<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10 - K
(x) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [Fee Required]
For the year ended: December 31, 1996
Commission File: 0-11090
NAPA NATIONAL BANCORP
(Exact name of registrant as specified in its charter)
California 94-2780134
(State of incorporation) (I.R.S. Identification No.)
901 Main Street, Napa, California, 94559
(Address of principal executive offices)
Registrant's telephone number: (707) 257-2440
Securities registered pursuant to Section 12(b) of Act: None
Securities registered pursuant to Section 12(g) of Act: Common Stock, Without
Par Value (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: X No:
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ( )
Aggregate market value of voting stock held by nonaffiliates of the registrant
as of February 28, 1997: $2,564,000
Number of shares of Common Stock outstanding of the registrant's Common Stock,
without par value, as of February 28, 1997 was 754,500. Fully diluted shares
outstanding at this date was 906,050.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's Definitive Proxy Statement for Registrant's 1997 Annual
Meeting of Shareholders is included in Part III, Items 10, 11, 12, and 13, are
incorporated herein by reference. Registrant's Current Report on Form 8-K filed
with the Commission on September 26, 1996 and amended October 23, 1996 is
incorporated herein by reference in Part II, Item 9 herein.
1
<PAGE>
TABLE OF CONTENTS
PART I
<TABLE>
<CAPTION>
<S> <C>
Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operation
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
PART III
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners
and Management
Item 13. Certain Relationships and Related Transactions
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K
SIGNATURES
</TABLE>
2
<PAGE>
PART I
ITEM 1. BUSINESS.
(A) GENERAL.
Certain statements in this Annual Report on Form 10-K include forward-
looking information within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended, and are subject to the "safe harbor" created by those sections. These
forward-looking statements 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 pressure in the banking industry increases
significantly; changes in the interest rate environment reduce margins; 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; changes in the
regulatory environment; changes in business conditions, particularly in Napa
County and the wine industry; volatility of rate sensitive deposits; operational
risks including data processing system failures or fraud; asset/liability
matching risks and liquidity risks; and changes in the securities markets. See
also "Certain Additional Business Risks" included herein in Item 1 and other
risk factors discussed elsewhere in this Report.
Napa National Bancorp (the "Company") was incorporated in 1981 in the State
of California and is headquartered in Napa, California. The Company is a bank
holding company. Its subsidiary, Napa National Bank (the "Bank"), was organized
as a national banking association in 1982. At December 31, 1996, the Company
had consolidated assets of $113,827,000 and shareholders' equity of $7,971,000.
The Bank is a full service commercial bank with three offices serving the Napa
Valley area in Northern California. The Company itself does not engage in any
business activities other than the ownership of the Bank and the ownership of
Napa National Leasing Corporation, an inactive subsidiary authorized to engage
in the leasing of equipment and other personal property (the "Leasing Company").
W. Clarke Swanson, Jr., Chairman of the Board and CEO, beneficially owns
approximately 70% of the outstanding shares of Common Stock of the Company. The
Company is registered under the Bank Holding Company Act of 1956, as amended.
The Bank provides a wide range of commercial banking services to
individuals, professionals and small- and medium-sized businesses in the Napa
Valley area. The services provided include those typically offered by
commercial banks, such as: checking, interest checking, savings, and time
deposit accounts, commercial, construction, personal, home improvement,
mortgage, automobile and other installment and term loans, travelers' checks,
night depository facilities, wire transfers, merchant card services, courier
service and automated teller machines.
The Bank does not provide international banking or trust services but has
arranged for its correspondent banks to offer these and other services to its
customers on an as needed basis.
3
<PAGE>
Individuals, small businesses and professionals, manufacturers,
distributors, retailers, wineries, vineyard owners, real estate developers and
the Bank's shareholders currently form the core of the Bank's customer and
deposit base. In order to attract these customers, the Bank offers extensive
personalized contact, specialized services and banking convenience, including
Saturday banking hours.
EXISTING LOCATIONS
In addition to the Bank's head offices at 901 Main Street in Downtown Napa,
the Bank has two branch offices, one in St. Helena and one in North Napa. All
three facilities offer full service to the Bank's customers. See "Item 2. -
Properties" herein.
DEPOSITS
Most of the Bank's deposits are obtained from individuals, professional
firms and small- to medium-sized businesses from the Bank's service area. As of
December 31, 1996, the Bank had a total of 9,580 accounts representing 6,292
demand accounts with an average balance of approximately $8,664 each, 2,106
savings accounts with an average balance of approximately $5,708 each, and 1,182
other time accounts with an average balance of approximately $30,489 each.
OTHER BORROWINGS
At December 31, 1996 and 1995, the Bank had no borrowed funds.
LENDING ACTIVITIES
The Bank concentrates its lending activities in four areas: commercial
loans, short-term real estate and construction loans, mortgage loans, and loans
to individuals or households, automobile and other personal expenditures. At
December 31, 1996, these four loan categories accounted for approximately 66%,
11%, 6% and 17%, respectively, of the Bank's loan portfolio. Within these
categories, $10,933,000, or 14%, of the loan portfolio, relates to the winery
and vineyard segment of the agricultural industry with commitments to lend an
additional $4,670,000.
Under federal regulations applicable to national banks, at December 31,
1996, in general, the Bank cannot make loans to one borrower in excess of
$1,390,000. For borrowers desiring loans in excess of the Bank's lending limit,
the Bank may make such loans on a participation basis with other banks, without
recourse to the Bank. In other cases, the Bank may refer such borrowers to
larger banks or lending institutions. The interest rates charged for the
various loans made by the Bank vary with the degree of risk, size and maturity
of the loans involved and are generally affected by competition, governmental
regulation and current money market rates.
The Bank's construction and mortgage loans are not concentrated in any one
category and include loans to individuals, partnerships and corporations. As of
December 31, 1996, the Bank had gross loans outstanding of $79,695,000 and
undisbursed loan commitments of $21,351,000.
4
<PAGE>
COMMITMENTS AND LINES OF CREDIT
The Bank makes contractual commitments to extend credit. Such commitments
are usually made in the form of revolving lines of credit or term loans with one
or more takedowns. Such commitments typically mature within one to three years.
The Bank also extends standby letters of credit which support the obligations of
Bank customers to third parties. At December 31, 1996, the Bank had $20,467,000
in commitments to extend credit and $865,000 in standby letters of credit.
CORRESPONDENT BANKS
At December 31, 1996, the Bank had correspondent relationships with Wells
Fargo Bank, Bank of America National Trust and Savings Association, and Union
Bank of California. These relationships are a result of the Bank's efforts to
obtain a wide range of services for the Bank and its customers and, as a net
seller of federal funds (overnight interbank loans), to minimize the risk of
undue concentration of its resources with a few entities. The Bank does not
currently serve, nor does it have plans to serve, as a correspondent to other
banks.
EMPLOYEES
At December 31, 1996, the Bank employed 75 employees, including 26 officers
and 12 part-time employees. At December 31, 1996, the Company employed one
employee.
(B) NAPA NATIONAL LEASING CORPORATION - COMPANY SUBSIDIARY
This subsidiary was inactive during 1996.
(C) SELECTED STATISTICAL INFORMATION
The following tables present certain consolidated statistical information
concerning the business of the Company and its subsidiaries. This information
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations", included herein at Item 7, and
the Company's consolidated financial statements and the notes thereto included
herein at Item 14.
During 1996 and prior years, the Company did not own any tax-exempt
securities.
5
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DISTRIBUTION OF AVERAGE ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY
The following table sets forth the distribution of consolidated average
assets, liabilities and shareholders' equity for the years ended December 31,
1996 and 1995. Average balances have been computed using daily adjusted
balances.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995
AVERAGE AVERAGE
BALANCE PERCENT BALANCE PERCENT
(000'S) OF TOTAL (000'S) OF TOTAL
<S> <C> <C> <C> <C>
ASSETS
Cash and Due from Banks $ 6,100 5.9% $ 5,546 6.0%
Interest-Bearing Deposits
With Other Banks 4,210 4.0 4,356 4.7
Taxable Investment Securities 2,087 2.0 1,387 1.5
Federal Funds Sold 10,844 10.4 10,285 11.1
Loans, Net (1) 77,064 74.0 67,092 72.7
Premises and Equipment, Net 2,484 2.4 2,080 2.3
Other Assets and Accrued
Interest Receivable 1,391 1.3 1,595 1.7
Total Assets $104,180 100.0% $92,341 100.0%
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Demand $ 19,284 18.5% $15,752 17.1%
Interest-Bearing
Transaction Accounts 27,970 26.8 24,682 26.7
Savings 12,071 11.6 12,151 13.2
Time 36,600 35.1 32,503 35.2
Total Deposits 95,925 92.0 85,088 92.2
Other Liabilities and
Accrued Interest 487 0.5 540 0.5
Shareholders' Equity 7,768 7.5 6,713 7.3
Total Liabilities and
Shareholders's Equity $104,180 100.0% $92,341 100.0%
</TABLE>
- --------------------
1) Average loans include net deferred loan fees and non-accrual loans and are
net of the allowance for loan losses.
6
<PAGE>
INTEREST RATES AND DIFFERENTIALS
The following table sets forth information concerning interest-earning
assets and interest-bearing liabilities, respective average yields or rates, the
amount of interest income or expense, and the net interest margin and the net
interest spread. Loan fees of $409,000 in 1996 and $294,000 in 1995 are
included, while non-accrual interest is excluded from computations of interest
income and expense.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
INTEREST
AVERAGE INCOME/ AVERAGE
BALANCE EXPENSE YIELD/
(000'S) (000'S) RATE
<S> <C> <C> <C>
INTEREST-EARNING ASSETS
Loans, Net (1,2) $77,064 $8,277 10.74%
Interest-Bearing Deposits
With Other Banks 4,210 230 5.46
Taxable Investment Securities 2,087 119 5.70
Federal Funds Sold 10,844 547 5.04
Total Average Interest-Earning
Assets $94,205 $9,173 9.74%
INTEREST-BEARING LIABILITIES
Deposits:
Interest-Bearing Transaction
Accounts $27,970 $ 563 2.01%
Savings 12,071 275 2.28
Time 36,600 1,976 5.40
Total Average Interest-Bearing
Liabilities $76,641 $2,814 3.67%
Net Interest Income and
Net Interest Margin (3) $6,359 6.75%
Net Interest Spread (4) 6.07%
</TABLE>
1) Average loans include net deferred loan fees and non-accrual
loans and are net of allowance for loan losses.
2) Loan interest income includes loan fees of $409,000.
3) Net interest margin is computed by dividing net interest income by total
average interest-earning assets.
4) Net interest spread represents the average yield earned on interest-
earning assets less the average rate paid on interest-bearing liabilities.
7
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
INTEREST
AVERAGE INCOME/ AVERAGE
BALANCE EXPENSE YIELD/
(000'S) (000'S) RATE
<S> <C> <C> <C>
INTEREST-EARNING ASSETS
Loans, Net (1,2) $67,092 $7,515 11.20%
Interest-Bearing Deposits
With Other Banks 4,356 251 5.76
Taxable Investment Securities 1,387 83 5.98
Federal Funds Sold 10,285 583 5.67
Total Average Interest-Earning
Assets $83,120 $8,432 10.14%
INTEREST-BEARING LIABILITIES
Deposits:
Interest-Bearing Transaction
Accounts $24,682 $ 517 2.09%
Savings 12,151 292 2.40
Time 32,503 1,825 5.61
Total Average Interest-Bearing
Liabilities $69,336 $2,634 3.80%
Net Interest Income and
Net Interest Margin (3) $5,798 6.98%
Net Interest Spread (4) 6.34%
</TABLE>
1) Average loans include net deferred loan fees and non-accrual loans and
are net of allowance for loan losses.
2) Loan interest income includes loan fees of $294,000.
3) Net interest margin is computed by dividing net interest income by total
average interest-earning assets.
4) Net interest spread represents the average yield earned on interest-
earning assets less the average rate paid on interest-bearing liabilities.
8
<PAGE>
RATE AND VOLUME ANALYSIS
The following tables set forth, for the periods indicated, a summary of the
changes in average interest bearing asset and liability balances (volume) and
changes in average interest rates (rate). Where significant, the change in
interest due to both volume and rate has been allocated to the change due to
volume and rate in proportion to the relationship of absolute dollar amounts in
each. Insignificant changes have been allocated solely to the change due to
volume.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
COMPARED TO
YEAR ENDED DECEMBER 31, 1995
(IN 000'S)
<S> <C> <C> <C>
AVERAGE AVERAGE NET
VOLUME RATE CHANGE
INCREASE (DECREASE) IN INTEREST INCOME:
Loans, Net $1,116 $(354) $762
Interest-Bearing Deposits
With Other Banks (9) (12) (21)
Taxable Investment Securities 42 (6) 36
Federal Funds Sold 32 (68) (36)
Total Increase (Decrease) 1,181 (440) 741
INTEREST (DECREASE) IN INTEREST EXPENSE:
Deposits:
Interest-Bearing Transaction
Accounts 68 (22) 46
Savings (2) (15) (17)
Time 228 (77) 151
Total Increase (Decrease) 294 (114) 180
Change in Net Interest Income $ 887 $(326) $561
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
COMPARED TO
YEAR ENDED DECEMBER 31, 1994
(IN 000'S)
AVERAGE AVERAGE NET
VOLUME RATE CHANGE
<S> <C> <C> <C>
INCREASE (DECREASE) IN
INTEREST INCOME:
Loans, Net $896 $1,000 $1,896
Interest-Bearing Deposits
With Other Banks 38 65 103
Taxable Investment Securities 19 17 36
Federal Funds Sold (18) 189 171
Total Increase 935 1,271 2,206
INTEREST (DECREASE) IN INTEREST EXPENSE:
Deposits:
Interest-Bearing Transaction
Accounts (1) 48 47
Savings (37) 6 (31)
Time 377 583 960
Total Increase 339 637 976
Change in Net Interest Income $596 $634 $1,230
</TABLE>
10
<PAGE>
INVESTMENT SECURITIES AND FEDERAL RESERVE STOCK
The Bank's classification of its investment in debt and equity securities
according to the provisions of SFAS 115 are as follows:
DECEMBER 31, 1996 - INVESTMENT SECURITIES
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
Held-to-Maturity Securities
U.S. Treasury (HTM) $1,723,000 $27,000 $0 $1,750,000
</TABLE>
DECEMBER 31, 1995 - INVESTMENT SECURITIES
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
Held-to-Maturity Securities
U.S. Treasury (HTM) $1,235,000 $15,000 $0 $1,250,000
</TABLE>
The Company had Federal Reserve and Federal Home Loan Bank Stock totalling
$554,000 and $197,000, at December 31, 1996 and 1995, respectively.
Yields on securities have been calculated by dividing interest income,
adjusted for amortization of any premium and accretion of any discount, by the
book value of the related securities. The Company's Federal Reserve and Federal
Home Loan Bank Stocks have no maturity and a weighted average yield of 6.0%.
All of the Company's U.S. Treasury securities have a maturity of less than
twelve months and a weighted average yield of 5.4%.
LOAN PORTFOLIO
The Company's primary service area is Napa County and the Carneros growing
region of Sonoma County. The Company's portfolio of loans consists of real
estate mortgage and construction loans, commercial and consumer loans.
At December 31, 1996, the Company's real estate construction portfolio
totaled $8,706,000. Real estate loans consisted of single family residences to
developers and owner-builders with a history of successfully developing projects
in the Company's market area. The loan-to-value ratio on each real estate
construction loan required by the Company depends upon the amount of the loan,
the nature of the property, whether the property is residential or commercial
and whether or not it is owner occupied. For construction loans, the Company's
policy is to require that the loan-to-value ratio generally be no more than 70%
when the loan is initially made and that the borrower generally has no less than
a 50% equity interest in the land. Substantially all of the real estate
construction portfolio is secured by real estate located within the Company's
service area.
11
<PAGE>
Conventional real estate loans totaled $4,918,000 at December 31, 1996. The
loan-to-value ratio required by the Company on conventional real estate loans
depends upon the nature of the property and whether or not it is owner-occupied.
For owner-occupied conventional real estate loans, the Company usually requires
that the loan-to-value ratio be no more than 80% except when private mortgage
insurance is required, whereupon the Company may allow the loan-to-value ratio
to rise generally to no more than 85% when the loan is initially made.
Generally, non-owner-occupied conventional real estate loans must have loan-to-
value ratios not exceeding 70% when the loan is made. The entire real estate
mortgage portfolio is generally secured by first or second deeds of trust.
Substantially all of the secured property is located within the Company's
service area.
At December 31, 1996, commercial loans totaled $52,789,000. Commercial
lending is primarily to professionals and companies with sales up to $10
million. The Company's lending relationships generally involve companies with
sales of no more than $30 million. Substantially all of the commercial loan
portfolio is secured, some of which may include real estate collateral. Such
loans are not intended as permanent financing of real estate but are made for
commercial purposes and are secured by commercial real estate. The Company
evaluates such loans based upon the borrower's ability to service the debt
through its business operations and does not rely primarily on the value of the
real estate collateral for repayment. The remaining portfolio is secured by
accounts receivables, inventory, equipment, stock and deposits held by the
Company.
Total consumer loans, including personal lines of credit, were $13,282,000
at December 31, 1996. Included in consumer loans to individuals are home equity
lines of credit, totaling $9,066,000, which are secured primarily by second
trust deeds on single family residences. The Company requires a debt-to-value
ratio of not higher than 75% for most home equity loans when the loan is
initially made. The remaining portfolio is collateralized by automobiles,
computers and other equipment, and deposits held by the Company. Over 70% of
the Company's consumer portfolio is secured.
The Company had standby letters of credit outstanding of $865,000 and
$646,000 at December 31, 1996 and December 31, 1995, respectively. In addition,
the Company had commitments to fund real estate construction loans, commercial
loans and consumer loans of $2,684,000, $17,670,000 and $997,000, respectively,
at December 31, 1996.
The Company did not have any loans related to lease financing activities in
the loan portfolio at December 31, 1996.
12
<PAGE>
The following table shows the composition of the Bank's loan portfolio by
type of loan or borrower as of December 31, 1996 and 1995:
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
(IN 000'S)
<S> <C> <C>
Commercial $52,789 $48,407
Real Estate--Construction 8,706 7,850
Real Estate--Mortgage 4,918 4,729
Installment Loans and Leases 4,216 3,376
Personal Lines of Credit
and Other 9,066 10,337
Total Loans 79,695 74,699
Less Allowance for
Loan Losses (1,405) (1,325)
Total Loans, Net $78,290 $73,374
</TABLE>
In recent years, California commercial real estate markets in general have
experienced some difficulties. While these developments have not, in the
judgment of management, had a material adverse impact on the Bank's business,
there can be no assurance that further softening of the California real estate
market will not occur, nor can any assurance be given as to the effect of any
such developments on the Bank's business. Further increases in interest rates
could adversely impact real estate values or the ability of borrower to satisfy
the material terms of such loans.
During the beginning of 1997, the Napa Valley was subjected to severe
weather conditions that resulted in some areas of the Valley flooding from high
rain fall levels. Most of the flooding resulted in areas near the Napa River on
dormant fields. Management believes that this flooding did not have a direct or
material impact on the collateral underlying portions of the existing loan
portfolio.
LOAN CONCENTRATIONS
At December 31, 1996, approximately $55,680,000, or 70% of the loan
portfolio was secured by commercial or residential real estate. Concentrations
of the Bank's lending activity in the real estate sector could have the effect
of intensifying the impact on the Bank if there are any adverse changes in the
real estate market in the Bank's lending area.
The Bank is located in the Napa Valley and a significant amount of its loans
are related to winery and vineyard operations. Loans related to winery and
vineyard operations constituted approximately $10,933,000, or 14% of total loans
at December 31, 1996, as compared to $6,913,000, or 9% of total loans, at
December 31, 1995. A downturn in the wine industry in the Napa Valley or a
disruption in wine production, which may result from extreme weather conditions,
plant diseases or other natural causes, competition, changes in governmental
regulatory or tax policies, or changes in consumer preferences, could have a
significant adverse impact on the Company's results of operations and financial
condition.
13
<PAGE>
NONPERFORMING ASSETS
The following table shows the Company's nonperforming assets by category as
of December 31, 1996 and 1995:
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
(In 000'S)
<S> <C> <C>
Nonperforming assets:
Nonaccrual Loans including loans
past due 90 days $3,152 $1,447
Other Real Estate Owned 328 0
Total Nonperforming Assets $3,480 $1,447
</TABLE>
Management analyzes each loan on a case by case basis to determine when, in
management's opinion, interest should no longer be accrued. This occurs when
management determines the ultimate collectibility of principal or interest to be
unlikely or when loans become 90 days or more past due, unless they are well
secured and in the process of collection or unless other circumstances exist
which justify the treatment of the loan as fully collectible. When a loan is
placed on nonaccrual status, unpaid interest is reversed and charged against
current income.
Interest income on nonaccrual loans at December 31, 1996 which would have
been recognized during the year if the loans had been current in accordance with
their original terms totaled $188,000 versus $291,000 for the same period in
1995.
As of December 31, 1996 and 1995, other real estate owned totaled $328,000
and $0, respectively. It is the Company's policy to write foreclosed property
down to the lower of fair market value less estimated selling costs or cost at
the time it is reclassified into other real estate owned. Miscellaneous
expenses relating to the property are charged to other noninterest expenses as
incurred.
As of the date of this filing, there were no other loans, other than those
included in the table above, where known information concerning possible credit
problems of borrowers caused management to have serious doubts as to the ability
of the borrower to comply with the present loan repayment terms such that they
may become nonperforming loans. See "Nonperforming Assets" herein.
At December 31, 1996, pursuant to SFAS 114, the Company's total recorded
investment in nonaccrual loans was $3,152,000, of which there was a related
allowance for credit losses of $204,000.
The average recorded investment in nonaccrual loans during 1996 was
$2,123,000. Related interest income recognized on impaired loans during the
year ended December 31, 1996, under the cash-basis method of accounting was
approximately $44,000.
14
<PAGE>
SUMMARY OF LOAN LOSS EXPERIENCE
Inherent in the lending function is the fact that loan losses will be
experienced and that the risk of loss will vary with the type of loan being made
and the credit-worthiness of the borrower over the term of the loan. The Company
has an allowance for loan losses which is maintained at a level estimated to be
adequate to provide for losses that can be reasonably anticipated based upon
specific loan conditions as determined by management, historical loan loss
experience, the amount of past due and nonperforming loans, comments of third-
party loan review consultants, prevailing economic conditions and other factors.
While these factors are essentially judgmental and may not be reduced to a
mathematical formula, it is management's view that the $1,405,000 allowance,
which constitutes 1.76% of total loans at December 31, 1996, was adequate as an
allowance against foreseeable losses from the loan portfolio. The allowance was
$1,325,000, or 1.77%, of the total loan portfolio at December 31, 1995. The
allowance is increased by charges to the provision for loan losses and reduced
by net charge-offs. The continuing evaluation of the loan portfolio and
assessment of current economic conditions will dictate future allowance levels.
An analysis of the allowance for loan losses for the years ending December
31, 1996 and 1995 follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
(IN 000'S)
<S> <C> <C>
ALLOWANCE FOR LOAN LOSSES:
Balance, Beginning of Year $ 1,325 $ 1,050
Provision Charged to Expense 550 323
Loans Charged Off:
Commercial (297) (20)
Personal Lines of Credit and Other (177) (31)
Real Estate Construction (70) 0
Total Loans Charged Off (544) (51)
Recoveries:
Commercial 71 0
Personal Lines of Credit and Other 3 3
Total Recoveries 74 3
Net Loans (Charged Off) Recovered (470) (48)
Balance, End of year $ 1,405 $ 1,325
Average Gross Loans Outstanding
During Period $78,861 $68,499
Total Gross Loans at End of Year $79,695 $74,699
RATIOS:
Net Loans Charged Off
to Average Loans Outstanding 0.60% 0.07%
Net Loans Charged Off to Total
Loans at End of Year 0.59% 0.06%
Allowance for Loan Losses to
Average Loans 1.78% 1.93%
Allowance for Loan Losses to
Total Loans at End of Year 1.76% 1.77%
Net Loans Charged Off
to Allowance for Loan
Losses at End of Year 33.45% 3.62%
Net Loans Charged Off
to Provision for
Loan Losses 85.45% 14.86%
</TABLE>
15
<PAGE>
The table set forth below shows a breakdown of the portfolio of loans at the
dates indicated and the amount of the allowance that has been allocated as of
those dates to each of the loan categories. Management believes that any
breakdown or allocation of the allowance for possible loan losses into loan
categories lends an appearance of exactness which does not exist, in that the
reserve is ultimately utilized as a single unallocated allowance available for
all loans.
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER, 31, 1995
PERCENT PERCENT
OF LOANS OF LOANS
IN EACH IN EACH
CATEGORY CATEGORY
AMOUNT OF TO TOTAL AMOUNT OF TO TOTAL
ALLOWANCE LOANS ALLOWANCE LOANS
(000'S) (000'S)
<S> <C> <C> <C> <C>
Commercial $ 920 74% $ 731 62%
Real Estate-Construction 119 10 123 11
Real Estate-Mortgage 162 13 119 10
Installment Loans
and Leases 3 0 77 7
Personal Lines of
Credit and Other 44 3 120 10
Unallocated 157 155
Total $1,405 100% $1,325 100%
</TABLE>
MATURITY DISTRIBUTION AND INTEREST RATE SENSITIVITY OF LOANS
The following table shows the maturity distribution of the portfolio of
loans and leases in thousands as of December 31, 1996 and sets forth the
sensitivity to changes in interest rates by comparing total loans with fixed
interest rates and total loans with floating or adjustable rates.
<TABLE>
<CAPTION>
AFTER ONE
THROUGH AFTER
ONE YEAR FIVE FIVE
OR LESS YEARS YEARS TOTAL
(In 000's)
<S> <C> <C> <C> <C>
Commercial $50,363 $2,402 $ 24 $52,789
Real Estate-Construction 8,674 32 0 8,706
Real Estate-Mortgage 3,648 974 296 4,918
Installment Loans & Leases 2,090 2,126 0 4,216
Personal Lines of Credit &
Other 9,011 55 0 9,066
Total $73,786 $5,589 $320 $79,695
Loans With Fixed Interest
Rates $ 1,238 $3,890 $320 $ 5,448
Loans With Floating
Interest Rates 72,548 1,699 0 74,247
Total $73,786 $5,589 $320 $79,695
</TABLE>
16
<PAGE>
DEPOSITS
The following table reflects average balances and the average rates paid for
the major categories of deposits for the years ended December 31, 1996 and 1995:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE RATE BALANCE RATE
(000'S) (000'S)
<S> <C> <C> <C> <C>
Noninterest-Bearing Demand $19,284 0.00% $15,752 0.00%
Interest-Bearing
Transaction Accounts 27,970 2.01 24,682 2.09
Savings Deposits 12,071 2.28 12,151 2.40
Time Deposits over 100,000 9,987 5.20 7,551 5.19
Other Time Deposits 26,613 5.47 24,952 5.74
Total Deposits $95,925 3.67% $85,088 3.80%
</TABLE>
The following table sets forth, by time remaining to maturity, the domestic
time deposits in amounts of $100,000 or more at December 31, 1996:
Amount
Maturing In: (000's)
Three Months or Less $ 5,287
Over Three Through Twelve Months 4,224
Over Twelve Months 1,317
Total $10,828
SELECTED FINANCIAL RATIOS
The following table sets forth certain financial ratios for the periods
indicated (averages are computed using daily figures):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995
<S> <C> <C>
Net income to:
Average earning assets 0.94% 1.30%
Average total assets 0.87 1.19
Average shareholders' equity 11.61 16.40
Average shareholders' equity to:
Average total assets 7.46% 7.27%
Average net loans 10.08 10.01
Average total deposits 8.10 7.92
Average earning assets to:
Average total assets 92.15% 91.52%
Average total deposits 100.08 99.67
Percent of average total deposits:
Average net loans 80.33% 79.12%
Average noninterest-bearing
deposits 20.10 18.56
Average savings and other
time deposits 50.74 52.38
Total interest expense to:
Total gross interest income 30.68% 31.24%
Dividend Pay-out Ratio 41.82% 0.00%
</TABLE>
17
<PAGE>
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. For example, the Board of Governors of the Federal Reserve
System ("FRB") influences the supply of money through its open market operations
in U.S. Government securities and adjustments to the discount rates applicable
to borrowings by depository institutions and others. Such actions influence the
growth of loans, investments and deposits and also affect interest rates charged
on loans and paid on deposits. 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.
Effective January 1, 1997, applicable California bank and corporation tax rates
were reduced by 5% in order to keep California competitive with other western
states.
As a consequence of the extensive regulation of commercial banking
activities in the United States, the business of the Company is particularly
susceptible to being affected by the enactment of federal and state legislation
which may have the effect of increasing or decreasing the cost of doing
business, modifying permissible activities or enhancing 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 Company.
In response to various business failures in the savings and loan industry and in
the banking industry, in December 1991, Congress enacted, and the President
signed into law, the Federal Deposit Insurance Corporation Improvement Act of
1991 ("FDICIA"). FDICIA substantially revised the bank regulatory framework and
deposit insurance funding provisions of the Federal Deposit Insurance Act and
made revisions to several other federal banking statutes.
Implementation of the various provisions of FDICIA is subject to the
adoption of regulations by the various regulatory agencies, the manner in which
the regulatory agencies implement those regulations and certain phase-in
periods.
REGULATION AND SUPERVISION OF BANK HOLDING COMPANIES
The Company is a bank holding company subject to the Bank Holding Company
Act of 1956, as amended ("BHCA"). The Company reports to, registers with, and
may be examined by, the FRB. The FRB also has the authority to examine the
Company's subsidiaries. The costs of any examination by the FRB are payable by
the Company.
The FRB has significant supervisory and regulatory authority over the
Company and its affiliates. The FRB requires the Company to maintain certain
levels of capital. See "Capital Standards." The FRB also has the authority to
take enforcement action against any bank holding company that commits any unsafe
or unsound practice, or violates certain laws, regulations or conditions imposed
in writing by the FRB. See "Prompt Corrective Action and Other Enforcement
Mechanisms."
18
<PAGE>
Under the BHCA, a company generally must obtain the prior approval of the
FRB before it exercises a controlling influence over a bank, or acquires
directly or indirectly, more than 5% of the voting shares or substantially all
of the assets of any bank or bank holding company. Thus, the Company is
required to obtain the prior approval of the FRB before it acquires, merges or
consolidates with any bank or bank holding company; any company seeking to
acquire, merge or consolidate with the Company also would be required to obtain
the approval of the FRB.
The Company is generally prohibited under the BHCA from acquiring ownership
or control of more than 5% of the voting shares of any company that is not a
bank or bank holding company and from engaging directly or indirectly in
activities other than banking, managing banks, or providing services to
affiliates of the holding company. A bank holding company, with the approval of
the FRB, may engage, or acquire the voting shares of companies engaged, in
activities that the FRB has determined to be so closely related to banking or
managing or controlling banks as to be a proper incident thereto. A bank
holding company must demonstrate that the benefits to the public of the proposed
activity will outweigh the possible adverse effects associated with such
activity.
Pursuant to the Riegle-Neal Interstate Banking and Branching Efficiency Act
of 1994 (the "Interstate Banking and Branching Act"), a bank holding company
became able to acquire banks in states other than its home state beginning
September 29, 1995 without regard to the permissibility of such acquisitions
under state law, but subject to any state requirement that the bank has been
organized and operating for a minimum period of time, not to exceed five years,
and the requirement that the bank holding company, prior to or following the
proposed acquisition, controls no more than 10% of the total amount of deposits
of insured depository institutions in the United States and no more than 30% of
such deposits in that state (or such lesser or greater amount set by state law).
