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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
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REDDING BANCORP
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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CALIFORNIA 94-2823865
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
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1951 CHURN CREEK ROAD
REDDING, CALIFORNIA 96002
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (530) 224-3333
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SECURITIES TO BE REGISTERED UNDER SECTION 12(b) OF THE ACT:
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TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH
TO BE SO REGISTERED EACH CLASS IS TO BE REGISTERED
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NONE NONE
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SECURITIES TO BE REGISTERED UNDER SECTION 12(g) OF THE ACT:
COMMON STOCK, NO PAR VALUE PER SHARE
(TITLE OF CLASS)
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TABLE OF CONTENTS
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ITEM 1. BUSINESS................................................................... 1
ITEM 2. FINANCIAL INFORMATION...................................................... 20
ITEM 3. PROPERTIES................................................................. 39
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT............................................................. 40
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS........................................... 41
ITEM 6. EXECUTIVE COMPENSATION..................................................... 43
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............................. 47
ITEM 8. LEGAL PROCEEDINGS.......................................................... 47
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE
REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS........................................................ 47
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES.................................... 49
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE
REGISTERED................................................................. 49
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS.................................. 50
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................................ 51
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE..................................... 88
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS.......................................... 88
SIGNATURES..................................................................................... 89
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ITEM 1. BUSINESS
This Registration Statement includes forward-looking statements within
the meaning of Section 21E of the Securities Exchange Act of 1934 (the "Exchange
Act"). These statements are based on management's beliefs and assumptions, and
on information currently available to management. Forward-looking statements
include the information concerning possible or assumed future results of
operations of the Company set forth under the heading "Financial
Information-Management's Discussion and Analysis of Financial Condition and
Results of Operations." Forward-looking statements also include statements in
which words such as "expect," "anticipate," "intend," "plan," "believe,"
"estimate", "consider" or similar expressions are used.
Forward-looking statements are not guarantees of future performance.
They involve risks, uncertainties and assumptions, including the risks discussed
under the heading "Business-Risk Factors and Investment Considerations" and
elsewhere in this Registration Statement. The Company's future results and
shareholder values may differ materially from those expressed in these
forward-looking statements. Many of the factors that will determine these
results and values are beyond the Company's ability to control or predict.
Investors are cautioned not to put undue reliance on any forward-looking
statements. In addition, the Company does not have any intention or obligation
to update forward-looking statements after the effectiveness of this
Registration Statement, even if new information, future events or other
circumstances have made them incorrect or misleading. For these statements, the
Company claims the protection of the safe harbor for forward-looking statements
contained in Section 21E of the Exchange Act.
Except as specifically noted herein (i) all references to the "Company"
refer to Redding Bancorp, a California corporation, and its consolidated
subsidiaries and (ii) all information herein has been adjusted to give effect to
a three-for-one stock split effected by the Company in July 1998.
GENERAL
Redding Bancorp (the "Company") is a bank holding company registered
under the Bank Holding Company Act of 1956, as amended (the "BHCA"), and was
incorporated in California on January 21, 1982 for the purpose of organizing, as
a wholly owned subsidiary, Redding Bank of Commerce (the "Bank"). As a bank
holding company, the Company is subject to the BHCA and to supervision by the
Board of Governors of the Federal Reserve System (the "Federal Reserve"). The
Company's principal business is to serve as a holding company for the Bank and
Redding Service Corporation, a California corporation formed in 1993 for the
purpose of processing trust deeds, and for other banking or banking-related
subsidiaries which the Company may establish or acquire. The Company's principal
source of income is dividends from its subsidiaries. The Company conducts its
business operations at the offices of the Bank located at 1951 Churn Creek Road,
Redding, California 96002. The Company conducts all of its business operations
within a single geographic area and within a single industry segment.
The Bank was incorporated as a California banking corporation on
November 25, 1981 and received its certificate of authority to begin banking
operations on October 22, 1982. The Bank operates two full service branches and
two loan production offices. The Company established its first full service
branch at 1177 Placer Street, Redding, California, and opened for business on
October 22, 1982. On November 1, 1988 the Bank received a certificate of
authority to establish and maintain a loan production office in Citrus Heights,
California. On September 1, 1998, the Company relocated the loan production
office to 2400 Professional Drive in Roseville, California.
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On March 1, 1994 the Bank received a certificate of authority to open a second
full service branch at 1951 Churn Creek Road in Redding, California. On June 29,
1995, the Bank received a certificate of authority to open a second loan
production office at 676 East First Avenue in Chico, California. The Bank
established an interactive marketing website on July 31, 1998, at
http://www.reddingbankofcommerce.com for the purpose of making information about
the Bank's products and services publicly available.
The Bank is principally supervised and regulated by the California
Department of Financial Institutions ("DFI") and the Federal Deposit Insurance
Corporation ("FDIC"), and conducts a general commercial banking business in the
counties of Butte, El Dorado, Placer, Shasta, and Sacramento, California. The
Company considers Shasta County, California to be the Bank's major market area.
The services offered by the Bank include those traditionally offered by
commercial banks of similar size and character in California, such as checking,
interest-bearing checking ("NOW") and savings accounts, money market deposit
accounts, commercial, real estate, construction, personal, home improvement,
automobile and other installment and term loans, travelers checks, safe deposit
boxes, collection services and telephone transfers. The primary focus of the
Bank is to provide services to the business and professional community of its
major market area, including Small Business Administration loans, and payroll
and accounting packages and billing programs. The Bank does not offer trust
services or international banking services and does not plan to do so in the
near future.
Most of the Bank's customers are small to medium sized businesses and
individuals with medium to high net worth. The Bank emphasizes servicing the
needs of local businesses and professionals and individuals requiring
specialized services. The Bank's business strategy is to focus on commercial and
multi-family real estate loans, including construction loans, and commercial
business loans. The majority of the Bank's loans are direct loans made to
individuals and small businesses in the Bank's major market area and are secured
by real estate. The Bank accepts real estate, listed and unlisted securities,
savings and time deposits, automobiles, machinery and equipment as collateral
for loans. See "-Risk Factors and Investment Considerations-Lending Risks
Associated with Commercial Banking and Construction Activities" and "-Dependence
on Real Estate."
Most of the Bank's deposits are obtained from commercial businesses,
professionals and other individuals. The Bank does not accept brokered deposits
or deposits outside of its market area.
In April 1993, the Bank entered into an agreement (the "Merchant
Services Agreement") with Cardservice International, Inc. ("CSI"), an
independent sales organization ("ISO"), pursuant to which the Bank has agreed to
provide credit and debit card processing services for merchants solicited by the
ISO who accept credit and debit cards as payment for goods and services.
Pursuant to the Merchant Services Agreement, the Bank acts as a clearing bank
for CSI, a nonbank merchant credit card processor, and processes credit or debit
card transactions into the Visa(R) or MasterCard(R) system for presentment to
the card issuer. As a result of the Merchant Services Agreement, the Bank has
acquired electronic credit and debit card processing relationships with
merchants in various industries on a nationwide basis. Contract deposit
relationships with the Bank's merchants and CSI represented approximately 25% of
the Bank's capital as of September 30, 1998. The Merchant Services Agreement
with CSI was renewed in 1997 for a period of four years which expires on April
1, 2001, and will automatically renew for additional four year periods unless
terminated in advance of the renewal period by CSI or the Bank upon 30 days
prior written
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notice. See "-Risk Factors and Investment Considerations-Ability to Sustain
Growth; Merchant Processing Services" and "-Chargebacks and Payment Risks
Associated with Merchant Processing Services."
In 1995, the Company established a sales team to market merchant
processing services to merchants in its major market area and, as of September
30, 1998, the Bank had 786 merchants in its portfolio. The fee income generated
from the Bank's local merchant portfolio is substantially less than that
generated from the CSI portfolio because of the lower volume of transactions.
The fee income from merchant processing services represented
approximately 11.1%, 9.3% and 7.5% of the Company's consolidated revenues in
1997, 1996 and 1995, respectively.
RISK FACTORS AND INVESTMENT CONSIDERATIONS
In addition to other information in this Registration Statement,
investors should consider carefully the following risk factors in evaluating the
Company, its subsidiaries and Common Stock. The risks highlighted herein should
not be assumed to be the only factors that could affect future performance of
the Company and the Bank.
LENDING RISKS ASSOCIATED WITH COMMERCIAL BANKING AND CONSTRUCTION
ACTIVITIES
The Bank's business strategy is to focus on commercial and multi-family
real estate loans, construction loans and commercial business loans. Loans
secured by commercial real estate are generally larger and involve a greater
degree of credit and transaction risk than residential mortgage (1 to 4 family)
loans. Because payments on loans secured by commercial and multi-family real
estate properties are often dependent on successful operation or management of
the properties, repayment of such loans may be subject to a greater extent to
the then prevailing conditions in the real estate market or the economy.
Moreover, construction financing is generally considered to involve a higher
degree of credit risk than long-term financing on improved, owner-occupied real
estate. Risk of loss on a construction loan is dependent largely upon the
accuracy of the initial estimate of the property's value at completion of
construction or development compared to the estimated cost (including interest)
of construction. If the estimate of value proves to be inaccurate, the Bank may
be confronted with a project which, when completed, has a value which is
insufficient to assure full repayment of the construction loan.
Although the Bank manages lending risks through its underwriting and
credit administration policies, no assurance can be given that such risks would
not materialize, in which event the Company's financial condition, results of
operations, cash flows and business prospects could be materially adversely
affected.
DEPENDENCE ON REAL ESTATE
At September 30, 1998, approximately 68% of the Bank's loans were
secured by real estate. The value of the Bank's real estate collateral has been,
and could in the future continue to be, adversely affected by any economic
recession and any resulting adverse impact on the real estate market in Northern
California such as that experienced during the early years of this decade.
See "-Economic Conditions and Geographic Concentration."
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The Bank's primary lending focus has historically been real estate
mortgage, construction and, to a lesser extent, commercial business lending. At
September 30, 1998, commercial real estate mortgage and construction loans
comprised approximately 40% and 25%, respectively, of the total loans in the
Bank's portfolio. All of the real estate mortgage and construction loans, and
approximately 10% of the commercial business loans, were secured fully or in
part by deeds of trust on underlying real estate. The Bank's dependence on real
estate increases the risk of loss in both the Bank's loan portfolio and its
holdings of other real estate owned if economic conditions in Northern
California deteriorate in the future. Deterioration of the real estate market in
Northern California would have a material adverse effect on the Company's
business, financial condition and results of operations. See "-Economic
Conditions and Geographic Concentration."
INTEREST RATE RISK
The income of the Bank depends to a great extent on "interest rate
differentials" and the resulting net interest margins (i.e., the difference
between the interest rates earned on the Bank's interest-earning assets such as
loans and investment securities, and the interest rates paid on the Bank's
interest-bearing liabilities such as deposits and borrowings). These rates are
highly sensitive to many factors which are beyond the Company's control,
including general economic conditions and the policies of various governmental
and regulatory agencies, in particular, the Federal Reserve. Changes in monetary
policy, including changes in interest rates, will influence the origination of
loans, the purchase of investments and the generation of deposits and will
affect the rates received on loans and investment securities and paid on
deposits, which could have a material adverse effect on the Company's business,
financial condition and results of operations.
ABILITY TO SUSTAIN GROWTH; MERCHANT PROCESSING SERVICES
A significant amount of the Company's growth in the recent past is
attributable to the fee income received by the Bank in connection with merchant
processing services provided pursuant to the Merchant Services Agreement and, to
a lesser extent, the Bank's own portfolio of local merchants. The Bank's fee
income from merchant processing services represented approximately 11.1%, 9.3%
and 7.5% of the Company's consolidated revenues in 1997, 1996 and 1995,
respectively. In addition, contract deposit relationships with the merchants in
the Bank's portfolio and CSI represented approximately 25% of the Bank's capital
as of September 30, 1998. The Merchant Services Agreement was renewed in 1997
for a period of four years which expires on April 1, 2001, and will
automatically renew for additional four year periods unless terminated by CSI or
the Bank upon written notice 30 days prior to the expiration of any renewal
period. In the event the Merchant Services Agreement is not renewed by the Bank,
CSI may transfer the merchants in its portfolio to another financial
institution, the result of which would be that the Bank would lose the related
deposits. Termination of the Merchant Services Agreement and loss of the related
deposits would have a material adverse effect on the Company's financial
condition and results of operations. See "Financial Information-Management's
Discussion and Analysis of Financial Condition and Results of
Operations-Noninterest Income-Merchant Processing Services Income."
In addition, the ability of the Bank to increase the level of fee income
currently being generated by merchant processing relationships is limited. Under
the Visa(R) and MasterCard(R) associations' rules that apply to a bank or other
processing firm that acquires a card transaction from a merchant and processes
and enters the transaction into the Visa(R) or MasterCard(R) system for
presentment to the card issuer (the "Card Association Rules"), fees that can be
charged on
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monthly credit card sales above $93 million are significantly less than the fees
that can be charged on monthly credit card sales below $93 million. Further, the
Visa(R) bylaws limit the amount of quarterly Visa(R) credit card sales that the
Bank may process to four times the Bank's equity capital unless additional
collateral is pledged by the Bank. The Company's ability to sustain or increase
fee income from merchant processing relationships is also affected by other
factors, some of which are beyond the Company's control, such as (i) competition
from other banks, ISOs and other nonbank processors, (ii) continuation of the
requirement that ISOs and other nonbank processors access the Visa(R) and
MasterCard(R) payment system through banks, (iii) the ability to avoid losses
through various contractual methods including indemnification by the ISO,
reserve balances controlled by the Bank and insurance and (iv) the ability to
continue to grow both locally and nationally. No assurance can be given that the
Company will be able to sustain its growth from fee income from merchant
processing services. See "Financial Information-Management's Discussion and
Analysis of Financial Condition and Results of Operations-Noninterest
Income-Merchant Processing Services Income."
CHARGEBACKS AND PAYMENT RISKS ASSOCIATED WITH MERCHANT PROCESSING
SERVICES
The Bank is subject to the Card Association Rules in processing credit
and debit card transactions. In the event of certain types of billing disputes
between a cardholder and a merchant, the processor of the transaction assists
the merchant in investigating and resolving the dispute. If the dispute is not
resolved in favor of the merchant, the transaction is "charged back" to the
merchant and that amount is credited or otherwise refunded to the cardholder. If
the processor is unable to collect such amounts from the merchant's account, and
if the merchant refuses or is unable due to bankruptcy or other reasons to
reimburse the processor for the chargeback, the processor bears the loss for the
amount of the refund paid to the cardholder. Pursuant to the Merchant Services
Agreement, CSI has agreed to indemnify the Bank against losses incurred in
connection with credit card transactions generated by merchants in CSI's
portfolio. In addition, pursuant to the Merchant Services Agreement CSI is
required to maintain a reserve account and a general account with the Bank and
has granted the Bank a security interest in such accounts to secure CSI's
obligations under the Merchant Services Agreement. The balances required to be
maintained by CSI in the reserve account and general account constitute a small
percentage of the dollar volume of transactions processed by the Bank each
month. In the event that the funds in accounts maintained by CSI are not
sufficient to cover chargebacks and refund payments to cardholders and CSI is
unable to reimburse the Bank for such deficiencies, the Bank would bear the loss
which could have a material adverse effect on the Company's financial condition,
results of operations and cash flows. See "Business-General" and "Financial
Information-Management's Discussion and Analysis of Financial Condition and
Result of Operations-Noninterest Income-Merchant Processing Services Income."
Chargeback exposure can also result from fraudulent credit card
transactions initiated by merchant customers. Examples of merchant fraud include
logging fictitious sales transactions and falsification of transaction amounts
on actual sales. The Bank conducts a background review of its merchant customers
at the time the relationship is established with the merchant. The Bank also can
withhold or delay a merchant's daily settlement if fraudulent activity is
suspected, thereby mitigating exposure to loss. However, there can be no
assurance that the Bank will not experience significant amounts of merchant
fraud, which could have a material adverse effect on the Company's business,
financial condition and results of operations. The degree of exposure to
chargebacks may also be adversely affected by the development of new transaction
delivery channels, such as the Internet, which has yet to be fully evaluated.
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The Company is not exposed to card issuer credit losses unassociated
with a dispute between the cardholder and the merchant.
POTENTIAL VOLATILITY OF DEPOSITS
At September 30, 1998, 22% of the dollar value of the Bank's total
deposits was represented by time certificates of deposit in excess of $100,000.
As such, these deposits are considered volatile and could be subject to
withdrawal. Withdrawal of a material amount of such deposits would adversely
impact the Bank's liquidity, profitability, business prospects, results of
operations and cash flows.
DIVIDENDS
Because the Company conducts no other significant activity than the
management of its investment in the Bank, the Company is dependent on the Bank
for income. The ability of the Bank to pay cash dividends in the future will
depend on the Bank's profitability, growth and capital needs. In addition, the
California Financial Code restricts the ability of the Bank to pay dividends. No
assurance can be given that the Company or the Bank will pay any dividends in
the future or, if paid, such dividends will not be discontinued. See
"-Supervision and Regulation-Restrictions on Dividends and Other Distributions."
COMPETITION
In California generally, and in the Company's primary market area
specifically, major banks dominate the commercial banking industry. By virtue of
their larger capital bases, such institutions have substantially greater lending
limits than those of the Bank. In obtaining deposits and in making loans, the
Bank competes with these larger commercial banks and other financial
institutions, such as savings and loan associations and credit unions, which
offer many services which traditionally were offered only by banks. In addition,
the Bank competes with other institutions such as money market funds, brokerage
firms, and even retail stores seeking to penetrate the financial services
market. During periods of declining interest rates, competitors with lower costs
of capital may solicit the Bank's customers to refinance their loans.
Furthermore, during periods of economic slowdown or recession, the Bank's
borrowers may face financial difficulties and be more receptive to offers from
the Bank's competitors to refinance their loans. No assurance can be given that
the Bank will be able to compete with these lenders.
Competition in the merchant processing industry is intense. The Bank
competes with other banks, ISOs and other nonbank processors. Many of these
competitors are substantially larger than the Bank. The Bank competes on the
basis of price, the availability of products and services, the quality of
customer service and support and transaction processing speed. The majority of
the Bank's contracts with merchants are cancelable at will or on short notice or
provide for renewal at frequent periodic intervals and, as a result, the Bank
regularly rebids such contracts. This competition may influence the prices that
can be charged by the Bank and require aggressive cost control or increased
transaction volume in order to maintain acceptable profit margins. If the Bank
is not able to maintain acceptable profit margins, it could be forced to
discontinue merchant processing services which would have a material adverse
effect on the Company's results of operations and cash flows. Further, because
of tightening margins, there has been a trend toward consolidation in the
merchant processing industry. Consolidation will enable certain of the Bank's
competitors to have access to significant capital, management, marketing and
technological
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resources that are equal to or greater than those of the Bank. No assurance can
be given that the Bank or any ISO for which the Bank performs clearing bank
services will be able to compete successfully for merchant processing business
in the future.
GOVERNMENT REGULATION AND LEGISLATION
The Company and the Bank are subject to extensive state and federal
regulation, supervision and legislation which govern almost all aspects of the
operations of the Company and the Bank. 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. Such laws are subject to change from
time to time and are primarily intended for the protection of consumers,
depositors and the deposit insurance funds and not for the protection of
shareholders of the Company. The Company cannot predict what effect any
presently contemplated or future changes in the laws or regulations or their
interpretations would have on the business and prospects of the Company, but it
could be material and adverse. See "-Supervision and Regulation."
ECONOMIC CONDITIONS AND GEOGRAPHIC CONCENTRATION
The Company's operations are located and concentrated primarily in
Northern California, particularly the counties of Butte, El Dorado, Placer,
Shasta and Sacramento, and are likely to remain so for the foreseeable future.
At September 30, 1998, approximately 64% of the Bank's loan portfolio consisted
of real estate related loans, all of which were related to collateral located in
Northern California. The performance of these loans may be adversely affected by
changes in California's economic and business conditions. A deterioration in
economic conditions could have a material adverse effect on the quality of the
Bank's loan portfolio and the demand for its products and services. In addition,
during periods of economic slowdown or recession, the Bank may experience a
decline in collateral values and an increase in delinquencies and defaults. A
decline in collateral values and an increase in delinquencies and defaults
increase the possibility and severity of losses. California real estate is also
subject to certain natural disasters, such as earthquakes, floods and mud
slides, which are typically not covered by the standard hazard insurance
policies maintained by borrowers. Uninsured disasters may render borrowers
unable to repay loans made by the Bank. The occurrence of adverse economic
conditions or natural disasters in California could have a material adverse
effect on the Bank's financial condition, results of operations, cash flows and
business prospects.
RELIANCE ON KEY EMPLOYEES AND OTHERS
The Company is dependent upon the continued services of its key
employees, including Russell L. Duclos, President and Chief Executive Officer,
Michael C. Mayer, Executive Vice President and Chief Credit Officer, and Linda
J. Miles, Executive Vice President and Chief Financial Officer. The loss of the
services of any such employee, or the failure of the Company to attract and
retain other qualified personnel, could have a material adverse effect on the
Company's business, financial condition and results of operations. The Company
has entered into a three-year employment agreement with Mr. Duclos which expires
on June 30, 2000. See "Executive Compensation-Employment Agreements."
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The Company does not maintain any life insurance with respect to any of
its officers, except with regard to a nonqualified deferred compensation plan.
ADEQUACY OF ALLOWANCE FOR LOAN AND OTHER REAL ESTATE LOSSES
The Bank's allowance for estimated losses on loans was approximately
$3.02 million or 2.09% of total loans and 215% of total nonperforming loans at
September 30, 1998. Material future additions to the allowance for estimated
losses on loans may be necessary if material adverse changes in economic
conditions occur and the performance of the Bank's loan portfolio deteriorates.
In addition, future additions to the Bank's allowance for losses on other real
estate owned may also be required in order to reflect changes in the markets for
real estate in which the Bank's other real estate owned is located and other
factors which may result in adjustments which are necessary to ensure that the
Bank's foreclosed assets are carried at the lower of cost or fair value, less
estimated costs to dispose of the properties. Moreover, the FDIC and the DFI, as
an integral part of their examination process, periodically review the Bank's
allowance for estimated losses on loans and the carrying value of its assets.
The Bank was most recently examined by the FDIC and the DFI in this regard
during the third quarter of 1997. Increases in the provisions for estimated
losses on loans and foreclosed assets would adversely affect the Bank's
financial condition and results of operations. See "Financial
Information-Management's Discussion and Analysis of Financial Condition and
Results of Operations-Asset Quality" and "--Allowance for Loan and Lease Losses
(ALLL)."
CERTAIN OWNERSHIP RESTRICTIONS UNDER CALIFORNIA AND FEDERAL LAW
Federal law prohibits a person or group of persons "acting in concert"
from acquiring "control" of a bank holding company unless the Federal Reserve
has been given 60 days prior written notice of such proposed acquisition and
within that time period the Federal Reserve has not issued a notice disapproving
the proposed acquisition or extending for up to another 30 days, the period
during which such a disapproval may be issued. An acquisition may be made prior
to the expiration of the disapproval period if the Federal Reserve issues
written notice of its intent not to disapprove the action. Under a rebuttal
presumption established by the Federal Reserve, the acquisition of more than 10%
of a class of voting stock of a bank with a class of securities registered under
Section 12 of the Exchange Act, such as the Common Stock), would, under the
circumstances set forth in the presumption, constitute the acquisition of
control. In addition, any "company" would be required to obtain the approval of
the Federal Reserve under the BHCA, before acquiring 25% (5% in the case of an
acquiror that is, or is deemed to be, the bank holding company) or more of the
outstanding shares of the Company's Common Stock, or such lesser number of
shares as constitute control.
Under the California Financial Code, no person shall, directly or
indirectly, acquire control of a California licensed bank or a bank holding
company unless the California Commissioner of Financial Institutions (the
"Commissioner") has approved such acquisition of control. A person would be
deemed to have acquired control of the Company under this state law if such
person, directly or indirectly, has the power (i) to vote 25% or more of the
voting power of the Company or (ii) to direct or cause the direction of the
management and policies of the Company. For purposes of this law, a person who
directly or indirectly owns or controls 10% or more of the Common Stock would be
presumed to control the Company.
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SHARES ELIGIBLE FOR FUTURE SALE
As of October 30, 1998, the Company had 2,684,103 shares of Common Stock
outstanding, of which approximately 1,959,507 shares are eligible for sale in
the public market without restriction. Approximately 724,596 shares are eligible
for sale in the public market pursuant to Rule 144 under the Securities Act of
1933, as amended (the "Securities Act"). Future sales of substantial amounts of
the Company's Common Stock, or the perception that such sales could occur, could
have a material adverse effect on the market price of the Common Stock. In
addition, options to acquire up to 16% of the shares of Common Stock at an
exercise price equal to not less than 85% of the market value of the Company's
Common Stock on the date of grant are reserved for issuance to directors and
certain employees of the Company under the Company's 1998 Stock Option Plan. No
prediction can be made as to the effect, if any, that future sales of shares, or
the availability of shares for future sale, will have on the market price of the
Company's Common Stock. See "Market Price of and Dividends on the Registrant's
Common Equity and Related Stockholder Matters."
ABSENCE OF PUBLIC MARKET; VOLATILITY IN STOCK PRICE
There currently is no active trading market for the Company's Common
Stock. No assurance can be given that an active public trading market will
develop or that, if developed, it will be sustained. As a result of the lack of
a trading market, the market price of the Company's Common Stock may experience
fluctuations that are unrelated to the operating performance of the Company and
the Bank. In particular, the price of the Company's Common Stock may be affected
by general market price movements as well as developments specifically related
to the financial services sector, including interest rate movements, quarterly
variations, or changes in financial estimates by securities analysts and a
significant reduction in the price of the stock of another participant in the
financial services industry.
TECHNOLOGY AND COMPUTER SYSTEMS
Advances and changes in technology can significantly impact the business
and operations of the Company. The Bank faces many challenges including the
increased demand for providing computer access to bank accounts and the systems
to perform banking transactions electronically. The Bank's merchant processing
services require the use of advanced computer hardware and software technology
and rapidly changing customer and regulatory requirements. The Company's ability
to compete depends on its ability to continue to adapt its technology on a
timely and cost-effective basis to meet these requirements. In addition, the
Bank's business and operations are susceptible to negative impacts from computer
system failures, communication and energy disruption and unethical individuals
with the technological ability to cause disruptions or failures of the Bank's
data processing systems.
Many computer programs were designed and developed utilizing only two
digits in the date field, thereby creating the inability to recognize the year
2000 or years thereafter. This year 2000 issue creates risks for the Bank from
unforseen or unanticipated problems in its internal computer systems as well as
from computer systems of the Federal Reserve Bank of San Francisco,
correspondent banks, customers and vendors. Failures of these systems or
untimely corrections could have a material adverse impact on the Bank's ability
to conduct its business and results of operations. See "Financial
Information-Management's Discussion and Analysis of Financial Condition and
Results of Operations-Year 2000."
9
<PAGE> 12
ENVIRONMENTAL RISKS
The Bank, in its ordinary course of business, acquires real property
securing loans that are in default, and there is a risk that hazardous
substances or waste, contaminants or pollutants could exist on such properties.
The Bank may be required to remove or remediate such substances from the
affected properties at its expense, and the cost of such removal or remediation
may substantially exceed the value of the affected properties or the loans
secured by such properties. Furthermore, the Bank may not have adequate remedies
against the prior owners or other responsible parties to recover its costs.
Finally, the Bank may find it difficult or impossible to sell the affected
properties either prior to or following any such removal. In addition, the Bank
may be considered liable for environmental liabilities in connection with its
borrowers' properties, if, among other things, it participates in the management
of its borrowers' operations. The occurrence of such an event could have a
material adverse effect on the Company's business, financial condition, results
of operations and cash flows.
DILUTION
The Company has issued options to purchase shares of the Company's
Common Stock at prices below the fair market value of the Company's Common Stock
on the date of grant. As of October 30, 1998, the Company had outstanding
options to purchase an aggregate of 411,000 shares of Common Stock at exercise
prices ranging from $9.07 to $10.67 per share, or a weighted average exercise
price per share of $9.62. To the extent such options are exercised, shareholders
of the Company will experience dilution. See "Market Price of and Dividends on
the Registrant's Common Equity and Related Stockholder Matters."
THE EFFECT OF GOVERNMENT POLICY ON BANKING
The earnings and growth of the Company are affected not only by local
market area factors and general economic conditions, but also by government
monetary and fiscal policies. For example, the Federal Reserve influences the
supply of money through its open market operations in United States 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 Company cannot be predicted. Additionally,
state and federal tax policies can impact banking organizations.
As a consequence of the extensive regulation of commercial banking
activities in the United States, the business of the 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.
10
<PAGE> 13
SUPERVISION AND REGULATION
REGULATION AND SUPERVISION OF BANK HOLDING COMPANIES
The Company is a bank holding company subject to the BHCA. The Company
reports to, registers with, and may be examined by, the Federal Reserve. The
Federal Reserve also has the authority to examine the Company's subsidiaries.
The costs of any examination by the Federal Reserve are payable by the Company.
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 Commissioner.
The Federal Reserve has significant supervisory and regulatory authority
over the Company and its affiliates. The Federal Reserve requires the Company to
maintain certain levels of capital. The Federal Reserve 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 Federal Reserve. See "-Prompt Corrective Action and
Other Enforcement Mechanisms."
Under the BHCA, a company generally must obtain the prior approval of
the Federal Reserve 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 Federal Reserve 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 prior approval of the Federal Reserve.
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. However, a bank holding company may, with the
approval of the Federal Reserve, engage, or acquire the voting shares of
companies engaged, in activities that the Federal Reserve 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.
A bank holding company may acquire banks in states other than its home
state 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).
Banks may also merge across states lines, therefore creating interstate
branches. Furthermore, 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.
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<PAGE> 14
Under California law, (i) out-of-state banks that wish to establish a
California branch office to conduct core banking business must first acquire an
existing five year old California bank or industrial loan company by merger or
purchase, (ii) California state-chartered banks are 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
(iii) the Commissioner is authorized to approve an interstate acquisition or
merger which would result in a deposit concentration exceeding 30% if the
Commissioner finds that the transaction is consistent with public convenience
and advantage. However, a state bank chartered in a state other than California
may not enter 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 bank.
The Federal Reserve generally prohibits a bank holding company from
declaring or paying a cash dividend which would impose undue pressure on the
capital of subsidiary banks or would be funded only through borrowing or other
arrangements that might adversely affect a bank holding company's financial
position. The Federal Reserve'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. See "-Restrictions on Dividends and Other
Distributions" for additional restrictions on the ability of the Company and the
Bank to pay dividends.
Transactions between the Company and the Bank are subject to a number of
other restrictions. Federal Reserve 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.
The Federal Reserve has adopted comprehensive amendments to Regulation Y
in 1997 intended to improve the competitiveness of bank holding companies by,
among other things, (i) expanding the list of permissible nonbanking activities
in which well-run bank holding companies may engage without prior Federal
Reserve approval, (ii) streamlining the procedures for well-run bank holding
companies to obtain approval to engage in other nonbanking activities and (iii)
eliminating most of the anti-tying restrictions imposed upon bank holding
companies and their nonbank subsidiaries. Amended Regulation Y also provides for
a streamlined and expedited review process for bank acquisition proposals
submitted by well-run bank holding companies and eliminates certain duplicative
reporting requirements when there has been a further change in bank control or
in bank directors or officers after an earlier approved change. These changes to
Regulation Y are subject to numerous qualifications, limitations and
restrictions. In order for a bank holding company to qualify as "well-run," both
it and the insured depository institutions that it controls must meet the
"well-capitalized" and "well-managed" criteria set forth in Regulation Y.
12
<PAGE> 15
To qualify as "well-capitalized," the bank holding company must, on a
consolidated basis, (i) maintain a total risk-based capital ratio of 10% or
greater, (ii) maintain a Tier 1 risk-based capital ratio of 6% or greater, and
(iii) not be subject to any order by the Federal Reserve to meet a specified
capital level. Its lead insured depository institution must be well-capitalized
as that term is defined in the capital adequacy regulations of the applicable
bank regulator, 80% of the total risk-weighted assets held by its insured
depository institutions must be held by institutions that are well-capitalized,
and none of its insured depository institutions may be undercapitalized.
To qualify as "well-managed," (i) each of the bank holding company, its
lead depository institution and its depository institutions holding 80% of the
total risk-weighted assets of all its depository institutions at their most
recent examination or review must have received a composite rating, rating for
management and rating for compliance which were at least satisfactory, (ii) none
of the bank holding company's depository institutions may have received one of
the two lowest composite ratings and (iii) neither the bank holding company nor
any of its depository institutions during the previous 12 months may have been
subject to a formal enforcement order or action.
REGULATION AND SUPERVISION OF BANKS
The Bank is subject to regulation, supervision and regular examination
by the DFI and the FDIC. The regulations of these agencies affect most aspects
of the Bank's business and prescribe permissible types of loans and investments,
the amount of required reserves, requirements for branch offices, the
permissible scope of the Bank's activities and various other requirements. While
the Bank is not a member of the Federal Reserve system, it is subject to certain
regulations of the Federal Reserve 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).
Under California law, the Bank is subject to various restrictions on,
and requirements regarding, its operations and administration, including the
maintenance of branch offices and automated teller machines, capital and reserve
requirements, deposits and borrowings, stockholder rights and duties, and
investment and lending activities. Whenever it appears that the contributed
capital of a California bank is impaired, the Commissioner shall order the bank
to correct such impairment. If a bank is unable to correct the impairment, such
bank is required to levy and collect an assessment upon its common shares. If
such assessment becomes delinquent, such common shares are to be sold by the
bank.
California law permits a state chartered bank to invest in the stock and
securities of other corporations, subject to a state chartered bank receiving
either general authorization or, depending on the amount of the proposed
investment, specific authorization from the Commissioner. Federal banking laws,
however, imposes limitations on the activities and equity investments of state
chartered, federally insured banks. The FDIC rules on investments prohibit a
state bank from acquiring an equity investment of a type, or in an amount, not
permissible for a national bank. The FDIC rules also prohibit a state bank from
engaging as a principal in any activity that is not permissible for a national
bank, unless the bank is adequately capitalized and the FDIC approves the
activity after determining that such activity does not pose a significant risk
to the deposit insurance fund. The FDIC rules on activities generally permit
subsidiaries of banks, without prior specific FDIC authorization, to engage in
those that have been approved by the Federal Reserve for bank holding companies
because such activities are so closely related to banking to be a proper
incident thereto. Other activities generally require specific FDIC prior
approval, and the FDIC may
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<PAGE> 16
impose additional restrictions on such activities on a case-by-case basis in
approving applications to engage in otherwise impermissible activities.
CAPITAL STANDARDS
The 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 United States government securities, to 100% for assets with
relatively higher credit risk, such as certain loans.
In determining the capital level a bank is required to maintain, the
federal banking agencies do not, in all respects, follow generally accepted
accounting principles ("GAAP") and have special rules which have the effect of
reducing the amount of capital it will recognize for purposes of determining the
capital adequacy of a bank.
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. For Tier
1 capital purposes, deferred tax assets that can only be realized if an
institution earns sufficient taxable income in the future are 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. The federal banking agencies require 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%.
On October 1, 1998, the FDIC adopted two rules governing minimum capital
levels that FDIC-supervised banks must maintain against the risks to which they
are exposed. The first rule makes risk-based capital standards consistent for
two types of credit enhancements (i.e., recourse arrangements and direct credit
substitutes) and requires different amounts of capital for different risk
positions in asset securitization transactions. The second rule permits limited
amounts of unrealized gains on debt and equity securities to be recognized for
risk-based capital purposes as of September 1, 1998. The FDIC rules also provide
that a qualifying institution that sells small business loans and leases with
recourse must hold capital only against the amount of recourse retained. In
general, a qualifying institution is one that is well-capitalized under the
FDIC's prompt corrective action rules. The amount of recourse that can receive
the preferential capital treatment cannot exceed 15% of the institution's total
risk-based capital.
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<PAGE> 17
In addition to the risked-based guidelines, the federal banking agencies
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 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 since a strong capital position
is a significant part of the 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 federal banking agencies have the discretion to set individual
minimum capital requirements for specific institutions at rates significantly
above the minimum guidelines and ratios.
The following tables present the capital ratios for the Bank, compared
to the standards for well-capitalized depository institutions, as of December
31, 1997 (amounts in thousands except percentage amounts).
<TABLE>
<CAPTION>
Actual Well Minimum
---------------------- Capitalized Capital
Capital Ratio Ratio Requirement
------- ------- ----------- -----------
<S> <C> <C> <C> <C>
Leverage ................. $20,783 10.41% 5.0% 4.0%
Tier 1 Risk-Based ........ $20,783 14.91% 6.0 4.0
Total Risk-Based ......... $22,526 16.16% 10.0 8.0
</TABLE>
The federal banking agencies must take into consideration concentrations
of credit risk and risks from non-traditional activities, as well as an
institution's ability to manage those risks, when determining the adequacy of an
institution's capital. This evaluation will be made as a part of the
institution's regular safety and soundness examination. The federal banking
agencies must also consider interest rate risk (when the interest rate
sensitivity of an institution's assets does not match the sensitivity of its
liabilities or its off-balance-sheet position) in evaluation of a bank's capital
adequacy.
PROMPT CORRECTIVE ACTION AND OTHER ENFORCEMENT MECHANISMS
The Federal Deposit Insurance Corporation Improvement Act of 1991
("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.
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<PAGE> 18
Under the prompt corrective action provisions of FDICIA, an insured
depository institution generally will be classified in the following categories
based on the capital measures indicated below:
<TABLE>
<S> <C>
"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 8%; Total risk-based capital less than 6%;
Tier 1 risk-based capital less than 4%; Tier 1 risk-based capital less than 3%; or
or Leverage ratio less than 4%. Leverage ratio less than 3%.
"Critically undercapitalized"
- -----------------------------
Tangible equity to total assets less
than 2%.
</TABLE>
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.
In addition to measures taken under the prompt corrective action
provisions, commercial banking organizations may be subject to potential
enforcement actions by the federal banking agencies 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
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<PAGE> 19
insurance coverage for deposits offered by undercapitalized institutions for
deposits by certain employee benefits accounts.
The federal banking agencies may require an institution to submit to an
acceptable compliance plan as well as the flexibility to pursue other more
appropriate or effective courses of action given the specific circumstances and
severity of an institution's noncompliance with one or more standards.
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.
The federal banking agencies 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.
In addition to the restrictions imposed under federal law, banks
chartered under California law generally may only pay cash dividends to the
extent such payments do not exceed the lesser of retained earnings of the bank
or the bank's net income for its last three fiscal years (less any distributions
to shareholders during such period). In the event a bank desires to pay cash
dividends in excess of such amount, the bank may pay a cash dividend with the
prior approval of the Commissioner in an amount not exceeding the greatest of
the bank's retained earnings, the bank's net income for its last fiscal year, or
the bank's net income for its current fiscal year.
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 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.
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
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<PAGE> 20
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.
RECENTLY ENACTED LEGISLATION
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 to provide lenders and fiduciaries with greater protections from
environmental liability. In June 1997, the U.S. Environmental Protection Agency
("EPA") issued its official policy with regard to the liability of lenders under
CERCLA as a result of the enactment of the Asset Conservation, Lender Liability
and Deposit Insurance Protection Act of 1996. California law provides that,
subject to numerous exceptions, a lender acting in the capacity of a lender
shall not be liable under any state or local statute, regulation or ordinance,
other than the California Hazardous Waste Control Law, to undertake a cleanup,
pay damages, penalties or fines, or forfeit property as a result of the release
of hazardous materials at or from the property.
In 1997, California adopted the Environmental Responsibility Acceptance
Act (Cal. Civil Code Sections 850-855) to facilitate (i) the notification of
government agencies and potentially responsible parties (e.g., for cleanup) of
the existence of contamination and (ii) the cleanup or other remediation of
contamination by the potentially responsible parties. The Act requires, among
other things, that owners of sites who have actual awareness of a release of a
hazardous material that exceeds a specified notification threshold to take all
reasonable steps to identify the potentially responsible parties and to send a
notice of potential liability to the parties and the appropriate oversight
agency.
PENDING LEGISLATION AND REGULATIONS
There are pending legislative proposals to reform the Glass-Steagall Act
to allow affiliations between banks and other firms engaged in "financial
activities," including insurance companies and securities firms. Certain other
pending legislative proposals include bills to let banks pay interest on
business checking accounts, to cap consumer liability for stolen debit cards,
and to give judges the authority to force high-income borrowers to repay their
debts rather than cancel them through bankruptcy.
While the effect of such proposed legislation on the business of
financial institutions cannot be accurately predicted at this time, it seems
likely that a significant amount of consolidation in the banking industry will
continue to occur throughout the remainder of the decade.
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
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<PAGE> 21
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.
Among the competitive advantages that major banks have is their ability
to finance wide ranging advertising campaigns and to allocate their investment
assets into regions of higher yield and demand. Such institutions offer certain
services such as trust services and international banking services which are not
offered directly by the Bank (but are offered indirectly through correspondent
relationships). Because of their greater total capitalization, major banks have
substantially higher legal lending limits than the Bank.
In order to compete with major banks and other competitors in its
primary service areas, the Bank relies upon the experience of its executive and
senior officers in serving business clients, and upon its specialized services,
local promotional activities and the personal contacts made by its officers,
directors and employees. For customers whose loan demand exceeds the Bank's
legal lending limit, the Bank may arrange for such loans on a participation
basis with correspondent banks.
The recent enactment of Federal and California interstate banking
legislation 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.
Competitive pressures in the banking industry significantly increase
changes in the interest rate environment, reducing net interest margins, and
less than favorable economic conditions can result in a deterioration of credit
quality and an increase in the provisions for loan losses.
With respect to its merchant processing services, the Bank competes with
other banks, ISOs and other nonbank processors. Many of these competitors are
substantially larger than the Bank. The bank competes on the basis of price, the
availability of products and services, the quality of customer service and
support, and transaction processing speed. The majority of the Bank's contracts
with merchants are cancelable at will or on short notice or provide for renewal
at frequent periodic intervals and, accordingly, the Bank regularly rebids such
contracts. This competition may influence the prices that can be charged by the
Bank and require aggressive cost control or increase transaction volume in order
to maintain acceptable profit margins. Further, because of tightening margins,
there has been a trend toward consolidation in the merchant processing industry.
Consolidation will enable certain of the Company's competitors to have access to
significant capital, management, marketing and technological resources that are
equal to or greater than those of the Company.
EMPLOYEES
As of October 30, 1998, the Company and its subsidiaries employed 71
persons. None of the Company's employees is represented by a labor union and the
Company considers its employee relations to be good.
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<PAGE> 22
ITEM 2. FINANCIAL INFORMATION
SELECTED FINANCIAL DATA
The selected condensed consolidated financial data set forth below for
the five years ended December 31, 1997, have been derived from the Company's
audited financial statements. The selected condensed consolidated financial data
set forth below as of December 31, 1995, 1994 and 1993, and for the two years
ended December 31, 1994, have been derived from the Company's historical
financial statements not included in this Registration Statement. The selected
historical condensed financial data set forth below as of September 30, 1998,
and 1997 and for the nine month periods then ended are derived from the
unaudited condensed consolidated financial statements of the Company. The
unaudited condensed consolidated financial statements have been prepared on a
consistent basis with the audited consolidated financial statements and, in the
opinion of management, include all adjustments, consisting only of normal
recurring accruals, necessary for a fair presentation of the financial position
and results of operations of the Company for the periods covered thereby. The
Company's historical financial statements may not be indicative of future
performance. The results of operations and cash flows for the nine months ended
September 30, 1998, are not necessarily indicative of the results that may be
expected for the year ending December 31, 1998. The information set forth below
should be read in conjunction with "Financial Information-Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Company's historical financial statements and notes thereto, included
elsewhere in this Registration Statement.
20
<PAGE> 23
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30, YEARS ENDED DECEMBER 31,
---------------------------- -------------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- ----------- ----------- -----------
(dollars in thousands, except share data)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF INCOME:
Total Interest Income $ 12,041 $ 11,603 $ 15,764 $ 15,565 $ 15,122 $ 11,292 $ 9,116
Net Interest Income 7,720 6,908 9,430 8,767 8,740 6,966 5,699
Provision for Loan Losses 250 827 1,024 2,160 1,045 655 243
Total Other Income 2,334 1,917 2,636 2,079 1,698 843 508
Net Income 3,162 2,501 3,658 2,615 2,931 2,158 1,856
BALANCE SHEETS:
Total Assets 202,814 207,915 204,820 192,389 185,995 156,829 134,229
Total Loans 144,435 110,126 113,410 111,353 115,668 104,939 94,051
Allowance for Loan and
Lease Losses (ALLL) (3,019) (2,860) (2,819) (2,294) (2,053) (1,730) (1,127)
Total Deposits 176,654 184,322 180,673 171,368 166,869 140,824 119,716
Shareholders' Equity $ 22,497 $ 20,108 $ 21,825 $ 19,180 $ 17,266 $ 14,411 $ 13,351
PERFORMANCE RATIOS:
Return on Average Assets 2.08%(1) 1.70%(1) 1.83% 1.35% 1.74% 1.50% 1.55%
Return on Average Equity 18.88%(1) 16.79%(1) 18.27% 14.41% 18.45% 15.69% 15.04%
Dividend Payout 63.25% 63.97% 24.62% 25.83% 23.04% 26.08% 30.32%
Average Equity to Average
Assets 11.03% 10.12% 10.03% 9.35% 9.42% 9.58% 10.33%
Tier 1 Risk-Based Capital
Ratio 13.53% 14.88% 14.91% 13.70% 13.40% 13.25% 13.15%
Total Risk-Based Capital
Ratio 14.79% 16.14% 16.16% 14.90% 14.60% 14.45% 14.35%
Net Interest Margin 5.56%(1) 5.15%(1) 5.20% 4.96% 5.62% 5.21% 5.12%
Earning Assets to Total
Assets 92.1% 91.80% 90.90% 91.10% 92.30% 93.10% 93.30%
Nonperforming Assets to
Total Assets .69% .59% .50% 3.63% 1.64% .96% .40%
Annualized Net Charge-
offs .05%(1) .32%(1) .44% 1.64% .64% .05% .03%
ALLL to Total Loans 2.09% 2.60% 2.49% 2.06% 1.77% 1.65% 1.20%
Nonperforming Loans to
ALLL 46.60% 42.70% 23.90% 99.10% 137.40% 84.50% 48.00%
SHARE DATA:
Common Shares
Outstanding 2,684 2,697 2,697 2,700 2,700 2,700 2,700
Book Value Per Share $ 8.42 $ 7.49 $ 8.13 $ 7.10 $ 6.39 $ 5.34 $ 4.94
Basic Earnings Per Share $ 1.18 $ 0.93 $ 1.36 $ 0.97 $ 1.08 $ 0.80 $ 0.69
Diluted Earnings Per Share $ 1.15 $ 0.93 $ 1.35 $ 0.97 $ 1.08 $ 0.80 $ 0.69
Cash Dividends Per Share $ 0.50 $ 0.33 $ 0.33 $ 0.25 $ 0.25 $ 0.21 $ 0.21
</TABLE>
- ----------
(1) Annualized.
21
<PAGE> 24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion should be read in conjunction with the
Consolidated Financial Statements of the Company and related notes thereto as of
December 31, 1997, and 1996 and the years ended December 31, 1997, 1996 and
1995, and the Unaudited Condensed Consolidated Financial Statements of the
Company as of and for the nine months ended September 30, 1998, and 1997
appearing elsewhere in this Registration Statement. All statements other than
statements of historical fact included in the following discussion are
forward-looking statements within the meaning of the Exchange Act. These
statements are based on management's beliefs and assumptions, and on information
currently available to management. Forward-looking statements include the
information concerning possible or assumed future results of operations of the
Company and also include statements in which words such as "expect,"
"anticipate," "intend," "plan," "believe," "estimate," "consider" or similar
expressions are used.
Forward-looking statements are not guarantees of future performance.
They involve risks, uncertainties and assumptions, including the risks discussed
under the heading "Business-Risk Factors and Investment Considerations" and
elsewhere in this Registration Statement. The Company's future results and
shareholder values may differ materially from those expressed in these
forward-looking statements. Many of the factors that will determine these
results and values are beyond the Company's ability to control or predict.
Investors are cautioned not to put undue reliance on any forward-looking
statements. In addition, the Company does not have any intention or obligation
to update forward-looking statements after the effectiveness of this
Registration Statement, even if new information, future events or other
circumstances have made them incorrect or misleading. For these statements, the
Company claims the protection of the safe harbor for forward-looking statements
contained in Section 21E of the Exchange Act.
GENERAL
The Company is a bank holding company with its principal offices in
Redding, California. The Company engages in a general commercial banking
business in Redding and the counties of Butte, El Dorado, Placer, Shasta, and
Sacramento, California. The Company considers Shasta County to be the Company's
major market area. The Company conducts its business through the Bank, its
principal subsidiary. The services offered by the Company include those
traditionally offered by commercial banks of similar size and character in
California, such as checking, interest-bearing checking ("NOW") and savings
accounts, money market deposit accounts, commercial, construction, real estate,
personal, home improvement, automobile and other installment and term loans,
travelers checks, safe deposit boxes, collection services, and telephone
transfers. The primary focus of the Company is to provide service to the
business and professional community of its major market area including Small
Business Administration ("SBA") loans, and payroll and accounting packages and
billing programs. The Company does not offer trust services or international
banking services and does not plan to do so in the near future.
The Company derives its income from two principal sources: (i) net
interest income, which is the difference between the interest income it receives
on interest-earning assets and the interest expense it pays on interest-bearing
liabilities, and (ii) fee income, which includes fees earned on deposit
services, income from SBA lending, electronic-based cash management services and
merchant credit card processing services.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO SEPTEMBER 30, 1997
Net income for the nine months ended September 30, 1998, was $3.16
million, an increase of $661,000, or 26%, over net income of $2.50 million for
the nine months ended September 30,
22
<PAGE> 25
1997. The increase in net income was attributable to growth in net interest
income and noninterest income and a reduction in the provision for loan losses,
which were partially offset by increases in noninterest expense required to
support asset and loan growth.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Net income for the year ended December 31, 1997, was $3.66 million, an
increase of $1.04 million, or 40%, over net income of $2.62 million for the year
ended December 31, 1996. The increase in net income was the result of growth in
net interest income and noninterest income and a reduction in the provision for
loan losses, which were partially offset by increases in noninterest expense
required to support asset and loan growth.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Net income for the year ended December 31, 1996, was $2.62 million, a
decrease of $316,000, or 11%, from net income of $2.93 million for the year
ended December 31, 1995. The decrease in net income was the result of an
increase in the provision for loan losses necessary to reserve for increases in
nonperforming assets in 1996.
NET INTEREST INCOME
The primary source of income for the Bank is derived from net interest
income, which is the difference between the interest earned from loans and
investments less the interest paid on deposit accounts and borrowings. Net
interest income increased from $8.74 million in 1995 to $8.77 million in 1996,
and to $9.43 million in 1997, representing a .3% increase in 1996 over 1995 and
a 7.6% increase in 1997 over 1996. Net interest income increased from $6.91
million for the nine months ended September 30, 1997, to $7.72 million for the
nine months ended September 30, 1998, representing an 11.8% increase. Net
interest income increases in 1997 over 1996 and the nine months ended September
30, 1998, over the comparable period in 1997 were primarily the result of loan
growth which increased the volume of earning assets and improved the Bank's
interest income through reinvestment of maturing securities into higher yielding
loans.
Total interest expense increased from $6.38 million in 1995 to $6.80
million in 1996 and decreased to $6.33 million in 1997, representing a 6.5%
increase in 1996 over 1995 and a 6.8% decrease in 1997 over 1996. The decrease
in total interest expense in 1997 was primarily the result of a lower cost of
funds brought about by an increase in demand deposits, lower levels of
certificates of deposits and a general decline in interest rates. Total interest
expense decreased from $4.70 million for the nine months ended September 30,
1997, to $4.32 million for the nine months ended September 30, 1998,
representing an 8.0% decrease. This decrease is primarily attributable to a
decline in the average volume of the Bank's interest-bearing liabilities and the
decline in interest rates generally.
