at a special meeting of
shareholders as shall have been brought before the meeting pursuant to
the Association's notice of meeting.
(4) Except as otherwise provided by law, the Articles of Association or
the Bylaws of the Association, the Chairman of the meeting shall have
the power and duty to determine whether a nomination or any business
proposed to be brought before the meeting was made, or proposed, as the
case may be, in accordance with the procedures set forth in this Bylaw
and, if any proposed nomination or business is not in compliance with
this Bylaw, to declare that such defective proposal or nomination shall
be disregarded.
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(5) Notwithstanding the foregoing provisions of this Bylaw, a
shareholder shall also comply with all applicable requirements of the
Securities Exchange Act of 1934, as amended, and the rules and
regulations thereunder with respect to the matters set forth in this
Bylaw. Nothing in this Bylaw shall be deemed to affect any rights of
(i) shareholders to request inclusion of proposals in the Association's
proxy statement pursuant to Rule l4a-8 under such Act. [Approved March
22, 1999]
ARTICLE II
DIRECTORS
Section 2.1 POWERS. The Board of Directors shall have the power to
manage and administer the business and affairs of this Association. Except as
limited by the laws of the United States, all corporate powers of the
Association shall be vested in and may be exercised by the Board of Directors.
Section 2.2 NUMBER. The Board of Directors shall consist of not less
than five (5) nor more than twenty-five (25) shareholders, the exact number
within such minimum and maximum limits to be fixed and determined from time to
time by resolution of a majority of the full Board or by resolution of the
shareholders at any meeting thereof; Provided, however, that a majority of the
full Board of Directors may not increase the number of directors to a number
which (i) exceeds by more than two (2) the number of directors last elected by
shareholders where such number was fifteen (15) or less or (ii) exceeds by more
than four (4) them number of directors last elected by shareholders where such
number was sixteen (16) or more, but in no event shall the number of directors
exceed twenty-five (25).
Section 2.3 TERM. The directors of this Association shall hold office
for one year and until their successors are elected and have qualified.
Section 2.4 OATH OF OFFICE. Each person elected or appointed a director
of this Association must take the oath of such office in the form prescribed by
the Comptroller of the Currency. No person elected or appointed a director of
this Association shall exercise the functions of such office until he or she has
taken such oath and the same has been transmitted to the Comptroller of the
Currency.
Section 2.5 VACANCIES. Any vacancies occurring in the Board of
Directors shall be filled, in accordance with the laws of the United States, by
appointment by the remaining directors then in office, at any regular meeting of
the Board, or at a special meeting called for that purpose, and any directors so
appointed shall hold office until their successors are elected and qualified.
Section 2.6 CHAIRMAN OF THE BOARD. The Board of Directors shall appoint
one of its members to be Chairman of the Board to serve at the pleasure of the
Board. The Chairman of the Board shall preside at all meetings of the Board of
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Directors and shareholder, and shall also perform such other duties as may be
assigned, from time to time, by the Board of Directors.
Section 2.7 VICE CHAIRMAN OF THE BOARD. The Board of Directors may
appoint one of its members to be Vice Chairman of the Board to serve at the
pleasure of the Board. In the absence of the Chairman of the Board, the Vice
Chairman shall perform the duties of the Chairman, and shall also perform such
other duties as may be assigned, from time to time, by the Board of Directors.
Section 2.8 ORGANIZATION MEETING. Following the annual meeting of the
shareholders, the Chairman or the Secretary of the meeting shall notify promptly
the Directors-Elect of their election and of the time and place (within the
limits of Six Rivers) at which they are required to meet for the purpose of
taking their oaths, organizing the new Board, appointing committees of the Board
and appointing officers, fixing salaries for the ensuing year, and transacting
such other business as properly may come before the meeting.
Section 2.9 REGULAR MEETING. The regular meeting of the Board of
Directors shall be held, without notice, on the third Thursday of each month at
3:00 p.m., at the Main Office or such other location designated by the Board of
Directors. When any regular meeting of the Board falls on a holiday, the meeting
shall be held on the next business day unless the Board shall designate some
other day.
Section 2.10 SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by the Chairman of the Board, the President, or at the
request of three (3) or more directors. Written notice of the time and place of
special meetings shall be delivered personally to each director or communicated
to each director by telephone, or by telegraph or mail, charges prepaid,
addressed to such director at his or her address as it is shown upon the records
of the Association or, if it is not shown on such records or if not readily
ascertainable, at the place at which the meetings of the directors are regularly
held. In case such notice is mailed or telegraphed, it shall be deposited in the
United States mail or delivered to the telegraph company in the place in which
the Main Office of the Association is located at least seventy-two (72) hours
prior to the time of the holding of the meeting. In case such notice is
delivered personally or by telephone, as above provided, it shall be so
delivered at least twenty-four (24) hours prior to the time of the holding of
the meeting. Such mailing, telegraphing or delivery, personally or by telephone,
as above provided, shall constitute due, legal and personal notice to such
director. Any notice shall state the date, place and hour of the meeting and the
general nature of the business to be transferred.
