United States
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission File Number 0-11771
SJNB Financial Corp.
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(Exact name of registrant as specified in its charter)
California 77-0058227
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE NORTH MARKET STREET, SAN JOSE, CALIFORNIA 95113
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (408) 947-7562
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock, no par value
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(Title of class)
Indicate by check mark whether the registrant (1) filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ X ]No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
The aggregate market value of the voting common equity held by non-affiliates of
the registrant, based on a market value of $29.00 per share (the closing price
of the Common Stock, as of February 29, 2000) was $85,774,000
Number of shares of common stock outstanding as of February 29, 2000: 3,617,408
shares
Documents incorporated by reference:
Portions of the registrant's definitive proxy statement for the registrant's
2000 Annual Meeting of Shareholders (to be filed pursuant to Regulation 14A) are
incorporated by reference into Part III of this Report.
<PAGE>
TABLE OF CONTENTS
PART I
Page
Item 1 - Business 3
Item 2 - Properties 12
Item 3 - Legal Proceedings 13
Item 4 - Submission of Matters to a Vote of Security Holders 13
PART II
Item 5 - Market for Registrant's Common Equity and Related Stockholder
Matters 13
Item 6 - Selected Financial Data 14
Item 7 - Management's Discussion and Analysis of Financial Condition and
Results of Operation 16
Item 7A- Quantitative and Qualitative Disclosures about Market Risk 34
Item 8 - Financial Statements and Supplementary Data 35
Item 9 - Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 63
PART III
Item 10- Directors and Executive Officers of the Registrant 63
Item 11- Executive Compensation 63
Item 12- Security Ownership of Certain Beneficial Owners and Management 63
Item 13- Certain Relationships and Related Transactions 63
PART IV
Item 14- Exhibits, Financial Statement Schedules and Reports on
Form 8-K 63
SIGNATURES 66
<PAGE>
PART I
ITEM 1. BUSINESS
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Forward-Looking Information
This Annual Report on Form 10-K includes forward-looking information which is
subject to the "safe harbor" created by Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. These forward-looking statements (which involve the Company's plans,
beliefs and goals, refer to estimates or use similar terms) involve certain
risks and uncertainties that could cause actual results to differ materially
from those in the forward-looking statements. Such risks and uncertainties
include, but are not limited to, the following factors: competitive pressure in
the banking industry; changes in the interest rate environment; the declining
health of the economy, either nationally or regionally; the deterioration of
credit quality, which could cause an increase in the provision for loan and
lease losses; changes in the regulatory environment; changes in business
conditions, particularly in Santa Clara County real estate and high tech
industries; certain operational risks involving data processing systems or
fraud; volatility of rate sensitive deposits; asset/liability matching risks and
liquidity risks. The Company undertakes no obligation to revise or publicly
release the results of any revision to these forward-looking statements. See
also the section included herein entitled "Certain Additional Business Risks"
and other risk factors discussed elsewhere in this Report.
General
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SJNB Financial Corp. (the "Company") is a bank holding company registered under
the Bank Holding Company Act of 1956, as amended (the "BHCA"). The Company was
incorporated under the laws of the State of California on April 18, 1983. Its
principal office is located at One North Market Street, San Jose, California
95113, and its telephone number is (408) 947-7562.
The Company owns 100% of the issued and outstanding common shares of San Jose
National Bank (referred to herein as "SJNB" or "the Bank"). The Bank was
incorporated on November 23, 1981 and commenced business in San Jose,
California, on June 10, 1982. SJNB engages in the general commercial banking
business with special emphasis on the banking needs of the business and
professional communities in San Jose and the surrounding areas.
On January 2, 1996, the Bank acquired Astra Financial Corp. for approximately
$760,000. Its business was merged into the Bank's Financial Services Division,
by adding approximately $1.9 million of factored receivables. Astra Financial
Corp. was liquidated on January 5, 1996, and its assets were transferred to the
Bank. The Bank's Financial Services Division is located at 95 South Market
Street, San Jose, California 95113.
On May 22, 1998, SJNB acquired all of the stock of a private company, Epic
Funding Corporation ("Epic"), pursuant to a definitive agreement dated April 13,
1998. In connection with the acquisition, which was structured as a tax-free
reorganization, the Company issued 12,223 shares of its common stock and paid
$110,000 to Epic's sole shareholder in exchange for all of Epic's outstanding
stock. The total purchase price for Epic was $611,000, while Epic's net equity
was $28,000. Goodwill amounted to $759,000, including certain expenses of the
transaction. Epic provides direct and vendor lease programs and accounts
receivable financing to manufacturers and equipment users throughout California
and across parts of the United States. Epic is now a wholly-owned subsidiary of
the Bank. Epic's office is located in Danville, California, together with a
small de novo branch of the Bank at the same facility, which opened July 1,
1998.
On January 5, 2000, Saratoga Bancorp, the parent company of Saratoga National
Bank, was merged with and into the Company, pursuant to an exchange of the
Company's common stock for all common stock of Saratoga Bancorp. Saratoga
National Bank, headquartered in Saratoga, California, operated three branches
and as of the acquisition date had approximately $142 million in assets, $103
million in deposits and $15 million in shareholders' equity. Saratoga National
Bank was merged with and into SJNB on January 5, 2000. Saratoga's San Jose
office, which was located near SJNB's San Jose office was consolidated into
SJNB's San Jose office as of January 28, 2000. The shareholders of Saratoga
received 0.70 shares of the Company's common stock for each outstanding share of
Saratoga common stock. Based on the closing price of the Company's stock on
January 5, 2000 of $29.125, the transaction is valued at approximately $34.2
million, excluding the value of any unexercised options, and each Saratoga
shareholder received the equivalent of .70 of the Company's common stock valued
at $20.39 per share. The merger has been accounted for as a pooling of
interests. See unaudited pro forma combined condensed financial information as
if the transaction had taken place as of December 31, 1999 on page 62 of this
Report.
SJNB accepts checking and savings deposits, offers money market deposit accounts
and certificates of deposit, makes secured and unsecured commercial and other
installment and term loans and offers other customary banking services. SJNB
offers banking services generally, but it places primary emphasis on lending for
real estate purposes and specialized lending to businesses and professionals.
Loans for real estate purposes include term financing for commercial facilities
and real estate construction loans mainly for residential and commercial
properties. Loans to businesses and professionals include accounts receivable
financing, equipment financing, commercial loans, SBA loans and letters of
credit. The Company provides commercial banking, factoring and leasing services
principally through the Bank, the Bank's Financial Services Division and Epic.
Although the Bank has neither a trust nor an international banking department,
it has arranged to provide these services through its correspondent banks. As a
bank holding company, the Company is authorized to engage in the activities
permitted under the BHCA and regulations thereunder.
Service Area
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The principal service area of SJNB includes the County of Santa Clara and its
contiguous counties, including San Mateo, Alameda, Contra Costa, Santa Cruz and
San Benito.
Employees
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At December 31, 1999, SJNB had 110 full-time officers and employees and 25
part-time employees for a total of 99.08 employees on a full-time equivalent
basis (125, 28, and 112.85, respectively, subsequent to the acquisition of
Saratoga). Certain of the Bank's officers are also officers of the Company. None
of the Bank's employees are represented by a union. Management believes that
employee relations are good.
Supervision and Regulation
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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 Board of Governors of the Federal Reserve
System ("FRB") influences the supply of money through its open market operations
in U.S. Government securities and adjustments to the discount rates applicable
to borrowings by depository institutions and others. Such actions influence the
growth of loans, investments and deposits and also affect interest rates charged
on loans and paid on deposits. The nature and impact of future changes in such
policies on the business and earnings of the 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.
Regulation and Supervision of Bank Holding Companies
The Company is a bank holding company subject to the Bank Holding Company Act of
1956, as amended ("BHCA"). The Company reports to, registers with, and may be
examined by, the FRB. The FRB also has the authority to examine the Company's
subsidiaries. The costs of any examination by the FRB are payable by the
Company.
On November 12, 1999 President Clinton signed into law the Gramm-Leach-Bliley
Act, or the Financial Services Act of 1999 (the "FSA"), which becomes effective
on March 11, 2000. The FSA amends certain portions of the BHCA, subject to
conditions. See "Recently Enacted Legislation" below for more information.
The Company is a bank holding company within the meaning of Section 3700 of the
California Financial Code. As such, the Company and the Bank are subject to
examination by, and may be required to file reports with, the California
Commissioner of Financial Institutions (the "Commissioner").
The FRB has significant supervisory and regulatory authority over the Company
and its affiliates. The FRB requires the Company to maintain certain levels of
capital. See "Capital Standards." The FRB also has the authority to take
enforcement action against any bank holding company that commits any unsafe or
unsound practice, or violates certain laws, regulations or conditions imposed in
writing by the FRB. See "Prompt Corrective Action and Other Enforcement
Mechanisms."
Under the BHCA, a company generally must obtain the prior approval of the FRB
before it exercises a controlling influence over a bank, or acquires directly or
indirectly, more than 5% of the voting shares or substantially all of the assets
of any bank or bank holding company. Thus, the Company is required to obtain the
prior approval of the FRB before it acquires, merges or consolidates with any
bank or bank holding company. Any company seeking to acquire, merge or
consolidate with the Company also would be required to obtain the prior approval
of the FRB.
The Company is generally prohibited under the BHCA from acquiring ownership or
control of more than 5% of the voting shares of any company that is not a bank
or bank holding company and from engaging directly or indirectly in activities
other than banking, managing banks, or providing services to affiliates of the
holding company. However, a bank holding company, with the approval of the FRB,
may engage, or acquire the voting shares of companies engaged, in activities
that the FRB has determined to be so closely related to banking or managing or
controlling banks as to be a proper incident thereto. A bank holding company
must demonstrate that the benefits to the public of the proposed activity will
outweigh the possible adverse effects associated with such activity.
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.
Under California law, (a) 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,
(b) 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 (c) 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 FRB generally prohibits a bank holding company from declaring or paying a
cash dividend which would impose undue pressure on the capital of subsidiary
banks or would be funded only through borrowing or other arrangements that might
adversely affect a bank holding company's financial position. The FRB's policy
is that a bank holding company should not continue its existing rate of cash
dividends on its common stock unless its net income is sufficient to fully fund
each dividend and its prospective rate of earnings retention appears consistent
with its capital needs, asset quality and overall financial condition. See the
section entitled "Restrictions on Dividends and Other Distributions" for
additional restrictions on the ability on the Company and the Bank to pay
dividends.
Transactions between the Company and the Bank are subject to a number of other
restrictions. FRB policies forbid the payment by bank subsidiaries of management
fees which are unreasonable in amount or exceed the fair market value of the
services rendered (or, if no market exists, actual costs plus a reasonable
profit). Subject to certain limitations, depository institution subsidiaries of
bank holding companies may extend credit to, invest in the securities of,
purchase assets from, or issue a guarantee, acceptance, or letter of credit on
behalf of, an affiliate, provided that the aggregate of such transactions with
affiliates may not exceed 10% of the capital stock and surplus of the
institution, and the aggregate of such transactions with all affiliates may not
exceed 20% of the capital stock and surplus of such institution. The Company may
only borrow from depository institution subsidiaries if the loan is secured by
marketable obligations with a value of a designated amount in excess of the
loan. Further, the Company may not sell a low-quality asset to a depository
institution subsidiary.
Comprehensive amendments to Regulation Y became effective in 1997, and are
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 FRB 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.
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 FRB 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.
Bank Regulation and Supervision
As a national bank, the Bank is regulated, supervised and regularly examined by
the Office of the Comptroller of the Currency ("OCC"). Deposit accounts at the
Bank are insured by Bank Insurance Fund ("BIF"), as administered by the Federal
Deposit Insurance Corporation ("FDIC"), to the maximum amount permitted by law.
The Bank is also subject to applicable provisions of California law, insofar as
such provisions are not in conflict with or preempted by federal banking law.
The Bank is a member of the Federal Reserve System, and is also subject to
certain regulations of the FRB dealing primarily with check clearing activities,
establishment of banking reserves, Truth-in-Lending (Regulation Z),
Truth-in-Savings (Regulation DD), and Equal Credit Opportunity (Regulation B).
The OCC may approve, on a case-by-case basis, the entry of bank operating
subsidiaries into a business incidental to banking, including activities in
which the parent bank is not permitted to engage. A national bank is permitted
to engage in activities approved for a bank holding company through a bank
operating subsidiary, such as acting as an investment or financial advisor,
leasing personal property and providing financial advice to customers. In
general, these activities are permitted only for well-capitalized or adequately
capitalized national banks.
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 U.S. government securities, to 100% for assets with relatively
higher credit risk, such as certain loans.
In determining the capital level the Bank is required to maintain, the federal
banking agencies do not, in all respects, follow generally accepted accounting
principles ("GAAP") and has special rules which have the effect of reducing the
amount of capital it will recognize for purposes of determining the capital
adequacy of the Bank.
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
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.
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 regulators' rating. For all banking organizations not
rated in the highest category, the minimum leverage ratio must be at least 100
to 200 basis points above the 3% minimum. Thus, the effective minimum leverage
ratio, for all practical purposes, must be at least 4% or 5%. In addition to
these uniform risk-based capital guidelines and leverage ratios that apply
across the industry, the regulators have the discretion to set individual
minimum capital requirements for specific institutions at rates significantly
above the minimum guidelines and ratios.
The following tables present the capital ratios for the Company and the Bank,
compared to the standards for well-capitalized depository institutions, as of
December 31, 1999.
<TABLE>
<CAPTION>
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(amounts in thousands, except percentages) Well Minimum
Actual Capitalized Capital
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The Company Capital Ratio Ratio Requirement
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<S> <C> <C> <C> <C>
Leverage $34,971 8.36% 5.0% 4.0%
Tier 1 Risk-based 34,971 9.80 6.0 4.0
Total Risk-based 39,442 11.05 10.0 8.0
The Bank
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Leverage $33,421 7.99% 5.0% 4.0%
Tier 1 Risk-based 33,421 9.46 6.0 4.0
Total Risk-based 37,848 10.71 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.
Under the prompt corrective action provisions of FDICIA, an insured depository
institution generally will be classified in the following categories based on
the capital measures indicated below:
Well capitalized Adequately capitalized
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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
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Total risk-based capital Total risk-based capital less than 6%;
less than 8%;
Tier 1 risk-based capital Tier 1 risk-based capital less than 3%;or
less than 4%; or
Leverage ratio less than 4%. Leverage ratio less than 3%.
Critically undercapitalized
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Tangible equity to total
assets less than 2%.
An institution that, based upon its capital levels, is classified as "well
capitalized," "adequately capitalized" or "undercapitalized" may be treated as
though it were in the next lower capital category if the appropriate federal
banking agency, after notice and opportunity for hearing, determines that an
unsafe or unsound condition or an unsafe or unsound practice warrants such
treatment. At each successive lower capital category, an insured depository
institution is subject to more restrictions.
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 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 the authority to prohibit a depository
institution from engaging in business practices which are considered to be
unsafe or unsound, possibly including payment of dividends or other payments
under certain circumstances even if such payments are not expressly prohibited
by statute.