The Company's net interest margin (net interest income divided by
average earning assets) was 5.62% in 1995, 4.96% in 1996 and 5.20% in 1997. The
decrease in the net interest margin from 1995 to 1996 was primarily the result
of declining yields on the Bank's loan portfolio which were not fully offset by
declining rates on interest-bearing liabilities. The increase in the Company's
net interest margin from 1996 to 1997 was attributable to the growth and change
in mix of earning assets funded by growth of both interest-bearing and
noninterest-bearing demand deposits. The net interest margin increased to 5.56%
for the nine months ended September 30, 1998, from 5.15% for the nine months
ended September 30, 1997, primarily as a result of (i) the overall growth and
change in mix in the loan and investment portfolios, which increased the yield
on interest earning assets, and (ii) the growth in noninterest-bearing demand
deposits, which increased earning assets without a corresponding increase in
interest-bearing liabilities.
23
<PAGE> 26
The following table sets forth the Company's daily average balance
sheet, related interest income or expense and yield or rate paid for the periods
indicated. The yield on tax-exempt securities has not been adjusted to a
tax-equivalent yield basis.
AVERAGE BALANCES, INTEREST INCOME/EXPENSE AND YIELDS/RATES PAID
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1997 1996 1995
-------------------------------- ------------------------------- -------------------------------
Average Yield/ Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate Balance Interest Rate
-------- -------- -------- -------- -------- -------- -------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
EARNING ASSETS
Portfolio Loans(1) $113,030 $ 11,519 10.19% $117,021 $ 12,023 10.27% $112,366 $ 12,624 11.23%
Tax Exempt Securities 6,142 292 4.75% 7,960 367 4.61% 5,486 258 4.70%
US Government Securities 47,583 3,009 6.32% 36,982 2,320 6.27% 22,148 1,316 5.94%
Federal Funds Sold 10,825 569 5.26% 11,693 602 5.15% 12,011 699 5.82%
Other Securities 3,875 375 9.68% 3,276 253 7.72% 3,621 224 6.19%
-------- -------- -------- -------- -------- --------
Average Earning Assets 181,455 15,764 8.69% 176,932 15,565 8.80% 155,632 15,121 9.72%
-------- -------- --------
Cash and Due From Banks 10,149 8,317 7,153
Bank Premises 5,781 5,975 3,893
Other Assets 2,211 2,899 1,997
-------- -------- --------
Average Total Assets $199,596 $194,123 $168,675
======== ======== ========
INTEREST-BEARING
LIABILITIES
Demand Interest-Bearing $ 42,911 $ 857 2.00% $ 35,887 $ 814 2.27% $ 31,886 $ 877 2.75%
Savings Deposits 11,802 343 2.91% 10,749 317 2.95% 9,541 314 3.29%
Certificates of Deposit 88,701 5,134 5.79% 96,979 5,667 5.84% 83,214 5,191 6.24%
-------- -------- -------- -------- -------- --------
143,414 6,334 4.42% 143,615 6,798 4.73% 124,641 6,382 5.12%
-------- -------- --------
Demand Noninterest Bearing 34,299 30,542 26,397
Other Liabilities 1,864 1,818 1,747
Shareholder's Equity 20,019 18,148 15,890
-------- -------- --------
Average Liabilities and
Shareholders' Equity $199,596 $194,123 $168,675
======== ======== ========
Net Interest Income and
Net Interest Margin $ 9,430 5.20% $ 8,767 4.96% $ 8,739 5.62%
======== ======== ========
</TABLE>
24
<PAGE> 27
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
1998 1997
------------------------------------- -------------------------------------
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
-------- -------- -------- -------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
EARNING ASSETS
Portfolio Loans(1) $124,279 $ 9,399 10.08% $112,200 $ 8,664 10.30%
Tax Exempt
Securities 9,994 366 4.88% 6,052 215 4.74%
US Government
Securities 40,106 1,912 6.36% 46,374 2,009 5.78%
Federal Funds Sold 8,330 304 4.87% 11,190 439 5.23%
Other Securities 2,319 60 3.45% 3,188 276 11.54%
-------- -------- -------- --------
Average Earning
Assets $185,028 $ 12,041 8.68% $179,004 $ 11,603 8.64%
-------- --------
Cash and Due
From Banks $ 10,189 $ 9,819
Bank Premises 5,715 5,794
Other Assets 2,012 2,239
-------- --------
Average Total
Assets $202,944 $196,856
======== ========
INTEREST-BEARING
LIABILITIES
Demand Interest
Bearing $ 42,061 $ 590 1.87% $ 42,147 $ 598 1.89%
Savings Deposits 12,586 259 2.74% 11,763 302 3.42%
Certificates of
Deposit 86,843 3,472 5.33% 88,729 3,795 5.70%
-------- -------- -------- --------
$141,490 $ 4,321 4.07% $142,639 $ 4,695 4.39%
-------- --------
Demand Non
Interest-Bearing 36,725 32,594
Other Liabilities 2,340 1,702
Shareholders'
Equity 22,389 19,921
-------- --------
Average Liabilities
& Shareholder Equity $202,944 $196,856
======== ========
Net Interest Income
and Net Interest
Margin $ 7,720 5.56% $ 6,908 5.15%
======== ========
</TABLE>
- ----------
(1) Interest income on loans includes loan fee income of $332,000 and $330,000
for the nine months ended September 30, 1998, and 1997, respectively, and
$423,000, $686,000 and $836,000 for the years ended December 31, 1997, 1996, and
1995, respectively.
The Company's average total assets increased from $194.1 million in 1996
to $199.6 million in 1997, representing a 2.8% increase. The Company's average
total assets increased from $196.9 million for the nine month period ended
September 30, 1997, to $202.9 million for the nine month period ended September
30, 1998, representing a 3.1% increase. In 1997, the Company's average loan
portfolio decreased by $4.0 million while the investment portfolio increased by
$8.5 million, reflecting management's efforts to improve asset quality rather
than increase new loan production. In addition, the Company's average demand
deposits increased from $32.6 million for the nine months ended September 30,
1997, to $36.7 million for the same period in 1998, representing a 12.7%
increase, as a result of expansion of the Bank's commercial banking activities
and merchant processing services on both a local and national level.
In late 1997, the Company increased loan production by hiring additional
lenders. As a result, average loans for the nine month period ended September
30, 1998, increased by $12.1 million, or 10.8%, over the comparable period in
1997. The increase has been funded through maturities and sales of
available-for-sale securities, increased earnings and an increase in the
Company's average demand deposits.
25
<PAGE> 28
The following tables set forth changes in interest income and expense
for each major category of earning assets and interest-bearing liabilities, and
the amount of change attributable to volume and rate changes for the periods
indicated. Changes attributable to rate/volume have been allocated to volume
changes.
ANALYSIS OF CHANGES IN NET INTEREST INCOME
<TABLE>
<CAPTION>
YEARS ENDED
1997 OVER 1996 1996 OVER 1995
----------------------------------- -----------------------------------
Volume Rate Total Volume Rate Total
------- ------- ------- ------- ------- -------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE)
IN INTEREST INCOME
Portfolio Loans $ (407) $ (97) $ (504) $ 478 $(1,179) $ (601)
Tax Exempt
Securities (86) 11 (75) 114 (5) 109
US Government
Securities 670 19 689 931 73 1,004
Federal Funds Sold (46) 13 (33) (16) (81) (97)
Other Securities 58 64 122 (27) 56 29
------- ------- ------- ------- ------- -------
Total Increase/
(Decrease) $ 189 $ 10 $ 199 $ 1,480 $(1,036) $ 444
------- ------- ------- ------- ------- -------
INCREASE (DECREASE)
IN INTEREST EXPENSE
Demand Interest
Bearing $ 140 $ (97) $ 43 $ 91 $ (154) $ (63)
Savings Deposits 30 (5) 25 36 (33) 3
Certificates of
Deposit (478) (54) (532) 804 (328) 476
------- ------- ------- ------- ------- -------
Total Increase/
(Decrease) $ (308) $ (156) $ (464) $ 931 $ (515) $ 416
======= ======= ======= ======= ======= =======
Net Increase/
(Decrease) $ 497 $ 166 $ 663 $ 549 $ (521) $ 28
======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1998
COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1997
Volume Rate Total
------ ----- -----
(dollars in thousands)
<S> <C> <C> <C>
INCREASE(DECREASE)
IN INTEREST INCOME
Portfolio Loans $ 914 $(179) $ 735
Tax Exempt
Securities 144 7 151
US Government
Securities (299) 202 (97)
Federal Funds Sold (104) (31) (135)
Other Securities (22) (194) (216)
----- ----- -----
Total Increase/
(Decrease) $ 633 $(195) $ 438
===== ===== =====
INCREASE (DECREASE)
IN INTEREST EXPENSE
Demand Interest
Bearing $ (1) $ (9) $ (8)
Savings Deposits 17 (60) (43)
Certificates of
Deposit (75) (248) (323)
----- ----- -----
Total Increase/
(Decrease) $ (59) $(315) $(374)
----- ----- -----
Net Increase/
(Decrease) $ 692 $ 120 $ 812
===== ===== =====
</TABLE>
26
<PAGE> 29
NONINTEREST INCOME
The Company's noninterest income consists primarily of service charges
on deposit accounts and processing fees for merchants who accept credit and
debit cards as payment for goods and services. Noninterest income also includes
ATM fees earned at various locations. For the year ended December 31, 1997,
noninterest income represented 14.3% of the Company's revenues. Historically,
the Company's service charges on deposit accounts have lagged peer levels for
similar services. This is consistent with the Company's philosophy of allowing
customers to pay for services with compensating balances and the emphasis on
certificates of deposit as a significant funding source.
Total noninterest income increased from $1.70 million in 1995 to $2.08
million in 1996 and to $2.64 million in 1997, representing a 22.4% increase in
1996 over 1995 and a 26.7% increase in 1997 over 1996. Noninterest income
increased from $1.92 million for the nine months ended September 30, 1997, to
$2.33 million for the nine months ended September 30, 1998, representing a 21.8%
increase. The increases in noninterest income in 1996, 1997 and for the nine
month period ended September 30, 1998, were primarily the result of expansion of
the Bank's merchant processing services on both a local and national level and,
to a lesser extent, an increase in ATM fees earned at various locations.
MERCHANT PROCESSING SERVICES INCOME
Pursuant to the Merchant Services Agreement, the Bank acts as a clearing
bank for CSI, a nonbank merchant credit card processor, and processes credit or
debit card transactions into the Visa(R) or MasterCard(R) system for presentment
to the card issuer. As a result of the Merchant Services Agreement, the Bank has
acquired electronic credit and debit card processing relationships with
merchants in various industries on a nationwide basis. As of September 30, 1998,
the CSI portfolio consisted of 36,075 merchants. Contract deposit relationships
with the merchants and CSI represented approximately 25% of the Bank's capital
as of September 30, 1998.
The Merchant Services Agreement was renewed in 1997 for a period of four
years which expires on April 1, 2001, and will automatically renew for
additional four year periods unless terminated in advance of the renewal period
by CSI or the Bank upon 30 days prior written notice. In the event the Merchant
Services Agreement is not renewed by the Bank, CSI may transfer the merchants to
another financial institution.
The Merchant Services Agreement provides for indemnification of the Bank
by CSI against losses incurred by the Bank in connection with either the
processing of credit/debit card transactions for covered merchants or any
alleged violations by CSI of the Card Association Rules. CSI is required to
maintain a merchant specific reserve of approximately $6.44 million as well as a
general reserve equal to .75% of the net monthly processing volume. These
reserves are held in accounts with the Bank with activity authorized only by
certain Bank personnel. The Bank has been granted a security interest in the
reserve accounts to secure CSI's obligations under the Merchant Services
Agreement.
The ability of the Bank to increase the level of fee income currently
being generated by merchant processing relationships is limited. Under the Card
Association Rules, fees that can be charged on monthly credit card sales above
$93 million are significantly less than the fees that can be charged on monthly
sales credit card below $93 million. Further, the Visa(R) bylaws limit the
amount of quarterly Visa(R) credit card sales that the Bank may process to four
times the Bank's equity capital unless additional collateral is pledged by the
Bank. The Company's ability to sustain or increase fee income from merchant
processing relationships is also affected by other factors, some of which are
beyond the Company's control, such as (i) competition from other banks, ISOs and
other nonbank processors, (ii) continuation of the requirement that ISOs and
other nonbank
27
<PAGE> 30
processors access the Visa(R) and MasterCard(R) payment system through banks,
(iii) the ability to avoid potential losses through various contractual methods
including indemnification by the ISO, reserve balances controlled by the Bank
and insurance, and (iv) the ability to continue to grow both locally and
nationally.
In 1995, the Company established a sales team to provide merchant
processing services to merchants in its major market area and, as of September
30, 1998, the Bank had 786 merchants in its portfolio. The income generated from
the Bank's local merchant portfolio is substantially less than that generated
from the CSI portfolio because of the lower volume of transactions.
Merchant processing services income was $1.3 million in 1995, $1.6
million in 1996 and $2.0 million in 1997, representing an increase of 30.6% from
1995 to 1996 and 25.0% from 1996 to 1997. Merchant processing services income
for the nine months ended September 30, 1998, was $1.8 million compared to $1.5
million for the nine months ended September 30, 1997, representing a 20.4%
increase. These increases are attributable to growth in the number of merchants
for whom the Bank provides processing services and the volume of transactions
processed.
The following table sets forth a summary of noninterest income for the
periods indicated.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30, YEARS ENDED DECEMBER 31,
-------------------- ----------------------------------
1998 1997 1997 1996 1995
------- ------- ------- ------- -------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Noninterest Income:
Service Charges $ 160 $ 161 $ 212 $ 187 $ 180
Other Income 370 276 370 311 263
Gain (Loss) on Sale of
Investment Securities 28 5 5 (58) --
Credit Card Service Income 1,776 1,475 2,049 1,639 1,255
------- ------- ------- ------- -------
Total Noninterest Income $ 2,334 $ 1,917 $ 2,636 $ 2,079 $ 1,698
======= ======= ======= ======= =======
</TABLE>
NONINTEREST EXPENSE
Noninterest expense consists of salaries and related employee benefits,
occupancy and equipment expense and other operating expenses. Noninterest
expense increased from $4.6 million in 1996 to $5.3 million in 1997,
representing an increase of $635,000, or 13.7%. Noninterest expense for the nine
months ended September 30, 1998, was $4.8 million compared to $4.0 million for
the nine months ended September 30, 1997, representing an increase of $791,000,
or 19.7%. The increases in noninterest expense were primarily the result of
growth in the Company's loan portfolio, earning assets and merchant processing
activities for merchants in the Company's major market area.
28
<PAGE> 31
The following table sets forth a summary of noninterest expense for the
periods indicated.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30, YEARS ENDED DECEMBER 31,
------------------ ------------------------------
1998 1997 1997 1996 1995
------ ------ ------ ------ ------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Noninterest Expense:
Salaries and Benefits $2,512 $2,262 $3,024 $2,754 $2,641
Occupancy and Equipment 623 591 796 814 646
FDIC Assessments 16 23 41 7 159
Data Processing and Professional
Services 262 206 283 256 250
Stationery and Supplies 138 130 161 128 172
Postage 57 66 83 85 69
Other Expense 1,208 747 867 576 774
------ ------ ------ ------ ------
Total Noninterest Expense $4,816 $4,025 $5,255 $4,620 $4,710
====== ====== ====== ====== ======
</TABLE>
INCOME TAXES
The Company's provision for income taxes includes both federal and state
income taxes and reflects the application of federal and state statutory rates
to the Company's net income before taxes. The principal difference between
statutory tax rates and the Company's effective tax rate is the benefit derived
from investing in tax-exempt securities. Increases and decreases in the
provision for taxes reflect changes in the Company's net income before tax.
The following table reflects the Company's tax provision and the related
effective tax rate for the periods indicated.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30, YEARS ENDED DECEMBER 31,
------------------------ ----------------------------------------
1998 1997 1997 1996 1995
-------- -------- -------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Tax Provision $ 1,826 $ 1,472 $ 2,129 $ 1,451 $ 1,752
Effective Tax Rate 36.6% 37.1% 36.8% 35.5% 37.2%
</TABLE>
ASSET QUALITY
The Company concentrates its lending activities primarily within Shasta
County, California, the location of the Bank's two full service branches. The
Company also makes loans to borrowers in Butte, El Dorado, Placer, Sacramento
and Tehama counties through its loan production offices.
The Company manages its credit risk through diversification of its loan
portfolio and the application of underwriting policies and procedures and credit
monitoring practices. Although the Company has a diversified loan portfolio, a
significant portion of its borrowers' ability to repay the loans is dependent
upon the professional services and residential real estate development industry
sectors. Generally, the loans are secured by real estate or other assets and are
expected to be repaid from cash flows of the borrower or proceeds from the sale
of the collateral.
29
<PAGE> 32
The primary risks associated with commercial loans are the financial
condition of the borrower, general economic conditions in the Company's market
area, the sufficiency of collateral, the timeliness of payment, and, with
respect to adjustable rate loans, interest rate fluctuations.
The following table sets forth the amounts of loans outstanding by
category as of the dates indicated:
<TABLE>
<CAPTION>
AS OF AS OF DECEMBER 31,
SEPTEMBER 30, -----------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993
------------ --------- --------- --------- --------- ---------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Commercial and Financial
Loans $ 49,297 $ 41,432 $ 37,592 $ 36,248 $ 31,967 $ 23,926
Real Estate -
Construction 36,572 16,393 32,474 42,784 40,746 36,403
Real Estate - Commercial
Mortgage 57,254 54,533 40,067 35,299 31,090 32,874
Installment Loans 224 72 241 69 489 832
Other 1,550 1,274 1,284 1,699 1,077 464
--------- --------- --------- --------- --------- ---------
144,897 113,704 111,658 116,099 105,369 94,499
Less:
Deferred Loan Fees and
Costs (461) (294) (305) (430) (430) (448)
Allowance for Loan
Losses (3,019) (2,819) (2,294) (2,053) (1,730) (1,127)
--------- --------- --------- --------- --------- ---------
Total Net Loans $ 141,417 $ 110,591 $ 109,059 $ 113,615 $ 103,210 $ 92,924
========= ========= ========= ========= ========= =========
</TABLE>
The Company's practice is to place an asset on nonaccrual status when
one of the following events occurs: (i) any installment of principal or interest
is 90 days or more past due (unless in management's opinion the loan is
well-secured and in the process of collection), (ii) management determines the
ultimate collection of principal or interest to be unlikely or (iii) the terms
of the loan have been renegotiated due to a serious weakening of the borrower's
financial condition.
Nonperforming loans are loans that are on nonaccrual, are 90 days past
due and still accruing or have been restructured.
30
<PAGE> 33
The following table sets forth a summary of the Company's nonperforming
loans as of the dates indicated:
<TABLE>
<CAPTION>
AS OF
SEPTEMBER 30, AS OF DECEMBER 31,
------------- ----------------------------------------------------------
1998 1997 1996 1995 1994 1993
------ ------ ------ ------ ------ ------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Nonaccrual loans $1,336 $ 500 $1,734 $3,381 $1,169 $ 336
90 days past due and
still accruing -- 173 540 347 293 205
Restructured loans in
compliance with
modified terms -- -- 2,450 -- -- --
Other real estate
owned 66 352 2,268 229 38 --
</TABLE>
The Company's nonaccrual loans decreased from $1.73 million in 1996 to
$500,000 in 1997 primarily as a result of increased collection and liquidation
efforts in 1997 and increased quality of the Company's loan portfolio. The
increase in nonaccrual loans at September 30, 1998, is attributable to one loan
which is secured by real estate and equipment.
Other real estate owned ("OREO") decreased to $352,000 in 1997 from
$2.26 million in 1996, and at September 30, 1998, consisted of one property
totaling $66,000. Reductions in OREO balances are attributable to sales of OREO
in 1997.
The Company assigns all loans a credit risk rating and monitors ratings
for accuracy. The aggregate credit risk ratings are used to determine the
allowance for loan and lease losses. The Company employs a credit review officer
that reports directly to the Audit Committee of the Board of Directors. The
credit review officer has the authority to initiate a change in individual
credit risk ratings as deemed appropriate. This enables management to effect
corrective actions when necessary.
The following table sets forth the maturity distribution of the
Company's commercial and real estate loans outstanding as of December 31, 1997,
which, based on remaining scheduled repayments of principal, were due within the
periods indicated.
<TABLE>
<CAPTION>
After One
Within Through After
One Year Five Years Five Years Total
-------- ---------- ---------- -----
(dollars in thousands)
<S> <C> <C> <C> <C>
Commercial Loans $25,006 $12,884 $ 3,542 $41,432
Real Estate
Construction Loans 16,393 16,393
------- -------
Total $41,399 $12,884 $ 3,542 $57,825
======= ======= ======= =======
Loans due after one year with:
Fixed Rates $ 1,031 $ 292 $ 1,323
Variable Rates 11,853 3,250 15,103
------- ------- -------
Total $12,884 $ 3,542 $16,426
======= ======= =======
</TABLE>
31
<PAGE> 34
ALLOWANCE FOR LOAN AND LEASE LOSSES (ALLL)
In determining the amount of the Company's ALLL, management assesses the
diversification of the portfolio. Each credit is assigned a credit risk rating
factor, and this factor, multiplied by the dollars associated with the credit
risk rating, is used to calculate one component of the ALLL. In addition,
management estimates the probable loss on individual credits that are receiving
increased management attention due to actual or perceived increases in risk.
The Company makes provisions to the ALLL on a regular basis through
charges to operations that are reflected in the Company's statements of income
as a provision for loan losses. When a loan is deemed uncollectible, it is
charged against the allowance. Any recoveries of previously charged-off loans
are credited back to the allowance. There is no precise method of predicting
specific losses or amounts that ultimately may be charged-off on particular
categories of the loan portfolio. Similarly, the adequacy of the ALLL and the
level of the related provision for possible loan losses is determined on a
judgment basis by management based on consideration of (i) economic conditions,
(ii) borrowers' financial condition, (iii) loan impairment, (iv) evaluation of
industry trends, (v) industry and other concentrations, (vi) loans which are
contractually current as to payment terms but demonstrate a higher degree of
risk as identified by management, (vii) continuing evaluation of the performing
loan portfolio, (viii) monthly review and evaluation of problem loans identified
as having loss potential, (ix) quarterly review by the Board of Directors, (x)
off balance sheet risks and (xi) assessments by regulators and other third
parties. Management and the Board of Directors evaluate the allowance and
determine its desired level considering objective and subjective measures, such
as knowledge of the borrowers' business, valuation of collateral, the
determination of impaired loans and exposure to potential losses.
The ALLL is a general reserve available against the total loan portfolio
and off balance sheet credit exposure. It is maintained without any
interallocation to the categories of the loan portfolio and the entire allowance
is available to cover loan losses. While management uses available information
to recognize losses on loans, future additions to the allowance may be necessary
based on changes in economic conditions. In addition, various regulatory
agencies, as an integral part of their examination process, periodically review
the Bank's ALLL. Such agencies may require the Bank to provide additions to the
allowance based on their judgment of information available to them at the time
of their examination. There is uncertainty concerning future economic trends.
Accordingly, it is not possible to predict the effect future economic trends may
have on the level of the provision for possible loan losses in future periods.
Net charge-offs were $499,000 or .44% of average loans during 1997. Net
charge-offs were $1.919 million or 1.64% of average loans during 1996. During
1995, the Company experienced net charge-offs of $722,000 or .64% of average
loans. The decrease in net charge-offs in 1997 as compared to 1996 resulted
primarily from improved credit quality of the overall loan portfolio. Management
does not believe there were any trends indicated by the detail of the aggregate
charge-offs for any of the periods discussed.
The ALLL should not be interpreted as an indication that charge-offs in
future periods will occur in these amounts or proportions.
32
<PAGE> 35
The following table summarizes the activity in the ALLL reserves for the
periods indicated.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30, YEARS ENDED DECEMBER 31,
----------------------- -----------------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
------- ------- ------- ------- ------- ------- -------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Beginning Balance: $ 2,819 $ 2,294 $ 2,294 $ 2,053 $ 1,730 $ 1,128 $ 915
Provision for ALLL 250 827 1,024 2,160 1,045 655 243
Charge-offs:
Commercial (118) (197) (393) (1,074) (510) (54) (40)
Real Estate (32) (129) (209) (916) (273) (18) (11)
Other (8) (39) (3) -- -- -- --
------- ------- ------- ------- ------- ------- -------
Total Charge-offs (158) (365) (605) (1,990) (783) (72) (51)
------- ------- ------- ------- ------- ------- -------
Recoveries:
Commercial 95 43 60 37 61 16 21
Real Estate 13 50 46 34 -- 3 --
------- ------- ------- ------- ------- ------- -------
Total Recoveries: 108 93 106 71 61 19 21
------- ------- ------- ------- ------- ------- -------
Ending Balance $ 3,019 $ 2,609 $ 2,819 $ 2,294 $ 2,053 $ 1,730 $ 1,128
======= ======= ======= ======= ======= ======= =======
ALLL to Total Loans 2.09% 2.60% 2.49% 2.06% 1.77% 1.65% 1.20%
</TABLE>
INVESTMENT PORTFOLIO
The Company classifies its investment securities as "held-to-maturity"
or "available-for-sale" at the time of investment purchase. Generally, all
securities are purchased with the intent and ability to hold the security for
long-term investment. However, situations may arise which necessitate selling
some securities before maturity. Such situations include a need for liquidity,
increased loan demand, a change in the asset/liability mix of the Company which
requires some rebalancing in order to reduce the Company's risk, a change in
interest rates requiring either an increase or decrease in the overall market
risk of the securities portfolio, or a change in accounting standards.
Securities held as available-for-sale may be sold to implement the Company's
asset/liability management strategies.
The following table summarizes the contractual maturities of the
Company's investment securities available-for-sale at their amortized cost basis
and their weighted average yields at December 31, 1997.
<TABLE>
<CAPTION>
Within After One After Five
One Year Through Five Years Through Ten Years Total
----------------- --------------------- --------------------- -------------------
Amount Yield Amount Yield Amount Yield Amount Yield
------- ------- ------- ------- ------- ------- ------- -------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government and Agencies $14,452 6.14% $21,516 6.10% $ 1,000 7.55% $36,968 6.60%
Obligations of State and
Political Subdivisions 2,326 4.20% 5,929 4.10% 2,270 4.15% 10,525 4.13%
Other Bonds 7,762 6.42% 283 4.98% 8,045 6.37%
Total $24,545 6.03% $27,725 5.12% $ 3,267 6.11% $55,538 5.80%
</TABLE>
33
<PAGE> 36
Investment securities held-to-maturity at December 31, 1997, consisted
solely of mortgage-backed securities with a remaining contractual maturity
greater than ten years and a weighted average yield of 6.58%.
The following table summarizes the book value of the Company's
investment securities held on the dates indicated.
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------
1997 1996 1995
------- ------- -------
(dollars in thousands)
<S> <C> <C> <C>
U.S. Government and Agencies $36,968 $41,432 $28,151
Municipal Obligations $10,525 $ 6,529 $ 7,893
Corporate and Other Bonds $17,081 $ 3,944 $ 4,253
------- ------- -------
Total $64,574 $51,905 $40,297
======= ======= =======
</TABLE>
DEPOSIT STRUCTURE
The Company primarily obtains deposits from local businesses and
professionals as well as through certificates of deposits, savings and checking
accounts.
The following table sets forth the distribution of the Company's average
daily deposits for the periods indicated.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1997 1996 1995
--------------------- --------------------- ---------------------
Amount Rate Amount Rate Amount Rate
------- ------- ------- ------- ------- -------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
NOW Accounts $23,554 1.99% $19,536 2.14% $15,492 1.98%
Savings Accounts $11,802 2.91% $10,749 2.95% $ 9,541 3.29%
Money Market Accounts $19,357 2.06% $16,351 2.38% $16,394 2.74%
Certificates of Deposit $88,701 5.79% $96,979 5.84% $83,214 6.24%
</TABLE>
The following table sets forth the remaining maturities of certificates
of deposit in amounts of $100,000 or more at December 31, 1997 (dollars are in
thousands).
<TABLE>
<CAPTION>
<S> <C>
3 months or less $21,373
Over 3 through 6 months $ 8,579
Over 6 through 12 months $ 2,294
Over 12 months $ 4,763
-------
Total $37,009
=======
</TABLE>
LIQUIDITY
The Company's objective in liquidity management is to maintain a balance
between the sources and uses of funds such that the cash flow needs of the
Company are met in an economical manner. With respect to assets, liquidity is
provided by cash and short term money market investments such as
interest-bearing time deposits, federal funds sold, investment securities
available-for-sale and principal and interest payments on loans. With respect to
liabilities, the
34
<PAGE> 37
Company's core deposits, shareholders' equity and the ability of the Bank to
borrow funds and to generate deposits, provide asset funding.
The Company's liquid assets (cash and due from banks, federal funds sold
and available-for-sale investment securities) totaled $42.96 million, or 20.9%
of total assets, at September 30, 1998, and $74.11 million, or 36.2% of total
assets, at December 31, 1997, compared to $68.63 million or 35.67% of total
assets, at December 31, 1996. The Company expects that its primary source of
liquidity will be supported by the earnings of the Company and the acquisition
of core deposits. Core deposits totaled $143.66 million and $133.54 million at
December 31, 1997, and 1996, respectively.
CAPITAL ADEQUACY
Capital adequacy is a measure of the amount of capital needed to sustain
asset growth and act as a cushion for losses. Capital protects depositors and
the deposit insurance fund from potential losses and is a source of funds for
the investments the Company needs to remain competitive. Historically, capital
has been generated principally from the retention of earnings, net of cash
dividends.
Overall capital adequacy is monitored on a day-to-day basis by the
Company's management and reported to the Company's Board of Directors on a
monthly basis. The Bank's regulators measure capital adequacy by using a
risk-based capital framework and by monitoring compliance with minimum leverage
ratio guidelines. Under the risk-based capital standard, assets reported on the
Company's balance sheet and certain off-balance sheet items are assigned to risk
categories, each of which is assigned a risk weight. This standard characterizes
an institution's capital as being "Tier 1" capital (defined as principally
comprising shareholders' equity) and "Tier 2" capital (defined as principally
comprising the qualifying portion of the ALLL). The minimum ratio of total
risk-based capital to risk-adjusted assets, including certain off-balance sheet
items, is 8%. At least one-half (4%) of the total risk-based capital (Tier 1) is
to be comprised of common equity; the balance may consist of debt securities and
a limited portion of the ALLL.
The following table sets forth the Bank's capital ratios as of September
30, 1998, and December 31, 1997.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998 DECEMBER 31, 1997
------------------ -----------------
<S> <C> <C>
Total Risk-Based Capital 14.79% 16.16%
Tier 1 Capital to Risk-Based Assets 13.53% 14.91%
Tier 1 Capital to Average Assets 10.83% 10.41%
(Leverage ratio)
</TABLE>
The declines in each of the Bank's capital ratios as of September 30,
1998, compared to December 31, 1997, are principally the result of growth in the
Bank's loan portfolio, which requires greater percentages of capital than
investment securities under the risk-based capital standards.
IMPACT OF INFLATION
Inflation affects the Company's financial position as well as its
operating results. It is management's opinion that the effects of inflation on
the financial statements have not been material.
35
<PAGE> 38
YEAR 2000
The "Year 2000 issue" relates to the fact that many computer programs
use only two digits to represent a year, such as "98" to represent "1998," which
means that in the Year 2000 such programs could incorrectly treat the Year 2000
as the year 1900. This issue has grown in importance as the use of computers and
microchips has become more pervasive throughout the economy, and
interdependencies between systems have multiplied. The issue must be recognized
as a business problem, rather than simply a computer problem, because of the way
its effects could ripple through the economy. The Company could be materially
and adversely affected either directly or indirectly by the Year 2000 issue.
This could happen if any of its critical computer systems or equipment
containing embedded logic fail, if the local infrastructure (electric power,
phone system, or water system) fails, if its significant vendors are adversely
impacted, or if its borrowers or depositors are adversely impacted by their
internal systems or those of their customers or suppliers.
Failure of the Company to complete testing and renovation of its
critical systems on a timely basis could have a material adverse effect on the
Company's financial condition and results of operations, as could Year 2000
problems faced by others with whom the Company does business. Because of the
range of possible issues and the large number of variables involved, it is
impossible to quantify the potential cost of problems should the Company's
remediation efforts or the efforts of those with whom it does business not be
successful.
Federal banking regulators have responsibility for supervision and
examination of banks to determine whether each institution has an effective plan
for identifying, renovating, testing and implementing solutions for Year 2000
processing and coordinating Year 2000 processing capabilities with its
customers, vendors and payment system partners. Bank examiners are also required
to assess the soundness of a bank's internal controls and to identify whether
further corrective action may be necessary to assure an appropriate level of
attention to Year 2000 processing capabilities. The Company is utilizing both
internal and external resources to identify, correct or reprogram, and test the
systems for Year 2000 compliance. The Company has scheduled its reprogramming
efforts to be completed by December 31, 1998, to allow time for testing.
Reprogramming efforts of the Company's primary processing applications have been
completed and are in the testing phase.
The Company has contacted its major customers and asked them to complete
a Year 2000 compliance questionnaire. All questionnaires are scheduled to be
received and evaluated by December 31, 1998, and testing of these customer
relationships is scheduled to be complete by June 30, 1999. The impact of the
Year 2000 on these customer relationships is not currently known. The Company
has also obtained Year 2000 compliance information from most of its vendors and
testing is scheduled to be completed by December 31, 1998. Any subsequent
remediation and implementation is scheduled to be substantially complete by June
30, 1999. Although the Company is attempting to monitor and validate the efforts
of third parties, it cannot control the success of these efforts. The Company is
currently identifying all noninformation technology systems, which typically
include embedded technology such as microcontrollers. These systems are expected
to be identified and evaluated by December 31, 1998, with testing, remediation
and implementation timing to be determined after the evaluation phase.
The Company has adopted a corporate contingency plan which details
specific processes and procedures that will take place in the event Year 2000
preparations do not perform as expected. The processes and procedures include
identifying alternate processing sites, restoring back up files, increasing cash
on hand or the availability of cash, setting cash withdrawal limits and training
employees on manual record keeping. In addition, the Company has strengthened
its back-up system capabilities in the event its suppliers and vendors are not
fully in compliance with Year 2000 standards by the turn of the century.
36
<PAGE> 39
As of September 30, 1998, the Company has incurred $200,000 in Year 2000
costs, which have been expensed as incurred. Year 2000-related costs have been
funded from the continuing operations of the Company and, as of September 30,
1998, have constituted approximately 22% of the Company's information systems
budget for 1998. The Company estimates that its costs to complete Year 2000
compliance will be approximately $100,000. This estimate includes the cost of
purchasing hardware and licenses for software programming tools, the cost of the
time of internal staff and the cost of consultants. The estimate does not
include the time that internal staff are devoting to testing programming
changes. Testing is not expected to add significant incremental costs. Certain
information system projects at the Company have been deferred as a result of the
Company's Year 2000 compliance efforts. However, these deferrals are not
expected to have a material effect on the Company's business.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company's primary component of market risk is interest rate
volatility. Fluctuation in interest rates will ultimately impact both the level
of interest income and interest expense recorded on a large portion of the
Company's assets and liabilities, and the fair market value of interest earning
assets and interest-bearing liabilities, other than those which possess a short
term to maturity. Because the Company's interest-bearing liabilities and
interest-earning assets are with the Bank, the Company's interest rate risk
exposure is in connection with the Bank's operations. As a result, all
significant interest rate risk management procedures are performed at the Bank
level. Based upon the nature of its operations, the Bank is not subject to
foreign currency exchange or commodity price risk. The Bank's real estate loan
portfolio, concentrated within Northern California, is subject to risks
associated with the local economy. The Company does not own any trading assets.
See "-Asset Quality."
The fundamental objective of the Company's management of its assets and
liabilities is to enhance the economic value of the Company while maintaining
adequate liquidity and an exposure to interest rate risk deemed acceptable by
the Company's management. The Company manages its exposure to interest rate risk
through adherence to maturity, pricing and asset mix policies and procedures
designed to mitigate the impact of changes in market interest rates. The Bank's
profitability is dependent to a large extent upon its net interest income, which
is the difference between its interest income on interest-earning assets, such
as loans and securities, and its interest expense on interest-bearing
liabilities, such as deposits and borrowings.
The formal policies and practices adopted by the Bank to monitor and
manage interest rate risk exposure measure risk in two ways: (i) repricing
opportunities for earning assets and interest-bearing liabilities and (ii)
changes in net interest income for declining interest rate shocks of 100 basis
points.
37
<PAGE> 40
The following table sets forth, as of December 31, 1997, the
distribution of repricing opportunities for the Company's earning assets and
interest-bearing liabilities, the GAP between repricing earning assets and
interest-bearing liabilities, the cumulative GAP, the ratio of rate sensitive
assets to rate sensitive liabilities for each repricing interval, and the
cumulative GAP to total assets.
<TABLE>
<CAPTION>
Within 3 3 Months to One One to Five Five Plus
Months Year Years Years Total
---------- --------------- ----------- --------- -----
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
EARNING ASSETS:
Investment Securities
Available-for-Sale $ 0 $ 0 $ 0 $ 9,037 $ 9,037
Investments 8,675 6,901 32,718 7,487 55,781
Federal Funds Sold 6,900 0 0 0 6,900
Net Loans 83,730 4,250 12,940 9,671 110,591
--------- --------- --------- --------- ---------
Total Earning Assets 99,305 11,151 45,658 26,195 182,309
--------- --------- --------- --------- ---------
INTEREST-BEARING
LIABILITIES:
Demand Deposits 42,121 0 0 0 42,121
Savings Deposits 11,581 0 0 0 11,581
Time Deposits 58,853 20,314 7,734 0 86,901
--------- --------- --------- --------- ---------
Total Interest-Bearing
Liabilities 112,555 20,314 7,734 0 140,603
--------- --------- --------- --------- ---------
GAP $ (13,250) $ (9,163) $ 37,924 $ 26,195 $ 41,706
========= ========= ========= ========= =========
Cumulative GAP $ (13,250) $ (22,413) $ 15,511 $ 41,706
========= ========= ========= =========
RSA/RSL .88 .55 5.90 1.30
Cumulative GAP to
Total Earning Assets (7.27)% (12.29)% 8.51% 22.88%
</TABLE>
Because of the Bank's capital position and noninterest-bearing demand
deposit accounts, the Bank is asset sensitive. As a result, management
anticipates that, in a declining interest rate environment, the Company's net
interest income and margin would be expected to decline, and, in an increasing
interest rate environment, the Company's net interest income and margin would be
expected to increase. However, no assurance can be given that under such
circumstances the Company would experience the described relationships to
declining or increasing interest rates. Because the Bank is asset sensitive, the
Company is adversely effected by declining rates rather than rising rates.
38
<PAGE> 41
To estimate the effect of interest rate shocks on the Company's net
interest income, management uses a model to prepare an analysis of interest rate
risk exposure. Such analysis calculates the change in net interest income given
a change in the federal funds rate of 100 basis points up or down. All changes
are measured in dollars and are compared to projected net interest income.
The model utilized by management to create the analysis described in the
preceding paragraph uses balance sheet simulation to estimate the impact of
changing rates on the annual net interest income of the Bank. The model
considers a number of factors, including (i) change in customer and management
behavior in response to the assumed rate shock, (ii) the ratio of the amount of
rate change for each interest-bearing asset or liability to assumed changes in
the federal funds rate based on local market conditions for loans and core
deposits and national market conditions for other assets and liabilities and
(iii) timing factors related to the lag between the rate shock and its effect on
other interest-bearing assets and liabilities.
ITEM 3. PROPERTIES
The Company's principal offices and the Bank's main office are housed in
a two-story building with approximately 21,000 square feet of space located at
1951 Churn Creek Road, Redding, California, 96002. The Bank owns the building
and the 1.25 acres of land on which the building is situated. The Bank also owns
the land and building located at 1177 Placer Street, Redding, California, 96002,
in which the Bank utilizes approximately 11,650 square feet of space for its
banking operations.
The Company's Roseville loan production office is located in a one-story
building with approximately 1,484 square feet of space located at 2400
Professional Drive, Roseville, California. The Company leases the space pursuant
to a triple net lease expiring in August 31, 2003.
The Company's Chico loan production office is located in a one-story
building with approximately 600 square feet of space located at 676 East First
Avenue, Chico, California, 95926. The Company leases the space pursuant to a
lease expiring in March 1999.
39
<PAGE> 42
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of October 30, 1998 by (i) each
person who is known by the Company to beneficially own more than five percent of
the Company's Common Stock, (ii) each of the Company's directors, (iii) each of
the Named Executive Officers (as defined on p. 43) and (iv) all directors and
executive officers of the Company as a group.
<TABLE>
<CAPTION>
Number of
Shares of
Common Stock
Beneficially
Name and Address of Beneficial Owner Owned(1) Percent
- ------------------------------------ ------------ -------
<S> <C> <C>
Gilbert and Irene Goetz
P. O. Box 493130
Redding, CA 96049 ................................. 150,240 5.80
Robert C. Anderson(2)
1954 Bechelli Lane
Redding, CA 96002 ................................. 144,600 5.38
John C. Fitzpatrick(3)
P. O. Box 994206
Redding, CA 96099 ................................. 170,670 6.34
Harry L. Grashoff, Jr.(4)
3677 Rosita Drive
Redding, CA 96001 ................................. 143,220 5.32
Welton L. Carrel(5) ................................ 77,040 2.86
Russell L. Duclos .................................. 17,082 *
Kenneth R. Gifford ................................. 23,940 *
Richard W. Green(6) ................................ 42,000 1.56
Charles E. Metro(7) ................................ 66,000 2.35
Eugene L. Nichols(8) ............................... 36,144 1.36
David H. Scott ..................................... 900 *
Michael C. Mayer ................................... 3,000 *
All directors and executive officers as a
group (12 persons) ................................. 724,596 26.99
</TABLE>
- ----------
* Less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
Commission and generally includes voting or investment power with
respect to securities. Except as indicated by footnotes and subject to
community property laws, where applicable, the persons named above have
sole voting and investment power with respect to all shares of Common
Stock shown as beneficially owned by them.
(2) Consists of 144,600 shares held by the Anderson Family Revocable Living
Trust of which Mr. Anderson is a co-trustee and shares voting and
investment power with respect to such shares.
(3) Consists of 119,010 shares held by Pepsi Cola Bottling Company of
Northern California ("Pepsi") and 51,660 shares owned by the Pepsi
Profit Sharing Plan (the "Pepsi Plan"). Mr. Fitzpatrick is chief
executive officer of Carbonated Industries, a majority stockholder of
Pepsi, and may be deemed to share voting and investment power with
respect to such shares. Mr. Fitzpatrick is a participant in the Pepsi
Plan. Mr. Fitzpatrick disclaims
40
<PAGE> 43
beneficial ownership of such shares except for those shares in which he
has a pecuniary interest.
(4) Includes 129,720 shares held jointly with Mr. Grashoff's spouse and
5,640 shares held separately in his spouse's name.
(5) Consists of 76,860 shares held by the Carrel Family Living Trust of
which Mr. Carrel is a co-trustee and shares voting and investment power
with respect to such shares, and 180 shares held in Mr. Carrel's
spouse's name for their grandchildren.
(6) Includes 36,300 shares held in the Green Family Revocable Living Trust
of which Mr. Green is a co-trustee and shares voting and investment
power with respect to such shares.
(7) Includes 47,250 shares held by Charles E. Metro Investment Company
Profit Sharing Plan (the "Profit Sharing Plan"). Mr. Metro is a trustee
of the Profit Sharing Plan and shares voting and investment power with
respect to such shares.
(8) Includes 1,500 shares held by Mr. Nichols' spouse.
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS
The Company's directors and executive officers, and their ages as of
October 30, 1998, are as follows:
<TABLE>
<CAPTION>
Name Age Position(s)
---- --- -----------
<S> <C> <C>
Robert C. Anderson.......................... 65 Chairman of the Board
Russell L. Duclos........................... 59 President and Chief Executive Officer
Michael C. Mayer............................ 42 Executive Vice President and Chief
Credit Officer
Linda J. Miles.............................. 44 Executive Vice President, Chief Financial
Officer and Assistant Secretary
Welton L. Carrel............................ 61 Director
John C. Fitzpatrick......................... 63 Director
Kenneth R. Gifford.......................... 52 Director
Harry L. Grashoff, Jr....................... 63 Director
Richard W. Green............................ 69 Director
Charles E. Metro............................ 69 Director
Eugene L. Nichols........................... 64 Director
David H. Scott.............................. 54 Director
</TABLE>
Robert C. Anderson has served as Chairman of the Board of the Company
since the Company's incorporation in January 1982 and is a member of the loan,
marketing, executive compensation, asset/liability, audit, long range planning
and executive committees of the Board. Mr. Anderson is a member of the Redding
City Council.
Russell L. Duclos has served as President and Chief Executive Officer of
the Company since July 1997. From 1982 to July 1997, he served as Chief Loan
Officer of the Company. Mr. Duclos presently serves on the executive, loan,
marketing and long range planning committees of the Board of Directors.
Michael C. Mayer has served as Executive Vice President and Chief Credit
Officer of the Company since April 1997. From 1993 to April 1997, Mr. Mayer was
Senior Vice President and Senior Loan Officer of Mid Valley Bank, a community
bank located in Red Bluff, California. From 1990 to 1993, he was a Vice
President and Commercial Lender of River City Bank, a
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<PAGE> 44
community bank in Sacramento, California. Mr. Mayer serves on the loan,
executive, asset/liability and marketing committees of the Board of Directors.
Linda J. Miles has served as Executive Vice President, Chief Financial
Officer and Assistant Secretary of the Company since October 1989. Ms. Miles
attends all meetings of committees of the Board of Directors. From 1980 to 1989,
she served as Chief Financial Officer of Scott Valley Bank, a community bank
located in Yreka, California.
Welton L. Carrel has served as a director of the Company since January
1982. Mr. Carrel is retired. From 1961 to 1989, he was President of Western
Business Equipment d.b.a. Carrel's Office Machines. Mr. Carrel serves as
chairman of the asset/liability committee and is a member of the audit, long
range planning and marketing committees of the Board of Directors.
John C. Fitzpatrick has been a director of the Company since January
1982. Mr. Fitzpatrick has served as President and Chief Executive Officer of
Pepsi Cola Bottling Company of Northern California since 1986 and Chief
Executive Officer of Carbonated Industries since its inception in 1986. From
1962 to 1985, Mr. Fitzpatrick was President and Chief Executive Officer of
McCall's Dairy Milk and Ice Cream. Mr. Fitzpatrick also serves as Secretary of
John Fitzpatrick & Sons, Inc., a Property Investment Company. Mr. Fitzpatrick
serves on the executive, long range planning and audit committees of the Board
of Directors.
Kenneth R. Gifford has served as a director of the Company since January
1998. Mr. Gifford has been a director, President and Chief Executive Officer of
Gifford Construction, Inc. since 1972. Mr. Gifford serves on the audit,
executive compensation, long range planning and marketing committees of the
Board of Directors.
Harry L. Grashoff Jr. has served as a director of the Company since
January 1982. From 1982 to July 1997, Mr. Grashoff was President and Chief
Executive Officer of the Company. Mr. Grashoff serves on the executive, loan,
long range planning, asset/liability and marketing committees of the Board of
Directors.
Richard W. Green has been a director of the Company since January 1982.
Mr. Green has been retired since 1991. From 1955 to 1991, he served as Vice
President and General Manager of California-Oregon Broadcasting Company, Inc., a
television and radio broadcasting company. Mr. Green serves as chairman of the
loan committee and the marketing committee, and is a member of the executive,
long range planning, executive compensation and asset/liability committees of
the Board of Directors.
Charles E. Metro has been a director of the Company since January 1982.
Mr. Metro is President of Charles E. Metro Investment Co., a real estate
investment and development company, a position he has held for more than five
years. Mr. Metro serves on the loan and long range planning committees of the
Board of Directors.
Eugene L. Nichols has been a director of the Company since January 1982.
He is a General Partner and Chief Executive Officer of Nichols, Melburg and
Rossetto and Associates, an architectural firm, a position he has held since
1981. Mr. Nichols serves on the audit, long range planning and marketing
committees of the Board of Directors.
David H. Scott has been a director of the Company since April 1997. He
is Managing Partner of D. H. Scott & Company, a public accounting firm, a
position he has held since 1986. Mr. Scott serves on the audit, asset/liability,
executive compensation and loan committees of the Board of Directors.
42
<PAGE> 45
ITEM 6. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain summary information concerning
compensation paid to the Company's Chief Executive Officer and two other
officers who were serving as executive officers on December 31, 1997, and whose
aggregate salary and bonus exceeded $100,000 in fiscal 1997 (the "Named
Executive Officers") and for each of the fiscal years ended December 31, 1996,
and 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Compensation
-----------
Annual Compensation Awards
--------------------------------------- -----------
Securities All Other
Underlying Compensa-
Name and Principal Position Year Salary ($) Bonus ($) Other ($)(3) Options (#) tion ($)(4)
- --------------------------- ---- ---------- --------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Harry L. Grashoff, Jr 1997 $130,263 -- $ 5,000 -- $ 2,342
President and Chief Executive 1996 $115,000 $116,000 $ 5,000 -- $ 2,342
Officer(1) 1995 $110,000 $110,000 $ 5,000 -- $ 2,342
Russell L. Duclos 1997 $100,000(2) $ 80,000 $ 5,000 -- $ 2,342
President and Chief Executive 1996 $ 77,500 $ 62,500 $ 5,000 -- $ 2,342
Officer 1995 $ 75,000 $ 57,000 $ 5,000 -- $ 2,342
Linda J. Miles 1997 $ 80,000 $ 70,000 $ 5,000 -- $ 2,342
Executive Vice President and 1996 $ 72,500 $ 62,500 $ 5,000 -- $ 2,342
Chief Financial Officer 1995 $ 70,000 $ 57,000 $ 5,000 -- $ 2,342
</TABLE>
- ----------
(1) Mr. Grashoff retired as President and Chief Executive Officer of the
Company on June 30, 1997 and was succeeded by Russell L. Duclos.
(2) Includes $15,400 deferred by Mr. Duclos pursuant to the Company's
Directors Deferred Compensation Plan.
(3) Mr. Duclos, Mr. Mayer and Mrs. Miles are each provided with an
automobile for business use and the Company pays all expenses relating
to those vehicles. In addition, the Company pays membership expenses for
Mr. Duclos, Mr. Mayer and Mrs. Miles in connection with the use of a
private club for business purposes, particularly for the purpose of
entertaining the Bank's clients. These officers may have derived some
personal benefit from the use of such automobiles and membership. The
Company, after reasonable inquiry, believes that the value of any
personal benefit not directly related to job performance which is
derived from the personal use of such automobiles and memberships does
not exceed $5,000 per year in the aggregate for any single executive
officer.
(4) Represents health insurance premiums paid by the Company.
OPTION GRANTS IN LAST FISCAL YEAR
No options were granted to the Company's Named Executive Officers during the
fiscal year ended December 31, 1997.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUE
TABLE
No options were exercised by the Named Executive Officers during the fiscal
year ended December 31, 1997, and none held unexercised options at December 31,
1997.
43
<PAGE> 46
EMPLOYMENT AGREEMENTS
The Company has entered into an employment agreement with Russell L. Duclos,
the President and Chief Executive Officer of the Company. The agreement may be
terminated by either the Company or Mr. Duclos, with or without cause or notice.
Unless sooner terminated, the agreement shall automatically terminate on June
30, 2000. Pursuant to the agreement, Mr. Duclos' initial base salary shall be
$100,000 per year and shall be reviewed and adjusted annually. The agreement
also provides that Mr. Duclos shall be eligible to receive profit sharing
compensation pursuant to the Company's Incentive Profit Sharing Plan. The
Company also agreed to provide Mr. Duclos with the following additional
benefits: (i) an automobile and payment of all necessary and customary expenses
therefor, (ii) a proprietary membership and monthly dues in the Riverview
Country Club for use by Mr. Duclos for business development and (iii) an annual
paid vacation of four weeks. In the event Mr. Duclos is terminated by the
Company for a reason other than cause, the Company is obligated to pay Mr.