Section 2.11 QUORUM. A majority of the authorized number of Directors
shall be necessary to constitute a quorum for the transaction of business at any
Director's meeting. If, at the time fixed for the meeting, including the meeting
to organize the new Board following the Annual Meeting of Shareholders, a quorum
is not present, the directors in attendance may adjourn the meeting from time to
time until a quorum is obtained.
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Section 2.12 VOTING. Except as otherwise provided herein, a majority of
those directors present and voting at any meeting of the Board of Directors,
shall decide each matter considered. A director cannot vote by proxy, or
otherwise act by proxy at a meeting of the Board of Directors or at a meeting of
a committee of the Board of Directors established pursuant to Article IV of
these Bylaws.
Section 2.13 WAIVERS. The transactions of any meeting of the Board of
Directors, however called and noticed or wherever held, shall be as valid as
though had at a meeting duly held after regular call and notice, if a quorum is
present and if, either before or after the meeting, each of the directors note
present or whom, though present, has prior to the meeting or at its
commencement, protested the lack of proper notice to him, signs a written waiver
of notice or a consent to holding such 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. In addition,
attendance of a director at any meeting shall constitute a waiver of notice of
such meeting, unless a director attends for the express purpose of objecting to
the transaction of any business because the meeting is not lawfully called,
noticed, or convened; provided, however, if after stating his objection, the
objecting director continues to attend and by his attention participates in any
matters other than those to which he objected, he shall be deemed to have waived
notice of such meeting and withdrawn his objections.
Section 2.14 QUALIFICATION OF DIRECTORS. No person shall be a member of
the Board of Directors (a) who is a director, officer, employee, agent, nominee
or attorney for any other financial institution, lender, or bank holding
company, or affiliate or subsidiary thereof, engaged in business in California,
or (b) who has been or is the nominee of anyone who has any contract,
arrangement or understanding with any other financial institution, lender, or
bank holding company, or affiliate or subsidiary thereof, engaged in business in
California, or with any officer, director, employee, agent, nominee, attorney or
other representation thereof, pursuant to which he will reveal or in any way
utilize information obtained as a director or that he will, directly or
indirectly, attempt to effect or encourage any action of this Bank, or (c) who
has not maintained beneficial ownership of at least 250 shares of the Bank's
Common Stock for at least one year prior to the date of any notice of nomination
pursuant to Article I, Section 1.8 of these Bylaws or their election as a
director, whichever is sooner. [Approved March 22, 1999]
ARTICLE III.
OFFICERS AND EMPLOYEES
Section 3.1 OFFICERS. The officers of this Association shall be the
President, one or more Vice Presidents, a Cashier, a Secretary and such other
officers as may be appointed by the Board of Directors. The President shall be a
member of the Board of Directors.
Section 3.2 TENURE. The President and all other officers shall hold
office for the current year for which the Board was elected, unless they shall
6
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resign, become disqualified, or be removed; and any vacancy occurring in the
Office of President shall be filled promptly by the Board of Directors.
Section 3.3 FIDELITY BOND. Each officer and employee of the Association
shall give bond of suitable amount with security to be approved by the Board of
Directors, conditioned for the honest and faithful discharge of his or her
duties as such officer or employee. At the discretion of the Board, such bonds
may be schedule or blanket form, and the premiums shall be paid by the
Association. The amount of such bonds, the form of coverage, and the name of the
company providing the surety therefor shall be reviewed by the Board of
Directors each year at the first regular meeting of the Board following the
Organizational Meeting of the new Board. Action shall be taken by the Board at
that time approving the amount of the bond to be provided by each officer and
employee of the Association for the ensuing year.
Section 3.4 PRESIDENT. The Board of Directors shall appoint one of its
members to be President of the Association. In the absence of the Chairman and
Vice Chairman, the President shall preside at all meetings of the shareholders
and the Board of Directors. The President shall have general executive powers,
and shall have and may exercise any and all other powers and duties pertaining
by law regulation, or practice, to the Office of President, or imposed by these
Bylaws. The President shall also have and may exercise such further powers and
duties as from time to time may be conferred or assigned by the Board of
Directors.
Section 3.5 VICE PRESIDENT. The Board of Directors shall appoint one or
more Vice Presidents who shall have such powers and duties as may be assigned to
them, from time to time, by the Board of Directors. In the absence of the
President of the Association, one Vice President shall be designated by the
Board of Directors to perform the duties of the President.