The payment of dividends by a national bank is further restricted by additional
provisions of federal law, which prohibit a national bank from declaring a
dividend on its shares of common stock unless its surplus fund exceeds the
amount of its common capital (total outstanding common shares times the par
value per share). Additionally, if losses have at any time been sustained equal
to or exceeding a bank's undivided profits then on hand, no dividend shall be
paid. Moreover, even if a bank's surplus exceeded its common capital and its
undivided profits exceed its losses, the approval of the OCC is required for the
payment of dividends if the total of all dividends declared by a national bank
in any calendar year would exceed the total of its net profits of that year
combined with its retained net profits of the two preceding years, less any
required transfers to surplus or a fund for the retirement of any preferred
stock. A national bank must consider other business factors in determining the
payment of dividends. The payment of dividends by the Bank is governed by the
Bank's ability to maintain minimum required capital levels and an adequate
allowance for loan losses. Regulators also have authority to prohibit a
depository institution from engaging in business practices which are considered
to be unsafe or unsound, possibly including payment of dividends or other
payments under certain circumstances even if such payment are not expressly
prohibited by statute.
Premiums for Deposit Insurance and Assessments for Examinations
FDICIA established several mechanisms to increase funds to protect deposits
insured by the Bank Insurance Fund ("BIF") administered by the FDIC. The FDIC 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 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
On November 12, 1999 President Clinton signed into law the Financial Services
Act of 1999 ("FSA"), which becomes effective on March 11, 2000. The FSA repeals
provisions of the Glass-Steagall Act, which had prohibited commercial banks and
securities firms from affiliating with each other and engaging in each other's
businesses. Thus, many of the barriers prohibiting affiliations between
commercial banks and securities firms have been eliminated.
The BHCA is also amended by the FSA to allow new "financial holding companies"
("FHC") to offer banking, insurance, securities and other financial products to
consumers. Specifically, the FSA amends section 4 of the BHCA in order to
provide for a framework for the engagement in new financial activities. Bank
holding companies ("BHC") may elect to become a financial holding company if all
its subsidiary depository institutions are well-capitalized and well-managed. If
these requirements are met, a BHC may file a certification to that effect with
the FRB and declare that it elects to become a FHC. After the certification and
declaration is filed, the FHC may engage either de novo or though an acquisition
in any activity that has been determined by the FRB to be financial in nature or
incidental to such financial activity. BHCs may engage in financial activities
without prior notice to the FRB if those activities qualify under the new list
in section 4(k) of the BHCA. However, notice must be given to the FRB within 30
days after a FHC has commenced one or more of the financial activities.
Under the FSA, national banks (as well as FDIC-insured state banks, subject to
various requirements) are permitted to engage through "financial subsidiaries"
in certain financial activities permissible for affiliates of FHCs. However, to
be able to engage in such activities the national bank must also be
well-capitalized and well-managed and receive at least a "satisfactory" rating
in its most recent Community Reinvestment Act examination. In addition, if the
national bank ranks as one of the top 50 largest insured banks in the United
States, it must have an issue of outstanding long-term debt rated in one of the
50 highest rating categories by an independent rating agency. If the national
bank falls within the next group of 50, it must either meet the debt rating test
described above or satisfy a comparable test jointly agreed to by the FRB and
the Treasury Department. No debt rating is required for any national bank, such
as the Bank, not within the top 100 largest insured banks in the United States.
We do not have any such debt outstanding.
The Company cannot be certain of the effect of the foregoing recently enacted
legislation on its business, although there is likely to be consolidation among
financial services institutions and increased competition for the Company.
Pending Legislation and Regulations
Certain 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.
Competition
In the past, an independent bank's principal competitors for deposits and loans
have been other banks (particularly major banks), savings and loan associations
and credit unions. To a lesser extent, competition was also provided by thrift
and loans, mortgage brokerage companies and insurance companies. Other
institutions, such as brokerage houses, mutual fund companies, credit card
companies, and even retail establishments have offered new investment vehicles
which also compete with banks for deposit business. The direction of federal
legislation in recent years seems to favor competition between different types
of financial institutions and to foster new entrants into the financial services
market, and it is anticipated that this trend will continue.
The enactment of the Interstate Banking and Branching Act in 1994 and the
California Interstate Banking and Branching Act of 1995 have increased
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.
At present there are approximately 382 banking offices in the geographic area
served by SJNB, including offices of major chain banks and other independent
banks. There are also approximately 140 offices of savings banks. Of these there
are 231 offices of commercial banks (and 86 offices of savings banks) in Santa
Clara County, which is the principal market area for the San Jose office. In
addition, there are 151 offices of commercial banks (and 54 offices of savings
banks) in the Danville office's primary market area. Total deposits of the
combined area are approximately $48 billion as of June 30, 1999, of which the
Bank has approximately a 0.7% share. In the San Jose's office market area, the
Bank's market share is approximately 1.07% of the deposits in that market.
Presently, there are at least seven other independent banks in Santa Clara
County. Three of the independent banks - Heritage Bank of Commerce, Cupertino
National Bank (a subsidiary of Greater Bay Bancorp), and Silicon Valley Bank -
emphasize commercial banking services and, therefore, create direct competition
for the services that SJNB offers to the business and professional communities
in its market area.
The Bank's Financial Services Division and Epic also compete with many of the
major and independent banks within their respective marketing areas. The Bank's
Financial Services Division and Epic also compete with companies solely in the
factoring or leasing business. Such companies may offer products and services
which traditionally are not offered by banking institutions.
Certain Additional Business Risks
- ---------------------------------
The Company's business, financial condition, operating results and prospects can
be impacted by a number of factors, including, but not limited to, those set
forth in the paragraphs below. Any one of these stated risks could cause the
Company's actual results in the future to vary from the Company's anticipated
future results.
Shares of Company Common Stock eligible for future sale could have a dilutive
effect on the market for Company Common Stock and could adversely affect the
market price of the Common Stock. The Articles of Incorporation of the Company
authorize the issuance of 20,000,000 shares of Common and 5,000,000 shares of
Preferred Stock, of which approximately 3,617,408 common shares and no preferred
shares were outstanding at February 29, 2000 (subsequent to the acquisition of
Saratoga Bancorp). Pursuant to its stock option plans, the Company had
outstanding options to purchase an aggregate of 726,000 shares of Company Common
Stock at February 29, 2000 (adjusting for the Saratoga Bancorp's stock option
plans). As of the same date, 236,000 shares of Company Common Stock remained
available for option grants under the Company's stock option plans, including
stock option plans of Saratoga Bancorp.
The Company has previously announced its intention to pursue acquisitions of
other financial services companies from time to time when such acquisitions are
believed by the Company to enhance shareholder value or satisfy other strategic
objectives of the Company. Other acquisitions, if any, could be accomplished by
the issuance of additional shares of Company Common Stock or other securities
convertible into or exercisable for such Common Stock. Sales of substantial
amounts of Company Common Stock or convertible securities in the public market
or due to acquisitions could adversely affect the market price of the Common
Stock.
The loan and lease portfolio of the Company is dependent on real estate. At
December 31, 1999, real estate served as the principal source of collateral with
respect to approximately 47% of the Company's loan and lease portfolio. A
worsening of current economic conditions or rising interest rates could have an
adverse effect on the demand for new loans, the ability of borrowers to repay
outstanding loans, the value of real estate and other collateral securing loans
and the value of the available for sale investment portfolio, as well as the
Company's financial condition and results of operations in general and the
market value of the Company's Common Stock. Acts of nature, including
earthquakes and floods, which may cause uninsured damage and other loss of value
to real estate that secures these loans, may also negatively impact the
Company's financial condition.
The Bank is subject to certain operational risks including, but not limited to,
data processing system failures and errors and customer or employee fraud. The
Bank maintains a system of internal controls which it believes will mitigate
such occurrences and maintains insurance coverage for such risks. Should such an
event occur that was not prevented or detected by the Bank's internal controls
or that was uninsured or in excess of the applicable insurance limits, it could
have a significant negative impact on the Company's financial condition or
results of operations.
Statistical Data
- ----------------
Certain consolidated statistical information concerning the business of the
Company appears on page 14, under the caption "Selected Financial Data;" on
pages 16 through 34, under the caption "Management's Discussion and Analysis of
Financial Condition and Results of Operation;" on page 34, under the caption
"Quantitative and Qualitative Disclosures about Market Risk;" and on pages 35
through 61, in the Company's Consolidated Financial Statements. Ratios relating
to the Company's Return on Equity and Assets appear on page 14. The section
entitled "Management's Discussion and Analysis of Financial Condition and
Results of Operation" should be read in conjunction with the information in Item
1 herein and the Company's Consolidated Financial Statements.
ITEM 2: PROPERTIES
- -------------------
The Company shares common quarters with SJNB's main branch at One North Market
Street, San Jose, California, 95113. The building was purchased by the Bank in
1985 and consists of approximately 24,000 square feet of basement, ground floor
and second floor space. It is constructed and equipped to meet prescribed
security requirements.
In addition, the Bank leases approximately 12,000 square feet located at 95
South Market Street, San Jose, California. Approximately 9,000 square feet of
space at this location is currently being occupied by two third-party tenants
under subleases which expire at the termination of the lease in September 2004.
The Bank's Financial Services Division is occupying the remaining space at this
location.
The Bank and its subsidiary, Epic, share 3,000 square feet of leased facilities
in Danville, California. The monthly lease expense is $6,300 with annual
increase in July 2000. The lease expires July 2001.
In connection with the acquisition of Saratoga Bancorp, three banking facilities
were obtained. Saratoga's main office and principal executive office, located at
12000 Saratoga-Sunnyvale Road, Saratoga, California comprises 5,500 square feet
and was owned by Saratoga National Bank. This office is now being used as a
branch of SJNB. The second office is located at 15405 Los Gatos Blvd., Suite
103, Los Gatos, California. The facility has 3,082 square feet and is leased
under a noncancelable-operating lease which expires in 2003. Current lease
payments are $6,387 per month. This office is being maintained as a branch of
SJNB. The third facility was located at 160 West Santa Clara Street, San Jose,
California. The lease expired on this facility as of December 31, 1999 and was
leased for the month of January 2000 at a cost of approximately $17,000. This
office was closed as of January 28, 2000 and the accounts were consolidated into
the SJNB office located at One North Market Street.
In the opinion of management, adequate insurance is being maintained on these
properties.
ITEM 3: LEGAL PROCEEDINGS
- --------------------------
Neither the Company nor the Bank is a party to any material pending legal
proceeding, nor is their property the subject of any material pending legal
proceeding, except ordinary routine legal proceedings arising in the ordinary
course of the Bank's business and incidental to its business, none of which are
expected to have a material adverse impact upon the Company's or the Bank's
business, financial position or results of operations.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
At a Special Meeting of Shareholders of the Company on December 13, 1999,
1,453,026 shares were represented in person or by proxy. The shareholders
approved the merger between Saratoga Bancorp and SJNB Financial Corp. with
1,439,645 shares being voted for the approval, 5,903 shares being voted against
and 7,478 shares abstained.
PART II
ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
- --------------------------------------------------------------------------------
As of February 29, 2000, the Company had 3,617,408 shares of Common Stock
outstanding, held by approximately 2,200 beneficial shareholders. The Company's
Common Stock is listed on the NASDAQ National Market System under the symbol
"SJNB." Market makers of the Company's Common Stock include: Hoefer & Arnett,
Inc., Sandler O'Neill & Partners, Wedbush Morgan Securities, Inc., Knight
Securities L.P., Keefe Bruyette & Woods, Inc., and Spear, Leeds & Kellogg.
Stock Price
- -----------
<TABLE>
<CAPTION>
The following sets forth the high and low sales prices for the Company's Common
Stock during the periods indicated, as reported by NASDAQ, and the per share
cash dividends declared on the Common Stock during such periods.
QUARTERLY COMMON STOCK PRICE
- -----------------------------------------------------------------------------------------------------------
Price
of Common Stock Cash
High Low Dividends
- -----------------------------------------------------------------------------------------------------------
1998
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
First Quarter $37.00 $33.50 $.14
Second Quarter 43.25 35.00 .14
Third Quarter 43.25 26.00 .14
Fourth Quarter 29.00 26.00 .14
- -----------------------------------------------------------------------------------------------------------
Annual cash dividend per share .56
- -----------------------------------------------------------------------------------------------------------
1999
- -----------------------------------------------------------------------------------------------------------
First Quarter 28.50 26.00 .14
Second Quarter 30.25 26.50 .14
Third Quarter 34.50 31.00 .14
Fourth Quarter 37.00 30.00 .14
- -----------------------------------------------------------------------------------------------------------
Annual cash dividend per share .56
- -----------------------------------------------------------------------------------------------------------
2000
- -----------------------------------------------------------------------------------------------------------
First quarter (through February 29, 2000) 30.63 27.75 .16*
<FN>
*Declared by the Board of Directors on January 26, 2000 and to be paid on March
6, 2000 to shareholders of record on February 7, 2000.
</FN>
</TABLE>
The Company's Board of Directors considers the advisability and amount of
proposed dividends each year. Future dividends will be determined after
consideration of the Company's earnings, financial condition, future capital
funds, regulatory requirements and such other factors as the Board of Directors
may deem relevant. The Company's primary source of funds for payment of
dividends to its shareholders will be receipt of dividends and management fees
from the Bank. The payment of dividends by a bank is subject to various legal
and regulatory restrictions. See "Business - Supervision and Regulation -
Restrictions on Dividends and Other Distributions." It is the intention of the
Company to continue the payment of quarterly dividends, subject to financial
results and other factors which could limit or restrict dividends as more fully
discussed elsewhere herein.
ITEM 6: SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
The following presents selected financial data and ratios for the five years ended December 31, 1999:
- ----------------------------------------------------------------------------------------------------------------------------
(dollars in thousands, except per share amounts) As of and for the Years Ended December 31,
STATEMENT OF OPERATIONS DATA : 1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net interest income $21,852 $20,254 $18,489 $16,468 $14,295
Provision for loan and lease losses (495) (300) (705) (190) (1,045)
Other income 1,426 1,059 1,013 846 966
Other expenses (12,991) (11,497) (9,910) (9,635) (8,797)
- ----------------------------------------------------------------------------------------------------------------------------
Income before income taxes 9,792 9,516 8,887 7,489 5,419
Income taxes (3,984) (3,975) (3,773) (3,198) (2,395)
- ----------------------------------------------------------------------------------------------------------------------------
Net income $5,808 $5,541 $5,114 $4,291 $3,024
============================================================================================================================
PER SHARE DATA:
- ----------------------------------------------------------------------------------------------------------------------------
Net income per share - basic $2.45 $2.23 $2.04 $1.73 $1.27
Net income per share - diluted 2.31 2.11 1.94 1.64 1.22
Cash dividends per share 0.56 0.56 0.45 0.33 0.21
Shareholders' equity per share 15.65 14.48 13.30 12.14 11.02
Tangible shareholders' equity per share 14.15 12.84 11.80 10.40 9.06
============================================================================================================================
BALANCE SHEET DATA:
- ----------------------------------------------------------------------------------------------------------------------------
Balance sheet totals-end of year:
Assets $425,947 $349,934 $324,919 $309,403 $252,195
Loans and leases 326,961 261,380 228,972 198,627 170,800
Deposits 370,742 302,442 270,345 244,639 196,692
Shareholders' equity 37,829 35,482 33,159 31,205 26,658
Average balance sheet amounts:
Assets $387,604 $337,185 $314,460 $274,868 $222,913
Loans and leases 292,692 236,971 212,795 183,367 152,820
Earning assets 362,926 313,605 286,585 251,156 202,996
Deposits 337,035 292,502 265,340 217,716 183,282
Shareholders' equity 34,715 34,097 31,091 28,288 24,898
============================================================================================================================
SELECTED RATIOS:
- ----------------------------------------------------------------------------------------------------------------------------
Return on average equity 16.73% 16.25% 16.45% 15.17% 12.15%
Return on average assets 1.50 1.64 1.63 1.56 1.36
Efficiency ratio (non-interest expense
as a percentage of total revenues) 55.81 53.94 50.82 55.65 57.64
Efficiency ratio excluding the amortization of
intangibles and goodwill 53.85 51.80 48.39 52.77 53.92
Dividend payout ratio 22.90 25.08 21.95 19.30 16.67
Average equity to average assets 8.96 10.11 9.89 10.29 11.17
Leverage capital ratio 8.36 9.10 9.06 9.28 9.00
Nonperforming loans and leases to total loans 0.43 0.09 0.19 0.27 0.52
and leases
Net chargeoffs to average loans and leases ---- 0.01 0.10 0.04 0.33
Allowance for loan or lease losses to total 1.62 1.83 1.96 2.02 2.25
loans and leases
Allowance for loan or lease losses to
nonperforming loans and leases 375.00 1,983.00 1,060.00 733.00 430.00
============================================================================================================================
</TABLE>
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
This Annual Report on Form 10-K includes forward-looking information within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended, and are subject to the
"safe harbor" created by those sections. These forward-looking statements (which
involve the Company's plans, beliefs and goals, refer to estimates or use
similar terms) involve certain risks and uncertainties that could cause actual
results to differ materially from those in the forward-looking statements. Such
risks and uncertainties include, but are not limited to, the following factors:
competitive pressure in the banking industry; changes in the interest rate
environment; the declining health of the economy, either nationally or
regionally; the deterioration of credit quality, which could cause an increase
in the provision for loan and lease losses; changes in the regulatory
environment; changes in business conditions, particularly in Santa Clara County
real estate and high tech industries; certain operational risks involving data
processing systems or fraud; volatility of rate sensitive deposits;
asset/liability matching risks and liquidity risks. The Company undertakes no
obligation to revise or publicly release the results of any revision to these
forward-looking statements. See also the section included herein entitled
"Business - Certain Additional Business Risks" and other risk factors discussed
elsewhere in this Report.