The Interstate Banking and Branching Act also authorizes banks to merge
across states lines, therefore creating interstate branches, beginning June 1,
1997. Under such legislation, each state has the opportunity to "opt out" of
this provision, thereby prohibiting interstate branching in such states, or to
"opt in" at an earlier time, thereby allowing interstate branching within that
state prior to June 1, 1997. Furthermore, pursuant to such act, a bank is now
able to open new branches in a state in which it does not already have banking
operations, if the laws of such state permit such de novo branching. California
enacted legislation to "opt in" to the Interstate Banking and Branching Act
provisions regarding interstate branching, allowing a state bank chartered in a
state other than California to acquire by merger or purchase, at any time after
effectiveness of the Caldera, Weggeland, and Killea California Interstate
Banking and Branching Act of 1995 ("IBBA"), a California bank or industrial loan
company which is at least five (5) years old and thereby establish one or more
California branch offices. However, the IBBA prohibits a state bank chartered
in a state other than California from entering California by purchasing a
California branch office of a California bank or industrial loan company without
purchasing the entire entity or by establishing a de novo California branch
office. See the section entitled "Recently Enacted Legislation" for additional
information.
Proposals to change the laws and regulations governing the banking industry
are frequently introduced in Congress, in the state legislatures and before the
various bank regulatory agencies.
19
<PAGE>
The FRB generally prohibits a bank holding company from declaring or paying
a cash dividend which would impose undue pressure on the capital of subsidiary
banks or would be funded only through borrowing or other arrangements that might
adversely affect a bank holding company's financial position. The FRB's policy
is that a bank holding company should not continue its existing rate of cash
dividends on its common stock unless its net income is sufficient to fully fund
each dividend and its prospective rate of earnings retention appears consistent
with its capital needs, asset quality and overall financial condition.
Transactions between the Company and the Bank are subject to a number of
other restrictions. FRB policies forbid the payment by bank subsidiaries of
management fees which are unreasonable in amount or exceed the fair market value
of the services rendered (or, if no market exists, actual costs plus a
reasonable profit). Subject to certain limitations, depository institution
subsidiaries of bank holding companies may extend credit to, invest in the
securities of, purchase assets from, or issue a guarantee, acceptance, or letter
of credit on behalf of, an affiliate, provided that the aggregate of such
transactions with affiliates may not exceed 10% of the capital stock and surplus
of the institution, and the aggregate of such transactions with all affiliates
may not exceed 20% of the capital stock and surplus of such institution. The
Company may only borrow from depository institution subsidiaries if the loan is
secured by marketable obligations with a value of a designated amount in excess
of the loan. Further, the Company may not sell a low-quality asset to a
depository institution subsidiary.
Generally, a bank holding company and its subsidiaries are prohibited from
engaging in tie-in arrangements in connection with the extension of credit, sale
or lease of property or furnishing of services unless the FRB permits an
exception to the tying prohibitions pursuant to exemption authority available to
it under applicable law. The FRB, however, has adopted a rule, effective
September 2, 1994, amending the anti-tying provisions to permit a bank or bank
holding company to offer a lower price on a loan, deposit or trust service
(traditional bank product), or on securities brokerage services, on the
condition that the customer obtain a traditional bank product from an affiliate.
Additionally, as of January 23, 1995, a bank holding company, or a nonbank
subsidiary, may offer lower prices on any of its products or services on the
condition that the customer obtain another product or service from such company
or any of its nonbank affiliates, provided that all products offered in the
package arrangement are separately available for purchase.
The Company is a bank holding company within the meaning of Section 3700 of
the California Financial Code. As such the Company and the Bank are subject to
examination by, and may be required to file reports with, the California
Superintendent of Banks (the "Superintendent"). Regulations have not yet been
proposed or adopted, and no other steps have been taken, to implement the
Superintendent's power under this statute.
20
<PAGE>
BANK REGULATION AND SUPERVISION
As a national bank, the Bank is regulated, supervised and regularly
examined by the Office of the Comptroller of the Currency ("OCC"). Deposit
accounts at the Bank are insured by Bank Insurance Fund ("BIF"), as administered
by the Federal Deposit Insurance Corporation ("FDIC"), to the maximum amount
permitted by law. The Bank is also subject to applicable provisions of
California law, insofar as such provisions are not in conflict with or preempted
by federal banking law. The Bank is a member of the Federal Reserve System, and
is also subject to certain regulations of the FRB dealing primarily with check
clearing activities, establishment of banking reserves, Truth-in-Lending
(Regulation Z), Truth-in-Savings (Regulation DD), and Equal Credit Opportunity
(Regulation B).
By comparison, California state-chartered banks are regulated by the
California Superintendent of Banks (the "Superintendent"). Pursuant to AB 3351,
which was adopted by the California legislature during 1996, all of the
California state regulatory authorities for state-chartered depository
institutions will be consolidated under a new state agency, the Department of
Financial Institutions ("DFI") effective July 1, 1997. The newly created DFI
combines the State Banking Department and the Department of Savings and Loan
while regulatory oversight over industrial loan companies and credit unions will
be shifted from the Department of Corporations to the DFI. During 1996 the
California Interstate Banking and Branching Cleanup Act was enacted, which
revised the Superintendent's assessment methodology for state-chartered banks in
order to provide a better basis of comparison to the method used by the OCC.
Under the new methodology, the average assessment for state banks will be
approximately 39% of the OCC's annual charges for national bank supervision.
During 1996, the OCC adopted a regulation to revise and streamline its
procedures with respect to corporate activities of national banks, to be
effective December 31, 1996. These revised standards allow the OCC to approve,
on a case-by-case basis, the entry of bank operating subsidiaries into a
business incidental to banking, including activities in which the parent bank is
not permitted to engage. Such a standard allows a national bank to conduct an
activity approved for a bank holding company through a bank operating subsidiary
such as acting as an investment or financial advisor, leasing personal property
and providing financial advice to customers. In general, these new standards
will be available to well-capitalized or adequately capitalized national banks.
CAPITAL STANDARDS
The OCC and other federal banking agencies have risk-based capital adequacy
guidelines intended to provide a measure of capital adequacy that reflects the
degree of risk associated with a banking organization's operations for both
transactions reported on the balance sheet as assets and transactions, such as
letters of credit and recourse arrangements, which are recorded as off balance
sheet items. Under these guidelines, nominal dollar amounts of assets and
credit equivalent amounts of off balance sheet items are multiplied by one of
several risk adjustment percentages, which range from 0% for assets with low
credit risk, such as certain U.S. government securities, to 100% for assets with
relatively higher credit risk, such as business loans.
21
<PAGE>
In determining the capital level the Bank is required to maintain, the OCC
does not, in all respects, follow generally accepted accounting principles
("GAAP") and has special rules which have the effect of reducing the amount of
capital it will recognize for purposes of determining the capital adequacy of
the Bank. These rules are called Regulatory Accounting Principles ("RAP"). In
December 1993, the federal banking agencies issued an interagency policy
statement on the allowance for loan and lease losses which, among other things,
establishes certain benchmark ratios of loan loss reserves to classified assets.
Future changes in OCC regulations or practices could further reduce the amount
of capital recognized for purposes of capital adequacy. Such a change could
affect the ability of the Company to grow and could restrict the amount of
profits, if any, available for the payment of dividends.
A banking organization's risk-based capital ratios are obtained by dividing
its qualifying capital by its total risk-adjusted assets and off balance sheet
items. The regulators measure risk-adjusted assets and off balance sheet items
against both total qualifying capital (the sum of Tier 1 capital and limited
amounts of Tier 2 capital) and Tier 1 capital. Tier 1 capital consists of
common stock, retained earnings, noncumulative perpetual preferred stock, other
types of qualifying preferred stock and minority interests in certain
subsidiaries, less most other intangible assets and other adjustments. Net
unrealized losses on available-for-sale equity securities with readily
determinable fair value must be deducted in determining Tier 1 capital.
Additionally as of April 1, 1995, for Tier 1 capital purposes, deferred tax
assets that can only be realized if an institution earns sufficient taxable
income in the future will be limited to the amount that the institution is
expected to realize within one year, or ten percent of Tier 1 capital, whichever
is less. Tier 2 capital may consist of a limited amount of the allowance for
possible loan and lease losses, term preferred stock and other types of
preferred stock not qualifying as Tier 1 capital, term subordinated debt and
certain other instruments with some characteristics of equity. The inclusion of
elements of Tier 2 capital are subject to certain other requirements and
limitations of the federal banking agencies. Since December 31, 1992, the
federal banking agencies have required a minimum ratio of qualifying total
capital to risk-adjusted assets and off balance sheet items of 8%, and a minimum
ratio of Tier 1 capital to adjusted average risk-adjusted assets and off balance
sheet items of 4%.
In addition to the risked-based guidelines, federal banking regulators
require banking organizations to maintain a minimum amount of Tier 1 capital to
adjusted average total assets, referred to as the leverage capital ratio. For a
banking organization rated in the highest of the five categories used by
regulators to rate banking organizations, the minimum leverage ratio of Tier 1
capital to total assets must be 3%. It is improbable, however, that an
institution with a 3% leverage ratio would receive the highest rating by the
regulators since a strong capital position is a significant part of the
regulators' rating. For all banking organizations not rated in the highest
category, the minimum leverage ratio must be at least 100 to 200 basis points
above the 3% minimum. Thus, the effective minimum leverage ratio, for all
practical purposes, must be at least 4% or 5%. In addition to these uniform
risk-based capital guidelines and leverage ratios that apply across the
industry, the regulators have the discretion to set individual minimum capital
requirements for specific institutions at rates significantly above the minimum
guidelines and ratios.
22
<PAGE>
The following tables present the capital ratios for the Company and the
Bank, compared to the standards for well-capitalized depository institutions, as
of December 31, 1996 (amounts in thousands except percentage amounts).
<TABLE>
<CAPTION>
THE COMPANY
WELL MINIMUM
ACTUAL CAPITALIZED CAPITAL
CAPITAL RATIO RATIO REQUIREMENT
<S> <C> <C> <C> <C>
Leverage........... $7,971 7.21% 5.0% 4.0%
Tier 1 Risk-Based.. 7,971 9.34 6.0 4.0
Total Risk-Based... 9,376 10.99 10.0 8.0
THE BANK
WELL MINIMUM
ACTUAL CAPITALIZED CAPITAL
CAPITAL RATIO RATIO REQUIREMENT
Leverage........... $7,862 7.11% 5.0% 4.0%
Tier 1 Risk-Based.. 7,862 9.22 6.0 4.0
Total Risk-Based... 8,932 10.47 10.0 8.0
</TABLE>
Banking agencies have recently adopted final regulations which mandate that
regulators 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. Banking agencies also have recently adopted final
regulations requiring regulators to 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. This final rule does not codify a measurement
framework for assessing the level of a bank's interest rate risk exposure. The
information and exposure estimates collected through a new proposed supervisory
measurement process, described in the banking agencies' joint policy statement
on interest rate risk, would be one quantitative factor used to determine the
adequacy of an individual bank's capital for interest rate risk. The focus of
that proposed process is on a bank's economic value exposure. Other quantitative
factors include the bank's historical financial performance and its earnings
exposure to interest rate movements. Examiners also will consider qualitative
factors, including the adequacy of the bank's internal interest rate risk
management. The banking agencies intend for this case-by-case approach for
assessing a bank's capital adequacy for interest rate risk to be a transitional
arrangement.
The second step will consist of a proposed rule that would establish an
explicit minimum capital charge for interest rate risk, based on the level of a
bank's measured interest rate risk exposure. The banking agencies intend to
implement this second step at some future date, after the banking agencies and
the banking industry have gained more experience with the proposed supervisory
measurement and assessment process.
23
<PAGE>
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.
In September 1992, the federal banking agencies issued uniform final
regulations implementing the prompt corrective action provisions of FDICIA. An
insured depository institution generally will be classified in the following
categories based on capital measures indicated below:
"WELL CAPITALIZED" "ADEQUATELY CAPITALIZED"
------------------ ------------------------
Total risk-based capital of 10%; Total risk-based capital of 8%;
Tier 1 risk-based capital of 6%; and Tier 1 risk-based capital of 4%; and
Leverage ratio of 5%. Leverage ratio of 4%.
"UNDERCAPITALIZED" "SIGNIFICANTLY UNDERCAPITALIZED"
------------------ --------------------------------
Total risk-based capital less than Total risk-based capital less than 6%;
8%; Tier 1 risk-based capital less than
Tier 1 risk-based capital less than 3%; or
4%; or Leverage ratio less than 3%.
Leverage ratio less than 4%.
"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 an unsafe or unsound 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 ratio actually warrants 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 with a guarantee
of performance issued by the holding company. 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.
24
<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.
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.
In addition to the statutory limitations, FDICIA originally required the
federal banking agencies to prescribe, by regulation, standards for all insured
depository institutions for such things as classified loans and asset growth. In
1994 FDICIA was amended to (a) authorize the agencies to establish safety and
soundness standards by regulation or by guideline for all insured depository
institutions; (b) give the agencies greater flexibility in prescribing asset
quality and earnings standards and (c) eliminate the requirement that such
standards apply to depository institution holding companies.
On July 10, 1995 the federal banking agencies published Interagency
Guidelines Establishing Standards for Safety and Soundness. By adopting the
standards as guidelines, the agencies retained the authority to 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.
25
<PAGE>
RESTRICTIONS ON DIVIDENDS AND OTHER DISTRIBUTIONS
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. FDICIA
prohibits insured depository institutions from paying management fees to any
controlling persons or, with certain limited exceptions, making capital
distributions, including dividends, if, after such transaction, the institution
would be undercapitalized.
Regulators also have authority to prohibit a depository institution from
engaging in business practices which are considered to be unsafe or unsound,
possibly including payment of dividends or other payments under certain
circumstances even if such payments are not expressly prohibited by statute.
The payment of dividends by a national bank is further restricted by
additional provisions of federal law, which prohibit 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, no
dividend shall be paid. 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. Regulators also have authority to
prohibit a depository institution from engaging in business practices which are
considered to be unsafe or unsound, possibly including payment of dividends or
other payments under certain circumstances even if such payment are not
expressly prohibited by statute.
PREMIUMS FOR DEPOSIT INSURANCE AND ASSESSMENTS FOR EXAMINATIONS
FDICIA established several mechanisms to increase funds to protect deposits
insured by the Bank Insurance Fund ("BIF") administered by the FDIC. The FDIC
also administers the Savings Association Insurance Fund ("SAIF"), which insures
deposits in thrift institutions. The FDIC is authorized to borrow up to $30
billion from the United States Treasury; up to 90% of the fair market value of
assets of institutions acquired by the FDIC as receiver from the Federal
Financing Bank; and from depository institutions that are members of the BIF.
Any borrowings not repaid by asset sales are to be repaid through insurance
premiums assessed to member institutions. Such premiums must be sufficient to
repay any borrowed funds within 15 years and provide insurance fund reserves of
$1.25 for each $100 of insured deposits. FDICIA also provides authority for
special assessments against insured deposits. No assurance can be given at this
time as to what the future level of premiums will be.
26
<PAGE>
As required by FDICIA, the FDIC adopted a transitional risk-based
assessment system for deposit insurance premiums which became effective January
1, 1993. On November 14, 1995 the Board of Directors of the FDIC adopted a
resolution to reduce to a range of 0 to 27 basis points the assessment rates
applicable to deposits assessable by the BIF for the semiannual assessment
period beginning January 1, 1996. The new assessment schedule would retain the
risk based characteristics of the current system. On November 26, 1996 the FDIC
decided to continue in effect the current BIF assessment rate schedule.
The FDIC may make limited adjustments to the above rate schedule not to
exceed an increase or decrease of 5 basis points without public notice and
comment rulemaking. The amount of an adjustment adopted by the Board is to be
determined by the following considerations: (a) the amount of assessment revenue
necessary to maintain the reserve ratio at the designated reserve ratio and (b)
the assessment schedule that would generate such amount of assessment revenue
considering the risk profile of BIF members. In determining the relevant amount
of assessment revenue, the Board is to consider BIF's expected operating
expenses, case resolution expenditures and income, the effect of assessments on
BIF members' earnings and capital, and any other factors the Board may deem
appropriate.
In 1996 Congress enacted the Deposit Insurance Funds Act ("Funds Act") in
order to raise the level of SAIF reserves, and to reduce the possibility that
bonds issued by the Financing Corporation ("FICO") would go into default. The
FICO was a special purpose government corporation that issued $8.2 billion in
bonds to recapitalize the Federal Savings and Loan Insurance Corporation.
Interest on the FICO bonds was paid from the proceeds of assessment made on the
deposits of SAIF members. Because of the almost $800 million needed to pay for
the annual interest on the FICO bonds, the payments of SAIF members were not
increasing the SAIF reserve to a sufficient level to allow the FDIC to reduce
assessment rates (as had been done for BIF deposits), and SAIF members were
employing certain strategies to either exit the system or transfer deposits to
BIF coverage.
Pursuant to the Funds Act, the FDIC imposed a special one-time assessment
on all institutions that held SAIF assessable deposits as of March 31, 1995 of
an estimated 65.7 cents per $100 of SAIF assessable deposits. Certain discounts
and exemptions from the assessment were available. For example, BIF-member banks
that had acquired SAIF-insured deposits from thrifts were generally entitled to
a 20% discount on the special assessment if the bank satisfied certain statutory
thresholds (the bank's acquired SAIF deposits, as adjusted, must be less than
half of its total domestic deposits). Furthermore, beginning January 1, 1997,
all FDIC-insured institutions will be assessed to cover the interest payments
due on FICO bonds. For calendar years 1997 through 1999, BIF members will pay
one-fifth the rate SAIF members will pay, and beginning in 2000 both types of
institutions will pay the same rate. BIF members will be required to pay a FICO
assessment of approximately 1.3 basis points for the first semiannual FICO
assessment in 1997.
27
<PAGE>
The Funds Act also authorized the FDIC to rebate assessments paid by BIF
members if the BIF has reserves exceeding its designated reserve ratio of 1.25
percent of total estimated insured deposits. The adjusted BIF balance was
$25.888 billion on June 30, 1996, a reserve ratio of 1.30 percent. The FDIC has
expressed its view that the long-term needs of the BIF are a factor in setting
the effective average BIF assessment rate, and that the FDIC is uncertain
whether the current favorable conditions represent a long-term trend.
COMMUNITY REINVESTMENT ACT AND FAIR LENDING DEVELOPMENTS
The Bank is subject to certain fair lending requirements and reporting
obligations involving home mortgage lending operations and Community
Reinvestment Act ("CRA") activities. The CRA generally requires the federal
banking agencies to evaluate the record of a financial institution in meeting
the credit needs of their local communities, including low and moderate income
neighborhoods. In addition to substantive penalties and corrective measures that
may be required for a violation of certain fair lending laws, the federal
banking agencies may take compliance with such laws and CRA into account when
regulating and supervising other activities.
On March 8, 1994, the federal Interagency Task Force on Fair Lending issued
a policy statement on discrimination in lending. The policy statement describes
the three methods that federal agencies will use to prove discrimination: overt
evidence of discrimination, evidence of disparate treatment, and evidence of
disparate impact.
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.
RECENTLY ENACTED LEGISLATION
On September 29, 1995 the IBBA became effective. The IBBA implemented the
federal Interstate Banking and Branching Act. The main features of this
legislation are (a) out-of-state banks that wish to establish a California
branch office to conduct core banking business must first acquire an existing 5
year old California bank or industrial loan company by merger or purchase; (b)
California state-chartered banks will be empowered to conduct various authorized
branch-like activities on an agency basis through affiliated and unaffiliated
insured depository institutions in California and other states and (c) the
Superintendent will be authorized to approve an interstate acquisition or merger
which would result in a deposit concentration exceeding 30% if the
Superintendent finds that the transaction is consistent with public convenience
and advantage. The legislation also contains extensive provisions governing
intrastate and interstate (a) intra-industry sales, mergers and conversions
between banks and between industrial loan companies and (b) inter-industry
transactions involving banks, savings associations and industrial loan
companies.
28
<PAGE>
During 1996, new federal legislation amended the Comprehensive
Environmental Response, Compensation, and Liability Act ("CERCLA") and the
underground storage tank provisions of the Resource Conversation and Recovery
Act ("RCRA") to provide lenders and fiduciaries with greater protections from
environmental liability. The definition of "owner or operator" under CERCLA has
been amended to exclude a lender who: (i) holds indicia of ownership in a
property primarily to protect its security interest, but does not participate in
the property's management or (i) forecloses on a property, or, after
foreclosure, sells, re-leases (in the case of a lease finance transaction), or
liquidates the property, maintains business activities, winds up operations,
undertakes a response under CERCLA, or takes measures to preserve, protect or
prepare property prior to sale or disposition, so long as the lender did not
participate in the property's management prior to sale. In order to preserve
these protections, a lender who forecloses on property must seek to sell, re-
lease, or otherwise divest itself of the property at the earliest practicable,
commercially reasonable time, and on reasonable terms. "Participation in
management" is defined as actual participation in the management or operational
affairs of the facility, not merely having the capacity to influence or the
unexercised right to control operations. Similar changes have been made in RCRA.
The California legislature adopted a similar bill to provide that, subject
to numerous exceptions, a lender acting in the capacity of a lender shall not be
liable under any state or local statute, regulation or ordinance, other than the
California Hazardous Waste Control Law, to undertake a cleanup, pay damages,
penalties or fines, or forfeit property as a result of the release of hazardous
materials at or from the property. Under this bill a lender which had not
participated in the management of the property prior to foreclosure may take
actions similar to those set forth in the CERCLA and RCRA amendments without
losing its immunity from liability. To preserve that immunity, after
foreclosure, the lender must take commercially reasonable steps to divest itself
of the property in a reasonably expeditious manner.
PENDING LEGISLATION
There are a number of 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.
Glass-Steagall reform will likely be affected by a bank insurance powers case
decided during 1996 by the U.S. Supreme Court, which gives national banks
greater opportunities to sell traditional insurance products, such as life,
automobile, and property and casualty policies. In a similar recent case, the
Court upheld an OCC determination that national banks may sell annuities.
Certain other pending legislative proposals include bills to free
withdrawals from individual retirement accounts from penalties for first-time
home purchases and other purposes and eliminate most Community Reinvestment Act
reporting requirements.
While the effect of such proposed legislation and regulatory reform on the
business of financial institutions cannot be accurately predicted at this time,
it seems likely that a significant amount of consolidating in the banking
industry will continue to occur throughout the remainder of the decade.
29
<PAGE>
COMPETITION
In the past, an independent bank's principal competitors for deposits and
loans have been other banks (particularly major banks), savings and loan
associations and credit unions. To a lesser extent, competition was also
provided by thrift and loans, mortgage brokerage companies and insurance
companies. Other institutions, such as brokerage houses, mutual fund companies,
credit card companies, and even retail establishments have offered new
investment vehicles which also compete with banks for deposit business. The
direction of federal legislation in recent years seems to favor competition
between different types of financial institutions and to foster new entrants
into the financial services market, and it is anticipated that this trend will
continue.
The enactment of the Interstate Banking and Branching Act in 1994 as well
as the California Interstate Banking and Branching Act of 1995 will likely
increase competition within California. Regulatory reform, as well as other
changes in federal and California law will also affect competition. While the
impact of these changes, and of other proposed changes, cannot be predicted with
certainty, it is clear that the business of banking in California will remain
highly competitive.
CERTAIN ADDITIONAL BUSINESS RISKS
The Company's business, financial condition and operating results can be
impacted by a number of factors, including but not limited to those set forth
below, any one of which could cause the Company's actual results to vary
materially from recent results or from the Company's anticipated future results.
Shares of Company Common Stock eligible for future sale could have a
dilutive effect on the market for Company Common Stock and could adversely
affect the market price. The Articles of Incorporation of the Company authorize
the issuance of 20,000,000 shares of common stock, and 1,000,000 shares of
preferred stock of which approximately 754,500 shares of common stock and no
shares of preferred stock were outstanding at December 31, 1996. As of December
31, 1996, outstanding options to purchase Common Stock were 164,800, and Common
Stock available for grants under the Company's stock option plans was 85,200
shares.
The loan portfolio of the Company is dependent on real estate. At December
31, 1996, real estate served as the principal source of collateral with respect
to approximately 70% of the Company's loan portfolio. A worsening of current
economic conditions or rising interest rates could have an adverse effect on the
demand for new loans, the ability of borrowers to repay outstanding loans, the
value of real estate and other collateral securing loans and the value of the
available-for-sale investment portfolio, as well as the Company's financial
condition and results of operations in general and the market value for Company
Common Stock. Acts of nature, including earthquakes and floods, which may cause
uninsured damage and other loss of value to real estate that secures these
loans, may also negatively impact the Company's financial condition.
30
<PAGE>
The Company is subject to certain operations risk, including, but not
limited to, data processing system failures and errors and customer or employee
fraud. The Company maintains a system of internal controls to mitigate against
such occurrences and maintains insurance coverage for such risks, but should
such an event occur that is not prevented or detected by the Company's internal
controls, uninsured or in excess of applicable insurance limits, it could have a
significant adverse impact on the Company's business, financial condition or
results of operations.
ITEM 2. PROPERTIES.
The Bank maintains its main offices on leased premises at 901 Main Street in
the Downtown part of Napa, California. The Company opened this banking facility
in 1995. This property is a two story building with an adjacent paved ground
level parking lot. The parking lot is approximately 10,860 square feet. The
lease term runs from December 1, 1994 to November 30, 1999, with three five (5)
year renewal options. The lease provides for inflationary increases in the
monthly rental amount during the renewal periods and also contains options to
purchase the facility at an agreed upon market value during certain defined
periods. The base rent is $9,900.00 per month. The base rent is subject to an
annual adjustment based on the Consumer Price Index beginning on the first day
of January of every year of the first option renewal term beginning in the year
2001. The adjusted rental will not exceed an 8% increase over the adjusted
rental of the preceding year nor will the adjusted rental be less than the
original base rent. Rent paid for the Downtown Napa Office was approximately
$119,000 during 1996. In addition, the Bank pays utilities, insurance and
maintenance relating to the branch.
The Company purchased its Claremont branch building for $558,000 in cash,
including fees, on September 6, 1989. The building, comprised of approximately
5,000 square feet, was remodeled so that it could be put into service as a full
service banking branch. The cost of the remodeling, security systems and
necessary furniture and equipment was approximately $600,000. This Office was
remodeled again in 1995 in order to accommodate the Bank's Electronic Data
Processing and Customer Service Departments. The cost of this remodel was
approximately $50,000.
The Company leases the Bank's approximately 2,400 square foot branch office
located at 1015 Adams Street in downtown St. Helena, California. The lease term
ends in 1998, with two options to extend the term of the lease for five years
each. Rent paid for the St. Helena office was approximately $61,000 during
1996. In addition, the Bank pays utilities, insurance and maintenance relating
to the branch.
ITEM 3. LEGAL PROCEEDINGS.
As of December 31, 1996, neither the Company, the Bank nor the Leasing
Company was a party to, nor was any of their property the subject of, any
material pending legal proceedings, nor are any such proceedings known to be
contemplated by governmental authorities. At the same date, the Bank was
involved as plaintiff in ordinary routine litigation incidental to its business.
31
<PAGE>
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 through the solicitation of
proxies or otherwise.
32
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock is not listed on any exchange or the National
Association of Securities Dealers' Automated Quotation System; however, there
has been limited trading in the Company's Common Stock which the company does
not believe necessarily represents an established public trading market. To the
Company's knowledge, no broker-dealers handle transactions of the Company's
common stock. The following table sets forth, for the fiscal quarters
indicated, the range of high and low sales prices, not including broker's
commissions, based upon known information as reported by management. These
figures may not include private transactions. Other than to this extent, there
is no established public trading market in the Company's Common Stock.
<TABLE>
<CAPTION>
SALES PRICES OF THE COMPANY'S
COMMON STOCK
TRADING
YEAR HIGH LOW VOLUME
1996
<S> <C> <C> <C>
Fourth Quarter $14.50 $14.50 100
Third Quarter 14.50 14.50 19,755
Second Quarter 14.50 14.50 250
First Quarter 10.00 10.00 450
1995
Fourth Quarter $ 9.00 $ 8.00 1,600
Third Quarter 9.00 8.00 600
Second Quarter 9.00 8.00 16,845
First Quarter 9.00 8.00 6,450
</TABLE>
Because the Company's Common Stock is not listed on any exchange, accurate
trading volumes are difficult to ascertain. All known trades for 1996 involved
purchases by the Company's Employee Stock Ownership Trust ("ESOT"). The ESOT
purchased 19,855 shares in 1996. The ESOT did not purchase any shares of common
stock in 1995.
As of February 28, 1997, the outstanding shares of the Company's Common
Stock were held of record by 353 shareholders. The last known trade of the
Company's Common Stock occurred on December 11, 1996, for 100 shares. Price per
share was $14.50.
33
<PAGE>
During the third quarter of 1996, the Company's ESOT sent out a tender offer
to purchase up to 20,000 shares of the Company's Common Stock. The price of the
offer was set at $14.50 per share. From this offer, the ESOT purchased 19,354
shares of the Company's outstanding Common Stock.
During the first quarter of 1996, the Company declared and paid a cash
dividend of twelve and a half cents ($0.125) per share on outstanding stock. The
first quarter dividend was based on 1995 earnings and amounted to $94,000.
During the beginning of the second quarter of 1996, the Company declared a
second cash dividend of twelve and a half cents ($0.125) per share. This cash
dividend was based on the first quarter earnings of 1996 and was also $94,000.
During the third quarter of 1996, the Bank paid a $100,000 cash dividend to the
Company. This dividend allowed the Company to declare and pay another cash
dividend of twelve and a half cents ($0.125) per share for a total of $94,000.
In the fourth quarter of 1996, the Bank paid another $100,000 cash dividend to
the Company, allowing it to again declared and issue a twelve and a half cents
($0.125) per share dividend. This fourth quarter dividend was based on third
quarter earnings and was paid to shareholders on January 3, 1997. Total
dividends paid by the Bank to the Company and from the Company to its
shareholders for 1996 amounted to $200,000 and $378,000 respectively.
34
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
The selected consolidated financial information for the Company presented
below for the five years ended December 31, 1996 is derived from and should be
read in conjunction with the consolidated financial statements of the Company
and the notes thereto which are included in Item 14 of this Annual Report on
Form 10-K.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995 1994 1993 1992
(IN 000'S EXCEPT EARNINGS PER SHARE AND RATIOS)
STATEMENT OF OPERATIONS
<S> <C> <C> <C> <C> <C>
Total interest income $9,173 $8,432 $6,226 $4,831 $4,734
Total interest expense 2,814 2,634 1,658 1,551 2,038
Provision for loan losses 550 323 149 198 207
Net interest income after
provision for loan losses 5,809 5,475 4,419 3,082 2,489
Other income 806 800 627 594 554
Other expense 5,099 4,409 3,716 3,425 3,007
Income before
income tax 1,516 1,866 1,330 251 36
Income tax provision (credit) 614 765 553 (249) 14
Extraordinary tax credit 0 0 0 0 (12)
Net income 902 1,101 777 500 34
Net income/share 1.00 1.25 1.03 0.66 0.05
Cash Dividends Paid/share $ 0.50 $ 0 $ 0 $ 0 $ 0
Weighted Average Shares 906 882 755 755 755
</TABLE>
BALANCE SHEET INFORMATION (AT PERIOD END):
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Total assets $113,827 $104,851 $86,477 $77,241 $63,454
Net loans 78,290 73,374 62,103 54,259 45,990
Total deposits 105,417 96,752 79,378 71,463 58,243
Shareholders' equity 7,971 7,447 6,346 5,569 5,069
Book value per common
share outstanding $ 8.67 $ 8.44 $ 8.41 $ 7.38 $ 6.71
SELECTED FINANCIAL RATIOS:
Net interest margin 6.75% 6.98% 6.25% 5.38% 4.76%
Allowance for loan losses
to average loans 1.78% 1.93% 1.78% 1.80% 1.50%
Nonperforming loans to
average loans 4.41% 2.11% 1.63% 0.72% 2.06%
Net charge-offs
to average loans 0.60% 0.07% 0.02% 0.06% 0.31%
Average earning assets to
total average assets 92.15% 91.52% 92.00% 91.66% 90.28%
Primary capital ratio (1) N/A N/A N/A N/A N/A
Total capital ratio (1) N/A N/A N/A N/A N/A
Return on average assets .94% 1.30% 1.05% 0.81% 0.06%
Return on average
shareholders' equity 11.61% 16.40% 14.02% 9.77% 0.70%
Average equity to average
assets ratio 7.46% 7.27% 6.87% 7.58% 7.77%
Leverage Ratio (2) 7.11% 7.16% 7.28% 7.04% 7.60%
Total Risk based
capital ratio 10.47% 10.40% 10.33% 9.84% 10.77%
</TABLE>
(1) As defined by regulatory guidelines.