Section 3.6 CASHIER. The Cashier of this Association shall be
responsible for all assets and documents of this Association and shall keep
proper records of all the transactions of the Association, except as otherwise
herein provided. The Cashier shall have and may exercise any and all other
powers and duties pertaining by law, regulation or practice to the Office of
Cashier or imposed by these Bylaws, and shall also perform such other duties as
may be assigned, from time to time, by the Board of Directors.
Section 3.7 SECRETARY. The Board of Directors shall appoint a Corporate
Secretary who shall be the Secretary of the Board and of the Association and who
shall act as Secretary of all meetings of the Board and of the Shareholders. The
Secretary shall attend to the giving of all notices required by these Bylaws to
be given. He shall be responsible for the Minutes of the Association in which he
shall maintain and preserve the organization papers of the Association, the
Articles of Association, the returns of elections, the Bylaws, the proceedings
of regular and special meetings of the Directors and shareholders of the
Association and reports of the committees and Board of Directors. He shall also
perform such other duties as may be assigned, from time to time, by the Board of
Directors.
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Section 3.8 OTHER OFFICERS. The Board of Directors may appoint one or
more Assistant Vice Presidents, one or more Assistant Secretaries, one or more
Assistant Cashier, one or more Managers and Assistant Managers of Branches and
such other officers and Attorneys-in-fact as from time to time may appear to the
Board of Directors to required or desirable to transact the business of the
Association. Such officers shall respectively exercise such powers and perform
such duties as pertain to their several offices, or as may be conferred or
assigned by the Board of Directors or the President.
ARTICLE IV
COMMITTEES
Section 4.1 INVESTMENT COMMITTEE. There shall be an Investment
Committee composed of three (3) or more directors, one of who shall serve as
chairman, appointed by the Board annually or more often. The Investment
Committee shall review, on a regular basis, the internal financial reports of
the Association and shall provide policy guidance to the Association's internal
investment committee. The Investment Committee shall have the responsibility to
examine and approve internal financial reports, to exercise authority regarding
investment policy, and to see that the policies prescribed by the Board in these
two areas are carried out. The Committee shall keep minutes of its meetings, and
such minutes shall be submitted at the next regular meeting of the Board at
which a quorum is present, and any action taken with respect thereto shall be
entered in the minutes of the Board meeting.
Section 4.2 LOAN COMMITTEE. There shall be a Loan Committee composed of
three (3) or more directors, one of whom shall serve as chairman, appointed by
the Board annually or more often. The Loan Committee shall have the power to
examine and approve loans, to exercise authority regarding loans, and to see
that loan policies prescribed by the Board are carried out. The Committee shall
keep minutes of its meetings and such minutes shall be submitted at the next
regular meeting of the Board at which a quorum is present, and any action taken
by the Board with respect thereto shall be entered in the minutes of the Board
meeting.
Section 4.3 AUDIT COMMITTEE. There shall be a standing committee of
this Association known as the Audit Committee, appointed annually by the Board
of Directors. Each member of this Committee shall serve until his or her
successor is appointed, and the Committee shall consist of three (3) or more
directors, one of whom shall serve as chairman. None of the members of the Audit
Committee shall be active officers of the Association. The duties of this
Committee shall be to make an examination at least once during each calendar
year and within fifteen (15) months of the last such examination into the
affairs of the Association or cause suitable examinations to be made by auditors
responsible only to the Board of Directors and to report the result of such
examination in writing to the Board at the next regular meeting thereafter. Such
report shall state whether the Association is in a sound condition, whether
adequate internal controls and procedures are being maintained and shall
recommend to the Board such changes in the manner of conducting the affairs of
the Association as shall be deemed advisable.
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Section 4.4 OTHER COMMITTEES. The Board of Directors may appoint, from
time to time, other special committees, for such purposes and with such powers
as the Board may determine.
ARTICLE V.
CORPORATE SEAL
The President, the Cashier, the Secretary or any Assistant Cashier or
Assistant Secretary, or other officer thereunto designated by the Board of
Directors, shall have authority to affix the corporate seal to any document
requiring such seal, and to attest the same. Such seal shall be substantially in
the following form:
ARTICLE VI
STOCK AND STOCK CERTIFICATES
Section 6.1 TRANSFERS. The stock of this Association shall be
transferable only on the books of this Association. A stock certificate book
shall be maintained in which all transfers of stock shall be made. When the
stock is transferred, the certificate thereof shall be returned to the
Association and new certificates issued. The returned certificates shall be
cancelled and be preserved for record purposes. Every person becoming a
shareholder by transfer shall, in proportion to his or her shares, succeed to
all rights of the prior holder of such shares.