The purpose of the following discussion is to provide information pertaining to
the financial condition and results of operations of the Company that may not be
apparent from a review of the consolidated financial statements and related
notes. It also incorporates certain statistical information that is required by
Industry Guide 3 promulgated by the Securities and Exchange Commission. The
discussion should be read in conjunction with the aforementioned consolidated
financial statements, as found on pages 35 through 61. The interest earned and
yields on nontaxable securities have been adjusted to a fully-taxable equivalent
basis for all financial information presented in this Item 7.
Dollars and share amounts are in thousands in the text for Item 7, except per
share amounts or as otherwise noted.
Financial Review
- ----------------
Earnings Summary
For the year ended December 31, 1999, the Company reported net income of $5.8
million or $2.31 per diluted share as compared to net income of $5.5 million or
$2.11 per diluted share in December 31, 1998 (a 9% increase). Net income for the
year increased over that of the previous year primarily due to an increase of
$1.6 million in net interest income and an increase in other income of $367 of
which $253 related to the reversal of a specific reserve for an acquired SBA
loan which was paid in full and a change in the method of calculating certain
deposit service charges. These increases were partially offset by an increase in
the loan and lease loss provision of $195 (due to the growth in the loan
portfolio) and by an increase in non-interest expense of $1.5 million relating
to the acquisition of Epic Funding and increased costs due to growth.
For the year ended December 31, 1998, the Company reported net income of $5.5
million or $2.11 per diluted share as compared to net income of $5.1 million or
$1.94 per diluted share in December 31, 1997 (an 8% increase). Net income for
the year increased over that of the previous year primarily due to an increase
of $1.8 million in net interest income and a decrease in the loan and lease loss
provision, partially offset by an increase in non-interest expense mainly due to
the aforementioned acquisition of Epic Funding.
As of December 31, 1999, consolidated assets were $426 million, gross loans and
leases were $327 million, and deposits were $371 million. Total consolidated
assets increased $76 million from $350 million at December 31, 1998, and
deposits grew $69 million from $302 million the previous year, representing a
22% and 23% increase, respectively. Loan and lease and deposit growth was
generated mainly by marketing and business development efforts of the Bank and
its subsidiary, Epic Funding. In addition the Bank generated additional deposits
of $29 million in various wholesale markets.
As of December 31, 1998, consolidated assets were $350 million, gross loans and
leases were $261 million, and deposits were $302 million. Total consolidated
assets increased $25 million from $325 million, and deposits grew $32 million
from $270 million the previous year, representing an 8% and 12% increase,
respectively. Loan and lease and deposit growth was generated by marketing and
business development efforts of the Bank, in addition to a $10 million, ten year
callable, floating rate (30 day LIBOR plus 5 basis points) certificate of
deposit in December 1998.
Net Interest Income and Margin
Net interest income is the principal source of the Company's operating earnings.
Significant factors affecting net interest income are rates, volumes and mix of
the loan, investment and deposit portfolios.
The following table shows the composition of average earning assets and average
funding sources, average yields and rates and the net interest margin for the
three years ended December 31, 1999.
<TABLE>
<CAPTION>
AVERAGE BALANCES, RATES AND YIELDS
(dollars in thousands) 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------
Average Avg yield/ Average Avg yield/ Average Avg yield/
Assets Balance Interest Rate paid Balance Interest Rate paid Balance Interest Rate paid
- ----------------------------------------------------------------------------------------------------------------------------
Interest earning assets:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans and leases, net (1) $292,692 $28,915 9.88% $236,971 $24,858 10.49% $212,795 $22,732 10.68%
Securities available for sale (2) 46,374 2,889 6.23 45,599 2,749 6.03 48,178 2,982 6.19
Securities held to maturity:
Taxable (3) 3,981 261 6.56 8,653 535 6.17 11,929 806 6.76
Nontaxable (4) 6,168 457 7.40 3,852 291 7.56 2,916 235 8.06
Money market investments 13,711 701 5.11 18,530 1,024 5.53 10,767 586 5.44
Interest rate hedging instruments ---- (50) ---- ---- (9) ---- ---- (9) ----
- -------------------------------------------------------- -------------------- --------------------
Total interest-earning assets 362,926 33,173 9.14 313,605 29,448 9.39 286,585 27,332 9.54
- -------------------------------------------------------- -------------------- --------------------
Allowance for loan or lease losses (5,006) (4,604) (4,162)
Cash and due from banks 16,144 14,805 20,008
Other assets 9,720 9,404 7,835
Core deposit intangibles and 3,820 3,975 4,194
goodwill, net
- ---------------------------------------------- ---------- ----------
Total $387,604 $337,185 $314,460
============================================== ========== ==========
Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Deposits:
Interest-bearing demand $52,263 1,316 2.51 $50,970 1,325 2.59 $46,126 1,178 2.55
Money market and savings 98,174 3,450 3.51 100,327 3,504 3.49 85,696 3,061 3.57
Certificates of deposit:
Less than $100 36,470 1,917 5.25 13,387 680 5.07 14,987 792 5.28
$100 or more 78,861 3,871 4.90 60,293 3,256 5.40 53,662 2,964 5.52
- -------------------------------------------------------- -------------------- --------------------
Total certificates of deposit 115,331 5,788 5.01 73,680 3,936 5.34 68,649 3,756 5.47
- -------------------------------------------------------- -------------------- --------------------
Other short-term borrowings 9,921 584 5.88 4,976 312 6.26 12,610 754 5.98
- -------------------------------------------------------- -------------------- --------------------
Total interest-bearing 275,689 11,138 4.04 229,954 9,077 3.95 213,081 8,749 4.11
liabilities
- -------------------------------------------------------- -------------------- --------------------
Noninterest-bearing demand 71,267 67,524 64,869
Accrued interest payable and
other liabilities 5,933 5,610 5,419
- ---------------------------------------------- ---------- ----------
Total liabilities 352,889 303,088 283,369
- ---------------------------------------------- ---------- ----------
Shareholders' equity 34,715 34,097 31,091
- ---------------------------------------------- ---------- ----------
Total $387,604 $337,185 $314,460
=============================================----------- =========----------- =========-----------
Net interest income and margin (5) $22,035 6.07% $20,371 6.50% $18,583 6.48%
===================================== ===================== ===================== =====================
<FN>
(1) Includes amortized loan fees of $1,380 for 1999, $1,309 for 1998 and $1,014
for 1997. Nonperforming loans and leases have been included in average loan and
lease balances.
(2) Includes dividend income of $122, $147 and $219 received in 1999, 1998 and
1997, respectively.
(3) Includes dividend income of $32 received in 1999 and $31 received in 1998
and 1997.
(4) Adjusted to a fully taxable equivalent basis using the federal statutory
rate ($183 in 1999, $116 in 1998 and $94 in 1997).
(5) The net interest margin represents the net interest income as a percentage
of average earning assets.
</FN>
</TABLE>
<TABLE>
<CAPTION>
The following table shows the effect on the interest differential of volume and
rate changes for the years ended December 31, 1999 and 1998:
VOLUME/RATE ANALYSIS
(dollars in thousands) 1999 vs. 1998 1998 vs. 1997
- -----------------------------------------------------------------------------------------------------------------------------
Increase (decrease) Increase (decrease)
due to change in due to change in
- -----------------------------------------------------------------------------------------------------------------------------
Average Average Total Average Average Total
Volume Rate Change Volume Rate Change
- -----------------------------------------------------------------------------------------------------------------------------
Interest income:
<S> <C> <C> <C> <C> <C> <C>
Loans and leases (1) $4,546 $(490) $4,056 $2,527 $(401) $2,126
Securities:
Available for sale 47 93 140 (157) (76) (233)
Taxable (309) 36 (273) (207) (65) (272)
Nontaxable 176 (10) 166 70 (13) 56
Money market investments (266) (57) (323) 429 9 438
- -----------------------------------------------------------------------------------------------------------------------------
Total interest income 4,194 (428) 3,766 2,662 (546) 2,116
- -----------------------------------------------------------------------------------------------------------------------------
Interest expense:
Interest -bearing demand 34 (43) (9) 126 22 147
Money market and savings (75) 21 (54) 514 (71) 443
Certificates of deposits:
Less than $100 1,172 65 1,237 (82) (31) (112)
$100 or greater 1,003 (388) 615 359 (67) 292
Other short-term borrowings 309 (37) 272 (479) 37 (442)
- -----------------------------------------------------------------------------------------------------------------------------
Total interest expense 2,442 (381) 2,061 438 (110) 328
- -----------------------------------------------------------------------------------------------------------------------------
Interest rate hedging instruments (41) (41) ---- ----
- -----------------------------------------------------------------------------------------------------------------------------
Change in net interest income $1,752 $(88) $1,664 $2,224 $(436) $1,788
=============================================================================================================================
<FN>
(1) The effect of the change in loan fees is included as an adjustment to the
average rate and is described in greater detail below.
</FN>
</TABLE>
Consolidated net interest income (on a fully taxable equivalent basis) was $22.0
million in 1999, as compared to $20.4 million in 1998. The increase of $1.6
million in net interest income during 1999 was primarily a result of an increase
in volume of $49.3 million in earning assets which amounted to approximately
$1.8 million of net interest income. The increase in net interest income in
1999 relating to the increase in volume and fees was offset by an overall
decrease in the net interest margin (the difference in the yields on earning
assets and the cost of funds).
The Bank's asset/liability position is slightly asset-sensitive (See
"Asset/Liability Management"). Therefore in times of a declining interest rate
environment, the Bank's net interest margin should be negatively impacted, as
was the case in 1999. The Bank's average prime was 8.00% in 1999, as compared to
8.38% in 1998. At the same time the Bank's net interest margin declined from
6.50% in 1998 to 6.07% in 1999. This was primarily caused by a decline in the
interest earned on earning assets which decline from 9.39% to 9.14%, while the
overall cost of interest-bearing liabilities increased from 3.95% to 4.04%. The
increase in the cost of interest-bearing liabilities was mainly due to a change
in the mix to high cost funds.
Commencing in the third quarter of 1999 and continuing in early 2000, the FOMC
has increased interest rates by 100 basis points. This has caused the Bank's
prime rate to increase from 7 3/4% to 8 3/4%. Due to the competitive nature of
the Bank's market, a decline in the Bank's interest rate sensitivity and an
overall increase in its cost of funds (due to a changing mix of deposit products
and borrowings) the Bank's net interest margin (on a fully taxable equivalent
basis) remained stable in the fourth quarter versus the immediately preceding
quarter at 6.05%. Even though the Bank is asset-sensitive, further increases in
interest rates may not have a significant, if any, positive impact on its net
interest margin.
Consolidated net interest income (on a fully taxable equivalent basis) was $20.4
million in 1998, as compared to $18.6 million in 1997. The increase of $1.8
million in net interest income during 1998 was primarily a result of an increase
in volume of $27 million in earning assets which amounted to approximately $2.2
million of net interest income and an increase of approximately $295 in loan
fees. Late in 1998, the Federal Open Market Committee ("FOMC") decreased the
interbank borrowing rate by 75 basis points and the Discount Rate by 50 basis
points which resulted in a decrease in the Bank's prime rate from 8 1/2% to 7
3/4%. The Bank's average prime was 8.38% in 1998, as compared to 8.44% in 1997.
In a declining rate environment, the Company must generally increase its earning
assets in order to maintain net interest income growth.
Interest expense in 1999 was $11.1 million as compared to $9.1 million in 1998.
The difference was due primarily to the increase in volume (approximately $45.7
million) in addition to an overall increase in interest rates paid. Actual
interest expense rates increased from 3.95% to 4.04%. This occurred while the
average prime rate deceased 38 basis points. In addition the level of
non-interest-bearing deposits declined from an average of 22.7% of average
deposits in 1998 to 20.5% in 1999.
Interest expense in 1998 was $9.1 million as compared to $8.7 million in 1997.
The difference was due primarily to the increase in volume offset by the
decrease in overall interest rate paid. Actual interest expense rates declined
from 4.11% to 3.95%. This compares to a decrease in the yields on earning assets
from 9.54% in 1997 to 9.39% in 1998.
A substantial portion of the Bank's deposits (an average of 21% in 1999 and 23%
in 1998) are non interest-bearing and therefore do not reprice when interest
rates change. See "Funding." This is somewhat ameliorated by a significant
amount of customer corporate account balances which are tied to earnings credits
and utilized to offset bank service costs.
Due to the nature of the Company's lending markets, in which loans are generally
tied to the Prime Rate, it is believed an increase in interest rates should
positively affect the Company's future earnings, while a decline in interest
rates would have a negative impact. Should interest rates decline in the future,
management believes that net interest income could be negatively impacted and it
is not feasible to provide an accurate measure of such a change because of the
many factors (many of which are uncontrollable) influencing the result.
The Company's net interest margin for the periods presented is high relative to
its peer group, mainly due to its high proportion of non interest-bearing
deposits and the impact of its generally higher yielding loans, but specifically
leasing, factoring and asset-based lending.
Net interest income also reflects the impact of nonperforming loans and leases.
The effect of nonaccrual loans and leases on interest income for the years ended
December 31, 1999 through 1995 was as follows:
<TABLE>
<CAPTION>
NEGATIVE IMPACT OF NONACCRUAL LOANS AND LEASES
(dollars in thousands) For the Years Ended December 31,
- ------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest revenue which would have been
recorded under original terms $132 $22 $61 $35 $111
Interest revenue actually realized 112 21 32 29 11
- ------------------------------------------------------------------------------------------------------------------------------
Negative impact on interest revenue $20 $1 $29 $6 $100
==============================================================================================================================
</TABLE>
Provision for Loan and Lease Losses
The level of the allowance for loan and lease losses (and therefore the related
provision) reflects the Company's judgment as to the inherent risks associated
with the loan, lease and factoring portfolios. Since estimates of the adequacy
of the Company's allowance for loan and lease losses are based on foreseeable
risks, such judgments are subject to change based on changing circumstances.