Duclos an amount equal to twice his then annual base salary, which amount is
required to be paid over a period of one year.
COMPENSATION OF DIRECTORS
Each outside director of the Company receives $850 for each Board of
Directors meeting attended, $500 for each meeting not attended, $250 for each
loan committee meeting attended and $200 for each other committee meeting
attended. The Chairman of the Board is paid an additional $700 per month,
regardless of the number of meetings attended. Directors are eligible to
participate in the Company's 1998 Stock Option Plan, as determined by the
Executive Compensation Committee.
INCENTIVE PROFIT SHARING PLAN
The Board of Directors of the Company adopted an Incentive Profit Sharing
Plan in July 1983, which will remain in effect until terminated by the Board of
Directors. The Incentive Profit Sharing Plan provides that bonuses are computed
on the Company's profits after a 20% return to shareholders, before taxes, less
any gain on investment securities plus any loss on investment securities sold.
The bonus is paid on the first day of each calendar quarter as to 70% of the
bonus earned for the previous calendar quarter. Upon receipt of the certified
annual statement, the incentive bonus is adjusted and the remainder of the bonus
earned, if any, is paid to the recipients thereof.
The participants in the plan are the Company's President and Chief Executive
Officer, Russell L. Duclos, as to 3.05% of the profits as defined above; Michael
Mayer, Executive Vice President and Chief Credit Officer, as to 2.45% of such
profits; and Linda J. Miles, Executive Vice President and Chief Financial
Officer as to 2.55% of such profits. The remainder of the Company's employees
may receive up to 12% of the profits at the discretion of the President of the
Company.
DIRECTORS DEFERRED COMPENSATION PLAN
Effective January 1993, the Board of Directors adopted the Directors
Deferred Compensation Plan (the "Deferred Compensation Plan") pursuant to which
each director of the Company may elect to defer all or any part of the
compensation to which such director would be entitled as a director such as
director's fees or committee fees. An election to defer compensation continues
in effect until revoked and deferred compensation, together with interest
thereon, is payable to the director or his or her beneficiary within 30 days
after the date of death or resignation unless the director has designated an
optional installment method of payment over a period of up to ten years.
Pursuant to the Deferred Compensation Plan, each director may designate one or
more beneficiaries to receive amounts due such director upon such director's
death. Interest on amounts deferred is credited on a monthly basis and
compounded at a rate equal to .5% above the Bank's reference
44
<PAGE> 47
rate, which is set on July 1 of each year. If the Bank changes the method of
computing its reference rate, then the Deferred Compensation Plan provides that
the Bank's reference rate will be replaced by the prime rate published in the
West Coast edition of the Wall Street Journal. The Deferred Compensation Plan
may be terminated by the Company at any time with respect to compensation earned
on or after the termination date.
1998 STOCK OPTION PLAN
On February 17, 1998, the Board of Directors adopted the 1998 Stock Option
Plan (the "Plan") which was approved by the Company's shareholders on April 21,
1998. The Plan provides for awards in the form of options (which may constitute
incentive stock options ("Incentive Options") under Section 422(a) of the
Internal Revenue Code of 1986, as amended (the "Code"), or nonstatutory stock
options ("NSOs")) to key personnel of the Company, including the Directors of
the Company or any subsidiary. The Plan is not qualified under section 401(a) of
the Code or subject to the provisions of the Employee Retirement Income Security
Act of 1974, as amended. The Plan provides that Incentive Options under the Plan
may not be granted at less than 100% of fair market value of the Company's
Common Stock on the date of the grant, which means the recipient receives no
benefit unless the Company's Common Stock price increases over the option term.
Under the terms of the Plan, NSOs may not be granted at less than 85% of the
fair market value of the Common Stock on the date of the grant. The purpose of
the Plan is to promote the long-term success of the Company and the creation of
shareholder value by (i) encouraging key personnel to focus on critical long
range objectives, (ii) increasing the ability of the Company to attract and
retain key personnel and (iii) linking key personnel directly to shareholder
interests through increased stock ownership. A total of 540,000 shares of the
Company's Common Stock are available for grant under the Plan. If an option
granted under the Plan expires, is canceled, forfeited or terminates without
having been fully exercised, the unpurchased shares which were subject to that
option again become available for the grant of additional options under the
Plan.
The Plan is administered by the Executive Compensation Committee of the
Board of Directors. Subject to the terms of the Plan, the Executive Compensation
Committee determines the number of options in the award as well as the vesting
and all other conditions. The Plan provides that all options under the Plan
shall vest at a rate of at least 20% per year from the date of the grant.
Vesting may be accelerated in the event of an optionee's death, disability, or
retirement, or in the event of a change in control. As of October 30, 1998, the
Company had outstanding options to purchase an aggregate of 411,000 shares of
the Company's Common Stock at exercises prices ranging from $9.07 to $10.67 per
share or a weighted average exercise price per share of $9.62.
INDEMNIFICATION MATTERS
The Company's bylaws provide for indemnification of the Company's directors,
officers, employees and other agents of the Company to the extent and under the
circumstances permitted by the California General Corporation Law. The Company's
bylaws also provide that the Company shall have the power to purchase and
maintain insurance covering its directors, officers and employees against any
liability asserted against any of them and incurred by any of them, whether or
not the Company would have the power to indemnify them against such liability
under the provisions of applicable law or the provisions of the Company's
bylaws.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Executive Compensation Committee of the Board of Directors consists of
five directors, none of whom is an officer or employee of the Company.
45
<PAGE> 48
REPORT ON EXECUTIVE COMPENSATION
The Company's compensation programs and policies applicable to its executive
officers are administered by the Executive Compensation Committee of the Board
of Directors. The Executive Compensation Committee is made up entirely of
nonemployee directors. The members of the Executive Compensation Committee are
Robert C. Anderson, John C. Fitzpatrick, Richard W.
Green, David H. Scott and Kenneth R. Gifford.
COMPENSATION PHILOSOPHY AND POLICIES
The Company's compensation programs and policies are designed to enhance
shareholder value by aligning the financial interests of the executive officers
of the Company with those of the Company's shareholders. The Company has
established an Executive Compensation Committee, which meets annually to review
the salaries of executive officers. It is the Committee's responsibility to
reestablish the base salary and propose adjustments to the incentive
compensation portion, and establish a discretionary bonus plan if all
performance objectives are met. Income arising under the Company's 1998 Stock
Option Plan currently does not qualify as performance-based compensation. The
Company intends to retain the flexibility necessary to provide total cash
compensation in line with competitive practice, the Company's compensation
philosophy and the Company's best interests, including compensation that may not
be deductible.
COMPONENTS OF EXECUTIVE OFFICER COMPENSATION
There are four primary components of executive compensation: base salary,
incentive bonus, discretionary bonus and, commencing in 1998, the Plan.
Base Salary
The annual base salaries of executive officers are reviewed by the Executive
Compensation Committee, taking into consideration the competitive level of
salaries in the industry, the overall performance of the Company, the
performance of the portfolio and department under the executive officer's
management control and the individual executive officer's contribution and
performance.
The base salary for the Chief Executive Officer was determined by (i)
examining the Company's performance against its preset goals, (ii) comparing the
Company's performance against its competitors, (iii) evaluating the
effectiveness and performance of the Chief Executive Officer and (iv) comparing
the base salary of the Chief Executive Officer to that of other chief executive
officers in the business banking industry.
Incentive Bonus Plan
The Company's 1997 Incentive Bonus Plan (the "Bonus Plan") was a cash-based
incentive bonus program. The Bonus Plan provides that bonuses are computed on
the Company's profit after a 20% return to shareholders, before income taxes,
less any gain on investments securities sold and plus any losses on investment
securities sold. The cash incentive is paid the first week of each calendar
quarter as to 70% of the incentive earned for the previous calendar quarter. The
corporation on its certified annual financial statement makes an adjustment of
the incentive bonuses upon receipt. Upon receipt of the statement, the incentive
bonus is adjusted, and the remainder of the bonus, if any, is paid to the
recipients thereof. The Company's President & Chief Executive Officer earns
3.05% of the profits as defined above, the Company's Executive Vice President
and Chief Credit Officer earns 2.45% of the profits, and the Company's Executive
Vice President and Chief Financial Officer earns 2.55% of the profits.
46
<PAGE> 49
Stock Options
Under the Company's compensation philosophy, ownership of the Company's
Common Stock is a key element of executive compensation. The grant of a stock
option is intended to retain and motivate key executives and to provide a direct
link with the interest of the shareholders of the Company. In general, stock
option grants are determined based on (i) prior award levels, (ii) total awards
received to date by the individual executives, (iii) the total stock award to be
made and the executive's percentage participation in that award, (iv) the
executive's direct ownership of Company Common Stock, (v) the number of options
vested and nonvested and (vi) the options outstanding as a percentage of total
shares outstanding.
Respectfully submitted,
Robert C. Anderson
John C. Fitzpatrick
Richard W. Green
David H. Scott
Kenneth R. Gifford
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Some of the directors, officers and principal shareholders of the Company
and their associates were customers of and had banking transactions with the
Bank in the ordinary course of the Bank's business during 1997 and the Bank
expects to have such transactions in the future. All loans and commitments to
loans included in such transactions were made in compliance with the applicable
laws on substantially the same terms, including interest rates and collateral,
as those prevailing at the time for comparable transactions with other persons
of similar creditworthiness, and in the opinion of the Company, did not involve
more than a normal risk of collectibility or present other unfavorable features.
ITEM 8. LEGAL PROCEEDINGS
The Company and its subsidiaries are involved in various legal actions
arising in the ordinary course of business. The Company believes that the
ultimate disposition of all currently pending matters will not have a material
adverse effect on the Company's financial condition or results of operations.
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON
EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is not listed on any stock exchange or quoted on
the NASDAQ and there is no established public trading market for the Company's
Common Stock. The Company is aware that Van Kasper & Company located at 600
California Street, Suite 1700, San Francisco, California 94108, handles trades
in the Company's Common Stock.
47
<PAGE> 50
The following table, which summarizes trading activity during the Company's
last two fiscal years and the nine month period ended September 30, 1998, is
based on information provided by Van Kasper & Company. The quotations reflect
the price that would be received by the seller without retail mark-up, mark-down
or commissions and may not have represented actual transactions.
<TABLE>
<CAPTION>
Sales Price
----------------------
Quarter Ended: High Low Volume
-------------- ------ ------ ------
<S> <C> <C> <C>
March 31, 1996 $ 8.33 $ 8.00 18,450
June 30, 1996 $10.33 $10.33 600
September 30, 1996 -- -- --
December 31, 1996 $11.33 $10.67 14,130
March 31, 1997 $10.67 $10.67 2,175
June 30, 1997 $10.67 $10.67 32,280
September 30, 1997 $10.83 $10.33 19,914
December 31, 1997 $11.42 $10.00 26,223
March 31, 1998 $11.33 $10.67 4,440
June 30, 1998 $11.42 $10.75 648
September 30, 1998 $16.00 $16.00 426
</TABLE>
On October 22, 1998, the Company paid a $.50 per share cash dividend to
shareholders of record on October 1, 1998. On October 22, 1997, the Company paid
a $.25 per share cash dividend to shareholders of record as of October 1, 1997,
and on October 22, 1996, the Company paid a $.33 per share cash dividend to
shareholders of record as of October 1, 1996.
As of October 30, 1998, there were approximately 298 holders of record of
the Company's Common Stock.
As of October 30, 1998, the Company had options outstanding to purchase an
aggregate of 411,000 shares of Common Stock at exercise prices ranging from
$9.07 to $10.67 per share or a weighted average exercise price per share of
$9.62, and 540,000 shares reserved for issuance pursuant to the Company's 1998
Stock Option Plan.
As of October 30, 1998, the Company had issued and outstanding 2,684,103
shares of Common Stock, approximately 1,959,507 of which are eligible for sale
in the public market without restriction by persons other than affiliates of the
Company under the Securities Act, and 724,596 of which are eligible for sale in
the public market pursuant to Rule 144 under the Securities Act. In general,
under Rule 144 as currently in effect, if one year has elapsed since the later
of the date of acquisition of restricted securities from the Company or any
affiliate of the Company, a person (or persons whose shares are aggregated)
would be entitled to sell within any three-month period a number of shares that
does not exceed the greater of (i) 1% of the number of then outstanding shares
of Common Stock (26,841 shares as of October 30, 1998) and (ii) the average
weekly trading volume of Common Stock during the four calendar weeks preceding
the date on which
48
<PAGE> 51
notice of the sale is filed with the Commission. Sales under Rule 144 are also
subject to certain manner of sales provisions, notice requirements and the
availability of current public information about the Company. If two years have
elapsed since the date of acquisition of restricted securities from the Company
or any affiliate of the Company, and the acquiror or subsequent holder thereof
is deemed not to have been an affiliate of the Company at any time during the 90
days preceding a sale, such person (or persons whose shares are aggregated)
would be entitled to sell such shares in the public market under Rule 144(k)
without regard to the volume limitations, manner of sale provisions, notice
requirements and the availability of current public information requirements. An
"affiliate" of an entity is a person that directly, or indirectly through one or
more intermediaries, controls or is controlled by, or is under common control
with such entity and may include officers and directors, principal shareholders
and certain shareholders with special relationships. The foregoing is a summary
of Rule 144 and is not intended to be a complete description of it.
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES
In each of 1995 and 1998, outstanding options to purchase 6,000 shares of
the Company's Common Stock were exercised. The options were issued pursuant to
the Company's 1982 Stock Option Plan which was terminated in April 1992. As of
October 30, 1998, there were no options outstanding under the 1982 Stock Option
Plan.
The Company relied on the exemption provided by Section 3(a)(11) of the
Securities Act in connection with the exercise of outstanding options in 1995
and 1998. The persons who exercised the options were all residents of the State
of California and the Company is a California corporation doing business in the
State of California.
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED
COMMON STOCK
The authorized capital stock of the Company consists of 10,000,000 shares of
Common Stock, no par value (the "Common Stock"). As of October 30, 1998, there
were issued and outstanding 2,684,103 shares of Common Stock.
VOTING RIGHTS
The holders of the Company's Common Stock are entitled to one vote per share
on all matters requiring shareholder action, except that in connection with the
election of directors, the shares may be voted cumulatively if a nominee's or
nominee's name(s) have been properly placed in nomination prior to the voting
and a shareholder present at the meeting has given notice of his or her
intention to vote his or her shares cumulatively. If a shareholder has given
such notice, then all shareholders entitled to vote for the election of
directors may cumulate their votes. Cumulative voting entitles a shareholder to
give one or more nominees as many votes as is equal to the number of directors
to be elected multiplied by the number of shares owned by such shareholder, or
to distribute his or her votes on the same principle between two or more
nominees as he or she sees fit.
The holders of Common Stock have no preemptive or other rights and there are
no redemption, sinking fund or conversion privileges applicable thereto. The
holders of Common Stock are entitled to receive dividends as and when declared
by the Board of Directors out of funds legally available therefore, subject to
the restrictions by its regulators. See "Business-Supervision and
Regulation-Restrictions on Dividends and Other Distributions." Upon liquidation,
dissolution or
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<PAGE> 52
winding up of the Company, holders of Common Stock are entitled to share ratably
in all assets remaining after payment of liabilities.
The Company's transfer agent is ChaseMellon Shareholder Services, 235
Montgomery Street, 23rd Floor, San Francisco, California.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 317 of the California General Corporation Law provides for the
indemnification of officers, directors and other corporate agents, subject to
limited exceptions, against liabilities arising by reason of their status or
services as an officer, director or corporate agent. The indemnification law of
the State of California generally allows indemnification in matters not
involving the right of the corporation, to an agent of the corporation if such
person acted in good faith and in a manner such person reasonably believed to be
in the best interests of the corporation, and in the case of a criminal matter,
had no reasonable cause to believe the conduct of such person was unlawful.
California law, with respect to matters involving the right of a corporation,
allows indemnification of an agent of the corporation, if such person acted in
good faith, in a manner such person believed to be in the best interests of the
corporation and its shareholders; provided that there shall be no
indemnification for (i) amounts paid in settling or otherwise disposing of a
pending action without court approval, (ii) expenses incurred in defending a
pending action which is settled or otherwise disposed of without court approval,
(iii) matters in which such person shall have been adjudged to be liable to the
corporation unless and only to the extent that the court in which the proceeding
is or was pending shall determine that such person is entitled to be indemnified
or (iv) other matters specified in the California General Corporation Law.
Section 12 of Article III of the Company's bylaws (Exhibit 3.2 hereto)
provides for indemnification of the Company's directors, officers, employees and
other agents of the Company to the extent and under the circumstances permitted
by the California General Corporation Law. The Company's bylaws also provide
that the Company shall have the power to purchase and maintain insurance
covering its directors, officers and employees against any liability asserted
against any of them and incurred by any of them, whether or not the Company
would have the power to indemnify them against such liability under the
provisions of applicable law or the provisions of the Company's bylaws.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling the Company
pursuant to the foregoing, the Company has been informed that in the opinion of
the Commission, such indemnification is against public policy as expressed in
the Securities Act and is therefore unenforceable.
50
<PAGE> 53
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS COVERED BY REPORT OF INDEPENDENT
AUDITORS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of KPMG Peat Marwick LLP, Independent Auditors' Report 52
Consolidated Balance Sheets 53
Consolidated Statements of Income 54
Consolidated Statements of Stockholders' Equity 55
Consolidated Statements of Cash Flows 56
Notes to Consolidated Financial Statements 57
</TABLE>
All schedules are omitted since the required information is not present or not
present in amounts sufficient to require submission of the schedule or because
the information required is included in the Consolidated Financial Statements or
Notes thereto.
INDEX TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Unaudited Condensed Consolidated Balance Sheets 81
Unaudited Condensed Statements of Income 82
Unaudited Condensed Statements of Shareholders' Equity 83
Unaudited Condensed Statements of Cash Flows 84
Notes to Unaudited Condensed Consolidated Financial Statements 85
</TABLE>
All schedules are omitted since the required information is not present or not
present in amounts sufficient to require submission of the schedule or because
the information required is included in the Unaudited Condensed Consolidated
Financial Statements thereto.
51
<PAGE> 54
KPMG Peat Marwick LLP
400 Capitol Mall
Sacramento, CA 95814
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Redding Bancorp and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Redding Bancorp
and subsidiaries (the Bank) as of December 31, 1997 and 1996, and the related
consolidated statements of income, shareholders' equity, and cash flows for each
of the years in the three-year period ended December 31, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
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 our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Redding Bancorp and
subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
January 21, 1998, except as to note 12,
which is as of June 16, 1998
52
<PAGE> 55
REDDING BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
ASSETS 1997 1996
------ ------------ ------------
<S> <C> <C>
Cash and due from banks (note 2) $ 11,431,374 11,970,652
Federal funds sold 6,900,000 6,780,000
Investment securities available-for-sale, at market (note 3) 55,780,926 49,883,352
Investment securities held-to-maturity, at cost
(aggregate market value of $9,081,482 in 1997 and
$2,111,613 in 1996) (note 3) 9,037,300 2,168,712
Loans, net (note 4) 110,591,206 109,059,282
Bank premises and equipment, net (note 5) 5,842,379 5,855,591
Other assets (note 6) 5,237,155 6,670,925
------------ ------------
Total assets $204,820,340 192,388,514
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Demand - noninterest bearing $ 40,069,672 31,116,937
Demand - interest bearing 42,121,317 36,418,044
Savings 11,580,784 12,456,486
Certificates of deposits (note 7) 86,901,502 91,376,502
------------ ------------
180,673,275 171,367,969
Other liabilities (note 8) 2,322,480 1,840,702
------------ ------------
Total liabilities 182,995,755 173,208,671
------------ ------------
Shareholders' equity (notes 10, 11, 12, 13 and 17):
Common stock, no par value; 10,000,000 shares
authorized; 2,684,103 shares issued and
outstanding in 1997 and 2,701,416 shares issued
and outstanding in 1996 4,561,821 4,561,821
Retained earnings 17,108,836 14,526,071
Accumulated other comprehensive income, net 153,928 91,951
------------ ------------
Total stockholders' equity 21,824,585 19,179,843
Commitments and contingencies (note 15)
------------ ------------
Total liabilities and stockholders' equity $204,820,340 192,388,514
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
53
<PAGE> 56
REDDING BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $11,519,475 12,023,193 12,624,135
Interest on tax exempt securities 292,038 367,189 258,253
Interest on U.S. government securities 3,008,859 2,319,742 1,316,215
Interest on federal funds sold 568,784 601,798 698,820
Interest on other securities 375,446 253,494 224,378
----------- ----------- -----------
Total interest income 15,764,602 15,565,416 15,121,801
----------- ----------- -----------
Interest expense:
Interest on demand deposits 856,979 813,823 876,768
Interest on savings deposits 342,839 317,479 314,379
Interest on time deposits 5,134,417 5,666,898 5,190,709
----------- ----------- -----------
Total interest expense 6,334,235 6,798,200 6,381,856
----------- ----------- -----------
Net interest income 9,430,367 8,767,216 8,739,945
Provision for loan losses (note 4) 1,023,500 2,160,000 1,045,000
----------- ----------- -----------
Net interest income after
provision for loan losses 8,406,867 6,607,216 7,694,945
----------- ----------- -----------
Other income:
Service charges on deposit accounts 212,034 187,150 180,531
Other income 369,537 310,891 262,672
Gain (loss) on sale of investment
securities 4,807 (58,280) --
Credit card service income 2,049,411 1,638,768 1,254,641
----------- ----------- -----------
Total other income 2,635,789 2,078,529 1,697,844
----------- ----------- -----------
Other expenses:
Salaries and related benefits 3,024,280 2,753,986 2,641,257
Net occupancy and equipment expense 796,085 813,619 645,721
FDIC insurance premium 40,799 7,638 158,667
Data processing and professional services 283,296 255,594 250,099
Other expenses 1,110,760 788,741 1,014,466
----------- ----------- -----------
Total other expenses 5,255,220 4,619,578 4,710,210
----------- ----------- -----------
Income before income taxes 5,787,436 4,066,167 4,682,579
Provision for income taxes (note 9) 2,129,741 1,450,863 1,751,828
----------- ----------- -----------
Net income $ 3,657,695 2,615,304 2,930,751
=========== =========== ===========
Basic earnings per share
(note 13) $ 1.36 0.97 1.08
=========== =========== ===========
Diluted earnings per share
(note 13) $ 1.35 0.97 1.08
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
54
<PAGE> 57
REDDING BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
COMMON STOCK
---------------------------- COMPREHENSIVE RETAINED
SHARES AMOUNT INCOME EARNINGS
----------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
Balance at December 31, 1994 2,701,416 $ 4,561,821 10,384,724
Comprehensive income:
Net income $ 2,930,751 2,930,751
Other comprehensive income, net of tax:
Unrealized holding gains arising during period, net of
tax effect of $348,654 631,176
-----------
Other comprehensive income 631,176
-----------
Comprehensive income $ 3,561,927
===========
Cash dividends ($0.25 per share) (675,354)
Stock options exercised 6,000 35,000
Redemption of common stock (6,000) (35,000) (31,000)
----------- ----------- -----------
Balance at December 31, 1995 2,701,416 4,561,821 12,609,121
Comprehensive income:
Net income $ 2,615,304 2,615,304
Other comprehensive income, net of tax:
Unrealized holding losses arising during period, net of
tax effect of $12,835 (21,921)
Less: reclassification adjustment for losses included
in net income, net of tax effect of $10,790 (18,428)
-----------
Other comprehensive income (3,493)
-----------
Comprehensive income $ 2,611,811
===========
Cash dividends ($0.25 per share) (675,354)
Stock options exercised 6,000 23,000
Redemption of common stock (6,000) (23,000) (23,000)
----------- ----------- -----------
Balance at December 31, 1996 2,701,416 4,561,821 14,526,071
Comprehensive income:
Net income $ 3,657,695 3,657,695
Other comprehensive income, net of tax:
Unrealized holding gains arising during period, net of
tax effect of $37,713 65,019
Less: reclassification adjustment for gains included
in net income, net of tax effect of $1,765 3,042
-----------
Other comprehensive income 61,977
-----------
Comprehensive income $ 3,719,672
===========
Cash dividends ($0.33 per share) (900,472)
Repurchase and retirement of common stock (17,313) (174,458)
----------- ----------- -----------
Balance at December 31, 1997 2,684,103 $ 4,561,821 17,108,836
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
COMPREHENSIVE
INCOME, NET TOTAL
-------------- -----------
<S> <C> <C>
Balance at December 31, 1994 (535,732) 14,410,813
Comprehensive income:
Net income 2,930,751
Other comprehensive income, net of tax:
Unrealized holding gains arising during period, net of
tax effect of $348,654
Other comprehensive income 631,176 631,176
Comprehensive income
Cash dividends ($0.25 per share) (675,354)
Stock options exercised 35,000
Redemption of common stock (66,000)
----------- -----------
Balance at December 31, 1995 95,444 17,266,386
Comprehensive income:
Net income 2,615,304
Other comprehensive income, net of tax:
Unrealized holding losses arising during period, net of
tax effect of $12,835
Less: reclassification adjustment for losses included
in net income, net of tax effect of $10,790
Other comprehensive income (3,493) (3,493)
Comprehensive income
Cash dividends ($0.25 per share) (675,354)
Stock options exercised 23,000
Redemption of common stock (46,000)
----------- -----------
Balance at December 31, 1996 91,951 19,179,843
Comprehensive income:
Net income 3,657,695
Other comprehensive income, net of tax:
Unrealized holding gains arising during period, net of
tax effect of $37,713
Less: reclassification adjustment for gains included
in net income, net of tax effect of $1,765
Other comprehensive income 61,977 61,977
Comprehensive income
Cash dividends ($0.33 per share) (900,472)
Repurchase and retirement of common stock (174,458)
----------- -----------
Balance at December 31, 1997 153,928 21,824,585
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
55
<PAGE> 58
REDDING BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 3,657,695 2,615,304 2,930,751
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 1,023,500 2,160,000 1,045,000
Provision for depreciation 405,597 460,495 306,581
Amortization of investment premiums and
accretion of discounts, net (295,446) (162,213) 132,740
Gain on sale of loans (30,285) (37,379) (33,395)
Gain on sale of equipment -- -- (1,043)
Proceeds from sale of loans 3,972,000 5,479,675 5,244,808
Loans originated for sale (4,002,285) (5,517,054) (5,211,413)
Deferred income taxes, net (362,950) (118,980) (165,583)
Decrease (increase) in other assets 1,848,770 (1,929,039) (742,323)
(Decrease) increase in deferred loan fees (11,400) (125,150) 312
Increase (decrease) in other liabilities 429,728 (64,344) 224,064
------------ ------------ ------------
Net cash provided by operating
activities 6,634,924 2,761,315 3,730,499
------------ ------------ ------------
Cash flows from investing activities:
Proceeds from maturities of available for sale
securities 39,136,648 25,036,404 14,276,000
Proceeds from sale of available for sale
securities 2,275,042 1,942,500 --
Purchases of available for sale securities (47,824,174) (35,158,493) (28,866,054)
Purchases of mortgage-backed securities
held-to-maturity (5,996,255) -- --
Loan originations, net of principal repayments (2,483,454) 2,595,788 (11,450,638)
Purchase of premises and equipment (392,385) (680,108) (2,904,066)
Proceeds from sale of equipment -- -- 44,583
------------ ------------ ------------
Net cash used by investing activities (15,284,578) (6,263,909) (28,900,175)
------------ ------------ ------------
Cash flows from financing activities:
Net increase in demand deposits and savings
accounts 13,780,306 8,235,542 2,842,426
Net (decrease) increase in certificates of
deposit (4,475,000) (3,736,080) 23,202,527
Cash dividends (900,472) (675,354) (675,354)
Common stock transactions (174,458) (23,000) (31,000)
------------ ------------ ------------
Net cash provided by financing
activities 8,230,376 3,801,108 25,338,599
------------ ------------ ------------
Net (decrease) increase in cash and
cash equivalents (419,278) 298,514 168,923
Cash and cash equivalents at beginning of year 18,750,652 18,452,138 18,283,215
------------ ------------ ------------
Cash and cash equivalents at end of year $ 18,331,374 18,750,652 18,452,138
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
56
<PAGE> 59
REDDING BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Redding Bancorp (the Company)
and its wholly owned subsidiaries, Redding Bank of Commerce (the Bank)
and Redding Service Corporation, conform with generally accepted
accounting principles and general practices within the banking industry.
In preparing the consolidated financial statements, management is
required to make estimates and assumptions that affect the reported
amounts of assets and liabilities as of the date of the balance sheet and
revenue and expenses for the period. Actual results could differ from
those estimates. The more significant accounting and reporting policies
and estimates applied in the preparation of the accompanying consolidated
financial statements are discussed below.
(a) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company, the Bank and Redding Service Corporation. All significant
intercompany balances and transactions have been eliminated in
consolidation.
(b) INVESTMENT SECURITIES AND MORTGAGE-BACKED SECURITIES
At the time of purchase of a security, the Bank designates the security
as held-to-maturity or available-for-sale, based on its investment
objectives, operational needs and intent to hold. The Bank does not
engage in trading activity.
Held-to-maturity securities are recorded at amortized cost, adjusted for
amortization or accretion of premiums or discounts. Available-for-sale
securities are recorded at fair value with unrealized holding gains and
losses, net of the related tax effect, reported as a separate component
of stockholders' equity. For the year ended December 31, 1997, there were
no transfers between classifications.
A decline in market value of any available-for-sale or held-to-maturity
security below cost that is deemed other than temporary results in a
charge to earnings and the corresponding establishment of a new cost
basis for the security. No such declines have occurred.
Premiums and discounts are amortized or accreted over the life of the
related held-to-maturity security as an adjustment to yield using the
effective interest method. Dividend and interest income are recognized
when earned. Realized gains and losses for securities
57
<PAGE> 60
REDDING BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
classified as available-for-sale and held-to-maturity are included in
earnings and are derived using the specific identification method for
determining the cost of securities sold.
(c) LOANS
Loans are stated at the principal amounts outstanding less deferred loan
fees and costs and the allowance for loan losses. Interest on commercial,
installment and real estate loans is accrued daily based on the principal
outstanding.
Loan origination and commitment fees and certain origination costs are
deferred and, if material, the net amount is amortized over the
contractual life of the loans as an adjustment of their yield.
Impaired loans are measured based upon the present value of future cash
flows discounted at the loan's effective rate, the loan's observable
market price, or the fair value of collateral if the loan is collateral
dependent. Interest on impaired loans is recognized on a cash basis.
Loans on which the accrual of interest has been discontinued are
designated as nonaccrual loans. Accrual of interest on loans is
discontinued either when reasonable doubt exists as to the full, timely
collection of interest or principal or when a loan becomes contractually
past-due by ninety days or more with respect to principal or interest.
When a loan is placed on nonaccrual status, all interest previously
accrued but not collected is reversed against current period income.
Accruals are resumed on loans only when they are brought fully current
with respect to interest and principal and when, in the judgment of
management, the loan is estimated to be fully collectible. Renegotiated
loans are those loans on which concessions in terms have been granted
because of the borrower's financial or legal difficulties. Interest is
generally accrued on such loans in accordance with the new terms.
(d) SALE OF LOANS
The Bank has realized gain from the sale of the guaranteed portion of
Small Business Administration (SBA) loans. Gains or losses are recognized
upon completion of the sales (net of related commissions paid that are
directly attributable to the sale), and are based on the differences
between the net sales proceeds and the relative fair value of the portion
of the loans sold. The Bank carries these loans held for sale at the
lower of cost
58
<PAGE> 61
REDDING BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
or market value. The Bank had SBA loans available for sale totaling
$8,314,443 and $7,998,512 as of December 31, 1997 and 1996, respectively.
Certain adjustable rate and fixed rate real estate loans are originated
for sale. Such loans held for sale are carried at the lower of cost or
market at the balance sheet date or the date on which investors have
committed to purchase such loans. To the extent there are recourse
provisions, the Bank considers an accrual for all estimated adjustments
in connection with the recourse obligation to the buyer. The Bank had
real estate loans available for sale totaling $267,150 and $460,800 as of
December 31, 1997 and 1996, respectively.
(e) ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is established through a provision charged
to expense. Loans are charged off against the allowance for loan losses
when management believes that the collectibility of the principal is
unlikely. The allowance is an amount that management believes will be
adequate to absorb losses inherent in existing loans, standby letters of
credit, overdrafts and commitments to extend credit based on evaluations
of collectibility and 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, commitments, and current and anticipated economic
conditions that may affect the borrowers' ability to pay. While
management uses these evaluations to recognize the provision for loan
losses, future provisions may be necessary based on changes in the
factors used in the evaluations.
Material estimates relating to the determination of the allowance for
loan losses are particularly susceptible to significant change in the
near term. Management believes that the allowance for loan losses is
adequate. While management uses available information to recognize losses
on loans, future additions to the allowance may be necessary based on
changes in economic conditions. In addition, the Federal Deposit
Insurance Corporation (FDIC), as an integral part of its examination
process, periodically reviews the Bank's allowance for loan losses. The
FDIC may require the Bank to recognize additions to the allowance based
on their judgment about information available to them at the time of
their examination.
(f) GAIN OR LOSS ON SALE OF LOANS AND SERVICING RIGHTS
In June, 1996, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard (SFAS) No. 125, Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities.
SFAS No. 125 is effective for transfers and servicing of financial assets
and extinguishments of liabilities occurring
59
<PAGE> 62
REDDING BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
after December 31, 1996, and is to be applied prospectively. This
Statement provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities based on
consistent application of a financial-components approach that focuses on
control. It distinguishes transfers of financial assets that are sales
from transfers that are secured borrowings. In addition, it requires that
servicing assets and other retained interests in transferred assets be
measured by allocating the previous carrying amount of the transferred
assets between the assets sold, if any and retained interests, if any,
based on their relative fair value at the date of transfer. Liabilities
and derivatives incurred or obtained by transferors as part of a transfer
of financial assets are to be initially measured at fair value. Servicing
assets and liabilities are to be subsequently amortized in proportion to
and over the period of estimated net servicing income or loss and
assessed for asset impairment or increased obligation based on fair
value.
The Bank recognizes a gain and a related asset for the fair value of the
rights to service loans for others when loans are sold. In accordance
with SFAS No. 125, the fair value of the servicing assets is estimated
based upon the present value of the estimated expected future cash flows.
The Bank measures the impairment of the servicing asset based on the
difference between the carrying amount of the servicing asset and its
current fair value. As of December 31, 1997 and 1996, there was no
impairment in mortgage servicing asset.
A gain or loss is recognized to the extent that the sales proceeds and
the fair value of the servicing asset exceed or are less than the book
value of the loan. Additionally, a normal cost for servicing the loan is
considered in the determination of the gain or loss.
When servicing rights are sold, a gain or loss is recognized at the
closing date to the extent that the sales proceeds, less costs to
complete the sale, exceed or are less than the carrying value of the
servicing rights held.
(g) BANK PREMISES AND EQUIPMENT
Bank premises and equipment are stated at cost less accumulated
depreciation. Provisions for depreciation included in operating expenses,
are computed on the straight-line method over the estimated useful lives
of the related assets. Expenditures for major renewals and betterments
are capitalized and those for maintenance and repairs are charged to
expense as incurred.
(h) EARNINGS PER SHARE
For the years ended December 31, 1997, the Company adopted SFAS No. 128,
Earnings per Share. SFAS No. 128 replaces Accounting Principles Board
(APB) Opinion 15,
60
<PAGE> 63
REDDING BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Earnings per Share, and simplifies the computation of earnings per share
(EPS) by replacing the presentation of primary EPS with a presentation of
basic EPS. In addition, the statement requires dual presentation of basic
and diluted EPS by entities with complex capital structures. Basic EPS
includes no dilution and is computed by dividing income available to
common stockholders by the weighted-average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution
of securities that could share in the earnings of an entity, similar to
fully diluted EPS. The computation of EPS will be compatible with
international standards, as the International Accounting Standards
Committee recently issued a comparable standard.
(i) CASH EQUIVALENTS
Cash equivalents include amounts due from banks and federal funds sold.
Generally, federal funds sold are for a one-day period.
(j) FAIR VALUE OF FINANCIAL INSTRUMENTS
Market quotes for investments and borrowings were obtained from
representative over-the-counter quotations based on transactions from
major market publications. Fair value of loans and savings deposits was
calculated by estimating the net present value of future cash flows using
current market rates of interest. Prepayment assumptions were obtained
from standard industry publications.
(k) OTHER REAL ESTATE OWNED
Real estate acquired by foreclosure, is carried at the lower of the
recorded investment in the property or its fair value less estimated
selling costs. Prior to foreclosure, the value of the underlying loan is
written down to the fair value of the real estate to be acquired by a
charge to the allowance for loan losses, if necessary. Fair value of
other real estate is generally determined based on an appraisal of the
property. Any subsequent write-downs are charged against operating
expenses. Operating expenses of such properties, net of related income,
and gains and losses on their disposition are included in other expenses.
A net loss of $52,991, $27,974 and $3,907 was recorded for the years
ended December 31, 1997, 1996, and 1995, respectively.
Revenue recognition on the disposition of real estate is dependent upon
the transaction meeting certain criteria relating to the nature of the
property sold and the terms of the sale. Under certain circumstances,
revenue recognition may be deferred until these criteria are met.
61
<PAGE> 64
REDDING BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(l) INCOME TAXES
The Company accounts for income taxes under the asset and liability
method. Under the asset and liability method, deferred tax assets and
liabilities are recognized for the future tax consequences attributable
to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred
tax assets and liabilities are measured using enacted tax rates expected
to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
(m) STOCK OPTION PLAN
Prior to January 1, 1996, the Company accounted for its stock option plan
in accordance with the provisions of APB Opinion No. 25, Accounting for
Stock Issued to Employees, and related interpretations. As such,
compensation expense would be recorded on the date of grant only if the
current market price of the underlying stock exceeded the exercise price.
On January 1, 1996, the Company adopted SFAS No. 123, Accounting for
Stock-Based Compensation, which permits entities to recognize as expense
over the vesting period the fair value of all stock-based awards on the
date of the grant. SFAS No. 123 also allows entities to continue to apply
the provisions of APB Opinion No. 25 and provide proforma net income and
proforma earnings per share disclosures for employee stock option grants
made in 1995 and future years as if the fair-value-based method defined
in SFAS No. 123 had been applied. The Company has elected to continue to
apply the provisions of APB Opinion No. 25 and provide the proforma
disclosure provisions of SFAS No. 123 for stock option grants. The
Company has not made any stock option grants since 1992, therefore, a
proforma disclosure is not required.
(n) YEAR 2000
In January 1997, the Company developed a plan to address the Year 2000
problem and began converting its computer systems to be Year 2000
compliant. The plan provides for the conversion efforts to be completed
by the end of 1998. The Year 2000 problem is the result of computer
programs being written using two digits rather than four to define the
applicable year. Most software used by the Company is vendor developed
software. Therefore, the Company's total direct cost of the project is
expected to be immaterial and will be funded through operating cash
flows. The Company will expense all costs associated with these system
changes as the costs are incurred. As of December 31, 1997, no costs had
been expended.
62
<PAGE> 65
REDDING BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(o) CHANGE IN ACCOUNTING PRINCIPLES
Effective January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income". This Statement requires that all items recognized
under accounting standards as components of comprehensive earnings be
reported in an annual financial statement that is displayed with the same
prominence as other annual financial statements. This Statement also
requires that an entity classify items of other comprehensive earnings by
their nature in an annual financial statement. The Company's only source
of other comprehensive earnings is derived from unrealized gains and
losses on marketable securities classified as available-for-sale.
Reclassification adjustments result from gains or losses on investment
securities that were realized and included in net income of the current
period that also had been included in other comprehensive income as
unrealized holding gains in the period in which they arose. They are
excluded from comprehensive income of the current period to avoid double
counting. The financial statements have been reclassified, as required.
(2) RESTRICTIONS ON CASH AND DUE FROM BANKS
The Bank is required to maintain average reserve balances with the
Federal Reserve Bank. The average amount of these reserve balances for
the year ended December 31, 1997 was approximately $1,126,000. In
addition, the Bank maintains compensating balances with the Federal
Reserve Bank, which totaled $2,338,000 at December 31, 1997.
63
<PAGE> 66
REDDING BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(3) INVESTMENT SECURITIES AND MORTGAGE-BACKED SECURITIES
The amortized cost and estimated market value of investment securities
available-for-sale are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997
------------------------------
ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
INVESTMENT SECURITIES
AVAILABLE-FOR-SALE:
U.S. Treasury securities and
obligations of U.S.
agencies $36,968,171 175,976 (12,797) 37,131,350
Obligations of state and
political subdivisions 10,525,339 92,574 (7,349) 10,610,564
Corporate bonds/CMML &
Bankers Acceptance 8,044,204 71 (5,263) 8,039,012
----------- ----------- ----------- -----------
$55,537,714 268,621 (25,409) 55,780,926
=========== =========== =========== ===========
</TABLE>
At December 31, 1997, the Bank has pledged $1,000,000 of investment
securities for treasury, tax and loan accounts, and $3,000,000 for
deposits of public funds.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
------------------------------
ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
INVESTMENT SECURITIES
AVAILABLE-FOR-SALE:
U.S. Treasury securities and
obligations of U.S.
agencies $41,432,599 265,628 (143,499) 41,554,728
Obligations of state and
political subdivisions 6,529,536 42,594 (45,272) 6,526,858
Corporate bonds 1,774,824 27,222 (280) 1,801,766
----------- ----------- ----------- -----------
$49,736,959 335,444 (189,051) 49,883,352
=========== =========== =========== ===========
</TABLE>
The amortized cost and estimated market value of investment securities
available-for-sale at December 31, 1997, by contractual maturity are shown
below. Expected maturities may differ from contractual maturities because
borrowers may have the right to call or repay obligations with or without call
or prepayment penalties.
64
<PAGE> 67
REDDING BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED MARKET
COST VALUE
----------- -----------
<S> <C> <C>
Due in one year or less $15,076,158 15,085,113
Due after one year through five years 33,218,144 33,370,246
Due after five years through ten years 7,243,412 7,325,567
----------- -----------
$55,537,714 55,780,926
=========== ===========
</TABLE>
The amortized cost and estimated market value of investment securities
held-to-maturity at December 31, 1997 and 1996 which have contractual
maturities of one to five years consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1997
--------------------------------------------------------------
ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
INVESTMENT SECURITIES
HELD-TO-MATURITY:
Mortgage backed
securities $9,037,300 71,888 (27,706) 9,081,482
========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------------------------------------------------
ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
INVESTMENT SECURITIES
HELD-TO-MATURITY:
Mortgage backed
securities $2,168,712 -- (57,099) 2,111,613
========== ========== ========== ==========
</TABLE>
The excess of market value over cost of investment securities
available-for-sale at December 31, 1997 resulted in a non-cash increase
of $243,211 in their carrying value and an increase in deferred tax
liabilities of $89,283.
65
<PAGE> 68
REDDING BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(4) LOANS
Outstanding loan balances consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1997 1996
------------ ------------
<S> <C> <C>
Commercial and financial loans $ 41,432,703 37,591,873
Real estate - construction loans 16,393,009 32,474,363
Real estate - commercial 54,533,058 40,067,445
Installment loans 71,573 240,657
Other 1,273,615 1,284,203
------------ ------------
113,703,958 111,658,541
Less:
Deferred loan fees and costs 293,713 305,113
Allowance for loan losses 2,819,039 2,294,146
------------ ------------
$110,591,206 109,059,282
============ ============
</TABLE>
Included in total loans are nonaccrual loans of approximately $499,563
and $1,733,861 at December 31, 1997 and 1996, respectively. If interest
on nonaccrual loans had been accrued, such income would have approximated
$31,940 and $120,399 during the years ended December 31, 1997 and 1996,
respectively.
Impaired loans are loans for which it is probable that the Bank will not
be able to collect all amounts due. The Bank had outstanding balances of
$2,758,325 and $2,699,532 in impaired loans which had allowances of
$861,484 and $881,786 as of December 31, 1997 and 1996, respectively. The
average outstanding balance of impaired loans were $2,728,928,
$3,232,000, and $2,275,174 for the years ended 1997, 1996 and 1995,
respectively.
The Bank services, for others, loans and participations that are sold of
approximately $2,639,841 and $3,616,055 as of December 31, 1997 and 1996,
respectively.
The Bank's lending activities are with customers primarily located within
Shasta County, with residential real estate construction lending
extending into El Dorado, Placer and Sacramento Counties and commercial
lending in Butte County. Although the Bank has a diversified loan
portfolio, a significant portion of its customers' ability to repay the
loans is dependent upon the professional services and residential real
estate development industry sectors. Generally, the loans are secured by
real estate or other assets and are expected to be repaid from cash flows
of the borrower or proceeds from the sale of the collateral. The Bank's
exposure to credit loss, if any, is the difference between the fair value
of the collateral, if any, and the outstanding balance of the loan.
66
<PAGE> 69
REDDING BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Changes in the allowance for loan losses consist of the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Balance at beginning of year $ 2,294,146 2,053,259 1,729,786
Provision for loan losses 1,023,500 2,160,000 1,045,000
Loans charged off (604,846) (1,990,490) (782,723)
Recoveries of loans previously charged off 106,239 71,377 61,196
----------- ----------- -----------
Balance at end of year $ 2,819,039 2,294,146 2,053,259
=========== =========== ===========
</TABLE>
(5) BANK PREMISES AND EQUIPMENT
Bank premises and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
ESTIMATED ------------------------------
LIVES 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Land -- $ 1,595,808 1,595,808
Building and leasehold improvements 31.5 years 3,673,847 3,693,657
Furniture, fixtures and equipment 3 - 7 years 2,316,767 2,219,735
----------- -----------
7,586,422 7,509,200
Less accumulated depreciation (1,904,006) (1,703,494)
----------- -----------
5,682,416 5,805,706
Construction in progress 159,963 49,885
----------- -----------
$ 5,842,379 5,855,591
=========== ===========
</TABLE>
Depreciation expense, included in net occupancy and equipment expense, is
$405,597, $460,495 and $306,581 for the years ended December 31, 1997,
1996 and 1995, respectively.
67
<PAGE> 70
REDDING BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(6) OTHER ASSETS
Other assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1997 1996
---------- ----------
<S> <C> <C>
Cash surrender value of life insurance policies
(note 15) $1,761,490 1,677,879
Net deferred tax assets (note 9) 1,609,502 1,194,502
Accrued interest on loans 619,487 712,851
Accrued interest on investment securities 805,915 764,760
Other real estate owned 352,350 2,268,031
Other 88,411 52,902
---------- ----------
$5,237,155 6,670,925
========== ==========
</TABLE>
(7) DEPOSITS
Time certificates of deposit of $100,000 or more totaled $37,009,448 and
$37,823,821 at December 31, 1997 and 1996, respectively. Interest expense
on such deposits was $1,981,657, $2,327,922 and $1,836,334 during 1997,
1996 and 1995, respectively. The Bank paid $6,267,812, $6,789,002 and
$6,315,045 in interest on deposits during 1997, 1996 and 1995,
respectively.
At December 31, 1997, the aggregate maturities for time deposits in
excess of one year are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
------------
<S> <C>
1998 $ 69,939,138
1999 15,032,795
2000 766,519
2001 1,163,050
-----------
Total $ 86,901,502
===========
</TABLE>
68
<PAGE> 71
REDDING BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(8) OTHER LIABILITIES
Other liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1997 1996
---------- ----------
<S> <C> <C>
Deferred compensation $1,347,415 1,173,421
Employee incentive payable 287,705 129,250
Accrued interest payable 251,005 270,668
Deferred tax liability (note 9) 421,100 334,211
Other 15,255 (66,848)
---------- ----------
$2,322,480 1,840,702
========== ==========
</TABLE>
(9) INCOME TAXES
Provision for income taxes consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Current:
Federal $ 1,988,106 1,210,464 1,513,790
State 504,585 359,379 403,621
----------- ----------- -----------
2,492,691 1,569,843 1,917,411
----------- ----------- -----------
Deferred:
Federal (290,325) (59,748) (136,254)
State (72,625) (59,232) (29,329)
----------- ----------- -----------
(362,950) (118,980) (165,583)
----------- ----------- -----------
$ 2,129,741 1,450,863 1,751,828
=========== =========== ===========
</TABLE>
Income tax expense attributable to income before income taxes differed
from the amounts computed by applying the U.S. federal income tax rate of
34 percent to income before income taxes as a result of the following:
<TABLE>
<CAPTION>
% OF PRETAX INCOME
---------------------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Computed "expected" tax expense 34.00% 34.00% 34.00%
State franchise tax, net of Federal
tax benefit 8.09 7.08 7.84
Tax-exempt interest (4.37) (8.13) (5.68)
Other (.92) 2.56 1.03
------- ------- -------
36.80% 35.51% 37.19%
======= ======= =======
</TABLE>
69
<PAGE> 72
REDDING BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31, 1997 and 1996 consist of the following:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Deferred tax assets:
State franchise taxes $ 268,012 194,964
Deferred compensation 604,180 531,559
Loan loss reserves 996,331 712,586
Other -- 14,414
----------- -----------
Total deferred tax assets 1,868,523 1,453,523
Less valuation allowance (259,021) (259,021)
----------- -----------
Net deferred tax assets 1,609,502 1,194,502
----------- -----------
Deferred tax liabilities:
Depreciation (305,087) (255,870)
Unrealized securities gains (89,283) (54,444)
Deferred loan origination costs (26,730) (23,897)
----------- -----------
Total deferred tax liabilities (421,100) (334,211)
----------- -----------
Net deferred taxes $ 1,188,402 860,291
=========== ===========
</TABLE>
A valuation allowance is provided when it is more likely than not that
some portion of the deferred tax assets will not be realized. Management
believes that the valuation allowance is sufficient to cover that portion
that may not be fully recognized. Income tax payments of $2,441,600,
$1,573,500 and $1,913,000 were made by the Company during 1997, 1996 and
1995, respectively.
(10) STOCK OPTION PLAN
Under the incentive stock option plan adopted by the shareholders, a
maximum of 49,500 shares of common stock are reserved for issuance.
Options generally become exercisable in 20% increments during each year
subsequent to the date of grant. A significant number of the options
granted were exercisable at the date of grant. Stock options generally
expire upon termination of employment. Options are exercisable at
prices equal to the fair market value at the date of grant.
70
<PAGE> 73
REDDING BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
NUMBER OF OPTION
OPTIONS PRICE
------- -------
<S> <C> <C>
December 31, 1995 outstanding 12,000 $ 10.00 to $11.00
Exercised (6,000) $ 10.00
-------
December 31, 1996 and 1997 outstanding 6,000 $ 11.00
=======
</TABLE>
(11) COMMON STOCK
On September 16, 1997, the Board of Directors authorized the purchase in
the open market or in private transactions up to 63,000 shares of its
outstanding common stock. 17,313 shares were purchased during the year
ended December 31, 1997.
(12) STOCK SPLIT
On June 16, 1998, the Board of Directors declared a three-for-one stock
split of the Company's Common Stock effective for shareholders of record
on June 30, 1998. All share and per share data has been restated to give
effect to the stock split.