Section 6.2 TRANSFER AGENT AND REGISTRAR. A majority of the Board of
Directors at any meeting of the Board may designate a duly qualified bank, trust
company or other corporation to act as its Stock Transfer Agent and Registrar to
maintain the stock transfer book, record all assignments and transfers of stock
and otherwise maintain and preserve stock records of the Association.
Section 6.3 STOCK CERTIFICATES. A certificate of stock shall bear the
signature of the President (which may be engraved, printed or impressed), and
shall be signed manually or by facsimile process by the Cashier, Assistant
Cashier, Secretary, Assistant Secretary, or any other officer appointed by the
Board of Directors for that purpose, to be known as an Authorized Officer, and
the seal of the Association shall be engraved thereon. Each certificate of stock
shall state upon the face thereof that the stock represented thereby is
transferable only upon the books of the Association properly endorsed.
Section 6.4 LOST CERTIFICATES. Except as hereinafter provided in this
section, no new certificates for shares shall be issued in lieu of an old one
unless the latter is surrendered and cancelled at the same time. The Board of
Directors or such officers of the Association as may be designated from time to
time by the Board of Directors, may, however, in case any certificate for shares
is lost, stolen, mutilated or destroyed, authorize the issuance of a new
certificate in lieu thereof, upon such terms and conditions, including
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reasonable indemnification of the Association, as the Board or such officers
shall determine.
ARTICLE VII.
MISCELLANEOUS PROVISIONS
Section 7.1 FISCAL YEAR. The fiscal year of the Association shall be
the calendar year.
Section 7.2 EXECUTION OF INSTRUMENTS. The Board of Directors, except as
otherwise provided in these Bylaws, may authorize any directors, officer(s), or
agent(s), to enter into any contract or execute any instrument in the name of
and on behalf of the Association, and such authority may be general or confined
to specific instances; and, unless so authorized or ratified by the Board of
Directors or within the agency power of an officer, no director, officer, agent
or employee shall have any power or authority to bind the Association, by any
contract or engagement or to pledge its credit or to render it liable for any
purpose or to any amount. However, any contract or other instrument in writing
executed or entered into between the Association and any other person, when
signed by 1) the Chairman of the Board, the President or any Vice President, and
2) the Secretary, any Assistant Secretary, the Cashier or any Assistant Cashier,
is not invalid as to the Association by any lack of authority of the signing
officers in the absence of actual knowledge on the part of the other person that
the signing officers had no authority to execute such contract or other
instrument.
Section 7.3 RECORDS. The Articles of Association, the Bylaws and the
proceedings of all meeting of the shareholder, the Board of Directors, and
standing committees of the Board shall be recorded in appropriate minutes
provided for that purpose. The minutes of each meeting of the Board of Directors
and of the shareholders of the Association shall be signed by the Chairman of
the Board or such other person designated Chairman of the meeting and attested
by the Secretary or such other person designated as Secretary of the meeting.
ARTICLE VIII
BYLAWS
Section 8.1 INSPECTION. A copy of the Bylaws, with all amendments
thereto, shall at all times be kept in a convenient place at the Main Office of
the Association, and shall be open for inspection to all shareholders, during
banking hours.
Section 8.2 AMENDMENTS. These Bylaws may be amended, altered or
repealed, at any meeting of the Board of Directors, duly called, by a vote of a
majority of the total number of the Directors.
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ARTICLE IX
CORPORATE GOVERNANCE
Section 9.1 CORPORATE GOVERNANCE. To the extent not inconsistent with
applicable federal banking statutes or regulations or banking safety and
soundness, the Association shall follow the corporate governance procedures of
the Delaware General Corporation Law, as amended from time to time. [Approved
March 22, 1999]
11
INDEMNITY AGREEMENT
THIS AGREEMENT is made as of the 30th day of September, 1999, by and
between Six Rivers National Bank (the "Bank") and ________________________
("Indemnitee"), a director of the Bank, with reference to the following facts:
A. The Bank and Indemnitee recognize that interpretations of ambiguous
statutes, regulations, court opinions, and the Bank's Articles of Association
and Bylaws, are too uncertain to provide the Bank's directors with adequate or
reliable advance knowledge or guidance with respect to the legal risks and
potential liabilities to which they may become personally exposed as a result of
performing their duties in good faith for the Bank;
B. The Bank and Indemnitee are aware of the substantial growth in the
number of lawsuits filed against corporate officers and directors in connection
with their activities in such capacities and by reason of their status as such;
C. The Bank and Indemnitee recognize that the cost of defending against
such lawsuits, whether or not meritorious, is typically either beyond the
financial resources of most directors of the Bank or far outweighs the limited
benefits of serving as a director;
D. The Bank and Indemnitee recognize that the legal risks and potential
director liabilities, or the very threat thereof, and the resultant substantial
time and expense endured in defending against such lawsuits, bear no reasonable
logical relationship to the amount of compensation received by the Bank's
directors. These factors pose a significant deterrent to, and induce increased
reluctance on the part of, experienced and capable individuals to serve as
directors of the Bank;
E. The Bank has investigated the availability and efficiency of
liability insurance to provide its directors with adequate protection against
the foregoing legal risks and potential liabilities. It has concluded that such
insurance does not provide adequate protection to its directors. Thus, it would
be in the best interests of the Bank and its shareholders to contract with its
directors, including Indemnitee, to indemnify them to the fullest extent
permitted by law against personal liability for actions taken in the good faith
performance of their duties to the Bank;
F. Section 317 of the General Bank Law of the State California, which
sets forth certain provisions relating to mandatory and permissive
indemnification of officers and directors (among others) of a California
corporation by such corporation, requires indemnification in certain
circumstances, permits it in other circumstances, and prohibits it in some
circumstances.