Based on management's current evaluation of such risks, as well as judgments of
the Company's regulators, additions of $495, $300, and $705 were made to the
allowance for loan and lease losses in 1999, 1998 and 1997, respectively.
Management's determinations of the provision in 1999, 1998 and 1997 were based
on the measurement of the possibility of future estimated loan and lease losses
through various objective and subjective criteria and the impact of net
chargeoffs. See "Loan and Lease Portfolio" for a detailed discussion of asset
quality and the allowance for loan and lease losses.
Other Income
<TABLE>
<CAPTION>
The following table sets forth the components of other income and the percentage
distribution of such income for the years ended December 31, 1999, 1998 and
1997.
OTHER INCOME
(dollars in thousands) 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------
Amount Percent Amount Percent Amount Percent
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Depositor service charges $839 58.8% $659 62.3% $607 59.9%
Other operating income 638 44.7 404 38.1 453 44.7
Net loss on securities available for sale (51) (3.6) (4) (.4) (47) (4.6)
- -----------------------------------------------------------------------------------------------------------------------------
Total $1,426 100.0% $1,059 100.0% $1,013 100.0%
=============================================================================================================================
</TABLE>
Other income totaled $1.4 million in 1999, $1.1 million in 1998 and $1.0 million
in 1997. The increase in other income during 1999 resulted from the reversal of
a specific reserve established on the date it was purchased for an acquired SBA
loan which was paid in full and to a change in the method of assessing certain
service charges on deposit accounts.
Other Expense
The components of other expense are set forth in the following table for the
years ended December 31, 1999, 1998 and 1997.
<TABLE>
<CAPTION>
OTHER EXPENSE AS A PERCENT OF AVERAGE ASSETS
(dollars in thousands) 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------
Amount Percent Amount Percent Amount Percent
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Salaries and benefits $7,840 2.02% $6,787 2.01% $5,725 1.82%
Occupancy 915 0.24 775 0.23 725 0.23
Data processing 604 0.15 663 0.20 441 0.14
Legal and professional fees 506 0.13 315 0.09 331 0.11
Amortization of core deposit intangibles
and goodwill 456 0.12 457 0.14 473 0.15
Client services 437 0.11 443 0.13 345 0.11
Business promotion 389 0.10 332 0.10 369 0.12
Directors and shareholders 339 0.09 282 0.08 332 0.11
Other 1,505 0.39 1,442 0.43 1,169 0.36
- ----------------------------------------------------------------------------------------------------------------------------
Total $12,991 3.35% $11,497 3.41% $9,910 3.15%
============================================================================================================================
</TABLE>
Total other expenses increased approximately $1.5 million or 13% in 1999 as
compared to 1998. The increase is partially related to the acquisition of Epic
Funding Corporation (which accounted for approximately $400 of the increase) and
the opening of the of the East Bay Regional Office (which accounted for
approximately $300 of the increase), both occurring in July 1998. In addition
salaries and benefits increased as a result of the increased incentive accruals,
additions to staff and the competitive environment for personnel. Increases in
occupancy also related to Epic and the East Bay Regional Office. Business
promotion expenses have increased mainly due to the increased efforts of the
Bank to penetrate new markets and to continue to develop existing market share.
Legal and professional fees have increased due to costs associated with the
preparation of proxy materials and the annual report, increased audit fees,
legal contract negotiations, general consulting and other matters. The increase
in other relates to increased director and shareholder costs (increased director
fees, transfer agent fees and increased costs of Annual Report) and other
general cost increases.
Total other expenses increased approximately $1.6 million or 16.0% in 1998 as
compared to 1997. The increase is primarily related to the acquisition of Epic
Funding Corporation (which accounted for approximately $421 of the increase),
salary increases of $328 during the first quarter of 1998, necessary to adjust
officers' salaries based on competitive conditions and increased data processing
expenses of $213 relating to the acquisition and implementation of a new
processing system in November 1997. In addition, the Bank increased the number
of business development and lending personnel and incurred overall salary
increases for the Bank's operating staff. Advertising and marketing costs
increased due to effects of greater amounts expended on charitable donations,
community support events and client entertainment. Client services paid by the
Bank also increased due to the significant increase in services provided for
client purposes.
Income Taxes
The effective tax rate was 41% in 1999, 42% in 1998 and 1997. The lower
effective tax rate in 1999 was primarily due to the greater amount of nontaxable
income generated by the investment in California nontaxable securities
(municipals and other political subdivisions).
Quarterly Income
The unaudited consolidated income statement data of the Company and the Bank, in
the opinion of management, includes all normal and recurring adjustments
necessary to state fairly the information set forth therein. The results of
operations are not necessarily indicative of results for any future period. The
following table shows the Company's unaudited quarterly income statement data
for the years 1999 and 1998:
<TABLE>
<CAPTION>
UNAUDITED QUARTERLY INCOME STATEMENT DATA
(dollars in thousands, except per
share amounts) First quarter Second quarter Third quarter Fourth quarter
- ----------------------------------------------------------------------------------------------------------------------------
1999 1998 1999 1998 1999 1998 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net interest income $4,983 $4,965 $5,237 $5,020 $5,712 $5,119 $5,920 $5,150
Provision for loan or lease losses (100) ----- ----- ----- (150) (150) (245) (150)
Other income 498 276 265 251 316 250 347 282
Other expenses (3,060) (2,779) (3,171) (2,731) (3,347) (2,934) (3,413) (3,053)
- ----------------------------------------------------------------------------------------------------------------------------
Income before income taxes 2,321 2,462 2,331 2,540 2,531 2,285 2,609 2,229
Income taxes (992) (1,027) (954) (1,059) (1,033) (960) (1,005) (929)
- ----------------------------------------------------------------------------------------------------------------------------
Net income $1,329 $1,435 $1,377 $1,481 $1,498 $1,325 $1,604 $1,300
============================================================================================================================
Net income per share - basic $0.55 $0.57 $0.59 $0.59 $0.64 $0.54 $0.67 $0.53
============================================================================================================================
Net income per share - diluted $0.53 $0.54 $0.56 $0.56 $0.60 $0.51 $0.63 $0.51
============================================================================================================================
</TABLE>
The Company reported net income of $1.6 million for the quarter ended December
31, 1999, compared with net income of $1.3 million for the fourth quarter of
1998. The results for the fourth quarter of 1999 as compared to the same quarter
a year ago reflect an increase in volume of earning assets ($392 million in 1999
compared to $319 million in 1998). The loan and lease loss provision increased
from $150 in 1998 to $245 in 1999. Other expenses increased $360, primarily as a
result of an increase in incentive accruals and increased costs associated with
the 1999 audit examinations.
Financial Condition and Earning Assets
Money Market Investments
Money market investments, which include federal funds sold and other short-term
investments, were $5.6 million at December 31, 1999 as compared to $22.3 million
at December 31, 1998. This decrease is mainly due to the increase in investment
securities and loans of $92 million as compared to the growth in deposits of $68
million.
The average balance of money market investments, which include federal funds
sold and liquid money market investments, was $13.7 million in 1999 and $18.5
million in 1998. These balances represented 4.1% and 6.3% of average deposits
for 1999 and 1998, respectively. They are maintained primarily for the
short-term liquidity needs of the Bank. The decrease in money market investments
relates primarily to the growth in investments securities and loans. See
"Capital and Liquidity."
Securities
The following table shows the book value composition of the securities portfolio
at December 31, 1999, 1998 and 1997. At December 31, 1999, there were no issuers
of securities for which the aggregate book value of securities of such issuer
held by the Bank exceeded 10% of the Company's shareholders' equity.
<TABLE>
<CAPTION>
INVESTMENT SECURITIES COMPOSITION
(dollars in thousands) December 31,
- -----------------------------------------------------------------------------------------------
1999 1998 1997
- -----------------------------------------------------------------------------------------------
Investment securities available for sale:
<S> <C> <C> <C>
U. S. Treasury $2,007 $3,077 $5,041
U. S. Government Agencies 20,025 25,686 34,327
Mortgage-backed 30,517 3,966 5,171
Asset-backed 1,978 ---- ----
Trust preferred 6,583 ---- ----
Mutual funds 2,364 2,487 3,766
- -----------------------------------------------------------------------------------------------
Investment securities available for sale 63,474 35,216 48,305
- -----------------------------------------------------------------------------------------------
Investment securities held to maturity:
U. S. Treasury ---- $1,000 $1,992
U. S. Government Agencies $499 3,496 5,485
State and municipal 7,327 4,213 3,224
Mortgage-backed 657 1,927 2,518
Other 559 537 518
- -----------------------------------------------------------------------------------------------
Investment securities held to maturity 9,042 11,173 13,737
- -----------------------------------------------------------------------------------------------
Total $72,516 $46,389 $62,042
===============================================================================================
</TABLE>
Investment securities classified as available for sale (which include all mutual
funds), are acquired without the intent to hold until maturity. At December 31,
1999, the Bank's weighted average maturity of the available for sale investment
portfolio was 5.1 years. It is estimated that for each 1.0% change in interest
rates, the value of the Company's securities available for sale will change by
approximately 3.3%.
Any unrealized gain or loss on investment securities available for sale is
reflected in the carrying value of the security and reported net of income taxes
in the equity section of the consolidated balance sheets. Realized gains and
losses are reported in the consolidated statement of income. The net unrealized
loss, net of tax, on securities available for sale as of December 31, 1999 was
$850. This compares to the net unrealized gain, net of tax, of $300 as of
December 31, 1998. The change in the unrealized gain or loss is directly
attributable to the increase in interest rates during late 1999. Changes in
interest rates have an inverse effect on the value of securities for which the
interest rate is fixed.
Investment securities classified as held to maturity include those securities
which the Company has the ability and intent to hold to maturity. The Company's
policy is to generally acquire "A" rated or better U.S., state and municipal
securities. The specific issues are monitored for changes in financial
condition. Appropriate action would be taken if significant deterioration was
noted.
The pre-tax unrealized loss on investment securities held to maturity was $800
as of December 31, 1999 as compared to a $196 pre-tax unrealized gain as of
December 31, 1998. The change in the net unrealized gain or loss resulted from
the increase in interest rates in late 1999. The Bank's weighted average
maturity of the held to maturity investment portfolio as of December 31, 1999
was approximately 10.4 years. It is estimated that for each 1.0% change in
interest rates, the value of the Company's securities held to maturity will
change by approximately 5.8%. This volatility decreases as the average maturity
shortens. Since it is the intention of management to hold these securities to
maturity, the unrealized losses will be realized over the life of the securities
as above- market interest income is recognized.
Mortgage-backed securities ("MBS") are considered to have increased risks
associated with them because of the timing of principal repayments. As interest
rates decrease, the average maturity of mortgages underlying MBS tend to
decline; as rates increase, maturities tend to lengthen. At December 31, 1999,
the Company had the following securities which were mortgage-backed or related
securities:
Mortgage-backed and Related Securities
December 31, 1999
Fair
(dollars in thousands) Cost Value
---------------------------------------------------- --------- ----------------
Federal Home Loan Mortgage Corp. (U.S. Agency) $3,604 $3,551
Federal National Mortgage Association (U.S. Agency) 16,284 16,035
Collateralized mortgage obligations 11,657 11,599
Federated ARMs Funds * 1,686 1,618
Overland Variable Rate Government Fund 832 746
* The assets of these mutual funds are invested mainly in adjustable rate U.S.
Treasury or U.S. Government Agency securities.
Loan and Lease Portfolio
The following table shows the Company's consolidated loans and leases by type of
loan or borrower and their percentage distribution:
<TABLE>
<CAPTION>
LOAN AND LEASE PORTFOLIO
(dollars in thousands) December 31,
- -----------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial and other $107,415 $91,866 $94,029 $78,291 $62,245
SBA 46,031 37,019 39,409 32,968 25,128
Leasing 16,633 3,768 ----- ----- -----
Factoring and asset-based 9,901 7,393 4,915 4,397 2,366
Real estate construction 40,620 32,340 17,818 15,451 14,488
Real estate term 96,434 80,009 64,403 59,567 58,567
Consumer 10,764 9,647 9,042 8,622 8,800
Unearned fee income (837) (662) (644) (668) (793)
- -----------------------------------------------------------------------------------------------------------------------------
Total loan and lease portfolio $326,961 $261,380 $228,972 $198,627 $170,800
=============================================================================================================================
December 31,
- -----------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------
Commercial and other 32.9% 35.1% 41.1% 39.4% 36.4%
SBA 14.1 14.2 17.2 16.6 14.7
Leasing 5.1 1.4 ----- ----- -----
Factoring and asset-based 3.0 2.8 2.1 2.2 1.4
Real estate construction 12.4 12.4 7.8 7.8 8.5%
Real estate term 29.5 30.6 28.1 30.0 34.3
Consumer 3.3 3.7 3.9 4.3 5.2
Unearned fee income (0.3) (0.3) (0.3) (0.3) (0.5)
- -----------------------------------------------------------------------------------------------------------------------------
Total loan and lease portfolio 100.0% 100.0% 100.0% 100.0% 100.0%
=============================================================================================================================
</TABLE>
General
The Company's loan and lease portfolio consists primarily of short-term,
floating rate loans for business and real estate purposes. Effective as of the
merger date (January 5, 2000) with Saratoga National Bank the legal lending
limit of SJNB increased to approximately $7 million.
The commercial loan portfolio primarily consists of loans to small- to
medium-sized businesses with gross revenues up to $50 million, as well as loans
to local professional businesspersons. SJNB's lending services include revolving
credit loans, SBA loans, term loans, accounts receivable financing, factoring,
equipment financing and letters of credit. Commercial loans include loans to
real estate developers for short-term investment purposes (approximately $7.9
million), loans for real estate investment purposes made to non-developers
(approximately $3.0 million) and loans for other investments (approximately $1.2
million).
SBA loans are made for commercial and real estate purposes. The Bank originates
its SBA loans and has a policy of carrying both the guaranteed and unguaranteed
portions of these loans in its outstanding loans rather then selling the
guaranteed portion. These loans carry a 70% to 80% guarantee by the SBA.
The leasing portfolio consists of financing type leases made to small-and
medium-sized businesses. The average lease is approximately $150 and there is no
concentration of the type of equipment for which Epic Funding provides
financing. The increase during 1999 as compared to 1998 was due to the full year
of operations for Epic Funding.
Factoring and asset based represents purchased account receivable (factoring)
and a structured accounts receivable lending program where the Bank receives
specific payment for client invoices. Under the Factoring program the Bank
purchases accounts receivable from clients and then receives payment directly
from the party obligated for the receivable. In most cases, the Bank's Financial
Services Division purchases the receivables subject to recourse from the Bank's
factoring client. The factoring business and related purchasing of accounts
receivable is subject to a greater degree of risk than normal lending due to the
involvement of the third party obligee, the lack of control over the direct
receipt of payment, and the potential purchase of fraudulent or inflated
receivables. To date, there have been no significant losses relating to the
Bank's factoring program.
The real estate construction portfolio consists of 37% residential and 63%
commercial. Such loans are made on the basis of the economic viability for the
specific project, the cash flow resources of the developer, the developer's
equity in the project and the underlying financial strength of the borrower. The
Company's policy is to monitor each loan with respect to incurred costs, sales
price and sales cycle.
The real estate term loans include term loans (up to a twenty-five year
maturity) on income-producing commercial properties.