(2) Calculated based on the Bank's capital and average assets.
35
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION.
The following analysis of the Company's financial condition for the years
ended December 31, 1996 and 1995 and results of operation for each of the three
years in the period ended December 31, 1996, should be read in conjunction with
the Consolidated Financial Statements, related Notes thereto and other
information presented elsewhere herein. Since the Company is a bank holding
company whose principal asset is, and is expected to be, the capital stock of
the Bank, the following relates principally to the financial condition and
results of operations of the Bank.
The consolidated financial statements of the Company are prepared in
conformity with generally accepted accounting principles and prevailing
practices within the banking industry. All material intercompany transactions
and accounts have been eliminated. 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.
Average balances, including such balances used in calculating certain financial
ratios, are comprised of average daily balances. All dollar amounts are
rounded, except earnings per share data.
Certain statements in this Annual Report on Form 10-K include forward-
looking information within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended, and are subject to the "safe harbor" created by those sections. These
forward-looking statements 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 pressure in the banking industry increases
significantly; changes in the interest rate environment reduce margins; 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; changes in the
regulatory environment; changes in business conditions, particularly in Napa
County and the wine industry; volatility of rate sensitive deposits; operational
risks including data processing system failures or fraud; asset/liability
matching risks and liquidity risks; and changes in the securities markets. See
also "Certain Additional Business Risks" included in Item 1 herein and other
risk factors discussed elsewhere in this Report.
SUMMARY OF FINANCIAL RESULTS
The Company recorded net income of $902,000, or $1.00 per share for the year
ended December 31, 1996 compared to $1,101,000 or $1.25 per share, and $777,000
or $1.03 per share, for the year ended December 31, 1995 and 1994, respectively.
36
<PAGE>
Net income declined in 1996 over 1995 by $199,000, or 18%. The primary
reasons for this decline were due to an increase in the provision for loan
losses of $227,000, or 70%, and increases in noninterest expenses of $690,000,
or 16%. These increases were partially offset by an increase in net interest
income of $561,000, or 10%, and decreases in taxes of $151,000, or 20%.
The primary reasons for the improvement in operating results in 1995 as
compared to 1994 are as follows: Net interest income increased by $1,230,000 or
27%. This growth was partially offset by an increase in the provision for loan
losses of $174,000 or 116%. Total noninterest income increased by $173,000 or
28%. These improvements were also offset by an increase in total noninterest
expense of $693,000 or 19%.
Management is not aware of any trends, events or uncertainties that would
have a material impact on the Company's liquidity, capital resources, or results
of operations other than the early payoff of a purchased loan in January 1997
that resulted in a write off of $104,000 in unamortized premium. The loan was
for commercial property in the Bank's service area that totalled approximately
$1,752,000 at the time of payoff.
NET INTEREST INCOME
The Company's primary source of income is the difference between interest
income and fees derived from earning assets and interest paid on liabilities
incurred for the funding of those assets. This difference is referred to as
"net interest income." Net interest income expressed as a percentage of average
total earning assets is referred to as the "net interest margin" or "margin."
For the period ended December 31, 1996, net interest income increased by
$561,000, or 10%, over the same period of 1995. This number is a component of
total interest income and total interest expense. The $11,085,000 increase in
average earning assets in 1996 compared to 1995 contributed significantly to
this increase in net interest income. Even though average earning assets
increased significantly in 1996 over 1995, net interest income did not increase
as dramatically due to a decline in the Bank's net interest margin from 6.98%
for 1995 compared to 6.75% for 1996.
Net interest income increased in 1995 by $1,230,000, or 27%, over 1994.
Total interest income increased in 1995 by $2,206,000, or 35%, over 1994. This
increase was offset by an increase in total interest expense of $976,000, or
59%. These results can be attributed to a number of factors, such as an
increase in the net interest margin from 6.25% in 1994 to 6.98% in 1995 (based
on period end earning assets). This rise in net interest margin was aided by
increases in the prime interest rate during late 1994 and early 1995.
Additionally, average earning assets increased by $10,056,000 or 14%, in 1995
over 1994 totals.
As of December 31, 1996, total average earning assets were $94,205,000, an
increase of $11,085,000, or 13%, from the 1995 level of $83,120,000.
37
<PAGE>
PROVISION FOR LOAN LOSSES
The provision for loan losses is based upon management's assessment of the
amount that is necessary to maintain the allowance for loan losses at an
adequate level. As further described in the "Allowance for Loan Losses" herein,
management takes many factors into consideration when determining the provision
including loan portfolio growth.
The provision for loan losses was $550,000 at December 31, 1996 compared to
$323,000 for 1995. This represents an increase of $227,000, or 70%, over the
prior year. The increase in the provision was due to increases in both average
loans and outstanding loan balances in 1996 over 1995 totals, projected loan
growth, increases in non-performing loans, and management's ongoing assessment
of the adequacy of the allowance for loan losses (See "Loans and Nonaccrual
Loans" herein).
During 1995, the provision for loan losses was $323,000 as compared to
$149,000 for 1994. As of December 31, 1995, total net loans were $73,374,000
compared to $62,103,000 for the same period in 1994. This was an increase of
$11,271,000, or 18% over the prior year.
NONINTEREST INCOME
Noninterest income consists primarily of service charges on deposit
accounts, fees charged for other banking deposit and loan services, and merchant
card processing income. Noninterest income remained relatively flat between
1996 and 1995, showing only a $6,000, or 1%, growth over the prior year.
Service charges generated from deposit accounts continued to show growth due to
both increases in the number of outstanding accounts and a continued emphasis on
assessing service charges and other related fees. Additionally, the Bank's
merchant card processing program continued to show gains in 1996 over earnings
in 1995
Noninterest income increased in 1995 by $173,000, or 28%, over 1994 totals,
primarily due to growth in deposit accounts and the related increase in service
charge income, and a more aggressive policy of assessing service charges and
other related fees. Additionally, the Bank's merchant card processing program
was enhanced and expanded in early 1995 and showed a significant increase in
earnings during 1995 over 1994 totals.
NONINTEREST EXPENSE
Total noninterest expense was $5,099,000 in 1996, representing an increase
of $690,000, or 16%, over the 1995 total of $4,409,000. Total noninterest
expense in 1995 was $693,000, or 19%, above 1994's total of $3,716,000.
Net salaries and employee benefit expense was $2,722,000 in 1996, an
increase of $461,000, or 20%, over 1995's total of $2,261,000. During 1996, the
Bank grew by approximately five full time equivalent employees, two of which
were senior officers. Additionally, salaries increased due to average bank-wide
raises of approximately four percent which took place in March 1996. The
Company did not accrue for incentive payouts in 1996 nor does it have plans on
paying any bonuses for performance in said year.
38
<PAGE>
Salaries and employee benefits were $2,261,000 in 1995, an increase of
$297,000, or 15%, over 1994. This increase can be primarily attributed to an
addition of approximately five full time equivalent employees during 1995.
These staff increases were necessary to maintain an adequate service level given
the overall growth within the company. Additionally, salaries also increased as
a result of average bank-wide raises of five percent which took place in March
1995.
Occupancy and furniture, fixtures and equipment expenses increased in 1996
by $107,000, or 14% over 1995 totals. This increase was due primarily to the
Bank's branch/headquarters tenant improvements (see discussion below) and
upgrades in electronic media throughout the Company.
During April 1995, the Bank closed its original banking office located at
1500 Third Street, Napa, California and re-opened at 901 Main Street, Napa,
California. At the end of June, the Bank relocated it primary lending services
and headquarters into the completed facility. After relocation of the lending
and administration staff from its previous location at 3263 Claremont Way, Napa,
California, this facility began remodeling to accommodate the Bank's customer
service and EDP departments. The remodeling of the Claremont facility was
completed in July and these two departments were immediately relocated. With
the completion of this move, the Bank was able to vacate the leased space which
previously housed the Customer Service Center. At the end of the third quarter
of 1995, the Bank had consolidated back into three locations, all offering full
banking services. Occupancy and furniture, fixtures and equipment expenses for
the twelve months ending December 31, 1995 increased by $164,000 or 27%, over
the same period of 1994. These increases in costs were attributed primarily to
the Bank's new branch/headquarters tenant improvements, and the costs of
supporting its other locations.
Professional fees increased in 1996 by $32,000, or 8%, over 1995 totals.
This increase was due primarily to the additional use of outside consultants for
both loan related legal reviews and audits and managerial issues.
In 1995, professional and director fees increased by $241,000, or 137%, over
1994. This additional expense is primarily due to increases in consulting, legal
and director fees. Beginning in January 1995, the Company approved a new
director compensation plan which resulted in an increase of $63,000 over the
prior year. Consulting fees increased in 1995 by $34,000, due to the outsourcing
of a number of loan related reviews, audits and other similar procedures. The
Company incurred additional legal expenses of $52,000 in 1995 over the same
period of 1994.
The competition for deposits and loans in the Company's service area
warranted increased marketing and business development expenditures during 1996.
Early in 1996, the Company hired an employee whose primary focus was marketing
and sales support. This was done as a strategic move to enhance the Company's
overall marketing materials and focus both within the branches and in the
Company's service area. This focus resulted in an increase of $46,000, or 37%,
in marketing expenses between 1996 and 1995.
39
<PAGE>
The Company decreased its marketing and business development costs by
$11,000, or 8%, during 1995 over the same period of 1994. This decrease was
primarily due to the high profile marketing efforts incurred during the first
quarter of 1995. Given the growth in loans and deposits resulting from these
marketing efforts, management curtailed the Bank's marketing costs greatly
during the remaining three quarters of 1995.
Regulatory fees and related expenses decreased in 1996 by $70,000, or 34%,
over the same period of 1995. The decrease was primarily due to changes in the
annual Federal Deposit Insurance Corporation assessments that occurred in the
latter half of 1995. This same change also contributed to the drop in expense
in 1995 over 1994 totals.
Stationery and supply expense for 1996 was $21,000, or 22%, higher than
1995. This increase was due to general growth in the Company and the enhanced
marketing oriented materials used within the branches. In 1995, stationery and
supply expense was $95,000, or 42%, higher than 1994. The increase in 1995 was
due to significant one time expenses related to the numerous facility moves and
relocations which incurred during 1995.
Data processing expenses have shown a steady increase during the three years
presented and have been in keeping with the overall growth of the Company.
Additionally, the $16,000, or 15%, growth in 1996 over 1995 was also due to
enhancements and upgrades made to the Company's personal computers.
Other noninterest expense increased by $77,000, or 19%, in 1996 over 1995
totals. The increase was due primarily to increase in miscellaneous loan
expenses and staff training and development. The increase between 1995 and 1994
was in keeping with the general growth of the Company.
INCOME TAXES
Income tax expense was 41% and 42% of pre-tax income for the years ending
December 31, 1996 and 1995, respectively.
EARNING ASSETS
Total earning assets consist of investment securities, loans, federal funds
sold and interest bearing deposits held in other institutions. Total earning
assets increased from $95,267,000 at December 31, 1995 to $102,680,000 at
December 31, 1996, an increase of $7,413,000, or 8%.
LOANS AND NONACCRUAL LOANS
Total loans, excluding the allowance for loan losses (see Notes 1 and 4 to
the Consolidated Financial Statements included herein at Item 14, for further
discussion of the allowance for loan losses), increased from $74,699,000 at
December 31, 1995 to $79,695,000 at December 31, 1996. The increase of
$4,996,000 represents a 7% increase in outstanding loans during 1996. The Bank
experienced increases in all of its loan categories except for a slight decline
in personal line of credit loans during the year under review. Management
attributes these increases to more seasoned staff, both loan and deposit
officers, which assisted with new loan generation and changes taking place in
the Company's service area.
40
<PAGE>
General economic and credit risks are inherent in the lending function and
within particular types of lending categories. The Bank primarily makes four
types of loans: Real estate construction, real estate mortgage, commercial and
consumer loans. As discussed in "Item 1. Business - Loan Portfolio" herein, the
Bank generally takes a collateralized position, with reasonable loan to value
ratios on its loans (over 90% of the Bank's loan portfolio is collateralized).
The primary source of collateral is real estate located within the Company's
service area. An inherent risk in taking real estate as collateral is the
possibility of declines in real estate market values.
The Company's service area is Napa Valley, which is located approximately
fifty miles northeast of the San Francisco Bay Area. Napa Valley is a very
unique, and rather isolated area that has been able to sustain higher than
average real estate market values. Approximately four years ago, given the
economic trends and possibility of declining market values, the Company took a
more conservative approach on its collateral base and began lowering its loan to
value ratios on new loans. Even though the Company's loan portfolio is heavily
secured by California real estate, management does not presently foresee any
material impact on the Company's operations, given the low loan to value ratios.
As of December 31, 1996, nonperforming loans were $3,152,000, an increase of
$1,705,000, or 118%, over the December 31, 1995 balance of $1,447,000.
Nonperforming loans at December 31, 1996 represent 4.0% of total average loans
compared to 2.1% of total average loans for year end 1995. The growth in
nonperforming loans between 1996 and 1995 is primarily due to a rise in
bankruptcies in 1996 compared to 1995, and to the general growth in outstanding
loan balances. The increase in nonperforming loans, in management's opinion,
does not represent a material trend.
As discussed in "Item 1 - Business, Loan Portfolio", in early 1997, the
Company's service area was subjected to severe weather conditions that resulted
in some flooding. Management believes that this flooding will not have a direct
or material impact on either its existing loan portfolio or future growth.
41
<PAGE>
On January 1, 1995, the Company adopted SFAS No. 114, "Accounting by
Creditors for Impairment of a Loan" and SFAS No. 118, "Accounting by Creditors
for Impairment of a Loan - Income Recognition and Disclosure". These statements
address the accounting and reporting by creditors for impairment of certain
loans. A loan is impaired when, based upon current information and events, it is
probable that a creditor will be unable to collect all amounts due according to
the contractual terms of the loan agreement. These statements are applicable to
all loans, uncollateralized as well as collateralized, except large groups of
smaller-balance homogeneous loans that are collectively evaluated for impairment
such as credit cards, residential mortgage and consumer installment loans, loans
that are measured at fair value or at the lower of cost or fair value and
leases. Impairment is measured based on the present value of expected future
cash flows discounted at the loan's effective interest rate, except that as a
practical expedient, the Company measures impairment based on a loan's
observable market price or the fair value of the collateral if the loan is
collateral dependent. Loans are measured for impairment as part of the Company's
normal internal asset review process.
Interest income is recognized on impaired loans in a manner similar to that
of all loans. It is the Company's policy to place loans that are delinquent 90
days or more as to principal or interest on a nonaccrual of interest basis
unless secured and in the process of collection, and to reverse from current
income accrued but uncollected interest. Cash payments subsequently received on
nonaccrual loans are recognized as income only where the future collection of
principal is considered by management to be probable.
At December 31, 1996, the Company's total recorded investment in impaired
loans was $3,152,000, of which there is a related allowance for credit losses of
$204,000.
The average recorded investment in the impaired loans during 1996 was
$2,123,000: the related amount of interest income recognized during the period
that such loans were impaired recognized under the cash basis method of
accounting was $44,000.
Loans currently classified as special mention, substandard, doubtful or loss
(See Item 1, "Business" herein) do not, in management's view, represent or
result from trends or uncertainties which may have a material adverse effect on
the entire loan portfolio, liquidity or capital resources.
ALLOWANCE FOR LOAN LOSSES
Inherent in the lending function is the fact that loan losses will be
experienced and that the risk of loss will vary with the type of loan being made
and the credit - worthiness of the borrower over the term of the loan. The
Company maintains an allowance for possible loan losses at a level estimated to
be adequate to provide for losses that can be reasonably anticipated based upon
specific loan conditions as determined by management, and based upon
management's assessment of historical loan loss experience, prevailing economic
conditions and other factors including growth of the loan portfolio. While
these factors are essentially judgmental and may not be reduced to a
mathematical formula, it is management's view that the $1,405,000 allowance,
approximately 1.76% of total loans outstanding at December 31, 1996, was
adequate as an allowance against foreseeable losses in the portfolio at that
time. The allowance was 1.77% of the loan portfolio at
42
<PAGE>
December 31, 1995. The allowance is increased by charges to the provision for
loan losses and reduced by net charge-offs.
OTHER REAL ESTATE OWNED
At December 31, 1996 and December 31, 1995, total other real estate owned
was $328,000 and $0, respectively, which at December 31, 1996 consisted of two
separate properties.
DEPOSITS
Deposits totaled $105,417,000 at December 31, 1996, an increase of
$8,665,000, or 9%, from the December 31, 1995 balance of $96,752,000. In 1996,
noninterest bearing transaction accounts grew by $6,660,000, or 35%, savings
accounts decreased by $340,000, or 3%, and interest bearing transaction accounts
grew $1,257,000, or 4%, over 1995 totals. Time certificates of deposit of
$100,000 or more increased by $1,293,000, or 14%, and other time deposits
decreased by $205,000, or 1%, during 1996. The overall growth in deposit
accounts in 1996 was primarily due to a comprehensive marketing effort on the
part of the Bank's staff and management, the introduction of new and enhanced
deposit products and increases in deposit officers.
Non-interest bearing demand deposits were 24% of total deposits at December
31, 1996, as compared to 20% at December 31, 1995. Time certificates of deposit
were 36% of total deposits at December 31, 1996, and 39% for the same period of
1995.
NEW ACCOUNTING PRONOUNCEMENTS
Effective January 1, 1996, the Company adopted SFAS No. 123, "Accounting for
Stock-Based Compensation", which establishes financial and reporting standards
for stock-based compensation plans. The Company elected to continue accounting
for stock-based employee compensation plans in accordance with APB Opinion No.
25, "Accounting for Stock Issued to Employees" and related interpretations, as
SFAS 123 permits, and to follow the pro forma net income, pro forma earnings per
share and stock-based compensation plan disclosure requirements set forth in
SFAS 123.
In March 1995, the Financial Accounting Standards Board issued SFAS No. 121,
Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of. SFAS No. 121 is effective for fiscal years beginning after
December 15, 1995. This Statement requires that long-lived assets and certain
identifiable intangibles to be held and used by an entity, be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. The financial statement
impact of adopting SFAS No. 121 has not been material.
43
<PAGE>
ASSET-LIABILITY MANAGEMENT
Asset-liability management is a process whereby the Bank, through its Asset
and Liability Committee, monitors the maturities and repricing opportunities of
the various components of the balance sheet and initiates strategies designed to
maximize the net interest margin, while minimizing vulnerability to large
fluctuations in interest rates. The Bank is currently moving towards a policy
of maintaining a relative balance of asset and liability maturities within
similar time frames, while permitting a moderate amount of short-term interest
rate risk based on current interest rate projections, customers' credit demands
and deposit preferences.
At December 31, 1996, the Company's assets repricing in one year exceeded
its liabilities repricing in one year by $21,612,000, or 19%, of total assets.
This compares to $15,348,000, or 15% of total assets in 1995. The excess of
assets repricing over liabilities repricing means that if interest rates
decline, the Company's return on assets would be expected to decline more
quickly than its cost of funds, thereby reducing the Company's net interest
margin. However, as interest rates increase, the Company's return on assets
would be expected to increase more quickly than its cost of funds.
The following table represents the interest rate sensitivity profile of the
Company's consolidated assets, liabilities and shareholders' equity as of
December 31, 1996. Assets, liabilities and shareholders' equity are classified
by the earliest possible repricing opportunity or maturity date, whichever first
occurs. Assumptions used in constructing the table include the following: The
loans that are in the "Interest Rate Sensitivity Over One Year But Within 5
Years" and "Nonrate Sensitive or Over 5 Years" columns are all fixed-rate loans
and therefore mature in those time frames. The Bank's certificates of deposits
are substantially all fixed-rate, therefore they are in the columns which
represent the time frames in which they mature. All other interest-bearing
accounts reprice overnight and are therefore in the "Interest Rate Sensitivity
0-90 Days" column. Included in noninterest bearing liabilities is $25,728,000
in demand deposit accounts.
44
<PAGE>
<TABLE>
<CAPTION>
INTEREST RATE SENSITIVITY NON-RATE
0-90 91-180 181-365 OVER 1 YEAR SENSITIVE
DAYS DAYS DAYS BUT WITHIN OR OVER
(0-3 MO) (3-6 MO) (6-12 MO) 5 YRS 5 YRS TOTAL
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Time deposits-other financial institutions $ 594 $ 891 $ 2,673 $ $ $ 4,158
Federal funds sold 16,550 16,550
Investments 973 750 554 2,277
Loans 59,847 6,319 7,621 5,589 319 79,695
Noninterest-earning assets net of
loan loss reserve 11,147 11,147
TOTAL ASSETS $77,964 $ 7,210 $11,044 $ 5,589 $ 12,020 $113,827
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing deposits:
Time deposits over $100,000 $ 5,373 $ 3,138 $ 1,000 $ 1,231 $ $ 10,742
All other interest-bearing deposits 51,097 9,239 4,759 3,821 31 68,947
Total interest-bearing deposits 56,470 12,377 5,759 5,052 31 79,689
Noninterest-bearing liabilities 26,167 26,167
Shareholders' equity 7,971 7,971
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $56,470 $12,377 $ 5,759 $ 5,052 $ 34,169 $113,827
INTEREST RATE SENSITIVITY GAP (1) $21,494 $(5,167) $ 5,285 $ 537 $(22,149)
CUMULATIVE INTEREST RATE SENSITIVITY GAP $21,494 $16,327 $21,612 $22,149
</TABLE>
- --------------------
1 Interest rate sensitivity gap is the difference between interest rate
sensitive assets and interest rate liabilities within the above time frames.
45
<PAGE>
LIQUIDITY
Liquidity refers to the Company's ability to maintain cash flow adequate to
fund operations and meet obligations and other commitments on a timely basis.
Management strives to maintain a level of liquidity sufficient to meet customer
requirements for loan funding and deposit withdrawals. Liquidity requirements
are evaluated by taking into consideration factors such as deposit
concentrations, seasonality and maturities, loan demand, capital expenditures,
and prevailing and anticipated economic conditions. As shown in the Consolidated
Statements of Cash Flows ("Statement") for the years ended December 31, 1996,
1995 and 1994, the Company's usual and primary source of funds has been customer
deposits and cash flow generated from operating activities. While the usual and
primary sources are expected to continue to provide significant amounts of funds
in the future, their mix, as well as those from other sources, will depend on
future economic and other market conditions.
In 1996, the Statement shows that operations and financing activities were
sources of net cash inflows ($510,000 and $8,287,000, respectively) for the
year. These sources were significant enough to increase the overall ending cash
and cash equivalents from $21,886,000 at December 31, 1995 to $24,479,000 at
December 31, 1996, an increase of $2,593,000.
In 1995, the Statement shows that operations and financing activities were
also sources of net cash inflows ($1,000,000 and $17,374,000, respectively) for
the year. These sources increased ending cash and cash equivalents by
$5,667,000, taking the total from $16,219,000 at December 31, 1994 to
$21,886,000 at the end of 1995.
In 1994, the Statement shows that operations and financing activities were
sources of net cash inflow ($1,247,000 and $7,915,000 respectively) for the
year. These sources were the primary reason for the small decrease in ending
cash and cash equivalents from $17,284,000 at December 31, 1993 to $16,219,000
at the end of 1994.
Liquidity is measure by various ratios, the most common being the liquidity
ratio of cash less reserves, time deposits with other financial institutions,
federal funds sold, and unpledged investment securities compared to total
deposits. This ratio was 26% at both December 31, 1996 and December 31, 1995.
Parent Company liquidity is maintained by cash flows stemming primarily
from dividends from the bank. The amount of dividends from the Bank is subject
to certain regulatory restrictions as discussed in Note 12 of the Notes to
Consolidated Financial Statements. The Parent Company financial statements are
presented in Note 16 of the Notes to Consolidated Financial Statements.
CAPITAL ADEQUACY
The Federal Reserve Bank and the Comptroller of the Currency have specified
guidelines for the purpose of evaluating the capital adequacy of bank holding
companies and banks. The table below summarizes the current requirements for
1996 and the Company's and the Bank's compliance therewith.
46
<PAGE>
<TABLE>
<CAPTION>
MINIMUM TIER 1 RISK TOTAL RISK
LEVERAGE BASED CAPITAL BASED CAPITAL
RATIO RATIO RATIO
<S> <C> <C> <C>
Regulatory Requirements
for 1996 4.00% 4.00% 8.00%
Consolidated Company Ratio
at December 31, 1996 7.21% 9.34% 10.99%
Bank Ratio at
December 31, 1996 7.11% 9.22% 10.47%
</TABLE>
The capital levels of both the Bank and the Company at December 31, 1996
currently exceed the regulatory requirements for a "well capitalized"
institution. Management anticipates that both the Company and the Bank will
continue to exceed the regulatory minimums in the foreseeable future. Therefore,
the Company and the Bank have adequate capital in order to expand in the future,
either through loan generation or other means of expansion.
As of the date of this report, management is not aware of any trends, events
or uncertainties that will have, or are reasonable likely to have a material
effect on the Company's liquidity, capital resources, or results of operations.
Additionally, the Company is subject to no current recommendations by any
regulatory authorities which, if implemented, would have such an effect.
EFFECTS OF INFLATION
The impact of inflation on a financial institution differs significantly
from that exerted on an industrial concern, primarily because its assets and
liabilities consist largely of monetary items. The most direct effect of
inflation is higher interest rates. However, the Bank's earnings are affected
by the spread between the yield on earning assets and rates paid on interest-
bearing liabilities rather than the absolute level of interest rates.
Additionally, there may be some upward pressure on the Company's operating
expenses, such as adjustments in staff expense and occupancy expense, based upon
consumer price indices. In the opinion of management, inflation has not had a
material effect on the consolidated results of operations for the last three
years.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Consolidated Balance Sheets as of December 31, 1996 and 1995, and
Consolidated Statements of Income, Statements of Shareholders' Equity and
Statements of Cash Flows for each of the three years in the period ended
December 31, 1996 are incorporated herein by reference to Item 14.
47
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
In September 1996, the Company retained Ernst & Young LLP to be the
Company's auditors for the current year ending December 31, 1996. The Company's
prior auditing firm was Deloitte & Touche LLP. Deloitte & Touche LLP had
audited the Company's financial statements for the years ended December 31, 1988
through December 31, 1995. Deloitte & Touche LLP were dismissed in September
1996. The Company had no disagreements with Deloitte & Touche LLP on any matter
of accounting principles or practices, financial statement disclosure, or
auditing scope of procedures. The accountant's reports on financial statements
for the past eight years did not contain an adverse opinion or a disclaimer of
opinion, nor were they qualified or modified as to uncertainty, audit scope, or
accounting principles. Registrant hereby incorporates by reference herein its
report on Form 8-K filed on September 26, 1996 and amended on October 23, 1996.
48
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
As permitted by General Instruction G(3) to Form 10-K, the information
called for by this Item is incorporated by reference from the section of the
Registrant's 1997 definitive proxy statement entitled "Election of Directors,"
which proxy statement will be filed no later than April 30, 1997.
ITEM 11. EXECUTIVE COMPENSATION.
As permitted by General Instruction G(3) to Form 10-K, the information
called for by this Item is incorporated by reference from the section of the
Registrant's 1997 definitive proxy statement entitled "Remuneration and Other
Information With Respect to Officers and Directors," which proxy statement will
be filed no later than April 30, 1997.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
As permitted by General Instruction G(3) to Form 10-K, the information
called for by this Item is incorporated by reference from the section of the
Registrant's 1997 definitive proxy statement entitled "Security Ownership of
Certain Beneficial Owners and Management," which proxy statement will be filed
no later than April 30, 1997.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
As permitted by General Instruction G(3) to Form 10-K, the information
called for by this Item is incorporated by reference form the section of the
Registrant's 1997 definitive proxy statement entitled "Certain Relationships and
Related Transactions," which proxy statement will be filed no later than April
30, 1997.
49
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) 1. Financial Statements.
Reference
Selected Financial Data
Independent Auditors' Report
Consolidated Financial Statements of
Napa National Bancorp and Subsidiaries:
- Consolidated Balance Sheets as of
December 31, 1996 and 1995
- Consolidated Statements of Income
for the Years Ended December 31,
1996, 1995 and 1994
- Consolidated Statements of
Shareholders' Equity for the Years
Ended December 31, 1996, 1995 and 1994
- Consolidated Statements of Cash
Flows for the Years Ended
December 31, 1996, 1995 and 1994
- Notes to Consolidated Financial
Statements
2. Financial Statement Schedules. In accordance with the rules of
Regulation S-X, schedules are not submitted because (a) they are not
applicable to or required of the Company, or (b) the information
required to be set forth therein is included in the financial
statements or footnotes thereto.
3. Exhibits. See Index to Exhibits to this Form 10-K, for a list of the
exhibits filed as a part of this report and incorporated herein by
reference.
(b) Reports on Form 8-K. During the fourth quarter of 1996, the Company filed an
amended report on Form 8-K dated October 23, 1996, referred to in greater
detail in Item 9 of this report titled "Changes in and Disagreements with
Accountants on Accounting and Financial Disclosure".
50
<PAGE>
[LETTERHEAD OF ERNST & YOUNG LLP]
Report of Independent Auditors
To the Shareholders and Board of Directors of
Napa National Bancorp
We have audited the accompanying consolidated balance sheet of Napa National
Bancorp and subsidiaries as of December 31, 1996, and the related consolidated
statements of income, changes in shareholders' equity and cash flows for the
year then ended. These financial statements are the responsibility of the Napa
National Bancorp's management. Our responsibility is to express an opinion on
these financial statements based on our audit. The financial statements of Napa
National Bancorp for the years ended December 31, 1995 and 1994, were audited by
other auditors whose report dated March 22, 1996, expressed an unqualified
opinion on those statements.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the 1996 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Napa National Bancorp and subsidiaries at December 31, 1996, and the
consolidated results of their operations and their cash flows for the year then
ended in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
February 14, 1997
51
<PAGE>
[LETTERHEAD OF DELOITTE & TOUCHE LLP]
INDEPENDENT AUDITORS' REPORT
To the Shareholders and
Board of Directors of
Napa National Bancorp:
We have audited the accompanying consolidated balance sheet of Napa National
Bancorp and subsidiaries (the "Company") as of December 31, 1995, and the
related consolidated statements of income, shareholder's equity and cash flows
for each of the two years in the period ended December 31, 1995. These financial
statements are the responsibility of the Company'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 consolidated financial statements present fairly, in all
material respects, the financial position of Napa National Bancorp and
subsidiaries at December 31, 1995, and the results of their operations and their
cash flows for each of the two years in the period ended December 31, 1995 in
conformity with generally accepted accounting principles.