G. The Board of Directors of the Bank has determined, after due
consideration and investigation of this Agreement, and various other options
available in lieu hereof, that the following Agreement is reasonable, prudent
and necessary to promote and ensure the best interests of the Bank and its
shareholders. This Agreement is intended to: (1) induce and encourage highly
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experienced and capable persons such as Indemnitee to serve as directors of the
Bank; (2) encourage such persons to resist what they consider unjustifiable
suits and claims made against them in connection with the good faith performance
of their duties to the Bank, secure in knowledge that certain expenses, costs,
and liabilities incurred by them in their defense of such litigation will be
borne by the Bank and that they will receive the maximum protection against such
risks and liabilities as legally may be made available to them; and (3)
encourage directors to exercise their best business judgment regarding matters
which come before the Board of Directors without undue concern for the risk that
claims may be made against them on account thereof.
H. The Bank desires to have Indemnitee continue to serve as a director
of the Bank free from concern for unpredictable, inappropriate or unreasonable
legal risk and personal liabilities by reason of his or her acting in good faith
in the performance of his or her duty to the Bank. Indemnitee desires to
continue to serve as a director of the Bank, provided, and on the express
condition, that he or she is furnished with the indemnity set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth below and based on the premises set forth above, the Bank and
Indemnitee do hereby agree as follows:
1. DEFINITIONS. For the purposes of this Agreement, the following
definitions shall apply:
(a) The term "Proceeding" shall include any threatened,
pending or completed action, suit or proceeding, whether brought in the name of
the Bank or otherwise and whether of a civil, criminal or administrative or
investigative nature, including, but not limited to, actions, suits or
proceedings brought under and/or predicated upon the Securities Act 1933, as
amended, and/or the Securities Exchange Act of 1934, as amended, and/or their
respective state counterparts, and/or any rule or regulation promulgated
thereunder, in which Indemnitee may be or may have been involved as a party or
otherwise (other than plaintiff against the Bank), by reason of the fact that
Indemnitee is or was an agent of the Bank by reason any action taken by him or
her or of any inaction on his or her part while acting as such agent.
(b) The term "Expenses", includes, without limitation,
expenses of investigations, judicial or administrative proceedings or appeals,
court costs, attorney's fees and disbursements and any expenses of establishing
a right to indemnification under law or paragraph 7 of this Agreement.
"Expenses" shall not include the amount of any judgment, fines, or penalties
actually levied against Indemnitee, or amounts paid in settlement of a
proceeding by or on behalf of the Bank, unless such matters may be indemnified
under applicable provisions of the California Corporations Code, federal law and
the regulations of the federal banking agencies.
(c) References to "other enterprise" shall include employee
benefit plans; references to "fines" shall include any excise tax assessed with
respect to any employee benefit plan; references to "serving at the request of
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the corporation" shall include any service as a director of the Bank which
imposes duties on, or involves services by, such director with respect to an
employee benefit plan, its participants, or beneficiaries; and a person who acts
in good faith and in a manner he or she reasonably believes to be in the
interest of the participants and beneficiaries of an employee benefit plan shall
be deemed to have acted in a manner "not opposed to the best interests of the
Bank" as referred to in this Agreement.
(d) For the purposes of this Agreement, Indemnitee shall be
deemed to have been acting as an "Agent" if he or she was acting in his or her
capacity as a director of the Bank, member of a committee of the Board of
Directors of the Bank, or was serving as a director, or non-salaried officer, of
any other enterprise at the request of the Bank, whether or not he or she is
serving in such capacity at the time any liability or expense is incurred for
which indemnification or reimbursement can be provided under this Agreement.