Consumer loans consist primarily of loans to individuals for personal uses, such
as home equity loans, installment purchases, premier lines (unsecured lines of
credit) and overdraft protection loans and a variety of other consumer purposes.
Concentrations of credit risk arise when a number of customers are engaged in
similar business activities, or activities in the same geographic region, or
have similar economic features that would cause their ability to meet
contractual obligations to be similarly affected by changes in economic
conditions. Although the Company has a diversified loan and lease portfolio, a
substantial portion of its customers' ability to honor loan and lease terms is
reliant upon the economic stability of Santa Clara County, which in some degree
relies on the stability of high technology companies in its "Silicon Valley."
Loans are made on the basis of a secure repayment source as the first priority.
Collateral is generally a secondary source for loan qualification.
Approximately 47% of the loan and lease portfolio is directly related to real
estate or real estate interests, when real estate construction loans, real
estate term loans, Prime equity loans (included in consumer loans in the amount
of $5.3 million) and certain other loans to real estate developers and other
investors for short-term investment purposes are included. Approximately 33% of
the loan and lease portfolio is made up of commercial loans; however, no
particular industry represents a significant portion of such loans.
Inherent in any loan and lease portfolio are risks associated with certain types
of loans and leases. The Company attempts to limit these risks through
conservative loan and lease policies and review procedures that are applied at
the time of origination. Included in these policies are specific maximum
loan-to-value ("LTV") limitations as to various categories of real estate
related loans. These ratios are as follows:
Maximum Loan to Value Ratios
- ------------------------------------------------------------
Maximum LTV
Category of Real Estate Collateral Ratio
- --------------------------------------------- --------------
Raw land 50%
Land Development 60
Construction:
1-4 Single family residence,
Owner occupied 80
Speculative development 75
Other 75
Term loans (construction take-out
and commercial) 75
Other improved property 70
Prime equity loans 80
The Company's loan and lease policy provides that any term loans on
income-producing properties must have a minimum debt service coverage of at
least 1.2 to 1 for non-owner occupied property and at least 1.1 to 1 for owner
occupied.
During 1999 the Bank lowered the maximum loan to value ratio for most real
estate projects. In prior years the 1-4 Single family residence requirement was
based on the dollar amount of the commitment. This was changed to reflect the
differences in the risks associated with owner occupied construction as compared
to development done on a speculative basis. In the latter case and in the case
of all other construction projects the loan to value ratio was decreased to 75%.
One of the significant risks associated with real estate lending is the risk
associated with the possible existence of environmental risks or hazards on or
in property affiliated with the loan. The Bank attempts to mitigate such risk
through the use of an Environmental Risk Questionnaire for all loans secured by
real estate. A Phase I environmental report is required if so indicated by
response to the questionnaire or if (for any other reason) it is determined to
be appropriate. Other reasons would include the industrial use of
environmentally sensitive substances or the proximity to other known
environmental problems. A Phase II report is required in certain cases,
depending on the outcome of the Phase I report.
Activity
Total loans and leases were $327 million and averaged $293 million as of and for
the year ended December 31, 1999. Total loans and leases were $261 million and
averaged $237 million as of and for the year ended December 31, 1998. The
increase in total loans and leases of $66 million during 1999 represented growth
from all sectors of the Bank's portfolio. Real estate construction loans grew
$8.3 million or an approximate growth of 26% for 1999. The major source of the
growth related primarily to construction was in the commercial area. The demand
for construction in the Bank's market area continued to be strong. Generally,
the growth in construction loans was mainly due to the rapid expansion of the
Bank's market area. Demand in the housing and commercial markets was fueled by
the growth in the high technology sector and the related increase in wealth of
employees of Silicon Valley technology firms. Major projects the Bank assisted
in developing were several hospitality and mini-storage projects. Real estate
term loans increased by $16 million as a result of the lower interest rate
environment during the first and second quarters of 1999, which fueled the
demand for refinancing. Also, the Bank continued to provide term funding for
several of its completed construction projects, as well as the continued
development of new business.
In addition the Bank experienced growth in commercial ($15 million), SBA ($9
million), leasing ($13 million), and factoring/asset-based lending ($3 million).
Growth in all these areas was mainly due to the economic conditions of Silicon
Valley and rapid expansion of the technology sector. The Bank was able to
successfully penetrate the market through its business development efforts.
Total loans and leases were $261 million and averaged $237 million as of and for
the year ended December 31, 1998. Total loans and leases were $229 million and
averaged $213 million as of and for the year ended December 31, 1997. The
increase in total loans and leases of $32 million during 1998 relates primarily
to the growth in the Bank's real estate portfolio. Both construction lending and
real estate term lending showed significant growth during 1998. The growth in
the construction portfolio was mainly due to the rapid expansion of housing in
the Bank's market area. Demand in the housing market was fueled by low
unemployment (less than 4% over the last two years) and increased wealth of
employees of Silicon Valley technology firms.
The economic climate in Northern California has been generally strong in 1999
and 1998. The competitive environment within the Bank's marketplace for
additional loan and lease growth has become more aggressive between lenders,
resulting in increasingly competitive pricing. To the extent that such
competitive activity continues during 2000 and the Bank finds it necessary to
meet such competition, the Bank's net interest margins could decline.
Asset Quality
Allowance for Loan and Lease Losses
A consequence of lending activities is the potential for loss. The amount of
such losses will vary from time to time depending upon the risk characteristics
of the loan and lease portfolio as affected by economic conditions, rising
interest rates and the financial experience of borrowers. The allowance for loan
and lease losses, which provides for the risk of losses inherent in the credit
extension process, is increased by the provision for loan and lease losses
charged to expense and decreased by the amount of charge-offs net of recoveries.
There is no precise method of predicting specific losses or amounts that
ultimately may be charged off on particular segments of the loan and lease
portfolio. Similarly, the adequacy of the allowance for loan and lease losses
and the level of the related provision for loan and lease losses is determined
on a judgmental basis by management based on consideration of:
- Economic conditions,
- Borrowers' financial condition,
- Loan and lease impairment,
- Evaluation of industry trends,
- Industry and other concentrations,
- Loans which are contractually current as to payment terms but demonstrate
a higher degree of risk as identified by management,
- Continuing evaluation of the performing loan portfolio,
- Monthly review and evaluation of problem loans and leases identified as
having loss potential,
- Quarterly review by the Board of Directors,
- Off-balance sheet risks, and
- Assessments by regulators and other third parties.
In addition to the internal assessment of the loan and lease portfolio (and
off-balance sheet credit risk, such as letters of credit, etc.), the Company
also retains a consultant who performs credit reviews on a quarterly basis and
then provides an assessment of the adequacy of the allowance for loan and lease
losses. The federal banking regulators also conduct examinations of the loan and
lease portfolio periodically.
The Company utilizes a method of assigning a minimum and maximum loss ratio for
each grade of loan or lease within each category of loans (commercial, real
estate term, real estate construction, etc.) Loans and leases are graded on a
ranking system based on management's assessment of the loan or lease's credit
quality. The assigned loss ratio is based upon the Company's prior experience,
industry experience, delinquency trends and the level of nonaccrual loans and
leases. In addition, the Company's methodology considers (and assigns a risk
factor for) current economic conditions, off-balance sheet risk and
concentrations of credit. The methodology provides a systematic approach for the
measurement of the possible existence of future loan and lease losses.
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 leases and exposure to potential losses. Based on known
information available to it at the date of this Report, management believes that
the Company's allowance for loan and lease losses, determined as described
above, was adequate at December 31, 1999 for foreseeable losses.
The allowance for loan and lease losses is a general reserve available against
the total loan and lease portfolio and off-balance sheet credit exposure. While
management uses available information to recognize losses on loans or leases,
future additions to the allowance may be necessary based on changes in economic
conditions. In addition, various regulatory agencies, as an integral part of
their examination process, periodically review the Bank's allowance for loan and
lease losses. 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.
Finally, 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 loan and lease losses in future periods.
The following table summarizes the activity in the allowance for loan and lease
losses for the five years ended December 31, 1999:
<TABLE>
<CAPTION>
ALLOWANCE FOR LOAN AND LEASE LOSSES
(dollars in thousands) Years Ended December 31,
- ----------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, beginning of the year $4,778 $4,493 $4,005 $3,847 $3,311
- ----------------------------------------------------------------------------------------------------------------------------
Chargeoffs by category:
Commercial and other 108 234 205 243 217
SBA 19 ----- 37 22 112
Factoring and asset-based ----- ----- 1 83 -----
Real estate construction ----- ----- ----- ----- 154
Real estate term 4 ----- 32 69 125
Consumer 21 ----- 13 21 88
- ----------------------------------------------------------------------------------------------------------------------------
Total chargeoffs 152 234 288 438 696
- ----------------------------------------------------------------------------------------------------------------------------
Recoveries by category:
Commercial and other 135 93 58 216 134
SBA 5 58 5 39 11
Factoring and asset-based ----- ----- 6 35 -----
Real estate construction 3 ----- ----- ----- -----
Real estate term 4 ----- ----- 1 26
Consumer 16 68 2 65 16
- ----------------------------------------------------------------------------------------------------------------------------
Total recoveries 163 219 71 356 187
- ----------------------------------------------------------------------------------------------------------------------------
Net (recoveries) chargeoffs (11 ) 15 217 82 509
- ----------------------------------------------------------------------------------------------------------------------------
Provision charged to expense 495 300 705 190 1,045
Allowance relating to acquired businesses ----- ----- ----- 50 -----
- ----------------------------------------------------------------------------------------------------------------------------
Balance, end of the year $5,284 $4,778 $4,493 $4,005 $3,847
============================================================================================================================
Ratios:
Net chargeoffs to average loans and leases ----- 0.01% 0.10% 0.04% 0.33%
Allowance to total loans and leases at the end of the year 1.62% 1.83 1.96 2.02 2.25
Allowance to nonperforming loans and leases at end of the year 375.00 1,983.00 1,060.00 733.00 430.00
============================================================================================================================
</TABLE>
During 1999 the Bank wrote off $152 in loans and had recoveries of $163 for a
total of $11 in net recoveries. Net chargeoffs were $15 or 0.01% of average
loans and leases during 1998. Net chargeoffs were $217 or 0.10% of average loans
during 1997.
The allowance for loan and lease losses as a percentage of total loans and
leases was 1.62%, 1.83%, and 1.96% at December 31, 1999, 1998 and 1997,
respectively. The allowance for loan and lease losses as a percentage of
nonperforming loans was approximately 375%, 1,983% and 1,060% at December 31,
1999, 1998 and 1997, respectively. Nonperforming loans were $1,411, $241 and
$424 at December 31, 1999, 1998 and 1997, respectively. See "Nonperforming Loans
and Leases" below.
Based on an evaluation of individual credits, historical credit loss experienced
by loan or lease type and economic conditions, management has allocated the
allowance for loan and lease losses as follows for the past five years:
<TABLE>
<CAPTION>
ALLOCATION OF THE ALLOWANCE FOR LOAN OR LEASE LOSSES
(dollars in thousands) Amount of allowance allocation at December 31,
- ----------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial and other $1,984 $1,842 $1,265 $1,070 $1,316
SBA 1,051 1,064 1,079 840 1,075
Leasing 455 90 ----- ----- -----
Factoring and asset-based 320 197 206 159 83
Real estate construction 329 291 236 223 225
Real estate term 832 764 788 835 710
Consumer 195 195 158 127 227
Unallocated 118 335 761 751 211
- ----------------------------------------------------------------------------------------------------------------------------
Total $5,284 $4,778 $4,493 $4,005 $3,847
============================================================================================================================
Percent of loans and leases in each category
to total loans and leases at December 31,
- ----------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------
Commercial and other 32.6% 34.9% 40.8% 39.1% 36.0%
SBA 14.1 14.2 17.2 16.6 14.7
Leasing 5.1 1.4 ----- ----- -----
Factoring and asset-based 3.0 2.8 2.1 2.2 1.4
Real estate construction 12.4 12.4 7.8 7.8 8.5
Real estate term 29.5 30.6 28.1 30.0 34.3
Consumer 3.3 3.7 3.9 4.3 5.2
- ----------------------------------------------------------------------------------------------------------------------------
Total 100.0% 100.0% 100.0% 100.0% 100.0%
============================================================================================================================
</TABLE>
The allowance for loan and lease losses is maintained without any internal
allocation to the segments of the loan and lease portfolio and the entire
allowance is available to cover any loan and lease losses. The allocation above
is based on subjective estimates that take into account historical loss
experience and management's current assessment of the relative risk
characteristics of the portfolio as of the reporting date noted above and as
described more fully herein.
Nonperforming Loans and Leases
Loans for which the accrual of interest has been suspended, restructured loans
and other loans with principal or interest contractually past due 90 days or
more are set forth in the following table:
<TABLE>
<CAPTION>
NONPERFORMING LOANS AND LEASES
(dollars in thousands) December 31,
- ----------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Loans and leases accounted for on a non-accrual basis $1,395 $197 $360 $457 $866
Loans and leases restructured and in compliance with modified terms ----- 44 63 89 -----
Other loans and leases with principal or interest contractually past
due 90 days or more 16 ----- 1 ----- 28
- ----------------------------------------------------------------------------------------------------------------------------
Total $1,411 $241 $424 $546 $894
============================================================================================================================
</TABLE>
The increase in the total on nonperforming loans during 1999 was due mainly to a
single customer with aggregate borrowings of $1.1 million. The Bank believes it
has adequate collateral and it is not anticipated that there is any loss
exposure due to this nonperforming loan. At the date of the merger of Saratoga
Bancorp, January 5, 2000, nonperforming loans increased by approximately $375.
Potential nonperforming loans and leases are identified by management as part of
its ongoing evaluation and review of the loan and lease portfolio. Based on such
reviews and information known to management at the date of this Report,
management has not identified any loans or leases (other than those in the above
table) about which it has serious doubts regarding the borrowers' ability to
comply with present loan repayment terms, such that the loans or leases might
subsequently be classified as nonperforming. Management has identified one
Saratoga National Bank loan in the amount of $377 about which it has serious
doubts regarding the borrower's ability to comply with present loan repayment
terms, such that the loan will be classified as nonperforming in future combined
financial data.
The accrual of interest on loans is discontinued and any accrued and unpaid
interest is reversed when, in the opinion of management, there is significant
doubt as to the collectibility of interest or principal or when the payment of
principal or interest is ninety days past due, unless the amount is well-secured
and in the process of collection.
Other Real Estate Owned
At December 31, 1999 and 1998 there were no properties owned by the Bank
acquired through the foreclosure process.
Commitments and Lines of Credit
It is the Bank's policy not to issue formal commitments or lines of credit
except to well-established and financially responsible commercial enterprises.
Such commitments can be either secured or unsecured and are typically in the
form of revolving lines of credit for seasonal working capital needs.
Occasionally, such commitments are in the form of a letter of credit to
facilitate the customer's particular business transaction. Commitments and lines
of credit typically mature within one year. These commitments involve (to
varying degrees) credit risk in excess of the amount recognized as either an
asset or liability in the statement of financial position. The Company attempts
to control this credit risk through its credit approval process. The same credit
policies are used when entering into such commitments.
As of December 31, 1999, the Company had undisbursed loan commitments to extend
credit as follows:
UNDISBURSED LOAN COMMITMENTS
(dollars in thousands) Amount
- --------------------------------------------------------------------
Commercial and other $115,006
SBA $1,110
Real estate construction 35,027
Real estate term 1,919
Consumer 10,501
- --------------------------------------------------------------------
Total $163,564
====================================================================
In addition, there was approximately $5.6 million available for commitments
under unused letters of credit.