/s/Deloitte & Touche LLP
March 22, 1996
52
<PAGE>
Napa National Bancorp and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31
1996 1995
----------------------
(Dollars In Thousands)
<S> <C> <C>
ASSETS
Cash and due from banks $ 7,929 $ 7,106
Federal funds sold 16,550 14,780
Interest-bearing time deposits - other
financial institutions 4,158 4,356
Securities held to maturity
(market value: 1996 - $2,304;
1995 - $1,447) 2,277 1,432
Loans:
Commercial 52,789 48,407
Real estate Construction 8,706 7,850
Real Estate Mortgage 4,918 4,729
Installment 4,216 3,376
Personal lines of credit and other 9,066 10,337
-------------------------
Total loans 79,695 74,699
Less allowance for loan losses (1,405) (1,325)
-------------------------
Loans - net 78,290 73,374
-------------------------
Premises and equipment, net 2,519 2,489
Accrued interest receivable 647 666
Other assets 1,457 648
-------------------------
Total assets $113,827 $104,851
=========================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest-bearing demand $ 25,728 $ 19,068
Interest-bearing:
Savings 11,965 12,305
Transaction 29,317 28,060
Time, $100 and over 10,742 9,449
Other time 27,665 27,870
-------------------------
Total deposits 105,417 96,752
Accrued interest payable 378 528
Other liabilities 61 124
-------------------------
Total liabilities 105,856 97,404
-------------------------
Shareholders' equity:
Preferred stock, no par value:
authorized, 1,000,000 shares,
no shares outstanding - -
Common stock, no par value:
authorized, 20,000,000 shares,
754,500 shares issued and outstanding 6,915 6,915
Retained earnings 1,056 532
-------------------------
Total shareholders' equity 7,971 7,447
-------------------------
Total liabilities and shareholders'
equity $113,827 $104,851
=========================
</TABLE>
See accompanying notes
53
<PAGE>
Napa National Bancorp and Subsidiaries
Consolidated Statements of Income
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
1996 1995 1994
------------------------------------------------------------
<S> <C> <C> <C>
(Dollars In Thousands, Except Share and Per Share Amounts)
Interest income:
Loans (including fees) $ 8,277 $ 7,515 $ 5,619
Federal funds sold 547 583 412
Time deposits with other 230 251 148
financial institutions
Investment securities and
Federal Reserve Bank stock 119 83 47
------------------------------------------------------------
Total interest income 9,173 8,432 6,226
------------------------------------------------------------
Interest expense:
Deposits:
Savings 275 292 323
Transaction 563 517 470
Time, $100 and over 519 392 237
Other time 1,457 1,433 628
------------------------------------------------------------
Total interest expense 2,814 2,634 1,658
------------------------------------------------------------
Net interest income 6,359 5,798 4,568
Provision for loan losses 550 323 149
------------------------------------------------------------
Net interest income after 5,809 5,475 4,419
provision for loan losses
------------------------------------------------------------
Noninterest income:
Service charges on deposit accounts 509 469 382
Other customer fees and charges 207 250 228
Other 90 81 17
------------------------------------------------------------
Total noninterest income 806 800 627
------------------------------------------------------------
Noninterest expense:
Salaries and employee benefit 2,722 2,261 1,964
Occupancy 453 402 277
Professional fees 449 417 176
Equipment 436 380 341
Marketing and business development 170 124 135
Regulatory fees and related expenses 138 208 277
Stationery and supplies 116 95 67
Data processing 124 108 99
Other 491 414 380
------------------------------------------------------------
Total noninterest expense 5,099 4,409 3,716
------------------------------------------------------------
Income before provision for income taxes 1,516 1,866 1,330
Income taxes 614 765 553
------------------------------------------------------------
Net income $ 902 $ 1,101 $ 777
============================================================
Net income per common share $1.00 $1.25 $1.03
============================================================
Weighted average number of shares
outstanding during the year 906,050 882,300 754,500
============================================================
</TABLE>
See accompanying notes.
54
<PAGE>
Napa National Bancorp and Subsidiaries
Consolidated Statements of Changes in Shareholders' Equity
Years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Retained
Number of Earnings
Shares Common (Accumulated
Outstanding Stock Deficit) Total
----------------------------------------------
<S> <C> <C> <C> <C>
(Dollars in Thousands)
Balance, January 1, 1994 754,500 $6,915 $(1,346) $5,569
Net income 777 777
----------------------------------------------
Balance, December 31, 1994 754,500 6,915 (569) 6,346
Net income - - 1,101 1,101
----------------------------------------------
Balance, December 31, 1995 754,500 6,915 532 7,447
Cash dividends paid
($.50 per share) - - (378) (378)
Net income - - 902 902
----------------------------------------------
Balance, December 31, 1996 754,500 $6,915 $ 1,056 $7,971
==============================================
</TABLE>
See accompanying notes.
55
<PAGE>
Napa National Bancorp and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
1996 1995 1994
--------------------------------
<S> <C> <C> <C>
(Dollars in Thousands)
OPERATING ACTIVITIES
Net income $ 902 $ 1,101 $ 777
Reconciliation of net income to net
cash provided by operating activities:
Depreciation and amortization on
premises and equipment 437 325 273
Amortization of deferred loan fees
and premiums on investment securities (376) (304) (241)
Provision for loan losses 550 323 149
Deferred income taxes (31) (160) (114)
Loss on sale of fixed assets - 2 -
(Increase) decrease in accrued interest 19 (234) (134)
receivable
(Increase) decrease in other assets (778) 48 (7)
(Decrease) increase in accrued interest
payable and other liabilities (213) (101) 544
--------------------------------
Net cash provided by operating activities 510 1,000 1,247
INVESTING ACTIVITIES
Loan originations, net of repayments (5,090) (11,298) (7,752)
Net decrease (increase) in time deposits
with other financial institutions 198 1 (2,278)
Activity in securities held to maturity:
Purchases (2,696) (487) (1,214)
Maturities 2,207 475 500
Purchase of FRB and FHLB stock (356) (32) (19)
Proceeds from sales of other real - - 612
estate owned
Purchase of premises and equipment (467) (1,366) (76)
--------------------------------
Net cash used by investing activities (6,204) (12,707) (10,227)
FINANCING ACTIVITIES
Net increase in deposits 8,665 17,374 7,915
Cash dividends paid to shareholders (378) - -
--------------------------------
Net cash provided by financing activities 8,287 17,374 7,915
Increase (decrease) in cash and cash 2,593 5,667 (1,065)
equivalents
Cash and cash equivalents, beginning of year 21,886 16,219 17,284
--------------------------------
Cash and cash equivalents, end of year $24,479 $ 21,886 $ 16,219
================================
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 2,965 $ 2,241 $ 1,630
================================
Income taxes paid (net of refunds received) $ 1,020 $ 1,472 $ 89
================================
</TABLE>
See accompanying notes.
56
<PAGE>
Napa National Bancorp and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1996
(Dollars in Thousands)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
Napa National Bancorp is a bank holding company whose primary investment is Napa
National Bank (the "Bank"). Napa National Bancorp's only other investment is in
a wholly owned inactive leasing subsidiary. The Bank is a full service
community commercial bank with three offices in the Napa Valley area in Northern
California. The Bank's primary source of revenue is from providing loans to
customers, who are predominantly individuals, professionals and small to medium
sized businesses.
PRINCIPLES OF CONSOLIDATION AND USE OF ESTIMATES IN PREPARATION OF FINANCIAL
STATEMENTS
The consolidated financial statements of Napa National Bancorp and subsidiaries
(the "Company") are prepared in conformity with generally accepted accounting
principles and prevailing practices within the banking industry. All material
intercompany transactions and accounts have been eliminated. The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts. These estimates are based on information available as of the date of
the financial statements. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand, amounts due from banks, and
federal funds sold. Generally, federal funds sold are sold for one business
day.
INVESTMENT SECURITIES
Held-to-maturity securities are those securities which management has the
ability and intent to hold to maturity. These securities are stated at cost,
adjusted for amortization of premiums and accretions of discounts to maturity
using methods approximating the interest method. All of the Bank's investment
securities are classified as held-to-maturity.
57
<PAGE>
Napa National Bancorp and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(Dollars in Thousands)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LOANS
Loans are stated at the principal amount outstanding and net of any deferred
loan origination fees or costs. Interest income on loans is accrued daily on a
simple interest basis. The Bank places an asset on nonaccrual status when any
installment of principal or interest is 90 days past due, unless well secured
and in the process of collection, or when management determines that ultimate
collection of principal or interest on a loan is unlikely. When a loan is
placed on nonaccrual, all previously accrued but uncollected interest is
reversed. Cash payments subsequently received on nonaccrual loans are
recognized as income only where the collection of principal is considered by
management as probable. Interest accruals are resumed on such loans only when
they are brought fully current with respect to interest and principal and 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 allowance for loan losses is a reserve established through a provision for
loan losses which is charged to expense. Losses are charged against the
allowance when management believes that the collectibility of the principal is
unlikely. The allowance is maintained at an amount that management believes
will be adequate to absorb losses inherent in existing loans and commitments to
extend credit, based on evaluations of their collectibility and the Bank's prior
loss experience. The evaluations take into consideration such factors as
changes in the nature and volume of the portfolio, overall portfolio quality,
loan concentrations, specific problem loans, and current economic conditions
that may affect the borrowers' ability to repay.
Effective January 1, 1995, the Company adopted Statement of Financial Accounting
Standards No. 114 (SFAS 114), "Accounting by Creditors for Impairment of a
Loan," as amended. Under SFAS 114, a loan is impaired when it is "probable"
that a creditor will be unable to collect all amounts due according to the
contractual terms of the loan agreement. SFAS 114 excludes large groups of
smaller balance homogeneous loans that are collectively evaluated for
impairment. The Company has defined one to four family loans and consumer
loans as homogeneous loans. All homogeneous loans that are 90 days or more
delinquent or are in foreclosure are automatically placed on nonperforming
status. The adoption of SFAS 114 did not have a material effect on the Company's
financial condition or results of operations
58
<PAGE>
Napa National Bancorp and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(Dollars in Thousands)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PREMISES AND EQUIPMENT
Premises and equipment are carried at cost less accumulated depreciation and
amortization. Depreciation and amortization expenses are computed using the
straight-line method over the shorter of estimated useful lives of the related
assets (which are generally three to twenty years) or the lease terms.
Maintenance and repair costs are expensed as incurred, whereas expenditures that
improve or extend the service lives of assets are capitalized.
OTHER REAL ESTATE OWNED
Other real estate owned ("OREO"), which is recorded in other assets, includes
properties acquired through foreclosure or in full or partial satisfaction of
the related loan. OREO also includes loans where the Bank has obtained physical
possession of the related collateral. OREO is carried at the lower of fair
value, net of estimated selling and disposal costs, or cost. Fair value
adjustments are made at the time that real estate is acquired through
foreclosure or when full or partial satisfaction of the related loan is
received. These fair value adjustments are treated as loan losses.
INCOME TAXES
The Company accounts for income taxes under the asset and liability method.
Deferred taxes arise from the effect of temporary differences between the tax
bases of assets and liabilities and their reported amounts in the financial
statements, and from the effect of operating loss carryforwards on taxes payable
in future years based on currently enacted tax law. Deferred tax assets are
reduced by a valuation allowance if, based on available evidence, it is more
likely than not that some or all of the deferred tax assets will not be
realized.
59
<PAGE>
Napa National Bancorp and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(Dollars in Thousands)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK-BASED COMPENSATION
Effective January 1, 1996, the Company adopted Statement of Financial Accounting
Standards No. 123 (SFAS 123), "Accounting for Stock-Based Compensation," which
establishes financial accounting and reporting standards for stock-based
compensation plans. The Company elected to continue accounting for stock-based
employee compensation plans in accordance with Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued To Employees" and related
interpretations, as SFAS 123 permits, and to follow the pro forma net income,
pro forma earnings per share and stock-based compensation plan disclosure
requirements set forth in SFAS 123.
NET INCOME PER COMMON SHARE
Net income per common share is computed by dividing net income by the weighted
average number of common shares and dilutive stock options outstanding during
the year.
RECLASSIFICATION
Certain amounts in prior periods have been reclassified to conform to the 1996
presentation.
2. CASH AND DUE FROM BANKS
The Bank is required to maintain reserves with the Federal Reserve Bank. The
average reserves required for 1996 and 1995 were $952 and $703, respectively.
60
<PAGE>
Napa National Bancorp and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(Dollars in Thousands)
3. SECURITIES HELD TO MATURITY
The amortized cost and fair value of investment securities held to maturity as
of December 31, 1996 and 1995, are summarized as follows:
<TABLE>
<CAPTION>
December 31, 1996
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------------------------------------------
<S> <C> <C> <C> <C>
Securities of U.S.
Government agencies $1,723 $ 27 $ - $1,750
Federal Reserve Bank stock 232 - - 232
Federal Home Loan Bank stock 322 - - 322
---------------------------------------------
Total $2,277 $ 27 $ - $2,304
=============================================
December 31, 1995
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------------------------------------------
Securities of U.S.
Government agencies $1,235 $ 15 $ - $1,250
Federal Reserve Bank stock 197 - - 197
--------------------------------------------
Total $1,432 $ 15 $ - $1,447
=============================================
</TABLE>
Total securities pledged under state regulation to secure deposits amounted to
$1,723 and $1,235 at December 31, 1996 and 1995, respectively.
The maturities of securities of U.S. Government agencies at December 31, 1996
are due within one year.
There were no sales of investment securities in 1996, 1995 and 1994.
61
<PAGE>
Napa National Bancorp and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(Dollars in Thousands)
4. LOANS AND ALLOWANCE FOR LOAN LOSSES
Loans are presented net of unearned income of $374 and $296 at December 31, 1996
and 1995, respectively. Nonaccrual loans past due 90 days or more as of December
31, 1996 and 1995, were approximately $3,152 and $1,447 respectively. The
effect on interest income, had these loans been performing in accordance with
contractual terms as of December 31, 1996 and 1995, would have been an increase
of approximately $188 and $291, respectively.
At December 31, 1996, the Company had approximately $3,152 of loans considered
to be impaired in accordance with SFAS 114. These loans were evaluated for
impairment primarily using the collateral method and required an allowance for
credit losses measured in accordance with SFAS 114 of $204 . Average impaired
loans during the year ended December 31, 1995 amounted to approximately $2,123.
Related interest income recognized on impaired loans during the year ended
December 31, 1996 was approximately $44.
The activity in the allowance for loan losses for the years ended December 31,
1996, 1995 and 1994 is summarized as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
-----------------------------
<S> <C> <C> <C>
Balance, beginning of year $1,325 $1,050 $ 912
Provision for loan losses 550 323 149
Loans charged off (544) (51) (12)
Recoveries 74 3 1
-----------------------------
Balance, end of year $1,405 $1,325 $1,050
=============================
</TABLE>
At December 31, 1996 and 1995, the Bank was servicing loans for the Federal Home
Loan Mortgage Corporation with unpaid principal balances of $23,020 and $22,508,
respectively. Servicing loans for others generally consists of collecting
mortgage payments, maintaining escrow accounts, disbursing payments to investors
and conducting foreclosures proceedings. Loan servicing income is recorded on
the accrual basis and includes servicing fees from investors and certain charges
collected from borrowers, such as late payment fees. Income from loan servicing
amounted to $62, $51 and $60 for the years ended December 31, 1996, 1995 and
1994, respectively.
62
<PAGE>
Napa National Bancorp and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(Dollars in Thousands)
5. PREMISES AND EQUIPMENT
Premises and equipment as of December 31, 1996 and 1995 consisted of the
following:
<TABLE>
<CAPTION>
1996 1995
-------------------
<S> <C> <C>
Equipment $ 1,674 $ 1,485
Bank premises 941 941
Furniture and fixtures 576 530
Leasehold improvements 1,155 923
Automobiles 39 39
-------------------
Total 4,385 3,918
Less accumulated depreciation and (1,866) (1,429)
amortization
-------------------
Total $ 2,519 $ 2,489
===================
</TABLE>
Depreciation and amortization of $437, $325 and $273 was charged to expense for
the years ended December 31, 1996, 1995 and 1994, respectively. The Company and
Bank relocated its head office in 1995, which resulted in the retirement of $341
in fully depreciated assets during that year.
6. DEPOSITS
The aggregate amount of time deposit accounts exceeding $100,000 was $10,742 and
$9,449 at December 31, 1996 and 1995, respectively.
At December 31, 1996, the scheduled maturities for all time deposits is as
follows:
<TABLE>
<CAPTION>
<S> <C>
1997 $33,323
1998 4,882
1999 100
2000 102
2001 -
Thereafter -
----------
$38,407
==========
</TABLE>
63
<PAGE>
Napa National Bancorp and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(Dollars in Thousands)
7. INCOME TAXES
The provision for income taxes for the years ended December 31, 1996, 1995 and
1994 is summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-----------------------
<S> <C> <C> <C>
Current:
Federal $ 471 $ 667 $ 486
State 174 258 181
-----------------------
Total 645 925 667
-----------------------
Deferred:
Federal (26) (126) (75)
State (5) (34) (39)
-----------------------
Total deferred (31) (160) (114)
-----------------------
Provision for income taxes $ 614 $ 765 $ 553
=======================
</TABLE>
The temporary differences and tax carryforwards which created deferred tax
assets and liabilities are detailed below:
<TABLE>
<CAPTION>
DECEMBER 31
1996 1995 1994
-----------------------
<S> <C> <C> <C>
Deferred tax assets:
Reserves not currently deductible $ 546 $ 545 $ 412
Losses not currently deductible 227 227 227
State taxes - 21 3
Deferred loan fees 36 18 33
Other 14 9 6
-----------------------
Gross deferred tax assets 823 820 681
Valuation allowance (170) (170) (170)
-----------------------
Deferred tax assets 653 650 511
-----------------------
Deferred tax liabilities:
Accrual to cash - - (15)
Tax over book depreciation (13) (43) (49)
State taxes (10) - -
-----------------------
Gross deferred tax liabilities (23) (43) (64)
-----------------------
Net deferred tax asset included
in other assets $ 630 $ 607 $ 447
=======================
</TABLE>
64
<PAGE>
Napa National Bancorp and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(Dollars in Thousands)
7. INCOME TAXES (CONTINUED)
Deferred tax assets are recognized to the extent that their realization is more
likely than not. As of December 31, 1996, 1995 and 1994, the Bank was unable to
conclude that the realization of the Company's deferred tax asset was more
likely than not. Accordingly, a valuation allowance has been reflected at
December 31, 1996, 1995 and 1994 to reduce the Bank's deferred tax assets to the
amount likely to be realized.
The difference between the statutory federal income tax rate and the Company's
effective tax rate, expressed as a percentage of income before income taxes, is
as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------------------
<S> <C> <C> <C>
Federal statutory income 34% 34% 35%
tax rate
State franchise tax, less
federal income tax effect 7 8 7
--------------------
Effective income tax rate 41% 42% 42%
====================
</TABLE>
8. TRANSACTIONS WITH RELATED PARTIES
The Company has had, and expects to have in the future, banking transactions,
primarily loans, in the ordinary course of business with directors, executive
officers and their associates. In accordance with Company policy, loans to
related parties are granted on the same terms, including interest rates and
collateral, as those prevailing at the same time for comparable transactions
with others, and do not involve more than the normal risk of collectibility.
Loans to related parties for the years ended December 31, 1996 and 1995, are as
follows:
<TABLE>
<CAPTION>
1996 1995
-----------------
<S> <C> <C>
Balance at beginning of year $ 1,135 $ 1,295
Additions 2,858 1,493
Payments (1,746) (1,653)
Other (89) -
-----------------
Balance at end of year $ 2,158 $ 1,135
=================
</TABLE>
65
<PAGE>
Napa National Bancorp and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(Dollars in Thousands)
8. TRANSACTIONS WITH RELATED PARTIES (CONTINUED)
The Company also had commitments to extend credit to related parties of $337 at
December 31, 1996. Other activity in the table above represents loans to
directors or officers who left the Company during the year and are, therefore,
not considered related parties for purposes of this disclosure. At December 31,
1996 and 1995, an affiliated company of a member of the Board of Directors had
$779 and $445 (0.7% and 0.5% of total deposits), respectively, deposited with
the Company. These deposits were on the same terms as those prevailing at the
same time for comparable transactions with others.
9. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
In the normal course of business, the Company is party to financial instruments
with off-balance sheet risk to meet the financing needs of its customers. These
financial instruments include commitments to extend credit and standby letters
of credit. The instruments involve, to varying degrees elements of credit and
interest rate risk in excess of the amount recognized in the consolidated
balance sheet. The contract or notional amounts of those instruments reflect
the extent of involvement the Company has in particular classes of financial
instruments.
The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit and
standby letters of credit written is represented by the contractual amount of
these instruments.
At December 31, 1996, financial instruments whose contract amounts represent
credit risk were as follows:
<TABLE>
<CAPTION>
1996 1995
--------------------
<S> <C> <C>
Commitments to extend credit $20,467 $18,168
Standby letters of credit 865 646
--------------------
$21,332 $18,814
====================
</TABLE>
66
<PAGE>
Napa National Bancorp and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(Dollars in Thousands)
9. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK (CONTINUED)
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Company evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by the Company upon extension of credit, is based on
management's credit evaluation of the counter-party. Collateral required varies
but may include accounts receivable, inventory, property, plant and equipment,
real estate and income producing commercial properties.
Standby letters of credit are conditional commitments issued by the Company to
guarantee the performance of a customer to a third party. The credit risk
involved in issuing standby letters of credit is essentially the same as that
involved in extending loans to customer. At December 31, 1996, all standby
letters of credit were secured by normal business assets in accordance with the
Company's standard lending practices.
10. CONCENTRATION OF CREDIT RISK
The Company grants residential, commercial, construction, agricultural and
consumer loans to customers principally located in Napa County, California.
Although the Company has a diversified loan portfolio, a substantial portion of
its debtors' ability to honor their contracts is dependent on the economic
conditions of the wine industry. At December 31, 1996, the Company's loans to
companies in the wine industry were $10,933 with commitments to lend an
additional $4,670. The Company requires that loan customers meet the collateral
requirements described in Note 9 for commitments to extend credit.
As of December 31, 1996 and 1995, the Company's real estate loans were
collateralized primarily with real estate located in the Napa Valley area. As
such, the ultimate collectibility of a substantial portion of the Company's loan
portfolio is influenced by the overall condition of the Northern California real
estate market.
67
<PAGE>
Napa National Bancorp and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(Dollars in Thousands)
11. COMMITMENTS AND CONTINGENCIES
The Company and the Bank lease a portion of their banking and office facilities
under noncancelable operating leases. Total minimum future rental payments
under these operating leases at December 31, 1996, are as follows:
<TABLE>
<CAPTION>
<S> <C>
1997 $180
1998 154
1999 109
----
Total $443
====
</TABLE>
Rental expense was $194, $201 and $155 for the years ended December 31, 1996,
1995 and 1994, respectively.
The Company is involved in various legal actions arising from normal business
activities. Management believes that the ultimate resolution of these actions
will not have a material effect on the consolidated financial statements.
12. RESTRICTIONS ON RETAINED EARNINGS
Under the U.S. National Bank Act and other federal laws, the Bank is subject to
prohibitions on the payment of dividends in certain circumstances and to
restrictions on the amount that it can pay without prior approval of the Office
of the Comptroller of the Currency. Without the Comptroller's approval,
dividends for a given year cannot exceed the Bank's retained net income for that
year and retained net profits from the preceding two years. In addition,
dividends may not be paid in excess of the Bank's undivided profits, subject to
other applicable provisions of law. Based upon these restrictions, the Bank
could have declared dividends for 1996 of $2,609 without prior regulatory
approval.
68
<PAGE>
Napa National Bancorp and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(Dollars in Thousands)
13. REGULATORY MATTERS
Napa National Bancorp and the Bank are 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 their financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
Napa National Bancorp and the Bank must meet specific capital guidelines that
involve quantitative measures of the thier assets, liabilities, and certain off-
balance-sheet items as calculated under regulatory accounting practices.
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 that minimum amounts and ratios (set forth in the table below) of total
and Tier I capital (as defined in the regulations) to risk-weighted assets (as
defined), and of Tier I capital (as defined) to average assets (as defined) be
maintained. Management believes, as of December 31, 1996, that Napa National
Bancorp and the Bank meet all capital adequacy requirements.
As of December 31, 1996, the most recent notification from the Office of the
Comptroller of the Currency categorized both Napa National Bancorp and the Bank
as well capitalized under the regulatory framework for prompt corrective action.
To be categorized as well capitalized minimum total risk-based, Tier I risk-
based, and Tier I leverage ratios as set forth in the table below must be
maintained. There are no conditions or events since that notification that
management believes have changed the institution's category.
69
<PAGE>
Napa National Bancorp and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(Dollars in Thousands)
13. REGULATORY MATTERS (CONTINUED)
Napa National Bancorp and the Bank's actual capital amounts and ratios are
presented in the following tables:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
MINIMUM
MINIMUM WELL-CAPITALIZED
ACTUAL REQUIREMENT REQUIREMENT
----------------------------------------------------
CAPITAL RATIO CAPITAL RATIO CAPITAL RATIO
----------------------------------------------------
NAPA NATIONAL BANCORP:
<S> <C> <C> <C> <C> <C> <C>
Leverage $7,971 7.21% $4,423 4.00% $5,528 5.00%
Tier 1 risk-based 7,971 9.34 3,413 4.00 5,121 6.00
Total risk-based 9,376 10.99 6,825 8.00 8,531 10.00
NAPA NATIONAL BANK:
Leverage 7,862 7.11 4,423 4.00 5,529 5.00
Tier 1 risk-based 7,862 9.22 3,411 4.00 5,115 6.00
Total risk-based 8,932 10.47 6,822 8.00 8,531 10.00
DECEMBER 31, 1995
MINIMUM
MINIMUM WELL-CAPITALIZED
ACTUAL REQUIREMENT REQUIREMENT
----------------------------------------------------
CAPITAL RATIO CAPITAL RATIO CAPITAL RATIO
----------------------------------------------------
NAPA NATIONAL BANCORP:
Leverage $7,447 7.45% $3,998 4.00% $4,998 5.00%
Tier 1 risk-based 7,447 9.51 3,132 4.00 4,698 6.00
Total risk-based 8,772 11.20 6,266 8.00 7,832 10.00
NAPA NATIONAL BANK:
Leverage 7,156 7.16 4,000 4.00 4,997 5.00
Tier 1 risk-based 7,156 9.14 3,132 4.00 4,698 6.00
Total risk-based 8,139 10.40 6,263 8.00 7,826 10.00
</TABLE>
70
<PAGE>
Napa National Bancorp and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(Dollars in Thousands)
14. STOCK OPTION PLAN AND STOCK OWNERSHIP PLAN
The Company has a stock option plan that provides for issuance of incentive
stock options (ISO) to certain officers and nonstatutory stock options to
certain members of the Company's Board of Directors to purchase up to 250,000
shares of common stock. Each option entitles the holder to purchase one share of
common stock. Outstanding options that expire at various dates through 2006 have
been granted at a price of $8.00 to $15.35. This price approximates the market
value of the stock at the dates the options were granted. The right to exercise
options vests either immediately or at various rates in each year of future
service. There were 85,200 options available for grant at December 31, 1996.
Option information is summarized below:
<TABLE>
<CAPTION>
PRICE NONSTATUTORY NUMBER OF OPTIONS
---------------------------------
PER SHARE 1996 1995 1994
-------------- ---------------------------------
<S> <C> <C> <C> <C>
Shares under option at
beginning of year $ 8.00 - $8.09 110,000 90,000 100,000
Options canceled $ 8.00 - - (20,000)
Options granted $8.00 - $15.35 10,000 20,000 10,000
---------------------------------
Shares under option at end
of year $8.00 - $15.35 120,000 110,000 90,000
=================================
Shares under option
exercisable at end of year $8.00 - $15.35 102,500 95,000 90,000
=================================
PRICE ISO NUMBER OF OPTIONS
---------------------------------
PER SHARE 1996 1995 1994
-------------------------------------------------
Shares under option at
beginning of year $ 8.00 34,800 31,300 28,800
Options granted $8.00 - $15.35 11,000 3,500 7,500
Options canceled $ 8.00 (1,000) - (5,000)
---------------------------------
Shares under option at end
of year $8.00 - $15.35 44,800 34,800 31,300
=================================
Shares under option
exercisable at end of year $8.00 - $15.35 32,400 32,800 29,800
=================================
</TABLE>
71
<PAGE>
Napa National Bancorp and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(Dollars in Thousands)
14. STOCK OPTION PLAN AND STOCK OWNERSHIP PLAN (CONTINUED)
The table below reflects the Company's net income and net income per common
share (under the Treasury Stock method), if compensation cost for the Company's
stock plan had been determined based on the fair value at the grant date for
awards under their plan. Since pro forma compensation cost relates to all
periods over which the awards vest, the initial impact on pro forma net income
may not be representative of compensation cost in subsequent years.
<TABLE>
<CAPTION>
1996 1995
-----------------
<S> <C> <C>
Net income applicable to common stock $ 866 $1,070
Net income per common share $0.97 $ 1.20
</TABLE>
Fair values of the options were estimated at the date of grant using the Black-
Scholes option pricing model, which includes the following assumptions used for
the stock options awarded during 1996 and 1995, respectively: risk-free
weighted average interest rates of 6.52 percent and 5.77 percent; dividend yield
of .16 percent and 0 percent; expected volatility of 5.6 percent and 1.9
percent; and expected option life for both 1996 and 1995 grants of 8.5 years.
The weighted average grant date fair values of the options granted during 1996
and 1995 were $6.57 and $7.76 per share, respectively. The exercise price of
each option approximates the market price of the Company's common stock on the
date of grant. Expiration dates range from September 16, 1998 to December 16,
2006 for options outstanding at December 31, 1996.
The Company also has an Employee Stock Ownership Trust (the "ESOT"), in which
all employees of the Company are eligible to participate. The ESOT is a
defined-contribution plan which invests in the common stock of the Company. A
portion of these contributions is matched by the Company. The Company's
matching contributions to the ESOT were $74, $60 and $23 for the years ended
December 31, 1996, 1995 and 1994, respectively.
72
<PAGE>
Napa National Bancorp and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(Dollars in Thousands)
15. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of financial instruments amounts have been determined
by using available market information and appropriate valuation methodologies.
However, these estimated fair values are subjective in nature and involve
uncertainties and matters of significant judgment and therefore cannot be
determined with precision. Changes in the market assumptions or estimation
techniques could significantly affect the fair value estimates. Because of the
limitations, the aggregate fair value amounts presented below are not
necessarily indicative of the amounts that could be realized in a current market
exchange.
The carrying amounts and the estimated fair values of the Company financial
instruments at December 31, 1996 are as follows:
<TABLE>
<CAPTION>
CARRYING ESTIMATED
AMOUNT FAIR VALUE
----------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 24,479 $ 24,479
(a)
Interest-bearing time 4,158 4,158
deposits - other financial
institutions (b)
Securities held to maturity 2,277 2,304
(c)
Loans - net (d) 78,290 78,253
LIABILITIES
Deposits (e) 105,417 112,560
OFF-BALANCE SHEET FINANCIAL
INSTRUMENTS (F)
Commitments to extend credit 20,467 20,467
Commercial letters of credit 865 865
</TABLE>
73
<PAGE>
Napa National Bancorp and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(Dollars in Thousands)
15. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The carrying amounts and the estimated fair values of the Company financial
instruments at December 31, 1995 are as follows:
<TABLE>
<CAPTION>
CARRYING ESTIMATED
AMOUNT FAIR VALUE
----------------------
ASSETS
<S> <C> <C>
Cash and cash equivalents (a) $21,886 $21,886
Interest-bearing time deposits
- other financial institution 4,356 4,356
Securities held to maturity (c) 1,432 1,447
Loans - net (d) 73,374 73,302
LIABILITIES
Deposits (e) 96,752 95,560
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS (F)
Commitments to extend credit 18,168 18,168
Commercial letters of credit 646 646
</TABLE>
(a) Cash and cash equivalents: The carrying amount is a reasonable estimate of
fair value.