(13) EARNINGS PER SHARE (EPS)
The following reconciles the denominator used in the calculation of both
the basic and diluted earnings per share for each of the years ended
December 31:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
BASIC EPS CALCULATION
Numerator $3,657,695 2,615,304 2,930,751
---------- ---------- ----------
Denominator 2,698,530 2,701,416 2,701,416
---------- ---------- ----------
Basic EPS $ 1.36 0.97 1.08
========== ========== ==========
DILUTED EPS CALCULATION
Numerator $3,657,695 2,615,304 2,930,751
---------- ---------- ----------
Denominator:
Common Stock Outstanding 2,698,530 2,701,416 2,701,416
Options 3,957 3,732 2,679
---------- ---------- ----------
2,702,487 2,705,148 2,704,095
---------- ---------- ----------
Diluted EPS $ 1.35 0.97 1.08
========== ========== ==========
</TABLE>
71
<PAGE> 74
REDDING BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(14) PROFIT-SHARING PLAN
In 1985, the Bank adopted a profit-sharing 401(k) plan for eligible
employees to be funded out of the Bank's earnings. The employees'
contributions are limited to the maximum amount allowable under IRS
Section 402(G). The Bank's contributions include a 50% matching
contribution up to a maximum of $900 per employee, and a discretionary
contribution is also permitted. The Bank made matching contributions
aggregating $28,181, $25,791 and $11,267 for the years ended December 31,
1997, 1996 and 1995, respectively. The Bank made a discretionary
contribution of $25,000 in 1997.
(15) RELATED PARTY TRANSACTIONS
Certain directors and officers of the Bank and entities with which they
are associated are customers and have transactions with the Bank in the
ordinary course of business. All loans and commitments included in such
transactions are made on substantially the same terms, including interest
rates and collateral, as those prevailing at the time for comparable
transactions with other persons and do not involve more than normal risk
of collectibility or present other unfavorable features. An analysis of
the activity in related party loans consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
--------------------------
1997 1996
--------- ---------
<S> <C> <C>
Balance at beginning of year $ 548,960 601,494
New loan additions 401,413 338,795
Principal repayments (475,597) (391,329)
--------- ---------
Balance at end of year $ 474,776 548,960
========= =========
</TABLE>
(16) COMMITMENTS AND CONTINGENCIES
(a) DEFERRED COMPENSATION PLAN
During 1990, the Bank established deferred compensation plans with two
Bank officers providing for annual payments on retirement or death
benefits over fifteen year periods. One of the officers retired during
the current year. The bank intends to hold the life insurance policy on
this retired officer. The remaining officer's plan is funded through
salary deferrals and the cash surrender value of a life insurance policy
acquired by the Bank.
72
<PAGE> 75
REDDING BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(b) OFF-BALANCE SHEET FINANCIAL INSTRUMENTS
In the ordinary course of business, the Bank enters into various types of
transactions which involve financial instruments with off-balance sheet
risk. These instruments include commitments to extend credit and stand-by
letters of credit which are not reflected in the accompanying
consolidated balance sheets. These transactions may involve, to varying
degrees, credit and interest rate risk in excess of the amount, if any,
recognized in the consolidated balance sheets. Management does not
anticipate any loss to result from these commitments.
The Bank's off-balance sheet credit risk exposure is the contractual
amount of commitments to extend credit and stand-by letters of credit.
The Bank applies the same credit standards to these contracts as it uses
for loans recorded on the balance sheet.
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1997 1996
----------- -----------
<S> <C> <C>
Off-balance sheet commitments:
Commitments to extend credit $25,768,674 21,932,361
Standby letters of credit 1,573,700 2,206,770
</TABLE>
Commitments to extend credit are agreements to lend to customers. These
commitments have specified interest rates and generally have fixed
expiration dates but may be terminated by the Bank if certain conditions
of the contract are violated. Although currently subject to draw down,
many of the commitments do not necessarily represent future cash
requirements. Collateral held relating to these commitments varies, but
generally includes real estate, securities and cash.
Standby letters of credit are conditional commitments issued by the Bank
to guarantee the performance of a customer to a third party. Credit risk
arises in these transactions from the possibility that a customer may not
be able to repay the Bank upon default of performance. Collateral held
for standby letters of credit is based on an individual evaluation of
each customers' creditworthiness, but may include cash and securities.
Commitments to extend credit and standby letters of credit bear similar
credit risk characteristics as outstanding loans.
As of December 31, 1997, the Company has no off-balance sheet derivatives
requiring additional disclosure.
73
<PAGE> 76
REDDING BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(17) CAPITAL ADEQUACY AND RESTRICTION ON DIVIDENDS
The Bank is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum
capital requirements can initiate mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have a
direct material effect on the Bank's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective
action, the Bank must meet specific capital guidelines that involve,
quantitative measures of the Bank's assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting
practices. The Bank's capital amounts and classification are also subject
to qualitative judgments by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Bank to maintain minimum amounts and ratios (set
forth in the table below).
First, a bank must meet a minimum Tier I (as defined in the regulations)
Capital ratio ranging from 3% to 5% based upon the bank's CAMEL (capital
adequacy, asset quality, management, earnings and liquidity) rating.
Second, a bank must meet minimum Total Risk-Based Capital to
risk-weighted assets ratio of 8%. Risk-based capital and asset guidelines
vary from Tier I capital guidelines by redefining the components of
capital, categorizing assets into different risk classes, and including
certain off-balance sheet items in the calculation of the capital ratio.
The effect of the risk-based capital guidelines is that banks with high
exposure will be required to raise additional capital while institutions
with low risk exposure could, with the concurrence of regulatory
authorities, be permitted to operate with lower capital ratios. In
addition, a bank must meet minimum Tier I Capital to average assets
ratio.
Management believes, as of December 31, 1997, that the Bank meets all
capital adequacy requirements to which it is subject. As of December 31,
1997, the most recent notification, the Federal Deposit Insurance
Corporation (FDIC) categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as
adequately capitalized the Bank must meet the minimum ratios as set forth
above. There are no conditions or events since that notification that
management believes have changed the institution's category.
74
<PAGE> 77
REDDING BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Bank's actual capital amounts and ratios as of December 31, 1997 are
as follows:
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES: ACTION PROVISIONS:
--------------------------- --------------------------- ---------------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Total Risk-Based
Capital (to Risk
Weighted Assets) $22,526,322 16.16% $11,152,837 8.0% $13,941,046 10.0%
Tier I Capital (to
Risk Weighted
Assets) $20,783,322 14.91% $ 5,576,418 4.0% $ 8,364,628 6.0%
Tier I Capital (to
Average Assets) $20,783,322 10.41% $ 7,983,860 4.0% $ 9,979,825 5.0%
</TABLE>
Dividends from the Bank to the Company are restricted under California
law to the lesser of the Bank's retained earnings or the Bank's net
income for the latest three fiscal years, less dividends previously
declared during that period, or, with the approval of California
Superintendent of Banks, to the greater of the retained earnings of the
Bank, the net income of the Bank for its last fiscal year, or the net
income of the Bank for its current fiscal year. As of December 31, 1997
the maximum amounts available for dividend distribution under this
restriction were approximately $6,253,000.
(18) FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Bank in estimating
its fair value disclosures for financial instruments:
Cash and cash equivalents
The carrying amounts reported in the balance sheet for cash and
short-term instruments are a reasonable estimate of fair value.
Investment securities
Fair values for investment securities are based on quoted market
prices, where available. If quoted market prices are not available,
fair values are based on quoted market prices of comparable
instruments.
Loans receivable
For variable-rate loans that reprice frequently and with no
significant change in credit risk, fair values are based on carrying
values. The fair values for other loans (e.g., commercial real estate
and rental property mortgage loans, commercial and industrial loans)
are estimated using discounted cash flow analyses, using interest
75
<PAGE> 78
REDDING BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
rates currently being offered for loans with similar terms to
borrowers of similar credit quality. The carrying amount of accrued
interest receivable approximates its fair value.
Commitments to extend credit and standby letters of credit
The fair value of commitments is estimated using the fees currently
charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the present creditworthiness of
the counterparties. For fixed-rate loan commitments, fair value also
considers the difference between current levels of interest rates and
the committed rates. The fair value of letters of credit is based on
fees currently charged for similar agreements or on the estimated cost
to terminate them or otherwise settle the obligation with the
counterparties at the reporting date.
Deposit liabilities
The fair values disclosed for demand deposits (e.g., interest and
noninterest checking, passbook savings, and money market accounts)
are, by definition, equal to the amount payable on demand at the
reporting date (i.e., their carrying amounts). The fair values for
fixed-rate certificates of deposit are estimated using a discounted
cash flow calculation that applies interest rates currently being
offered on certificates to a schedule of aggregated expected monthly
maturities on time deposits. The carrying amount of accrued interest
payable approximates its fair value.
Limitations
Fair value estimates are made at a specific point in time, based on
relevant market information and other information about the financial
instrument. These estimates do not reflect any premium or discount
that could result from offering for sale at one time the Bank's entire
holdings of a particular financial instrument. Because no market
exists for a significant portion of the Bank's financial instruments,
fair value estimates are based on judgments regarding future expected
loss experience, current economic conditions, risk characteristics of
various financial instruments, and other factors. These estimates are
subjective in nature and involve uncertainties and matters of
significant judgment and therefore cannot be determined with
precision. Changes in assumptions could significantly affect the
estimates.
Fair value estimates are based on existing on-and off-balance sheet
financial instruments without attempting to estimate the value of
anticipated future business and the value of assets and liabilities
that are not considered financial instruments. Other significant
assets and liabilities that are not considered financial assets or
liabilities include the mortgage banking operation, deferred tax
assets and liabilities, and property, plant and equipment. In
addition, the tax ramifications related to the
76
<PAGE> 79
REDDING BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
realization of the unrealized gains and losses can have a significant
effect on fair value estimates and have not been considered in any of
the estimates.
The estimated fair values of the Bank's financial instruments are
approximately as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997
----------------------------------
CARRYING FAIR
AMOUNT VALUE
------------- -------------
<S> <C> <C>
Financial assets:
Cash and short-term investments $ 18,331,374 18,331,374
============= =============
Investment securities $ 64,818,226 64,862,408
============= =============
Loans:
Fixed rate:
Commercial and financial loans $ 8,187,199 8,812,108
Real estate - construction loans 7,140,442 7,838,704
Real estate - commercial 16,072,258 17,524,300
Installment loans 4,844 5,280
Other 90,674 90,674
------------- -------------
Total fixed rate 31,495,417 34,271,066
Variable rate 82,208,541 90,380,197
Less allowance for loan losses (2,819,039) (2,819,039)
Net deferred origination fees (293,713) (293,713)
------------- -------------
Net loans $ 110,591,206 121,538,511
============= =============
Financial liabilities:
Deposits:
Demand $ 93,771,773 93,771,773
Fixed rate certificates 47,750,657 49,523,798
Variable certificates 39,150,845 39,150,845
------------- -------------
Total deposits $ 180,673,275 182,446,416
============= =============
</TABLE>
77
<PAGE> 80
REDDING BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
CONTRACT CARRYING FAIR
AMOUNT AMOUNT VALUE
----------- ----------- -----------
<S> <C> <C> <C>
Unrecognized financial instruments:
Commitments to extend credit $25,768,674 -- 515,373
Standby letters of credit 1,573,700 -- 31,474
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
----------------------------------
CARRYING FAIR
AMOUNT VALUE
------------- -------------
<S> <C> <C>
Financial assets:
Cash and short-term investments $ 18,750,652 18,750,652
============= =============
Investment securities $ 52,052,064 51,994,965
============= =============
Loans:
Fixed rate:
Commercial and financial loans $ 2,300,291 2,584,621
Real estate - construction loans 13,190,982 14,450,707
Real estate - commercial 6,140,978 6,720,818
Installment loans 224,628 248,213
Other 1,284,203 1,411,206
------------- -------------
Total fixed rate 23,141,082 25,415,565
Variable rate 88,517,459 88,517,459
------------- -------------
111,658,541 113,933,024
Less allowance for loan losses (2,294,146) (2,294,146)
Net deferred origination fees (305,113) (305,113)
------------- -------------
Net loans $ 109,059,282 111,333,765
============= =============
Financial liabilities:
Deposits:
Demand $ 79,991,467 79,991,467
Fixed rate certificates 51,312,703 53,375,131
Variable certificates 40,063,799 40,063,799
------------- -------------
Total deposits $ 171,367,969 173,430,397
============= =============
</TABLE>
78
<PAGE> 81
REDDING BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
CONTRACT CARRYING FAIR
AMOUNT AMOUNT VALUE
----------- ----------- -----------
<S> <C> <C> <C>
Unrecognized financial instruments:
Commitments to extend credit $21,932,361 -- 438,647
Standby letters of credit 2,206,770 -- 44,135
</TABLE>
(19) REDDING BANCORP (PARENT COMPANY ONLY) FINANCIAL INFORMATION
<TABLE>
<CAPTION>
BALANCE SHEETS DECEMBER 31,
-----------------------------
1997 1996
----------- -----------
<S> <C> <C>
Assets:
Cash $ 532,636 7,715
Time deposit with subsidiary 190,000 200,000
Investment in subsidiaries 21,101,949 18,972,128
----------- -----------
Total assets $21,824,585 19,179,843
=========== ===========
Shareholders' Equity:
Common stock $ 4,561,821 4,561,821
Retained earnings 17,108,836 14,526,071
Accumulated other comprehensive
income, net 153,928 91,951
----------- -----------
Total shareholders' equity $21,824,585 19,179,843
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF INCOME YEARS ENDED DECEMBER 31,
-------------------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Income:
Interest on time deposit $ 8,531 9,592 10,665
Dividend from subsidiary 1,600,000 675,354 675,354
----------- ----------- -----------
1,608,531 684,946 686,019
Expenses 17,984 16,862 12,114
----------- ----------- -----------
Income before income taxes and net
equity in undistributed net income of
subsidiaries 1,590,547 668,084 673,905
Benefit (provision) for income taxes (800) (800) 800
----------- ----------- -----------
Income before equity in undistributed
net income of subsidiaries 1,589,747 667,284 674,705
Equity in undistributed net income of
subsidiaries 2,067,948 1,948,020 2,256,046
----------- ----------- -----------
Net income $ 3,657,695 2,615,304 2,930,751
=========== =========== ===========
</TABLE>
79
<PAGE> 82
REDDING BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31,
-------------------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Operating activities:
Net income $ 3,657,695 2,615,304 2,930,751
Adjustments to reconcile net income to
net cash provided by operating
activities:
Deferred taxes 104 (696) (800)
Equity in undistributed net income of
subsidiaries (2,067,948) (1,948,020) (2,256,046)
----------- ----------- -----------
Net cash provided by operating
activities 1,589,851 666,588 673,905
Financing activities:
Redemption of common stock, net of
issuances (174,458) (23,000) (31,000)
Cash dividends (900,472) (675,354) (675,354)
----------- ----------- -----------
Net cash used by financing
activities (1,074,930) (698,354) (706,354)
----------- ----------- -----------
Decrease in cash and cash equivalents 514,921 (31,766) (32,449)
Cash and cash equivalents at beginning of
year 207,715 239,481 271,930
----------- ----------- -----------
Cash and cash equivalents at end of year $ 722,636 207,715 239,481
=========== =========== ===========
</TABLE>
80
<PAGE> 83
REDDING BANCORP AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1998 AND DECEMBER 31, 1997 (in thousands except share data)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS
SEPTEMBER 30, DECEMBER 31,
1998 1997
<S> <C> <C>
Cash and due from banks $ 9,293 $ 11,431
Federal funds sold 3,210 6,900
Investment securities available-for-sale, at market 30,466 55,781
Investment securities held-to-maturity, at cost (aggregate market
value of $8,310 in 1998 and $9,081 in 1997) 8,119 9,037
Loans, net of allowance for loan losses of $3,019 in 1998 and
$2,819 in 1997 141,417 110,591
Bank premises and equipment, net 5,596 5,842
Other assets 4,713 5,237
-------- --------
Total assets $202,814 $204,820
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Demand - noninterest-bearing $ 34,690 $ 40,070
Demand - interest-bearing 41,455 42,121
Savings 13,701 11,581
Certificates of deposits 86,808 86,901
-------- --------
176,654 180,673
Other liabilities 2,483 2,322
-------- --------
Total liabilities 179,137 182,995
Commitments and contingencies
Shareholders' equity:
Common stock, no par value; 10,000,000 shares authorized;
2,684,103 shares issued and outstanding in 1998 and 894,701
shares issued and outstanding in 1997 4,562 4,562
Retained earnings 18,926 17,109
Accumulated other comprehensive income:
Unrealized gains on securities available-for-sale, net of tax 189 154
-------- --------
Total shareholders' equity 23,677 21,825
-------- --------
Total liabilities and shareholders' equity $202,814 $204,820
======== ========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
81
<PAGE> 84
REDDING BANCORP AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 (in thousands except per share
data)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Interest income:
Interest and fees on loans $ 9,399 $ 8,664
Interest on tax exempt securities 366 215
Interest on U.S. government securities 1,912 2,009
Interest on federal funds sold 304 439
Interest on other securities 60 276
------- -------
Total interest income 12,041 11,603
------- -------
Interest expense:
Interest on demand deposits 590 598
Interest on savings deposits 259 302
Interest on time deposits 3,472 3,795
------- -------
Total interest expense 4,321 4,695
------- -------
Net interest income 7,720 6,908
Provision for loan losses 250 827
------- -------
Net interest income after provision for loan losses 7,470 6,081
------- -------
Other income:
Service charges on deposit accounts 160 161
Other income 370 276
Gain on sale of investment securities 28 5
Credit card service income 1,776 1,475
------- -------
Total other income 2,334 1,917
------- -------
Other expenses:
Salaries and related benefits 2,512 2,262
Net occupancy and equipment expense 623 591
FDIC insurance premium 16 23
Data processing and professional services 262 206
Other expenses 1,403 943
------- -------
Total other expenses 4,816 4,025
------- -------
Income before income taxes 4,988 3,973
Provision for income taxes 1,826 1,472
------- -------
Net income $ 3,162 $ 2,501
======= =======
Basic earnings per share $ 1.18 $ .93
Diluted earnings per share $ 1.15 $ .93
</TABLE>
See notes to unaudited condensed consolidated financial statements
82
<PAGE> 85
REDDING BANCORP AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 1998 (in thousands except shares)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Accumulated
Other
Comprehensive
Income:
Unrealized
Gains On
Securities
Common Stock Available-For-
------------------------- Retained Sale,
Shares Amount Earnings Net of Tax Total
--------- --------- --------- --------------- ---------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1997 894,701 $ 4,562 $ 17,109 $ 154 $ 21,825
Net income 3,162 3,162
Three-for-one stock split 1,789,402 -- -- --
Cash dividend ($.50 per share) (1,345) (1,345)
Change in unrealized gain on
available-for-sale securities, net
of tax 35 35
--------- --------- --------- --------- ---------
Balance, September 30, 1998 2,684,103 $ 4,562 $ 18,926 $ 189 $ 23,677
========= ========= ========= ========= =========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
83
<PAGE> 86
REDDING BANCORP AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 (amounts in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Cash flows from operating activities:
Net income $ 3,162 $ 2,501
Adjustments to reconcile net income to net cash provided by operating
activities:
Provision for loan losses 250 827
Provision for depreciation 325 350
Amortization of investment premiums and accretion of discounts, net (43) (151)
Gain on sale of loans (23) (26)
Loss on sale of equipment -- 14
Proceeds from sale of loans 2,007 3,439
Loans originated for sale (2,030) (3,465)
Decrease in other assets 525 1,711
Increase (decrease) in deferred loan fees 168 (43)
Increase in other liabilities 161 1,644
-------- --------
Net cash provided by operating activities 1,340 4,300
-------- --------
Cash flows from investing activities:
Proceeds from maturities of available-for-sale securities 24,024 29,834
Proceeds from sale of available-for-sale securities 8,029 2,275
Purchases of available-for-sale securities (5,741) (48,105)
Loan originations, net of principal repayments (31,198) 1,061
Purchase of premises and equipment (79) (193)
-------- --------
Net cash used by investing activities (4,965) (15,128)
-------- --------
Cash flows from financing activities:
Net (decrease) increase in demand deposits and savings accounts (3,926) 14,340
Net decrease in certificates of deposit (94) (1,425)
Cash dividends (1,345) (1,600)
-------- --------
Net cash (used) provided by financing activities (5,365) 11,355
-------- --------
Net (decrease) increase in cash and cash equivalents (5,828) 2,983
Cash and cash equivalents at beginning of period 18,331 18,751
-------- --------
Cash and cash equivalents at end of period $ 12,503 $ 21,734
======== ========
Supplemental cash flow information:
Income taxes paid $ 1,798 $ 1,796
Interest paid $ 4,328 $ 4,710
</TABLE>
See notes to unaudited condensed consolidated financial statements.
84
<PAGE> 87
REDDING BANCORP AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
- --------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
should be read in conjunction with the consolidated financial statements and
related notes of Redding Bancorp and subsidiaries as of December 31, 1997.
The statements include the accounts of Redding Bancorp ("Redding"), and its
wholly owned subsidiaries, Redding Bank of Commerce ("RBC") and Redding
Service Corporation. All significant inter-company balances and transactions
have been eliminated. The financial information contained in this report
reflects all adjustments which, in the opinion of management, are necessary
for a fair presentation of the results of the interim periods. All such
adjustments are of a normal recurring nature. The results of operations and
cash flows for the nine months ended September 30, 1998 are not necessarily
indicative of the results that may be expected for the year ending December
31, 1998.
For purposes of reporting cash flows, cash and cash equivalents include cash
on hand, amounts due from banks, federal funds sold and repurchase
agreements. Federal funds sold and repurchase agreements are generally for
one day periods.
2. EARNINGS PER SHARE
Basic earnings per share excludes dilution and is computed by dividing net
income by the weighted average number of common shares outstanding for the
period. Diluted earnings per share reflects the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of
common stock that then shared in the earnings of the entity. The following
table displays the computation of earnings per share for the nine months
ended September 30, 1998 and 1997.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
1998 1997
------ ------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
Basic earnings per share:
Net income $3,162 $2,501
====== ======
Weighted average common shares outstanding 2,684 2,697
====== ======
Basic earnings per share $ 1.18 $ .93
====== ======
Diluted earnings per share:
Net income $3,162 $2,501
Weighted average common shares outstanding 2,684 2,697
Effect of outstanding stock options 57 6
------ ------
Weighted average common shares outstanding 2,741 2,703
------ ------
Diluted earnings per share $ 1.15 $ .93
====== ======
</TABLE>
85
<PAGE> 88
3. CHANGE IN ACCOUNTING PRINCIPLES
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income".
This Statement requires that all items recognized under accounting standards
as components of comprehensive earnings be reported in an annual financial
statement that is displayed with the same prominence as other annual
financial statements. This Statement also requires that an entity classify
items of other comprehensive earnings by their nature in an annual financial
statement. The Company's only source of other comprehensive earnings is
derived from unrealized gains and losses on marketable securities classified
as available-for-sale. Reclassification adjustments result from gains or
losses on investment securities that were realized and included in net
income of the current period that also had been included in other
comprehensive income as unrealized holding gains in the period in which they
arose. They are excluded from comprehensive income of the current period to
avoid double counting. Annual financial statements for prior periods will be
reclassified, as required.
The Company's total comprehensive earnings were as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1998 1997
<S> <C> <C>
Net income as reported $ 3,162 $ 2,501
Other comprehensive income (net of tax):
Change in unrealized holding gain (losses) on
available-for-sale securities 53 27
Reclassification adjustment (18) (4)
------- -------
Total comprehensive income $ 3,197 $ 2,524
======= =======
</TABLE>
4. COMMON STOCK
On June 16, 1998 the Board of Directors declared a three for one stock split
for shareholders of record as of June 30, 1998 and distributed on July 10,
1998. All per share data has been restated to give effect to the stock
split. On September 15, 1998, the Board of Directors declared an annual cash
dividend of 50 cents per share on the Company's Common Stock. The dividend
is payable to shareholders of record as of October 1, 1998 and was paid on
October 22, 1998.
5. STOCK BASED COMPENSATION
On February 17, 1998, the Board of Directors adopted the 1998 Stock Option
Plan (the "Plan") which was approved by the Company's shareholders on April
21, 1998. The Plan provides for awards in the form of options (which may
constitute incentive stock options ("Incentive Options") under Section
422(a) of the Internal Revenue Code of 1986, as amended (the "Code"), or
nonstatutory stock options ("NSOs") to key personnel of the Company,
including directors. The Plan provides that Incentive Options under the Plan
may not be granted at less than 100% of fair market value of the Company's
common stock on the date of the grant and that NSOs may not be granted at
less than 85% of the fair market value of the common stock on the date of
the grant. The purpose of the plan is to promote the long-term success of
the Company and the creation of shareholder value by (a) encouraging key
personnel to focus on critical long range objectives, (b) increasing the
ability of the Company to attract and retain key personnel and (c) linking
key personnel directly to shareholder interests through increased stock
86
<PAGE> 89
ownership. A total of 540,000 shares of the Company's common stock are
reserved for grant under the Plan.
The Plan provides that all options under the Plan shall vest at a rate of at
least 20% per year from the date of the grant. Vesting may be accelerated in
the event of an optionee's death, disability, retirement or in the event of
a change of control.
During the nine months ended September 30, 1998, stock options were granted
for 411,000 shares of common stock with a weighted average exercise price of
$9.62 per share, none of which were exercisable at September 30, 1998.
The Company uses the intrinsic value based method for measuring compensation
cost related to the Plan. Under the intrinsic value based method,
compensation cost is the excess, if any, of the quoted market price of the
stock at grant date over the amount an employee must pay to acquire the
stock. This cost is amortized on a straight-line basis over the vesting
period of the options granted.
The Company uses an option-pricing model to compute grant-date fair value of
options granted for purposes of disclosing pro forma net income and net
income per share. In computing the grant-date fair value of options granted
during the period for disclosure purposes, the Company used an
option-pricing model that takes into account the stock price at the grant
date ($10.67), the exercise price (ranging from $9.07 to $10.67), the
expected life of the option (seven years), the expected dividends on the
Company's common stock (increasing $.08 per share per year) and the
risk-free interest rate over the expected life of the option (5.625%). Had
the Company recognized compensation expense according to the provisions of
FAS 123, earnings per share as reported would not have changed.
6. NEW ACCOUNTING PRONOUNCEMENTS
On January 1, 1998, the Company adopted SFAS No. 131, Disclosures About
Segments Of An Enterprise And Related Information, which establishes annual
and interim reporting standards for an enterprise's business segments and
related disclosures about its products, services, geographic areas, and
major customers. This statement will not impact the Company's consolidated
financial position, results of operations or cash flows. Interim reporting
standards of the statement are not applicable to interim reports in the year
of adoption. Management is currently evaluating the effect this standard
will have on disclosures of financial performance.
In June, 1998 the Financial Accounting Standards Board issued SFAS No. 133,
Accounting For Derivative Instruments And Hedging Activities. The statement
establishes accounting and reporting standards for derivative instruments
and hedging activities. The statement is effective for all fiscal quarters
of fiscal years beginning after June 15, 1999. The Company is in the process
of determining the impact of SFAS No. 133 on the Company's financial
statements, which is not expected to be material.
87
<PAGE> 90
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Effective April 1, 1998, Deloitte & Touche LLP was engaged as the Company's
principal independent auditors, replacing KPMG Peat Marwick LLP ("Peat
Marwick"). In the period from December 31, 1992, through December 31, 1997, Peat
Marwick issued no audit report which was qualified or modified as to
uncertainty, audit scope or accounting principles, or which contained adverse
opinions or disclaimers of opinion on any of the Company's financial statements
and there were no disagreements with Peat Marwick on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS.
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------ -----------------------
<S> <C>
3.1 Articles of Incorporation, as amended.
3.2 Bylaws of the Registrant, as amended.
4.1 Specimen Common Stock Certificate.
10.1 Office Building Lease by and between David and Maria Wong and
Redding Bank of Commerce dated June 10, 1998.
10.2 Office Building Lease between Garian Partnership/First Avenue
Square and Redding Bank of Commerce dated July 16, 1998.
10.3 1998 Stock Option Plan.
10.4 Form of Incentive Stock Option Agreement used in connection with
1998 Stock Option Plan.
10.5 Form of Nonstatutory Stock Option Agreement used in connection
with 1998 Stock Option Plan.
10.6 Employment Agreement between the Registrant and Russell L.
Duclos dated June 17, 1997.
10.7 Directors Deferred Compensation Plan.
10.8 Form of Deferred Compensation Agreement Used In Connection With
Directors Deferred Compensation Plan.
10.9 Merchant Services Agreement dated as of April 1, 1993, between
Cardservice International, Inc. and Redding Bank of Commerce, as
amended.
11.1 Statement re: Computation of Earnings Per Share (see Pages 60
and 85).
16.1 Letter on Change in Certifying Accountants.
21.1 Subsidiaries of the Registrant.
27.1 Financial Data Schedule.
</TABLE>
- ----------
88
<PAGE> 91
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the Registrant has duly caused this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized.
REDDING BANCORP
DATE: November 17, 1998 By /s/ Russell L. Duclos
--------------------------------------
Russell L. Duclos
President, Chief Executive
Officer and Director
89
<PAGE> 92
REDDING BANCORP
FORM 10
EXHIBITS
90
<PAGE> 1
EXHIBIT 3.1
ARTICLES OF INCORPORATION
OF
REDDING BANCORP
I
NAME
The name of this corporation is REDDING BANCORP.
II
PURPOSE
The purpose of this corporation is to engage in any lawful act or activity for
which a corporation may be organized under the General Corporation Law of
California other than the banking business, the trust company business or the
practice of a profession permitted to be incorporated by the California
Corporations Code.
III
AGENT FOR SERVICE
The name and address in the State of California of this corporation's initial
agent for service of process is:
JOHN W. REESE, JR.
1330 West Street
Redding, CA 96001
IV
STOCK
The corporation is authorized to issue only one class of shares of stock; and
the total number of shares which the corporation is authorized to issue is Ten
Million (10,000,000).
-1-
<PAGE> 2
IN WITNESS WHEREOF, the undersigned, who is the incorporator of this
corporation, has executed these Articles of Incorporation on January 19, 1982.
By: /s/ John W. Reese, Jr.
------------------------------------
JOHN W. REESE, JR.
Incorporator
DECLARATION
The undersigned declares that he is the incorporator who has
executed these Articles of Incorporation, which execution is his
act and deed.
EXECUTED: January 19, 1982
By: /s/ John W. Reese, Jr.
------------------------------------
JOHN W. REESE, JR.
Incorporator
-2-
<PAGE> 3
Law Offices of
REESE & BANDELL
1330 West Street
Redding, California 96001
January 20, 1982
Office of the Secretary of State
Corporation Filing Office
1230 J Street
Sacramento, CA 95814
Re: Redding Bancorp -- Use of Name
Dear Sirs:
Please be advised that this office represents Redding Bank of Commerce, a
California corporation. Our client is in process of forming a new corporation to
be known as Redding Bancorp. The Board of Directors of Redding Bank of Commerce
has, by resolution duly adopted on January 20, 1982, authorized the usage of the
corporate name Redding Bancorp by the undersigned, John W. Reese, Jr., as the
initial incorporator of that corporation. The new corporation, Redding Bancorp,
will be become a holding company which will eventually hold all of the issued
and outstanding stock of Redding Bank of Commerce. Please accept this letter as
the authorization for the use of the name Redding Bancorp.
Very truly yours,
REESE & BANDELL
JOHN W. REESE, JR.
JWR:lh
The undersigned, Harry L. Grashoff, certified that he is the duly elected Chief
Executive Officer and President of Redding Bank of Commerce, a California
corporation, and that pursuant to a resolution adopted by the Board of Directors
of Redding Bank of Commerce on January 20, 1982, the formation of a corporation
under the name Redding Bancorp was authorized, and that John W. Reese, Jr. is
authorized to be the initial incorporator of that corporation.
Dated: January 20, 1982 /s/ Harry L. Grashoff
----------------------------------------
HARRY L. GRASHOFF
<PAGE> 4
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
REDDING BANCORP
Russell L. Duclos and Richard W. Green certify that:
1. They are the President and Secretary, respectively, of REDDING BANCORP, a
California corporation.
2. Article IV of the Articles of Incorporation is amended to read as follows:
The corporation is authorized to issue only one class of shares of stock
which shall be designated common stock, no par value per share, and the total
number of shares which the corporation is authorized to issue is Ten Million
(10,000,000). Upon the effective date of the filing of this Certificate of
Amendment, each outstanding share of the corporation's common stock shall be
split and converted into three (3) shares.
3. The foregoing amendment of Articles of Incorporation has been duly approved
by the Board of Directors pursuant to Section 902(c) of the California
Corporations Code.
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
of our own knowledge.
Dated: July 10, 1998.
/s/ Russell L. Duclos
----------------------------------------
Russell L. Duclos, President
/s/ Richard W. Green
----------------------------------------
Richard W. Green, Secretary
<PAGE> 1
EXHIBIT 3.2
BYLAWS
OF
REDDING BANCORP
SIGNED APRIL 26, 1981
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I Offices.................................................................... 1
Section 1. Principal Executive Office............................................ 1
Section 2. Other Offices......................................................... 1
ARTICLE II Meetings of Shareholders................................................... 1
Section 1. Place of Meetings..................................................... 1
Section 2. Annual Meeting........................................................ 1
Section 3. Notice of Annual Meeting.............................................. 2
Section 4. Special Meetings...................................................... 3
Section 5. Notice of Special Meetings............................................ 3
Section 6. Quorum................................................................ 3
Section 7. Adjourned Meeting and Notice.......................................... 4
Section 8. Record Date........................................................... 4
Section 9. Voting................................................................ 5
Section 10. Proxies............................................................... 6
Section 11. Validation of Defectively Called or
Noticed Meetings........................................................... 7
Section 12. Action Without Meeting................................................ 7
Section 13. Inspectors of Election................................................ 8
ARTICLE III Board of Directors......................................................... 9
Section 1. Powers................................................................ 9
Section 2. Number and Qualification of Directors................................. 9
Section 3. Election and Term of Office........................................... 10
Section 4. Vacancies............................................................. 10
Section 5. Time and Place of Meetings............................................ 11
Section 6. Notice of Special Meetings............................................ 11
Section 7. Action at a Meeting: Quorum and Required
Vote Required Vote (sic)................................................... 12
Section 8. Action Without a Meeting.............................................. 12
Section 9. Adjourned Meeting and Notice.......................................... 13
Section 10. Fees and compensation. ............................................... 13
Section 11. Appointment of Executive and Other
Committees................................................................. 13
Section 12. Indemnification of Agents of the
Corporation; Purchase of Liability Insurance............................... 14
Section 2. The Chairman of the Board............................................. 17
Section 3. The President......................................................... 17
ARTICLE IV Officers............................................................ 17
Section 1. Officers.............................................................. 17
Section 4. Vice Presidents....................................................... 18
Section 5. The Secretary......................................................... 18
Section 6. The Treasurer......................................................... 19
Section 7. The Controller........................................................ 19
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE V Execution of Corporate Instruments,
Ratification, and Voting of Stocks Owned by
the Corporation..................................................... 20
Section 1. Execution of Corporation Instruments.................................. 20
Section 2. Ratification by Shareholders.......................................... 20
Section 3. Voting of Stocks Owned by the Corporation............................. 21
ARTICLE VI Annual and Other Reports............................................ 21
ARTICLE VII Shares of Stock..................................................... 22
ARTICLE VIII Inspection of Corporation Records................................... 23
Section 1. General Records....................................................... 23
Section 2. Inspection of Bylaws.................................................. 24
ARTICLE IX Amendments.......................................................... 24
Section 1. Power of Shareholders.................................................. 24
Section 2. Power of Directors..................................................... 24
ARTICLE X Definitions......................................................... 24
ARTICLE XI Corporation Seal.................................................... 25
</TABLE>
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<PAGE> 4
BYLAWS
OF
REDDING BANCORP
a California Corporation
ARTICLE I
Offices
Section 1. Principal Executive Office.
The principal executive office of the corporation is hereby fixed and located
at: 1177 Placer Street,, Redding, California 96001. The Board of Directors is
hereby granted full power and authority to change said principal executive
office from one location to another. Any such change shall be noted on these
Bylaws by the Secretary, opposite this Section, or this Section may be amended
to state the new location.
Section 2. Other Offices.
Other business offices may at any time be established at any place or places
specified by the Board of Directors.
ARTICLE II
Meetings of Shareholders
Section 1. Place of Meetings.
All meetings of shareholders shall be held at the principal executive office of
the corporation, or at any other place, within or without the State of
California, specified by the Board of Directors.
Section 2. Annual Meeting.
The annual meeting of the shareholders, after the year 1982, shall be held at
the time and date in each year fixed by the Board of Directors. At the annual
meeting directors shall be elected, reports of the affairs of the corporation
shall be considered, and any other business may be transacted that is within the
power of the shareholders.
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Section 3. Notice of Annual Meeting.
Written notice of each annual meeting shall be given to each shareholder
entitled to vote, either personally or by first-class mail, or, if the
corporation has outstanding shares held of record by 500 or more persons
(determined in accordance with Section 605 of the General Corporation Law) on
the record date for the meeting, by third-class mail, or by other means of
written communication, charges prepaid, addressed to such shareholder at the
shareholder's address appearing on the books of the corporation or given by such
shareholder to the corporation for the purpose of notice. If any notice or
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 Services
is unable to deliver the notice or report to the shareholder at such address,
all future notices or 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 executive office of the corporation
for a period of one year from the date of the giving of the notice or report to
all other shareholders. If a shareholder gives no address, notice shall be
deemed to have been given to such shareholder if addressed to the shareholder at
the place where the principal executive office of the corporation is situated,
or if published at least once in some newspaper of general circulation in the
county in which said principal executive office is located.
All such notices shall be given to each shareholder entitled thereto not less
than ten (10) days (or, if sent by third-class mail, thirty (30) days) nor more
than sixty (60) days before each annual meeting. 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.
Such notice shall specify:
(a) the place, the date, and the hour of such meeting;
(b) those matters that the Board of Directors, at the time of the
mailing of the notice, intends to present for action by the shareholders (but,
subject to the provisions of subsection (d) below, any proper matter may be
presented at the meeting for such action);
(c) if directors are to be elected, the names of nominees intended at
the time of the notice to be presented by the Board of Directors for election;
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(d) the general nature of proposal, if any, to take action with respect
to approval of (i) a contract or other transaction with an interested director,
(ii) amendment of the Articles of Incorporation, (iii) a reorganization of the
corporation as defined in Section 181 of the General Corporation Law, (iv)
voluntary dissolution of the corporation, or (v) a distribution in dissolution
other than in accordance with the rights of outstanding preferred shares, if
any; and
(e) such other matters, if any, as may be expressly required by statute.
Section 4. Special Meetings.
Special meetings of the shareholders for any purpose or purposes whatsoever may
be called at any time by the Chairman of the Board (if there be such an officer
appointed), by the President, by the Board of Directors, or by one or more
shareholders entitled to cast not less than ten percent (10%) of the votes at
the meeting.
Section 5. Notice of Special Meetings.
Upon request in writing that a special meeting of shareholders be called for any
proper purpose, directed to the Chairman of the Board (if there be such an
officer appointed), President, Vice President or Secretary by any person (other
than the Board of Directors) 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 the receipt of the request. Except in special cases where
other express provision is made by statute, notice of any special meeting of
shareholders shall be given in the same manner as for annual meetings of
shareholders. In addition to the matters required by Section 3(a) and, if
applicable, Section 3(a) of this Article II of these Bylaws, notice of any
special meeting shall specify the general nature of the business to be
transacted, and no other business may be transacted at such meeting.
Section 6. Quorum.
The presence in person or by proxy of persons entitled to vote a majority of the
voting shares at any meeting shall constitute a quorum for the transaction of
business. If a quorum is present, the affirmative vote of a majority of the
shares represented and voting at the meeting (which shares voting affirmatively
also constitute at least a majority of the required quorum) shall be the act of
the shareholders, unless the vote of a greater number of voting by classes is
required by the General Corporation Law or the Articles of Incorporation. Any
meeting of shareholders, whether or not a quorum is present, may be adjourned
from time to time by the vote of the
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holders of a majority of the shares present in person or represented by proxy
thereat and entitled to vote, but in the absence of a quorum no other business
may be transacted at such meeting, except that the shareholders present or
represented by proxy 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 7. Adjourned Meeting and Notice.
When any shareholders' meeting, either annual or special, is adjourned for more
than forty-five (45) days, or if after adjournment a new record date is fixed
for the adjourned meeting, notice of the adjourned meeting shall be given as in
the case of an original meeting. Except as provided above, it shall not be
necessary to give any notice of the time and place of the adjourned meeting or
of the business to be transacted thereat, other than by announcement of the time
and place thereof at the meeting at which such adjournment is taken.
Section 8. Record Date.
(a) 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 and to vote at
any meeting of shareholders or entitled to give consent to corporate action in
writing without a meeting, to receive any report, to receive any dividend or
other distribution, or allotment of any rights, or to exercise 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. 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 of
Directors fixes a new record date for the adjourned meeting, but the Board of
Directors 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. When a record
date is so fixed, only shareholders of record at the close of business on that
date are entitled to notice of and to vote at any such meeting, to give consent
without a meeting, to receive any report, 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
or these Bylaws.
(b) If no record date is fixed:
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(1) The record date for determining shareholders entitled to
notice of or to vote at a meeting of shareholders shall be at the close of
business on the business day next preceding the day on which notice is given or,
if notice is waived, at the close of business on the business day preceding the
day on which the meeting is held.
(2) 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 of Directors has been taken, shall be the day on which the first
written consent is given.
(3) The record date for determining shareholders for any other
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto, or the sixtieth (sic) (both)
day prior to the date of such other action, whichever is later.
Section 9. Voting.
(a) Except as provided below with respect to cumulative voting and
except as may be otherwise provided in the Articles of Incorporation, each
outstanding share, regardless of class, shall be entitled to one vote on each
matter submitted to a vote of shareholders. Any holders 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) Subject to the provisions of Sections 702 through 704 of the General
Corporation law (relating to voting of shares held by a fiduciary, receiver,
pledgee, or minor, in the name of a corporation, or in joint ownership), persons
in whose names shares entitled to vote stand on the stock records of the
corporation at the close of business on the record date shall be entitled to
vote at the meeting of shareholders. Such vote may be viva voce or by ballot;
provided, however, that all elections for directors must be by ballot upon
demand made by a shareholder at any election and before the voting begins.
Shares of this corporation owned by a corporation more than twenty-five percent
(25%) of the voting power of which is owned directly by this corporation, or
indirectly through one or more majority-owned directly by this corporation, or
indirectly through one or more majority-owned subsidiaries of this corporation,
shall not be entitled to vote on any matter.
(c) Subject to the requirements of the next sentence, every shareholder
entitled to vote at any election for directors shall have the right to cumulate
such shareholder's votes and give one candidate
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a number of votes equal to the number of directors to be elected multiplied by
the number of votes to which such shareholder's shares are normally entitled, or
to distribute votes on the same principle among as many candidates as such
shareholder thinks fit. No shareholder shall be entitled to cumulate votes
unless such candidate's name 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 such shareholder's
votes. If any one shareholder has given notice, all shareholders may cumulate
their votes for candidates in nomination. The candidates receiving the highest
number of affirmative votes of shares entitled to be voted for them, up to the
number of directors to be elected by such shares, shall be elected. Votes
against a director and votes withheld shall have no legal effect.
Section 10. Proxies.
(a) Every person entitled to vote shares may authorize another person or
other persons to act by proxy with respect to such shares. "Proxy" means a
written authorization signed by a shareholder or the shareholder's
attorney-in-fact giving another person or persons power to vote with respect to
the shares of such shareholder. "Signed" for the purpose of this Section means
the placing of the shareholder's name on the proxy (whether by manual signature,
typewriting, telegraphic transmission or otherwise) by the shareholder or the
shareholder's attorney-in-fact. Any proxy duly executed is not revoked and
continues in full force and effect until (i) a written instrument revoking it is
filed with the Secretary of the corporation prior to the vote pursuant thereto,
(ii) a subsequent proxy executed by the person executing the prior proxy is
presented to the meeting, (iii) the person executing the proxy attends the
meeting and votes in person, or (iv) written notice of the death or incapacity
of the maker of such proxy is received by the corporation before the vote
pursuant thereto is counted; provided that no such proxy shall be valid after
the expiration of eleven (11) months from the date of its execution, unless
otherwise provided in the proxy. Notwithstanding the foregoing sentence, a proxy
that states that it is irrevocable, is irrevocable for the period specified
therein to the extent permitted by Section 705(e) of the General Corporation
Law. 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.
(b) As long as no outstanding class of securities of the corporation is
registered under Section 12 of the Securities Exchange Act of 1934, or is not
exempted from such registration by Section 12(g)(2) of such Act, any form of
proxy or written consent distributed to ten (10) or more shareholders of the
corporation when outstanding shares of the corporation are held of record by 100
or more persons shall afford an opportunity on the proxy or form of
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written consent to specify a choice between approval and disapproval of each
matter or group of related matters intended to be acted upon at the meeting for
which the proxy is solicited or by such written consent, other than elections to
office, and shall provide, subject to reasonable specified conditions, that
where the person solicited specifies a choice with respect to any such matter
the shares will be voted in accordance therewith. In any election of directors,
any form of proxy in which the directors to be voted upon are named therein as
candidates and which is marked by a shareholder "withhold" or otherwise marked
in a manner indicating that the authority to vote for the election of directors
is withheld shall not be voted for the election of a director.
Section 11. Validation of Defectively Called or Noticed Meetings.
The transactions of any meeting of shareholders, however called and noticed, and
wherever held, are as valid as though had at a meeting duly held after regular
call and notice, if a quorum is present either in person or by proxy, and if,
either before or after the meeting, each of the persons entitled to vote, not
present in person or by proxy, signs a written waiver of notice or a consent to
the holding of the meeting or an approval of the minutes thereof. All such
waivers, consents and approvals shall be filed with the corporate records or
made a part of the minutes of the meeting. Attendance of a person at a meeting
shall constitute a waiver of notice of and presence at such meeting, except when
the person objects, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened and except that
attendance at a meeting is not a waiver of any right to object to the
consideration of matters required by these Bylaws or by the General Corporation
Law to be included in the notice if such objection is expressly made at the
meeting. Neither the business to be transacted at nor the purpose of any regular
or special meeting of shareholders need be specified in any written waiver of
notice, consent to the holding of the meeting or approval of the minutes
thereof, unless otherwise provided in the Articles of Incorporation or these
Bylaws, or unless the meeting involves one or more matters specified in Section
3(d) of this Article II of these Bylaws.
Section 12. Action Without 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, without notice
except as hereinafter set forth, a director may be elected at any time to fill a
vacancy not filled by the directors (other than a vacancy created by removal of
a director) by the written consent of persons holding a majority of the
outstanding shares entitled to vote for the election of directors.
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Any other action that may be taken at a 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 at
which all shares entitled to vote thereon were present and voted.
(b) Unless the consents of all shareholders entitled to vote have been
solicited in writing:
(1) notice of any proposed shareholder approval of (i) a contract
or other transaction with an interested director, (ii) indemnification of an
agent of the corporation, (iii) a reorganization of the corporation as defined
in Section 181 of the General Corporation Law, or (iv) a distribution in
dissolution other than in accordance with the rights of outstanding preferred
shares, if any, without a meeting by less than unanimous written consent, shall
be given at least ten (10) days before the consummation of the action authorized
by such approval; and
(2) prompt notice shall be given of the taking of any other
corporate action 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 provided in
Section 3 of this Article II of these Bylaws.
(c) Any shareholder giving a written consent, or the shareholder's proxy
holders, or a transferee of the shares or a personal representative of the
shareholder or their respective proxy holders, 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 13. Inspectors of Election.
(a) In advance of any meeting of shareholders, the Board of Directors
may appoint inspectors of election to act at the meeting and any adjournment
thereof. If inspectors of election are not so appointed, or if any persons so
appointed fail to appear or refuse to act, the chairman of any such meeting may,
and on the request of any shareholder or the holder of such shareholder's proxy
shall, appoint inspectors of election (or persons to replace those who so fail
or refuse) at the meeting. The number of inspectors shall be neither (sic) one
or three. If inspectors are appointed at a meeting on the request of one or more
shareholders or holders of proxies, the
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majority of shares represented in person or by proxy shall determine whether one
inspector or three 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 or consents; determine when the polls shall close; determine
the result; and do such acts as may be proper to conduct the election or vote
with fairness to all shareholders.
(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 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 III
Board of Directors
Section 1. Powers.
Subject to the provisions of the General Corporation Law and any limitations in
the Articles of Incorporation relating to action required to be approved by the
shareholders or by the outstanding shares, the business and affairs of the
corporation shall be managed and all corporate powers shall be exercised by or
under the direction of the Board of Directors. The Board of Directors may
delegate the management of the day-to-day operation of the business of the
corporation to a management company or other person provided that the business
and affairs of the corporation shall be managed and all corporate powers shall
be exercised under the ultimate direction of the Board of Directors.
Section 2. Number and Qualification of Directors.
The number of directors of the corporation shall not be less than nine (9) nor
more than fifteen (15) until changed by amendment of the Articles of
Incorporation or by a bylaw amending this Section 2 duly adopted by the vote or
written consent of holders of a majority of the outstanding shares, provided
that a proposal to reduce the minimum number of directors to any number below
five cannot be adopted if the votes cast against its adoption at a meeting, or
the shares not consenting in the case of action by written consent, are equal to
more than sixteen and two-thirds percent (16-2/3%) of the outstanding shares
entitled to vote. The exact number of directors
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shall be fixed from time to time, within the limits specified in the Articles of
Incorporation or in this Section 2, by a bylaw or amendment thereof duly adopted
by the vote of a majority of the shares entitled to vote represented at a duly
held meeting at which a quorum is present, or by the written consent of the
holders of a majority of the outstanding shares entitled to vote, or by the
Board of Directors.
Subject to the foregoing provisions for changing the number of directors, the
number of directors of the corporation has been fixed at eleven (11).
Section 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 threat, the
directors may be elected at any special meeting of shareholders held for that
purpose. Each director, including a director elected to fill a vacancy, shall
hold office until the expiration of the term for which elected and until a
successor has been elected and qualified.
Section 4. Vacancies.
A vacancy in the Board of Directors shall be deemed to exist in case of the
death, resignation or removal of any director, if a director has been declared
of unsound mind by order of court or convicted of a felony, if the authorized
number of directors is increased, if the incorporator or incorporators have
failed to appoint the authorized number of directors in any resolution for
appointment of directors upon the initial organization of the corporation, or if
the shareholders fail, at any annual or special meeting of shareholders at which
any director or directors are elected, to elect the full authorized number of
directors to be voted for at that meeting.
Vacancies in the Board of Directors, except for a vacancy 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, and each
director so elected shall hold office until his or her successor is elected at
an annual or a special meeting of the shareholders. A vacancy in the Board of
Directors created by the removal of a director may be filled only by the vote of
a majority of the shares entitled to vote represented at a duly held meeting at
which a quorum is present, or by the written consent of all of the holders of
the outstanding shares.
The shareholders may elect a director or directors at any time to fill any
vacancy or vacancies not filled by the directors. Any such election by written
consent other than to fill a vacancy created by removal shall require the
consent of holders of a majority of the outstanding shares entitled to vote. Any
such election by written
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consent to fill a vacancy created by removal shall require the unanimous written
consent of all shares entitled to vote for the election of directors.
Any director may resign effective upon giving written notice to the Chairman of
the Board (if there be such an officer appointed), the President, the Secretary
or the Board of Directors of the corporation, unless the notice specifies a
later time for the effectiveness of such resignation. If the resignation is
effective at a future time, a successor may be elected to take office when the
resignation becomes effective.
No reduction of the authorized number of directors shall have the effect of
removing any director prior to the expiration of the director's term of office.
Section 5. Time and Place of Meetings.
The Board of Directors shall hold a regular meeting immediately after the
meeting of shareholders at which it is elected and at the place where such
meeting is held, or at such other place as shall be fixed by the Board of
Directors, for the purpose of appointing officers of the corporation and
otherwise organizing and for the transaction of other business, and notice of
such meeting is hereby dispensed with. Other regular meetings of the Board of
Directors shall be held without notice at such times and places as are fixed by
the aboard (sic) of Directors. Special meetings of the Board of Directors may be
held at any time whenever called by the Chairman of the Board (if there be such
an officer appointed), the President, any Vice President, the Secretary or any
two directors.