Funding
- -------
Deposits represent SJNB's principal source of funds. Most of the Bank's deposits
are obtained from professionals, small- to medium-sized businesses and
individuals within the Bank's market area. SJNB's deposit base consists of
non-interest and interest-bearing demand deposits, savings and money market
accounts and certificates of deposit. The following table summarizes the
composition of deposits as of December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
DEPOSIT CATEGORIES
(dollars in thousands) December 31, 1999 December 31, 1998 December 31, 1997
- -----------------------------------------------------------------------------------------------------------------------------
Percentage Percentage Percentage
Total of Total Total of Total Total of Total
Amount Deposits Amount Deposits Amount Deposits
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Noninterest-bearing demand $73,201 19.74% $70,962 23.46% $78,437 29.01%
Interest-bearing demand 48,205 13.00 49,468 16.36 45,655 16.89
Money market and savings 120,330 32.46 91,320 30.19 82,619 30.56
Certificates of deposit:
Less than $100 44,201 11.92 22,492 7.44 15,207 5.63
$100 or more 84,805 22.88 68,200 22.55 48,427 17.91
- -----------------------------------------------------------------------------------------------------------------------------
Total $370,742 100.00% $302,442 100.00% $270,345 100.00%
=============================================================================================================================
</TABLE>
Deposits increased 23% to $371 million at December 31, 1999 from $302 million at
December 31, 1998. Deposits increased 12% to $302 million at December 31, 1998
from $270 million at December 31, 1997. These increases are due to a combination
of factors including the development of customers with significant cash
balances, utilization of sophisticated cash management systems and aggressive
pricing of interest rates.
The Bank has been able to attract a significant proportion of its deposits in
the form of noninterest-bearing deposits. The Bank's primary business is
commercially oriented with significant noninterest-bearing deposits maintained
by commercial customers. In a high interest rate environment, these funds could
be subject to disintermediation (moved for higher interest rate products). To
counter such possibilities, the Bank maintains an array of products which it
believes would be competitive if such were to occur. In addition, in illiquid
economic times (possibly recessions) these deposits could be subject to
withdrawal pressures. See "Capital and Liquidity - Liquidity" for a discussion
of the Bank's liquidity sources.
The Bank also raises a substantial amount of funds through certificates of
deposit of $100 or greater, which were approximately 23% of total deposits at
December 31, 1999. These deposits are usually at interest rates greater than
other types of deposits and are more sensitive to interest rate changes.
Historically, the Bank's overall cost of funds has been less than that of its
peer group. However, as these certificates of deposit are usually more interest
rate sensitive, their repricing in an increasing interest rate environment could
increase the Bank's cost of funds and negatively impact the Bank's net interest
margin. See "Capital and Liquidity."
On December 4, 1998 the Bank obtained $10 million through the placement of a
ten-year synthetic floating rate certificate of deposit. The instrument consists
of two linked transactions, a callable interest rate swap and callable fixed
rate certificate of deposit. Under the swap agreement, the Bank pays LIBOR plus
five basis points and receives 6% for a period of ten years. The swap is
callable after one year by a major U.S. domestic bank. Simultaneously, the Bank
issued a callable 6% fixed rate certificate of deposit. The certificate of
deposit does not have any early redemption clauses, other than by death of the
holder. Effectively, the Bank's rate of interest on the combined transaction is
LIBOR plus five basis points.
The Bank utilizes short-term borrowings in its balance sheet management. The
short-term borrowings (securities sold under agreements to repurchase) are used
for short-term liquidity needs. The average cost of the borrowings during 1999
was 5.61%, the average amount outstanding was $7.4 million and the maximum at
any month end was $15.6 million.
Asset/Liability Management
The Company defines interest rate sensitivity as the measurement of the mismatch
in repricing characteristics of assets, liabilities and off-balance sheet
instruments at a specified point in time. This mismatch (known as interest rate
sensitivity gap) represents the potential mismatch in the change in the rate of
interest revenue accrual and interest expense that would result from a change in
interest rates. Mismatches in interest rate repricing among assets and
liabilities arise primarily from the interaction of various customer businesses
(i.e., types of loans and leases versus the types of deposits maintained) and
from management's discretionary investment and funds gathering activities. The
Company attempts to manage its exposure to interest rate sensitivity. However,
due to its size and direct competition from the major banks, the Company must
offer products which are competitive in the market place, even if less than
optimum with respect to its interest rate exposure.
The Company's balance sheet position at December 31, 1999 was slightly
asset-sensitive, based upon the significant amount of variable rate loans and
the repricing characteristics of its deposit accounts. This position provides a
hedge against rising interest rates, but has a detrimental effect during times
of interest rate decreases. Net interest revenues are negatively impacted by a
decline in interest rates and positively impacted by an increase in interest
rates. The interest rate gap is a measure of interest rate exposure and is based
upon the known repricing dates of certain assets and liabilities and assumed
repricing dates of others. See "Financial Review - Net Interest Income and
Margin."
The following table quantifies the Company's interest rate exposure at December
31, 1999 based upon the known repricing dates of certain assets and liabilities
and the assumed repricing dates of others. At December 31, 1999, the Company was
asset-sensitive in the near term, as noted above. It is expected by management
that with the addition of Saratoga Bancorp the Bank will continue to be
asset-sensitive.
<TABLE>
<CAPTION>
DISTRIBUTION OF REPRICING OPPORTUNITIES
December 31, 1999
(dollars in thousands)
After three After six After one
Within months but months but year but After
three within six within one within five
months months year five years years Total
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Money market investments $5,650 $5,650
Investment securities-taxable 605 $45 $80 $796 $189 1,715
Investment securities-non-taxable 371 374 491 1,120 4,971 7,327
Securities available for sale 3,938 1,779 9,026 23,113 25,618 63,474
Loans and leases 228,306 6,666 13,674 46,315 32,000 326,961
- -----------------------------------------------------------------------------------------------------------------------------
Total earning assets 238,870 8,864 23,271 71,344 62,778 405,127
- -----------------------------------------------------------------------------------------------------------------------------
Interest-bearing demand, money
market and savings 168,535 ----- ----- ----- ----- 168,535
Certificates of deposit:
Less than $100 16,735 3,582 2,774 6,809 14,301 44,201
$100 or more 57,483 10,054 15,204 1,334 730 84,805
Repurchase agreements ----- ----- 10,497 ----- ----- 10,497
Other borrowings 910 ----- ----- ----- 230 1,140
- -----------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 243,663 13,636 28,475 8,143 15,261 309,178
- -----------------------------------------------------------------------------------------------------------------------------
Interest rate gap ($4,793) ($4,772) ($5,204) $63,201 $47,517 $95,949
=============================================================================================================================
Cumulative interest rate gap ($4,793) ($9,565) ($14,769) $48,432 $95,949
==============================================================================================================
Interest rate gap ratio 0.98 0.65 0.82 8.76 4.11
==============================================================================================================
Cumulative interest rate gap ratio 0.98 0.96 0.95 1.16 1.31
==============================================================================================================
</TABLE>
In evaluating the Company's exposure to interest rate risk, certain shortcomings
inherent in the method of analysis presented in the foregoing table must be
considered. For example, although certain assets and liabilities may have
similar maturities or periods to reprice, they may react in different degrees to
changes in market interest rates. Additionally, the interest rates on certain
types of assets and liabilities may fluctuate in advance of changes in market
interest rates, while interest rates on other types may lag behind changes in
market interest rates. Further, certain earning assets have features which
restrict changes in interest rates on a short-term basis and over the life of
the asset. In considering such shortcomings the above table would reflect a
slightly asset sensitive position. The Company considers the anticipated effects
of these various factors in implementing its interest rate risk management
activities, including the utilization of certain interest rate hedges.
A large proportion of the Bank's deposits are non interest-bearing demand
deposits and are not included in the above table as they tend not to be interest
rate sensitive. The average balance of these deposits was $71 million in 1999.
In addition, the Bank's total tangible capital of approximately $34 million is
not included as a funding source in the above table. Lastly, the table includes
the repricing of the Bank's non-maturity deposits (interest-bearing demand,
money market and savings accounts) as repricing immediately. These accounts are
not subject to any specific interest rate adjustment formulas and are adjusted
by management based upon the competitive environment and the Bank's liquidity
and asset/liability positions. Taking these factors into consideration could
alter the above ratios significantly.
The maturities and yields of the investment portfolio at December 31, 1999 are
shown below:
<TABLE>
<CAPTION>
MATURITY AND YIELDS OF INVESTMENT SECURITIES
At December 31, 1999
(dollars in thousands)
- ----------------------------------------------------------------------------------------------------------------------------
Maturity
- ----------------------------------------------------------------------------------------------------------------------------
After one year After five years
Carrying Within one year within five years within ten years After ten years
Value Amount Yield Amount Yield Amount Yield Amount Yield
- -----------------------------------------------------------------------------------------------------------------------------
Securities available for sale:
<S> <C> <C> <C> <C> <C>
U. S. Treasury $2,007 $1,001 5.99% $1,006 6.23% ----- ----- ----- -----
U. S. Government Agencies 20,025 9,169 6.08 10,856 6.11 ----- ----- ----- -----
Mortgage-backed (1) 30,517 949 6.71 10,836 6.72 $7,308 6.54% $11,424 6.88%
Asset-backed 1,978 177 6.60 1,801 6.15 ----- ----- ----- -----
Trust preferred 6,583 ----- ----- ----- ----- ----- ----- 6,583 7.91
Mutual funds 2,364 2,364 4.78 ----- ----- ----- ----- ----- -----
- ------------------------------------------------------- ---------- ----------- ----------
Total 63,474 13,660 24,499 7,308 18,007
- ------------------------------------------------------- ---------- ----------- ----------
Securities held to maturity:
U. S. Government Agencies 499 ----- ----- 499 6.78 ----- ----- ----- -----
State and municipal (2) 7,327 798 7.09 180 7.63 369 8.46 5,980 7.86
Mortgage-backed (1) 657 657 7.90 ----- ----- ----- ----- ----- -----
Other 559 ----- ----- ----- ----- ----- ----- 559 6.00
- ------------------------------------------------------- ---------- ----------- ----------
Total 9,042 1,455 679 369 6,539
- ------------------------------------------------------- ---------- ----------- ----------
Total $72,516 $15,115 6.05% $25,178 6.40% $7,677 6.64% $24,546 7.38%
=============================================================================================================================
<FN>
(1) Maturities of mortgaged-backed securities are based upon dealer prepayment
projections.
(2) State and municipal securities are adjusted to a fully taxable equivalent
basis using the federal statutory rate.
</FN>
</TABLE>
The following table shows the maturity and interest rate sensitivity of
commercial, SBA, real estate construction and real estate term loans at December
31, 1999. Approximately 77% of the commercial and real estate loan portfolio is
priced with floating interest rates, which limit the exposure to interest rate
risk on long-term loans.
<TABLE>
<CAPTION>
Balances maturing Interest Rate Sensitivity
- -----------------------------------------------------------------------------------------------------------------------------
Predeter-
Balances at One mined Floating
December 31, One year year to Over interest interest
1999 or less five years five years rates rates
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Commercial $107,415 $73,824 $26,263 $7,328 $20,386 $87,029
=============================================================================================================================
SBA $46,031 $2,881 $10,423 $32,726 $3,219 $42,812
=============================================================================================================================
Real estate construction $40,620 $36,468 $2,605 $1,547 $460 $40,161
=============================================================================================================================
Real estate term $96,434 $12,156 $25,985 $58,293 $43,088 $53,346
=============================================================================================================================
</TABLE>
The above table does not take into account the possibility that a loan may be
renewed at the time of maturity. In most circumstances, the Company treats a
renewal request in substantially the same manner in which it considers the
request for an initial extension of credit. The Company does not have a policy
to automatically renew loans.
Capital and Liquidity
- ---------------------
Capital
The Company's book value per share was $15.65, $14.48 and $13.30 as of December
31, 1999, 1998 and 1997, respectively. Tangible book value per share was $14.15,
$12.84 and $11.80 at December 31, 1999, 1998 and 1997, respectively, adjusted
for goodwill and core deposit intangibles. Shareholders' equity was $38 million,
$35 million and $33 million as of December 31, 1999, 1998 and 1997,
respectively. Tangible shareholders' equity was $34 million, $31 million and $30
million as of December 31, 1999, 1998 and 1997, respectively. During 1999 and
1998 the Company repurchased 115 shares for $3.1 million and 102 shares for $2.5
million, respectively. See Notes to Consolidated Financial Statements and
"Business - Supervision and Regulation" for a discussion of the Company's
capital requirements.
Liquidity
Management strives to maintain a level of liquidity sufficient to meet customer
requirements for loan and lease funding and deposit withdrawals. Liquidity
requirements are evaluated by taking into consideration factors such as deposit
concentrations, seasonality and maturities, loan and lease demand, capital
expenditures and prevailing and anticipated economic conditions. SJNB's business
is generated primarily through customer referrals and employee business
development efforts. The Bank utilizes brokered deposits on a limited basis to
satisfy temporary liquidity needs.
The Bank's sources of liquidity consist of its deposits with other banks,
overnight funds sold to correspondent banks and short-term, marketable
investments net of short-term borrowings. On December 31, 1999, consolidated
liquid assets totaled $60 million or 14% of consolidated total assets, as
compared to $70 million or 20% of consolidated total assets on December 31,
1998. In addition to the liquid asset portfolio, SJNB also has $22 million in
informal lines of credit available with three major commercial banks,
approximately $6.7 million of credit available at the Federal Reserve Discount
Window, a repurchase agreement for up to $34 million in additional borrowings
and $22 million in SBA guaranteed loans which are available for sale and could
likely be sold within a 30-day period.
SJNB is primarily a business and professional bank and, as such, its deposit
base is more susceptible to economic fluctuations. Accordingly, management
strives to maintain a balanced position of liquid assets to volatile and
cyclical deposits. In their normal course of business, commercial clients
maintain balances in large certificates of deposit. The stability of these
balances hinges upon, among other factors, market conditions and each business'
seasonality. Large certificates of deposit amounted to 23% of total deposits on
December 31, 1999 and 1998.
Liquidity is also affected by investment securities and loan and lease
maturities and the effect of interest rate fluctuations on the marketability of
both assets and liabilities. The loan and lease portfolio consists primarily of
floating rate, short-term loans. On December 31, 1999, approximately 36% of
total consolidated assets had maturities under one year and 74% of total
consolidated loans and leases had floating rates tied to the prime rate or
similar indexes. The short-term nature of the loan and lease portfolio, and loan
agreements which generally require monthly interest payments, provide the
Company with an additional secondary source of liquidity.
The Company's liquidity is maintained by cash flows stemming from dividends and
management fees from the Bank and the exercise of stock options issued to the
Bank's employees and directors. The amount of dividends from the Bank is subject
to certain regulatory restrictions as discussed in Note 17 of the Notes to the
Consolidated Financial Statements and elsewhere within this Report. Subject to
said restrictions, at December 31, 1999, up to $8.9 million could have been paid
to the parent Company by the Bank without regulatory approval. The Company's
parent-only financial statements are presented in Note 16 of the Notes to
Consolidated Financial Statements. Dividends of $3.8 million and $4.5 million
were paid to the parent company during 1999 and 1998, respectively.
There are no material commitments for capital expenditures in 2000 or beyond.
Effects of Inflation
- --------------------
The most direct effect of inflation on the Company is higher interest rates.
Because a significant portion of the Bank's deposits is represented by non
interest-bearing demand accounts, changes in interest rates have a direct impact
on the financial results of the Bank. See "Asset/Liability Management." Another
effect of inflation is the upward pressure on the Company's operating expenses.