(b) Interest-bearing time deposits - other financial institutions: The carrying
value is a reasonable estimate of fair value.
(c) Securities held to maturity: Fair values of investment securities are based
on quoted market prices or dealer quotes. If a quoted market price was not
available, fair value was estimated using quoted market prices for similar
securities.
(d) Loans - net: Fair values for certain commercial construction, revolving
consumer credit and other loans were estimated by discounting the future
cash flows using current rates at which similar loans would be made to
borrowers with similar credit ratings and maturities. Certain adjustable
rate loans and leases have been valued at their carrying values, since the
interest rate adjustment characteristics of the loan or lease effectively
adjust the interest rate to maintain a market rate of return.
74
<PAGE>
Napa National Bancorp and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(Dollars in Thousands)
15. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
(e) Deposits: The fair value of noninterest-bearing, adjustable rate deposits
and deposits without fixed maturity dates is the amount payable upon demand
at the reporting date. The fair value of fixed-rate interest-bearing
deposits with fixed maturity dates was estimated by discounting the cash
flows using rates currently offered for deposits of similar remaining
maturities.
(f) Off-balance-sheet instruments: The fair value of commitments to extend
credit is estimated using 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 fair values of
standby and commercial letters of credit are based on fees currently charged
for similar agreements or on the estimated cost to terminate them or
otherwise settle the obligations with the counterparties, reduced by the
remaining net deferred income associated with such obligations.
16. NAPA NATIONAL BANCORP (PARENT COMPANY ONLY)
The condensed financial statements of Napa National Bancorp are as follows:
<TABLE>
<CAPTION>
BALANCE SHEETS AS OF DECEMBER 31, 1996
AND 1995
1996 1995
------------------
<S> <C> <C>
ASSETS
Cash $ 93 $ 278
Investments in subsidiaries 7,975 7,269
Accrued interest receivable and other assets 145 16
------------------
Total assets $8,083 $7,563
==================
LIABILITIES
Accrued expenses and other liabilities $ 112 $ 116
Shareholders' equity:
Preferred stock, no par value:
1,000,000 shares authorized,
no shares outstanding - -
Common stock, no par value:
20,000,000 shares authorized,
754,500 shares issued and 6,915 6,915
outstanding
Retained earnings 1,056 532
-------------------
Total shareholders' equity 7,971 7,447
-------------------
Total liabilities and shareholders' $8,083 $7,563
equity
===================
</TABLE>
75
<PAGE>
Napa National Bancorp and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(Dollars in Thousands)
16. NAPA NATIONAL BANCORP (PARENT COMPANY ONLY) (CONTINUED)
<TABLE>
<CAPTION>
STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1996 1995 1994
-------------------------
<S> <C> <C> <C>
Income:
Interest income $ 3 $ 6 $ 6
Dividend from subsidiaries 200 - -
Other income - 12 -
-------------------------
Total income 203 18 6
-------------------------
Expenses:
Salaries and employee benefits - 46 -
Other expense 7 1 3
-------------------------
Total expenses 7 47 3
-------------------------
Income (Loss) before applicable
taxes and equity in undistributed
net income of subsidiaries 196 (29)
Applicable Income Taxes - - -
-------------------------
Income (Loss) before equity in
undistributed net income of
subsidiaries 196 (29) 3
Equity in undistributed net
income of subsidiaries 706 1,130 774
-------------------------
Net income $ 902 $ 1,101 $ 777
=========================
STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1996 1995 1994
-------------------------
Operating activities:
Net income $ 902 $ 1,101 $ 777
Reconciliation of net income to
net cash provided (used) by
operating activities:
Equity in undistributed net
income of subsidiaries (706) (1,130) (774)
Decrease in accrued interest
receivable 1 - -
(Decrease) increase in accrued
expenses and other liabilities,
net (4) - -
-------------------------
Net cash (used) provided by operating
activities 193 (29) 3
Financing activities:
Cash dividends paid to shareholders (378) - -
-------------------------
Net cash (used) by financing
activities (378) - -
Net (decrease) increase in cash (185) (29) 3
Cash at beginning of year 278 308 305
-------------------------
Cash at end of year $ 93 $ 278 $ 308
=========================
</TABLE>
76
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: March 26, 1997.
NAPA NATIONAL BANCORP
By /s/ Brian J. Kelly
President/COO
By /s/ Michael D. Irwin
Chief Financial Officer
(Principal Accounting Officer)
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Brian J. Kelly and Michael D. Irwin jointly and
severally, his attorneys-in-fact, each with the power of substitution, for him
in any and all capacities, to sign any amendments to this Annual Report on Form
10-K, and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that each of said attorneys-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
March 26, 1997
/s/ William A. Bacigalupi
Director
March 26, 1997
/s/ Dennis D. Groth
Director
March 26, 1997
/s/ E. James Hedemark
Director
March 26, 1997
/s/ Michael D. Irwin
Director
Chief Financial Officer
(Principal Accounting Officer)
<PAGE>
March 26, 1997
/s/ Brian J. Kelly
President and COO
Director
March 26, 1997
/s/ C. Richard Lemon
Secretary and Director
March 26, 1997
/s/ Joseph G. Peatman
Director
March 26, 1997
/s/ A. Jean Phillips
Director
March 26, 1997
/s/ George M. Schofield
Director
March 26, 1997
/s/ W. Clarke Swanson, Jr.
Chairman of the Board and CEO
<PAGE>
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
3(i) Articles of Incorporation of the Registrant, as
amended.
3(ii).1 Restated Bylaws of the Registrant.
4.1 A specimen copy of the certificates evidencing Common
Stock.
10.1 Napa National Bancorp 1992 Stock Option Plan.
10.2 Form of Incentive Stock Option Agreement
10.3 Form of Nonstatutory Stock Option Agreement
16.1* Letter re change in certifying accountants. (Exhibit
16.1 to Form 8-K/A filed on October 23, 1996.)
21.1* Subsidiaries of the Registrant.
24.1 Power of Attorney (located on signature page hereof)
27 Financial Data Schedule
99.1* Registrant's Form 8-K filed on September 26, 1996, and
amended on October 23, 1996.
*Previously filed.
<PAGE>
EXHIBIT 3.I
ARTICLES OF INCORPORATION
OF
NAPA NATIONAL BANCORP
FIRST
-----
The name of this corporation is:
Napa National Bancorp
SECOND
------
The purpose of the corporation is to engage in any lawful
act or activity for which a corporation may be organized under the
General Corporation Law of California other than the banking business,
the trust company business or the practice of a profession permitted
to be incorporated by the California Corporations Code.
THIRD
-----
The name and address of this corporation's initial agent for
service of process is:
Alan G. Tait
1500 Third Street
Suite "D"
Napa, CA 94558
FOURTH
------
(a) This corporation is authorized to issue two classes of
shares designated "Preferred Stock" and "Common Stock", respectively.
The number of shares of Preferred
<PAGE>
Stock authorized to be issued is One Million (1,000,000) and the
number of shares of Common Stock authorized to be issued is Twenty
Million (20,000,000).
(b) The Preferred Stock may be divided into such number of
series as the board of directors may determine. The board of directors
is authorized to determine and alter the rights, preferences,
privileges and restrictions granted to and imposed upon the Preferred
Stock or any series thereof with respect to any wholly unissued class
or series of Preferred Stock, and to fix the number of shares of any
series of Preferred Stock and the designation of any such series of
Preferred Stock. The board of directors, within the limits and
restrictions stated in any resolution or resolutions of the board of
directors originally fixing the number of shares constituting any
series, may increase or decrease (but not below the number of shares
of such series then outstanding) the number of shares of any series
subsequent to the issue of shares of that series.
IN WITNESS WHEREOF, for the purpose of forming this
corporation under the laws of the State of California I, the
undersigned incorporator, have executed these Articles of
Incorporation this 30th day of October, 1981.
/s/ Ronald W. Bachli
_________________________
RONALD W. BACHLI
-2-
<PAGE>
DECLARATION
-----------
I declare that I am the person who executed the foregoing
Articles of Incorporation and that said instrument is my act and deed.
Executed at San Francisco, California, this 30th day of
October, 1981.
/s/ Ronald W. Bachli
_____________________________
RONALD W. BACHLI
<PAGE>
EXHIBIT 3.II
RESTATED
--------
BY-LAWS
-------
OF
--
NAPA NATIONAL BANCORP
---------------------
A CALIFORNIA CORPORATION
------------------------
ARTICLE 1
---------
Meetings of Shareholders
------------------------
Section 1.1 Place of Meetings. All meetings of
-----------------
shareholders shall be held at the principal administrative
office of the corporation or at any other place within the
State of California which may be designated either by the board
of directors or by the shareholders in accordance with these
by-laws.
Section 1.2 Annual Meetings. The Annual Meeting of
---------------
Shareholders shall be held on the second Tuesday in May in each
year or on such other date as the board of directors by
resolution may designate, at which time the shareholders shall
elect a board of directors and transact such other business as
may properly be brought before the meeting.
Section 1.3 Special Meetings. Special meetings of the
----------------
shareholders, for the purpose of taking any action which is
within the powers of the shareholders, may be called at any
time by the chairperson of the board, the chief executive
officer, the president, the board of directors or the holders
of shares entitled to cast not less than ten percent (10%) of
the votes at the meeting.
Section 1.4 Notice of Meetings of Shareholders.
----------------------------------
(a) Written notice of each meeting of shareholders,
whether annual or special, shall be given to each shareholder
entitled to vote thereat, either personally or by mail or other
means of written communication, charges prepaid, addressed to
such shareholder at the address of such shareholder appearing
on the books of the corporation or given by such shareholder to
the corporation for the purpose of notice. If any notice
addressed to the shareholder at the address of such shareholder
appearing on the books of the corporation is returned to the
corporation by the United States Postal Service marked to
indicate that the United States Postal Service is unable to
deliver the notice to the shareholder at such address, all
future notices shall be deemed to have been duly given without
further mailing if the same shall be available for the
shareholder upon written demand of the shareholder at the
principal administrative office of the corporation for a period
of one (1) year from the date of the giving of the notice to
all other shareholders. If no address appears on the books of
the corporation or is given by the shareholder to the
corporation for the purpose of notice, notice shall be deemed
to have been given to such shareholder if sent by mail or other
means of written communication addressed to the place where the
principal administrative office of the corporation is located,
or if published at least once in a newspaper of general
circulation in the county in which the principal administrative
office is located.
(b) All such notices shall be given not less than
tell (10) days nor more than sixty (60) days before the meeting
to each shareholder entitled to vote thereat. Any such notice
shall be deemed to have been given at the time when delivered
personally or deposited in the mail or sent by other means of
written communication. An affidavit of mailing of any such
notice in accordance with the foregoing provisions, executed by
the secretary, assistant secretary or any transfer agent of the
corporation, shall be prima facie evidence of the giving of the
notice.
-1-
<PAGE>
(c) All such notices shall state the place, date and
hour of such meeting. In the case of a special meeting such
notice shall also state the general nature of the business to
be transacted at such meeting, and no other business may be
transacted thereat. In the case of an annual meeting, such
notice shall also state those matters which the board of
directors at the time of the mailing of the notice intends to
present for action by the shareholders.
(d) The notice of any meeting at which directors are
to be elected shall include the names of nominees intended at
the time of the notice to be presented by management for
election.
(e) Upon request in writing that a special meeting of
shareholders be called for any proper purpose, directed to the
chairperson of the board, chief executive officer, president,
vice president or secretary by any person (other than the
board) entitled to call a special meeting of shareholders, the
officer forthwith shall cause notice to be given to the
shareholders entitled to vote that a meeting will be held at a
time requested by the person or persons calling the meeting,
not less than thirty-five (35) nor more than sixty (60) days
after receipt of the request.
Section 1.5 Quorum. The presence in person or by
------
proxy of the holders of a majority of the shares entitled to
vote at any meeting shall constitute a quorum for the
transaction of business. The shareholders present at a duly
called or held meeting at which a quorum is present may
continue to transact business until adjournment,
notwithstanding the withdrawal of enough shareholders to leave
less than a quorum, if any action taken (other than
adjournment) is approved by at least a majority of the shares
required to constitute a quorum.
Section 1.6 Adjourned Meetings and Notice Thereof.
-------------------------------------
(a) Any shareholders' meeting, annual or special,
whether or not a quorum is present, may be adjourned from time
to time by vote of a majority of the shares, the holders of
which are either present in person or by proxy thereat, but in
the absence of a quorum, no other business may be transacted at
any such meeting, except as provided in Section 1.5 herein.
(b) When a shareholders' meeting is adjourned to
another time or place, except as provided in this subsection
(b), notice need not be given of the adjourned meeting if the
time and place thereof are announced at the meeting at which
the adjournment is taken. At the adjourned meeting the
corporation may transact any business which might have been
transacted at the original meeting. If the adjournment is for
more than forty-five (45) days or if after the adjournment a
new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each shareholder of
record entitled to vote at the meeting.
Section 1.7 Nomination of Directors. Nominations for
-----------------------
election of members of the board of directors may be made by
the board of directors or by any shareholder of any outstanding
class of capital stock of the corporation entitled to vote for
the election of directors. Notice of intention to make any
nominations (other than for persons named in the notice of the
meeting at which such nomination is to be made) shall be made
in writing and shall be delivered or mailed to the president of
the corporation by the later of the close of business twenty-
one (21) days prior to any meeting of shareholders called for
the election of directors or ten (10) days after the date of
mailing of notice of the meeting to shareholders. Such
notification shall contain the following information to the
extent known to the notifying shareholder: (a) the name and
address of each proposed nominee; (b) the number of shares of
capital stock of the corporation owned by each proposed
nominee; (c) the name and residence address of the notifying
shareholder; (d) the number of shares of capital stock of the
corporation owned by the notifying shareholder; (e) with the
written consent of the proposed nominee, a copy of which shall
be furnished with the notification, whether the proposed
nominee has ever
-2-
<PAGE>
been convicted of or pleaded nolo contendere to any criminal offense
involving dishonesty or breach of trust, filed a petition in bankruptcy
or been adjudged bankrupt. The notice shall be signed by the nominating
shareholder and by the nominee. Nominations not made in accordance
herewith shall be disregarded by the chairperson of the meeting, and
upon his or her instructions, the inspectors of election shall disregard
all votes cast for each such nominee. The restrictions set forth in this
paragraph shall not apply to nomination of a person to replace a
proposed nominee who has died or otherwise become incapacitated to serve
as a director between the last day for giving notice hereunder and the
date of election of directors if the procedure called for in this
paragraph was followed with respect to the nomination of the proposed
nominee. A copy of this paragraph shall be set forth in a notice to
shareholders of any meeting at which directors are to be elected.
Section 1.8 Voting and Record Dates.
-----------------------
(a) Voting Rights of Shares and Shareholders.
----------------------------------------
(i) Except as provided in section 708 of the
California General Corporation Law (election of directors) and
except as may be otherwise provided in the articles of
incorporation of this corporation, each outstanding share,
regardless of class, shall be entitled to one vote on each
matter submitted to a vote of shareholders.
(ii) Any holder of shares entitled to vote on any
matter may vote part of the shares in favor of the proposal and
refrain from voting the remaining shares or vote them against
the proposal, other than elections to office; but, if the
shareholder fails to specify the number of shares such
shareholder is voting affirmatively, it will be conclusively
presumed that the shareholder's approving vote is with respect
to all shares such shareholder is entitled to vote.
(b) Record Date Requirements.
------------------------
(i) In order that the corporation may determine the
shareholders entitled to notice of any meeting or to vote or
entitled to receive payment of any dividend or other
distribution or allotment of any rights or entitled to exercise
any rights in respect of any other lawful action, the board may
fix, in advance, a record date, which shall not be more than
sixty (60) nor less than ten (10) days prior to the date of
such meeting nor more than sixty (60) days prior to any other
action.
(ii) If no record date is fixed:
(A) The record date for determining shareholders entitled to
notice of or to vote at a meeting of shareholders shall be at the
close of business on the business day preceding the day on which
notice is given or, if notice is waived, at the close of business on
the business day next preceding the day on which the meeting is
held.
(B) The record date for determining shareholders entitled to
give consent to corporate action in writing without a meeting, when
no prior action by the board has been taken, shall be the day on
which the first written consent is given.
(C) The record date for determining shareholders for any other
purpose shall be at the close of business on the day on which the
board adopts the resolution relating thereto, or the sixtieth (60th)
day prior to the date of such other action, whichever is later.
(iii) A determination of shareholders of record entitled to
notice of or to vote at a meeting of shareholders shall apply to any
adjournment of the meeting unless the board fixes a new record date for the
adjourned meeting, but the board shall fix a new record date if the meeting
is adjourned for more than forty-five (45) days from the date set for the
original meeting.
-3-
<PAGE>
(iv) Shareholders as of the record date are entitled
to notice and to vote or to receive the dividend, distribution
or allotment of rights or to exercise the rights, as the case
may be, notwithstanding any transfer of any shares on the books
of the corporation after the record date, except as otherwise
provided in the articles of incorporation of this corporation
or by agreement or in the California General Corporation Law.
(c) Voting of Shares by Fiduciaries, Receivers,
-------------------------------------------
Pledgeholders and Minors.
------------------------
(i) Subject to subsection 1.8(d)(iii), shares held by
an administrator, executor, guardian, conservator or custodian
may be voted by such holder either in person or by proxy,
without a transfer of such shares into the holder's name; and
shares standing in the name of a trustee may be voted by the
trustee, either in person or by proxy, but no trustee shall be
entitled to vote shares held by such trustee without a transfer
of such shares into the trustee's name.
(ii) Shares standing in the name of a receiver may be
voted by such receiver; and shares held by or under the control
of a receiver may be voted by such receiver without the
transfer thereof into the receiver 5 name if authority to do so
is contained in the order of the court by which such receiver
was appointed.
(iii) Subject to the provisions of Section 1.11
herein and except where otherwise agreed in writing between the
parties, a shareholder whose shares are pledged shall be
entitled to vote such shares until the shares have been
transferred into the name of the pledgee, and thereafter the
pledgee shall be entitled to vote the shares so transferred.
(iv) Shares standing in the name of a minor may be
voted and the corporation may treat all rights incident thereto
as exercisable by the minor, in person or by proxy, whether or
not the corporation has notice, actual or constructive, of the
nonage, unless a guardian of the minor's property has been
appointed and written notice of such appointment given to the
corporation.
(d) Voting of Shares by Other Corporations.
--------------------------------------
(i) Shares of this corporation standing in the name
of another corporation, domestic or foreign, may be voted by
such officer, agent or proxyholder as the by-laws of such other
corporation may prescribe or, in the absence of such provision,
as the board of such other corporation may determine or, in the
absence of such determination, by the chairperson of the board,
president or any vice president of such other corporation, or
by any other person authorized to do so by the chairperson of
the board, president or any vice president of such other
corporation. Shares which are purported to be voted or any
proxy purported to be executed in the name of a corporation
(whether or not any title of the person signing is indicated)
shall be presumed to be voted or the proxy executed in
accordance with the provisions of this subdivision, unless the
contrary is shown.
(ii) Shares of this corporation owned by a subsidiary shall
not be entitled to vote on any matter.
(iii) Shares of this corporation held by this
corporation in a fiduciary capacity, and any of its shares held
in a fiduciary capacity by its subsidiary, shall not be
entitled to vote on any matter, except to the extent that the
settlor or beneficial owner possesses and exercises a right to
vote or to give the corporation binding instructions as to how
to vote such shares.
(e) Voting of Shares Owned of Record by Two (2) or
----------------------------------------------
More Persons.
------------
(i) If shares stand of record in the names of two (2)
or more persons, whether fiduciaries, members of a partnership,
joint tenants, tenants in common, husband and wife as community
property, tenants by the entirety, voting trustees, persons
entitled
-4-
<PAGE>
to vote under a shareholder voting agreement or otherwise, or if two
(2) or more persons (including proxyholders) have the same
fiduciary relationship respecting the same shares, unless the
secretary of the corporation is given written notice to the
contrary and is furnished with a copy of the instrument or
order appointing them or creating the relationship wherein it
is so provided, their acts with respect to voting shall have
the following effect:
(A) If only one (1) votes, such act binds all;
(B) If more than one (1) votes, the act of the majority so
voting binds all;
(C) If more than one (1) votes, but the vote is evenly split
on any particular matter, each faction may vote the securities in
question proportionately.
If the instrument so filed or the registration of the shares shows that
any such tenancy is held in unequal interests, a majority or even split
for the purpose of this section shall be a majority or even split in
interest.
(f) Election of Directors; Cumulative Voting.
----------------------------------------
(i) Every shareholder complying with subsection
1.8(f)(ii) and entitled to vote at any election of directors
may cumulate such shareholder's votes. In such event, each
shareholder shall be entitled to a number of votes equal to the
number of directors to be elected at the election multiplied by
the number of votes to which the shareholder's shares are
entitled.
(ii) No shareholder shall be entitled to cumulate
votes (i.e., cast for any one (1) or more candidates a number
of votes greater than the number of the shareholder's shares)
unless such candidate's or candidates' names have been placed
in nomination prior to the voting and the shareholder has given
notice at the meeting prior to the voting of the shareholder's
intention to cumulate the shareholder's votes. If any one (1)
shareholder has given such notice, all shareholders may
cumulate their votes for candidates in nomination.
(iii) In any election of directors, the candidates
receiving the highest number of votes of the shares entitled to
be voted for them, up to the number of directors to be elected,
are elected.
(iv) Elections for directors need not be by ballot
unless a shareholder demands election by ballot at the meeting
and before the voting begins.
Section 1.9 Waiver of Notice and Consent of Absentees.
-----------------------------------------
The transactions of any meeting of shareholders, either annual or
special, however called and noticed and wherever held, are as valid as
though transacted at a meeting duly held after regular call and notice,
if a quorum is present either in person or by proxy, and if, either
before or after the meeting, each of the persons entitled to vote, not
present in person or by proxy, signs a written waiver of notice or a
consent to the holding of the meeting, or an approval of the minutes
thereof. All such waivers, consents and approvals shall be filed with
the corporate records or made part of the minutes of the meeting.
Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person objects, at the beginning of the
meeting, to the transaction of any business because the meeting is not
lawfully called or convened and except that attendance at a meeting is
not a waiver of any right to object to the consideration of matters
required by law or these by-laws to be included in the notice but which
was not so included, if such objection is expressly made at the meeting;
provided, however, that any person making such objection at the
beginning of the meeting or to the consideration of matters required to
be but not included in the notice may orally withdraw such objection at
the meeting or thereafter waive such objection by signing a written
waiver thereof or a consent to the holding of
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<PAGE>
the meeting or the consideration of the matter or an approval of
the minutes of the meeting. Neither the business to be transacted
at, nor the purpose of, any annual or special meeting of
shareholders needs to be specified in any written waiver of
notice, except that the general nature of a proposal to amend
the articles of incorporation of the corporation and the
proposals specified in subparagraphs (A) through (E) of
subsection 1.10(c)(i) shall be so stated.
Section 1.10 Action Without A Meeting.
------------------------
(a) Directors may be elected without a meeting by a
consent in writing, setting forth the action so taken) signed
by all of the persons who would be entitled to vote for the
election of directors; provided that a director may be elected
at any time to fill a vacancy not filled by the directors by
the written consent of persons holding a majority of the
outstanding shares entitled to vote for the election of
directors.
(b) Any other action which, under any provision of
the California General Corporation Law may be taken at any
annual or special meeting of the shareholders, may be taken
without a meeting, and without prior notice except as
hereinafter set forth, if a consent in writing, setting forth
the action so taken, is signed by the holders of outstanding
shares having not less than the minimum number of votes that
would be necessary to authorize or take such action at a
meeting to which all shares entitled to vote thereon were
present and voted.
(c) Unless the consents of all shareholders entitled
to vote have been solicited in writing:
(i) Notice of any shareholder approval without a
meeting, by less than unanimous written consent, of (A) a
contract or other transaction between the corporation and one
or more of its directors or any corporation, firm or
association in which one or more of its directors has a
material financial interest or is also a director, (B)
indemnification of an agent of the corporation as authorized by
the articles of incorporation of the corporation, (C) a
reorganization of the corporation as defined in section 181 of
the California General Corporation Law, (D) an election to wind
up and dissolve the corporation, or (E) the distribution of
shares, obligations or securities of any other corporation or
assets other than money which is not in accordance with the
liquidation rights of preferred shares if the corporation is in
the process of winding up, shall be given at least ten (10)
days before the consummation of the action authorized by such
approval; and
(ii) Prompt notice shall be given of the taking of
any other corporate action, including the filling of a vacancy
on the board of directors, approved by shareholders without a
meeting, by less than unanimous written consent, to those
shareholders entitled to vote who have not consented in
writing. Such notices shall be given in the manner and shall be
deemed to have been given as provided in Section 1.4 herein.
(d) Any shareholder giving a written consent, or the
shareholder's proxyholders, or a transferee of the shares or a
personal representative of the shareholder or their respective
proxyholders, may revoke the consent by a writing received by
the corporation prior to the time that written consents of the
number of shares required to authorize the proposed action have
been filed with the secretary of the corporation, but may not
do so thereafter. Such revocation is effective upon its receipt
by the secretary of the corporation.
Section 1.11 Proxies.
-------
(a) Every person entitled to vote shares or execute
consents may authorize another person or persons to act by
proxy with respect to such vote or consent. Any proxy
purporting to be executed in accordance with the provisions of
this Section 1.11 shall be presumptively valid.
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<PAGE>
(b) No proxy shall be valid after the expiration of
eleven (11) months from the date thereof unless otherwise
provided in the proxy. Every proxy continues in full force and
effect until revoked by the person executing it prior to the
vote pursuant thereto, except as otherwise provided in this
Section 1.11. Such revocation may be effected by a writing
delivered to the corporation stating that the proxy is revoked
or by a subsequent proxy executed by, or by attendance at a
meeting and voting in person by, the person executing the
proxy. The dates contained on the forms of proxy presumptively
determine the order of execution, regardless of the postmark
dates on the envelopes in which they are mailed.
(c) A proxy is not revoked by the death or incapacity
of the maker unless, before the vote is counted, written notice
of such death or incapacity is received by the corporation.
(d) Except when other provision shall have been made
by written agreement between the parties, the recordholder of
shares that such person holds as pledgee or otherwise as
security or which belong to another shall issue to the pledgor
or the owner of such shares, upon demand therefor and payment
of necessary expenses thereof, a proxy to vote or take other
action thereon.
(e) A proxy which states that it is irrevocable is
irrevocable for the period specified therein (notwithstanding
Section 1.11(b)) when it is held by any of the following or a
nominee of any of the following:
(i) A pledgee;
(ii) A person who has purchased or agreed to purchase
or holds an option to purchase the shares of a person who has
sold a portion of such person's shares in the corporation to
the maker of the proxy;
(iii) A creditor or creditors of the corporation or
the shareholder who extended or continued credit to the
corporation or the shareholder in consideration of the proxy if
the proxy states that it was given in consideration of such
extension or continuation of credit and the name of the person
extending or continuing credit;
(iv) A person who has contracted to perform services
as an employee of the corporation, if a proxy is required by
the contract of employment and if the proxy states that it was
given in consideration of such contract of employment, the name
of the employee and the period of employment contracted for; or
(v) A person designated by or under an agreement
under section 706 of the California General Corporation Law.
Notwithstanding the period of irrevocability
specified, the proxy becomes revocable when the pledge is
redeemed, the option or agreement to purchase is terminated,
the seller no longer owns any shares of the corporation or
dies, the debt of the corporation or the shareholder is paid,
the period of employment provided for in the contract of
employment has terminated or the agreement under section 706 of
the California General Corporation Law has terminated. In
addition to the foregoing subdivisions (i) through (v), a proxy
may be made irrevocable (notwithstanding Section 1.11(b) above)
if it is given to secure the performance of a duty or to
protect a title, either legal or equitable, until the happening
of events which, by its terms, discharge the obligations
secured by it.
(f) A proxy may be revoked, notwithstanding a
provision making it irrevocable, by a purchaser of shares
without knowledge of the existence of the provision, unless the
existence of the proxy and its irrevocability appears on the
certificate representing such shares.
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<PAGE>
Section 1.12 Inspectors of Election.
----------------------
(a) In advance of any meeting of shareholders, the
board of directors may appoint any persons as inspectors of
election to act at such meeting or any adjournment thereof. If
inspectors of election are not so appointed, or if any person
so appointed fails to appear or refuses to act, the chairperson
of any such meeting may, and on the request of any shareholder
or his or her proxy shall, make such appointment at the.
meeting. The number of inspectors shall be either one (1) or
three (3). If appointed at a meeting on the request of one (1)
or more shareholders or proxies, the majority of shares
represented in person or by proxy shall determine whether one
(1) or three (3) inspectors are to be appointed.
(b) The inspectors of election shall determine the
number of shares outstanding and the voting power of each, the
shares represented at the meeting, the existence of a quorum
and the authenticity, validity and effect of proxies, receive
votes, ballots or consents, hear and determine all challenges
and questions in any way arising in connection with the right
to vote, count and tabulate all votes and consents, determine
when the polls shall close, determine the result and do such
acts as may be proper to conduct the election or vote with
fairness to all shareholders.
(c) The inspectors of election shall perform their
duties impartially, in good faith, to the best of their ability
and as expeditiously as is practical. If there are three (3)
inspectors of election, the decision, act or certificate of a
majority is effective in all respects as the decision, act or
certificate of all. Any report or certificate made by the
inspectors of election is prima facie evidence of the facts
stated therein.
ARTICLE 2
---------
Directors
---------
Section 2.1 Powers. Subject to the California General
------
Corporation Law and any limitations in the articles of
incorporation of this corporation relating to action requiring
shareholder authorization or approval, the business and affairs
of the corporation shall be managed and all corporate powers
shall be exercised by or under the direction of the board of
directors.
Section 2.2 Number and Qualification of Directors.
-------------------------------------
The number of directors of the corporation shall not be less
than eight (8) nor more than fifteen (15) until changed by a
by-law amending this Section 2.2 duly adopted by the vote or
written consent of holders of a majority of the outstanding
shares entitled to vote. The exact number of directors shall be
fixed from time to time, within the limits specified in this
Section 2.2, by a by-law or amendment thereof or by a
resolution duly adopted by a vote of a majority of the shares
entitled to vote represented at a duly held meeting at which a
quorum is present, by the written consent of the holders of a
majority of the outstanding shares entitled to vote, or by
resolution of the board of directors.
Section 2.3 Election and Term of Office. The
---------------------------
directors shall be elected at each annual meeting of
shareholders, but if any such annual meeting is not held or the
directors are not elected at any annual meeting, the directors
may be elected at any special meeting of shareholders held for
that purpose or by written consent in accordance with Section
1.10. Each director, including a director elected to fill a
vacancy, shall hold office until the expiration of the term for
which elected and until his or her successor has been elected
and qualified, subject to the California General Corporation
Law and the provisions of these by-laws with respect to
vacancies on the board.