(e) The term "Applicable Standard" means that a person acted
in good faith and in a manner such person reasonably believed to be in the best
interests of the Bank; except that in a criminal proceeding, such person must
also have had no reasonable cause to believe that such person's conduct was
unlawful and except that in the circumstances set forth in Section 3 below, the
Applicable Standard shall refer to the standard set forth therein. The
termination of any Proceeding by judgment, order, settlement, conviction or upon
a plea of nolo contendere or its equivalent shall not, of itself, create any
presumption, or establish, that the person did not meet the "Applicable
Standard."
(f) "Independent Legal Counsel" shall include any firm of
attorneys selected (i) by lot, or (ii) by the regular counsel for the Bank, from
a list of firms which meet minimum size criteria and other reasonable criteria
established by the Board of Directors of the Bank, so long as such firm has not
represented the Bank, Indemnitee, or any entity controlled by Indemnitee, within
the preceding 24 calendar months.
2. INDEMNITY IN THIRD PARTY PROCEEDINGS. The Bank shall indemnify
Indemnitee if Indemnitee is made a party to or threatened to be made a party to,
or otherwise involved in, any Proceeding (other than a Proceeding which is an
action by or in the right of the Bank to procure a judgment in its favor), by
reason of the fact that Indemnitee is or was an Agent of the Bank. This
indemnity shall apply, and be limited, to and against all Expenses, judgments,
fines, penalties, settlements, and other amounts, actually and reasonably
incurred by Indemnitee in connection with the defense or settlement of the
Proceeding, so long as it is determined pursuant to Paragraph 7 of this
Agreement or by the court before which such action was brought, that Indemnitee
met the Applicable Standard.
3. INDEMNITY IN PROCEEDINGS BY OR IN THE NAME OF THE BANK. The Bank
shall indemnify Indemnitee if Indemnitee is made a party to, or threatened to be
made a party to, or otherwise involved in, any Proceeding which is an action by
or in the right of the Bank to procure a judgment in its favor by reason of the
fact that Indemnitee is or was an Agent of the Bank. This indemnity shall apply,
and be limited, to and against all Expenses actually and reasonably incurred by
Indemnitee in connection with the defense, resolution, or settlement of such
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Proceeding, but only if: (a) Indemnitee acted in good faith, in a manner
Indemnitee believed to be in the best interests of the Bank and its
shareholders; and (b) the action is not settled or otherwise disposed of by or
with the permission of the Indemnitee with court approval. No indemnification
shall be made under this Section 4 in respect of any claim, issue, or matter as
to which Indemnitee shall have been adjudged to be liable to the Bank in the
performance of such person's duty to the Bank, unless, and only to the extent
that, the court in which such Proceeding is or was pending shall determine upon
application that, in view of all the circumstances of the case, Indemnitee is
fairly and reasonably entitled to indemnification for the Expenses which such
court shall determine.
4. EXPENSES OF SUCCESSFUL INDEMNITEE. Notwithstanding any other
Provision of this Agreement, to the extent that Indemnitee has been successful
on the merits in defense of any Proceeding or in defense of any claim, issue or
matter therein, including the dismissal of an action or portion thereof without
prejudice, Indemnitee shall be indemnified against all Expenses actually and
reasonably incurred in connection therewith.
5. ADVANCES OF EXPENSES. The Expenses incurred by Indemnitee in any
proceedings shall be advanced by the Bank prior to the final disposition of such
proceeding at the written request of Indemnitee, but only if Indemnitee: (a)
shall undertake to repay such advances if, and to the extent that, it is
ultimately determined that Indemnitee is not entitled to indemnification; or (b)
if required by law, shall undertake to repay such advances unless, and to the
extent that, it is ultimately determined that Indemnitee is entitled to
indemnification. Any advance required hereunder shall be deemed to have been
approved by the Board of Directors of the Bank to the extent this Agreement was
so approved. In determining whether or not to make an advance hereunder, the
ability of Indemnitee to repay shall not be a factor. However, in a proceeding
brought by the Bank directly, in its own right (as distinguished from an action
brought derivatively or by any receiver or trustee), the Bank shall have
discretion not to make the advances called for hereby if independent legal
counsel advises in writing that the Bank has probable cause to believe, and a
majority of the Bank's Board of Directors (not counting Indemnity) does believe,
that Indemnitee did not act in good faith with regard to the subject matter of
the proceeding or a material portion thereof.