Inflation did not have a material effect on the Bank's operations in 1999, 1998
or 1997.
Item 7A: Quantitative and Qualitative Disclosures about Market Risk
- --------------------------------------------------------------------
The Company defines interest rate sensitivity as the measurement of the mismatch
in repricing characteristics of assets, liabilities and off-balance sheet
instruments at a specified point in time. This mismatch (known as interest rate
sensitivity gap) represents the potential mismatch in the change in the rate of
interest income and interest expense that would result from a change in interest
rates. Mismatches in interest rate repricing among assets and liabilities arise
primarily from the interaction of various customer businesses (i.e., types of
loans and leases versus the types of deposits maintained) and from management's
discretionary investment and funds gathering activities. The Company attempts to
manage its exposure to interest rate sensitivity. However, due to its size and
direct competition from the major banks, the Company must offer products which
are competitive in the market place, even if less than optimum with respect to
its interest rate exposure.
The Company's balance sheet position at December 31, 1999 was asset-sensitive,
based upon the significant amount of variable rate loans and the repricing
characteristics of its deposit accounts. This position provides a hedge against
rising interest rates, but has a detrimental effect during times of interest
rate decreases. Net interest revenues are negatively impacted by a decline in
interest rates. The interest rate gap is a measure of interest rate exposure and
is based upon the known repricing dates of certain assets and liabilities and
assumed repricing dates of others. See "Financial Review - Net Interest Income
and Margin."
Commencing in the third quarter of 1999, the Federal Open Market Committee
("FOMC") began a process of increasing interest rates to offset the possible
increase in inflation and to slow down consumer spending. Through February 29,
2000, the FOMC had increased interest rates 100 basis points. During this period
the Bank experienced very little change in its net interest margin. For the
three quarters ended June 30, 1999, September 30, 1999 and December 31, 1999,
net interest margins on a fully taxable equivalent basis were 5.97%, 6.05% and
6.05%, respectively. The effect of possible interest rate changes is not
precisely determinable due to the many factors influencing the Bank's net
interest margin, including repricing of deposits, a change in mix of the loan,
lease and deposit portfolios and other borrowings, changes in relative volumes,
the speed in which fixed rate loans and leases are repriced, discretionary
investment activities and other factors. Although, there was not an appreciable
change in the Bank's net interest margin, during this period the Bank
experienced significant growth in its higher cost funding sources, such as money
market savings and certificates of deposits. The growth in these deposits had
the impact of offsetting any increase in the net interest margin.
In evaluating the Company's exposure to interest rate risk, certain shortcomings
inherent in the method of analysis presented in the following table must be
considered. For example, although certain assets and liabilities may have
similar maturities or periods to reprice, they may react in different degrees to
changes in market interest rates. Additionally, the interest rates on certain
types of assets and liabilities may fluctuate in advance of changes in market
interest rates, while interest rates on other types may lag behind changes in
market interest rates. Further, certain earning assets have features which
restrict changes in interest rates on a short-term basis and over the life of
the asset. The Company considers the anticipated effects of these various
factors when implementing its interest rate risk management activities,
including the utilization of certain interest rate hedges.
See footnote 15 of the Consolidated Financial Statements on page 56 of this
Report for a discussion of the methodology and assumptions used in the following
table.
<TABLE>
<CAPTION>
Interest Rate Risk Analysis
December 31, 1999 December 31,
(dollars in thousands) Average 1998
Interest Expected Maturity/Principal Repayment December 31, Total Fair Fair
Rate 2000 2001 2002 2003 2004 Thereafter Balance Value Value
- ------------------------------------------------------------------------------------------------------------------------------
Interest-Sensitive Assets:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Fed funds sold and other
short-term investments 6.30% $5,650 ----- ----- ----- ----- ----- $5,650 $5,653 $22,298
Investments:
Fixed maturity 6.15 11,928 $3,433 $7,989 $1,822 $2,575 $10,673 38,420 37,606 37,610
Mortgage Backed 6.90 4,554 5,398 5,770 3,969 2,464 9,019 31,174 31,187 5,930
Mutual Funds 4.91 2,364 ----- ----- ----- ----- ----- 2,364 2,364 2,487
Federal Reserve Bank Stock 6.00 ----- ----- ----- ----- ----- 559 559 559 537
Loans and leases:
Fixed rate 9.46 9,396 7,219 3,485 4,700 5,757 36,555 67,112 66,689 54,572
Variable rate 10.08 128,462 15,717 9,599 10,219 8,386 61,196 233,579 234,924 199,730
Leasing 10.24 3,463 4,275 4,695 3,935 ----- ----- 16,368 16,008 4,283
Factoring accounts receivable
and asset-based lending 21.98 9,901 ----- ----- ----- ----- ----- 9,901 9,961 7,672
Interest rate floor 82
Interest-Sensitive Liabilities:
Deposits:
Interest-bearing demand 2.50 24,997 6,963 6,963 9,282 ----- ----- 48,205 46,194 48,270
Money market 4.14 71,377 23,520 23,522 ----- ----- ----- 118,419 116,768 88,376
Savings 2.10 ----- 573 573 382 382 ----- 1,910 1,856 2,037
Certificates of deposit 5.18 105,832 5,348 2,266 529 11,876 3,155 129,006 129,094 91,094
Fed funds purchased and
repurchase agreements 5.79 10,997 ----- ----- ----- ----- ----- 10,997 11,016 5,003
Interest-Sensitive
Off-balance sheet items:
Unused lines of credit and
undisbursed loan commitments 10.66 ----- ----- ----- ----- ----- ----- 163,564 ----- -----
</TABLE>
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ----------------------------------------------------
The following section includes the Company's Consolidated Financial Statements:
Independent Auditors' Report
Consolidated Balance Sheets - December 31, 1999 and 1998
Consolidated Statements of Income for the Years Ended December 31, 1999,
1998 and 1997
Consolidated Statements of Shareholders' Equity and Comprehensive Income
for the Years Ended December 31, 1999, 1998 and 1997
Consolidated Statements of Cash Flows for the Years Ended December 31,
1999, 1998 and 1997
Notes to Consolidated Financial Statements
<PAGE>
Independent Auditors' Report
The Board of Directors
SJNB Financial Corp.:
We have audited the accompanying consolidated balance sheets of SJNB Financial
Corp. and subsidiary (the Company) as of December 31, 1999 and 1998, and the
related consolidated statements of income, shareholders' equity and
comprehensive income, and cash flows for each of the years in the three-year
period ended December 31, 1999. 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 that 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 SJNB Financial Corp.
and subsidiary as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1999, in conformity with generally accepted accounting
principles.
KPMG LLP
Mountain View, California
January 13, 2000
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
SJNB Financial Corp. and subsidiary
Consolidated Balance Sheets
December 31, 1999 and 1998
(in thousands)
- -----------------------------------------------------------------------------------------------------------------------------
Assets 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash and due from banks $11,180 $11,239
Federal funds sold ----- 2,200
Money market investments 5,650 20,085
Investment securities:
Available for sale 63,474 35,216
Held to maturity (Fair value: $8,242 at December 31, 1999
and $11,369 at December 31,1998) 9,042 11,173
- -----------------------------------------------------------------------------------------------------------------------------
Total investment securities 72,516 46,389
- -----------------------------------------------------------------------------------------------------------------------------
Loans and leases 326,961 261,380
Allowance for loan or lease losses (5,284) (4,778)
- -----------------------------------------------------------------------------------------------------------------------------
Loans and leases, net 321,677 256,602
- -----------------------------------------------------------------------------------------------------------------------------
Premises and equipment, net 3,812 3,770
Accrued interest receivable 2,209 1,600
Intangibles, net of accumulated amortization of $2,620 at December 31,1999
and $2,164 at December 31, 1998. 3,617 4,027
Other assets 5,286 4,022
- -----------------------------------------------------------------------------------------------------------------------------
Total $425,947 $349,934
=============================================================================================================================
Liabilities and Shareholders' Equity
- -----------------------------------------------------------------------------------------------------------------------------
Deposits:
Non interest-bearing $73,201 $70,962
Interest-bearing 297,541 231,480
- -----------------------------------------------------------------------------------------------------------------------------
Total deposits 370,742 302,442
- -----------------------------------------------------------------------------------------------------------------------------
Other short-term borrowings 10,997 5,000
Accrued interest payable 1,321 822
Other liabilities 5,058 6,188
- -----------------------------------------------------------------------------------------------------------------------------
Total liabilities 388,118 314,452
- -----------------------------------------------------------------------------------------------------------------------------
Shareholders' equity:
Preferred stock, no par value, 5,000 shares authorized;
none issued or outstanding in 1999 or 1998 ----- -----
Common stock, no par value; 20,000 shares authorized;
2,417 and 2,449 shares issued and outstanding
in 1999 and 1998 respectively. 15,796 16,777
Retained earnings 22,883 18,405
Accumulated other comprehensive (loss) income, net (850) 300
- -----------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 37,829 35,482
- -----------------------------------------------------------------------------------------------------------------------------
Commitments and contingencies ---- ----
- -----------------------------------------------------------------------------------------------------------------------------
Total $425,947 $349,934
=============================================================================================================================
<FN>
See accompanying Notes to Consolidated Financial Statements.
</FN>
</TABLE>
<TABLE>
- ----------------------------------------------------------------------------------------------------------------------------
SJNB Financial Corp. and subsidiary
Consolidated Statements of Income
Years ended December 31, 1999, 1998 and 1997
- ----------------------------------------------------------------------------------------------------------------------------
(in thousands, except per share amounts) 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans and leases $28,915 $24,858 $22,732
Interest on money market investments 701 1,024 586
Interest and dividends on investment securities available for sale 2,889 2,749 2,982
Interest on investment securities held to maturity 535 709 947
Other interest and investment income (50) (9) (9)
- ----------------------------------------------------------------------------------------------------------------------------
Total interest income 32,990 29,331 27,238
- ----------------------------------------------------------------------------------------------------------------------------
Interest expense:
Deposits:
Interest-bearing demand 1,316 1,325 1,178
Money market and savings 3,450 3,504 3,061
Certificates of deposit of $100 or more 3,871 3,256 2,964
Certificates of deposit of less than $100 1,917 680 792
Other short-term borrowings 584 312 754
- ----------------------------------------------------------------------------------------------------------------------------
Total interest expense 11,138 9,077 8,749
- ----------------------------------------------------------------------------------------------------------------------------
Net interest income 21,852 20,254 18,489
- ----------------------------------------------------------------------------------------------------------------------------
Provision for loan and lease losses 495 300 705
- ----------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan and lease losses 21,357 19,954 17,784
- ----------------------------------------------------------------------------------------------------------------------------
Other income:
Service charges on deposits 839 659 607
Other operating income 638 404 453
Net loss on sale of securities available for sale (51) (4) (47)
- ----------------------------------------------------------------------------------------------------------------------------
Total other income 1,426 1,059 1,013
- ----------------------------------------------------------------------------------------------------------------------------
Other expenses:
Salaries and benefits 7,840 6,787 5,725
Occupancy 915 775 725
Other 4,236 3,935 3,460
- ----------------------------------------------------------------------------------------------------------------------------
Total other expenses 12,991 11,497 9,910
- ----------------------------------------------------------------------------------------------------------------------------
Income before income taxes 9,792 9,516 8,887
Income taxes 3,984 3,975 3,773
- ----------------------------------------------------------------------------------------------------------------------------
Net income $5,808 $5,541 $5,114
============================================================================================================================
Basic earnings per share $2.45 $2.23 $2.04
============================================================================================================================
Diluted earnings per share $2.31 $2.11 $1.94
============================================================================================================================
Average common shares outstanding 2,375 2,484 2,508
============================================================================================================================
Average common and common share equivalents outstanding 2,510 2,627 2,640
============================================================================================================================
<FN>
See accompanying Notes to Consolidated Financial Statements.
</FN>
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
SJNB Financial Corp. and subsidiary
Consolidated Statements of Shareholders' Equity and Comprehensive Income
Years ended December 31, 1999, 1998 and 1997
- ---------------------------------------------------------------------------------------------------------------------
Net Unrealized
Gain (Loss) Total
on Securities Share-
Common Retained Available holders'
(in thousands, except per share amounts) Shares Stock Earnings for Sale Equity
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balances, December 31, 1996 2,571 $20,880 $10,263 $62 $31,205
Net income for the year ---- ---- 5,114 ---- 5,114
Other comprehensive income-Unrealized gain
on securities available for sale, net ---- ---- ---- 43 43
---------------
Comprehensive income ---- ---- ---- ---- 5,157
---------------
Stock options exercised 24 206 ---- ---- 206
Common stock repurchase (102) (2,495) ---- ---- (2,495)
Tax benefit from stock options exercised ---- 209 ---- ---- 209
Cash dividends ($0.45 per share) ---- ---- (1,123) ---- (1,123)
- -----------------------------------------------------------------------------------------------------------------------------
Balances, December 31, 1997 2,493 18,800 14,254 105 33,159
- -----------------------------------------------------------------------------------------------------------------------------
Net income for the year ---- ---- 5,541 ---- 5,541
Other comprehensive income-Unrealized gain
on securities available for sale, net ---- ---- ---- 195 195
---------------
Comprehensive income ---- ---- ---- ---- 5,736
---------------
Stock options exercised 35 529 ---- ---- 529
Common stock repurchase (91) (3,498) ---- ---- (3,498)
Issuance of common stock for Epic Funding Corp. 12 501 ---- ---- 501
Tax benefit from stock options exercised ---- 445 ---- ---- 445
Cash dividends ($0.56 per share) ---- ---- (1,390) ---- (1,390)
- -----------------------------------------------------------------------------------------------------------------------------
Balances, December 31, 1998 2,449 16,777 18,405 300 35,482
- -----------------------------------------------------------------------------------------------------------------------------
Net income for the year ---- ---- 5,808 ---- 5,808
Other comprehensive income-Unrealized loss
on securities available for sale, net ---- ---- ---- (1,150) (1,150)
---------------
Comprehensive income ---- ---- ---- ---- 4,658
---------------
Common stock issued 60 1,800 1,800
Stock options exercised 23 275 ---- ---- 275
Common stock repurchase (115) (3,104) ---- ---- (3,104)
Tax benefit from stock options exercised ---- 48 ---- ---- 48
Cash dividends ($0.56 per share) ---- ---- (1,330) ---- (1,330)
- -----------------------------------------------------------------------------------------------------------------------------
Balances, December 31, 1999 2,417 $15,796 $22,883 $(850) $37,829
=============================================================================================================================
<FN>
See accompanying Notes to Consolidated Financial Statements.