Section 2.4 Resignation and Removal of Directors. Any
------------------------------------
director may resign effective upon giving written notice to the
chairperson of the board, the president, the secretary, or the
board of directors of the corporation, unless the notice
specifies a later time for the effectiveness of such
resignation. If the resignation is effective at a
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<PAGE>
future time, a successor may be elected to take office when the
resignation becomes effective. The board of directors may declare vacant
the office of a director who has been declared of unsound mind by an
order of court or convicted of a felony. Any or all of the directors may
be removed without cause if such removal is approved by the affirmative
vote of a majority of the outstanding shares entitled to vote; provided
that no director may be removed (unless the entire board is removed)
when the votes cast against removal (or, if such action is taken by
written consent, the shares held by persons not consenting in writing to
such removal) would be sufficient to elect such director if voted
cumulatively at an election at which the same total number of votes were
cast (or, if such action is taken by written consent, all shares
entitled to vote were voted) and the entire number of directors
authorized at the time of the director's most recent election were then
being elected. No reduction of the authorized number of directors shall
have the effect of removing any director prior to the expiration of his
or her term of office.
Section 2.5 Vacancies. A vacancy or vacancies on the
---------
board of directors shall exist on the death, resignation or
removal of any director, or if the board declares vacant the
office of a director if he or she is declared of unsound mind
by an order of court or is convicted of a felony, or if the
authorized number of directors is increased, or if the
shareholders fail to elect the full authorized number of
directors to be voted for at any shareholders' meeting at which
an election of directors is held. Vacancies on the board of
directors (except vacancies created by the removal of a
director) may be filled by a majority of the directors then in
office, whether or not less than a quorum, or by a sole
remaining director. The shareholders may elect a director at
any time to fill any vacancy not filled by the directors or
which occurs by reason of the removal of a director. Any such
election by written consent of shareholders shall require the
consent of a majority of the outstanding shares entitled to
vote. If the resignation of a director states that it is to be
effective at a future time, a successor may be elected to take
office when the resignation becomes effective.
Section 2.6 Place of Meetings. Regular and special
-----------------
meetings of the board of directors may be he[d at any place
within the State of California which has been designated in the
notice of the meeting, or, if not stated in the notice or there
is no notice, designated by resolution or by written consent of
all of the members of the board 3f directors. If the place of a
regular or special meeting is not designated in the notice or
fixed by a resolution of the board or consented to in writing
by all members of the board of directors, it shall be held at
the corporation's principal administrative office.
Section 2.7 Organizational and Regular Meetings.
-----------------------------------
Immediately following each annual shareholders' meeting, the
board of directors shall hold an organizational meeting to
elect officers and transact other business. Such meeting shall
be held at the same place as the annual meeting or such other
place as shall be fixed by the board of directors. The regular
meetings of the board of directors shall be held at such times
and places as are fixed by the board. Call and notice of
regular meetings of the board of directors shall not be
required and is hereby dispensed with.
Section 2.8 Special Meetings. Special meetings of the
----------------
board of directors for any purpose or purposes may be called at
any time by the chairperson of the board, the chief executive
officer, the president, any vice president, the secretary or
any two directors. Notice of the time and place of special
meetings shall be delivered personally to each director or by
telephone or telegraph or sent to the director by mail. In case
notice is given by mail or telegram, it shall be sent, charges
prepaid, addressed to the director at his or her address
appearing on the corporate records or if it is not on these
records or is not readily ascertainable, at the place where the
meetings of the directors are regularly held. If notice is
delivered personally or given by telephone or telegraph, it
shall be given or delivered to the telegraph office at least
twenty-four (24) hours before the meeting. If notice is mailed
it shall be deposited in the United States mail at least four
(4) days before the meeting. Such mailing, telegraphing or
delivery, personally or by telephone, as provided in this
Section 2.9, shall be due, legal and personal notice to such
director. A notice or waiver of notice need not specify the
purpose of any regular or special meeting of the board of
directors.
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<PAGE>
Section 2.9 Quorum. A majority of the authorized
------
number of directors shall constitute a quorum of the board of
directors for the transaction of business. Every act or
decision done or made by a majority of the directors present at
a meeting duly held at which a quorum is present is the act of
the board of directors, subject to the provisions of section
310 and subdivision (e) of section 317 of the California
General Corporation Law. A meeting at which a quorum is
initially present may continue to transact business
notwithstanding the withdrawal of directors, provided that any
action taken is approved by at least a majority of the required
quorum for such meeting.
Section 2.10 Waiver of Notice or Consent. 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 not present or who though
present has prior to the meeting or at its commencement
protested the lack of proper notice to him or her, signs a
written waiver of notice, or a consent to holding the meeting,
or an approval of the minutes of the meeting. All such waivers,
consents and approvals shall be filed with the corporate
records or made a part of the minutes of the meeting. A notice
or waiver of notice need not specify the purpose of any regular
or special meeting of the board of directors. Notice of a
meeting need not be given to any director who signs a waiver of
notice, whether before or after the meeting, or who attends the
meeting without protesting, prior to or at its commencement,
the lack of notice to such director.
Section 2.11 Adjournment. A majority of the directors
-----------
present, whether or not a quorum is present, may adjourn any
meeting to another time and place. If the meeting is not
adjourned for more than 24 hours, notice of the adjournment to
another time or place shall be given prior to the time of the
adjourned meeting to the directors who were not present at the
time of the adjournment.
Section 2.12 Meeting by Conference Telephone. Members
-------------------------------
of the board of directors may participate in a meeting through
use of conference telephone or similar communications
equipment, as long as all members participating in such meeting
can hear one another. Participation by directors in a meeting
in the manner provided in this Section 2.13 constitutes
presence in person at such meeting.
Section 2.13 Action Without a Meeting. Any action
------------------------
required or permitted to be taken by the board of directors may
be taken without a meeting, if all members of the board of
directors shall individually or collectively consent in writing
to such action. Such written consent or consents shall be filed
with the minutes of the proceedings of the board of directors.
Such action by written consent shall have the same force and
effect as a unanimous vote of such directors.
Section 2.14 Fees and Compensation. Directors and
---------------------
members of the committees may receive such compensation, if
any, for their services, and such reimbursement for expenses,
as may be fixed or determined by resolution of the board of
directors.
Section 2.15 Committees. The board of directors may,
----------
by resolution adopted by a majority of the authorized number of
directors, designate one (1) or more committees, each
consisting of two (2) or more directors, to serve at the
pleasure of the board of directors. The board of directors may
designate one (1) or more directors as alternate members of any
committee, who may replace any absent member at any meeting of
the committee. The board of directors may delegate to any such
committee, to the extent provided in such resolution, any of
the board of directors' powers and authority in the management
of the corporation's business and affairs, except such powers
and authority that conflict with the California General
Corporation Law or the corporation's articles of incorporation.
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The board of directors may prescribe appropriate
rules, not inconsistent with these by-laws, by which
proceedings of any such committee shall be conducted. The
provisions of these by-laws relating to the calling of meetings
of the board of directors, notice of meetings of the board of
directors and waiver of such notice, adjournments of meetings
of the board of directors, written consents to the board of
directors meetings and approval of minutes, action by the board
of directors by consent in writing without a meeting, the place
of holding such meetings, meetings by conference telephone or
similar communications equipment, the quorum for such meetings,
the vote required at such meetings and the withdrawal of
directors after commencement of a meeting shall apply to
committees of the board of directors and action by such
committees. In addition, any member of the committee designated
by the board of directors as the chairperson or as secretary of
the committee or any two members of a committee may call
meetings of the committee. Regular meetings of any committee
may be held without notice if the time and place of such
meetings are fixed by the board of directors or the committee.
Section 2.16 Indemnification of Agents. The board of directors
-------------------------
may authorize the Corporation to indemnify an agent, as defined in
section 317 of the California Corporations Code, to the fullest extent
permitted by law, including, but not limited to, the California General
Corporation Law.
(a) Indemnification of Directors and Officers. Each person
-----------------------------------------
who was or is a party or is threatened to be made a party to or is
involved in any threatened, pending or completed action, suit or
proceeding, formal or informal, whether brought in the name of the
corporation or otherwise and whether of a civil, criminal, administrative
or investigative nature (hereinafter a 'proceeding'), by reason of the
fact that he or she, or a person of whom he or she is the legal
representative, is or was a director or officer of the corporation or is
or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation or of a partnership, joint
venture, trust or other enterprise, including service with respect to
employee benefit plans, whether the basis of such proceeding is an
alleged action or inaction in an official capacity or in any other
capacity while serving as a director or officer, shall, subject to the
terms of any agreement between the corporation and such person, be
indemnified and held harmless by the corporation to the fullest extent
permissible under California law and the corporation's Articles of
Incorporation, against all costs, charges, expenses, liabilities and
losses (including attorneys' fees, judgments, fines, ERISA excise tax or
penalties and amounts paid or to be paid in settlement) reasonably
incurred or suffered by such person in connection therewith, and such
indemnification shall continue as to a person who has ceased to be a
director or officer and shall inure to the benefit of his or her heirs,
executors and administrators; provided, however, that (a) the corporation
shall indemnify any such person seeking indemnification in connection
with a proceeding (or part thereof) initiated by such person only if such
proceeding (or part thereof) was authorized by the board of directors of
the corporation, and (b) the corporation shall indemnify such person
seeking indemnification in connection with a proceeding (or part thereof)
other than a proceeding by or in the name of the corporation to procure a
judgment in its favor only if any settlement of such a proceeding is
approved in writing by the corporation, and (c) no such person shall be
indemnified (i) except to the extent that the aggregate of losses to be
indemnified exceeds the amount of such losses for which the director or
officer is paid pursuant to any directors' and officers' liability
insurance policy maintained by the corporation; (ii) on the account of
any suit in which judgment is rendered against such person for an
accounting of profits made from the purchase or sale by such person of
securities of the corporation pursuant to the provisions of Section 16(b)
of the Securities Exchange Act of 1934 and amendments thereto or similar
provisions of any federal, state or local statutory law; (iii) if a court
of competent jurisdiction finally determines that any indemnification
hereunder is unlawful; (iv) for any acts or omissions or transactions
from which a director may not be relieved of liability as set forth in
the exception to paragraph 10 of Section 204(a) of the General
Corporation Law of the State of California ('GCL'); and (v) as to
circumstances in which indemnity is expressly prohibited by Section 317
of the GCL. The right to indemnification conferred in this Section 2.16
shall be a contract right and shall include the right to be paid by the
corporation expenses incurred in defending any proceeding in advance of
its final disposition; provided, however, that if
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the GCL requires the payment of such expenses incurred by a
director or officer in his or her capacity as a director or officer (and
not in any other capacity in which service was or is rendered by such
person while a director or officer, including, without limitation,
service to an employee benefit plan) in advance of the final disposition
of a proceeding, such advances shall be made only upon delivery to the
corporation of an undertaking, by or on behalf of such director or
officer, to repay all amounts to the corporation if it shall be
ultimately determined that such person is not entitled to be indemnified.
(b) Indemnification of Employees and Agents. A person
---------------------------------------
who was or is a party or is threatened to be made a party to or
is involved in any proceedings by reason of the fact that he or
she is or was an employee or agent of the corporation or is or
was serving at the request of the corporation as an employee or
agent of another enterprise, including service with respect to
employee benefit plans, whether the basis of such proceeding is
an alleged action or inaction in an official capacity or in any
other capacity while serving as an employee or agent, may,
subject to the terms of any agreement between the corporation
and such person, be indemnified and held harmless by the
corporation to the fullest extent permitted by California law
and the corporation's Articles of Incorporation, against all
costs, charges, expenses, liabilities and losses (including
attorneys' fees, judgments, fines, ERISA excise taxes or
penalties and amounts paid or to be paid in settlement),
reasonably incurred or suffered by such person in connection
therewith. The immediately preceding sentence is not intended
to be and shall not be considered to confer a contract right on
any employee or agent (other than directors and officers) of
the corporation.
(c) Action to Enforce Rights Under this Section. If a
-------------------------------------------
claim under this Section 2.16 is not paid in full by the
corporation within 30 days after a written claim has been
received by the corporation, the claimant may at any time
thereafter bring suit against the corporation to recover the
unpaid amount of the claim and, if successful in whole or in
part, the claimant shall also be entitled to be paid the
expense of prosecuting such claim. Neither the failure of the
corporation (including its board of directors, independent
legal counsel, or its shareholders) to have made a
determination prior to the commencement of such action that
indemnification of the claimant is permissible in the
circumstances because he or she has met the applicable standard
of conduct, if any, nor an actual determination by the
corporation (including it board of directors, independent..
legal counsel, or its shareholders) that the claimant has not
met the applicable standard of conduct, shall be a defense to
the action or create a presumption for the purpose of an action
that the claimant has not met the applicable standard of
conduct.
(d) Entitlement to Expenses. Notwithstanding any
-----------------------
other provision of this Section 2.16, to the extent that a
director, officer or agent has been successful on the merits or
otherwise (including the dismissal of an action without
prejudice or the settlement of a proceeding or action without
admission of liability) in defense of any proceeding referred
to in this Section 2.16 or in defense of any claim, issue or
matter therein, he or she shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred in
connection therewith.
(e) Non-Exclusivity. The right to indemnification
---------------
provided by this Section 2.16 shall not be exclusive of nor
limit any other right which any person may have or hereafter
acquire under any statute, bylaw, agreement, vote of
shareholders or disinterested directors or otherwise.
(f) Insurance. The corporation may maintain
---------
insurance, to the extent reasonably available, at its expense,
to protect itself and any director, officer, employee or agent
of the corporation or another corporation, partnership, joint
venture, trust or other enterprise, including employee benefit
plans, against any expense, liability or loss, whether or not
the corporation would have the power to indemnify such person
against such expense, liability or loss under the law. The
corporation may create a trust fund, grant a security interest
or use other means (including, without limitation, a letter of
credit) to ensure the payment of such sums as may become
necessary to effect indemnification as provided herein.
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(g) Expenses as a Witness. To the extent that any
---------------------
director, officer, employee or agent of the corporation is by
reason of such position, or a position with another entity at
the request of the corporation, a witness in any action, suit
or proceeding, he or she shall be indemnified against all costs
and expenses actually and reasonably incurred by him or her on
his or her behalf in connection therewith.
(h) Indemnity Agreements. The corporation may,
--------------------
without shareholder approval, enter into agreements with any
director, officer, employee or agent of the corporation or any
person who serves at the request of the corporation as a
director, officer, trustee, partner, employee or agent of
another corporation or a partnership, joint venture, trust or
other enterprise, including employee benefit plans, providing
for indemnification to the fullest extent permissible under the
law and the corporation's Articles of Incorporation.
(i) Severability. Each and every paragraph, sentence,
------------
term and provision of this Section 2.16 is separate and
distinct so that if any paragraph, sentence, term or provision
hereof shall be held to be invalid or unenforceable for any
reason, such invalidity or unenforceability shall not affect
the validity or unenforceability of any other paragraph,
sentence, term or provision hereof. To the extent required, any
paragraph, sentence, term or provision of this Section 2.16 may
be modified by a court of competent jurisdiction to preserve
its validity and to provide the claimant with, subject to the
limitations set forth in this Section 2.16 and any agreement
between the corporation and claimant, the broadest possible
indemnification permitted under applicable law.
(j) Entities Merged with this Corporation. No
-------------------------------------
provision of this Section 2.16 shall be applicable and unless
otherwise required by California law indemnification shall not
be permitted in respect of any acts, omissions or transactions
of any person while serving as a director, officer, employee or
agent of any corporation which shall have been or shall
hereafter be merged into or otherwise combined with this
corporation, or of another enterprise in respect of which such
person was serving as a director, officer, employee or agent at
the request of any such other corporation, or of any enterprise
controlling, controlled by or under common control with any
such other corporation, unless specifically approved by a
majority vote of the board of directors of this corporation.
(k) Repeals. Any repeal or modification of this
-------
Section 2.16 (however effected) shall not adversely affect any
right of indemnification of a director, officer, employee or
agent existing at the time of such repeal or modification with
respect to any act, omission or transaction occurring prior to
such repeal or modification.
ARTICLE 3
---------
Officers
--------
Section 3.1 Officers. The officers of the corporation
--------
shall be a chairperson of the board or a president, or both, a
chief executive officer, a secretary and a chief financial
officer. The corporation may also have, at the discretion of
the board of directors, one or more vice-secretaries, a
cashier, one or more assistant cashiers and such other officers
as may be appointed in accordance with the provisions of
Section 3.3. Any two (2) or more offices may be held by the
same person; provided that in the execution of written
instruments and in the performance of any executive or
administrative duties on behalf of the corporation, such
officer may only act in one (1) capacity when joint execution
or action by two (2) officers is required.
Section 3.2 Elections. The officers of the
---------
corporation, except such officers as may be appointed in
accordance with the provisions of Section 3.3 or Section 3.5,
shall be chosen by the board of directors, and each shall hold
his or her office
-13-
<PAGE>
until he or she shall resign or be removed or is otherwise
disqualified to serve, or until his or her successor is chosen
and qualified.
Section 3.3 Other Officers. The board of directors
--------------
may appoint, and may empower the chairperson of the board or
the chief executive officer or both of them to appoint, such
other officers as the business of the corporation may require,
each of whom shall hold office for such period, have such
authority and perform such duties as are provided in the by-
laws or as the board of directors may from time to time
determine.
Section 3.4 Removal and Resignation. Any officer may
-----------------------
be removed with or without cause either by the board of
directors or, except for an officer chosen by the board, by any
officer upon whom the power of removal may be conferred by the
board (subject, in each case, to the rights, if any, of an
officer under any contract of employment). Any officer may
resign at any time upon written notice to the corporation
(without prejudice, however, to the rights, if any, of the
corporation under any contract to which the officer is a
party). Any such resignation shall take effect upon receipt of
such notice or at any later time specified therein. If the
resignation is effective at a future time, a successor may be
elected to take office when the resignation becomes effective.
Unless a resignation specifies otherwise, its acceptance by the
corporation shall not be necessary to make it effective.
Section 3.5 Vacancies. A vacancy in any office
---------
because of death, resignation, removal, disqualification or any
other cause shall be filled in the manner prescribed in the by-
laws for regular appointments to such office.
Section 3.6 Chairperson of the Board. The board of
------------------------
directors may, in its discretion, elect a chairperson of the
board who, unless otherwise determined by the board of
directors, shall preside at all meetings of the board of
directors at which he or she is present and shall exercise and
perform any other powers and duties assigned to him or her by
the board of directors or prescribed by the by-laws. The
chairperson of the board shall preside as chairperson at all
meetings of the shareholders unless otherwise determined by the
board of directors.
Section 3.7 Vice Chairperson of the Board. The board
-----------------------------
of directors may, in its discretion, elect one vice chairperson
of the board or more than one vice chairpersons of the board.
Unless otherwise determined by the board of directors, the vice
chairperson of the board shall preside as chairperson, or if
there are vice chairpersons of the board, the vice chairpersons
of the board shall jointly preside as co-chairpersons, at all
meetings of the board of directors or meetings of the
shareholders from which the chairperson of the board is absent.
The vice chairperson or vice chairpersons of the board shall
exercise and perform any other powers and duties assigned to
the vice chairperson of the board by the board of directors or
prescribed by the by-laws. If the office of chairperson of the
board is vacant, the vice chairperson of the board shall
exercise, or if there are vice chairpersons, the vice
chairpersons of the board shall jointly exercise, the duties of
the chairperson of the board, and when so acting, shall have
all the powers of, and be subject to the restrictions on, the
chairperson of the board.
Section 3.8 Chief Executive Officer. Subject to any
-----------------------
supervisory powers, if any, that the board of directors or the
by-laws have given to the president, if there be such an
officer, the chief executive officer shall be the corporation's
general manager. Subject to the control of the board of
directors, the chief executive officer shall direct the total
operation of the corporation and shall have responsibility for
the attainment of goals, plans and directives established by
the board of directors. The chief executive officer shall be a
member of the board of directors. Unless otherwise determined
by the board of directors, and in the absence of the
chairperson of the board and the vice chairperson, or -vice
chairpersons, of the board, or if there be none, the chief
executive officer shall preside as chairperson at all meetings
of the board of directors and of the shareholders. The chief
executive officer shall have the general powers and duties of
management usually vested in the office of chief executive
officer and shall have any other powers and duties prescribed
by the board of directors or the by-laws.
-14-
<PAGE>
Section 3.9 President. Subject to the supervisory
---------
powers, if any, that the by-laws or the board of directors have
given to the chief executive officer, the president shall be
the corporation's chief operating officer and shall have
general supervision, direction and control of the business,
affairs and officers of the corporation. Unless otherwise
determined by the board of directors, and in the absence of the
chairperson of the board, the vice chairperson, or vice
chairpersons, of the board and the chief executive officer, or
if there be none, the president shall preside as chairperson at
all meetings of the board of directors and of the shareholders.
The president shall have the general powers and duties of
management usually vested in the office of president; shall
have any other powers and duties prescribed by the by-laws or
the board of directors; and shall be primarily responsible for
carrying out all orders and resolutions of the board of
directors.
Section 3.10 Vice Presidents. In the absence or
---------------
disability of the chief executive officer and president, the
vice presidents in order of their rank as fixed by the board of
directors, or if not ranked, the vice president designated by
the board of directors, or if there has been no such
designation, the vice president designated by the chief
executive officer, shall perform all duties of the president,
and when so acting, shall have all the powers of, and be
subject to all the restrictions on, the president. Each vice
president shall have any of the powers and perform any other
duties that from time to time the board of directors, the by-
laws or the chief executive officer may prescribe for him or
her.
Section 3.11 Secretary. The secretary shall keep or
---------
cause to be kept a book of minutes of all meetings and actions
by written consent of all directors, shareholders and
committees of the board of directors. The minutes of each
meeting shall state the time and place that it was held and
such other information as shall be necessary to determine
whether the meeting was held in accordance with the law and
these by-laws and the actions taken thereat. The secretary
shall keep or cause to be kept at the corporation's principal
executive office, or at the office of its transfer agent or
registrar, a record of the shareholders of the corporation,
giving the names and addresses of all shareholders and the
number and class of shares held by each. The secretary shall
give, or cause to be given, notice of all meetings of
shareholders, directors and committees required to be given
under these by-laws or by law, shall keep or cause the keeping
of the corporate seal in safe custody and shall have any other
powers and perform any other duties that are prescribed by the
board of directors or the by-laws or the chief executive
officer. If the secretary refuses or fails to give notice of
any meeting lawfully called, any other officer of the
corporation may give notice of such meeting. The assistant
secretary, or if there be more than one, any assistant
secretary, may perform any or all of the duties and exercise
any or all of the powers of the secretary unless prohibited
from doing so by the board of directors, the chief executive
officer or the secretary, and shall have such other powers and
perform any other duties as are prescribed for him or her by
the board of directors or the chief executive officer.
Section 3.12 Chief Financial Officer. The chief
-----------------------
financial officer, who shall also be deemed to be the treasurer
when a treasurer may be required, shall keep and maintain, or
cause to be kept and maintained, adequate and correct books and
records of account. The chief financial officer shall cause all
money and other valuables in the name and to the credit of the
corporation to be deposited at the depositories designated by
the board of directors or any person authorized by the board of
directors to designate such depositories. He or she shall
render to the chief executive officer and board of directors
when requested by either of them, an account of all his or her
transactions as chief financial officer and of the financial
condition of the corporation, and shall have any other powers
and perform any other duties prescribed by the board of
directors, the bylaws or the chief executive officer.
Section 3.13 Cashier. The cashier may also be the
-------
chief financial officer and may also be an assistant secretary.
In the absence or disability of the chief financial officer,
the cashier shall perform all the duties of the chief financial
officer, and when so acting, shall have all the powers of, and
be subject to all the restrictions on, the chief
-15-
<PAGE>
financial officer. He or she shall have the general
powers and duties of management usually vested in the
office of cashier, when there also is an office of chief
financial officer, and shall have any other powers and duties
prescribed by the by-laws or the board of directors. The
assistant cashier, or if there be more than one, any assistant
cashier, may perform any or all of the duties and exercise any
or all of the powers of the cashier unless prohibited from
doing so by the board of directors, the chief executive officer
or the cashier, and shall have such other powers and perform
any other duties as are prescribed for him or her by the board
of directors, the chief executive officer or the cashier.
ARTICLE 4
---------
Miscellaneous
-------------
Section 4.1 Record Date. The board of directors may
-----------
fix a time in the future as a record date for the determination
of the shareholders entitled to notice of any meeting of
shareholders or to vote or entitled to receive payment of any
dividend or distribution or allotment of any rights or entitled
to exercise any rights in respect of any other lawful action.
The record date so fixed shall be not more than sixty (60) days
nor less than ten (10) days prior to the date of such meeting,
nor more than sixty (60) days prior to any other action for the
purpose of which it is fixed. When a record date is so fixed,
only shareholders of record on that date are entitled to notice
of and to vote at any such meeting, to receive a dividend,
distribution or allotment of rights, or to exercise the rights,
as the case may be, notwithstanding any transfer of any shares
on the hooks of the corporation after the record date, except
as otherwise provided in the articles of incorporation or by-
laws of this corporation.
Section 4.2 Inspection of Corporate Records. The
-------------------------------
accounting books and records and record of shareholders, and
minutes of proceedings of the shareholders and the board and
committees of the board of directors of the corporation shall
be open to inspection upon the written demand on the
corporation of any shareholder or holder of a voting trust
certificate at any time during usual business hours, for a
purpose reasonably related to such holder's interests as a
shareholder or as the holder of such voting trust certificate.
Such inspection by a shareholder or holder of a voting trust
certificate may be made in person or by agent or attorney, and
the right of inspection includes the right to copy and make
extracts.
A shareholder or shareholders holding at least five
percent (5%) in the aggregate of the outstanding voting shares
of the corporation or who hold at least one percent (1%) of
such voting shares and have filed a Schedule 14B with the
Securities and Exchange Commission relating to the election of
directors of the corporation shall have (in person, or by agent
or attorney) the absolute right to inspect and copy the record
of shareholders' names and addresses and shareholdings during
usual business hours upon five (5) business days' prior written
demand upon the corporation or to obtain from the transfer
agent for the corporation, upon written demand and upon the
tender of its usual charges, a list of the shareholders' names
and addresses, who are entitled to vote for the election of
directors, and their shareholdings, as of the date specified by
the shareholder subsequent to the date of demand. The list
shall be made available on or before the later of five (5)
business days after the demand is received or the date
specified therein as the date as of which the list is to be
compiled.
Every director shall have the absolute right at any
reasonable time to inspect and copy all books, records and
documents of every kind and to inspect the physical properties
of this corporation and any subsidiary of this corporation.
Such inspection by a director may be made in person or by agent
or attorney and the right of inspection includes the right to
copy and make extracts.
Section 4.3 Checks, Drafts, Etc. All checks, drafts
-------------------
or other orders for payment of money, notes or other evidences
of indebtedness, issued in the name of or
-16-
<PAGE>
payable to the corporation, shall be signed or endorsed by such
person or persons and in such manner as, from time to time,
shall be determined by resolution of the board of directors.
The board of directors may authorize one or more officers of
the corporation to designate the person or persons authorized
to sign such documents and the manner in which such documents
shall be signed.
Section 4.4 Annual and Other Reports.
------------------------
(a) The Board shall cause an annual report to be sent to the
shareholders not later than 120 days after the close of the fiscal year
or at least 15 (or, if sent by third-class mail, 35) days prior to the
annual meeting of shareholders to be held during the next fiscal year,
whichever is first; however, this requirement shall not limit the
requirement for holding an annual meeting.
(b) If no annual report for the last fiscal year has been sent
to shareholders, the corporation shall, upon the written request of any
shareholder made more than one hundred twenty (120) days after the close
of such fiscal year, deliver or mail to the person making the request
within thirty (30) days thereafter the financial statements required by
subdivision (a) of section 1501 of the California General Corporation Law
for such year. A shareholder or shareholders holding at least five
percent (5%) of the outstanding shares of any class of the corporation
may make a written request. to the corporation for an income statement of
the corporation for the three-month, six-month or nine-month period of
the current fiscal year ended more than thirty (30) days prior to the
date of the request and a balance sheet of the corporation as of the end
of such period and, in addition, if no annual report for the last fiscal
year has been sent to shareholders, the statements referred to in
subdivision (a) of section 1501 of the California General Corporation Law
for the last fiscal year. The statements shall be delivered or mailed to
the person making the request within thirty (30) days thereafter. A copy
of such statements shall be kept on file in the principal administrative
office of the corporation for twelve (12) months and they shall be
exhibited at all reasonable times to any shareholder demanding an
examination of them or a copy shall be mailed to such shareholder.
(c) The corporation shall, upon the written request
of any shareholder, mail to the shareholder a copy of the last
annual, semiannual or quarterly income statement which it has
prepared and a balance sheet as of the end of the period.
(d) The quarterly income statements and balance sheets referred
to in this Section 4.4 shall be accompanied by the report thereon, if
any, of any independent accountants engaged by the corporation or the
certificate of an authorized officer of the corporation that such
financial statements were prepared without audit from the books and
records of the corporation.
(e) Unless otherwise determined by the board of
directors, president or the chief executive officer, the chief
financial officer and the cashier are each authorized officers
of the corporation to execute the certificate that the annual
report and quarterly income statements and balance sheets
referred to in this section were prepared without audit from
the books and records of the corporation.
Any report sent to the shareholders shall be given
personally or by mail or other means of written communication,
charges prepaid, addressed to such shareholder at the address
of such shareholder appearing on the books of the corporation
or given by such shareholder to the corporation for the purpose
of notice or set forth in the written request of the
shareholder as provided in this section. If any report
addressed to the shareholder at the address of such shareholder
appearing on the books of the corporation is returned to the
corporation by the United States Postal Service marked to
indicate that the United States Postal Service is unable to
deliver the report to the shareholder at such address, all
future reports shall be deemed to have been duly given without
further mailing if the same shall be available for the
shareholder upon written demand of the shareholder at the
principal administrative office of the corporation for a period
of one (1) year from the date of the giving of the report to
all other shareholders. If no address
-17-
<PAGE>
appears on the books of the corporation or is given by the shareholder to
the corporation for the purpose of notice or is set forth in the
written request of the shareholder as provided in this section, such
report shall be deemed to have been given to such shareholder if sent
by mail or other means or written communication addressed to the place
where the principal administrative office of the corporation is
located, or if published at least once in a newspaper of general
circulation in the county in which the principal administrative office
is located. Any such report shall be deemed to have been given at the
time when delivered personally or deposited in the mail or sent by
other means of written communication. An affidavit of mailing of any
such report in accordance with the foregoing provisions, executed by
the secretary, assistant secretary or any transfer agent of the
corporation, shall be prima facie evidence of the giving of the report.
Section 4.5 Contracts, Etc.: How Executed. The board of
-----------------------------
directors, except as the by-laws or articles of incorporation otherwise
provide, may authorize any officer or officers and/or agent or agents to
enter into any contract or execute any instrument in the name of and/or
on behalf of the corporation, and such authority may be general or
confined to specific instances.
Section 4.6 Certificate for Shares.
----------------------
(a) Every holder of shares in the corporation shall
be entitled. to have a certificate signed in the name of the
corporation by the chairperson or vice chairperson of the board
or the president or a vice president and by the chief financial
office or an assistant treasurer or the secretary or any
assistant secretary, certifying the number of shares and the
class or series of shares owned by the shareholder. Any or all
of the signatures on the certificate may be facsimile. In case
any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or
registrar before such certificate is issued, it may be issued
by the corporation with the same effect as if such person were
such officer, transfer agent or registrar at the date of issue.
(b) Any such certificate shall also contain such
legend or other statement as may be required by section 418 of
the California General Corporation Law, the Corporate
Securities Law of 1968, and any agreement between the
corporation and the issuee thereof, and may contain such legend
or other statement as may be required by any other applicable
law or regulation or agreement.