6. RIGHT OF INDEMNITEE TO INDEMNIFICATION UPON APPLICATION; PROCEDURE
UPON APPLICATION. Any indemnification or advance under paragraphs 5 and/or 6 of
this Agreement shall be made no later than 45 days after receipt of a written
request of Indemnitee in accordance with paragraph 11 of this Agreement. In all
other cases, indemnification shall be made by the Bank only if authorized in the
specific case, upon a determination that indemnification of the Agent is proper
under the circumstances and the terms of this Agreement by: (a) a majority vote
of a quorum of the Board of Directors (or a duly constituted committee thereof),
consisting of directors who are not parties of such Proceeding; (b) approval of
the shareholders (as defined in Section 153 of the California Corporations
Code), with Indemnitee shares not being entitled to vote thereon; (c) the court
in which such proceeding is or was pending upon application made by the Bank,
Indemnitee or any person rendering services in connection with Indemnitee's
defense, whether or not the Bank opposes such application; or (d) to the extent
permitted by law, by independent legal counsel in a written opinion.
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The right to indemnification or advances as provided by this Agreement
shall be enforceable by Indemnitee in any court of competent jurisdiction. The
burden of proving that indemnification or advances are not appropriate shall be
on the Bank. Neither the failure of the Bank (including its Board of Directors
or independent legal counsel) to have made a determination prior to the
commencement of such action that indemnification or advances are proper in the
circumstances because Indemnitee has met the Applicable Standard, nor an actual
determination by the Bank (including its Board of Directors or independent legal
counsel) that Indemnitee has not met such Applicable Standard, shall be a
defense to the action or create a presumption that Indemnitee has not met the
applicable standard of conduct. Indemnitee's Expenses incurred in connection
with successfully establishing his or her right to indemnification or advances,
in whole or in part, in any such Proceeding shall also be indemnified and
reimbursed by the Bank; provided, however, that if Indemnitee is only partially
successful, only an equitably allocated portion of such expenses shall be
indemnified and reimbursed.
Except to the extent that such indemnification is prohibited by
applicable federal law or regulation, if Indemnitee is entitled under any
provision of this Agreement to indemnification by the Bank for some or a portion
of the Expenses, judgments, fines, or penalties actually and reasonably incurred
by him or her in the investigation, defense, appeal or settlement of any
Proceeding but not, however, for the total amount thereof, the Bank shall
nevertheless indemnify Indemnitee for the portion (determined on an equitable
basis) of such Expenses, judgments, fines, or penalties to which Indemnitee is
entitled.
The Bank's obligations to advance or indemnify hereunder shall be
deemed satisfied to the extent of any payments made by an insurer on behalf of
the Bank or Indemnitee in satisfaction of claims against Indemnitee for which he
or she seeks indemnification from Bank.
7. INDEMNIFICATION HEREUNDER NOT EXCLUSIVE. The indemnification
provided by this Agreement shall not be deemed exclusive of any other rights to
which Indemnitee may be entitled under the Articles of Association, the Bylaws,
any agreement, any vote of shareholders or disinterested directors, the General
Corporation Law of the State of California, federal law, or otherwise, both as
to action in his or her official capacity and as to action in another capacity
while holding such office. Except to the extent that such indemnification is
prohibited by applicable federal law or regulation, the indemnification under
this Agreement shall continue as to Indemnitee even though he or she may have
ceased to be a director or officer and shall inure to the benefit of the heirs
and personal representatives of Indemnitee.
8. LIMITATIONS. The Bank shall not be liable under this Agreement to
make any payment in connection with any claim made against Indemnitee:
(a) for which payment is actually made to Indemnitee under a
valid and collectible insurance policy, except in respect of any excess beyond
the amount of payment under such insurance;
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(b) for which Indemnitee is indemnified by the Bank otherwise
than pursuant to this Agreement so long as Bank honors such indemnity
commitment;
(c) based upon or attributable to the Indemnitee gaining in
fact any personal profit or advantage to which he or she was not legally
entitled;
(d) for an accounting of profits made from the purchase or
sale by the Indemnity of securities of the Bank within the meaning of Section
16(b) of the Securities Exchange Act of 1934 and amendments thereto, or similar
provisions of any state statutory law or common law;
(e) brought about or contributed to by the active and
deliberate dishonesty of Indemnitee; however, notwithstanding the preceding
clause, Indemnitee shall be protected to the extent otherwise provided under
this Agreement as to any claims upon which suit may be brought against him or
her by reason of any alleged dishonesty on his or her part, unless a judgment or
other final adjudication thereof adverse to Indemnitee shall establish that he
or she committed (i) acts of active and deliberate dishonesty (ii) with actual
dishonest purpose and intent, which acts were material to the cause of action so
adjudicated;
(f) for omissions or acts committed in bad faith or which
involve intentional misconduct or a knowing violation of law;
(g) for any omission or act that Indemnitee believed at the
time of his or her action to be contrary to, or inconsistent with, the best
interests of both the Bank and its shareholders; or
(h) for any transaction from which Indemnitee derived an
improper personal economic benefit in a capacity other than as a shareholder of
the Bank.