Except as hereinabove provided in this Section 5, all meetings of the Board of
Directors may be held at any place within or without the State of California
that has been designated by resolution of the Board of Directors as the place
for the holding of regular meetings, or by written consent of all directors. In
the absence of such designation.(sic) meetings of the Board of Directors shall
be held at the principal executive office of the corporation. Special meetings
of the Board of Directors may be held either at a place so designated or at the
principal executive office of the corporation.
Section 6. Notice of Special Meetings.
Notice of the time and place of special meetings shall be delivered personally
to each director or communicated to each director by telephone, telegraph or
mail, charges prepaid, addressed to the director at the director's address as it
is shown upon the records of the corporation or, if it is not so shown on such
records or is not readily ascertainable, at the place at which the meetings of
the directors are regularly held. In case such notice is mailed or telegraphed,
it shall be deposited in the United States mail or
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delivered to the telegraph company in the place in which the principal executive
office of the corporation is located at least forty-eight (48) hours prior to
the time of the holding of the meeting. In case such notice is delivered
personally or by telephone, as above provided, it shall be so delivered at least
twenty-four (24) hours prior to the time of the holding of the meeting. Such
mailing, telegraphing or delivery, personally or by telephone, as above
provided, shall be due, legal and personal notice to such director. Notice of a
meeting need not be given to any director who signs a waiver of notice or a
consent to holding the meeting or an approval of the minutes thereof, whether
before or after the meeting, or who attend the meeting without protesting, prior
thereto or at its commencement, the lack of notice of such director. All such
waivers, consents and approvals shall be filed with the corporate records or
made a part of the minutes of the meetings.
Section 7. Action at a Meeting: Quorum and Required Vote
Required Vote (sic).
Presence of a majority of the authorized number of directors at a meeting of the
Board of Directors constitutes a quorum for the transaction of business, except
as hereinafter provided. Members of the Board of Directors may participate in a
meeting through use of conference telephone or similar communications equipment,
so long as all members participating in such meeting can hear one another.
Participation in a meeting as permitted in the preceding sentence constitutes
presence in person at such meeting. 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, unless a greater number, or the
same number after disqualifying one or more directors from voting, is required
by law, by the Articles of Incorporation, or by these Bylaws. A meeting at which
a quorum is initially present may continue to transact business notwithstanding
the withdrawal of directors, if any action taken is approved by at least a
majority of the required quorum for such meeting.
Section 8. 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.
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Section 9. Adjourned Meeting and Notice.
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 adjourned for
more than twenty four (24) hours, notice of any 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 10. Fees and compensation.
Directors and members of committees may receive such compensation, if any, for
their services, and such reimbursement for expenses, as may be fixed or
determined by resolution of the Board of Directors.
Section 11. Appointment of Executive and Other Committees.
The Board of Directors may, by resolution adopted by a majority of the
authorized number of directors, designate one or more committees, each
consisting of two or more directors, to serve at the pleasure of the Board of
Directors. The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent member at any
meeting of the committee. The appointment of members or alternate members of a
committee requires the vote of a majority of the authorized number of directors.
Any such committee, to the extent provided in the resolution of the Board of
Directors or in these Bylaws, shall have all the authority of the Board of
Directors, except with respect to:
(a) The approval of any action for which the general Corporation Law
also requires shareholders' approval or approval of the outstanding shares.
(b) The filling of vacancies on the Board of Directors or in any
committee.
(c) The fixing of compensation of the directors for serving on the Board
of Directors or on any committee.
(d) The amendment or repeal of these Bylaws or the adoption of new
Bylaws.
(e) The amendment or repeal of any resolution of the Board of Directors
that by its express terms is not so amendable or repealable.
(f) A distribution to the shareholders of the corporation, except at a
rate, in a periodic amount or within a price range determined by the Board of
Directors.
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(g) The appointment of other committees of the Board of Directors or the
members thereof.
The provisions of Section 5 through 9 of this Article III apply also to
committees of the Board of Directors and action by such committees, mutates
mutandis (with the necessary changes having been made in the language thereof).
Section 12. Indemnification of Agents of the Corporation; Purchase
of Liability Insurance.
(a) For the purposes of this Section 12 and of Section 12(b)(1)(ii) of
Article II, "agent" means any person who is or was a director, officer, employee
or other agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another foreign or
domestic corporation, partnership, joint venture, trust or other enterprise, or
was a director, officer, employee or agent of a foreign or domestic corporation
that was a predecessor corporation of the corporation or of another enterprise
at the request of such predecessor corporation; "proceeding" means any
threatened, pending or completed action or proceeding, whether civil, criminal,
administrative or investigative; and "expenses" include without limitation
attorneys' fees and any expenses of establishing a right to indemnification
under subsection (d) or subsection (e)(3) of this Section 12.
(b) The corporation shall indemnify any person who was or is a party or
is threatened to be made a party to any proceeding (other than an action by or
in the right of the corporation to procure a judgment of the corporation,
against expenses, judgments, finds, settlements and other amounts actually and
reasonably incurred in connection with such proceeding if such person acted in
good faith and in a manner such person reasonably believed to be in the best
interests of the corporation and, in the case of a criminal proceeding, if such
person had no reasonable cause to believe that such person's conduct was
unlawful. The termination of any proceeding by judgment, order, settlement,
conviction or upon a plea of nolo contenders or its equivalent shall not, of
itself, create a presumption that such person did not act in good faith and in a
manner which such person reasonably believed to be in the best interests of the
corporation or that such person had reasonable cause to believe that such
person's conduct was unlawful.
(c) The corporation shall indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action
by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that such person is or was an agent of the corporation,
against expenses actually and reasonably incurred by such person in connection
with the defense or settlement of such action if such person acted in good
faith, in a
14
<PAGE> 18
manner such person believed to be in the best interests of the corporation and
with such care, including reasonable inquiry, as an ordinarily prudent person in
a like position would use under similar circumstances. No indemnification shall
be made under this subsection (a):
(1) In respect of any claim, issue or matter as to which such
person shall have been adjudged to be liable to the corporation in the
performance of such person's duty to the corporation, unless and only to the
extent that the court in which such proceeding is or was pending shall determine
upon application that, in view of all circumstances of the case, such person is
fairly and reasonably entitled to indemnity for the expenses which such court
shall determine;
(2) Of amounts paid in settling or otherwise disposing of a
threatened or pending action, with or without court approval; or
(3) Of expenses incurred in defending a threatened or pending
action which is settled or otherwise disposed of without court approval.
(d) To the extent that an agent of the corporation has been successful
on the merits in defense of any proceeding referred to in subsection (b) or (a)
of this Section 12 or in defense of any claim, issue or matter therein, the
agent shall be indemnified against expenses actually and reasonably incurred by
the agent in connection therewith.
(e) Except as provided in subsection (d) of this Section 12, any
indemnification under this Section 12 shall be made by the Corporation only if
authorized in the specific case, upon a determination that indemnification of
the agent is proper in the circumstances because the agent has met the
applicable standard of conduct set forth in subsection (b) or (c) of this
Section 12, by:
(1) A majority vote of a quorum consisting of directors who are
not parties to such proceeding;
(2) Approval or ratification by the affirmative vote of a
majority of the shares of the corporation represented and voting at a duly held
meeting at which a quorum is present which shares voting affirmatively also
constitute at least a majority of the required quorum) or by the written consent
of holders of a majority of the outstanding shares entitled to vote; for such
purpose, the shares owned by the person to be indemnified shall not be
considered outstanding or entitled to vote thereon; or
(3) The court in which such proceeding is or was pending, upon
application made by the corporation or the agent or the attorney or other person
rendering services in connection with the defense,
15
<PAGE> 19
whether or not such application by the agent, attorney or other
person is opposed by the corporation.
(f) Expenses incurred in defending any proceeding may be advanced by the
corporation prior to the final disposition of such proceeding upon receipt of an
undertaking by or on behalf of the agent to repay such amount unless it shall be
determined ultimately that the agent is entitled to be indemnified as authorized
in this Section 12.
(g) Nothing contained in this Section 12 shall affect any right to
indemnification to which persons other than directors and officers of the
corporation or any subsidiary thereof may be entitled by contract or otherwise.
(h) No indemnification or advance shall be made under this Section 12,
except as provided in subsection (d) or (e)(3) of this Section 12, in any
circumstance where it appears:
(1) That it would be inconsistent with a provision of the
Articles of incorporation, a resolution of the shareholders or an agreement in
effect at the time of the accrual of the alleged cause of action asserted in the
proceeding in which the expenses were incurred or other amounts were paid, which
prohibits or otherwise limits indemnification; or
(2) That it would be inconsistent with any condition expressly
imposed by a court in approving a settlement.
(i) Upon and in the event of a determination by the Board of Directors
of the corporation to purchase such insurance, the corporation shall purchase
and maintain elected, and until their successors are elected; provided that all
officers, as well as any other employee or agent of the corporation, may,
subject to any claim for breach of contract based on any contractual
arrangements between any such person and the corporation, be removed at any time
at the pleasure of the Board of Directors, or, except in the case of an officer
chosen by the Board of Directors, by any officer upon whom such power of removal
may be conferred by the Board of Director's and upon the removal, resignation,
death or incapacity of any officer, the Board of Directors or the President, in
cases where he or she has been vested by the Board of Directors with power to
appoint, may declare such office vacant and fill such vacancy.
Any officer may resign at any time by giving written notice to the Board of
Directors, the President, or the Secretary of the corporation, without
prejudice, however, to the rights, if any, of the corporation under any contract
to which such officer is a party. Any such resignation shall take effect at the
date of the receipt of such notice or at any later time specified therein; and,
unless
16
<PAGE> 20
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective.
The salary and other compensation of the officers shall be fixed from time to
time by resolution of or in the manner determined by the Board of Directors.
Section 2. The Chairman of the Board.
The Chairman of the Board (if there be such an officer appointed) shall, when
present, preside at all meetings of the Board of Directors and shall perform all
the duties commonly incident to that office. The Chairman of the Board shall
have authority to execute in the name of the corporation bonds, contract, deeds,
leases and other written instruments to be executed by the corporation (except
where by law the signature of the President is require(sic)), and shall perform
such other duties as the Board of Directors may from time to time determine.
Section 3. The President.
Subject to such supervisory powers, if any, as may be given by the Board of
Directors to the Chairman of the Board, the President shall be the chief
executive officer of the corporation and shall perform all the duties commonly
incident to that office. The President shall have authority to execute in the
name of the corporation bonds, contracts, insurance on behalf of any agent of
the corporation against any liability asserted against or incurred by the agent
in such capacity or arising out the agent's status as such whether or not the
corporation would have the power to indemnify the agent against such liability
under the provisions of this Section 12 or otherwise.
(j) This Section 12 does not apply to any proceeding against any
trustee, investment manager or other fiduciary of an employee benefit plan in
such person's capacity as such, even though such person may also be an agent of
this Corporation as defined in subsection (a) of this Section 12. The
corporation shall have the power to indemnify such trustee, investment manager
or other fiduciary to the extent permitted by subdivision (f) of Section 207 of
the General corporation (sic) Law.
ARTICLE IV
Officers
Section 1. Officers.
The officers of the corporation shall consist of the President, the Secretary
and Treasurer and each of them shall be appointed by the Board of Directors. The
corporation may also have a Chairman of the
17
<PAGE> 21
Board, one or more Vice President, a Controller, one or more Assistant
Secretaries and Assistant Treasurers, and such other officers as may be
appointed by the Board of Directors, or with authorization from the Board of
Directors by the President. The order of the seniority of the Vice Presidents
shall be in the order of their nomination, unless otherwise determined by the
Board of Directors. Any two or more of such offices may be held by the same
person. The Board of Directors shall designate one officer as the chief
financial officer of the corporation. In the absence of such designation, the
Treasurer shall be the chief financial officer. The Board of Directors may
appoint, and may empower the President to appoint, such other officers as the
business of the corporation may require, each of whom shall have such authority
and perform such duties as are provided in these Bylaws or as the Board of
Directors may from time to time determine.
All officers of the corporation shall hold office from the date appointed to the
date of the next succeeding regular meeting of the Board of Directors following
the meeting of shareholders at which the Board of Directors is deeds leases and
other written instruments to be executed by the corporation. The president shall
preside at all meetings of the shareholders and, in the absence of the Chairman
of the Board or if there is none, at all meetings of the Board of Directors, and
shall perform such other duties as the Board of Directors may from time to time
determine.
Section 4. Vice Presidents.
The Vice Presidents (if there be such officers appointed), in the order of their
seniority, unless otherwise established by the Board of Directors, may assume
and perform the duties of the President in the absence or disability of the
President or whenever the offices of the Chairman of the Board and President are
vacant. The Vice Presidents shall have such titles, perform such other duties,
and have such other powers as the Board of Directors or the President may
designate from time to time.
Section 5. The Secretary.
The Secretary shall record or cause to be recorded, and shall keep or cause to
be kept, at the principal executive office and such other place ac (sic) the
Board of Directors may order, a book of minutes of actions taken at all meetings
of directors and committees thereof and of shareholders, with the time and place
of holding, whether regular or special, and, if special, how authorized, the
notice thereof given, the names of those present at directors' meetings, the
number of shares present or represented at shareholders' meetings, and the
proceedings thereof.
The Secretary shall keep, or cause to be kept, at the principal executive office
or at the office of the corporation's transfer agent
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<PAGE> 22
a share register or a duplicate share register in a form capable of being
converted into written form, showing the names of the shareholders and their
addresses, the number and classes of shares held by each, the number and date of
certificates issued for the name, and the number and date of cancellation of
every certificate surrendered for cancellation.
The Secretary shall give, or cause to be given, notice of all the meetings of
the shareholders and of the Board of Directors and committees thereof required
by these Bylaws or by law to be given, and shall have such other powers and
perform such other duties as may be prescribed by the Board of Directors or by
these Bylaws.
The President may direct any Assistant Secretary to assume and perform the
duties of the Secretary in the absence or disability of the Secretary, and each
Assistant Secretary shall perform such other duties and have such other powers
as the Board of Directors or the President may designate from time to time.
Section 6. The Treasurer.
The Treasurer shall keep and maintain, or cause to be kept and maintained,
adequate and correct accounts of the properties and business transactions of the
corporation. The books of account shall at all reasonable times be open to
inspection by any director.
The Treasurer shall deposit all moneys and other valuables in the name and to
the credit of the corporation with such depositaries as may be designated by the
Board of Directors. The Treasurer shall disburse the funds of the corporation as
may be ordered by the Board of Directors, shall render to the President and
directors, whenever they request it, an account of all of the Treasurer's
transactions as Treasurer and of the financial condition of the corporation, and
shall have such other powers and perform such other duties as may be prescribed
by the Board of Directors or these Bylaws.
The President may direct any Assistant Treasurer to assume and perform the
duties of the Treasurer in the absence or disability of the Treasurer, and each
Assistant treasurer (sic) shall perform such other duties and have such other
powers as the Board of Directors or the President may designate from time to
time.
Section 7. The Controller.
The Controller (if there be such an officer appointed) shall be responsible for
the establishment and maintenance of accounting and other systems required to
control and account for the assets of the corporation and provide safeguards
therefor, and to collect information required for management purposes, and shall
perform such other duties and have such other powers as the Board of Directors
or the President may designate from time to time. The President may
19
<PAGE> 23
direct any Assistant Controller to assume and perform the duties of the
Controller, in the absence or disability of the Controller, and each Assistant
Controller shall perform such other duties and have such other powers as the
Board of Directors, the Chairman of the Board (if there be such an officer
appointed) or the President may designate from time to time.
ARTICLE V
Execution of Corporate Instruments, Ratification,
and Voting of Stocks Owned by the Corporation
Section 1. Execution of Corporation Instruments.
The Board of Directors may, in its discretion, determine the method, and
designate the signatory officer or officers or other person or person, to
execute any corporate instrument or document, or to sign the corporate name
without limitation, except where otherwise provided by law, and such execution
or signature shall be binding upon the corporation.
Unless otherwise specifically determined by the Board of Directors or otherwise
required by law or permitted by these Bylaws, formal contracts of the
corporation, promissory notes, deeds of trust, mortgages and other evidences of
indebtedness of the corporation and other corporate instruments or documents,
and certificates of shares of stock owned by the corporation, shall be executed,
signed or endorsed by the Chairman of the Board if there be such an officer
appointed) (sic), the President, any Vice President and by the Secretary, the
Treasurer, any Assistant Secretary, any Assistant Treasurer or the Controller.
All checks and drafts drawn on banks or other depositaries on funds to the
credit of the corporation, or in special accounts of the corporation, shall be
signed by such person or persons as the Board of Directors shall authorize to do
so.
Section 2. Ratification by Shareholders.
The Board of Directors may, in its discretion, submit any contract or act for
approval or ratification of the shareholders at any annual meeting of
shareholders, or at any special meeting of shareholders called for that purpose;
and any contract or act that shall be approved or ratified by the holders of a
majority of the voting power of the corporation shall be as valid and binding
upon the corporation and upon the shareholders thereof as though approved or
ratified by each and every shareholder of the corporation, unless a greater vote
is required by law for such purpose.
20
<PAGE> 24
Section 3. Voting of Stocks Owned by the Corporation.
All stock of other corporations owned or held by the corporation for itself, or
for other parties in any capacity, shall be voted, and all proxies with respect
thereto shall be executed, by the person authorized to do so by resolution of
the Board of Directors, or in the absence of such authorization, by the Chairman
of the Board (if there be such an officer appointed), the President or any Vice
President, or by any other person authorized to do so by the Chairman of the
Board, the President or any Vice President.
ARTICLE VI
Annual and Other Reports
The Board of Directors of the corporation shall cause an annual report to be
sent to the shareholders not later than 120 days after the close of the fiscal
year, and at least fifteen (15) days for (sic), if sent by third-class mail,
thirty-five (35) days prior to the annual meeting of shareholders to be held
during the next fiscal year. Such report shall contain a balance sheet as of the
end of such fiscal year and an income statement and statement of changes in
financial position for such fiscal year, accompanied by any report thereon of
independent accountants or, if there is no such report, the certificate of an
authorized officer of the corporation that such statements were prepared without
audit from the books and records of the corporation. Such report shall also
contain such other matters as required by Section 1501(b) of the General
Corporation Law, unless the corporation has a class of securities registered
under Section 12 of the Securities Exchange Act of 1934, or exempted therefrom
under Section 12(g)(2) thereof. As long as the corporation has less than 100
holders of record of its shares (determined as provided in Section 605 of the
General Corporation Law), the foregoing requirement of an annual report is
hereby waived. If no annual report for the last fiscal year has been sent to
shareholders, the corporation shall, upon the written request of any shareholder
made more than 120 days 24 after the close of such fiscal year, deliver or mail
to the person making the request within thirty (30) days thereafter the
financial statements for such year as required by Section 1501(a) of the General
Corporation Law. 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 annual
report for the last fiscal year, unless such report has been waived under these
Bylaws. The statements shall be delivered or mailed to the person making the
request within thirty (30) days thereafter. A copy of any such
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<PAGE> 25
statements shall be kept on file in the principal executive office of the
corporation for twelve (12) months, and they shall be exhibited at all
reasonable times to any shareholder demanding an examination of them, or a copy
shall be mailed to such shareholder.
The quarterly income statements and balance sheets referred to in this Section
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.
ARTICLE VII
Shares of Stock
Every holder of shares in the corporation shall be entitled to have a
certificate signed in the name of the corporation by the Chairman or Vice
Chairman of the Board (if there be such officers appointed) or the President or
a Vice President and by the chief financial officer or any 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 (sic) of the
signatures on the certificate may be a 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 an officer, transfer agent or
registrar at the date of issue.
Any such certificate shall also contain such legends or other statements as may
be required by Sections 417 and 418 of the General Corporation Law, the
Corporate Securities Law of 1968, federal or other state securities laws, and
any agreement between the corporation and the issuee of the certificate.
Certificates for shares may be issued prior to full payment, under such
restrictions and for such purposes as the Board of Directors or these Bylaws may
provide; provided, however, that any such certificate so issued prior to full
payment shall state on the face thereof the amount remaining unpaid and the
terms of payment thereof.
No new certificate for shares shall be issued in lieu of an old certificate
unless the latter is surrendered and cancelled at the same time; provided,
however, that a new certificate will be issued without the surrender and
cancellation of the old certificate if (1) the old certificate is lost,
apparently destroyed or wrongfully taken; (2) the request for the issuance of
the new certificate is made within a reasonable time after the owner of the old
certificate has notice of its loss, destruction, or theft; (3) the request for
the issuance of a new certificate is made prior to the receipt of
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<PAGE> 26
notice by the corporation that the old certificate has been acquired by a bona
fide purchaser; (4) the owner of the old certificate files a sufficient
indemnity bond with or provides other adequate security to the corporation; and
(5) the owner satisfies any other reasonable requirement imposed by the
corporation. In the event of the issuance of a new certificate, the rights and
liabilities of the corporation, and of the holders of the old and new
certificates, shall be governed by the provisions of Sections 8104 and 8405 of
the California Commercial Code.
ARTICLE VIII
Inspection of Corporation Records
Section 1. General Records.
The accounting books and records, the record of shareholders, and the minutes of
proceedings of the shareholders, the Board of Directors and committees thereof
of the corporation and any subsidiary 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 reasonable 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 United States Securities and Exchange Commissions* relating to the election
of directors of the corporation shall have (in person, or by agent or attorney)
the right to inspect and copy the record of shareholders' names and addresses
and share holdings 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 for such list, a list of the shareholders' names and addresses, who are
entitled to vote for the election of directors, and their share holdings, as of
the most recent record date for which it has been compiled or as of a date
* OPTION. If the corporation is a bank the deposits of which are insured under
the federal deposit Insurance Act (sic), substitute the following language for
the bracketed language: "Form F-6 with the appropriate federal banking
regulatory agency".
specified by the shareholder subsequent to the date of demand. The
list shall be made available on or before the later of five (5)
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<PAGE> 27
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 the corporation and its subsidiaries. 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 2. Inspection of Bylaws.
The corporation shall keep at its principal executive office in California, or
if its principal executive office is not in California, then at its principal
business office in California (or shall otherwise provide upon written request
of any shareholder if it has no such office in California) the original or a
copy of these Bylaws as amended to date, which shall be open to inspection by
the shareholders at all reasonable times during office hours.
ARTICLE IX
Amendments
Section 1. Power of Shareholders.
New bylaws may be adopted or these Bylaws 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.
Section 2. Power of Directors.
Subject to the right of shareholders as provided in Section 1 of this Article IX
to adopt, amend or repeal these Bylaws, these Bylaws may be adopted, amended or
repealed by the Board of Directors; provided, however, that the Board of
Directors may adopt a bylaw or amendment thereof changing the authorized number
of directors only for the purpose of fixing the exact number of directors within
the limits specified in the Articles of Incorporation or in Section 2 of Article
III of these Bylaws.
ARTICLE X
Definitions
Unless the context otherwise requires, the general provisions, rules of
construction and definitions contained in the General Corporation Law as amended
from time to time shall govern the construction of these Bylaws. Without
limiting the generality of the foregoing, the
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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 XI
Corporation Seal
The corporate seal shall consist of a circular die bearing the name of the
corporation, the state in which it was incorporated and the date of its
incorporation. If and when authorized by the Board of Directors, a duplicate of
the corporate seal may be kept and used by such officer or person as the Board
of Directors may designate.
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<PAGE> 29
CERTIFICATE OF SECRETARY
I, the undersigned, do hereby certify:
1. That I am the duly elected and acting secretary of REDDING
BANCORP, a California corporation; and
2. That the foregoing By-Laws, comprising 29 pages, constitute the
By-Laws of said corporation as duly adopted at a meeting of the Board of
Directors thereof duly held on
IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed the
seal of said corporation this 26th day of April, 1982
Daniel C. Beyer, Jr., Secretary
26
<PAGE> 1
EXHIBIT 4.1
NUMBER REDDING BANCORP SHARES
RBC 1871
INCORPORATED UNDER THE LAWS OF THE STATE OF CALIFORNIA
SEE REVERSE FOR
CERTAIN CONDITIONS
This Certifies that
is the owner of
SHARES OF THE COMMON STOCK OF
REDDING BANKCORP
transferable on the books of the Bank by the holder thereof in
person or by duly authorized attorney upon surrender of this
certificate properly endorsed or assigned.
WITNESS the seal of the Bank and the signatures of its duly
authorized officers.
Dated:
CERTIFICATE OF STOCK
[SEAL]
Secretary President
<PAGE> 2
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as through they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT - _______________ Custodian _______________
(Cust) (Minor)
COM PROP - as community property under Uniform Gifts to Minors
Act _________________________
JT TEN - as joint tenants with right of (State)
survivorship and not as tenants
in common
</TABLE>
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 OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
_________________________________________________________________________ Shares
of the common 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(S) TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME AS WRITTEN
UPON THE FACE OF THE CERTIFICATE IN
EVERY PARTICULAR WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
_________________________________________________
- --------------------------------------------------------------------------------
THIS SPACE MUST NOT BE COVERED IN ANY WAY
<PAGE> 1
EXHIBIT 10.1
STANDARD OFFICE LEASE #7183
THIS LEASE is made and entered into this 10TH day of JUNE, 1998, by and between
DAVID AND MARIA WONG (hereinafter "Lessor") and REDDING BANK OF COMMERCE, A
CALIFORNIA CORPORATION (hereinafter "Lessee").
For and in consideration of the rental and of the covenants and agreements
hereinafter set forth to be kept and performed by the Lessee, Lessor hereby
leases to Lessee and Lessee hereby leases from Lessor the Premises herein
described for the term, at the rental and subject to and upon all of the terms,
covenants and agreements hereinafter set forth.
1. PREMISES
1.1 DESCRIPTION. Lessor hereby leases to Lessee and Lessee hereby rents
from Lessor those certain Premises (hereinafter "Premises") crosshatched
on Exhibit A containing approximately 1,484 square feet (SQUARE FOOTAGE
INCLUDES A PROPORTIONATE SHARE OF THE COMMON AREA) on the FIRST floor of
that certain office building (hereinafter "Building") located in the
City of ROSEVILLE, County of PLACER, California, commonly known as,
CORPORATE COMMONS, and more particularly described as 2400 PROFESSIONAL
DRIVE, SUITE 100, ROSEVILLE, CA 95661.
1.2 WORK OF IMPROVEMENT. The obligations of Lessor and Lessee to perform
the work and supply the necessary materials and labor to prepare the
Premises for occupancy are set forth in detail in Exhibit B. Lessor and
Lessee shall expend all funds and do all acts required of them in
Exhibit B and shall have the work performed promptly and diligently in a
first class workmanlike manner.
2. TERM
2.1 TERM. The term of this Lease shall be for SIXTY (60) MONTHS
commencing SEPTEMBER 1, 1998 and ending on AUGUST 31, 2003 unless sooner
terminated pursuant to this Lease.
2.2 DELAY IN COMMENCEMENT. Lessee agrees that in the event of the
inability of Lessor for any reason to deliver possession of the Premises
to Lessee on the commencement date set forth in Section 2.1, Lessor
shall not be liable for any damage thereby nor shall such inability
affect the validity of this Lease or the obligations of Lessee
hereunder, but in such case Lessee shall not be obligated to pay rent or
other monetary sums until possession of the Premises is rendered to
Lessee, provided that if the delay in delivery of possession exceeds
sixty (60) days, then the expiration date of the term of the Lease shall
be extended by the period of time computed from the scheduled
commencement date to the date possession is tendered. In the event
Lessor shall not have delivered possession of the Premises within two
(2) months from the scheduled commencement date, then Lessee at its
option to be exercised within fifteen (15) days after the end of said
two (2) month period, may terminate this Lease and upon Lessor's return
of any monies previously deposited by Lessee, the parties shall have no
further rights or liabilities toward each other.
2.3 ACKNOWLEDGEMENT OF COMMENCEMENT DATE. In the event the commencement
date of the term of the Lease is other than as provided in Section 2.1,
then Lessor and Lessee shall execute a written acknowledgement of the
date of commencement and shall attach it to the Lease as Exhibit D.
2.4 EARLY POSSESSION. The Lessor shall permit Lessee to occupy the
Premises for one week prior to the commencement date of the term, such
occupancy shall be subject to all the provisions of this Lease except
for payment of rent. Said early possession shall not advance the
termination date hereinabove provided.
3. BASE RENT. Lessee shall pay to Lessor as base rent for the Premises in
advance on the first day of each calendar month of the term of this
Lease without deduction, offset, prior notice or demand, in lawful money
of the United States, the sum of (SEE "RENT SCHEDULE" ATTACHED) (subject
to additional rental as provided in paragraph 5). If the commencement
date is not the first day of a month, or if the Lease termination date
is not the last day of a month, a prorated monthly installment shall be
paid at the then current rate for the fractional month during which the
Lease commences and/or terminates. Concurrently with Lessee's execution
of this Lease, Lessee shall pay to Lessor the sum of TWO THOUSAND FIVE
HUNDRED TWENTY TWO AND 80/100THS DOLLARS ($2,522.80) as rent for the
month of SEPTEMBER 1998.
4. SECURITY DEPOSIT.
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5. TAX AND BUILDING OPERATING COST INCREASES
5.1 DEFINITIONS. For purposes of this Section, the following terms are
herein defined:
(a) Base Year: 1999.
(b) Building Operating Costs: All costs and expenses of
ownership, operation and maintenance of the Building (excluding
depreciation on the Building, all amounts paid on loans of Lessor and
expenses capitalized for federal income tax purposes) including by way
of illustration but not limited to: real and personal property taxes and
assessments and any tax in addition to or in lieu thereof, other than
taxes covered by Section 5.4, whether assessed against Lessor or Lessee
or collected by Lessor or both; utilities; supplies; insurance; license,
permit and inspection fees; costs of services of independent contractors
(including property management fees); Owner's Association dues, if any;
cost of compensation (including employment taxes and fringe benefits) of
all persons who perform regular and recurring duties connected with
day-to-day operation, maintenance and repair of the Building, its
equipment and the adjacent walks, malls and landscaped areas, including
five (5) days a week janitorial (including vacuum service three (3) days
per week), scavenger, gardening, security, parking, operating engineer,
elevator, painting, plumbing, electrical, carpentry, heating,
ventilation, air conditioning, window washing, signing and advertising
(but excluding persons performing services not uniformly available to or
performed for substantially all Building Tenants), and rental expense or
a reasonable allowance for depreciation of personal property used in the
maintenance, operation and repair of the building. LESSEE WILL NOT HAVE
TO PAY ANY INCREASE IN REAL ESTATE TAXES DUE TO BUILDING SALE PRIOR TO
JULY 1, 2000.
(c) Net Rentable Area: The rentable area computed by measuring
to the window glass of outer building walls, to the Premises side of
public corridors and/or other permanent partitions and to the center of
partitions which separate the adjoining rentable areas with no deduction
for columns and projections necessary to the Building structure. On
multi-tenant floors, common corridors and toilets, air conditioning
rooms, fan rooms, janitorial closets, electrical and telephone closets
and any other areas within and exclusively serving that floor are
considered common area and for purposes of this Section shall be
allocated pro rata to the Tenants on the floor.
5.2 LESSEE'S SHARE. In the event the Building Operating Costs incurred
by Lessor during any calendar year following the Base Year shall exceed
Building Operating Costs incurred by Lessor during any calendar year
following the Base Year shall exceed Building Operating Costs incurred
by Lessor during the Base Year, Lessee shall pay to Lessor an amount
equal to FORTY FIVE percent (45%) (1,484/3,273) of such increase, which
share is computed on the basis of the ratio between Net Rentable Area in
the Premises and Net Rentable Area in the Building. Said costs shall be
calculated assuming the building is ninety (90) [sic] occupied.
5.3 PAYMENT. Within ninety (90) days after the end of each calendar year
following the Base Year, Lessor shall furnish Lessee a written statement
showing in reasonable detail Lessor's Building Operating Costs for the
preceding calendar year and the Base Year, and showing the amount, if
any, of any increase or decrease in the sums due from Lessee taking into
account prior increases paid by Lessee (if any).
Concurrent with the monthly rent payment next due following Lessee's
receipt of such statement, Lessee shall pay to Lessor (in the case of an
increase), or Lessor shall credit against the next rent due from Lessee
(in the case of a decrease), an amount equal to the sum of (1) the
difference between Building Operating Costs for the preceding calendar
year and the Base Year less increases paid by Lessee (if any); and (2)
one-twelfth (1/12th) of said increases for the current calendar year
multiplied by the number of rent payments (including the current one)
then elapsed in such calendar year. Thereafter the one twelfth (1/12th)
shall be paid monthly with the rent until the adjustment the following
year pursuant hereto. In no event shall the adjustment entitled Lessee
to receive the benefit of a reduction in Building Operating Costs below
the level of the initial Base Year during the term hereof.
5.4 NEW TAXES. In addition to rent and other charges to be paid by
Lessee hereunder, Lessee shall reimburse to Lessor, within thirty (30)
days of receipt of a demand therefor, any and all taxes payable by
Lessor (other than net income taxes) whether or not now customary or
within the contemplation of the parties hereto; (a) upon, allocable to,
or measured by the area of the Premises or on the rent payable
hereunder, including without limitation any gross income tax or excise
tax levied by the State, any political subdivision thereof, City or
Federal Government with respect to the receipt of such rent; or (b) upon
or with respect to the possession, leasing, operation, management,
maintenance, alteration, repair, use or occupancy by Lessee of the
Premises or any portion thereof; or (c) upon or measured by the value of
Lessee's personal property, equipment or fixtures located in the
Premises; or (d) upon this transaction or any document to which Lessee
is a party creating or transferring an interest or an estate in the
Premises. Lessee agrees to pay, before delinquency, any and all taxes
levied or assessed and which become payable during the term hereof upon
Lessee's equipment, furniture, fixtures and other personal property
located in the Premises. For the purpose of determining said amount,
figures supplied by the County Assessor as to the amount so assessed
shall be conclusive. Lessee shall
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comply with the provisions of any law, ordinance or rule of the taxing
authorities that require Lessee to file a report of Lessee's property
located in the Premises.
6. USE.
6.1 USE. The Premises shall be used and occupied by Lessee for a Bank
and for general office purposes and for no other purpose without the
prior written consent of Lessor.
6.2 SUITABILITY. Lessee acknowledges that neither Lessor nor any agent
of Lessor has made any representation or warranty with respect to the
Premises or the Building or with respect to the suitability of either
for the conduct of Lessee's business, nor has Lessor agreed to undertake
any modification, alteration or improvement to the Premises except as
provided in this Lease. The taking of possession of the Premises by
Lessee shall conclusively establish that the Premises and the Building
were at such time in satisfactory condition unless within fifteen (15)
days after such date Lessee shall give Lessor written notice specifying
in reasonable detail the respects in which the Premises or the Building
were not in satisfactory condition.
6.3 USES PROHIBITED.
(a) Lessee shall not do or permit anything to be done in or
about the Premises nor bring or keep anything therein which will in any
way increase the existing rate or affect any fire or other insurance
upon the Building or any of its contents (unless Lessee shall pay any
increased premium as a result of such use or acts), or cause a
cancellation of any insurance policy covering said Building or any part
thereof or any of its contents, nor shall Lessee sell or permit to be
kept, used or sold in or about said Premises any articles which may be
prohibited by a standard form policy of fire insurance.
(b) Lessee shall not do or permit anything to be done in or
about the Premises which will in any way obstruct or interfere with the
rights of other Tenants or occupants of the Building or injure or annoy
them or use or allow the Premises to be used for any unlawful or
objectionable purpose, nor shall Lessee cause, maintain or permit any
nuisance in or about the Premises. Lessee shall not commit or suffer to
be committed any waste in or upon the Premises.
(c) Lessee shall not use the Premises or permit anything to be
done in or about the Premises which will in any way conflict with any
law, statute, ordinance or governmental rule or regulation or
requirement of duly constituted public authorities now in force or which
may hereafter be enacted or promulgated. Lessee shall at its sole cost
and expense promptly comply with all laws, statutes, ordinances and
governmental rules, regulations or requirements now in force or which
may hereafter be in force and with the requirements of any board of fire
underwriters or other similar body now or hereafter constituted relating
to or affecting the condition, use or occupancy of the Premises,
excluding structural changes not relating to or affecting the condition,
use or occupancy of the premises, or not related or afforded by Lessee's
improvements or acts. The judgment of any court of competent
jurisdiction or the admission of Lessee in any action against Lessee,
whether Lessor be a party thereto or not, that Lessee has violated any
law, statute, ordinance or governmental rule, regulation or requirement,
shall be conclusive of the fact as between Lessor and Lessee.
7. SERVICE AND UTILITIES
7.1 LESSOR'S OBLIGATIONS. Lessor agrees to furnish to the Premises
during reasonable hours of generally recognized business days, to be
determined by Lessor, and subject to the Rules and Regulations of the
Building, water, gas and electricity suitable for the intended use of
the Premises, heat and air conditioning required in Lessor's judgment
for the comfortable use and occupancy of the Premises, scavenger,
janitorial and interior and exterior window washing service, to include
removal of spider webs, and security customary in similar buildings in
the competing geographical areas. Lessor shall also maintain and keep
lighted the common stairs, entries and toilet rooms in the Building.
7.2 LESSEE'S OBLIGATION. Lessee shall pay for, prior to delinquency, all
telephone and all other materials and services, not expressly required
to be paid by Lessor, which may be furnished to or used in, on or about
the Premises during the term of this Lease.
7.3 LESSEE'S ADDITIONAL REQUIREMENTS.
(a) Lessee will not, without the written consent of Lessor, use
any apparatus or device in the Premises, including but without
limitation thereto, electronic data processing machines, punch card
machines and machines using current in excess of 110 volts, which will
in any way increase the amount of electricity or water usually furnished
or supplied for use of the Premises as general office space; nor connect
with electric current, except through existing electrical outlets in the
Premises, or water pipes, any apparatus or device, for the purposes of
using electric current or water.
(b) If Lessee shall require water or electric current in excess
of that usually furnished or supplied for use of the Premises as general
office space, Lessee shall first procure the consent of Lessor for the
use thereof, which consent Lessor may refuse and Lessor may cause a
water meter or electric current meter to be installed in the Premises,
so as to measure he [sic] amount of water and electric current consumed
for any such other use. The cost of such meters and of installation,
maintenance and repair thereof shall be paid for by Lessee and Lessee
agrees to pay Lessor promptly upon demand by Lessor for all such water
and electric current consumed as shown by said meters, at the rates
charged for such services by the City in which the Building is located
or the local public utility, as the case may be, furnishing the same,
plus any additional expense incurred in keeping account of the water and
electric current so consumed.
(c) Wherever heat generating machines or equipment are used in
the Premises which affect the temperature otherwise maintained by the
air conditioning system, Lessor reserves the right to install
supplementary air conditioning units in the Premises and the cost
thereof, including the cost of
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installation, operation, and maintenance thereof, shall be paid by
Lessee to Lessor upon demand by Lessor.
7.4 NON-LIABILITY. Lessor shall not be liable for, and Lessee shall not
be entitled to, any abatement or reduction of rent by reason of Lessor's
failure to furnish any of the foregoing when such failure is caused by
accidents, breakage, repairs, strikes,lockouts or other labor
disturbances or labor disputes of any character, or by any other cause
similar or dissimilar, beyond the reasonable control of Lessor. Lessor
shall not be liable under any circumstances for loss of or injury to
property, however occurring, through or in connection with or incidental
to failure to furnish any of the foregoing.
8. MAINTENANCE AND REPAIRS; ALTERATIONS AND ADDITIONS
8.1 MAINTENANCE AND REPAIRS.
(a) Lessor's Obligations. Lessor shall maintain in good order,
condition and repair the Building and all other portions of the Premises
not the obligation of Lessee or any other tenant in the Building.
(b) Lessee's Obligations.
(i) Lessee at Lessee's sole cost and expense, except for
services furnished by Lessor pursuant to Section 7 hereof, shall
maintain the Premises in good order, condition and repair including the
interior surfaces of the ceilings, walls and floors, all doors, interior
windows, exterior windows at or below street level, all plumbing pipes,
electrical wiring, switches, fixtures and special items in excess of
building standard furnishings, and equipment installed by or at the
expense of Lessee. UNLESS DAMAGE IS CAUSED BY LESSEE, LESSOR SHALL BE
RESPONSIBLE FOR ROUGH PLUMBING AND EXTERIOR WINDOWS.
(ii) Upon the expiration or earlier termination of this
Lease, Lessee shall surrender the Premises in the same condition as
received, ordinary wear and tear and damage by fire, earthquake, act of
God or the elements alone excepted, and shall promptly remove or cause
to be removed at Lessee's expense from the Premises and the Building any
signs, notices and displays placed by Lessee.
(iii) Lessee agrees to repair any damage to the Premises
or the Building caused by or in connection with the removal of any
articles of personal property, business or trade fixtures, machinery,
equipment, cabinetwork, furniture, movable partition or permanent
improvements or additions, including without limitation thereto,
repairing the floor and patching and painting the walls where required
by Lessor to Lessor's reasonable satisfaction, all at Lessee's sole cost
and expense. Lessee shall indemnify the Lessor against any loss or
liability resulting from delay by Lessee in so surrendering the
Premises, including without limitation any claims made by any succeeding
tenant founded on such delay.
(iv) In the event Lessee fails to maintain the Premises in
good order, condition and repair, Lessor shall give Lessee notice to do
such acts as are reasonably required to so maintain the Premises. In the
event Lessee fails to promptly commence such work and diligently
prosecute it to completion, then Lessor shall have the right to do such
acts and expend such funds at the expense of Lessee as are reasonably
required to perform such work. Lessee shall have thirty (30) days
following the notice of completion and submission of an invoice to pay
the charge in questions. Any amount so expended by Lessor shall be paid
by Lessee promptly after demand with interest at ten percent (10%) per
annum from the date of invoice. Lessor shall have no liability to Lessee
for any damage, inconvenience or interference with the use of the
Premises by Lessee as a result of performing any such work.
(c) Compliance with Law. Lessor and Lessee shall each do all acts
required to comply with all applicable laws, ordinances, regulations and
rules of any public authority relating to their respective maintenance
obligations as set forth herein.
8.2 ALTERATIONS AND ADDITIONS.
(a) Lessee shall make no alterations, additions or improvements
to the Premises or any part thereof without obtaining the prior written
consent of Lessor.
(b) Lessor may impose as a condition to the aforesaid consent
such requirements as Lessor may deem necessary in its sole discretion,
including without limitation thereto, the manner in which the work is
done, a right of approval of the contractor by whom the work is to be
performed, the times during which is to be accomplished, and the
requirement that upon written request of Lessor prior to the expiration
or earlier termination of the Lease, Lessee will remove any and all
permanent improvements or additions to the Premises installed at
Lessee's expense and all movable partitions, counters, personal
property, equipment, fixtures and furniture.
(c) All such alterations, additions or improvements shall at the
expiration or earlier termination of the Lease become the property of
Lessor and remain upon and surrendered with the Premises, unless
specified pursuant to Section 8.2(b) above.
(d) All articles of personal property and all business and trade
fixtures, machinery and equipment, cabinetwork, furniture and movable
partitions owned by Lessee or installed by Lessee at its expense in the
Premises shall be and remain the property of Lessee and may be removed
by Lessee at any time during the Lease term when Lessee is not in
default hereunder.
9. ENTRY BY LESSOR. Lessor reserves and shall at any and all times have the
right to enter the Premises to inspect the same, to supply janitor
service and any other service to be provided by Lessor to Lessee
hereunder, to submit said Premises to prospective purchasers or Lessees,
to post notices of non-responsibility and "for lease" signs, and to
alter, improve or repair the Premises and any portion
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of the Building without abatement of rent, and may for that purpose
erect scaffolding and other necessary structures where reasonably
required by the character of the work to be performed, always providing
the entrance to the Premises shall not be blocked thereby, and further
providing that the business of Lessee shall not be interfered with
unreasonably. Lessee hereby waives any claim for damages for any injury
or inconvenience to or interference with Lessee's business, any loss of
occupancy or quiet enjoyment of the Premises, and any other loss
occasioned thereby. For each of the aforesaid purposes, Lessor shall at
all times have and retain a key with which to unlock all of the doors
in, upon and about the Premises, excluding Lessee's vaults and safes,
and Lessor shall have the right to use any and all means which Lessor
may deem proper to open said doors in an emergency, in order to obtain
entry to the Premises and any entry to the Premises obtained by Lessor
by any of said means, or otherwise, shall not under any circumstances be
construed or deemed to be a forcible or unlawful entry into, or a
detainer of, the Premises, or an eviction of Lessee from the Premises or
any portion thereof. Any entry of Premises by Lessor shall be without
liability to Lessee except for any failure to exercise due care for
Lessee's property.
10. LIENS. Lessee shall keep the Premises and any building of which the
Premises are a part free from any liens arising out of work performed,
materials furnished, or obligations incurred by Lessee and shall
indemnify, hold harmless and defend Lessor from any liens and
encumbrances arising out of any work performed or materials furnished by
or at the direction of Lessee. In the event that Lessee shall not,
within twenty (20) days following the imposition of any such lien, cause
such lien to be released of record by payment or posting of a proper
bond. Lessor shall have, in addition to all other remedies provided
herein and by law, the right, but no obligation, to cause the same to be
released by such means as it shall deem proper, including payment of the
claim giving rise to such lien. All such sums paid by Lessor and all
expenses incurred by it in connection therewith including attorney's
fees and costs shall be payable to Lessor by Lessee on demand with
interest at the rate of ten percent (10%) per annum. Lessor shall have
the right at all times to post and keep posted on the Premises any
notices permitted or required by law or which Lessor shall deem proper,
for the protection of Lessor and the Premises, and any other party
having an interest therein, from mechanics' and materialmen's liens, and
Lessee shall give to Lessor at least ten (10) business days prior
written notice of the expected date of commencement of any work relating
to alterations or additions to the Premises.
11. INDEMNITY.
11.1 INDEMNITY. Lessee shall indemnify and hold Lessor harmless from and
defend Lessor against any and all claims of liability for any injury or
damage to any person or property whatsoever; (1) occurring in, on or
about the Premises or any part thereof; and (2) occurring in, on or
about any facilities (including, without prejudice to the generality of
the term "facilities," elevators, stairways, passageways, hallways, and
parking areas), the use of which Lessee may have in conjunction with
other tenants of the Building, when such injury or damage is caused in
part or in whole by the act, neglect, fault or omission of any duty with
respect to the same by Lessee, its agents, contractors, employees or
invitees. Lessee shall further indemnify and hold Lessor harmless from
and against any and all claims arising from any breach or default in the
performance of any obligation on Lessee's part to be performed under the
terms of this Lease, or arising from any act or negligence of Lessee, or
any of its agents, contractors, employees and from and against all
costs, attorney's fees, expenses and liabilities incurred in the defense
of any such claim or any action or proceeding brought thereon. In case
any action or proceeding be brought against Lessor by reason of any such
claim, Lessee, upon notice from Lessor, shall defend the same at
Lessee's expense by counsel reasonably satisfactory to Lessor, provided,
however, that Lessee shall not be liable for damage or injury occasioned
by the negligence or intentional acts of Lessor and its designated
agents or employees unless covered by insurance Lessee is required to
provide.
Lessee, as a material part of the consideration to Lessor, hereby
assumes all risk of damage to property or injury to persons in, upon or
about the Premises from any cause and Lessee hereby waives all claims in
respect thereof against Lessor, unless damage to property or injury to
persons occasioned by the negligence or intentional acts of Lessor and
its designated agents or employees or invitees.
11.2 EXEMPTION OF LESSOR FROM LIABILITY. Lessor shall not be liable for
injury or damage which may be sustained by the person, goods, wares,
merchandise or property of Lessee, its employees, invitees or customers,
or any other person in or about the Premises caused by or resulting from
fire, steam, electricity, gas, water or rain, which may leak or flow
from or into any part of the Premises, or from the breakage, leakage,
obstruction or other defects of the pipes, sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures of the same,
whether the damage or injury results from conditions arising upon the
Premises or upon other portions of the Building of which the Premises
are a part, or from other sources. Lessor shall not be liable for any
damages arising from any act or neglect of any other tenant of the
Building, unless damage to property or injury to persons occasioned by
the negligence or intentional acts of Lessor and its designated agents
or employees or invitees. NOTWITHSTANDING THE ABOVE, THE LESSOR SHALL BE
RESPONSIBLE FOR THE REPAIR OF, AND THE DAMAGE TO THE PREMISES OR
LESSEE'S CONTENTS CAUSED BY THE DEFECTS IN THE ROOF, EXTERIOR WALLS AND
WINDOWS, ROOF AND HVAC DRAINAGE SYSTEMS.
12. INSURANCE
12.1 COVERAGE. Lessee shall, at all times during the term of this Lease,
and at its own cost and expense procure and continue in force the
following insurance coverage:
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(a) Bodily Injury and Property Damage Liability insurance with a
combined single limit for bodily injury and property damage of not less
than $1,000,000.
(b) Fire and Extended Coverage Insurance, including vandalism and
malicious mischief coverage, in an amount equal to the full replacement
value of all fixtures, furniture and improvements.
12.2 INSURANCE POLICIES. The aforementioned minimum limits of policies
shall in no event limit the liability of Lessee hereunder. The aforesaid
insurance shall name Lessor as an additional insured. Said insurance
shall be with companies having a rating of not less than AAA in "Best's
Insurance Guide." Lessee shall furnish from the insurance companies or
cause the insurance companies to furnish certificates of coverage. No
such policy shall be cancelable or subject to reduction of coverage or
other modification or cancellation except after thirty (30) days prior
written notice to Lessor by the insurer. All such policies shall be
written as primary policies, not contributing with and not in excess of
the coverage which Lessor may carry. Lessee shall, at least twenty (20)
days prior to the expiration of such policies, furnish Lessor with
renewals or binders. Lessee agrees that if Lessee does not take out and
maintain such insurance, Lessor may (but shall not be required to)
procure said insurance on Lessee's behalf and charge Lessee the premiums
together with a twenty-five percent (25%) handling charge, payable upon
demand. Lessee shall have the right to provide such insurance coverage
pursuant to blanket policies obtained by Lessee provided such blanket
policies expressly afford coverage to the Premises and to Lessee as
required by this Lease.
12.3 WAIVER OF SUBROGATION. Lessor and Lessee each hereby waive any and
all rights of recovery against the other or against the officers,
employees, agents and representatives of the other, on account of loss
or damage occasioned to such waiving party or its property or the
property of others under its control to the extent that such loss or
damage is insured against under any fire and extended coverage insurance
policy which either may have in force at the time of such loss or
damage. Lessee shall, upon obtaining the policies of insurance required
under this Lease, give notice to the insurance carrier or carriers that
the foregoing mutual waiver of subrogation is contained in this Lease.
13. DAMAGE OR DESTRUCTION
13.1 PARTIAL DAMAGE - INSURED. In the event the Premises or the Building
are damaged by any casualty which is covered under fire and extended
coverage insurance carried by Lessor, then Lessor shall restore such
damage provided insurance proceeds are available to pay eighty percent
(80%) or more of the cost of restoration and provided such restoration
can be completed within sixty (60) days after the commencement of the
work in the opinion of a registered architect or engineer appointed by
Lessor. In such event this Lease shall continue in full force and
effect, except that Lessee shall be entitled to proportionate reduction
of rent while such restoration takes place, such proportionate reduction
to be based upon the extent to which the restoration efforts interfere
with Lessee's business in the Premises.
13.2 PARTIAL DAMAGE - UNINSURED. In the event the Premises or the
Building are damaged by a risk not covered by Lessor's insurance or the
proceeds of available insurance are less than eighty percent (80%) of
the cost of restoration, or if the restoration cannot be completed
within sixty (60) days after the commencement of work in the opinion of
the registered architect or engineer appointed by Lessor, then Lessor
shall have the option either to (1) repair or restore such damage, this
Lease continuing in full force and effect, but the rent to be
proportionately abated as hereinabove provided, or (2) give notice to
Lessee at any time within thirty (30) days after such damage terminating
this Lease as of a date to be specified in such notice, which date shall
be not less than thirty (30) nor more than sixty (60) days after giving
such notice. In the event of the giving of such notice, this Lease shall
expire and all interest of Lessee in the Premises shall terminate on
such date so specified in such notice and the rent, reduced by any
proportionate reduction based upon the extent, if any, to which said
damage interfered with the use and occupancy of Lessee, shall be paid to
the date of such termination; Lessor agrees to refund to the Lessee any
rent theretofore paid in advance for any period of time subsequent to
such date.