(c) No new certificate for shares shall be issued in
place of any certificate theretofore issued unless the latter
is surrendered and cancelled at the same time; provided,
however, that a new certificate may be issued without the
surrender and cancellation of the old certificate if the
certificate theretofore issued is alleged to have been lost,
stolen or destroyed. In case of any such allegedly lost, stolen
or destroyed certificate, the corporation may require the owner
thereof or the legal representative of such owner to give the
corporation a bond (or other adequate security) sufficient to
indemnify it against any claim that may be made against it
(including any expense or liability) on account of the alleged
loss, theft or destruction of any such certificate or the
issuance of such new certificate.
Section 4.7 Representation of Shares of Other
---------------------------------
Corporations. Unless the board of directors shall otherwise
------------
determine, the chairperson of the board, the chief executive
officer, the president, any vice president, and the secretary
of this corporation are each authorized to vote, represent and
exercise on behalf of this corporation all rights incident to
any and all shares of any other corporation or corporations
standing in the name of this corporation. The authority herein
granted to such officers to vote or represent on behalf of this
corporation any and all shares held by this corporation in any
other corporation or corporations may be exercised either by
such officers in person or by any person authorized so to do by
proxy or power of attorney or other document duly executed by
any such officer.
-18-
<PAGE>
Section 4.8 Inspection of By-Laws. The corporation
-----------------------
shall keep in its principal administrative office in
California, or I its principal administrative office is not in
California, at its principal business office in California, the
original or a copy of the by-laws as amended to date, which
shall be open to inspection by the shareholders at all
reasonable times during office hours. If the corporation has no
office in California, it shall upon the written request of any
shareholder furnish to him or her a copy of the bylaws as
amended to date.
Section 4.9 Seal. The corporation may have a common
----
seal.
Section 4.10 Construction and Definitions. Unless the
----------------------------
context otherwise requires, the general provisions, rules of
construction and definitions contained in the California
General Corporation Law shall govern the construction of these
by-laws. Without limiting the generality of the foregoing, the
masculine gender includes the feminine and neuter, the singular
number includes the plural and the plural number includes the
singular, and the term "person" includes a corporation as well
as a natural person.
ARTICLE 5
---------
Amendments
----------
Section 5.1 Power of Shareholders. New by-laws may be
---------------------
adopted or these by-laws may be amended or repealed by the
affirmative vote of a majority of the outstanding shares
entitled to vote or by the written assent of shareholders
entitled to vote such shares, except as otherwise provided by
law or by the articles of incorporation of this corporation.
Section 5.2 Power of Directors. Subject to the right
------------------
of shareholders as provided in Section 5.1 of this Article 5 to
adopt, amend or repeal by-laws, by-laws other than a by-law or
amendment thereof changing the range of the authorized number
of directors may be adopted, amended or repealed by the board
of directors, including an amendment to change the number of
authorized directors within the range fixed by the
shareholders.
ARTICLE 6
---------
Offices
-------
Section 6.1 Principal Administrative Office. The
-------------------------------
principal administrative office of the corporation shall be
located at such place in the State of California as the board
of directors shall from time to time determine.
Section 6.2 Other Offices. Other offices may at any
-------------
time be established by the board of directors at any place or
places where the corporation is qualified to do business,
subject to all regulatory approvals.
-19-
<PAGE>
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
James L. Wright and C. Richard Lemon certify that:
1. They are the Executive Vice President and Secretary,
respectively, of Napa National Bancorp, a California corporation.
2. The Articles of Incorporation of this corporation are amended by
adding a new Article FIFTH to such Articles of Incorporation, to read as
follows:
FIFTH
-----
(a) The liability of directors of the corporation for monetary
damages shall be eliminated to the fullest extent permissible under
California law.
(b) The corporation is authorized to provide indemnification of
agents (as defined in Section 317 of the California Corporations Code)
through bylaw provisions, agreements with agents, vote of shareholders
or disinterested directors, or otherwise, in excess of the
indemnification otherwise permitted by Section 317 of the California
Corporations Code, subject only to the applicable limits set forth in
Section 204 of the California Corporations Code with respect to the
actions for breach of duty to the corporation and its shareholders.
(c) Any repeal or modification of the foregoing provisions of
Article FIFTH by the shareholders of the corporation shall not
adversely affect any right or protection existing at the time of such
repeal or modification.
3. The foregoing amendment of the Articles of Incorporation of
this corporation has been duly approved by the board of directors of this
corporation.
<PAGE>
4. The foregoing amendment of the Articles of Incorporation of
this corporation has been duly approved by the required vote of shareholders
in accordance with Section 902 of the Corporations Code. The total number of
outstanding shares of the corporation is 500,000. The number of shares
voting in favor of the amendment equaled or exceeded the vote required for
approval. The percentage vote required for approval was more than 50%.
We further declare under penalty of perjury under the laws of the
State of California that the matters set forth in this Certificate are true
and correct and to our own knowledge.
Dated: August 16, 1988.
/s/ James L. Wright
__________________________
James L. Wright
Executive Vice President
/s/ C. Richard Lemon
__________________________
C. Richard Lemon
Secretary
<PAGE>
EXHIBIT 4.1
See reverse for certain abbreviations and for
information on how to obtain a copy of the
rights, preferences, privileges and restric-
tions of each class or series of shares
NAPA NATIONAL BANCORP
NUMBER SHARES
SFU 5069 INCORPORATED UNDER THE LAWS OF THE STATE OF CALIFORNIA
THIS CERTIFIES THAT
IS THE OWNER OF
SHARES OF THE NO PAR VALUE COMMON STOCK OF
----------------- -----------------
---------------------- NAPA NATIONAL BANCORP ---------------------
----------------- -----------------
hereinafter called "Corporation" transferable only on the books of the
Corporation by the holder thereof in person or by duly authorized attorney, upon
the surrender of this certificate properly endorsed.
The amount of no par value common stock is set forth on the books of the
Corporation. This certificate is not valid until countersigned and registered
by the Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
Dated:
/s/C. Richard Lemon [Corporate Seal of /s/ (illegible)
Secretary NAPA NATIONAL BANCORP
INCORPORATED
NOVEMBER 2, 1981
CALIFORNIA]
Countersigned and Registered:
FIRST INTERSTATE BANK, LTD.
(San Francisco)
Transfer Agent and Registrar
By
Authorized Officer
(C) Security-Columbian United States Banknote Corporation
<PAGE>
NAPA NATIONAL BANCORP
Any shareholder may obtain, upon request and without charge, a statement
of the rights, preferences, privileges and restrictions granted to or imposed
upon each class or series of shares authorized to be issued and upon the holders
thereof, from the offices of the Corporation at 1500 Third Street, Napa, Ca.
94559-0479.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -- as tenants in common
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with right of survivorship and not as tenants in
common
UNIF GIFT MIN ACT -- ...........Custodian..........
(Cust) (Minor)
under Uniform Gifts to Minors
Act ................
(State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, ___________HEREBY SELL, ASSIGN AND TRANSFER UNTO
Please insert social security or other
identifying number of assignee
[_________________________________]
- -------------------------------------------------------------------------------
(Please print or typewrite name and address, including zip code, of assignee)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -----------------------------------------------------------------------Shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
- -----------------------------------------------------------------------Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated_________________________________
--------------------------------------
NOTICE: The signature to this assignment
must correspond with the name as
written upon the face of the
certificate in every particular,
without alteration or enlarge-
ment or any change whatever.
Signature(s) Guaranteed:
- ------------------------------------------------------
The signature(s) should be guaranteed by an eligible
guarantor institution (banks, stockbrokers, savings and
loan associations and credit unions with membership in
an approved Medallion signature guarantee program),
pursuant to S.E.C. Rule 17Ad-15.
<PAGE>
EXHIBIT 10.1
NAPA NATIONAL BANCORP
---------------------
1992 STOCK OPTION PLAN
----------------------
ARTICLE 1. INTRODUCTION.
---------- ------------
The Plan was adopted by the Board on June 30, 1992, subject to approval by
the Company's shareholders at the 1992 annual meeting of shareholders. The
purpose of the Plan is to promote the long-term success of the Company and the
creation of shareholder value by (a) encouraging Non-Employee Directors and Key
Employees to focus on critical long-range objectives, (b) encouraging the
attraction and retention of Non-Employee Directors and Key Employees with
exceptional qualifications and (c) linking Non-Employee Directors and Key
Employees directly to shareholder interests through increased stock ownership.
The Plan seeks to achieve this purpose by providing for awards in the form of
Options, which may constitute incentive stock options or nonstatutory stock
options.
The Plan shall be governed by, and construed in accordance with, the laws
of the State of California.
ARTICLE 2. ADMINISTRATION.
---------- --------------
2.1 The Committee. The Plan shall be administered by the Committee
-------------
appointed by the Board.
2.2 Committee Responsibilities. The Committee shall select the Non-
--------------------------
Employee Directors and Key Employees who are to receive Options under the Plan,
determine the number, vesting requirements and other conditions of such Options,
interpret the Plan, and make all other decisions relating to the operation of
the Plan. The Committee may adopt such rules or guidelines as it deems
appropriate to implement the Plan. The Committee's determinations under the
Plan shall be final and binding on all persons.
ARTICLE 3. LIMITATION ON AWARDS.
---------- --------------------
3.1 Basic Limitation. The aggregate number of Common Shares subject to
----------------
Options awarded under the Plan shall be 67,550; increased by any shares
attributable to options that are forfeited, lapse, or terminate for any reason
before being exercised under the Napa National Bancorp 1982 Stock Option Plan.
In no event will the number of Common Shares subject to Options awarded under
the Plan that are attributable to options that were forfeited, lapsed or
terminated for any other reason before being exercised under the Napa National
Bancorp 1982 Stock Option Plan exceed 158,800.
3.2 Additional Shares. If any Options are forfeited, lapse, or terminate
-----------------
for any other reason before being exercised,
-1-
<PAGE>
then the Common Shares subject to such Options shall again become available for
the purposes of the Plan. The limitation of this Article 3 shall be subject to
adjustment pursuant to Article 7.
ARTICLE 4. ELIGIBILITY.
---------- -----------
4.1 General Rule. Only Non-Employee Directors and Key Employees shall be
------------
eligible for designation as Optionees by the Committee. In addition, only Key
Employees shall be eligible for the grant of ISOs.
4.2 Non-Employee Directors. Any other provision of the Plan
----------------------
notwithstanding, the participation of Non-Employee Directors in the Plan shall
be subject to the following restrictions:
(a) Non-Employee Directors shall receive no grants other than the NSOs
described in this Section 4.2.
(b) Each Non-Employee Director who first joins the Board after July 14,
1992, shall receive an NSO covering 10,000 Common Shares on the first
business day after his or her initial election or appointment to the Board.
(The number of Common Shares included in an NSO granted under this
Subsection (b) shall be subject to adjustment under Article 7.)
(c) NSOs granted under Subsection (b) above shall become exercisable
immediately.
(d) The Exercise Price under all NSOs granted to a Non-Employee
Director under this Section 4.2 shall be equal to 100 percent of the Fair
Market Value of a Common Share on the date of grant, payable in cash or in
one of the forms described in Sections 6.2 or 6.3.
(e) All NSOs granted to a Non-Employee Director under this Section 4.2
shall terminate on the earliest of (i) the 10th anniversary of the date of
grant, (ii) the date of the termination of such Non-Employee Director's
service for any reason other than death or total and permanent disability
or (iii) the date 30 days after the termination of such Non-Employee
Director's service because of death or total and permanent disability.
4.3 Ten-Percent Shareholders. A Key Employee who owns more than 10
------------------------
percent of the total combined voting power of all classes of outstanding stock
of the Company or any of its Subsidiaries shall not be eligible for the grant of
an ISO unless (a) the Exercise Price under such ISO is at least 110 percent of
the Fair Market Value of a Common Share on the date of grant and (b) such ISO by
its terms is not exercisable after the expiration of five years from the date of
grant.
-2-
<PAGE>
4.4 Attribution Rules. For purposes of Section 4.3, in determining stock
-----------------
ownership, a Key Employee shall be deemed to own the stock owned (directly or
indirectly) by or for his or her brothers, sisters, spouse, ancestors and lineal
descendants. Stock owned (directly or indirectly) by or for a corporation,
partnership, estate or trust shall be deemed to be owned proportionately by or
for its shareholders, partners or beneficiaries. Stock with respect to which
the Key Employee holds an option shall not be counted.
4.5 Outstanding Stock. For purposes of Section 4.3, "outstanding stock"
-----------------
shall include all stock actually issued and outstanding immediately after the
grant of the ISO to the Key Employee. "Outstanding stock" shall not include
shares authorized for issuance under outstanding options held by the Key
Employee or by any other person.
ARTICLE 5. TERMS OF OPTIONS.
---------- ----------------
5.1 Stock Option Agreement. Each grant of an Option under the Plan shall
----------------------
be evidenced by a Stock Option Agreement between the Optionee and the Company.
Such Option shall be subject to all applicable terms and conditions of the Plan
and may be subject to any other terms and conditions which are not inconsistent
with the Plan and which the Committee deems appropriate for inclusion in a Stock
Option Agreement. The provisions of the various Stock Option Agreements entered
into under the Plan need not be identical. If the Optionee is a Key Employee,
the Committee may designate all or any part of the Option as an ISO.
5.2 Options Nontransferable. No Option or interest therein may be
-----------------------
transferred, assigned, pledged or hypothecated by the Optionee during his or her
lifetime, whether by operation of law or otherwise, or be made subject to
execution, attachment or similar process.
5.3 Number of Shares; Tax Status. Each Stock Option Agreement shall
----------------------------
specify the number of Shares subject to the Option and shall provide for the
adjustment of such number in accordance with Article 7. The Stock Option
Agreement shall also specify whether the Option is an ISO or an NSO.
5.4 Exercise Price. Each Stock Option Agreement shall specify the
--------------
Exercise Price. The Exercise Price under an ISO shall not be less than 100
percent of the Fair Market Value of a Common Share on the date of grant, except
as otherwise provided in Section 4.3. The Exercise Price under an NSO shall not
be less than 100 percent of the Fair Market Value of a Common Share on the date
of grant. Subject to the preceding two sentences, the Exercise Price under any
Option shall be determined by the Committee. The Exercise Price shall be
payable in accordance with Article 6.
-3-
<PAGE>
5.5 Exercisability and Term. Each Stock Option Agreement shall specify
-----------------------
the date when all or any installment of the Option is to become exercisable and
shall provide for immediate exercisability of the entire Option in the event of
a Change in Control with respect to the Company. The Stock Option Agreement
shall also specify the term of the Option. The term of an Option shall in no
event exceed 10 years from the date of grant, and Section 4.3 may require a
shorter term for an ISO. Subject to this Section 5.5, the Committee shall
determine when all or any part of an Option is to become exercisable and when
such Option is to expire. A Stock Option Agreement may provide for accelerated
exercisability upon the Optionee's death, disability or retirement or other
events and may provide for expiration prior to the end of its term in the event
of the termination of the Optionee's service.
5.6 Modification, Extension and Assumption of Options. Within the
-------------------------------------------------
limitations of the Plan, the Committee may modify, extend or assume outstanding
options or may accept the cancellation of outstanding options (whether granted
by the Company or by another issuer) in return for the grant of new options for
the same or a different number of shares and at the same or a different exercise
price. The foregoing notwithstanding, no modification of an Option shall,
without the consent of the Optionee, alter or impair his or her rights or
obligations under such Option.
ARTICLE 6. PAYMENT FOR OPTION SHARES.
---------- -------------------------
6.1 General Rule. The entire Exercise Price of Common Shares issued upon
------------
exercise of Options shall be payable in cash at the time when such Common Shares
are purchased, except as follows:
(a) In the case of an ISO granted under the Plan, payment shall be made
only pursuant to the express provisions of the applicable Stock Option
Agreement. However, the Committee may specify in the Stock Option Agreement
that payment may be made pursuant to Section 6.2, 6.3 or 6.4.
(b) In the case of an NSO, the Committee may at any time accept payment
pursuant to Section 6.2, 6.3 or 6.4.
6.2 Surrender of Stock. To the extent that this Section 6.2 is
------------------
applicable, payment for all or any part of the Exercise Price may be made with
Common Shares which have already been owned by the Optionee for more than six
months and which are surrendered to the Company. Such Common Shares shall be
valued at their Fair Market Value on the date when the new Common Shares are
purchased under the Plan.
6.3 Exercise/Sale. To the extent that this Section 6.3 is applicable,
-------------
payment may be made by the delivery (on a form
-4-
<PAGE>
prescribed by the Company) of an irrevocable direction to a securities broker
approved by the Company to sell Common Shares and to deliver all or part of the
sales proceeds to the Company in payment of all or part of the Exercise Price
and any withholding taxes.
6.4 Other Forms of Payment. To the extent that this Section 6.4 is
----------------------
applicable, payment may be made in any other form approved by the Committee,
consistent with applicable laws, regulations and rules.
ARTICLE 7. PROTECTION AGAINST DILUTION.
---------- ---------------------------
7.1 General. In the event of a subdivision of the outstanding Common
-------
Shares, a declaration of a dividend payable in Common Shares, a declaration of a
dividend payable in a form other than Common Shares in an amount that has a
material effect on the price of Common Shares, a combination or consolidation of
the outstanding Common Shares (by reclassification or otherwise) into a lesser
number of Common Shares, a recapitalization, a spinoff or a similar occurrence,
the Committee may make appropriate adjustments in one or more of (a) the number
of' Options available for future awards under Article 3, (b) the number of
Options included in awards to Non-Employee Directors under Section 4.2, (c) the
number of Common Shares covered by each outstanding Option or (d) the Exercise
Price under each outstanding Option.
7.2 Reorganizations. In the event that the Company is a party to a merger
---------------
or other reorganization, outstanding Options shall be subject to the agreement
of merger or reorganization. Such agreement shall provide for the assumption or
substitution of outstanding Options by the surviving corporation or its parent,
for their continuation by the Company (if the Company is a surviving
corporation), for accelerated vesting or for settlement in cash.
7.3 Reservation of Rights. Except as provided in this Article 7, an
---------------------
Optionee shall have no rights by reason of any subdivision or consolidation of
shares of stock of any class, the payment of any stock dividend or any other
increase or decrease in the number of shares of stock of any class. Any issue
by the Company of shares of stock of any class, or securities convertible into
shares of stock of any class, shall not affect, and no adjustment by reason
thereof shall be made with respect to, the number or Exercise Price of Common
Shares subject to an Option. The grant of an Option pursuant to the Plan shall
not affect in any way the right or power of the Company to make adjustments,
reclassifications, reorganizations or changes of its capital or business
structure, to merge or consolidate or to dissolve, liquidate, sell or transfer
all or any part of its business or assets.
-5-
<PAGE>
ARTICLE 8. LIMITATION OF RIGHTS.
---------- --------------------
8.1 Employment Rights. Neither the Plan nor any Option granted under the
-----------------
Plan shall be deemed to give any individual a right to remain an employee or
director of the Company or a Subsidiary. The Company and its Subsidiaries
reserve the right to terminate the service of any employee or director at any
time, with or without cause, subject only to a written employment agreement (if
any) or applicable by-law provisions.
8.2 Shareholders' Rights. An Optionee shall have no dividend rights,
--------------------
voting rights or other rights as a shareholder with respect to any Common Shares
covered by his or her Option prior to the issuance of a stock certificate for
such Common Shares. No adjustment shall be made for cash dividends or other
rights for which the record date is prior to the date when such certificate is
issued, except as expressly provided in Article 7.
8.3 Government Regulations. Any other provision of the Plan
----------------------
notwithstanding, the obligations of the Company with respect to Common Shares to
be issued pursuant to the Plan shall be subject to all applicable laws, rules
and regulations and such approvals by any governmental agencies or stock
exchanges as may be required. The Company reserves the right to restrict, in
whole or in part, the delivery of Common Shares pursuant to any Option until
such time as any legal requirements or regulations have been met relating to the
issuance of such Common Shares, to their registration or qualification (or
exemption from registration or qualification) under the Securities Act of 1933,
as amended, or any applicable state securities laws, or to their listing on any
stock exchange.
ARTICLE 9. WITHHOLDING TAXES.
---------- -----------------
9.1 General. To the extent required by applicable federal, state, local
-------
or foreign law, an Optionee shall make arrangements satisfactory to the Company
for the satisfaction of any withholding tax obligations that arise by reason of
an Option. The Company shall not be required to issue any Common Shares under
the Plan until such obligations are satisfied.
9.2 Share Withholding. The Committee may permit an Optionee to satisfy
-----------------
all or part of his or her withholding tax obligations by having the Company
withhold a portion of any Common Shares that otherwise would be issued to him or
her or by surrendering a portion of any Common Shares that previously were
issued to him or her. Such Common Shares shall be valued at their Fair Market
Value on the date when taxes otherwise would be withheld in cash. The payment
of withholding taxes by assigning Common Shares to the Company, if permitted by
the Committee, shall be subject to such restrictions as the Committee may
impose.
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<PAGE>
ARTICLE 10. FUTURE OF THE PLAN.
----------- ------------------
10.1 Term of the Plan. The Plan, as set forth herein, shall become
----------------
effective on June 30, 1992, subject to the approval of the Company's
shareholders. In the event that the shareholders fail to approve the Plan at
the 1992 annual meeting, or any adjournment thereof, any Options granted prior
to such meeting shall be null and void, and no additional Options shall be
granted after such meeting. Any other provision of the Plan notwithstanding, no
Option shall be exercisable prior to such meeting. The Plan shall remain in
effect until it is terminated under Section 10.2, except that no new Options
shall be granted after June 29, 2002.
10.2 Amendment or Termination. The Board may, at any time and for any
------------------------
reason, amend or terminate the Plan, except that the provisions of Section 4.2
relating to the amount, price and timing of Option grants to Non-Employee
Directors shall not be amended more than once in any six-month period. An
amendment of the Plan shall be subject to the approval of the Company's
shareholders only to the extent required by applicable laws, regulations or
rules.
10.3 Effect of Amendment or Termination. No Options shall be granted
----------------------------------
under the Plan after the termination thereof. The termination of the Plan, or
any amendment thereof, shall not affect any Option previously granted under the
Plan.
ARTICLE 11. DEFINITIONS.
----------- -----------
11.1 "Board" means the Company's Board of Directors, as constituted from
-----
time to time.
11.2 "Change in Control" means the occurrence of either of the following
-----------------
events:
(a) A change in the composition of the Board, as a result of which
fewer than one-half of the incumbent directors are directors who either:
(i) Had been directors of the Company 24 months prior to such
change; or
(ii) Were elected, or nominated for election, to the Board with
the affirmative votes of at least a majority of the directors who had
been directors of the Company 24 months prior to such change and who
were still in office at the time of the election or nomination; or
(b) Any "person" (as such term is used in sections 13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended) by the acquisition or
aggregation of securities is or becomes the beneficial owner, directly or
indirectly, of
-7-
<PAGE>
securities of the Company representing 20 percent or more of the combined
voting power of the Company's then outstanding securities ordinarily (and
apart from rights accruing under special circumstances) having the right to
vote. at elections of directors (the "Base Capital Stock"); except that any
change in the relative beneficial ownership of the Company's securities by
any person resulting solely from a reduction in the aggregate number of
outstanding shares of Base Capital Stock, and any decrease thereafter in
such person's ownership of securities, shall be disregarded until such
person increases in. any manner, directly or indirectly, such person's
beneficial ownership of any securities of the Company.
11.3 "Code" means the Internal Revenue Code of 1986, as amended.
11.4 "Committee" means the committee designated by the
---------
Board, which is authorized to administer the Plan under Article 2 hereof. The
Committee shall have membership composition which enables the Plan to qualify
under Rule 16b-3 with regard to Options awarded to persons who are subject to
Section 16 of the Exchange Act.
11.5 "Common Share" means one share of the common stock of the
------------
Company.
11.6 "Company" means Napa National Bancorp, a California
--------
corporation.
11.7 "Exercise Price" means the amount for which one Common
--------------
Share may be purchased upon exercise of an Option, as specified by the Committee
in the applicable Stock Option Agreement.
11.8 "Fair Market Value" shall mean the fair market value of a
-----------------
Common Share, as determined by the Committee in good faith.
11.9 "ISO" means an incentive stock option described in section
---
422(b) of the Code.
11.10 "Key Employee" means a key common-law employee of the
------------
Company or of a Subsidiary, as determined by the Committee.
11.11 "Non-Employee Director" means a member of the Board who is
---------------------
not a common-law employee of the Company or of a Subsidiary.
11.12 "NSO" means an employee stock option not described in
---
section 422 or 423 of the Code.
11.13 "Option" means an ISO or NSO granted under the Plan and
------
entitling the holder to purchase one Common Share.
-8-
<PAGE>
11.14 "Optionee" means an individual or estate who holds an
--------
Option.
11.15 "Plan" means this Napa National Bancorp 1992 Stock Option
----
Plan, as it may be amended from time to time.
11.16 "Stock Option Agreement" means the agreement between the
----------------------
Company and an Optionee which contains the terms, conditions and restrictions
pertaining to his or her Option.
11.17 "Subsidiary" means any corporation, if the Company and/or
----------
one or more other Subsidiaries own not less than 50 percent of the total
combined voting power of all classes of outstanding stock of such corporation. A
corporation that attains the status of a Subsidiary on a date after the adoption
of the Plan shall be considered a Subsidiary commencing as of such date.
ARTICLE 12. EXECUTION.
----------- ---------
To record the adoption of the Plan by the Board, the Company has caused its
duly authorized officer to affix the corporate name and seal hereto.
NAPA NATIONAL BANCORP
By ______________________________
As its __________________________
-9-
<PAGE>
EXHIBIT 10.2
INCENTIVE STOCK OPTION AGREEMENT
INCENTIVE STOCK OPTION AGREEMENT (the "Agreement"), made
and entered into as of this _____ day of __________, 19 __, by and
between Napa National Bancorp, a California corporation (the
"Company"), and _____________, an employee (the "Optionee") of Napa
National Bank, a wholly-owned subsidiary of the Company (the "Bank").
WITNESSETH
----------
WHEREAS, the Company has adopted the Napa National Bancorp 1982
Stock Option Plan, as amended and restated, effective July 15, 1988 (the
"Plan"), providing for the grant to the officers and key full-time salaried
employees of the Bank of options to purchase shares of its common stock,
without par value (the "Common Stock"); and
WHEREAS, the Plan provides for the grant of certain stock options
which are intended to be incentive stock options ("incentive stock options"
or "options") within the meaning of Section 422A of the Internal Revenue
Code of 1986, as amended (the "Code"); and
WHEREAS, the Optionee is an officer or key employee of the Bank
who is in a position to make an important contribution to the future growth
and success of the Company;
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants hereinafter set forth, and other good and valuable consideration,
the receipt and adequacy of which are hereby acknowledged, the parties
hereto hereby agree as follows:
1. The Company hereby grants to the Optionee an incentive stock
option to purchase ___________ shares of the Common Stock at the price set
forth in Section 2, on the terms and subject to the conditions hereinafter
stated. In consideration of the grant of this option and the other rights
which are being concurrently granted to him or her, the Optionee hereby
agrees to continue his or her employment with the Bank for a period of at
least one year from the date of grant of this option.
2. The purchase price per share is __________ dollars
($____________) (the "Option Price"), which is hereby agreed to be 100%
[110% if the Optionee is a more-than-10% shareholder] or more of the Fair
Market Value, as defined in Section 4 hereof, of such Common Stock at the
date of
<PAGE>
grant. The Option Price be subject to adjustment as hereinafter provided.
3. Subject to the provisions of this Agreement, this option can
be exercised at any time during a period of _______ (__) months from the
date of grant, as follows:
(a) This option may be exercised immediately to the extent of
not more than ___________ percent (_______%) of the shares of
Common Stock covered hereby.
(b) After the expiration of ________ (___) months from the
date of grant, this option may be exercised to the extent of not
more than _____________________ percent (_______%) of the shares
of Common Stock covered hereby.
(c) After the expiration of ________ (___) months from the
date of grant, this option may be exercised to the extent of an
additional ______________________ percent (______%) of the shares
of Common Stock covered hereby.
(d) After the expiration of ________ (___) months from the
date of grant, this option may be exercised to the extent of an
additional _____________________ percent (%) of the shares of
Common Stock covered hereby.
(e) After the expiration of ________ (___) months from the
date of grant, this option may be exercised to the extent of an
additional ____________________ percent (______%) of the shares
of Common Stock covered hereby.
(f) After the expiration of ________ (___) months from the
date of grant, this option may be exercised to the extent of an
additional _____________________ percent (_____%) of the shares
of Common Stock covered hereby.
(g) After the expiration of ________ (___) months from the
date of grant, this option may be exercised to the extent of an
additional _____________________ percent (___) of the shares of
Common Stock covered hereby.
(h) After the expiration of ________ (___) months from the
date of grant, this option may be exercised to the extent of an
2
<PAGE>
additional _____________________ percent (_______%) of the shares of
Common Stock covered hereby.
(i) After the expiration of _______ (___) months from the date
of grant, this option may be exercised to the extent of an
additional _____________________ percent (_____%) of the shares of
Common Stock covered hereby.
(j) After the expiration of _______ (___) months from the date
of grant, this option may be exercised to the extent of an additional
_____________________ percent (_____%) of the shares of Common Stock
covered hereby.
(k) After the expiration of ________ (___) months from the date
of grant, this option may be exercised to the extent of an additional
_____________________ percent (______%) of the shares of Common Stock
covered hereby.
Notwithstanding any other provision of this Agreement, this option is
not exercisable after the expiration of ten (10) years [five (5) years if the
Optionee is a more-than-10% shareholder] from the date of grant.
4. For the purposes of this Agreement, "Fair Market Value," when used
in reference to the date of grant of this option or the date of any surrender of
Common Stock in payment for the purchase of shares pursuant to the exercise of
this option or in satisfaction of any withholding tax requirements, as the case
may be, shall be determined by the Stock Option Committee of the Board of
Directors of the Company (the "Committee") in accordance with any reasonable
valuation method, including the valuation methods set forth in Section 20.2031-2
of the regulations promulgated under the Code.
5. The number of shares of Common Stock covered hereby and the price
per share thereof shall be proportionately adjusted for any increase or decrease
in the number of issued and outstanding shares of Common Stock resulting from a
subdivision or consolidation of shares or the payment of a stock dividend, or
any other increase or decrease in the number of issued and outstanding shares of
Common Stock effected without receipt of consideration by the Company. If the
shares of Common Stock are changed into or exchanged for a different number or
kind of shares of stock or securities of the Company or another corporation
(whether by reason of reorganization, merger, consolidation, capitalization,
classification, split-up, combination of shares, or
3
<PAGE>
otherwise), the Optionee shall receive in substitution for each share of Common
Stock issuable upon the exercise of this option the number and kind of shares
of stock or other securities into which each outstanding share of Common Stock
shall be so changed or for which each share shall be exchanged, or to which
each such share shall be entitled, as the case may be. In addition, the
Committee shall make appropriate adjustments in the number and kind of shares
as to which this option, or portion thereof then unexercised, shall be
exercisable so that the Optionee' 5 proportionate interest in the securities of
the Company by reason of the Optionee' 5 rights hereunder shall be maintained
as before the occurrence of such event.? Such adjustment shall be made without
change in the total price as to the unexercised portion of this -option and
with a corresponding adjustment in the Option Price.
In the event of a sale, dissolution or liquidation of the Company or
a merger or consolidation in which the Company is not the surviving or resulting
corporation (unless the Company's obligations hereunder are assumed by the
surviving or resulting corporation), options granted hereunder may be terminated
by the Committee; provided, however, that immediately prior to such sale,
--------- -------
dissolution, or liquidation, or merger or consolidation in which the Company is
not the surviving or resulting corporation, the Company shall notify the
Optionee as soon as practicable and, thereafter, this option may be exercised in
whole or in part to the extent of any unexercised portion of this option,
regardless of the vesting provisions of Section 3 of this Agreement; and,
provided, further, that such right of exercise shall be conditioned upon the
- --------- -------
execution of a final plan of dissolution or liquidation or a definitive
agreement of merger or consolidation.