9. SAVINGS CLAUSE. Except to the extent that such indemnification is
prohibited by applicable federal law or regulation, if this Agreement or any
portion hereof is invalidated on any ground by any court of competent
jurisdiction, then the Bank shall nevertheless indemnify Indemnitee as to
Expenses, judgments, fines, and penalties with respect to any Proceeding to the
fullest extent permitted by any applicable and enforceable portion of this
Agreement or by any applicable law.
10. NOTICES. Indemnitee shall, as a condition precedent to his or her
right to be indemnified under this Agreement, give to the Bank notice in writing
promptly but in any event within 60 days after he or she becomes aware of any
claim made against him or her for which he or she believes, or should reasonably
believe, indemnification will or could be sought under this Agreement. Notice to
the Bank shall be directed to the Bank's main office, Attention: President (or
such other address the Bank shall designate in writing to Indemnitee). Failure
to so notify the Bank shall not relieve the Bank of any liability which it may
have to Indemnitee otherwise than under this Agreement and shall not relieve
Bank of its duty to indemnify hereunder unless Bank demonstrates that such delay
materially impaired the defense of the matter.
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All notices, requests, demands, and other communications (collectively
"Notices") provided for under this Agreement shall be in writing (including
communications by telephone, telex, or telecommunication facilities providing
facsimile transmission) and mailed (postage prepaid and return receipt
requested), telegraphed, telexed, transmitted, or personally served to each
party at the address set forth at the end of this Agreement or at such other
address as any party affected may designate in a written notice to the other
parties in compliance with this section. All such Notices shall be effective
when received; provided, however, receipt shall be deemed to be effective within
three (3) business days of any properly addressed notice having been deposited
in the mail, within twenty-four (24) hours from the time electronic transmission
was made, or upon actual receipt of electronic delivery, whichever occurs first.
No costs, charges or expenses for which indemnity shall be sought
hereunder shall be incurred without the corporation's consent, which consent
shall not be unreasonably withheld or delayed.
11. CHOICE OF LAW. This Agreement shall be interpreted and enforced in
accordance with the laws of the State of California, including applicable
statutes of limitation and other procedural statutes.
12. ATTORNEYS' FEES. If any legal action is necessary to enforce the
terms of this Agreement, the prevailing party shall be entitled to recover, in
addition to other amounts to which the prevailing party may be entitled, actual
attorneys' fees and court costs as may be awarded by the court.
13. AMENDMENTS. Provisions of this Agreement may be waived, altered,
amended, or repealed in whole or in part only by the written consent of all
parties.
14. PARTIES IN INTEREST. Nothing in this Agreement, whether express or
implied, is intended to confer any right or remedies under or by reason of this
Agreement to any persons other than the parties to it and their respective
successors and assigns (including an estate of Indemnitee), nor is anything in
this Agreement intended to relieve or discharge the obligation or liability of
any third persons to any party hereto. Furthermore, no provision of this
Agreement shall give any third persons any right of subrogation or action
against any party hereto.
15. SEVERABILITY. If any portion of this Agreement shall be deemed by a
court of competent jurisdiction to be unenforceable, the remaining portions
shall be valid and enforceable only if, after excluding the portion deemed to be
unenforceable, the remaining terms shall provide for the consummation of the
transaction contemplated herein in substantially the same manner as originally
set forth at the date this Agreement was executed.
16. SUCCESSOR AND ASSIGNS. All terms and conditions of this Agreement
shall be binding upon and shall inure to the benefit of the parties and their
respective transferees, successors, and assigns; provided, however, that this
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Agreement and all rights, privileges, duties, and obligations of the parties,
may not be assigned or delegated by any party without the prior written consent
of the other parties.
17. COUNTERPARTS. This Agreement may be executed simultaneously in one
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
18. ENTIRE AGREEMENT. Except as provided in paragraph 8 hereof, this
Agreement represents and contains the entire agreement and understanding between
and among the parties, and all previous statements or understandings, whether
express or implied, oral or written, relating to the subject matter hereof are
fully and completely extinguished and superseded by this Agreement. This
Agreement shall not be altered or varied except by a writing duly signed by all
of the parties.
IN WITNESS WHEREOF, the undersigned have executed this
Agreement as of the date first above written.
SIX RIVERS NATIONAL BANK
By:
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Title:
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INDEMNITEE
By:
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Address:
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