13.3 TOTAL DESTRUCTION. In the event the Premises are totally destroyed
or the Premises cannot be restored as required herein under applicable
laws and regulations, notwithstanding the availability of insurance
proceeds, this Lease shall be terminated effective the date of the
damage.
13.4 DAMAGE NEAR END OF THE TERM. Notwithstanding anything to the
contrary contained in Section 13, Lessor shall not have any obligation
whatsoever to repair, reconstruct or restore the Premises when the
damage resulting from any casualty covered under this Section 13 occurs
during the last twelve (12) months of the term of this Lease or any
extension thereof.
13.5 LESSOR'S OBLIGATIONS. The Lessor shall not be required to repair
any injury or damage by fire or other cause, or to make any restoration
or replacement of any panelings, decorations, partitions, railings,
floor covering, office fixtures or any other improvements or property
installed in the Premises by Lessee or at the direct or indirect expense
of Lessee. Lessee shall be required to restore or replace same in the
event of damage. Except for abatement of rent, if any, Lessee shall have
no claim against Lessor for any damage suffered by reason of any such
damage, destruction, repair or restoration.
14. CONDEMNATION. If all or any part of the Premises shall be taken or
appropriated for public or quasi-public use by right of eminent domain
with or without litigation or transferred by agreement in connection
with such public or quasi-public use, either party hereto shall have the
right at its option exercisable within thirty (30) days of receipt of
notice of such taking to terminate this Lease as of the date possession
is taken by the condemning authority, provided, however, that before
Lessee may terminate this Lease by reason of taking or appropriation as
provided hereinabove, such taking or
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appropriation shall be of such an extent and nature as to substantially
handicap, impede or impair Lessee's use of the Premises. If any part of
the Building other than the Premises shall be so taken or appropriated,
Lessor shall have the right at its option to terminate this Lease. No
award for any partial or entire taking shall be apportioned, and Lessee
hereby assigns to Lessor any award which may be made in such taking or
condemnation, together with any and all rights of Lessee now or
hereafter arising in or to the same or any part thereof; provided,
however, that nothing contained herein shall be deemed to give Lessor
any interest in or to require Lessee to assign to Lessor any award made
to Lessee for the taking of personal property and fixtures belonging to
Lessee and/or for the interruption of or damage to Lessee's business
and/or for Lessee's unamortized cost of leasehold improvements. In the
event of a partial taking which does not result in a termination of this
Lease, rent shall be abated in the proportion which the part of the
premises so made unusable bears to the rented area of the Premises
immediately prior to the taking. No temporary taking of the Premises
and/or of Lessee's rights therein or under this Lease shall terminate
this Lease or give Lessee any right to any abatement of rent thereunder;
any award made to Lessee by reason of any such temporary taking shall
belong entirely to Lessee and Lessor shall not be entitled to share
therein.
15. ASSIGNMENT AND SUBLETTING
15.1 LESSOR'S CONSENT REQUIRED. Lessee shall not assign, transfer,
mortgage, pledge, hypothecate or encumber this Lease or any interest
therein, and shall not sublet the Premises or any part thereof, without
the prior written consent of Lessor and any attempt to do so without
such consent being first had and obtained shall be wholly void and shall
constitute a breach of this Lease.
15.2 REASONABLE CONSENT. If Lessee complies with the following
conditions, Lessor shall not unreasonably withhold its consent to the
subletting of the Premises or any portion thereof or the assignment of
this Lease, Lessee shall submit in writing to Lessor (a) the name and
legal composition of the proposed subLessee or assignee; (b) the nature
of the business proposed to be carried on in the Premises; (c) the terms
and provisions of the proposed sublease; (d) such reasonable financial
information as Lessor may request concerning the proposed subLessee or
assignee.
15.3 NO RELEASE OF LESSEE. No consent by Lessor to any assignment or
subletting by Lessee shall relieve Lessee of any obligation to be
performed by Lessee under this Lease, whether occurring before or after
such consent, assignment or subletting. The consent by Lessor to any
assignment or subletting shall not relieve Lessee from the obligation to
obtain Lessor's express written consent to any other assignment or
subletting. The acceptance of rent by Lessor from any other person shall
not be deemed to be a waiver by Lessor of any provision of this Lease or
to be a consent to any assignment, subletting or other transfer. Consent
to one assignment, subletting or other transfer shall not be deemed to
constitute consent to any subsequent assignment, subletting or other
transfer.
15.4 ATTORNEY'S FEES. In the event Lessor shall consent to a sublease or
assignment under this Section 15, Lessee shall pay Lessor's actual cost
of reasonable attorney's fees not to exceed $500 incurred in connection
with giving such consent.
16. SUBORDINATION
16.1 SUBORDINATION. This Lease at Lessor's option shall be subject and
subordinate to all ground or underlying leases which now exist or may
hereafter be executed affecting the Premises or the land upon which the
Premises are situated or both, and to the lien of any mortgages or deeds
of trust in any amount or amounts whatsoever now or hereafter placed on
or against the land or improvements or either thereof, of which the
Premises are a part, or on or against Lessor's interest or estate
therein, or on or against any ground or underlying lease without the
necessity of the execution and delivery of any further instruments on
the part of Lessee to effectuate such subordination. If any mortgagee,
trustee or ground Lessor shall elect to have this Lease prior to the
lien of its mortgage, deed of trust or ground lease, and shall give
written notice thereof to Lessee, this Lease shall be deemed prior to
such mortgage, deed of trust or ground lease, whether this Lease is
dated prior or subsequent to the date of said mortgage, deed of trust,
or ground lease or the date of the recording thereof.
16.2 SUBORDINATION AGREEMENTS. Lessee covenants and agrees to execute
and deliver upon demand without charge therefore, such further
instruments evidencing such subordination of this Lease to such ground
or underlying leases and to the lien of any such mortgages or deeds of
trust as may be required by Lessor. Lessee hereby appoints Lessor as
Lessee's attorney-in-fact, irrevocably, to execute and deliver any such
agreements, instruments, releases or other documents.
16.3 QUIET ENJOYMENT. Lessor covenants and agrees with Lessee that upon
Lessee paying rent and other monetary sums due under the Lease,
performing its covenants and conditions under the Lease and upon
recognizing Lessor's successor as Lessor pursuant hereto, Lessee shall
and may peaceably and quietly have, hold and enjoy the Premises for the
term, subject, however, to the terms of the Lease and of any of the
aforesaid ground leases, mortgages or deeds of trust described above.
16.4 ATTORNMENT. In the event any proceedings are brought for default
under ground or any underlying lease or in the event of foreclosure or
the exercise of the power of sale under any mortgage or deed of trust
made by the Lessor covering the Premises, the Lessee shall attorn to the
purchaser upon any such foreclosure or sale and recognize such purchaser
as the Lessor under this Lease, provided said purchaser expressly agrees
in writing to be bound by the terms of the Lease.
17. DEFAULTS; REMEDIES
17.1 DEFAULT. The occurrence of any of the following shall constitute a
material default and breach of this Lease by Lessee:
_________________ -7- _________________
Lessor's Initials Lessee's Initials
<PAGE> 8
(a) Any failure by Lessee to pay the rent or any other monetary
sums required to be paid hereunder (where such failure continues for
five (5) days after written notice by Lessor to Lessee);
(b) The abandonment or vacation of the Premises by Lessee;
(c) A failure by Lessee to observe and perform any other
provision of this Lease to be observed or performed by Lessee, where
such failure continues for twenty (20) days after written notice thereof
by Lessor to Lessee; provided, however, that if the nature of the
default is such that the same cannot reasonably be cured within said
twenty (20) day period, Lessee shall not be deemed to be in default if
Lessee shall within such period commence such cure and thereafter
diligently prosecute the same to completion;
(d) The making by Lessee of any general assignment or general
arrangement for the benefit of creditors; the filing by or against
Lessee of a petition to have Lessee adjudged a bankrupt or of a petition
for reorganization or arrangement under any law relating to bankruptcy
unless, in the case of a petition filed against Lessee, the same is
dismissed within sixty (60) days, the appointment of a trustee or
receiver to take possession of substantially all of Lessee's assets
located at the Premises or of Lessee's interest in this Lease, where
possession is not restored to Lessee within thirty (30) days; or the
attachment, execution or other judicial seizure of substantially all of
Lessee's assets located at the Premises or of Lessee's interest in this
Lease, where such seizure is not discharged within thirty (30) days.
17.2 REMEDIES. In the event of any such material default or breach by
Lessee, Lessor may, at any time thereafter without limiting Lessor in
the exercise of any right or remedy at law or in equity which Lessor may
have by reasons of such default or breach;
(a) Maintain this Lease in full force and effect and recover the
rent and other monetary charges as they become due, without terminating
Lessee's right to possession irrespective of whether Lessee shall have
abandoned the Premises. In the event Lessor elects not to terminate the
Lease, Lessor shall have the right to attempt to re-let the Premises at
such rent and upon such conditions and for such a term, and to do all
acts necessary to maintain or preserve the Premises as Lessor deems
reasonable and necessary without being deemed to have elected to
terminate the Lease, including removal of all persons and property from
the Premises; such property may be removed and stored in a public
warehouse or elsewhere at the cost of and for the account of Lessee. In
the event any such re-letting occurs, this Lease shall terminate
automatically upon the new Lessee taking possession of the Premises.
Notwithstanding that Lessor fails to elect to terminate the Lease
initially, Lessor at any time during the term of this Lease may elect to
terminate this Lease by virtue of such previous default of Lessee.
(b) Terminate Lessee's right to possession by any lawful means,
in which case this Lease shall terminate and Lessee shall immediately
surrender possession of the Premises to Lessor. In such event Lessor
shall be entitled to recover from Lessee all damages incurred by Lessor
by reason of Lessee's default, including without limitation thereto, the
following: (i) the worth at the time of award of any unpaid rent which
has been earned at the time of such termination; plus (ii) the worth at
the time of award of the amount by which the unpaid rent which would
have been earned after termination until the time of award exceeds the
amount of such rental loss that is proved could have been reasonably
avoided; plus (iii) the worth at the time of award of the amount by
which the unpaid rent for the balance of the term after the time of
award exceeds the amount of such rental loss that is proved could be
reasonably avoided; plus (iv) any other amount necessary to compensate
Lessor for all the detriment proximately caused by Lessee's failure to
perform his obligations under this Lease or which in the ordinary course
of events would be likely to result therefrom; plus (v) at Lessor's
election, such other amounts in addition to or in lieu of the foregoing
as may be permitted from time to time by applicable State law. Upon any
such re-entry Lessor shall have the right to make any reasonable
repairs, alterations or modifications to the Premises, which Lessor in
its sole discretion deems reasonable and necessary. As used in (i)
above, the "worth at the time of award" is computed by allowing interest
at the rate of ten percent (10%) per annum from the date of default. As
used in (ii) and (iii) the "worth at the time of award" is computed by
discounting such amount at the discount rate of the U.S. Federal Reserve
Bank at the time of award plus one percent (1%). The term "rent," as
used in this Section 17, shall be deemed to be and to mean the rent to
be paid pursuant to Section 3 and all other monetary sums required to be
paid by Lessee pursuant to the terms of this Lease. RELATING TO THE
ABOVE, LESSEE'S SOLE LIABILITY SHALL BE ALL UNPAID RENT, COMMON AREA
EXPENSES, REPAIR AND CLEAN-UP, ATTORNEYS FEES, AND 75% OF THE
UN-AMORTIZED LEASE COMMISSIONS (ON A STRAIGHT LINE BASIS) FOR LEASE
TERMINATION.
17.3 LATE CHARGES. Lessee hereby acknowledges that late payment by
Lessee to Lessor of rent and other sums due hereunder will cause Lessor
to incur costs not contemplated by this Lease, the exact amount of which
will be extremely difficult to ascertain. Such costs include, but are
not limited to, processing and accounting charges, and late charges
which may be imposed on Lessor by the terms of any mortgage or trust
deed covering the Premises. Accordingly, if any installment of rent or
any other sum due from Lessee shall not be received by Lessor or
Lessor's designee within ten (10) days after such amount shall be due,
Lessee shall pay to Lessor a late charge equal to ten percent (10%) of
such overdue amount. The parties hereby agree that such late charge
represents a fair and reasonable estimate of the costs Lessor will incur
by reason of late payment by Lessee. Acceptance of such late charge by
Lessor shall in no event constitute a waiver of Lessee's default with
respect to such overdue amount nor prevent Lessor from exercising any of
the other rights and remedies granted hereunder.
_________________ -8- _________________
Lessor's Initials Lessee's Initials
<PAGE> 9
17.4 DEFAULT BY LESSOR. Lessor shall not be in default unless Lessor
fails to perform obligations required of Lessor within a reasonable
time, but in no event later than thirty (30) days after written notice
by Lessee to Lessor and to the holder of any first mortgage or deed of
trust covering the Premises whose name and address shall have
theretofore been furnished to Lessee in writing, specifying wherein
Lessor has failed to perform such obligations, provided, however, that
is the nature of Lessor's obligation is such that more than thirty (30)
days are required for performance, then Lessor shall not be in default
if Lessor commences performance within such thirty-day period and
thereafter diligently prosecutes the same to completion.
18. MISCELLANEOUS
18.1 ESTOPPEL CERTIFICATE.
(a) Lessee shall at any time upon not less than ten (10) day's
prior written notice from Lessor execute, acknowledge and deliver to
Lessor a statement in writing (i) certifying that this Lease is
unmodified and in full force and effect (or, if modified, stating the
nature of such modification and certifying that this Lease, as so
modified, is in full force and effect) and the date to which the rent
and other charges are paid in advance, if any, and (ii) acknowledging
that there are not, to Lessee's knowledge, any uncured defaults on the
part of Lessor hereunder, or specifying such defaults if any are
claimed. Any such statement may be conclusively relied upon by any
prospective purchaser or encumbrancer of the Premises.
(b) Lessee's failure to deliver such statement within time shall
be conclusive upon Lessee(i) that this Lease is in full force and
effect, without modification except as may be represented by Lessor,
(ii) that there are no uncured defaults in Lessor's performance and
(iii) that not more that one month's rent has been paid in advance.
(c) If Lessor desires to finance or refinance the Building, or
any part thereof, Lessee hereby agrees to deliver to any lender
designated by Lessor such financial statements as may be reasonably
required by such lender. Such statements shall include the past three
years' financial statements of Lessee. All such financial statements
shall be received by Lessor in confidence and shall be used only for the
purposes herein set forth.
18.2 TRANSFER OF LESSOR'S INTEREST. In the event of a sale or conveyance
by Lessor of Lessee's interest in the Premises or the Building other
than a transfer for security purposes only, Lessor shall be relieved
from and after the date specified in any such notice of transfer of all
obligations and liabilities accruing thereafter on the part of Lessor,
provided that any funds in the hands of the Lessor at the time of
transfer in which Lessee has an interest, shall be delivered to the
successor of Lessor. This Lease shall not be affected by any such sale
and Lessee agrees to attorn to the purchaser or assignee provided all
Lessor's obligations hereunder are assumed in writing by the transferee.
18.3 CAPTIONS; ATTACHMENTS; DEFINED TERMS. (a) The captions of the
paragraphs of this Lease are for convenience only and shall not be
deemed to be relevant in resolving any question of interpretation or
construction of any section of this Lease. (b) Exhibits attached hereto,
and addendums and schedules initiated by the parties, are deemed by
attachment to constitute part of this Lease and are incorporated herein.
(c) The words "Lessor" and "Lessee," as used herein, shall include the
plural as well as the singular. Words used in neuter gender include the
masculine and feminine and words in the masculine or feminine gender
include the neuter. If there be more than one Lessor or Lessee, the
obligations hereunder imposed upon Lessor or Lessee shall be joint and
several; as to a Lessee which consists of husband and wife, the
obligations shall extend individually to the sole and separate property
as well as community property. The term "Lessor" shall mean only the
owner or owners at the time in question of the fee title or a tenant's
interest in a ground lease of the land underlying the Building. The
obligations contained in this Lease to be performed by Lessor shall be
binding on Lessor's successor's and assigns only during their respective
periods of ownership.
18.4 ENTIRE AGREEMENT. This instrument along with any exhibits and
attachments hereto constitutes the entire agreement between Lessor and
Lessee relative to the Premises and this Agreement and the exhibits and
attachments may be altered, amended or revoked only by an instrument in
writing signed by both Lessor and Lessee. Lessor and Lessee agree hereby
that all prior or contemporaneous oral agreements between and among
themselves and their agents or representatives relative to the leasing
of the premises are written in or revoked by this Agreement.
18.5 SEVERABILITY. If any term or provision of this Lease shall, to any
extent, be determined by a court of competent jurisdiction to be invalid
or unenforceable, the remainder of this Lease shall not be affected
thereby, and each term and provision of this Lease shall be valid and be
enforceable to the fullest extent permitted by law.
18.6 COSTS OF SUIT.
(a) If Lessee or Lessor shall bring any action for any relief
against the other, declaratory or otherwise, arising out of this Lease,
including any suit by Lessor for the recovery of rent or possession of
the Premises, the losing party shall pay the successful party a
reasonable sum for attorney's fees which shall be deemed to have accrued
on the commencement of such action and shall be paid whether or not such
action is prosecuted to judgement.
(b) Should Lessor, without fault on Lessor's part, be made a
party to any litigation instituted by Lessee or by any third party
against Lessee, or by or against any person holding under or using the
Premises by license of Lessee, or for the foreclosure of any lien for
labor or material furnished to or for Lessee or any such other person or
otherwise arising out of or resulting from any
_________________ -9- _________________
Lessor's Initials Lessee's Initials
<PAGE> 10
act or transaction of Lessee or of any such other person, Lessee
covenants to save and hold Lessor harmless from any judgement rendered
against Lessor or the Premises, or any part thereof, and all costs and
expenses, including reasonable attorneys' fees, incurred by Lessor in or
in connection with such litigation.
(c) If Lessee or Lessor or their successors as assigns shall
bring an action against Broker or make Broker a party to litigation
arising out of this Lease, Broker shall be entitled to recover
reasonable attorney's fees and court costs from either Lessor or Lessee
if Broker is adjudged by a court of competent jurisdiction to be without
fault in such matter.
18.7 TIME; JOINT AND SEVERAL LIABILITY. Time is of the essence of this
Lease and each and every provision hereof, except as to the conditions
relating to the delivery of possession of the Premises to Lessee. All
the terms, covenants and conditions contained in this Lease to be
performed by either party, if such party shall consist of more than one
person or organization, shall be deemed to be joint and several, and all
rights and remedies of the parties shall be cumulative and nonexclusive
of any other remedy at law or in equity.
18.8 BINDING EFFECT; CHOICE OF LAW. The parties hereto agree that all
provisions hereof are to be construed as both covenants and conditions
as though the words importing such covenants and conditions were used in
each separate paragraph hereof. Subject to any provisions hereof
restricting assignment or subletting by Lessee and subject to Section
15, all of the provisions hereof shall bind and inure tho the benefit of
the parties hereto and their respective heirs, legal representatives,
successors and assigns. This Lease shall be governed by the laws of the
State of California.
18.9 WAIVER. No covenant, term or condition or the breach thereof shall
be deemed waived, except by written consent of the party against whom
the waiver is claimed, and any waiver to the breach of any covenant,
term or condition shall not be deemed to be a waiver of any preceding or
succeeding breach of the same of any other covenant, term or condition.
Acceptance by Lessor of any performance by Lessee after the time the
same shall have become due shall not constitute a waiver by Lessor of
the breach or default of any covenant, term or condition unless
otherwise expressly agreed to by Lessor in writing.
18.10 SURRENDER OF PREMISES. The voluntary or other surrender of this
Lease by Lessee, or a mutual cancellation thereof, shall not work a
merger, and shall, at the option of the Lessor, terminate all or any
existing subleases or subtenancies, or may, at the option of the Lessor,
operate as an assignment to it of any or all such subleases or
subtenancies.
18.11 HOLDING OVER. If Lessee remains in possession of all or any part
of the Premises after the expiration of the term hereof, with or without
the express or implied consent of Lessor, such tenancy shall be from
month to month only, and not a renewal hereof or an extension for any
further term, and in such case, rent and other monetary sums due
hereunder shall be payable in the amount and at the time specified in
this Lease and such month to month tenancy shall be subject to every
other term, covenant and agreement contained herein.
18.12 SIGNS.
(a) Lessee shall not place or permit to be placed in or upon the
Premises, where visible from outside the Premises, or outside the
Premises or any part of the Building any signs, notices, drapes,
shutters, blinds or displays of any type without the prior written
consent of Lessor.
(b) Lessor reserves the right in Lessor's sole discretion to
place and locate on the roof, exterior of the Building, and in any area
of the Building not leased to Lessee such signs, notices, displays and
similar items as Lessor deems appropriate in the proper operation of the
Building.
18.13 REASONABLE CONSENT. Except as limited elsewhere in this Lease,
wherever in this Lease Lessor or Lessee is required to give its consent
or approval to any action on the part of the other, such consent or
approval shall not be unreasonably withheld. In the event of failure to
give any such consent, the other party shall be entitled to specific
performance at law and shall have such other remedies as are reserved to
it under this Lease, but in no event shall Lessor or Lessee be
responsible in monetary damages for failure to give consent unless said
consent is withheld maliciously or in bad faith.
18.14 INTEREST ON PAST DUE OBLIGATIONS. Except as expressly provided,
any amount due to Lessor not paid when due shall bear interest at ten
percent (10%) per annum from the due date. Payment of such interest
shall not excuse or cure any default by Lessee under this Lease.
18.15 RULES AND REGULATIONS; PARKING.
(a) Lessee and Lessee's agents, servants, employees, visitors
and licensees shall observe and comply fully and faithfully with all
reasonable and non-discriminatory rules and regulations adopted by
Lessor for the care, protection, cleanliness and operation of the
Building and its tenants including those annexed to this Lease as
Exhibit C and any modification or addition thereto adopted by Lessor,
provided Lessor shall give written notice thereof to Lessee. Lessor
shall not be responsible to Lessee for the non-performance by any other
tenant or occupant of the Building of any said rules and regulations.
(b) Lessee shall have approximately six (6) parking stalls
available on a non-reserved basis during the term of this Lease. 18.16
NOTICES. All Notices or demands of any kind required or desired to be
given by Lessor or Lessee hereunder shall be in writing and shall be
deemed delivered forty-eight (48) hours after depositing the notice or
demand in the United States mail, certified or registered, postage
prepaid, addressed to the Lessor or Lessee respectively at the address
set forth after their signatures at the end of this Lease.
_________________ -10- _________________
Lessor's Initials Lessee's Initials
<PAGE> 11
18.17 CORPORATE AUTHORITY. If Lessee is a corporation, each individual
executing this Lease on behalf of said corporation represents and
warrants that he is duly authorized to execute and deliver this Lease on
behalf of said corporation in accordance with the duly adopted
resolution of the Board of Directors of said corporation or in
accordance with the By-laws of said corporation, and that this Lease is
binding upon said corporation in accordance with its terms. If Lessee is
a corporation Lessee shall, within thirty (30) days after execution of
this Lease, deliver to Lessor a certified copy of a resolution of the
Board of Directors of said corporation authorizing or ratifying the
execution of this Lease.
18.18 RECORDATION. Neither Lessor nor Lessee shall record this Lease or
a short form memorandum hereof without the prior written consent of the
other party.
18.19 INABILITY TO PERFORM. This Lease and the obligations of the Lessee
hereunder shall not be affected or impaired because the Lessor is unable
to fulfill any of its obligations hereunder or is delayed in doing so,
if such inability or delay is caused by reason of strike, labor
troubles, acts of God, or any other cause beyond the reasonable control
of the Lessor.
18.20 AMERICANS WITH DISABILITIES ACT. Any other provision of this Lease
notwithstanding, the parties hereby agree that the demised premises may
be subject to the terms and conditions of the Americans with
Disabilities Act of 1990 (hereinafter the "ADA"). The parties further
agree and acknowledge that is shall be the sole responsibility of the
Lessee to comply with any and all provisions of the ADA, as such
compliance may be required to operate the demised premises. The Lessee
further agrees to indemnify and hold the Lessor harmless against any
claims that may arise out of Lessee's failure to comply with the ADA.
Such indemnification shall include, but not necessarily be limited to
reasonable attorney's fees, court costs and judgements as a result of
said claims. Landlord shall deliver the premises and building in
substantial compliance with current ADA standards.
19. ADDITIONAL PARAGRAPHS 20 through 22 are attached hereto and made a part
of the Lease.
In Witness Whereof, Lessor and Lessee have executed this Lease the date and year
first above written.
LESSOR: LESSEE:
DAVID AND MARIA WONG REDDING BANK OF COMMERCE,
A CALIFORNIA CORPORATION
By: /s/ DAVID WONG 7/20/98 By: /s/ RUSS DUCLOS 6-25-98
-------------------------------- ------------------------------
David Wong Date Russ Duclos Date
President
By: /s/ MARIA WONG 7/20/98
--------------------------------
Maria Wong Date
Address: Address:
4318 Almond Drive Redding Bank of Commerce
Davis, CA 95616 2400 Professional Drive, Suite 100
(916) 756-1192 Roseville, CA 95661
_________________ -11- _________________
Lessor's Initials Lessee's Initials
<PAGE> 12
ADDENDUM TO THAT CERTAIN LEASE DATED JUNE 10, 1998
BY AND BETWEEN
DAVID AND MARIA WONG, "LESSOR"
AND
REDDING BANK OF COMMERCE
A CALIFORNIA CORPORATION, "LESSEE"
20. RENT SCHEDULE:
TERM: MONTHLY RENT:
9/1/98 to 8/31/99 Two Thousand Five Hundred Twenty Two
and 80/100ths Dollars ($2,522.80).
9/1/99 to 8/31/00 Two Thousand Five Hundred Ninety
Seven and no/100ths Dollars ($2,597.00).
9/1/00 to 8/31/01 Two Thousand Six Hundred Seventy One
and 20/100ths Dollars ($2,671.20).
9/1/01 to 8/31/02 Two Thousand Seven Hundred Forty Five
and 40/100ths Dollars ($2,745.40).
9/1/02 to 8/31/03 Two Thousand Eight Hundred Nineteen
and 60/100ths Dollars ($2,819.60).
21. OPTION TO RENEW:
In the event that the Lessee shall not be in default in the performance
of any term or condition of this Lease, at the time of exercise or at
any time thereafter prior to commencement of the renewal term, then upon
expiration of the lease term, Lessee shall have an option to renew the
lease for an additional term of five (5) years. This option may be
exercised by the Lessee at any time prior to the date that shall be
three (3) months from the expiration of the term of the Lease. The
option shall be exercised by delivery or mailing, postage prepaid,
certified mail, notice to Lessor stating that the Lessee is exercising
his option to renew. Such exercise of the option shall automatically
extend their term of the lease upon the terms and conditions herein set
forth, and no further writing need be executed by the Lessor, except as
to the rental charge. Once exercised, the Lessee shall not have the
right to revoke his election to exercise the option. In the event that
the option is not exercised as provided for herein within the time
provided for, then the option shall expire, and the Lessee shall not
have the right to renew the Lease. The total rent for the Premises in
the event this Lease is so extended, shall be negotiated by the parties
prior to the expiration of the existing Lease term.
22. SIGNAGE:
So long as not in default under this Lease, Lessee shall be allowed to
install signage at Lessee's sole cost and expense, subject to the CC&R's
and the City of Roseville sign criteria for Corporate Commons. Said
signage shall be subject to (1) approval by all government entities
having jurisdiction and (2) Lessor's design approval, which shall not be
unreasonably withheld. Lessor further agrees to give a response to
Lessee within ten (10) days of Lessors receipt from Lessee of Lessee's
sign request. All costs of the sign, it [sic] design, its installation,
its operation, its maintenance and/or its removal shall be borne solely
by Lessee.
<PAGE> 13
THIS AGREEMENT HAS BEEN PREPARED FOR SUBMISSION TO YOUR ATTORNEY FOR HIS
APPROVAL. NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE REAL ESTATE
BROKER(S) OR THEIR AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL
EFFECT, OR TAX CONSEQUENCES OF THIS AGREEMENT OR THE TRANSACTION INVOLVED
HEREIN.
AGREED AND ACCEPTED
LESSOR: LESSEE:
DAVID AND MARIA WONG REDDING BANK OF COMMERCE
A CALIFORNIA CORPORATION
BY: /s/ DAVID WONG BY: /s/ RUSS DUCLOS
------------------------- ---------------------
David Wong Russ Duclos
President
DATE: 7/20/98 DATE: 6-25-98
------------------------- --------------------
BY: /s/ MARIA WONG
-------------------------
Maria Wong
DATE: 7/20/98
-----------------------
<PAGE> 14
EXHIBIT "A"
_________________ _________________
Lessor's Initials Lessee's Initials
<PAGE> 15
EXHIBIT "B"
Lessor agrees that the interior of the Premises will be completed in substantial
form to the floorplan and specifications as described in this Exhibit "B",
attached hereto and made a part of this Lease. Lessor shall provide sink with
upper and lower cabinet as located below, HVAC, flooring, light fixtures,
electrical, lighting and paint. Paint colors to be mutually agreed to by both
parties. All tenant improvements shall be in building standard quality and
quantity and agreed to between both parties within two (2) weeks of lease
execution. Lessor shall be responsible for installation and maintenance of all
tenant improvements subject to normal wear and tear by Lessee. Any additional
tenant improvements, any upgrades, or change orders from the Standard Tenant
Improvement Allowance provided by Lessor at the request of Lessee, shall be paid
by Lessee to Lessor in cash prior to occupancy.
Lessor shall, at Lessor's sole cost and expense, provide "turnkey" tenant
improvements using building standard finishes and materials based upon a
mutually acceptable floor plan. Please see the floor plan below identifying
Lessee's proposed modifications to Lessor's floor plan. Said changes shall
include, but not be limited to, converting the full-height wall in the reception
area to a partial wall eliminating one (1) wall, creating the break/storage room
(with sink and cabinetry) as indicated on the floor plan; converting Lessor's
proposed break/storage room to an office; and adding glass approximately 2' wide
and 5' high adjacent to the door on the two (2) offices as indicated on the
floor plan below, subject to final specifications to be mutually agreed by
Lessee and Lessor. Window frames to match door in style with one-quarter inch
(1/4") glass. Cabinet in breakroom to be plastic laminate with fifteen inch by
fifteen inch (15" x 15") sink. The following will also be required:
- -- 2'x4' Suspended T-Bar Ceiling, 2'x2' Armstrong Second-Look ceiling
panels, lights are 2x4 recessed-florescent. Lessor shall pay $250.00
above building standard towards the ceiling panels.
- -- Timely door frames with brown tone finish.
- -- Doors 1 3/4 solid oak doors with clear finish, F-Series Slaag hardware.
- -- Walls; spray texture with light/medium spray knockdown.
- -- Carpet 26 oz. closed loop with either 2 1/2" or 4" rubber base.
- -- Glass in wall to be 24" wide, 72" long, flush to the top of the door in
two offices.
_________________ _________________
Lessor's Initials Lessee's Initials
<PAGE> 16
EXHIBIT C
RULES AND REGULATIONS
1. No sign, placard, picture, advertisement, name or notice shall be
inscribed, displayed or printed or affixed on or to any part or the
outside or inside of the Building or the Premises without the written
consent of Lessor first hand and obtained and Lessor shall have the
right to remove any such sign, placard, picture, advertisement, name or
notice without notice to and at the expense of Lessee. Lessee shall not
place anything or allow anything to be placed near the glass of any
window, door, partition or wall which may appear unsightly from outside
"the Premises"; provided, however, the Lessor is to furnish and install
a building standard window drapery at all exterior windows.
2. The bulletin board or directory of the Building will be provided
exclusively for the display of the name and location of Lessee only and
Lessor reserves the right to exclude any other names therefrom.
3. The sidewalks, halls, passages, exits, entrances and stairways shall not
be obstructed by any of the tenants or used by them for any purpose
other than for ingress to and egress from their respective Premises. The
halls, passages, exits, entrances, stairways, balconies and roof are not
for the use of the general public and the Lessor shall in all cases
retain the right to control and prevent access thereto by all persons
whose presence in the judgment of the Lessor shall be prejudicial to the
safety, character, reputation and interests of the Building and its
tenants, provided that nothing herein contained shall be construed to
prevent such access to persons with whom the Lessee normally deals in
the ordinary course of Lessee's business unless such persons are engaged
in illegal activities. No tenant and no employees or invitees of any
tenant shall go upon the roof of the Building.
4. Lessee shall not alter any lock or install any new or additional locks
or any bolts on any door of the Premises without the written consent of
Lessor.
5. The toilet rooms, urinals, wash bowls and other apparatus shall not be
used for any purpose other than that for which they were constructed and
no foreign substance of any kind whatsoever shall be thrown therein and
the expense of any breakage, stoppage or damage resulting from the
violation of this rule shall be borne by the Lessee who, or whose
employees or invitees shall have caused it.
6. Lessee shall not overload the floor of the Premises or mark, drive
nails, screw or drill into the partitions, woodwork or plaster or in any
way deface the Premises or any part thereof. No boring, cutting or
stringing of wires or laying of linoleum or other similar floor
coverings shall be permitted except with the prior written consent of
the Lessor and as the Lessor may direct.
7. No furniture, freight or equipment of any kind shall be brought into the
Building without the consent of Lessor and all moving of the same into
or out of the Building shall be done at such time and in such manner as
Lessor shall designate. Lessor shall have the right to prescribe the
weight, size and position of all safes and other heavy equipment brought
into the Building and also the times and manner of moving the same in
and out of the Building. Safes or other heavy objects shall, if
considered necessary by Lessor, stand on wood strips of such thickness
as is necessary to properly distribute the weight. Lessor will not be
responsible for loss of or damage to any such safe or property from any
cause and all damage done to the Building by moving or maintaining any
such safe or other property shall be repaired at the expense of Lessee.
There shall not be used in any space, or in the public halls of the
Building, either by any tenant or others, any hand trucks except those
equipped with rubber tires and side guards.
8. Except with the written consent of Lessor, no person or persons other
than those approved by Lessor shall be permitted to enter the building
for the purpose of cleaning the same. Lessee shall not cause an
unnecessary labor by reason of Lessee's carelessness or indifference in
the preservation of good order and cleanliness. Lessor shall in no way
be responsible to any Lessee for any loss of property on the Premises,
however occurring, or for any damage done to the effects of any Lessee
by the janitor or any other employee or any other person.
_________________ _________________
Lessor's Initials Lessee's Initials
<PAGE> 17
9. Lessee shall not use, keep or permit to be used or kept any food or
noxious gas or substance in the Premises, or permit or suffer the
Premises to be occupied or used in a manner offensive or objectionable
to the Lessor or other occupants of the Building by reason of noise,
odors and/or vibrations, or interfere in any way with other tenants or
those having business therein, nor shall any animals or birds be brought
in or kept in or about the Premises or the Building. No Lessee shall
make or permit to be made any unseemly or disturbing noises or disturb
or interfere with occupants of this or neighboring Buildings or premises
or those having business with them whether by the use of any musical
instrument, radio, phonograph, unusual noise, or in any other way. No
Lessee shall throw anything out of doors or down the passageways.
10. The Premises shall not be used for manufacturing or for the storage of
merchandise except as such storage may be incidental to the use of the
Premises for medical office purposes. No Lessee shall occupy or permit
any portion of his Premises to be occupied as an office for a public
stenographer or typist, or for the manufacture or sale of liquor, or
tobacco in any form, or as a barber shop or manicure shop. No Lessee
shall advertise for laborers giving an address at the Premises. The
Premises shall not be used for lodging or sleeping or for any illegal
purposes.
11. Lessee shall not use or keep in the Premises or the Building any
kerosene, gasoline or inflammable or combustible fluid or material, or
use any method of heating or air conditioning other than that supplied
by Lessor.
12. Lessor will direct electricians as to where and how telephone and
telegraph wires are to be introduced. No boring or cutting for wires
will be allowed without the consent of Lessor. The location of
telephones, call boxes and other office equipment affixed to the
Premises shall be subject to the approval of Lessor.
13. All keys to offices, rooms and toilet rooms shall be obtained from
Lessor's Office and Lessee shall not from any other source duplicate,
obtain keys or have keys made without Lessor's approval. The Lessee,
upon termination of the tenancy, shall deliver to the Lessor the keys of
the offices, rooms and toilet rooms which shall have been furnished or
shall pay the Lessor the cost of replacing same or of changing the lock
or locks opened by such lost key if Lessor deems it necessary to make
such change.
14. No Lessee shall lay linoleum, tile, carpet or other similar floor
covering so that the same shall be affixed to the floor of the Premises
in any manner except as approved by the Lessor. The expense of repairing
any damage resulting from a violation of this rule or removal of any
floor covering shall be borne by the Lessee by whom, or by whose
contractors, employees or invitees, the damage shall have been caused.
15. No furniture, packages, supplies, equipment or merchandise will be
received in the Building, except between such hours as shall be
designated by Lessor.
16. On Sundays, legal holidays and on Saturday commencing at 12:00 noon, and
on other days between the hours of 7:00 P.M. and 7:00 A.M. the following
day, access to the building, or to the halls, corridors, or stairways in
the Building, or to the Premises may be refused unless the person
seeking access is known to the person or employee of the building in
charge and has a pass or is properly identified. The Lessor shall in no
case be liable for damages for any error with regard to the admission to
or exclusion from the Building of any person. The Lessor reserves the
right to prevent access to the Building for the safety of the tenants
and protection of property in the Building and the Building. Lessor
reserves the right to close and keep locked all entrance and exit doors
of the Building on Sundays, legal holidays, and on Saturdays commencing
at 12:00 noon, and on other days between the hours of 7:00 P.M. and 7:00
A.M., and during such further hours as Lessor may deem advisable for the
adequate protection of said Building and the property of its tenants.
17. Lessee shall see that the doors of the Premises are closed and securely
locked before leaving the Building and most observe strict care and
caution that all water faucets or water apparatus are entirely
_________________ _________________
Lessor's Initials Lessee's Initials
<PAGE> 18
shut off before Lessee or Lessee's employees leave the building, and
that all electricity shall likewise be carefully shut off, so as to
prevent waste or damage, and for any default or carelessness Lessee
shall make good all injuries sustained by other tenants or occupants of
the Building.
18. Lessor reserves the right to exclude or expel from the Building any
person who, in the judgment of Lessor, is intoxicated or under the
influence of liquor or drugs, or who shall in any manner do any act in
violation of any of the rules and regulations of the Building.
19. The requirements of Lessee will be attended to only upon application at
the Office of the Building. Employees of Lessor shall not perform any
work or do anything outside of their regular duties unless under special
instructions from the Lessor, and no employee will admit any person
(Lessee or otherwise) to any office without specific instructions from
the Lessor.
20. No vending machine or machines of any description shall be installed,
maintained, or operated upon the Premises without the written consent of
the Lessor.
21. Lessor shall have the right, exercisable without notice and without
liability to Lessee, to change the name and the street address of the
Building of which the Premises are a part.
22. Lessee agrees that it shall comply with all fire and security
regulations that may be issued from time to time by Lessor and Lessee
also shall provide Lessor with the name of a designated responsible
employee to represent Lessee in all matters pertaining to such fire or
security regulations.
23. Lessor reserves the right by written notice to Lessee, to rescind, alter
or waive any rule or regulation at any time prescribed for the Building
when, in Lessor's judgment, it is necessary, desirable or proper for the
best interest of the Building and its tenants.
24. Lessees shall not disturb, solicit, or canvass any occupant of the
Building and shall cooperate to prevent same.
25. Without the written consent of Lessor, Lessee shall not use the name of
the Building and shall cooperate to prevent same.
26. Lessor shall furnish heating and air conditioning during the hours of
7:00 A.M. to 7:00 P.M. Monday through Friday, and 8:00 A.M. to 12:00
P.M. on Saturday, except for Holidays.
_________________ _________________
Lessor's Initials Lessee's Initials
<PAGE> 1
EXHIBIT 10.2
COMMERCIAL LEASE
REDDING BANK OF COMMERCE, hereinafter referred to as LESSEE and GARIAN
PARTNERSHIP/FIRST AVENUE SQUARE, hereinafter referred to as LESSOR, enter into
agreement whereby Lessee hereby offers to lease from Lessor the premises
situated in the City of Chico, County of Butte, State of California, described
as Suite 4 (consisting of approximately 500 sq. ft.) First Avenue Square,
located at 676 E. First Avenue upon the following TERMS AND CONDITIONS:
1. TERM: The term hereof shall commence on August 1, 1998, and expire on
July 31, 2001 (3 year).
2-A. RENT: The monthly rent shall be as follows:
August 1, 1998 - July 31, 2001 $400.00 per mo.
Rent is payable in advance of the first day of each month to First Avenue
Square, 676 E. First Avenue, Suite 7, Chico, California 95926 or at such other
places as may be designated by Owner from time to time. Any rent which is paid
five days from the due date shall be subject to a late charge equal to 5% of the
monthly rent, plus interest. Any rent which is paid by a check which is
subsequently dishonored shall be subject to a returned check fee of $25. Late
charge and returned check fees shall be liquidated damages to cover Lessor's
damages incurred by reason of late payment or returned checks, the actual amount
of which is difficult to determine.
2B. DEPOSIT: Lessee has deposited with Lessor, first and last month's rent
in the amount of $800.00 and cleaning deposit, the sum of $400.00, paid in
advance of August 1, 1995.
3. USE: The premises are to be used for the operation of a bank branch
office for lending and no other purpose, without prior written consent of
Lessor.
4. USES PROHIBITED: Lessee shall not use any portion of the premises for
purposes other than those specified hereinabove, and no use shall be made or
permitted upon the property, nor acts done, which shall increase the existing
rate of insurance upon the property, or cause cancellation of insurance policies
covering said property. Lessee shall not conduct or permit any sale by auction
on the premises.
5. ASSIGNMENT AND SUBLETTING: Lessee shall not assign this lease or sublet
any portion of the premises without prior written consent of the Lessor, which
shall not be unreasonably withheld. Any such assignment or subletting without
written consent shall be void and, at the option of the Lessor, may terminate
this lease.
6. ORDINANCES AND STATUTES: Lessee shall comply with all statutes,
ordinances and requirements of all municipal, state and federal authorities now
in force, or which may hereafter be in force, pertaining to the premises,
occasioned by or affecting the use thereof by Lessee. The commencement or
dependence of any state or federal court abatement proceeding affecting the use
of the premises shall, at the option of the Lessor, be deemed a breach hereof.
-1-
<PAGE> 2
7. MAINTENANCE, REPAIRS, ALTERATIONS: Lessee acknowledges that the premises
are in good order and repair, unless otherwise indicated herein. Lessee shall at
his own expense, and at all times, maintain the interior of the premises in good
and safe condition including: plate glass, all electrical fixtures (outlets,
breakers, light bulbs, ballasts and switches), plumbing, (interior and exterior
of the building). Lessee shall be responsible for performing the recommended
manufacturer's maintenance of all heating and air conditioning installations and
any other system or equipment upon the premises. Lessee shall be responsible for
all interior repairs required. Lessor is responsible for the maintenance and
repair of the roof and exterior walls unless damaged by Lessee. Lessee shall
surrender the premises at termination hereof, in as good condition as received,
normal wear and tear excepted. Lessee may, at Lessee's expense, provide one (1)
exterior signage in harmony with existing signage, on the exterior of the
buildings. No other improvements or alterations of the premises shall be made
without the prior WRITTEN consent of Lessor.
Prior to the commencement of any substantial repair, improvement or alteration,
Lessee shall give Lessor at least 5 days written notice in order that Lessor may
post appropriate notices to avoid any liability for liens. Any window coverings
installed by Lessee must be of a neutral color.
Lessor is responsible for all exterior landscape maintenance and upkeep, as well
as maintenance and cleaning of parking lots.
8. ENTRY AND INSPECTION: Lessee shall permit Lessor or Lessor's agents to
enter upon the premises at reasonable times and upon reasonable notice, for the
purpose of inspecting the same, and will permit Lessor at any time within sixty
(60) days prior to the expiration of this lease, to place upon the premises any
usual "To Let" or "For Lease" signs, and permit persons desiring to lease the
same to inspect the premises thereafter.
9. INDEMNIFICATION OF LESSOR: Lessor shall not be liable for any damage or
injury to Lessee, or any other person, or to any property, occurring on the
demised premises or any part thereof, and Lessee agrees to hold harmless from
any claim for damages.
10. POSSESSION: If Lessor is unable to deliver possession of the premises at
the commencement hereof, Lessor shall not be liable for any damage caused
thereby, nor shall this lease be void or voidable, but Lessee shall not be
liable for any rent until possession is delivered. Lessee may terminate this
lease if possession is not delivered within ten days of the commencement of the
term hereof.
11. INSURANCE: Lessee, at his expense, shall maintain plate glass, public
liability and property damage insurance insuring Lessee with minimum coverage
for Bodily Injury Liability and Property Damage. Lessee shall name Lessor as his
interest may appear but not as co-insured and furnish Lessor with a Certificate
of Insurance which shall provide for a ten-day written notice to Lessor in the
event of cancellation or material change of coverage. Lessee shall be
responsible for his own personal property and fire insurance. To the maximum
extent permitted by insurance policies which may be owned by Lessor or Lessee
for the benefit of each other, waive any and all rights of subrogation which
might otherwise exist.
12. UTILITIES: Lessee agrees that he shall be responsible for the payment of
all utilities, including telephone, gas, electricity and heat. Lessor will
provide water & rubbish service for normal use, excluding packing crates and/or
boxes, which will be the Lessee's responsibility to dispose of immediately.
-2-
<PAGE> 3
13. SIGNS: Lessor reserves the exclusive right to the roof and exterior
walls of the premises. Lessee shall not construct or place any projecting sign
or awning without the prior written consent of Lessor which consent shall not be
unreasonably withheld, nor shall anything be placed in [sic] window that would
obstruct view, including signs, displays or emblems.
14. ABANDONMENT: Lessee shall not vacate or abandon the premises at any time
during the term hereof, and if Lessee shall abandon or vacate the premises or be
dispossessed by process of law, or otherwise, any personal property belonging to
Lessee left upon the premises shall be deemed to be abandoned, at the option of
Lessor.
15. CONDEMNATION: If any part of the premises shall be taken or condemned
for public use, and a part thereof remains which is susceptible of occupation
hereunder, this lease shall, as to the part taken, terminate as of the date the
condemnor acquires possession, and thereafter Lessee shall be required to pay
such proportion of the rent for the remaining term as the value of the premises
remaining bears to the total value of the premises at the date of condemnation:
provided however, that such portion is condemned that the remainder is not
susceptible for use hereunder, this lease shall terminate upon the date upon
which the condemnor acquires possession. All sums which may be payable on
account of any condemnation shall belong to the Lessor, and Lessee shall not be
entitled to any part thereof, provided however, that Lessee shall be entitled to
retain any amount awarded to him for his trade fixtures or moving expenses.
16. TRADE FIXTURES: Any and all improvements made to the premises during the
term hereof shall belong to the Lessor, except trade fixtures of the Lessee.
Lessee may, upon termination hereof, remove all his trade fixtures, but shall
repair or pay for all repairs necessary for damages to the premises occasioned
by removal.
17. DESTRUCTION OF PREMISES: In the event of partial destruction of the
premises during the term hereof, from any cause, Lessor shall forthwith repair
the same, provided that such repairs can be made within sixty (60) days under
existing governmental laws and regulation, but such partial destruction shall
not terminate this lease, except that Lessee shall be entitled to proportionate
reduction of rent while such repairs are being made, based upon the extent to
which the making of such repairs shall interfere with the business of Lessee on
the premises. If such repairs cannot be made within said sixty (60) days, this
lease may be terminated at the option of either party.
In the event that the building in which the demised premises may be situated is
destroyed to an extent of not less than one-third of the replacement costs
thereof, Lessor may elect to terminate this lease whether the demised premises
be injured or not. A total destruction of the building in which the premises may
be situated shall terminate this lease.
In the event of any dispute between Lessor and Lessee with respect to the
provisions hereof, the matter shall be settled by arbitration in such a manner
as the parties may agree upon, or if they cannot agree, in accordance with the
rules of the American Arbitration Association.
18. INSOLVENCY: In the event that a receiver shall be appointed to take over
the business of the Lessee, or in the event that the Lessee shall make, take or
suffer under any insolvency or bankruptcy act, the same shall constitute breach
of this lease by Lessee.
-3-
<PAGE> 4
19. REMEDIES OF OWNER ON DEFAULT: In the event of any breach of this lease
by Lessee, Lessor may, at his option, terminate the lease and recover from
Lessee (a) the worth at the time of award of the unpaid rent which was earned at
the time of termination; (b) the worth at the time of the award of the amount by
which the unpaid rent would have been earned after termination until the time of
the award exceeds the amount of such rental loss that the Lessee proves could
have been reasonably avoided (c) the worth at the time of award exceeds the
amount of such rent loss that Lessee proves could be reasonably avoided; and (d)
any other amount necessary to compensate Lessor for all detriment proximately
caused by Lessee's failure to perform his obligations under the lease or which
in the ordinary course of things would be likely to result therefrom.
Lessor may, in the alternative, continue this lease in effect, as long as Lessor
does not terminate Lessee's right to possession, and Lessor may enforce all his
rights and remedies under the lease, including the right to recover the rent as
it becomes due under the lease. If said breach of lease continues, Lessor may,
at any time thereafter, elect to terminate the lease. Nothing contained herein
shall be deemed to limit any other rights or remedies which Lessor may have.
20. SECURITY: The security deposit set forth above, if any, shall secure the
performance of the Lessee's obligations hereunder. Lessor may but shall not be
obligated to, apply all portions of said deposit on account of Lessee's
obligations hereunder. Any balance remaining upon termination shall be returned
to Lessee. Lessee shall not have the right to apply the Security Deposit in
payment of the last month's rent.
21. ATTORNEYS FEES: In case suit should be brought for recovery of the
premises, or for any sum due hereunder, or because of any act which may arise
out of the possession of the premises, by either party, the prevailing party
shall be entitled to all costs incurred in connection with such action,
including a reasonable attorney's fee.
22. WAIVER: No failure of Lessor to enforce any term hereof shall be deemed
to be a waiver.
23. NOTICES: Any notice which either party may or is required to give, shall
be given by mailing the same, postage prepaid, to Lessee at the premises or
Lessor at the address shown below, or at such other places as may be designated
by the parties from time to time.
24. INCREASES BY SERVICES RENDERED: In the event there is an extraordinary
increase(s) during any year of the term of this lease in building maintenance,
landscape maintenance, insurance, water and/or garbage over and above the
amount(s) in effect as of August 1, 1998 because of rate increases, Lessee shall
pay to Lessor upon presentation of paid invoice(s) an amount equal to the
percentage of square footage of space occupied by Lessee of the increase in
services upon the land and buildings in which the leased premises are situated.
Extraordinary expenses are defined as costs greater than normal inflationary
rates.
25. HOLDING OVER: Any holding over after the expiration of this lease, with
the consent of Lessor, shall be construed as a month-to-month tenancy at a
rental rate to be determined sixty (60) days prior to expiration of lease.
Lessee shall have option to renew lease within sixty (60) days written request
to continue occupancy.
26. OPTION TO RENEW: Provided that Lessee is not in default in the
performance of this lease, Lessee shall have the option to renew for three (3)
years. The option shall be exercised by written notice given to Lessor not less
than ninety (90) days prior to the expiration of the initial lease
-4-
<PAGE> 5
term, and a new lease to be signed by both parties prior to the expiration date.
The new lease rate is to be defined by market rate for the area and CPI.
27. TIME: Time [sic] of the essence of this lease.
28. HEIRS, ASSIGNS, SUCCESSORS: This lease is binding upon and insures to
the benefit of the heirs, assigns and successors in interest to the parties.