In the event of an offer by any person or entity to all shareholders
of the Company to purchase any or all shares of Common Stock (or shares of stock
or other securities which are substituted for such shares or to which such
shares are adjusted as provided in this Section 5), the option granted hereunder
may be exercised upon the commencement of such offer to the extent of any
unexercised or unvested portion of such option.
To the extent that the foregoing adjustments relate to stock or
securities of the Company, such adjustments shall be made by the Committee,
whose determination in that respect shall be final, binding and conclusive. No
fractional shares shall be issued or delivered.
The grant of the option granted hereunder shall not affect in any way
the right or power of the Company to make
4
<PAGE>
adjustments, reclassifications, reorganizations or changes of its capital or
business structure or to merge or to consolidate or to dissolve, liquidate or
sell, or transfer all or any part of its business or assets.
6. No partial exercise of this option will be permitted for fewer than
__________ shares of Common Stock.
7. The Company shall have the right to cancel this option at any time
before it otherwise would have expired by its terms and to grant to the Optionee
in substitution therefor a new option stating an Option Price which is lower
(but not higher) than the Option Price stated in Section 2 of this Agreement and
which, in any case, shall be no less than the Fair Market Value of the shares
subject hereto on the date the new option is granted. The substituted option
shall not be exercisable after the expiration of ten (10) years [five (5) years
if the Optionee is a more-than-1O% shareholder] from the date of grant of this
option.
8. If the Optionee's status as an officer or employee of the Bank is
terminated due to total or partial disability within the meaning of Section
22(e)(3) of the Code (as determined by the Committee), this option may be
exercised for a period of twelve (12) months after the date of such disability,
provided the actual date of exercise is in no event after the expiration of the
term of this option.
If the Optionee' 5 status as an officer or employee of the Bank is
terminated by death, the executors or administrators of the Optionee' 5 estate,
or any person or persons who have acquired this option directly from the
Optionee by the Optionee' 5 will or the applicable laws of descent and
distribution, shall have the right to exercise this option, for a period of
twelve (12) months, commencing with the death of the Optionee, provided the
actual date of exercise is in no event after the expiration of the term of this
option.
If the Optionee's status as an officer or employee of the Bank is
terminated for any of the reasons set forth in the paragraph captioned "CAUSE"
under subsection 5(c)(3) of the Plan, this option shall expire at the time
notice or advice of such termination is dispatched by the Company pursuant to
the Plan and, notwithstanding anything else herein to the contrary, neither the
Optionee nor the Optionee' 5 estate shall be entitled to exercise this option
with respect to any shares whatsoever after such termination.
If the Optionee's status as an officer or employee of the Bank is
terminated for any reason other than those
5
<PAGE>
specified in this Section 8, this option may be exercised within three (3)
months following such termination to the extent this option was exercisable on
the date of such termination, provided the date of exercise is in no event after
the expiration of the term of this option.
9. This option shall be exercisable during the Optionee's lifetime
only by the Optionee and shall be transferable by the Optionee only by will or
the laws of descent and distribution.
10. Except as otherwise provided herein, the option herein granted and
the rights and privileges conferred hereby shall not be transferred, assigned,
pledged or hypothecated in any way (whether by operation of law or otherwise)
and shall not be subject to sale under execution attachment or similar process
upon the rights and privileges conferred hereby. Upon any attempt to transfer,
assign, pledge or otherwise dispose of said option, or of any right or privilege
conferred hereby, contrary to the provisions hereof 1 or upon any attempted sale
under any execution, attachment or similar process upon the rights and
privileges conferred hereby, said option and the rights and privileges conferred
hereby shall immediately become null and void.
11. This option may be exercised by delivering to the Secretary of the
Company payment in full at the Option Price for the number of shares of Common
Stock being purchased. The Option Price may be paid by delivering, at the
discretion of the Committee, (a) cash, a certified check, an official bank check
or the equivalent thereof acceptable to the Company; (b) shares of Common Stock
with a Fair Market Value as of the date of exercise equal to the Option Price,
or (c) shares of Common Stock, with a Fair Market Value as of the date of
exercise less than the full amount of the Option Price plus cash, a certified
check, an official bank check or the equivalent thereof acceptable to the
Company equal to the remaining amount of the Option Price, in each case together
with a written notice identifying this option or the part thereof being.
exercised and specifying the number of shares of Common Stock for which payment
is being tendered. The Company shall deliver to the Optionee, which delivery
shall be not less than fifteen (15) days and not more than thirty (30) days
after the giving of such notice, without transfer or issue tax to the Optionee
(or other person entitled to exercise this option), at the principal office of
the Company, or such other place as shall be mutually acceptable, a certificate
or certificates for such shares of Common Stock dated the date that this option
was validly exercised; provided, however, that the time of such delivery
--------- -------
may be postponed by the Company for such period as may be required for it with
reasonable
6
<PAGE>
diligence to comply with any requirements of law. If the Option Price
is satisfied in whole or in part by delivery of shares of Common Stock, separate
stock certificates shall be issued, one or more for the number of shares of
stock received equal to the number of shares of Common Stock delivered and one
or more for the remainder of the shares received upon the exercise.
12. Neither the Optionee nor any person claiming under or through him
shall be or have any of the rights of a shareholder of the Company in respect of
any of the shares issuable upon the exercise of this option until the date of
issuance of a stock certificate for such shares by the Company. The Optionee
shall not be entitled to the privileges of stock ownership as to any shares not
actually issued and delivered to the Optionee.
13. Any notice to be given to the Company under the terms of this
Agreement shall be addressed to Napa National Bankcorp, in care of its
Secretary, at 1500 Third Street, P.O. Box 479, Napa, California 94559-0479, or
at such other address as the Company may hereafter designate in writing. Any
notice to be given to the Optionee shall be addressed to the Optionee at the
address set forth beneath his or her signature hereto, or at any such other
address as the Optionee may hereafter designate in writing. Any such notice
shall be deemed to have been duly given if and when enclosed in a properly
sealed envelope, addressed as aforesaid, registered and deposited, postage and
registry fee prepaid, in a post office or branch post office regularly
maintained by the United States government.
14. Subject to the limitations on transferability contained herein,
this Agreement shall be binding upon and inure to the benefit of the heirs,
legal representatives, successors and assigns of the parties hereto.
15. The option granted hereby is subject to the requirement that if
at any time the Board of Directors or the Committee shall determine in its
discretion that the listing or qualification of the shares of Common Stock
subject to such option on any securities exchange or under any applicable law,
or the consent or approval of any government regulatory body, is necessary or
desirable as a condition of, or in connection with, the issuance of shares under
this option, such option may not be exercised in whole or in part unless such
listing, qualification, consent or approval shall have been effected or obtained
free of any condition not acceptable to the Board of Directors or the Committee.
7
<PAGE>
16. Unless the Optionee is required to give the notice required by
Section 17 hereof, the Optionee shall give the Company notice of any sale or
other disposition of any shares issued pursuant to the exercise of this option
not more than five (5) days after such sale or other disposition.
The exercise of this option shall be conditioned upon the registration
of the Plan with the Securities and Exchange Commission and qualification of the
Plan with the Commissioner of Corporations of the State of California unless in
the opinion of counsel to the Company such registration and qualification is not
necessary. Further, unless the shares of Common Stock to be issued upon exercise
of this option have been effectively registered under the Securities Act of 1933
and qualified under the California Corporate Securities Law of 1968, as each is
now in force or hereafter amended, the Company shall be under no obligation to
issue any shares of Common Stock covered by this option unless the person who'
exercises such option, in whole or in part, shall give a written representation
and undertaking to the Company which is satisfactory in form and scope to
counsel to the Company and upon which, in the opinion of such counsel, the
Company may reasonably rely, that he or she is acquiring the shares of Common
Stock issued to him or her pursuant to such exercise of this option for his or
her own account as an investment and not with a view to, or for sale in
connection with, the distribution of any such shares of Common Stock, and that
he or she will make no transfer of the same except in compliance with any rules
and regulations in force at the time of such transfer under the Securities Act
of 1933, the California Corporate Securities Law of 1968, or any other
applicable law, and that if shares of Common Stock are issued without such
registration or qualification, a legend to this effect shall be endorsed upon
the securities so issued.
17. Section 16 hereof notwithstanding, in the event the Optionee sells
or otherwise disposes of any of the shares that may be acquired hereunder within
two (2) years of the date hereof or within one (1) year of the date such shares
are acquired hereunder, the Optionee agrees to notify the Company in writing
within ten (10) days of the date of such sale or other disposition of the number
of shares sold or disposed of, the nature of the transaction, and the amount
received (if any) upon such sale or other disposition. The Optionee understands
that such a sale or other disposition may result in imposition of withholding
taxes, and agrees to remit to the Company on request any amounts requested to
satisfy any withholding tax liability.
18. The Optionee agrees to notify in writing the Corporate Secretary
of the Company of his or her intention, if
8
<PAGE>
any, to terminate his or her employment within ten (10) days after said
intention is formed.
19. Subject to any employment contract with the Optionee, the terms
of employment of the Optionee shall be determined from time to time by the Bank
and the Bank shall have the right, which is hereby expressly reserved, to
terminate the employee or change the terms of the employment at any time for any
reason whatsoever, with or without good cause.
20. Whenever shares of Common Stock are to be issued to the Optionee
in satisfaction of the rights conferred hereby, the Company shall have the right
to require the Optionee to remit to the Company an amount sufficient to satisfy
federal, state and local withholding tax requirements prior to the delivery of
any certificate or certificates for such shares. Whenever the Optionee is
required to pay to the Company an amount required to be withheld under
applicable federal and state income tax laws in connection with receipt of
shares of Common Stock upon exercise of this option, the Committee may, in its
absolute discretion, permit the Optionee to satisfy such obligation, in whole or
in part, by electing to have the Company withhold shares of Common Stock having
a value equal to the amount required to be withheld or by delivering to the
Company already-owned shares to satisfy the withholding requirement. The amount
of the withholding requirement shall include any amount agreed to be withheld at
the time the election is made, not in excess of the maximum federal and state
income tax rates applicable to the Optionee on the date that the amount of tax
to be withheld is to be determined (the "Tax Date"). The value of the shares to
be withheld or delivered will be based on their Fair Market Value on the Tax
Date. Such elections will be subject to the following restrictions: (1) the
election must be made on or before the Tax Date; (2) the election will be
irrevocable; and (3) the election will be subject to the disapproval of the
Committee. Each election by an optionee whose transactions in shares of Common
Stock are subject to Section 16(b) of the Securities Exchange Act of 1934 will
be subject to the following additional restrictions: (1) the election may not be
made within six (6) months of the grant of this option (except that this
limitation will not apply in the event death or disability of the optionee
occurs prior to the expiration of the six-month period), and (2) the election
must be made either at least six (6) months before the Tax Date or within a ten
(10) day period beginning on the third day following the release of the Company'
5 quarterly or annual summary statement of earnings.
9
<PAGE>
21. The Committee shall have the power to interpret the Plan and this
Agreement and to adopt such rules for the administration, interpretation and
application of the Plan as are consistent therewith and to interpret or revoke
any such rules. All actions taken and all interpretations and determinations
made by the committee in good faith shall be final and binding upon Optionee,
the Company and all other interested persons. No member of the Board of
Directors or of the Committee shall be personally liable for any action,
determination or interpretation made in good faith with respect to the Plan or
this Agreement.
22. In the event that any provisiuon of this Agreemetn shall be
invalid or unenforceable, such provision shall be severable from, and such
invalidity or unenforceability shall not be construed to have any effect on, the
remaining provisions of this agreement.
IN WITNESS HEREOF, the parties hereto have executed this Agreement,
in duplicate, the day and year first above written.
NAPA NATIONAL BANCORP
By _________________________
Its______________________
ACCEPTED:
___________________________
Optionee
___________________________
___________________________
(Address)
10
<PAGE>
EXHIBIT 10.3
NONSTATUTORY STOCK OPTION AGREEMENT
NONSTATUTORY STOCK OPTION AGREEMENT (the "Agreement"),
made. and entered into as of this _____ day of __________ 19____ by
and between Napa National Bancorp, a California corporation (the
"Company"), and _____________ [an employee (the "Optionee") of Napa
National Bank, a wholly-owned subsidiary of the Company (the "Bank")]
[a nonemployee director of the Company].
WITNESSETH
----------
WHEREAS, the Company has adopted the Napa National Bancorp
1982 Stock Option Plan, as amended and restated, effective July 15,
1988 (the "Plan/"/), providing for the grant to its nonemployee
directors and the officers and key full-time salaried employees of
the [Napa National] Bank [, a wholly-owned subsidiary of the Company
(the "Bank"),] of options to purchase shares of its common stock,
without par value (the "Common Stock"); and
WHEREAS, the Plan provides for the grant of certain stock
options which are not intended to be incentive stock options
("nonstatutory stock options/" /or "options") within the meaning of
Section 422A of the Internal Revenue Code of 1986, as amended (the
"Code"); and
WHEREAS, the Optionee is a nonemployee director of the
Company or an officer or key employee of the Bank who is in a
position to make an important contribution to the future growth and
success of the Company;
NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants hereinafter set forth, and other good and valuable
consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto hereby agree as follows:
1. The Company hereby grants to the Optionee a
nonstatutory stock option to purchase ___________ shares of the
Common Stock at the price set forth in Section 2, on the terms and
subject to the conditions hereinafter stated. If the Optionee is an
employee of the Bank, in consideration of the grant of this option
and the other rights which are being concurrently granted to him or
her, the Optionee hereby agrees to continue his or her employment
with the Bank for a period of at least one year from the date of
grant of this option. If the Optionee is a nonemployee director of
the Company, in consideration of the grant of this option and the
other rights which are being concurrently granted to him or her, the
<PAGE>
Optionee hereby agrees to continue his or her directorship with the Company
during the term for which he or she was elected.
2. The purchase price per share is _________ dollars ($_________.__)
(the "Option Price"), which is hereby agreed to be 100% or more of the Fair
Market Value, as defined in Paragraph 4 hereof, of such Common Stock at the
date of grant. The Option Price shall be subject to adjustment as hereinafter
provided.
3. Subject to the provisions of this Agreement, this option can be
exercised at any time during a period of _______ (___) months from the date of
grant, as follows:
(a) This option may be exercised immediately to the extent of
not more than ___________ percent (_______%) of the shares of Common
Stock covered hereby.
(b) After the expiration of ________ (___) months from the date
of grant, this option may be exercised to the extent of not more than
_____________________ percent (_______%) of the shares of Common
Stock covered hereby.
(c) After the expiration of ________ (___) months from the date
of grant, this option may be exercised to the extent of an additional
______________________ percent (______%) of the shares of Common
Stock covered hereby.
(d) After the expiration of ________ (___) months from the date
of grant, this option may be exercised to the extent of an additional
_____________________ percent (%) of the shares of Common Stock
covered hereby.
(e) After the expiration of ________ (___) months from the date
of grant, this option may be exercised to the extent of an additional
____________________ percent (______%) of the shares of Common Stock
covered hereby.
(f) After the expiration of ________ (___) months from the date
of grant, this option may be exercised to the extent of an additional
_____________________ percent (_____%) of the shares of Common Stock
covered hereby.
2
<PAGE>
(g) After the expiration of ________ (___) months from the
date of grant, this option may be exercised to the extent of an
additional _____________________ percent (___) of the shares of
Common Stock covered hereby.
(h) After the expiration of ________ (___) months from the
date of grant, this option may be exercised to the extent of an
additional _____________________ percent (_______%) of the shares
of Common Stock covered hereby.
(i) After the expiration of _______ (___) months from the date
of grant, this option may be exercised to the extent of an
additional _____________________ percent (_____%) of the shares of
Common Stock covered hereby.
(j) After the expiration of _______ (___) months from the date
of grant, this option may be exercised to the extent of an
additional _____________________ percent (_____%) of the shares of
Common Stock covered hereby.
(k) After the expiration of ________ (___) months from the
date of grant, this option may be exercised to the extent of an
additional _____________________ percent (______%) of the shares of
Common Stock covered hereby.
Notwithstanding any other provision of this Agreement, this
option is not exercisable after the expiration of ten (10) years and one (1)
month from the date of grant.
4. For the purposes of this Agreement, "Fair Market Value," when
used in reference to the date of grant of this option or the date of any
surrender of Common Stock in payment for the purchase of shares pursuant to the
exercise of this option or in satisfaction of any withholding tax requirements,
as the case may be, shall be determined by the Stock Option Committee of the
Board of Directors of the Company (the "Committee") in accordance with any
reasonable valuation method, including the valuation methods set forth in
Section 20.2031-2 of the regulations promulgated under the Code.
5. The number of shares of Common Stock covered hereby and the
price per share thereof shall be proportionately adjusted for any increase or
decrease in the number of issued and outstanding shares of Common Stock
resulting from a subdivision or consolidation of shares or the
3
<PAGE>
payment of a stock dividend, or any other increase or decrease in the number of
issued and outstanding shares of Common Stock effected without receipt of
consideration by the Company. If the shares of Common Stock are changed into or
exchanged for a different number or kind of shares of stock or securities of the
Company or another corporation (whether by reason of reorganization, merger,
consolidation, recapitalization, reclassification, split-up, combination of
shares, or otherwise), the Optionee shall receive in substitution for each share
of Common Stock issuable upon the exercise of this option the number and kind of
shares of stock or other securities into which each outstanding share of Common
Stock shall be so changed or for which each share shall be exchanged, or to
which each such share shall be entitled, as the case may be. In addition, the
Committee shall make appropriate adjustments in the number and kind of shares as
to which this option, or portion thereof then unexercised, shall be exercisable
so that the Optionee's proportionate interest in the securities of the Company
by reason of the Optionee' 5 rights hereunder shall be maintained as before the
occurrence of such event. Such adjustment shall be made without change in the
total price as to the unexercised portion of this option and with a
corresponding adjustment in the Option Price.
In the event of a sale, dissolution or liquidation of the Company or
a merger or consolidation in which the Company is not the surviving or resulting
corporation (unless the Company's obligations hereunder are assumed by the
surviving or resulting corporation), options granted hereunder may be terminated
by the Committee; provided, however, that immediately prior to such
--------- -------
sale,-dissolution, or liquidation, or merger or consolidation in which the
Company is not the surviving or resulting corporation, the Company shall notify
the Optionee as soon as practicable and, thereafter, this option may be
exercised in whole or in part to the extent of any unexercised portion of this
option, regardless of the vesting provisions of Section 3 of this Agreement;
and, provided, further, that such right of exercise shall be conditioned
-------- -------
upon the execution of a final plan of dissolution or liquidation or a
definitive agreement of merger or consolidation.
In the event of an offer by any person or entity to all shareholders
of the Company to purchase any or all shares of Common Stock (or shares of stock
or other securities which are substituted for such shares or to which such
shares are adjusted as provided in this Section 5), the option granted hereunder
may be exercised upon the commencement of such offer to the extent of any
unexercised or unvested portion of such option.
4
<PAGE>
To the extent that the foregoing adjustments relate to stock or
securities of the Company, such adjustments shall be made by the Committee,
whose determination in that respect shall be final, binding and conclusive. No
fractional shares shall be issued or delivered.
The grant of the option granted hereunder shall not affect in any
way the right or power of the Company to make adjustments, reclassifications,
reorganizations or changes of its capital or business structure or to merge or
to consolidate or to dissolve, liquidate or sell, or transfer all or any part
of its business or assets.
6. No partial exercise of this option will be permitted for fewer
than ___________ shares of Common Stock.
7. Unless the Optionee is a nonemployee director of the Company,
the Company shall have the right to cancel this option at any time before it
otherwise would have expired by its terms and to grant to the Optionee in
substitution therefor a new option stating an Option Price which is lower (but
not higher) than the Option Price stated in Section 2 of this Agreement and
which, in any case, shall be no less than the Fair Market Value of the shares
subject hereto on the date the new option is granted. The substituted option
shall not be exercisable after the expiration of ten (10) years and one (1)
month from the date of grant of this option.
8. If the Optionee's status as a nonemployee director of the
Company or an officer or employee of the Bank is terminated due to total or
partial disability within the meaning of Section 22(e)(3) of the Code (as
determined by the Committee), this option may be exercised for a period of
twelve (12) months after the date of such disability, provided the actual date
of exercise is in no event after the expiration of the term of this option.
If the Optionee's status as a nonemployee director of the Company
or an officer or employee of the Bank is terminated by death, the executors or
administrators of the Optionee's estate, or any person or persons who have
acquired this option directly from the Optionee by the Optionee's will or the
applicable laws of descent and distribution, shall have the right to exercise
this option, for a period of twelve (12) months, commencing with the death of
the Optionee, provided the actual date of exercise is in no event after the
expiration of the term of this option.
If the Optionee's status as a nonemployee director of the Company
or an officer or employee of the Bank is terminated for any of the reasons set
forth in the paragraph
5
<PAGE>
captioned "CAUSE" under subsection 5(c)(3) of the Plan, this option shall
expire at the time notice or advice of such termination is dispatched by the
Company pursuant to the Plan and, notwithstanding anything else herein to the
contrary, neither the Optionee nor the Optionee' 5 estate shall be entitled to
exercise this option with respect to any shares whatsoever after such
termination.
If the Optionee's status as a nonemployee director of the Company or
an officer or employee of the Bank is terminated for any reason other than
those specified in this Section 8, this option may be exercised within three
(3) months following such termination to the extent this option was exercisable
on the date of such termination, provided the date of exercise is in no event
after the expiration of the term of this option.
Notwithstanding the foregoing provisions of this Section 8, if the
status of the Optionee as a nonemployee director is terminated because it is
determined that the Optionee is, or in the view of a Federal bank regulatory
agency would be, precluded from continuing service as a member of the Board of
Directors of the Company by virtue of a concurrent relationship of the Optionee
with an organization primarily engaged in the issue, underwriting or
distribution of securities and if that Optionee shall, as an independent
advisor or consultant, provide without other remuneration advice, services or
other assistance to the Company or the Bank of at least the same quality or
quantity as the Optionee rendered as a director, then this option shall remain
in full force until the earlier of (i) expiration according to the terms of
this option, (ii) termination because of death, disability or cause as
described above and in accordance with those paragraphs applicable to such
reasons for termination, or (iii) a determination made by the Board of
Directors of the Company in its sole discretion that the Optionee's assistance
to the Company or Bank has ceased to be of at least the same quality or
quantity as the Optionee rendered while a director. In the event that this
option is terminated pursuant to such a Board of Directors' determination, the
Optionee may within three (3) months of that determination exercise this option
to the extent this option was exercisable by the Optionee on the date of such
determination.
9. This option shall be exercisable during the Optionee's lifetime
only by the Optionee and shall be transferable by the Optionee only by will or
the laws of descent and distribution.
10. Except as otherwise provided herein, the option herein granted
and the rights and privileges conferred hereby
6
<PAGE>
shall not be transferred, assigned, pledged or hypothecated in any way (whether
by operation of law or otherwise) and shall not be subject to sale under
execution attachment or similar process upon the rights and privileges conferred
hereby. Upon any attempt to transfer, assign, pledge or otherwise dispose of
said option, or of any right or privilege conferred hereby, contrary to the
provisions hereof, or upon any attempted sale under any execution, attachment or
similar process upon the rights and privileges conferred hereby, said option and
the rights and privileges conferred hereby shall immediately become null and
void.
11. This option may be exercised by delivering to the Secretary of
the Company payment in full at the Option Price for the number of shares of
Common Stock being purchased. The Option Price may be paid by delivering, at the
discretion of the Committee, (a) cash, a certified check, an official bank check
or the equivalent thereof acceptable to the Company; (b) shares of Common Stock
with a Fair Market Value as of the date of exercise equal to the Option Price,
or (c) shares of Common Stock, with a Fair Market Value as of the date of
exercise less than the full amount of the Option Price plus cash, a certified
check, an official bank check or the equivalent thereof acceptable to the
Company equal to the remaining amount of the Option Price, in each case together
with a written notice identifying this option or the part thereof being
exercised and specifying the number of shares of Common Stock for which payment
is being tendered. The Company shall deliver to the Optionee, which delivery
shall be not less than fifteen (15) days and not more than thirty (30) days
after the giving of such notice, without transfer or issue tax to the Optionee
(or other person entitled to exercise this option), at the principal office of
the Company, or such other place as shall be mutually acceptable, a certificate
or certificates for such shares of Common Stock dated the date that this option
was validly exercised; provided, however, that the time of such delivery
--------- -------
may be postponed by the Company for such period as may be required for it with
reasonable diligence to comply with any requirements of law. If the Option Price
is satisfied in whole or in part by delivery of shares of Common Stock, separate
stock certificates shall be issued, one or more for the number of shares of
stock received equal to the number of shares of Common Stock delivered and one
or more for the remainder of the shares received upon the exercise.
12. Neither the Optionee nor any person claiming under or through him
shall be or have any of the rights of a shareholder of the Company in respect of
any of the shares issuable upon the exercise of this option until the date of
issuance of a stock certificate for such shares by the
7
<PAGE>
Company. The Optionee shall not be entitled to the privileges of stock
ownership as to any shares not actually issued and delivered to the Optionee.
13. Any notice to be given to the Company under the terms of this
Agreement shall be addressed to Napa National Bankcorp, in care of its
Secretary, at 1500 Third Street, P.O. Box 479, Napa, California 94559-0479, or
at such other address as the Company may hereafter designate in writing. Any
notice to be given to the Optionee Shall be addressed to the Optionee at the
address set forth beneath his or her signature hereto, or at any such other
address as the Optionee may hereafter designate in writing. Any such notice
shall be deemed to have been duly given if and when enclosed in a properly
sealed envelope, addressed as aforesaid, registered and deposited, postage and
registry fee prepaid, in a post office or branch post office regularly
maintained by the United States government.
14. Subject to the limitations on transferability contained herein,
this Agreement shall be binding upon and inure to the benefit of the heirs,
legal representatives, successors and assigns of the parties hereto.
15. The option granted hereby is subject to the requirement that if
at any time the Board of Directors or the Committee shall determine in its
discretion that the listing or qualification of the shares of Common Stock
subject to such option on any securities exchange or under any applicable law,
or the consent or approval of any government regulatory body, is necessary or
desirable as a condition of, or in connection with, the issuance of shares under
this option, such option may not be exercised in whole or in part unless such
listing, qualification, consent or approval shall have been effected or obtained
free of any condition not acceptable to the Board of Directors or the Committee.
16. Unless the Optionee is required to give the notice required by
Section 17 hereof, the Optionee shall give the Company notice of any sale or
other disposition of any shares issued pursuant to the exercise of this option
not more than five (5) days after such sale or other disposition.
The exercise of this option shall be conditioned upon the
registration of the Plan with the Securities and Exchange Commission and
qualification of the Plan with the Commissioner of Corporations of the State of
California unless in the opinion of counsel to the Company such registration and
qualification is not necessary. Further, unless the shares of Common Stock to be
issued upon exercise of this option have been effectively registered under the
Securities Act of 1933
8
<PAGE>
and qualified under the California Corporate Securities Law of 1968, as each is
now in force or hereafter amended, the Company shall be under no obligation to
issue any shares of Common Stock covered by this option unless the person who
exercises such option, in whole or in part, shall give a written representation
and undertaking to the Company which is satisfactory in form and scope to
counsel to the Company and upon which, in the opinion of such counsel, the
Company may reasonably rely, that he or she is acquiring the shares of Common
Stock issued to him or her pursuant to such exercise of this option for his or
her own account as an investment and not with a view to, or for sale in
connection with, the distribution of any such shares of Common Stock, and that
he or she will make no transfer of the same except in compliance with any rules
and regulations in force at the time of such transfer under the Securities Act
of 1933, the California Corporate Securities Law of 1968, or any other
applicable law, and that if shares of Common Stock are issued without such
registration or qualification, a legend to this effect shall be endorsed upon
the securities so issued.
17. Section 16 hereof notwithstanding, in the event the Optionee
sells or otherwise disposes of any of the shares that may be acquired hereunder
within two (2) years of the date hereof or within one (1) year of the date such
shares are acquired hereunder, the Optionee agrees to notify the Company in
writing within ten (10) days of the date of such sale or other disposition of
the number of shares sold or disposed of, the nature of the transaction, and the
amount received (if any) upon such sale or other disposition. The Optionee
understands that such a sale or other disposition may result in imposition of
withholding taxes, and agrees to remit to the Company on request any amounts
requested to satisfy any withholding tax liability.
18. The Optionee agrees to notify in writing the Corporate Secretary
of the Company of his or her intention, if any, to terminate his or her
employment within ten (10) days after said intention is formed.
19. Subject to any employment contract with the Optionee, the terms
of employment of the Optionee shall be determined from time to time by the Bank
and the Bank shall have the right, which is hereby expressly reserved, to
terminate the employee or change the terms of the employment at any time for any
reason whatsoever, with or without good cause.
20. Whenever shares of Common Stock are to be issued to the Optionee
in satisfaction of the rights conferred hereby, the Company shall have the right
to require the
9
<PAGE>
Optionee to remit to the Company an amount sufficient to satisfy federal, state
and local withholding tax requirements prior to the delivery of any certificate
or certificates for such shares. Whenever the Optionee is required to pay to the
Company an amount required to be withheld under applicable federal and state
income tax laws in connection with receipt of shares of Common Stock upon
exercise of this option, the Committee may, in its absolute discretion, permit
the Optionee to satisfy such obligation, in whole or in part, by electing to
have the Company withhold shares of Common Stock having a value equal to the
amount required to be withheld or by delivering to the Company already-owned
shares to satisfy the withholding requirement. The amount of the withholding
requirement shall include any amount agreed to be withheld at the time the
election is made, not in excess of the maximum federal and state income tax.
rates applicable to the Optionee on the date that the amount of tax to be
withheld is to be determined (the "Tax Date"). The value of the shares to be
withheld or delivered will be based on their Fair Market Value on the Tax Date.
Such elections will be subject to the following restrictions: (1) the election
must be made on or before the Tax Date; (2) the election will be irrevocable;
and (3) the election will be subject to the disapproval of the Committee. Each
election by an optionee whose transactions in shares of Common Stock are subject
to Section 16(b) of the Securities Exchange Act of 1934 will be subject to the
following additional restrictions: (1) the election may not be made within six
(6) months of the grant of this option (except that this limitation will not
apply in the event death or disability of the optionee occurs prior to the
expiration of the six-month period), and (2) the election must be made either at
least six (6) months before the Tax Date or within a ten (10) day period
beginning on the third day following the release of the Company's quarterly or
annual summary statement of earnings.
21. The Committee shall have the power to interpret the Plan and this
Agreement and to adopt such rules for the administration, interpretation and
application of the Plan as are consistent therewith and to interpret or revoke
any such rules. All actions taken and all interpretations and determinations
made by the Committee in good faith shall be final and binding upon Optionee,
the Company and all other interested persons. No member of the Board of
Directors or of the Committee shall be personally liable for any action,
determination or interpretation made in good faith with respect to the Plan or
this Agreement.
22. In the event that any provision of this Agreement shall be
invalid or unenforceable, such provision shall be severable from, and such
invalidity or
10
<PAGE>
unenforceability shall not be construed to have any effect on, the remaining
provisions of this Agreement.
IN WITNESS HEREOF, the parties hereto have executed this Agreement,
in duplicate, the day and year first above written.
NAPA NATIONAL BANCORP
By_______________________________
Its______________________________
ACCEPTED:
______________________________
Optionee
______________________________
______________________________
(Address)
11
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