29. TAX INCREASE: In the event there is any increase during any year of the
term of this lease in the City, County or State real estate taxes over and above
the amount of such taxes assessed for the tax year during which the term of this
lease commences, whether because of increase rate of valuation, Lessee shall pay
to Lessor upon presentation of paid tax bills an amount equal to the percentage
of square footage of space occupied by Lessee of the increase in taxes upon the
land and building in which the leased premises are situated. In the event that
such taxes are assessed for a tax year extending beyond the term of the lease,
the obligation of lessee shall be proportionate to the portion of the lease term
included in such year. Tax Base Year shall be 1988-1989.
30. JANITORIAL SERVICE: Lessee will provide, at his sole cost, janitorial
services for his leased premises, including the exterior cleaning of the
windows, doorways and patio. Lessor will provide, at his sole cost, maintenance
and utilities of the building exterior, common areas, parking lot, single large
office identification sign and rubbish service excluding packing crates and/or
boxes or other large objects.
31. PARKING: Parking is available in common areas. There will be no
"back-in" parking. It is requested that Lessee and Employees not park directly
in front of other offices. Shipping and receiving is to be scheduled before or
after normal business hours so as not to block or disrupt regular traffic flow
(Customers, Clients of other Lessees). No storage of personal vehicles or
recreational vehicles is allowed on site. Company vehicles left on-site over
weekend or vacations will be kept neat and clean in appearance. Parking area is
not to be used for repair of vehicles. No motorcycles or bicycles are permitted
on the walkways. Any activity considered damaging to the asphalt by Lessee or
Sublessee will be the responsibility of Lessee.
ENTIRE AGREEMENT: The foregoing constitutes the entire agreement between the
parties and may be modified only by a writing signed by both parties. The
following Exhibits, if any, have been made a part of this lease before the
parties execution hereof:
The undersigned Lessee hereby acknowledges receipt of a copy hereof
<TABLE>
<S> <C>
Date: 7-16-98
-----------------
LESSEE: REDDING BANK OF LESSOR:GARIAN PARTNERSHIP FIRST
COMMERCE AVENUE SQUARE
BY: /s/ Russell L. Duclos BY: /s/ Garey B. Weibel
------------------------- -------------------------
TITLE: PRESIDENT & CEO GAREY B. WEIBEL
----------------------
BUSINESS PHONE: (916) 893-2200
</TABLE>
-5-
<PAGE> 6
<TABLE>
<S> <C>
BUSINESS PHONE: AGENT:
---------------------- ----------------------
MAILING ADDRESS:
- ----------------------
- ----------------------
</TABLE>
-6-
<PAGE> 1
EXHIBIT 10.3
REDDING BANCORP
1998 STOCK OPTION PLAN
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 1. ESTABLISHMENT AND PURPOSE..................................................... 1
SECTION 2. DEFINITIONS................................................................... 1
(a) "Bancorp".................................................................. 1
(b) "Board of Directors"....................................................... 1
(c) "Cause..................................................................... 1
(d) "Change in Control"........................................................ 1
(e) "Code"..................................................................... 2
(f) "Committee"................................................................ 2
(g) "Disability"............................................................... 3
(h) "Employee"................................................................. 3
(i) "Exchange Act"............................................................. 3
(j) "Exercise Price"........................................................... 3
(k) "Fair Market Value"........................................................ 3
(l) "ISO"...................................................................... 3
(m) "Nonstatutory Option"...................................................... 3
(n) "Option"................................................................... 3
(o) "Optionee"................................................................. 3
(p) "Outside Director"......................................................... 3
(q) "Plan"..................................................................... 4
(r) "Service".................................................................. 4
(s) "Share".................................................................... 4
(t) "Stock".................................................................... 4
(u) "Stock Option Agreement"................................................... 4
(v) "Subsidiary"............................................................... 4
SECTION 3. ADMINISTRATION................................................................ 4
(a) Committee Procedures....................................................... 4
(b) Committee Responsibilities................................................. 4
(c) Financial Reports.......................................................... 5
SECTION 4. ELIGIBILITY................................................................... 6
(a) General Rule............................................................... 6
(b) Ten-Percent Shareholders................................................... 6
(c) Attribution Rules.......................................................... 6
(d) Outstanding Stock.......................................................... 6
SECTION 5. STOCK SUBJECT TO PLAN......................................................... 6
(a) Basic Limitation........................................................... 6
(b) Additional Shares.......................................................... 6
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C> <C>
SECTION 6. TERMS AND CONDITIONS OF OPTIONS............................................... 6
(a) Stock Option Agreement..................................................... 6
(b) Number of Shares........................................................... 7
(c) Exercise Price............................................................. 7
(d) Vesting. .................................................................. 7
(e) Withholding Taxes.......................................................... 7
(f) Exercisability and Term.................................................... 7
(g) Nontransferability......................................................... 7
(h) Exercise of Options Upon Termination of Service............................ 8
(i) No Rights as a Shareholder................................................. 8
(j) Modification, Extension and Renewal of Options............................. 8
(k) Restrictions on Transfer of Shares......................................... 8
SECTION 7. PAYMENT FOR SHARES............................................................ 8
(a) General Rule............................................................... 8
(b) Cashless Exercise.......................................................... 8
SECTION 8. ADJUSTMENT OF SHARES.......................................................... 9
(a) General.................................................................... 9
(b) Reorganizations............................................................ 9
(c) Reservation of Rights...................................................... 9
SECTION 9. LEGAL AND REGULATORY REQUIREMENTS............................................. 9
SECTION 10. NO EMPLOYMENT RIGHTS.......................................................... 10
SECTION 11. DURATION AND AMENDMENTS....................................................... 10
(a) Term of the Plan........................................................... 10
(b) Right to Amend or Terminate the Plan....................................... 10
(c) Effect of Amendment or Termination......................................... 10
SECTION 12. EXECUTION..................................................................... 10
</TABLE>
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<PAGE> 4
REDDING BANCORP
1998 STOCK OPTION PLAN
SECTION 1. ESTABLISHMENT AND PURPOSE.
The Plan is being established to attract and retain qualified employees,
directors and consultants, to offer selected employees, directors and
consultants an opportunity to acquire a proprietary interest in the success of
Bancorp, or to increase such interest, by purchasing Shares of Bancorp's Common
Stock. The Plan provides for the grant of Options to purchase Shares. Options
granted under the Plan may include Nonstatutory Options as well as ISOs intended
to qualify under Code section 422.
The Plan shall be governed by, and construed in accordance with, the
laws of the State of California. Capitalized terms shall have the meaning
provided in Section 2 unless otherwise provided in this Plan or a Stock Option
Agreement.
SECTION 2. DEFINITIONS.
(a) "Bancorp" shall mean Redding Bancorp, a California corporation.
(b) "Board of Directors" shall mean the Board of Directors of Bancorp,
as constituted from time to time.
(c) "Cause" shall mean (i) an Optionee's willful failure to
substantially perform the Optionee's duties to Bancorp or a Subsidiary, other
than a failure resulting from Disability, (ii) a willful act which constitutes
gross misconduct or fraud and which is materially injurious to Bancorp or a
Subsidiary, or (iii) conviction of, or a plea of "guilty" or "no contest" to, a
felony. Whether Cause exists shall be determined by the Committee in its sole
and absolute discretion and its determination shall be conclusive and binding on
all persons.
(d) "Change in Control" means the occurrence of any of the following
events:
(i) A change in the composition of the Board of Directors, as a result
of which fewer than one-half of the incumbent directors are directors who
either:
(A) Had been directors of Bancorp twenty-four (24) months prior
to such change; or
(B) Were elected, or nominated for election, to the Board of
Directors with the affirmative votes of at least a majority of the
directors who had been directors of Bancorp twenty-four (24) months
prior to such change and who were still in office at the time of the
election or nomination;
<PAGE> 5
(ii) Any "person" (as such term is used in sections 13(d) and 14(d) of
the Exchange Act) by the acquisition or aggregation of securities is or becomes
the beneficial owner, directly or indirectly, of securities of Bancorp
representing twenty percent (20%) or more of the combined voting power of
Bancorp'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 Bancorp'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 Bancorp. For purposes of
this Subsection (ii), the term "person" shall not include an employee benefit
plan maintained by Bancorp;
(iii) The sale of all or substantially all of the assets of Bancorp to a
person or entity who is not an affiliate (including a Subsidiary) of Bancorp;
(iv) the dissolution of Bancorp pursuant to action validly taken by the
shareholders of Bancorp in accordance with applicable state law; or
(v) the occurrence of any other tender offer, merger, consolidation,
sale, reorganization, dissolution or other such event or series of events, which
in the opinion of a majority of the Board of Directors (as reflected in a
written resolution of the Board of Directors) has resulted in a change of
control of Bancorp.
Any other provision of this Section 2(d) notwithstanding, the term "Change in
Control" shall not include any of the following events, if undertaken at the
election of Bancorp:
(A) A transaction, the sole purpose of which is to change the state of
Bancorp's incorporation; or
(B) A transaction, the result of which is to sell all or substantially
all of the assets of Bancorp to another corporation (the "surviving
corporation"); provided that the surviving corporation is owned directly
or indirectly by the shareholders of Bancorp immediately following such
transaction in substantially the same proportions as their ownership of
Bancorp's common stock immediately preceding such transaction; and
provided, further, that the surviving corporation expressly assumes this
Plan and all outstanding options; or
(C) a public offering of securities by Bancorp.
(e) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(f) "Committee" shall mean the full Board of Directors and/or a
committee of the Board of Directors which is authorized to administer the Plan
under Section 3. The Committee shall have membership composition which enables
the Plan to qualify under Rule 16b-3 with regard to the grant of Options to
persons who are subject to Section 16 of the Securities
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<PAGE> 6
Exchange Act of 1934. The Board may also appoint one or more separate committees
of the Board, each composed of one or more directors of Bancorp who need not
qualify under Rule 16b-3, who may administer the Plan with respect to employees
who are not subject to Section 16 of the Exchange Act, may grant Options under
the Plan to such employees and may determine all terms of such Options.
(g) "Disability" shall mean that the Optionee is unable to engage in any
substantial gainful activity by reason of any medically determinable physical or
mental impairment which can be expected to result in death or which has lasted
or can be expected to last for a continuous period of not less than twelve (12)
months.
(h) "Employee" shall mean (i) any individual who is a common-law
employee of Bancorp or of a Subsidiary, (ii) a member of the Board of Directors
(including Outside Directors), or (iii) an independent contractor or advisor who
performs services for Bancorp or a Subsidiary. Service as a member of the Board
of Directors or as an independent contractor or advisor shall be considered
employment for all purposes of the Plan except the second sentence of Section
4(a).
(i) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(j) "Exercise Price" shall mean the amount for which one Share may be
purchased upon exercise of an Option, as specified by the Committee in the
applicable Stock Option Agreement.
(k) "Fair Market Value" shall mean (i) the closing price of a Share on
the principal exchange which the Shares are trading, on the first trading day
immediately preceding the date on which the Fair Market Value is determined, or
(ii) if the Shares are not traded on an exchange but are quoted on the Nasdaq
National Market or a successor quotation system, the closing price on the first
trading day immediately preceding the date on which the Fair Market Value is
determined, or (iii) if the Shares are not traded on an exchange or quoted on
the Nasdaq National Market or a successor quotation system, the fair market
value of a Share, as determined by the Committee in good faith. Such
determination shall be conclusive and binding on all persons.
(l) "ISO" shall mean an employee incentive stock option described in
Code section 422.
(m) "Nonstatutory Option" shall mean an employee stock option that is
not an ISO.
(n) "Option" shall mean an ISO or Nonstatutory Option granted under the
Plan and entitling the holder to purchase Shares.
(o) "Optionee" shall mean an individual who holds an Option.
(p) "Outside Director" shall mean a member of the Board of Directors who
is not a common-law employee of Bancorp or of a Subsidiary.
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<PAGE> 7
(q) "Plan" shall mean this Redding Bancorp 1998 Stock Option Plan, as
amended from time to time.
(r) "Service" shall mean service as an Employee.
(s) "Share" shall mean one share of Stock, as adjusted in accordance
with Section 8 (if applicable).
(t) "Stock" shall mean the Common Stock, no par value per share, of
Bancorp.
(u) "Stock Option Agreement" shall mean the agreement between Bancorp
and an Optionee which contains the terms, conditions and restrictions pertaining
to his or her Option.
(v) "Subsidiary" shall mean any corporation if Bancorp and/or one or
more other Subsidiaries own not less than fifty percent (50%) 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.
SECTION 3. ADMINISTRATION.
(a) Committee Procedures. The Board of Directors shall designate one of
the members of the Committee as chairman. The Committee may hold meetings at
such times and places as it shall determine. The acts of a majority of the
Committee members present at meetings at which a quorum exists, or acts reduced
to or approved in writing by all Committee members, shall be valid acts of the
Committee.
(b) Committee Responsibilities. Subject to the provisions of the Plan,
the Committee shall have full authority and discretion to take the following
actions:
(i) To interpret the Plan and to apply its provisions;
(ii) To adopt, amend or rescind rules, procedures and forms
relating to the Plan;
(iii) To authorize any person to execute, on behalf of Bancorp,
any instrument required to carry out the purposes of the Plan;
(iv) To determine when Options are to be granted under the Plan;
(v) To select the Optionees;
(vi) To determine the number of Shares to be made subject to
each Option;
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<PAGE> 8
(vii) To prescribe the terms and conditions of each Option,
including (without limitation) the Exercise Price, the duration of the
Option, to determine whether such Option is to be classified as an ISO
or as a Nonstatutory Option, and to specify the provisions of the Stock
Option Agreement relating to such Option;
(viii) To amend any outstanding Stock Option Agreement, subject
to applicable legal restrictions and to the consent of the Optionee who
entered into such agreement;
(ix) To prescribe the consideration for the grant of each Option
under the Plan and to determine the sufficiency of such consideration;
(x) To determine the disposition of each Option under the Plan in
the event of an Optionee's divorce or dissolution of marriage;
(xi) To determine whether Options under the Plan will be granted
in replacement of other grants under an incentive or other compensation
plan of an acquired business;
(xii) To correct any defect, supply any omission, or reconcile
any inconsistency in the Plan or any Stock Option Agreement; and
(xiii) To take any other actions deemed necessary or advisable
for the administration of the Plan.
Subject to the requirements of applicable law, the Committee may designate
persons other than members of the Committee to carry out its responsibilities
and may prescribe such conditions and limitations as it may deem appropriate,
except that the Committee may not delegate its authority with regard to the
selection for participation of or the granting of Options under the Plan to
persons subject to Section 16 of the Exchange Act. All decisions,
interpretations and other actions of the Committee shall be final and binding on
all Optionees and all persons deriving their rights from an Optionee. No member
of the Committee shall be liable for any action that he has taken or has failed
to take in good faith with respect to the Plan or any Option to acquire Shares
under the Plan.
(c) Financial Reports. To the extent required by applicable law, and not
less often than annually, Bancorp shall furnish to Optionees who do not have
duties with Bancorp that assure them access to equivalent information Bancorp's
summary financial information including a balance sheet regarding Bancorp's
financial condition and results of operations.
Such financial statements need not be audited.
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<PAGE> 9
SECTION 4. ELIGIBILITY.
(a) General Rule. Only Employees shall be eligible for designation as
Optionees by the Committee. In addition, only individuals who are employed as
common-law employees by Bancorp or a Subsidiary shall be eligible for the grant
of ISOs.
(b) Ten-Percent Shareholders. An Employee who owns more than ten percent
(10%) of the total combined voting power of all classes of outstanding stock of
Bancorp or any of its Subsidiaries shall not be eligible for the grant of an ISO
unless such grant satisfies the requirements of Code section 422(c)(5).
(c) Attribution Rules. For purposes of Subsection (b) above, in
determining stock ownership, an Employee shall be deemed to own the stock owned,
directly or indirectly, by or for his 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.
(d) Outstanding Stock. For purposes of Subsection (b) above,
"outstanding stock" shall include all stock actually issued and outstanding
immediately after the grant. "Outstanding stock" shall not include shares
authorized for issuance under outstanding options held by the Employee or by any
other person.
SECTION 5. STOCK SUBJECT TO PLAN.
(a) Basic Limitation. Shares offered under the Plan shall be authorized
but unissued Shares. The aggregate number of Shares which may be issued under
the Plan upon exercise of Options shall not exceed one hundred eighty thousand
(180,000) Shares, subject to adjustment pursuant to Section 8. The number of
Shares which are subject to Options outstanding at any time under the Plan shall
not exceed the number of Shares which then remain available for issuance under
the Plan. During the term of the Plan, Bancorp shall at all times reserve and
keep available sufficient Shares to satisfy the requirements of the Plan.
(b) Additional Shares. In the event that any outstanding Option for any
reason expires or is canceled or otherwise terminated, the Shares allocable to
the unexercised portion of such Option shall again be available for the purposes
of the Plan. In the event Shares issued under the Plan are reacquired by Bancorp
pursuant to any forfeiture provision, right of repurchase or right of first
refusal, such Shares shall again be available under the Plan.
SECTION 6. TERMS AND CONDITIONS OF OPTIONS.
(a) Stock Option Agreement. Each grant of an Option under the Plan shall
be evidenced by a Stock Option Agreement between the Optionee and Bancorp. 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
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<PAGE> 10
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.
(b) Number of Shares. Each Stock Option Agreement shall specify the
number of Shares that are subject to the Option and shall provide for the
adjustment of such number in accordance with Section 8. The Stock Option
Agreement shall also specify whether the Option is an ISO or a Nonstatutory
Option.
(c) Exercise Price. Each Stock Option Agreement shall specify the
Exercise Price. The Exercise Price of an ISO shall not be less than one hundred
percent (100%) of the Fair Market Value of a Share on the date of grant and the
Exercise Price of a Nonstatutory Option shall not be less than eighty-five
percent (85%) of the Fair Market Value of a Share on the date of grant, except
as otherwise provided in Section 4(b). Subject to the preceding sentence, the
Exercise Price under any Option shall be determined by the Committee at its sole
discretion. The Exercise Price shall be payable in one of the forms described in
Section 7.
(d) Vesting. The right to exercise each Option shall vest as to not less
than twenty percent (20%) of the Shares covered by the Option on each one-year
anniversary from the date of grant. The number of Shares that may be purchased
under an Option at the Exercise Price shall be equal to the difference between
(i) the product of the number of one-year anniversaries of the Optionee's
continuous Service (including all days of any approved leaves of absence) from
the date of grant times the number of Shares covered by the Option times the
annual vesting percentage, minus (ii) the number of Shares purchased pursuant to
the Option prior to such exercise, but in no case shall be more than the number
of Shares covered by the Option minus the number of Shares purchased pursuant to
the Option prior to such exercise. The resulting number of Shares will be
rounded to the nearest whole number. Notwithstanding the foregoing, the right to
exercise each Option shall be fully vested upon a Change in Control or if the
Optionee terminates employment with Bancorp by reason of death, Disability,
termination without Cause, or, in case of an Outside Director, mandatory
retirement.
(e) Withholding Taxes. As a condition to the exercise of an Option, the
Optionee shall make such arrangements as the Committee may require for the
satisfaction of any federal, state or local withholding tax obligations that may
arise in connection with such exercise. The Optionee shall also make such
arrangements as the Committee may require for the satisfaction of any federal,
state or local withholding tax obligations that may arise in connection with the
disposition of Shares acquired by exercising an Option.
(f) Exercisability and Term. Each Stock Option Agreement shall specify
the date when all or any installment of the Option is to become exercisable. The
Stock Option Agreement shall also specify the term of the Option. The term shall
not exceed ten (10) years from the date of grant, except as otherwise provided
in Section 4(b). Subject to the preceding three sentences, the Committee at its
sole discretion shall determine when all or any installment of an Option is to
become exercisable and when an Option is to expire.
(g) Nontransferability. During an Optionee's lifetime, his Option(s)
shall be exercisable only by him and shall not be transferable, unless the Stock
Option Agreement
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<PAGE> 11
otherwise provides. In the event of an Optionee's death, his Option(s) shall not
be transferable other than by will, beneficiary designation or by the laws of
descent and distribution.
(h) Exercise of Options Upon Termination of Service. Each Stock Option
Agreement shall set forth the extent to which the Optionee shall have the right
to exercise the Option following termination of the Optionee's Service with
Bancorp and its Subsidiaries, and the right to exercise the Option of any
executors or administrators of the Optionee's estate or any person who has
acquired such Option(s) directly from the Optionee by beneficiary designation,
bequest or inheritance. Such provisions shall be determined in the sole
discretion of the Committee, need not be uniform among all Options issued
pursuant to the Plan, and may reflect distinctions based on the reasons for
termination of Service. Notwithstanding the foregoing, to the extent required by
applicable law, each Option shall provide that the Optionee shall have the right
to exercise the vested portion of any Option held at termination for at least 30
days following termination of service with Bancorp for any reason, and that the
Optionee shall have the right to exercise the Option for at least six months
following termination of service if the Optionee's service terminates due to
death or Disability.
(i) No Rights as a Shareholder. An Optionee, or a transferee of an
Optionee, shall have no rights as a shareholder with respect to any Shares
covered by his Option until the date of the issuance of a stock certificate for
such Shares. No adjustments shall be made, except as provided in Section 8.
(j) Modification, Extension and Renewal of Options. Within the
limitations of the Plan, the Committee may cancel, modify, extend or renew
outstanding Options or may accept the cancellation of outstanding Options (to
the extent not previously exercised) in return for the grant of new Options at
the same or a different price. The foregoing notwithstanding, no modification of
an Option shall, without the consent of the Optionee, impair his rights or
increase his obligations under such Option.
(k) Restrictions on Transfer of Shares. Any Shares issued upon exercise
of an Option shall be subject to such special forfeiture conditions, rights of
repurchase, rights of first refusal and other transfer restrictions as the
Committee may determine. Such restrictions shall be set forth in the applicable
Stock Option Agreement and shall apply in addition to any general restrictions
that may apply to all holders of Shares.
SECTION 7. PAYMENT FOR SHARES.
(a) General Rule. The entire Exercise Price of Shares issued under the
Plan shall be payable in lawful money of the United States of America at the
time when such options are exercised, except as provided in Subsections (b)
below.
(b) Cashless Exercise. To the extent that a Stock Option Agreement so
provides, payment may be made all or in part by delivery (on a form prescribed
by the Committee) of an irrevocable direction to a securities broker to sell
Shares and to deliver all or part of the sale proceeds to Bancorp in payment of
the aggregate Exercise Price.
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<PAGE> 12
SECTION 8. ADJUSTMENT OF SHARES.
(a) General. In the event of a subdivision of the outstanding Stock, a
declaration of a dividend payable in Shares, a declaration of a dividend payable
in a form other than Shares in an amount that has a material effect on the value
of Shares, a combination or consolidation of the outstanding Stock (by
reclassification or otherwise) into a lesser number of Shares, a
recapitalization or a similar occurrence, the Committee shall make appropriate
adjustments in one or more of (i) the number of Shares available for future
grants under Section 5, (ii) the number of Shares covered by each outstanding
Option or (iii) the Exercise Price under each outstanding Option.
(b) Reorganizations. In the event that Bancorp is a party to a merger or
other reorganization, outstanding Options shall be subject to the agreement of
merger or reorganization. Such agreement may provide for the assumption of
outstanding Options by the surviving corporation or its parent or for their
continuation by Bancorp (if Bancorp is a surviving corporation); provided,
however, that if assumption or continuation of the outstanding Options is not
provided by such agreement then the Committee shall have the option of offering
the payment of a cash settlement equal to the difference between the amount to
be paid for one Share under such agreement and the Exercise Price, in all cases
without the Optionees' consent.
(c) Reservation of Rights. Except as provided in this Section 8, an
Optionee shall have no rights by reason of any subdivision or consolidation of
shares of stock of any class, the payment of any dividend or any other increase
or decrease in the number of shares of stock of any class. Any issue by Bancorp
of shares of stock of any class, or securities convertible into shares of stock
of any class, shall not affect, and no adjustment by reason thereof shall be
made with respect to, the number or Exercise Price of Shares subject to an
Option. The grant of an Option pursuant to the Plan shall not affect in any way
the right or power of Bancorp 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.
SECTION 9. LEGAL AND REGULATORY REQUIREMENTS.
Shares shall not be issued under the Plan unless the issuance and
delivery of such Shares complies with (or is exempt from) all applicable
requirements of law, including (without limitation) the Securities Act of 1933,
as amended, the rules and regulations promulgated thereunder, state securities
laws and regulations and the regulations of any stock exchange on which
Bancorp's securities may then be listed, and Bancorp has obtained the approval
or favorable ruling from any governmental agency which Bancorp determines is
necessary or advisable.
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<PAGE> 13
SECTION 10. NO EMPLOYMENT RIGHTS.
No provision of the Plan, nor any Option granted under the Plan, shall
be construed to give any person any right to become, to be treated as, or to
remain an Employee. Bancorp and its Subsidiaries reserve the right to terminate
any person's Service at any time and for any reason.
SECTION 11. DURATION AND AMENDMENTS.
(a) Term of the Plan. The Plan, as set forth herein, shall become
effective as of the date first set forth above, subject to the approval of
Bancorp's shareholders. In the event that the shareholders fail to approve the
Plan within twelve (12) months of its adoption by the Board of Directors, any
Option grants already made shall be null and void, and no additional Option
grants shall be made after such date. The Plan shall terminate automatically ten
(10) years after its original adoption by the Board of Directors and may be
terminated on any earlier date pursuant to Subsection (b) below.
(b) Right to Amend or Terminate the Plan. The Board of Directors may
amend or terminate the Plan at any time and from time to time. Rights and
obligations under any Option granted before amendment or termination of the Plan
shall not be materially altered, or impaired adversely, by such amendment or
termination, except with consent of the person to whom the Option was granted.
An amendment of the Plan shall be subject to the approval of Bancorp's
shareholders only to the extent required by applicable laws, regulations or
rules.
(c) Effect of Amendment or Termination. No Shares shall be issued or
sold under the Plan after the termination thereof, except upon exercise of an
Option granted prior to such termination. The termination of the Plan, or any
amendment thereof, shall not affect any Share previously issued or any Option
previously granted under the Plan.
SECTION 12. EXECUTION.
To record the adoption of the Plan by the Board of Directors, Bancorp
has caused its authorized officer to execute the same as of __________, 1998.
REDDING BANCORP
By:
-------------------------------------------
Its:
-------------------------------------------
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<PAGE> 1
EXHIBIT 10.4
REDDING BANCORP
1998 STOCK OPTION PLAN
INCENTIVE STOCK OPTION AGREEMENT
Redding Bancorp, a California corporation ("Bancorp"), hereby grants an
option to purchase Shares of its common stock to the optionee named below. The
terms and conditions of the option are set forth in this cover sheet, in the
attachment and in Bancorp's 1998 Stock Option Plan (the "Plan").
Date of Option Grant: _____________, 199__
Name of Optionee: ______________________________________________________________
Optionee's Social Security Number: _____-___-_____
Number of Shares of Common Stock Covered by Option: ____________________________
Exercise Price per Share:(1) $_________________________________________________
BY SIGNING THIS COVER SHEET, YOU AGREE TO ALL OF THE TERMS AND CONDITIONS
DESCRIBED IN THIS COVERSHEET, THE ATTACHED AGREEMENT AND IN THE PLAN, A
COPY OF WHICH IS ALSO ENCLOSED.
Optionee: ______________________________________________________________________
(Signature)
Bancorp: _______________________________________________________________________
(Signature)
Title: _________________________________________________________________________
Attachment
- ----------
(1) Must not be less than 100% of the fair market value of Bancorp's common
stock on the date of grant and must not be less than 110% of the fair market
value of Bancorp's common stock on the date of grant for option holders who own
10% or more of the outstanding common stock of Bancorp.
<PAGE> 2
REDDING BANCORP
1998 STOCK OPTION PLAN
INCENTIVE STOCK OPTION AGREEMENT
INCENTIVE STOCK This option is intended to be an incentive stock option
OPTION under section 422 of the Internal Revenue Code and will be
interpreted accordingly.
VESTING Your right to exercise this option begins to vest on the
Date of Option Grant, as shown on the cover sheet. The
option will vest at the rate of ____% [not less than 20%]
per year on the anniversary date of the Date of Grant over
______ years of your continuous employment, beginning on the
Date of Option Grant. The resulting number of Shares will be
rounded to the nearest whole number. No additional Shares
will vest after your service with Bancorp has terminated for
any reason. However, this option will be 100% vested upon a
Change in Control or if you terminate employment by reason
of death, Disability (as defined below), or [AN INVOLUNTARY
TERMINATION WITHOUT CAUSE]. The terms "Cause" and "Change in
Control" are defined in the Plan.
TERM This option will expire in any event at the close of
business at Bancorp headquarters on the day before the 10th
anniversary of the Date of Grant, as shown on the cover
sheet. (It will expire earlier if your service with Bancorp
terminates, as described below.)
REGULAR If your service as an employee of Bancorp (or any
TERMINATION Subsidiary) terminates for any reason except death or
Disability, then this option will expire at the close of
business at Bancorp headquarters on the 30th day after your
termination date.
[NOTWITHSTANDING ANYTHING ELSE IN THIS AGREEMENT TO THE
CONTRARY, IN THE EVENT THAT YOU CEASE TO BE EMPLOYED BY
BANCORP WITHIN ONE YEAR FROM THE DATE OF GRANT FOR ANY
REASON ALL RIGHTS TO PURCHASE SHARES UNDER THIS OPTION SHALL
IMMEDIATELY TERMINATE.]
DEATH If you die as an employee of Bancorp (or any Subsidiary),
then this option will expire at the close of business at
Bancorp headquarters on the date six months after the date
of death. During that six-month period, your estate or heirs
may exercise this option.
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<PAGE> 3
DISABILITY If your service as an employee of Bancorp (or any
Subsidiary) terminates because of your Disability, then this
option will expire at the close of business at Bancorp
headquarters on the date six months after your termination
date. (However, if your Disability is not due to a physical
or mental impairment which results in your inability to
engage in any substantial gainful activity or is not
expected to result in death or last for a continuous period
of at least 12 months, this option will be eligible for ISO
tax treatment only if it is exercised within three months
following the termination of your service.)
"Disability" means that you are unable to engage in any
substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be
expected to result in death or which has lasted or can be
expected to last for a continuous period of not less than 12
months.
LEAVES OF ABSENCE For purposes of this option, your service does not terminate
when you go on a bona fide leave of absence that was
approved by Bancorp in writing, if the terms of the leave
provide for continued service crediting, or when continued
service crediting is required by applicable law. However,
for purposes of determining whether this option is entitled
to ISO status, your service will be treated as terminating
90 days after you went on leave, unless your right to return
to active work is guaranteed by law or by a contract. Your
service terminates in any event when the approved leave ends
unless you immediately return to active work.
Bancorp determines which leaves count for this purpose, and
when your service terminates for all purposes under the
Plan.
RESTRICTIONS ON Bancorp will not permit you to exercise this option if the
EXERCISE issuance of Shares at that time would violate any law or
regulation.
NOTICE OF EXERCISE When you wish to exercise this option, you must notify
Bancorp by filing the proper "Notice of Exercise" form at
the address given on the form. Your notice must specify how
many Shares you wish to purchase. Your notice must also
specify how your Shares should be registered (in your name
only or in your and your spouse's names as community
property or as joint tenants with right of survivorship).
The notice will be effective when it is received by Bancorp.
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If someone else wants to exercise this option after your
death, that person must prove to Bancorp's satisfaction that
he or she is entitled to do so.
PERIODS OF Any other provision of this Agreement notwithstanding,
NONEXERCISABILITY Bancorp shall have the right to designate one or more
periods of time, each of which shall not exceed 180 days in
length, during which this option shall not be exercisable if
Bancorp determines (in its sole discretion) that such
limitation on exercise could in any way facilitate a
lessening of any restriction on transfer pursuant to the
Securities Act of 1933, as amended (the "Securities Act") or
any state securities laws with respect to any issuance of
securities by Bancorp, facilitate the registration or
qualification of any securities by Bancorp under the
Securities Act or any state securities laws, or facilitate
the perfection of any exemption from the registration or
qualification requirements of the Securities Act or any
applicable state securities laws for the issuance or
transfer of any securities. Such limitation on exercise
shall not alter the vesting schedule set forth in this
Agreement other than to limit the periods during which this
option shall be exercisable.
FORM OF PAYMENT When you submit your notice of exercise, you must include
payment of the option price for the Shares you are
purchasing. Payment may be made [IN ONE (OR A COMBINATION)
OF THE FOLLOWING FORMS:]
o Your personal check, a cashier's check or a money
order.
o [IF PERMITTED BY THE COMMITTEE IN ITS SOLE DISCRETION
AND TO THE EXTENT THAT A PUBLIC MARKET FOR THE SHARES
EXISTS AS DETERMINED BY BANCORP, BY DELIVERY (ON A FORM
PRESCRIBED BY THE COMMITTEE) OF AN IRREVOCABLE
DIRECTION TO A SECURITIES BROKER TO SELL SHARES AND TO
DELIVER ALL OR PART OF THE SALE PROCEEDS TO BANCORP IN
PAYMENT OF THE AGGREGATE EXERCISE PRICE.] [OPTIONAL]
WITHHOLDING TAXES You will not be allowed to exercise this option unless you
make acceptable arrangements to pay any withholding or other
taxes that may be due as a result of the option exercise or
the sale of Shares acquired upon exercise of this option and
the sale of the Shares.
RESTRICTIONS ON By signing this Agreement, you agree not to exercise this
RESALE option or sell any Shares acquired by exercise of this
option at a time when applicable laws, regulations or
underwriter trading policies prohibit exercise or a sale. In
particular, Bancorp shall have the right to designate one or
more periods of time, each of which
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<PAGE> 5
shall not exceed 180 days in length, during which this
option shall not be exercisable if Bancorp determines (in
its sole discretion) that such limitation on exercise could
in any way facilitate a lessening of any restriction on
transfer pursuant to the Securities Act or any state
securities laws with respect to any issuance of securities
by Bancorp, facilitate the registration or qualification of
any securities by Bancorp under the Securities Act or any
state securities laws, or facilitate the perfection of any
exemption from the registration or qualification
requirements of the Securities Act or any applicable state
securities laws for the issuance or transfer of any
securities. Such limitation on exercise shall not alter the
vesting schedule set forth in this Agreement other than to
limit the periods during which this option shall be
exercisable.
If the sale of Shares under the Plan is not registered under
the Securities Act, but an exemption is available which
requires an investment or other representation, you shall
represent and agree at the time of exercise that the Shares
being acquired upon exercising this option are being
acquired for investment, and not with a view to the sale or
distribution thereof, and shall make such other
representations as are deemed necessary or appropriate by
Bancorp and its counsel.
BANCORP'S RIGHT OF In the event that you propose to sell, pledge or otherwise
FIRST REFUSAL transfer to a third party any Shares acquired under this
Agreement, or any interest in such Shares, Bancorp shall
have the "Right of First Refusal" with respect to all (and
not less than all) of such Shares. If you desire to transfer
Shares acquired under this Agreement, you must give a
written "Transfer Notice" to Bancorp describing fully the
proposed transfer, including the number of Shares proposed
to be transferred, the proposed transfer price and the name
and address of the proposed transferee. The Transfer Notice
shall be signed both by you and by the proposed new
transferee and must constitute a binding commitment of both
parties to the transfer of the Shares. Bancorp shall have
the right to purchase all, and not less than all, of the
Shares on the terms of the proposal described in the
Transfer Notice (subject, however, to any change in such
terms permitted in the next paragraph) by delivery of a
notice of exercise of the Right of First Refusal within 30
days after the date when the Transfer Notice was received by
Bancorp. Bancorp's rights under this paragraph shall be
freely assignable, in whole or in part.
If Bancorp fails to exercise its Right of First Refusal
within 30 days after the date when it received the Transfer
Notice, you may, not later than 90 days following receipt of
the Transfer
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<PAGE> 6
Notice by Bancorp, conclude a transfer of the Shares subject
to the Transfer Notice on the terms and conditions described
in the Transfer Notice. Any proposed transfer on terms and
conditions different from those described in the Transfer
Notice, as well as any subsequent proposed transfer by you,
shall again be subject to the Right of First Refusal and
shall require compliance with the procedure described in the
paragraph above. If Bancorp exercises its Right of First
Refusal, the parties shall consummate the sale of the Shares
on the terms set forth in the Transfer Notice within 60 days
after the date when Bancorp received the Transfer Notice (or
within such longer period as may have been specified in the
Transfer Notice); provided, however, that in the event the
Transfer Notice provided that payment for the Shares was to
be made in a form other than lawful money paid at the time
of transfer, Bancorp shall have the option of paying for the
Shares with lawful money equal to the present value of the
consideration described in the Transfer Notice.
Bancorp's Right of First Refusal shall inure to the benefit
of its successors and assigns and shall be binding upon any
transferee of the Shares.
Bancorp's Right of First Refusal shall terminate in the
event that the Stock is listed or traded on an established
stock exchange.
RIGHT OF REPURCHASE Following termination of your employment for any reason,
Bancorp shall have the right to purchase all of the Shares
that you have acquired or will acquire under this option. If
Bancorp exercises its right to purchase such Shares, the
purchase price shall be the higher of the Fair Market Value
of those Shares on the date of purchase or the aggregate
Exercise Price for those Shares and shall be paid in cash.
Bancorp will notify you of its intention to purchase such
shares, and will consummate the purchase within the period
established by applicable law. Bancorp's right of repurchase
shall terminate in the event Bancorp's Common Stock is
listed on an established stock exchange or is quoted
regularly on the Nasdaq National Market.
TRANSFER OF OPTION Prior to your death, only you may exercise this option. You
cannot transfer or assign this option. For instance, you may
not sell this option or use it as security for a loan. If
you attempt to do any of these things, this option will
immediately become invalid. You may, however, dispose of
this option in your will.
Regardless of any marital property settlement agreement,
Bancorp is not obligated to honor a notice of exercise from
your spouse or
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<PAGE> 7
former spouse, nor is Bancorp obligated to recognize such
individual's interest in this option in any other way.
RETENTION RIGHTS This option or this Agreement do not give you the right to
be retained by Bancorp (or any Subsidiary) in any capacity.
Bancorp (and any Subsidiary) reserve the right to terminate
your service at any time and for any reason.
SHAREHOLDER RIGHTS You, or your estate or heirs, have no rights as a
shareholder of Bancorp until a share certificate for your
option Shares has been issued. No adjustments are made for
dividends or other rights if the applicable record date
occurs before your share certificate is issued, except as
described in the Plan.
ADJUSTMENTS In the event of a stock split, a stock dividend or a similar
change in the Stock, the number of Shares covered by this
option and the exercise price per share may be adjusted
pursuant to the Plan. This option shall be subject to the
terms of the agreement of merger, liquidation or
reorganization in the event Bancorp is subject to such
corporate activity.
LEGENDS All certificates representing the Shares issued upon
exercise of this option shall, where applicable, have
endorsed thereon the following legends:
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER AND
OPTIONS TO PURCHASE SUCH SHARES SET FORTH IN AN
AGREEMENT BETWEEN THE CORPORATION AND THE
REGISTERED HOLDER, OR HIS OR HER PREDECESSOR IN
INTEREST. A COPY OF SUCH AGREEMENT IS ON FILE AT
THE PRINCIPAL OFFICE OF THE CORPORATION AND WILL
BE FURNISHED UPON WRITTEN REQUEST TO THE SECRETARY
OF THE CORPORATION BY THE HOLDER OF RECORD OF THE
SHARES REPRESENTED BY THIS CERTIFICATE."
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR
OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE
REGISTRATION THEREOF UNDER SUCH ACT OR AN OPINION
OF COUNSEL,
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SATISFACTORY TO THE CORPORATION AND ITS COUNSEL, THAT
SUCH REGISTRATION IS NOT REQUIRED."
APPLICABLE LAW This Agreement will be interpreted and enforced under the
laws of the State of California.
THE PLAN AND OTHER The text of the Plan is incorporated in this Agreement by
AGREEMENTS reference. Certain capitalized terms used in this Agreement
are defined in the Plan.
This Agreement and the Plan constitute the entire
understanding between you and Bancorp regarding this option.
Any prior agreements, commitments or negotiations concerning
this option are superseded.
BY SIGNING THE COVER SHEET OF THIS AGREEMENT, YOU AGREE TO ALL OF THE TERMS AND
CONDITIONS DESCRIBED ABOVE AND IN THE PLAN.
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EXHIBIT 10.5
REDDING BANCORP
1998 STOCK OPTION PLAN
NONSTATUTORY STOCK OPTION AGREEMENT
Redding Bancorp, a California corporation ("Bancorp"), hereby grants an
option to purchase Shares of its common stock to the optionee named below. The
terms and conditions of the option are set forth in this cover sheet, in the
attachment and in Bancorp's 1998 Stock Option Plan (the "Plan").
Date of Option Grant: __________, 199__
Name of Optionee: ___________________________________
Optionee's Social Security Number: _____-____-_____
Number of Shares of Common Stock Covered by Option:
Exercise Price per Share:(1) $_______________________
BY SIGNING THIS COVER SHEET, YOU AGREE TO ALL OF THE TERMS AND
CONDITIONS DESCRIBED IN THIS COVERSHEET, THE ATTACHED AGREEMENT AND IN
THE PLAN, A COPY OF WHICH IS ALSO ENCLOSED.
Optionee:______________________________________________________________________
(Signature)
Bancorp:_______________________________________________________________________
(Signature)
Title:__________________________________________________________
Attachment
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(1) Must not be less than 85% of the fair market value of Bancorp's common stock
on the date of grant and must not be less than 110% of the fair market value of
Bancorp's common stock on the date of grant for option holders who own 10% or
more of the outstanding common stock of Bancorp.
<PAGE> 2
REDDING BANCORP
1998 STOCK OPTION PLAN
NONSTATUTORY STOCK OPTION AGREEMENT
NONSTATUTORY This option is not intended to be an incentive stock option
STOCK OPTION under section 422 of the Internal Revenue Code and will be
interpreted accordingly.
VESTING Your right to exercise this option begins to vest on the Date of
Option Grant, as shown on the cover sheet. The option will vest
at the rate of ____% [not less than 20%] per year on each
anniversary of the Date of Grant over _____ years of your
continuous employment beginning on the Date of Option Grant. The
resulting number of Shares will be rounded to the nearest whole
number. No additional Shares will vest after your service with
Bancorp has terminated for any reason. However, this option will
be 100% vested upon a Change in Control or if you terminate
employment by reason of death, Disability (as defined below)[,
AN INVOLUNTARY TERMINATION WITHOUT CAUSE,] or mandatory
retirement, provided that you are an Outside Director. The terms
"Cause," "Change in Control" and "Outside Director" are defined
in the Plan.
TERM This option will expire in any event at the close of business at
Bancorp headquarters on the day before the 10th anniversary of
the Date of Grant, as shown on the cover sheet. (It will expire
earlier if your service with Bancorp terminates, as described
below.)
REGULAR If your service as an employee of Bancorp (or any
TERMINATION Subsidiary) terminates for any reason except death or
Disability, then this option will expire at the close of
business at Bancorp headquarters no less than 30 days after your
termination date.
[NOTWITHSTANDING ANYTHING ELSE IN THIS AGREEMENT TO THE
CONTRARY, IN THE EVENT THAT YOU CEASE TO BE EMPLOYED BY BANCORP
WITHIN ONE YEAR FROM THE DATE OF GRANT FOR ANY REASON ALL RIGHTS
TO PURCHASE SHARES UNDER THIS OPTION SHALL IMMEDIATELY
TERMINATE.]
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<PAGE> 3
DEATH If you die as an employee of Bancorp (or any Subsidiary), then
this option will expire at the close of business at Bancorp
headquarters on a date no less than six months after the date of
death. During that interim period, your estate or heirs may
exercise the vested portion of this option.
DISABILITY If your service as an employee of Bancorp (or any Subsidiary)
terminates because of your Disability, then this option will
expire at the close of business at Bancorp headquarters on a
date not less than six months after your termination date.
"Disability" means that you are unable to engage in any
substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected
to result in death or which has lasted or can be expected to
last for a continuous period of not less than 12 months.
LEAVES OF For purposes of this option, your service does not terminate
ABSENCE when you go on a military leave, a sick leave or another bona
fide leave of absence, if the leave was approved by Bancorp in
writing. Your service terminates in any event when the approved
leave ends, unless you immediately return to active work.
Bancorp determines which leaves count for this purpose, whether
this option continues to vest during a leave and when your
service terminates for all purposes under the Plan.
RESTRICTIONS ON Bancorp will not permit you to exercise this option if the
EXERCISE issuance of Shares at that time would violate any law or
regulation.
NOTICE OF When you wish to exercise this option, you must notify Bancorp
EXERCISE by filing the proper "Notice of Exercise" form at the address
given on the form. Your notice must specify how many Shares you
wish to purchase. Your notice must also specify how your Shares
should be registered (in your name only or in your and your
spouse's names as community property or as joint tenants with
right of survivorship). The notice will be effective when it is
received by Bancorp.
If someone else wants to exercise this option after your death,
that person must prove to Bancorp's satisfaction that he or she
is entitled to do so.
FORM OF PAYMENT When you submit your notice of exercise, you must
include payment of the option price for the Shares you are
purchasing.
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<PAGE> 4
Payment may be made [IN ONE OF (OR A COMBINATION) THE
FOLLOWING FORMS:]
o Your personal check, a cashier's check or a money
order.
o [TO THE EXTENT THAT A PUBLIC MARKET FOR THE
SHARES EXISTS AS DETERMINED BY BANCORP, BY
DELIVERY (ON A FORM PRESCRIBED BY THE COMMITTEE)
OF AN IRREVOCABLE DIRECTION TO A SECURITIES
BROKER TO SELL SHARES AND TO DELIVER ALL OR PART
OF THE SALE PROCEEDS TO BANCORP IN PAYMENT OF
THE AGGREGATE EXERCISE PRICE]. [OPTIONAL]
WITHHOLDING You will not be allowed to exercise this option unless
TAXES you make acceptable arrangements to pay any withholding
or other taxes that may be due as a result of the option
exercise or the sale of Shares acquired upon exercise of
this option.
PERIODS OF By signing this Agreement, you agree not to
NONEXERCISABILITY sell any Shares acquired by exercise of this Option at a
time when applicable laws, regulations or underwriter
trading policies prohibit exercise or a sale. In
particular, Bancorp shall have the right to designate
one or more periods of time, each of which shall not
exceed 180 days in length, during which this option
shall not be exercisable if Bancorp determines (in its
sole discretion) that such limitation on exercise could
in any way facilitate a lessening of any restriction on
transfer pursuant to the Securities Act of 1933, as
amended (the "Securities Act"), or any state securities
laws with respect to any issuance of securities by
Bancorp, facilitate the registration or qualification of
any securities by Bancorp under the Securities Act or
any state securities laws, or facilitate the perfection
of any exemption from the registration or qualification
requirements of the Securities Act or any applicable
state securities laws for the issuance or transfer of
any securities. Such limitation on exercise shall not
alter the vesting schedule set forth in this Agreement
other than to limit the periods during which this option
shall be exercisable.
If the sale of Shares under the Plan is not registered
under the Securities Act, but an exemption is available
which requires an investment or other representation,
you shall represent and agree at the time of exercise
that the Shares being acquired upon exercising this
option are being acquired for investment, and not with a
view to the sale or distribution thereof, and shall make
such other representations as are deemed necessary or
appropriate by Bancorp and its counsel.
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<PAGE> 5
BANCORP'S RIGHT OF In the event that you propose to sell, pledge or
FIRST REFUSAL otherwise transfer to a third party any Shares acquired
under this Agreement, or any interest in such Shares,
Bancorp shall have the "Right of First Refusal" with
respect to all (and not less than all) of such Shares.
If you desire to transfer Shares acquired under this
Agreement, you must give a written "Transfer Notice" to
Bancorp describing fully the proposed transfer,
including the number of Shares proposed to be
transferred, the proposed transfer price and the name
and address of the proposed transferee. The Transfer
Notice shall be signed both by you and by the proposed
new transferee and must constitute a binding commitment
of both parties to the transfer of the Shares. Bancorp
shall have the right to purchase all, and not less than
all, of the Shares on the terms of the proposal
described in the Transfer Notice (subject, however, to
any change in such terms permitted in the next
paragraph) by delivery of a notice of exercise of the
Right of First Refusal within 30 days after the date
when the Transfer Notice was received by Bancorp.
Bancorp's rights under this paragraph shall be freely
assignable, in whole or in part.
If Bancorp fails to exercise its Right of First Refusal
within 30 days after the date when it received the
Transfer Notice, you may, not later than 90 days
following receipt of the Transfer Notice by Bancorp,
conclude a transfer of the Shares subject to the
Transfer Notice on the terms and conditions described in
the Transfer Notice. Any proposed transfer on terms and
conditions different from those described in the
Transfer Notice, as well as any subsequent proposed
transfer by you, shall again be subject to the Right of
First Refusal and shall require compliance with the
procedure described in the paragraph above. If Bancorp
exercises its Right of First Refusal, the parties shall
consummate the sale of the Shares on the terms set forth
in the Transfer Notice within 60 days after the date
when Bancorp received the Transfer Notice (or within
such longer period as may have been specified in the
Transfer Notice); provided, however, that in the event
the Transfer Notice provided that payment for the Shares
was to be made in a form other than lawful money paid at
the time of transfer, Bancorp shall have the option of
paying for the Shares with lawful money equal to the
present value of the consideration described in the
Transfer Notice.
Bancorp's Right of First Refusal shall inure to the
benefit of its successors and assigns and shall be
binding upon any transferee of the Shares.
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<PAGE> 6
Bancorp's Right of First Refusal shall terminate in the
event that Stock is listed or traded on an established
stock exchange.
RIGHT OF REPURCHASE Following termination of your employment
for any reason, Bancorp shall have the right to purchase
all of the Shares that you have acquired or will acquire
under this option. If Bancorp exercises its right to
purchase such Shares, the purchase price shall be the
higher of the Fair Market Value of those Shares on the
date of purchase or the aggregate Exercise Price for
those Shares and shall be paid in cash. Bancorp will
notify you of its intention to purchase such shares, and
will consummate the purchase within the period
established by applicable law. Bancorp's right of
repurchase shall terminate in the event Bancorp's Common
Stock is listed on an established stock exchange or is
quoted regularly on the Nasdaq National Market.
TRANSFER OF OPTION Prior to your death, only you may exercise
this option. You cannot transfer or assign this option.
For instance, you may not sell this option or use it as
security for a loan. If you attempt to do any of these
things, this option will immediately become invalid. You
may, however, dispose of this option in your will.
Regardless of any marital property settlement agreement,
Bancorp is not obligated to honor a notice of exercise
from your spouse or former spouse, nor is Bancorp
obligated to recognize such individual's interest in
this option in any other way.
RETENTION RIGHTS This option or this Agreement do not give you
the right to be retained by Bancorp (or any Subsidiary)
in any capacity. Bancorp (and any Subsidiary) reserve
the right to terminate your service at any time and for
any reason.
SHAREHOLDER RIGHTS You, or your estate or heirs, have no rights
as a shareholder of Bancorp until a certificate for your
option Shares has been issued. No adjustments are made
for dividends or other rights if the applicable record
date occurs before your stock certificate is issued,
except as described in the Plan.
ADJUSTMENTS In the event of a stock split, a stock dividend or a
similar change in the Stock, the number of Shares
covered by this option and the exercise price per share
may be adjusted pursuant to the Plan. This option shall
be subject to the terms of the agreement of merger,
liquidation or reorganization in the event Bancorp is
subject to such corporate activity.
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<PAGE> 7
LEGENDS All certificates representing the Shares issued upon exercise
of this option shall, where applicable, have endorsed thereon
the following legends:
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT
TO CERTAIN RESTRICTIONS ON TRANSFER AND OPTIONS TO
PURCHASE SUCH SHARES SET FORTH IN AN AGREEMENT BETWEEN
THE CORPORATION AND THE REGISTERED HOLDER, OR HIS OR HER
PREDECESSOR IN INTEREST. A COPY OF SUCH AGREEMENT IS ON
FILE AT THE PRINCIPAL OFFICE OF THE CORPORATION AND WILL
BE FURNISHED UPON WRITTEN REQUEST TO THE SECRETARY OF
THE CORPORATION BY THE HOLDER OF RECORD OF THE SHARES
REPRESENTED BY THIS CERTIFICATE."
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR OTHERWISE
TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF
UNDER SUCH ACT OR AN OPINION OF COUNSEL, SATISFACTORY TO
THE CORPORATION AND ITS COUNSEL, THAT SUCH REGISTRATION
IS NOT REQUIRED."
APPLICABLE This Agreement will be interpreted and enforced under the laws
LAW of the State of California.
THE PLAN AND The text of the Plan is incorporated in this Agreement by
OTHER AGREEMENTS reference. Certain capitalized terms used in this Agreement
are defined in the Plan.
This Agreement and the Plan constitute the entire
understanding between you and Bancorp regarding this option.
Any prior agreements, commitments or negotiations concerning
this option are superseded.
BY SIGNING THE COVER SHEET OF THIS AGREEMENT, YOU AGREE TO ALL OF THE
TERMS AND CONDITIONS DESCRIBED ABOVE AND IN THE PLAN.
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EXHIBIT 10.6
EMPLOYMENT AGREEMENT
Redding Bank of Commerce, a California Corporation, hereinafter referred
to as Employer, and Russell L. Duclos, hereinafter referred to as Employee, for
and in consideration of their respective promises and undertakings set forth
herein, the sufficiency of which is hereby acknowledged, do hereby agree,
covenant, and acknowledge as follows:
1. Employment and Duties
Employer is employing Employee as Chief Executive Officer for the
purpose of providing Employer with the services described in the position
description set forth in Paragraph 10 and to perform any other services as may
be directed by the Board of Directors of Employer.
2. At-Will Employment
Employee is employed as an "at-will" employee - that is, there is no
fixed term or minimum term. Employee and Employer may each terminate this
agreement at any time for any reason, or for no reason, with or without notice.
Unless sooner terminated, pursuant to the terms hereof, this agreement shall
automatically terminate on June 30, 2000.
3. Salary
Employee's initial base salary will be $4,166.67 per pay period, payable
twice per month on the fifteen (15th) day and on the last day of the month.
Employer will make customary withholdings. The fact that the salary is payable
twice per month is not to be construed to create a minimum employment term or
notice requirement. The base salary shall be reviewed and adjusted annually.
4. Benefits
(a) Profit Sharing: In addition to the base salary, Employee
shall be eligible to receive Profit Sharing compensation pursuant to the
Incentive Profit Sharing Plan adopted by Employer in December 1992 and as
amended from time to time thereafter or terminated.
(b) Fringe Benefits: Employer agrees to provide Employee with the
following benefits for so long as Employee is employed under this Agreement:
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<PAGE> 2
(i) An automobile suitable to his position with
Employer. Employer shall pay or reimburse Employee for all necessary and
customary expenses for such automobile, incurred by Employee in the conduct of
business of Employer, including maintenance, insurance and expenses of
operation.
(ii) Employer will sponsor and pay for a proprietary
membership and monthly dues in the Riverview Country Club for the use by
Employee for business development.
(iii) An annual paid vacation of four (4) weeks.
(iv) Employee is authorized to incur necessary and
customary expenses in connection with the business of the Employer, including
expenses for entertainment, travel, promotional and similar matters. Employer
will pay or reimburse Employee for such expenses upon presentation of
appropriate records which verify such expenses.
5. Severance
In the event Employee is terminated for a reason other than cause
(termination for cause is a termination for any legitimate business reason),
Employer shall be obligated to pay Employee the sum of twice Employees's then
annual base salary, to be paid out over one year; provided, however, that
Employer shall not be obligated by contract, statute, or otherwise to pay to
Employee any additional amount of money for any reason. Employee accepts, and
acknowledges that, the sum of twice Employee's then base salary, is the only
money which Employer will ever owe or pay Employee in the event of a
termination. In the event Employee sues Employer for any reason, he shall, by
such suit, relinquish all rights to severance of any kind, including severance
in the amount of twice Employee's then annual base salary, and/or any part of
that sum, and Employee shall be obligated to refund any part of the sum
previously paid.
In exchange for the guaranteed amount stated above, Employee also agrees
that, for a twelve month period after leaving the employe [sic] of the Employer,
regardless of the reason for leaving, Employee will not become employed by a
financial institution (i.e. regulated by the Federal or State Banking or savings
and loan authorities) within Shasta County, California. Should Employee become
employed by a financial institution in Shasta County, within 12 months of his
termination, in violation of
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<PAGE> 3
his above-stated promises, Employee shall relinquish all rights (if any) to the
amount stated above, and/or any part of that sum and shall be obligated to
refund any part of the sum previously paid.
6. Performance
During his employment, Employee shall devote his entire time and
attention to the interests of the Employer in a manner consistent with the
highest professional standards and Employer policies.
7. Confidentiality
In order to render services to Employer, Employee will be informed of
confidential information developed by Employer, will develop confidential
information for Employer, and will receive and use confidential information from
Employer and others solely as a consequence of the employment relationship and
solely for the purpose of conducting Employer's business. Employee acknowledges
the existence of his fiduciary duty to employer not to sue or divulge any such
confidential information for any purpose other than as necessary to conduct
Employer's business. Employee acknowledges that Employer's confidential
information, both written and oral, constitutes valuable property and that
Employer may take such actions as are necessary to protect that property.
Employee covenants and agrees that he will neither use for any reason or purpose
nor divulge to any person all or any portion of any confidential information
acquired in his employment, nor shall Employee make disparaging statements
regarding Employer or any of Employer's employees, irrespective of the time,
manner, cause of, or reason for termination of his employment. Likewise, after
his employment with Employer, Employee will not solicit any employee of Employer
for three (3) years for the purpose of employing such an employee.
8. Modification and Severability
No addition to, modification of, amendment to, or deletion from this
agreement shall be valid unless it is in writing and executed by the parties to
this agreement. A legal determination that any paragraph, sub-paragraph,
sentence, clause or provision of this agreement is void, invalid, or
unenforceable shall have no effect on any other paragraph, sentence, clause or
provision of this agreement.
-3-
<PAGE> 4
9. Entire Agreement
Employee and Employer agree that this Employment Agreement contains the
entire understanding and agreement between them regarding Employee's employment
by Employer. There are no oral agreements or understanding or any other written
agreements which directly or indirectly affect the employment relationship
between us and you.
10. Description of Employee's
Employee shall be the Chief Executive Officer and President of Employer,
and in that capacity shall perform the duties customarily performed in such
offices, subject to the authority of the Board of Directors of the Employer.
Employee shall hold and perform all the responsibilities and duties prescribed
by the Board and by the Bylaws of the Employer. Employee shall devote his full
time and attention to the affairs of the Employer and shall not, directly or
indirectly, either as an employee, employer, consultant, agent, principal,
partner, major stockholder, corporate officer, director or in any other
individual or representative capacity, engage or participate in any business
that is in competition in any manner whatsoever with the business of Employer.
Dated: June 17, 1997 REDDING BANK OF COMMERCE
BY: /s/ Robert C. Anderson
-------------------------
Robert C. Anderson
Chairman of the Board
/s/ Russell L. Duclos
-------------------------
Russell L. Duclos
President & C.E.O.
-4-
<PAGE> 1
EXHIBIT 10.7
DIRECTORS DEFERRED COMPENSATION PLAN
JANUARY 1, 1993
1. Effective January 1, 1993, each director of Redding Bank of Commerce shall
have the right to elect to defer the payment of all or any part of the
compensation to which such director would otherwise be entitled as director's
fees or committee fees, with such deferred compensation to be payable at the
time or times and in the manner herein stated. The account will be segregated
from other assets owned by the Bank, only by way of its identification on the
books and records of Bank as a liability of Bank to the Director. The account
will be subject to the claims of general creditors or the Bank, and Directors,
as to the Account, shall be a general unsecured creditor of the bank.
2. Each director so electing to defer the payment of compensation shall execute
and deliver to the Bank a "Notice of Election", in the form attached hereto and
incorporated herein by reference. Such election shall be effective as follows:
For any current director of the Bank that files an election with the
bank on or prior to the effective date of the plan, such election shall
be applicable to compensation accrued by reason of services rendered
after the effective date of the plan.
For a new director of the Bank that files an election with the bank
within thirty days of having been elected a member of the Board of
Directors, such election shall be applicable to compensation accrued by
reason of services rendered after the date of filing the notice of
election.
In all other cases such election shall be applicable only to
compensation to accrue by reason of services rendered after December 31
of the year in which the notice of election was received by the Bank.
3. An election to defer compensation shall continue in effect until revoked,
provided however, that every election to defer compensation shall be irrevocable
as to compensation earned for services performed in the calendar year of such
revocation. Partial or complete revocation as to unearned compensation shall be
made in writing upon a form of notice to be furnished by the Bank and signed by
the director and shall be effective for the succeeding calendar years.
4. Each director may designate one or more beneficiaries to receive all sums due
to such director upon his death. Such beneficiary designation may be revoked or
amended by such director, from time to time, by appropriate notice in writing
delivered to the bank.
In the absence of any beneficiary designation or in the even [sic] that no
designated beneficiary shall be living at the time of the death of the director,
all deferred compensation and interest accrued to the date of death of the
director shall be payable to the estate of such deceased director.
-1-
<PAGE> 2
5. No compensation so deferred shall be payable to a director until the death,
disability, resignation or removal from office of such director, whereupon all
such deferred compensation, together with interest thereon as hereinafter
provided, shall be payable to such director, or his beneficiary, within thirty
(30) days from the date of death, or resignation unless the director shall
designate an optional installment payment method as hereinafter provided, in
which event the first such installment shall be paid within thirty (30) days of
such date. A director shall be deemed to have resigned on the date stated in any
oral or written voluntary resignation, and on the day following the third
consecutive monthly meeting of the Board of Directors of the Bank which such
director shall have failed to attend.
6. Notwithstanding anything herein contained to the contrary, the Bank reserves
the exclusive right to discontinue this deferred compensation plan, at any time,
with respect to compensation earned on the date of termination or with respect
to compensation to be earned in the future. Notwithstanding anything herein
contained to the contrary, the Bank reserves the exclusive right to terminate
this plan with respect to any individual director, whether or not he is then
acting in such capacity, and to distribute promptly to such director all
compensation theretofore deferred, together with interest thereon, if it is
determined that it is in the best interest of the Bank to sever all relations
with such individual director.
7. Interest on compensation deferred hereunder shall be credited on a monthly
basis and compounded at a rate of 1/2 percent above the bank's reference rate,
to be set annually on July 1st. In the event the bank discontinues or changes
the method of determining its reference rate, then the prime rate published in
the West Coast edition of the Wall Street Journal will replace the banks
reference rate.
8. Upon the death of a director, while serving in such a capacity, distribution
of compensation deferred hereunder, together with interest, shall be made in one
lump sum to his designated beneficiary. Upon the death of a director who had
previously retired and had elected an installment method of distribution, all
sums remaining undistributed shall be paid in one lump sum to his designated
beneficiary. Deferred compensation distributable by reason of the resignation of
a director may, at the option of such director, be payable in approximately
equal monthly installments over a period not to exceed ten (10) years, provided
however, that on any such installment method of distribution, interest shall
continue to be credited on the undistributed sums as hereinabove provided.
-2-
<PAGE> 3
9. In the event that any person to whom compensation is distributable under the
terms of this plan shall be unable to properly manage his or her own affairs by
reason of physical or mental disability, in the judgement of the management of
the Bank payment of all sums due may be made to a duly appointed personal
representative, conservator, guardian, or to any person, firm or corporation
furnishing or providing support and maintenance to such distributee. The Bank
and its officers and directors shall be fully and completely exonerated from all
liability to any distributee upon making payment in accordance with the terms of
this paragraph.
10. No compensation accrued or payable by virtue of the terms of this plan shall
be assignable or transferable by any director or any beneficiary, neither of
whom shall have any right to anticipate, hypothecate, assign or transfer any
rights hereunder except to a trust established by the director for the benefit
of the director or his beneficiary.
11. The terms hereof cannot be amended, modified or supplemented, except to
comply with applicable laws of the state and Federal government and the rules
and regulations of any agency or instrumentality thereof having supervisory or
regulatory jurisdiction over the bank. The terms hereof shall be binding upon
and inure to the benefit of the successors and assigns of the bank and upon each
director so electing to defer compensation pursuant hereto and his beneficiary.
12. The masculine pronoun whenever used herein will include the feminine pronoun
and the singular number will include the plural number unless the context of the
plan requires otherwise.
/s/ Russell L. Duclos
-----------------------
Russell L. Duclos, President & CEO
-----------------------
Date
/s/ Robert C. Anderson
-----------------------
Robert C. Anderson, Director
9-16-97
-----------------------
Date
-3-
<PAGE> 1
EXHIBIT 10.8
REDDING BANK OF COMMERCE
DEFERRED COMPENSATION AGREEMENT
--OOO--
THIS AGREEMENT is made and entered into this 18th day of April 1990, by
and between REDDING BANK OF COMMERCE, a state bank organized under the laws of
the State of California ("Bank") and _____________, a full-time employee and
officer, being the President & CEO of the bank ("Employee").
This agreement is made with respect to the following facts:
A. Bank has employed Employee in the capacity set forth hereinabove,
and Employee desires to provide for a retirement program through a Deferred
Compensation Agreement; and
B. Bank and Employee desire to set forth their contractual agreement as
to deferring a portion of Employee's compensation as a Deferred Compensation
Plan and to provide Employee certain additional benefits as set forth in this
Agreement in the event of Employee's death while employed by the Bank.
NOW, THEREFORE in consideration of the mutual agreements contained
herein, Bank and Employee agree as follows:
1. Employee hereby agrees to a reduction of the current payment of
compensation otherwise payable to him due to his employment by Bank in the
amount set forth on the "Salary Reduction Authorization Form" attached hereto as
Exhibit "A".
The amount of salary elected by the Employee to be deferred pursuant to
the Salary Reduction Authorization form may be changed annually be [sic] a new
executed Salary Reduction Authorization Form delivered to Bank prior to January
1st of each year as to which such an election for deferral of salary applies.
The election by employee to defer salary shall be a binding election to defer
receipt of such amount until such time as the deferred compensation is payable
to him pursuant to the express terms and conditions of this Agreement.
Compensation reductions as elected by the Employee under this Agreement
shall cease at the end of the month in which Employee attains the age of
sixty-five (65) years, even if Employee is still employed by the Bank at that
time.
-1-
<PAGE> 2
2. Bank will record all amounts deferred pursuant to Section 1 hereof in
a separate unfunded account maintained on the books of the Bank ("Account"). The
Account will be segregated from other assets owned by the Bank, only by way of
its identification on the books and records of Bank as a liability of Bank to
Employee. The Account will be subject to the claims of general creditors or the
Bank, and Employee, as to the Account, shall be a general unsecured creditor of
the Bank.
3. Until such time as all amounts held in the Account for the benefit of
Employee are fully paid out pursuant to the provisions of this Agreement, Bank
will credit interest on deferred compensation amounts held in the Account at a
rate determined as follows: Interest on amounts of deferred compensation held in
the Account will be calculated on a simple interest basis, using a 365-day year
with interest earned on the monthly balance.
The rate of interest shall be set annually on July 1st of each year and,
such rate shall correspond to a rate of 1/2 percent over the banks reference
rate. In the event the bank discontinues or changes the method for determining
its reference rate, then the prime rate published in the West Coast edition of
the Wall Street Journal will replace the banks reference rate. Prior to July
1997, the rate paid on the account corresponded to the rate credited to earnings
pursuant to the Keyman insurance policies carried on Employee and as listed in
Exhibit "B" attached hereto.
4. Amounts held in the Account will be payable to Employee or to his
designated beneficiary upon the first to occur of the following events:
(a) Termination of Employee's employment with Bank.
(b) Attainment by Employee of age sixty-five (65).
(c) Termination due to the disability of Employee.
The term "disability" shall be defined as being a demonstrable injury or disease
(including legally established mental incompetency), which will wholly and
continuously prevent Employee from performing his normal duties as an employee
of Bank for a period of six (6) months. Disability as herein defined shall be
finally determined in the sole and absolute discretion of the Plan Co-
Administrator.
(d) Termination of the Agreement by Bank upon one hundred eighty (180)
days written notice of such termination to Employee.
5. Upon the occurrence of an event described in Section 4 above, Bank
will pay to Employee or his designated beneficiary, subject to the election
hereinafter set forth, amounts credited to the Account for the benefit of the
Employee at the time of the payment of such amount.
Amounts payable to Employee upon the occurrence of an event described in
Section 4 shall be paid to Employee or his beneficiary in
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<PAGE> 3
accordance with the method elected by Employee in a signed writing setting
forth the method of payment desired by Employee and delivered to the Bank
prior to the occurrence of an event of payment. Methods which Employee
may elect are:
(a) a lump sum payment;
(b) In substantially equal monthly, quarterly or annual installments
over a five (5) year period;
(c) In substantially equal monthly, quarterly or annual installments
over a ten (10) year period;
(d) In substantially equal monthly, quarterly or annual installments
over a fifteen (15) year period.
Should Employee have not elected a method of payment as set forth
hereinabove prior to the occurrence of an event described in Section 4, then the
Plan co-administrators, in their sole and absolute discretion but by unanimous
vote, shall select the method of payment from those provided hereinabove.
6. Bank, in its sole and absolute discretion, may acquire an insurance
policy on the life of Employee. Should Bank elect to acquire such a policy, Bank
shall be the owner and beneficiary of the policy. Employee will have no interest
in or right to the policy or the proceeds thereof, except as expressly set forth
in this Agreement.
In the event that Bank does elect to obtain a policy of insurance on the
life of Employee, and further, in the event that upon Employee's death prior to
termination of his employment with Bank and prior to Employee's attainment of
age sixty-five (65), then and in only those events the amount to be paid to
Employee's beneficiary shall be the greater of the amount credited in the
Account for the benefit of Employee or the amount of the "Projected Death
Benefit" as set forth on Exhibit "C" to this Agreement.
It is expressly understood and agreed by the parties hereto that should
Employee's death be from a cause which is not covered by a then existing policy
of insurance payable to Bank, Bank shall have no obligation to pay Projected
Death Benefits and shall be responsible only for payment of the amounts credited
in the Account.
The Projected Death Benefit shall be determined in the sole and absolute
discretion of the Bank, and the amount of the Projected Death Benefit may, from
time to time, be modified by the Bank. Any modifications of the Projected Death
Benefit shall be delivered in writing to Employee upon such modification. The
initial Projected Death Benefit is attached hereto as Exhibit "C".
Any amounts payable to Employee's beneficiary pursuant to the terms of
this agreement will be paid to the beneficiary designated by Employee in a
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<PAGE> 4
Salary Reduction Deferred Compensation Beneficiary Designation, the form of
which is attached hereto as Exhibit "D". Employee shall have the right to change
his beneficiary designation at any time by delivering to Bank a subsequent
signed designation.
In the event that Employee's designated beneficiary at any time is a
beneficiary other than the Employee's spouse (in the event that Employee is
married), Employee shall, with such beneficiary designation, deliver written
acknowledgement and authorization from Employee's spouse approving such
beneficiary designation. A form of Acknowledgement and Authorization is set
forth on the Salary Reduction Deferred Compensation Beneficiary Designation
attached hereto as Exhibit "D".
No one other than Employee Shall have a right to designate a beneficiary
for this Agreement.
In the event that Employee does not designate a beneficiary in the
manner required by this section, or in the event that a designated beneficiary
has predeceased Employee, then amounts payable pursuant to this Agreement will
first be payable to Employee's surviving spouse, if any, and if Employee has no
surviving spouse, then amounts due to Employee will be payable to Employee's
estate.
7. The right to receive payments pursuant to this Agreement may not be
assigned or encumbered, and shall not be subject to anticipation, garnishment,
attachment, or any other legal process, or to creditors of Employee, or of any
designated beneficiary. Should Employee or designated beneficiary attempt to
assign any such rights, Bank, in its sole and absolute discretion, may suspend,
reduce or terminate any and all rights created by this Agreement as to Employee
or the designated beneficiary attempting such assignment.
8. Nothing in this agreement shall be construed as providing Employee
with any right to be retained in Banks employment. Employee, subject to any
existing written employment agreement, shall remain subject to termination or
discharge at any time with or without cause and to the same extent as if this
Agreement had not been executed.
9. The Bank shall provide to Employee, on an annual basis, an account
statement showing the status of the deferred compensation account, including
deferred compensation credited thereto, together with interest credited thereon.
10. Bank does not assure or guarantee any tax consequences as to the
compensation deferred hereunder or as to payments to be made hereunder, and
Employee warrants and represents that his decision to reduce or defer receipt of
compensation is not due to reliance by Employee upon financial, tax or legal
advice given to Employee by Bank or any of its employees, directors or agents.
-4-
<PAGE> 5
11. Employee acknowledges that, if required by law, Bank shall be
authorized upon payments of sums due Employee hereunder, to withhold from such
sums all taxes required to be withheld.
12. This Agreement may be amended at any time by Bank, in writing, upon
notification of such amendment to all parties hereto. Further, this Agreement
may be terminated by Bank upon one hundred eighty (180) days prior written
notice of such termination to Employee.
13. This Agreement has been entered into in the City of Redding, County
of Shasta, State of California, and shall be interpreted under and pursuant to
the laws of the State of California.
14. This Agreement constitutes the entire agreement between the parties
hereto with respect to the subject matter hereof, and supersedes any prior
agreements or understandings, whether written or oral.
15. This Agreement will bind and benefit the successors, heirs and
assigns of the parties hereto.
16. In the event legal proceedings are instituted due to a disagreement
with respect to the subject matter of this Agreement, or to interpret the
provisions of this Agreement, the prevailing party in any such action shall be
entitled to recover reasonable attorney's fees.
IN WITNESS THEREOF, the parties hereto, thereunto duly authorized by all
appropriate corporate action, if any be required, have executed this Agreement
as of the date first above written.
REDDING BANK OF COMMERCE
BY
---------------------------------
-----------------------, CHAIRMAN
EMPLOYEE:
------------------------------------
-5-
<PAGE> 6
EXHIBIT "A"
SALARY REDUCTION AUTHORIZATION
REDDING BANK OF COMMERCE
EXECUTIVE DEFERRED COMPENSATION
____________________, ("Employee"), having read and understood the terms
of that certain Redding Bank of Commerce Deferred Compensation Agreement dated
April 18, 1990, hereby elects to participate in such Agreement and hereby elects
to irrevocably defer compensation otherwise payable to Employee in the sum of
Dollars _________($______ ) for the period ending _________________.
Employee further authorizes Bank to reduce his compensation for such
sums and period as provided in said Agreement and as set forth hereinabove.
Employee understands that the Salary Reduction Authorization contained
herein must be renewed, in writing, prior to January 1st of each year.
DATED:______________________
EMPLOYEE:___________________
ACKNOWLEDGED AND RECEIVED BY REDDING BANK OF COMMERCE ON ______________
REDDING BANK OF COMMERCE
BY:_____________________
Chairman of the Board
<PAGE> 7
EXHIBIT "B"
KEYMAN INSURANCE POLICY
<PAGE> 8
EXHIBIT "C"
PROJECTED DEATH BENEFIT
PAYABLE ANNUALLY FOR
15 YEARS
<TABLE>
<CAPTION>
Plan Year
<S> <C>
1 $_______
2 $_______
3 $_______
4 $_______
5 $_______
6 $_______
7 $_______
8 $_______
9 $_______
10 $_______
11 $_______
12 $_______
13 $_______
14 $_______
15 $_______
</TABLE>
This schedule is to be reviewed annually by the Executive Compensation committee
to coincide with the participants change in elective deferral. The projected
death benefit to be paid beneficiaries shall be equal to the amount in the
participants deferred compensation account plus any recognized gain on the
proceeds of the life insurance policy over the amount carried on the banks
books.
<PAGE> 9
EXHIBIT "D"
SALARY REDUCTION DEFERRED COMPENSATION BENEFICIARY DESIGNATION
REDDING BANK OF COMMERCE
---OOO---
Employee, _____________________ , pursuant to the terms of the Deferred
Compensation Agreement dated , 19 , between Employee and REDDING
BANK OF COMMERCE, hereby designates the following beneficiary (beneficiaries) to
receive payments pursuant to the Deferred Compensation Agreement:
PRIMARY BENEFICIARY: ___________________________________________
SECONDARY BENEFICIARY: _________________________________________
This beneficiary designation revokes any prior beneficiary designations
which may have been in effect. This beneficiary designation is revocable by a
subsequent beneficiary designation in writing.
DATED: _____________________, 19__.
EMPLOYEE:
_________________________________
_________________________________
(WITNESS)
_________________________________
(WITNESS)
<PAGE> 1
Exhibit 10.9
CARDSERVICE INTERNATIONAL INC.
MERCHANT SERVICES AGREEMENT
This Agreement (the "Agreement") is effective as of April 1, 1993 by and
between CARDSERVICE INTERNATIONAL, INC., a California Corporation (herein
"CARDSERVICE"), with its principal business at 26775 Malibu Hills Road, Agoura
Hills, CA 91301 and REDDING BANK OF COMMERCE, a California Corporation
(hereinafter "BANK") with its principal business address at 1177 Placer Street -
P. O. Box 4748, Redding, CA 96099.
R E C I T A L S
WHEREAS, CARDSERVICE is in the business of providing consulting and
business development services to financial institutions which may be delivered
through its own facilities or subcontracted with external vendors.
WHEREAS, CARDSERVICE will function as marketing, business development,
and merchant servicing service for credit card services point of sale equipment,
and other related merchant transactions (those merchants for which CARDSERVICE
provides services, from time to time, under this Agreement shall be referred to
herein as "COVERED MERCHANTS");
WHEREAS, BANK will serve as an acquirer by maintaining and/or obtaining
necessary membership and licensing in VISA U.S.A. INCORPORATED ("VISA") and
MASTERCARD INTERNATIONAL ("MCI") for merchant bankcard clearing; and
WHEREAS, CARDSERVICE will provide BANK with certain services to
facilitate credit card and financial transactions.
NOW, THEREFORE, in consideration of the covenants and conditions herein
contained, the parties agree as follows:
1.0 DEPOSIT ACCOUNTS AND PAYROLL EXPENSE.
Within 30 days after the effective date of this agreement
CARDSERVICE shall establish a reserve account (the "Reserve
Account"), which shall be in an interest bearing "money market
deposit account held by BANK in an initial amount equal to the
greater of $10,000 or 50 basis points of the net processing
volume for COVERED MERCHANTS for the first full month of this
Agreement. CARDSERVICE shall have no control over, or access to
funds deposited in, the Reserve Account.
1.1 CARDSERVICE shall increase the amount deposited in the Reserve
Account at the rate of 5 basis points of the net monthly
processing volume for COVERED MERCHANTS per month, until the
Reserve Account balance is equal to 75 basis points of the net
monthly processing volume for COVERED MERCHANTS; provided that in
no event shall the Reserve Account balance be less than $10,000.
CARDSERVICE shall deposit additional funds in the Reserve
Account, in an amount sufficient to maintain the above balance
level, at any time the balance falls below the required level.
1.2 CARDSERVICE agrees to maintain the reserve account, at the
balance level set forth above, throughout the term of this
Agreement (including any renewal term(s)) and for a period of six
months following termination of this agreement, at the end of
which six month period BANK
-1-
<PAGE> 2
shall return to CARDSERVICE all funds remaining in the Reserve
Account, including any accrued interest.
1.3 Within 30 days after the effective date of this Agreement,
CARDSERVICE shall establish a noninterest bearing demand deposit
account (the "General Account") with BANK in an amount of
$10,000. CARDSERVICE shall have no control over, or access to
funds deposited in, the General Account.
1.4 CARDSERVICE shall maintain minimum operating balance of $10,000
in the General Account for the term of this Agreement, (including
any renewal terms).
1.5 CARDSERVICE hereby grants BANK a security interest in the Reserve
Account and the General Account (the "Accounts"), in all funds in
the Accounts, all writings evidencing the accounts, and all the
proceeds of the Accounts, to secure CARDSERVICE'S existing and
future obligations to BANK under this agreement. CARDSERVICE
agrees to take such actions as may be required, from time to
time, to establish and maintain such security interest as a first
lien security interest. For the purpose of this provision, any
failure by CARDSERVICE to identify BANK promptly for losses
incurred in connection with credit card transactions generated by
COVERED MERCHANTS or to reimburse BANK for other amounts owed by
CARDSERVICE under this Agreement shall constitute a default by
CARDSERVICE. Upon any such default BANK, shall have all rights
and remedies provided by law, including the right to enforce its
security interest by applying all funds in the Accounts to any
and all of CARDSERVICE's indebtedness to BANK.
1.6 CARDSERVICE agrees to reimburse BANK on a monthly basis for
payroll expense in an amount set by BANK, but not to exceed
$2,000.
2.0 SERVICES AND INCOME.
BANK'S relationship with CARDSERVICE, through the executed duties
and responsibilities listed herein, will provide BANK with:
a) An expanded geographic marketing area;
b) Reduced risk in VISA/MasterCard processing; and
c) Generation of fee income.
CARDSERVICE shall provide the following services for the BANK:
a) Solicitation of new merchants.
b) Complete documentation, processing, evaluation and
recommendation of new merchants.
c) All input necessary to set-up new merchants and then
maintain them on the processing vendors computer system.
d) Daily loss prevention monitoring of the serviced accounts.
e) Maintenance of a well trained, readily available, Merchant
Service Department to provide processing, equipment and
fraud prevention assistance to the merchants.
The fees collected by Bank from COVERED MERCHANTS pursuant to BANK'S
agreement with such Merchants ("Merchant Fees") shall be allocated,
used, and distributed as follows:
2.1 BANK shall retain for itself that portion of the Merchant Fees
which equals 13.5 basis points of the net sales by COVERED
MERCHANTS.
-2-
<PAGE> 3
2.2 BANK shall deposit the remainder of the Merchant Fees into the
General Account. Upon request, the remaining funds will be wired
to an account designated by CARDSERVICE.
2.3 BANK shall charge the general account from time to time, amounts
necessary to cover any/all of the following:
a) All VISA interchange charges, transaction charges,
frequency charges, application fees, dues;
b) All MCI interchange charges, transaction charges,
frequency charges, application fees, dues;
c) All third party vendor processing charges, i.e.; FDR,
Envoy, MDI, etc.
d) Automated Clearing House ("ACH") fees incurred in
connection with the transmittal by BANK of funds to
COVERED MERCHANTS;
e) BANK'S payroll expenses of up to $2,000 per month;
f) All initial and annual third party service provider
registration fees charged to BANK by VISA and MCI.
g) All fines paid by BANK to VISA or MCI resulting from
CARDSERVICE's violation of the bylaws, rules, regulations,
and other directives of VISA or MCI (the "Card Association
Rules"); and
h) Travel expenses and related out-of-pocket expenses
incurred by BANK in connection with periodic visits by
BANK to CARDSERVICE.
2.4 CARDSERVICE shall hold BANK harmless from and indemnify BANK
against all claims, losses, damages, and liabilities, including
attorneys' fees and other costs of defense, that relate to or
result from either the processing of credit card transactions
for COVERED MERCHANTS or any alleged violations by CARDSERVICE
or the Card Association Rules. BANK may reimburse itself for any
such claims, losses, damages, or liabilities by immediately
charging the Reserve Account and/or the General Account in the
amount of the loss incurred.
3.0 BANK'S OBLIGATIONS.
BANK agrees to the following considerations:
3.1 BANK agrees to perform all requirements as acquirer for COVERED
MERCHANTS.
3.2 BANK agrees that for the term of this agreement, or any extension
thereof, CARDSERVICE shall be the BANK'S exclusive outside
provider of merchant credit card marketing and business
development services and that if at the conclusion of this
agreement, it is not renewed BANK shall allow CARDSERVICE to
transfer the COVERED MERCHANTS, to another institution without
any additional consideration, subject to applicable Card
Association Rules; provided, however, that nothing herein shall
prohibit BANK from contracting directly with merchants other than
the COVERED MERCHANTS without the assistance of any third party
service provider.
3.3 BANK agrees to maintain and/or obtain appropriate membership in
VISA, MCI and in all other entities required to allow BANK to
serve as an acquirer and to provide
-3-
<PAGE> 4
CARDSERVICE the authority to participate as a third party
merchant service provider. CARDSERVICE shall reimburse BANK for
all costs incurred by BANK in obtaining and maintaining the
necessary memberships in VISA, MCI, and any similar entity;
provided, however, that all such costs, if any, that are
attributable directly and solely to BANK's role as an issuer
shall be borne by BANK. BANK may collect any amounts for which
CARDSERVICE is responsible under this paragraph by charging the
General Account in the amount owed by CARDSERVICE.
3.4 BANK shall cooperate with CARDSERVICE to establish a computer to
computer interface through which BANK and the processing vendor,
may transmit information necessary to provide accurate merchant
account setup, on-line merchant information, and daily security
reporting. Expenses associated with setting up this data link
will be the responsibility of CARDSERVICE.
4.0 VISA, MCI RULES AND REGULATIONS.
CARDSERVICE acknowledges that it has received and understands all
applicable Card Association Rules, and agrees to comply fully
with such rules, as they are amended from time to time, including
but not limited to the rules governing third party service
providers and the use of card association trademarks. In the
event of any inconsistency between any provisions of the
Agreement and any of the Card Association Rules, the Card
Association Rules shall take precedence and shall apply.
CARDSERVICE shall not be liable for the failure of any merchant
of BANK to comply with any Card Association Rules applicable to
that merchant.
4.1 BANK shall control approval and review of all Merchants. BANK
shall control the establishment of Merchant Fees with respect to
VISA and MCI transactions.
4.2 BANK, VISA, MCI and/or their designees may conduct financial and
procedural audits and/or reviews of CARDSERVICE at any time.
4.3 CARDSERVICE shall make available, within seven business days of
any request by BANK, VISA, MCI, or any other regulatory agency,
all records and documents within CARDSERVICE'S control that
relate to the merchant services CARDSERVICE provides to BANK.
4.4 CARDSERVICE has disclosed and will continue to disclose to BANK
the identity and location of all of CARDSERVICE'S sales or other
business locations. BANK, VISA, and MCI each shall have the right
to inspect any business location of CARDSERVICE to ensure full
compliance with provisions of this Agreement and all applicable
Card Association Rules. CARDSERVICE shall reimburse BANK for
amounts BANK pays to VISA or MCI to cover the costs of any such
inspection.
5.0 DAILY RECORD KEEPING BY BANK.
BANK agrees to provide CARDSERVICE with the following records
within three business days after such request is made by
CARDSERVICE.
5.1 Gross merchant charges per day per merchant; (VISA/MCI)
5.2 Net VISA/MCI sales per day per merchant on all;
a) All VISA interchange charges.
b) All MCI interchange charges.
c) All Chargebacks.
-4-
<PAGE> 5
d) All rejects.
e) All daily FDR (or other processor) charges.
5.3 Settlement statement to reconcile the funds received from vendor
processor, including computation of BANK fees, and addition to
CARDSERVICE'S reserve account; and any other pertinent
information upon request.
6.0 ADVERTISING.
BANK agrees that CARDSERVICE may use its name in CARDSERVICE'S
promotional/advertising material, but only with the advance
consent of BANK as further explained in paragraph 6.4.
6.1 CARDSERVICE acknowledges that MCI is the owner of the MasterCard
trademarks and service marks, that CARDSERVICE will not contest
the ownership of such marks, and that MCI has the right to
immediately and without advance notice prohibit CARDSERVICE from
performing any further service or activity relating to any MCI
program if MCI deems CARDSERVICE to have violated any applicable
MCI rule or regulation.
6.2 CARDSERVICE shall not use any of the VISA or MCI trademarks or
service marks on any material unless BANK is prominently
identified by name and city adjacent to those marks. Such
material may not identify CARDSERVICE unless CARDSERVICE is
prominently identified as an agent or representative of BANK.
6.3 CARDSERVICE shall not use the VISA or MCI trademarks or service
marks on any marketing material, including, but not limited to,
business cards stationery, nor shall CARDSERVICE permit any of
its agents to use any of the VISA or MCI trademarks or service
marks.
6.4 BANK must review and approve in advance all marketing and
solicitation material prepared by CARDSERVICE for use in
connection with its performance of the services contemplated by
this Agreement. All marketing or solicitation material used by
CARDSERVICE shall clearly disclose that any merchant agreement
entered into will be between the merchant and BANK.
7.0 SUPPLIES AND EQUIPMENT.
CARDSERVICE agrees to provide COVERED MERCHANTS with all
supplies/equipment necessary to enable such Merchants to accept
credit cards in payment for goods and services.
8.0 LAW AND REGULATIONS.
BANK agrees to comply with all applicable laws and regulations
regulating banks as acquirers of credit card transactions.
9.0 ELECTRONIC TICKET CAPTURE AND MERCHANT ACCOUNT APPROVAL.
Through the use of a point of sale terminal, merchant VISA/MCI
sales will be processed by electronic ticket capture.
9.1 BANK shall facilitate Merchant deposits by opening the necessary
merchant accounts, or by providing deposit service to the
merchant through use of the Automatic Clearing House (ACH).
-5-
<PAGE> 6
9.2 BANK shall have the final right to refuse any merchant
recommended by CARDSERVICE.
9.3 All COVERED MERCHANTS will complete, to the satisfaction of
BANK, all necessary forms and agreements required by BANK, VISA,
and MCI on forms approved by BANK and distributed to COVERED
MERCHANTS by CARDSERVICE.
9.4 BANK agrees to release CARDSERVICE, its respective officers,
directors and representatives from all claims, demands,
liabilities and damages resulting from BANK'S relationships with
COVERED MERCHANTS for normal banking services such as
maintaining checking accounts.
10.0 TERM.
This agreement shall be effective as of the first date written
above and shall continue in full force for a period of four
years. This Agreement will automatically renew for additional
four year periods unless written notice of cancellation is
delivered 30 days prior to the expiration of any renewal periods
by either party, provided CARDSERVICE must notify BANK of the
date the current period ends via certified mail 90 days prior to
the expiration of that period.
10.1 Notwithstanding the provisions of Section 10.0 above, BANK may
terminate this Agreement immediately, during the initial term or
any renewal term, if CARDSERVICE fails to comply fully with any
applicable Card Association Rules. In addition, this Agreement
will terminate automatically if (a) either VISA or MCI prohibits
CARDSERVICE from continuing to provide services with respect to
the products of that card association; or (b) either VISA or MCI
terminates BANK'S membership in or licensing by that card
association.
11.0 NON PERFORMANCE CLAUSE.
CARDSERVICE agrees to perform to the best of its ability all of
its responsibilities listed herein. BANK may invoke revocation
of this Agreement by prevailing in a claim brought against
CARDSERVICE for NON PERFORMANCE in accordance with the
ARBITRATION provision set forth in Section 24 of this Agreement.
12.0 WARRANTY STATEMENT.
CARDSERVICE warrants that in carrying out its obligations
hereunder, the information originated and transmitted to BANK by
CARDSERVICE or its sub-contractors shall be accurate and the
services shall be performed with due care.
13.0 CONFIDENTIALITY.
It is understood that, in the performance of services under this
Agreement, CARDSERVICE may have access to private or
confidential information of BANK. CARDSERVICE shall use its best
efforts to keep, and to have its employees and agents keep, any
and all such information confidential and to use such
information only for the purpose of fulfilling the service to be
performed under this Agreement or as otherwise agreed by
merchant. CARDSERVICE shall not be entitled to provide
information concerning BANK accounts to third parties pursuant
to an administrative or judicial subpoena, summons, search
warrant or other governmental order, or through informal request
of governmental agencies without first notifying BANK of such
order or informal request and providing BANK adequate time to
satisfy any requirements that BANK may have under applicable
laws. BANK agrees to hold confidential and to use only in
conjunction with the services provided under this Agreement, all
proprietary information. CARDSERVICE furnishes to BANK which is
identified as proprietary.
-6-
<PAGE> 7
14.0 REGULATION.
It is understood and agreed to by the parties hereto that the
performance of the services contemplated hereunder is or may be
subject to regulation or examination by federal and state
regulatory agencies, and CARDSERVICE and BANK are each
authorized to submit or furnish to any such agency such reports,
information, assurances or other data as may be required by them
under related and applicable laws and regulations. CARDSERVICE
shall notify BANK promptly upon receipt of any request for such
information.
15.0 NOTICES.
Any written notice required or permitted to be given by BANK to
CARDSERVICE hereunder shall be addressed to:
CARDSERVICE INTERNATIONAL, INC.
26775 MALIBU HILLS RD.
AGOURA HILLS, CA 91301
ATTENTION: CHUCK BURTZLOFF
and any written notice required or permitted to be given by
CARDSERVICE to BANK under this Agreement shall be addressed to:
REDDING BANK OF COMMERCE
1177 PLACER STREET P.O. BOX 4748
REDDING, CA 96099
ATTENTION: RUSSELL L. DUCLOS
16.0 INDEPENDENT CONTRACTOR.
Nothing herein contained shall be construed as constituting a
form of any type of a partnership, joint venture or agency
between the parties hereto. The relationship is intended by the
parties as one of independent contractor.
17.0 ASSIGNMENT.
This Agreement shall not be assignable in whole or in part by
any of the parties hereto without the prior written consent of
the other parties hereto and any assignment without such written
consent shall be void. However, any of the parties hereto may
assign this Agreement to the successor of its business through
merger, sale of assets or other reorganization.
18.0 AUTHORITY.
Each party of this Agreement hereby represents and warrants to
the others that is [sic] has the full right, power and authority
to enter into and perform this Agreement in accordance with all
of the terms, provisions, covenants and conditions hereof, and
that the execution and delivery of this Agreement has been duly
authorized by proper corporate action.
19.0 SPECIAL EVENTS.
In the event any of the parties to this Agreement shall cease
conducting business in the ordinary course, becomes insolvent,
makes a general assignment for the benefit of creditors, suffers
or permits appointment of a receiver for its business or assets,
or shall avail itself of, or become subject to, any proceeding
under the Federal Bankruptcy Laws or any statute of any sale
relating to insolvency or the protection of the rights of
creditors, then (at the option
-7-
<PAGE> 8
of the other parties hereto), this Agreement shall terminate and
be of no further force and effect, and any property or rights of
such other parties, tangible or intangible, shall forthwith be
returned to them.
20. FORCE MAJEURE.
Each party hereto will be excused from performance hereunder
when and to the extent that it is prevented from performance by,
but not limited to the following: computer, utility, or
communications breakdown, inability to operate or obtain
services for its equipment, fire and Act of God, or any act of a
third party beyond its control provided that it takes all steps
reasonably practical and necessary to effect prompt resumption
of its respective responsibilities set forth hereunder in full
or in part.
21.0 WAIVER.
Any delay, waiver or omission by any party to this Agreement to
exercise any right or power arising from any breach or default
of any other party in any of the terms, provisions or covenants
of this Agreement shall not be construed to be a waiver by that
party or any subsequent breach of default of the same or other
terms, provisions of covenants on the part of any other party
hereto.
22.0 BENEFIT.
This Agreement shall be binding upon all parties, their
officers, directors, representatives, successors and assigns as
provided herein.
23.0 ATTORNEY'S FEES.
Should either party hereto be required to seek the services of
an attorney to enforce its rights hereunder, the prevailing
party in such action, arbitration, or other proceedings shall be
awarded attorney's fees and other collection fees and legal
costs incurred by that party in connection with those
proceedings.
24.0 ARBITRATION.
Any controversy or claim arising out of or relating to this or
any related agreements or default thereunder shall be settled by
arbitration with the Commercial Arbitration Rules of the
American Arbitration Association and judgement upon the award
rendered by the Arbitrator(s) may be entered in any court having
jurisdiction thereof.
25.0 LAW.
This Agreement shall be governed in all respects by and
construed in accordance with the laws of the State of
California.
26.0 SEVERABILITY.
Should any of the provisions of this Agreement be invalid, such
invalidity shall not affect the validity of the remaining
provisions.
27.0 ENTIRE AGREEMENT.
This Agreement constitutes the only agreement between the
parties hereto relating to the subject matter hereof, and all
prior negotiations, agreements, and understandings, whether oral
-8-
<PAGE> 9
or written, are therefore superseded hereby. No modification or
amendment of this Agreement shall be effective unless and until
set forth in writing and signed by all parties hereto.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be executed
on its behalf by a duly authorized representative on the day and written below.
REDDING BANK OF COMMERCE
NAME: /s/ Russell L. Duclos
-----------------------------------
TITLE: Executive Vice President
----------------------------------
DATE: April 16, 1993
-----------------------------------
CARDSERVICE INTERNATIONAL, INC.
NAME: /s/ Chuck Burtzloff
-----------------------------------
TITLE: President/CEO
----------------------------------
DATE: April 15, 1993
-----------------------------------
-9-
<PAGE> 10
ADDENDUM
This is an addendum to the contract entered into by and between
Cardservice International Inc., hereinafter "CARDSERVICE", and Redding Bank of
Commerce, hereinafter "BANK", on April 1, 1993.
The parties mutually desire to offer electronic point of sale debit card
services, in addition to credit card services currently offered to merchants. In
order to accomplish this objective the parties are amending the aforementioned
contract in the following respects:
1. BANK agrees to become a member of the networks identified by
CARDSERVICE and agreed to by the BANK.
2. BANK agrees to provide settlement services for CARDSERVICE for
the networks BANK joins.
3. CARDSERVICE agrees to pay all fees and costs related to network
membership. These fees and costs are to include, but are not
limited to, entry fees, membership fees, sponsorship fees,
transaction fees and etc.
4. CARDSERVICE agrees to pay the BANK five cents ($0.05) per debit
transaction processed.
All other terms and conditions of the contract remain in force and where
appropriate are applicable to debit processing.
Any breach of this addendum shall constitute a breach of the April 1,
1993 agreement.
IN WITNESS WHEREOF, each of the parties has caused this Addendum to be executed
on is [sic] behalf by a duly authorized representative on the day and written
below.
REDDING BANK OF COMMERCE CARDSERVICE INTERNATIONAL, INC.
Name: /s/ Linda J. Miles Name: /s/ Chuck Burtzloff
---------------------------- ----------------------------
Title: CFO Title:
--------------------------- ---------------------------
Date: 11-9-93 Date:
---------------------------- ----------------------------
<PAGE> 11
THIRD ADDENDUM
This is an addendum to the Agreement entered into by and between
Cardservice International, Inc., hereinafter "CARDSERVICE", and Redding Bank of
Commerce, hereinafter "BANK", on April 1, 1993.
The parties mutually desire [sic] amend the agreement as follows:
SECTIONS 1.1:
The Reserve Account balance referred to in line 3 is hereby
changed from 75 basis points to 25 basis points.
SECTION 2.1:
This Section shall be replaced with the following:
Each month the BANK shall retain for itself that portion of the
Merchant Fees for COVERED MERCHANTS which equals 13.5 basis
points (.135%) of the first $93,000,000 of net bankcard sales
($125,550); for net bankcard sales that exceed $93,000,000 the
BANK shall retain 2.0 basis points (.02%) of such net bankcard
sales.
All other terms and conditions of the Agreement remain in force.
Any breach of this addendum shall constitute a breach of the April 1,
1993 Agreement.
IN WITNESS WHEREOF, each of the parties has caused this Addendum to be executed
on its behalf by a duly authorized representative on the day written below.
REDDING BANK OF COMMERCE CARDSERVICE INTERNATIONAL, INC.
NAME: /s/ Russell L. Duclos NAME: /s/ Donald C. Headlund
-------------------------------- -----------------------------
DONALD C. HEADLUND
TITLE: EXECUTIVE VP/CLO TITLE: CFO
------------------------------- ----------------------------
DATE: SEPT. 19, 1996 DATE: SEPT. 23, 1996
-------------------------------- -----------------------------
<PAGE> 12
FOURTH ADDENDUM
This is an addendum to the Agreement entered into by and between
Cardservice International Inc., hereinafter "CARDSERVICE", and Redding Bank of
Commerce, hereinafter "BANK", on April 1, 1993.
The parties mutually desire [sic] amend the agreement as follows:
SECTIONS 1.6:
The amount referred to in line 2 is hereby changed from $2,000 to
$4,000.
SECTION 2.3 e):
The amount referred to is hereby changed from $2,000 to $4,000.
All other terms and conditions of the Agreement remain in force.
Any breach of this addendum shall constitute a breach of the April 1,
1993 Agreement.
IN WITNESS WHEREOF, each of the parties has caused this Addendum to be executed
on its behalf by a duly authorized representative on the day written below.
REDDING BANK OF COMMERCE CARDSERVICE INTERNATIONAL, INC.
NAME: /s/ Russell L. Duclos NAME: /s/ Donald C. Headlund
--------------------------------- ----------------------------
Donald C. Headlund
TITLE: Executive Vice President TITLE: Chief Financial Officer
-------------------------------- ---------------------------
DATE: September 30, 1996 DATE: Sept. 23, 1996
--------------------------------- ----------------------------
<PAGE> 1
EXHIBIT 16.1
KPMG Peat Marwick LLP
400 Capitol Mall
Sacramento, CA 95814
November 17, 1998
Securities and Exchange Commission
Washington, D.C. 20549
Ladies and Gentlemen:
We were previously principal accountants for Redding Bancorp and subsidiaries
and, under the date of January 21, 1998, except as to note 12, which is as of
June 16, 1998, we reported on the consolidated financial statements of Redding
Bancorp and subsidiaries as of December 31, 1997 and 1996 and for each of the
years in the three-year period ended December 31, 1997. On April 1, 1998, our
appointment as principal accountants was terminated. We have read Redding
Bancorp and subsidiaries' statements included under Item 14 of its Form 10 dated
November 17, 1998, and we agree with such statements.
Very truly yours,
/s/ KPMG Peat Marwick LLP
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
1. Redding Bank of Commerce
2. Redding Service Corporation, a California Corporation
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 1997 AND THE UNAUDITED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 1998 INCLUDED
IN ITEM 13, FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA, AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 12-MOS
<FISCAL-YEAR-END> SEP-30-1998 DEC-31-1997
<PERIOD-END> SEP-30-1998 DEC-31-1997
<CASH> 9,293 11,431
<INT-BEARING-DEPOSITS> 0 0
<FED-FUNDS-SOLD> 3,210 6,900
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 30,466 55,781
<INVESTMENTS-CARRYING> 8,119 9,037
<INVESTMENTS-MARKET> 8,310 9,081
<LOANS> 144,436 113,410
<ALLOWANCE> 3,019 2,819
<TOTAL-ASSETS> 202,814 204,820
<DEPOSITS> 176,654 180,673
<SHORT-TERM> 0 0
<LIABILITIES-OTHER> 2,483 2,322
<LONG-TERM> 0 0
0 0
0 0
<COMMON> 4,562 4,562
<OTHER-SE> 19,115 17,263
<TOTAL-LIABILITIES-AND-EQUITY> 202,814 204,820
<INTEREST-LOAN> 9,399 11,519
<INTEREST-INVEST> 2,278 3,301
<INTEREST-OTHER> 364 944
<INTEREST-TOTAL> 12,041 15,764
<INTEREST-DEPOSIT> 4,321 6,334
<INTEREST-EXPENSE> 4,321 6,334
<INTEREST-INCOME-NET> 7,720 9,430
<LOAN-LOSSES> 250 1,023
<SECURITIES-GAINS> 28 5
<EXPENSE-OTHER> 4,816 4,025
<INCOME-PRETAX> 4,988 5,787
<INCOME-PRE-EXTRAORDINARY> 4,988 5,787
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 3,162 3,658
<EPS-PRIMARY> 1.18 1.36
<EPS-DILUTED> 1.15 1.35
<YIELD-ACTUAL> 5.56 5.20
<LOANS-NON> 1,336 1,734
<LOANS-PAST> 0 173
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 2,819 2,294
<CHARGE-OFFS> 158 605
<RECOVERIES> 108 106
<ALLOWANCE-CLOSE> 3,019 2,819
<ALLOWANCE-DOMESTIC> 3,019 2,819
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 0 0
</TABLE>