</FN>
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
SJNB Financial Corp. and subsidiary
Consolidated Statements of Cash Flows
Years ended December 31, 1999, 1998 and 1997
- ----------------------------------------------------------------------------------------------------------------------------
(dollars in thousands) 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
<S> <C> <C> <C>
Net income $5,808 $5,541 $5,114
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan and lease losses 495 300 705
Depreciation and amortization 626 546 529
Amortization of intangibles 456 457 473
Deferred tax benefit (230) (56) (356)
Loss on sale of securities available for sale 51 4 47
Net gain on sale of other real estate owned ----- ----- (65)
Amortization of premium (discount) on investment securities, net 10 (49) (48)
(Increase) decrease in intangible assets (45) (50) 237
Increase in accrued interest receivable and other assets (1,673) (253) (2,107)
Increase in accrued interest payable and other liabilities 184 1,678 1,716
- ----------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 5,712 8,118 6,245
- ----------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from sale or maturities of securities available for sale 16,761 32,476 18,610
Maturities of securities held to maturity 6,125 4,323 2,250
Purchase of securities available for sale (46,783) (19,008) (18,850)
Purchase of securities to be held to maturity (3,993) (1,768) (857)
Proceeds from the sale of other real estate owned ----- ----- 519
Net increase in loans and leases (65,785) (32,274) (30,562)
Capital expenditures (669) (400) (444)
Cash used to acquire Epic Funding Corp. ----- (206) -----
- ----------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (94,344) (16,857) (29,334)
- ----------------------------------------------------------------------------------------------------------------------------
Cash flow from financing activities:
Net increase in deposits 68,300 32,097 25,706
Increase (decrease) in other short-term borrowings 5,997 (11,000) (13,688)
Cash dividends (1,330) (1,390) (1,123)
Common stock repurchased (3,104) (3,498) (2,495)
Common stock issued 1,800 ----- -----
Proceeds from stock options exercised 275 529 206
- ----------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 71,938 16,738 8,606
- ----------------------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and equivalents (16,694) 7,999 (14,483)
Cash and equivalents at beginning of year 33,524 25,525 40,008
- ----------------------------------------------------------------------------------------------------------------------------
Cash and equivalents at end of year $16,830 $33,524 $25,525
============================================================================================================================
Other cash flow information:
Interest paid $10,639 $9,118 $8,511
Income taxes paid 4,750 2,626 3,445
============================================================================================================================
Purchase of Epic Funding Corp.:
Leases ----- $149 -----
Other assets ----- 789 -----
- ----------------------------------------------------------------------------------------------------------------------------
Total assets acquired ----- 938 -----
Cash paid and expenses incurred (206)
Liabilities assumed:
Other liabilities ----- 231 -----
- ----------------------------------------------------------------------------------------------------------------------------
Total liabilities assumed ----- 231 -----
- ----------------------------------------------------------------------------------------------------------------------------
Common stock issued, net of registration costs ----- $501 -----
============================================================================================================================
<FN>
See accompanying Notes to Consolidated Financial Statements.
</FN>
</TABLE>
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
NOTE 1 - Summary of Significant Accounting Policies
SJNB Financial Corp. ("Company") is a bank holding company registered under the
Bank Holding Company Act of 1956, as amended. The Company was incorporated under
the laws of the State of California on April 18, 1983. Its principal office is
located at One North Market Street, San Jose, California, 95113.
The Company owns 100% of the issued and outstanding common shares of San Jose
National Bank (referred to herein as "SJNB" or "the Bank"). The Bank was
incorporated on November 23, 1981 and commenced business in San Jose, California
on June 10, 1982. Its main office is located at One North Market Street, San
Jose, California. SJNB engages in the general commercial banking business with
special emphasis on the banking needs of the business and professional
communities in San Jose and the surrounding areas. The Financial Services
Division is located at 95 South Market, San Jose, California, where it engages
in the factoring of accounts receivable.
The accounting policies of SJNB Financial Corp. and San Jose National Bank
(collectively, the "Company") are in accordance with generally accepted
accounting principles and conform to general practices within the banking
industry.
a. Consolidation
The consolidated financial statements include the accounts of SJNB. All material
intercompany accounts and transactions have been eliminated in the consolidated
financial statements.
b. Investment Securities
The Company accounts for its investment securities as follows:
Available for sale-Investment securities that are acquired without the intent to
hold until maturity are classified as available for sale. Such securities are
carried at market value. Market value adjustments are reported as a separate
component of shareholders' equity until realized.
Held to maturity-Investment securities purchased with the intent and ability to
hold them until maturity are classified as held to maturity. Such securities are
carried at cost, adjusted for accretion of discounts and amortization of
premiums.
Investment securities purchased are recorded as of their trade date. Accretion
of discounts and amortization of premiums arising at acquisition are included in
income using methods approximating the interest method. Gains or losses on sales
of securities, if any, are determined based on the specific identification
method. The carrying values of individual investment securities are reduced, if
necessary, through write-downs to reflect other than temporary impairments in
value.
c. Loans and Leases and Allowance for loan and Lease Losses
Loans and leases generally are stated at the principal amount outstanding.
Interest on loans is credited to income on a simple interest basis. Unearned
revenue on direct financing leases is accreted over the lives of the leases in
decreasing amounts to provide a constant rate of return on the net investment in
the leases. Loan origination fees and direct origination costs, including
initial direct cost of lease origination are deferred and amortized to income by
a method approximating the level yield method over the estimated lives of the
underlying loans. The accrual of interest on loans and leases is discontinued
and any accrued and unpaid interest is reversed when, in the opinion of
management, there is significant doubt as to the collectibility of interest or
principal or when the payment of principal or interest is ninety days past due,
unless the amount is well-secured and in the process of collection.
The allowance for loan and leases losses is a valuation allowance maintained to
provide for future loan losses through charges to current operating expense. The
allowance is based upon a continuing review of loans and leases by management
which includes consideration of changes in the character of the loan and lease
portfolio, current and anticipated economic conditions, past lending experience
and such other factors which, in management's judgment, deserve recognition in
estimating potential loan losses. In addition, regulatory examiners may require
the Company to recognize additions to the allowance based on their judgments
about information available to them at the time of their examinations.
Impaired loans are those in which, based on current information and events, it
is probable that the Company will be unable to collect all amounts due according
to the contractual terms of the loan or lease agreement, including scheduled
interest payments. The Company measures such loans and leases based on the
present value of future cash flows discounted at the loan's or lease's effective
interest rate, or at the loan's or lease's market value or the fair value of the
collateral if the loan is secured. If the measurement of the impaired loan or
lease is less than the recorded investment, impairment is recognized by creating
or adjusting an existing allocation of the allowance for loan and leases losses.
Recognition of interest income on impaired loans or leases is as stated in the
first paragraph above of this footnote 1(c).
d. Premises and Equipment
Premises and equipment are stated at cost, less accumulated depreciation and
amortization. Depreciation and amortization are charged to expense over the
estimated useful lives of the assets on a straight-line basis as follows:
Buildings 30 years
Furniture and equipment 3-10 years
Improvements 7-15 years
e. Intangibles
Goodwill is amortized using the straight-line method over 15 years. Core deposit
intangibles are amortized using an accelerated method over ten years.
On a periodic basis, the Company reviews its intangible assets for events or
changes in circumstances that may indicate that the carrying amount of the
assets may not be recoverable. Should such a change indicate that the value of
such intangibles may be impaired, an evaluation of the recoverability would be
performed, using undiscounted cash flows, prior to any writedown of the assets.
f. Interest Rate Instruments
Interest rate instruments are entered into in conjunction with the Bank's
asset/liability management. As these contracts are entered into only after
meeting the accounting criteria for a hedge, and as long as they continue to
meet such criteria, changes in market value are deferred and the net settlements
are accrued as adjustments to interest income. The Bank currently has
outstanding an interest rate swap for $10 million in connection with the $10
million ten year synthetic floating rate certificate of deposit and a one year
$10 million treasury lock, both of which are accounted for as hedges
g. Income Taxes
The Company accounts for income taxes using the asset and liability method.
Under this method, deferred tax assets and liabilities are recognized for the
future tax consequences of 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.
Under the asset and liability method, deferred tax assets are recognized for
deductible temporary differences and operating loss and tax credit
carryforwards, and then a valuation allowance is established to reduce that
deferred tax asset if it is "more likely than not" that the related tax benefits
will not be realized.
h. Stock-based Compensation
The Company continues to account for stock-based compensation using the
intrinsic value method prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees." The Company only grants stock
options at fair market value. Statement of Financial Accounting Standards
("SFAS") No. 123, Accounting for Stock-Based Compensation," established
accounting and disclosure requirements using a fair-value-based method of
accounting for stock-based employee compensation plans. The Company has elected
to remain on its current method of accounting as described above, and has
adopted the disclosure requirements of SFAS No. 123.
i. Net Income Per Share
Basic net income per share is computed by dividing net income by the weighted
average number of shares of common stock outstanding during the year. Diluted
net income per share is computed by dividing net income by the weighted average
number of shares of common stock outstanding during the year plus shares
issuable assuming exercise of all employee stock options, except where
anti-dilutive.
j. Comprehensive Income
Effective January 1, 1998, the Company adopted SFAS No. 130, Reporting
Comprehensive Income, which establishes new rules for the reporting and display
of comprehensive income and its components. The adoption of this statement had
no impact on net income or shareholders' equity. SFAS No. 130 requires the
Company's net unrealized gains or losses on available-for-sale securities to be
included in other comprehensive income. Comprehensive income is included in the
statement of shareholders' equity for the periods presented.
k. Statement of Cash Flows
For purposes of reporting cash flows, cash and cash equivalents include cash on
hand, amounts due from banks, fed funds sold and money market investments.
l. Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent asset and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
m. Impairment of Long-lived Assets
Long-lived assets and certain identifiable intangibles held and used by an
entity are reviewed for impairment whenever events or changes indicate that the
carrying amount of an asset may not be recoverable. The Company has not
identified any long-lived assets or identifiable intangibles which were
impaired.
n. Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities
SFAS No. 125, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities, 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. Under this approach, after a transfer of
financial assets, an entity recognizes all financial and servicing assets it
controls and liabilities it has incurred and derecognizes financial assets it no
longer controls and liabilities that have been extinguished. The Company did not
have any significant transactions in which this Statement had any impact on its
consolidated financial statements.
o. Segments of an Enterprise and Related Information
SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information, requires certain information about the operating segments of the
Company. The objective of requiring disclosures about segments of an enterprise
and related information is to provide information about the different types of
business activities in which an enterprise engages and the different economic
environments in which it operates to help users of financial statements better
understand its performance; better assess its prospects for future cash flows
and make more informed judgments about the enterprise as a whole. The Company
has determined it has three segments, general commercial banking, leases, and
factoring/asset based financing. Neither leasing nor factoring and asset based
financing meet the required thresholds for disagregation and therefore the
disclosures and related information about such segments has not been included in
the consolidated financial statements. At such time these segments meet the
required thresholds, such disclosures and other information will be included. It
is expected they will meet the thresholds in 2000.
p. Derivative Instruments and Hedging Activities
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. This Statement requires that an entity
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. In June 1999,
the FASB issued SFAS No. 137, Accounting for Derivative Instruments and Hedging
Activities-Deferral of Effective Date. This Statement deferred the effective
date to the fiscal quarters of fiscal years beginning after June 15, 2000. The
Company expects to adopt this Statement on January 1, 2001. Management believes
the Statement would not have a significant effect on the Company's consolidated
financial position or its consolidated statement of operations.
q. Reclassification
Certain 1998 and 1997 amounts have been reclassified to conform with the 1999
presentation.
NOTE 2 - Acquisitions
On May 22, 1998 SJNB acquired all of the stock of a private company, Epic
Funding Corporation (Epic), pursuant to a definitive agreement dated April 13,
1998. In connection with the acquisition, which was structured as a tax-free
reorganization and accounted for as a purchase transaction for accounting
purposes, SJNB issued 12.2 shares of its common stock and paid $110 to Epic's
shareholder in exchange for all of Epic's outstanding stock. Total purchase
price was $611, while Epic's fair value of net assets was $28; goodwill amounted
to $759 including certain expenses of the transaction. Epic provides direct and
vendor lease programs and accounts receivable financing to manufacturers and
equipment users throughout California and across parts of the United States.
Epic is a wholly-owned subsidiary of the Bank. Epic's office is located in
Danville, California; together with a small de novo branch at the same facility
which was opened on July 1, 1998.
NOTE 3 - Cash and Due from Banks
The Federal Reserve requires the Bank to maintain average reserve balances for
certain deposit balances. There were no required reserves at December 31, 1999
or 1998.
NOTE 4 - Investment Securities
<TABLE>
<CAPTION>
Investment securities as of December 31, 1999 and 1998 are summarized as
follows:
(dollars in thousands) December 31, 1999
- ----------------------------------------------------------------------------------------------------------------------------
Unrealized Fair
------------------------------------
Cost Gains Losses Value
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for sale:
U.S. Treasury $2,004 $3 ----- $2,007
U. S. Government Agencies 20,215 ----- ($190) 20,025
Mortgage Backed 30,888 ----- (371) 30,517
Asset-backed 2,000 ----- (22) 1,978
Trust preferred 7,062 ----- (479) 6,583
Mutual funds 2,518 ----- (154) 2,364
- ----------------------------------------------------------------------------------------------------------------------------
Total available for sale 64,687 3 (1,216) 63,474
- ----------------------------------------------------------------------------------------------------------------------------
Held to Maturity:
U.S. Government agencies 499 3 ----- 502
State and municipal (nontaxable) 7,327 ----- (816) 6,511
Mortgage Backed 657 13 ----- 670
- ----------------------------------------------------------------------------------------------------------------------------
Total held to maturity 8,483 16 (816) 7,683
Federal Reserve Bank Stock 559 ----- ----- 559
- ----------------------------------------------------------------------------------------------------------------------------
Total 9,042 16 (816) 8,242
- ----------------------------------------------------------------------------------------------------------------------------
Total investment securities portfolio $73,729 $19 ($2,032) $71,716
============================================================================================================================
December 31, 1998
- ----------------------------------------------------------------------------------------------------------------------------
Unrealized Fair
--------------------------------------
Cost Gains Losses Value
- ----------------------------------------------------------------------------------------------------------------------------
Available for sale:
U.S. Treasury $3,005 $72 ----- $3,077
U. S. Government Agencies 25,220 466 ----- 25,686
Mortgage Backed 3,865 101 ----- 3,966
Mutual funds 2,638 ----- ($151) 2,487
- ----------------------------------------------------------------------------------------------------------------------------
Total available for sale 34,728 639 (151) 35,216
- ----------------------------------------------------------------------------------------------------------------------------
Held to Maturity:
U.S. Treasury 1,000 7 ----- 1,007
U.S. Government agencies 3,496 38 ----- 3,534
State and municipal (nontaxable) 4,213 116 ----- 4,329
Mortgage Backed 1,927 35 ----- 1,962
- ----------------------------------------------------------------------------------------------------------------------------
Total held to maturity 10,636 196 ----- 10,832
Federal Reserve Bank Stock 537 ----- ----- 537
- ----------------------------------------------------------------------------------------------------------------------------
Total 11,173 196 ----- 11,369
- ----------------------------------------------------------------------------------------------------------------------------
Total investment securities portfolio $45,901 $835 ($151) $46,585
============================================================================================================================
</TABLE>
As of December 31, 1999 and 1998 investment securities with carrying values of
approximately $36.9 million and $18.6 million, respectively, were pledged as
collateral for deposits of public funds and other purposes. Investment in
Federal Reserve Bank stock is carried at cost, which is approximately equal to
its market value.
The following tables provide the scheduled maturities of the Company's
investment securities portfolio as of December 31, 1999:
Maturity of investment securities portfolio
(dollars in thousands) December 31, 1999
------------------------------------
Amortized Fair
Securities available for sale Cost Value
------------------------------------
Due in one year or less $11,315 $11,296
Due after one year through five years 24,760 24,499
Due after five years through ten years 7,448 7,308
Due after ten years 18,646 18,007
------------------------------------
Total 62,169 61,110
------------------------------------
Securities held to maturity
Due in one year or less 1,455 1,463
Due after one year through five years 679 680
Due after five years through ten years 369 344
Due after ten years 5,980 5196
------------------------------------
Total 8,483 7,683
------------------------------------
Non-maturity investments
Available for sale - Mutual Funds 2,518 2,364
Held to maturity - FRB Stock 559 559
------------------------------------
Total 3,077 2,923
------------------------------------
Total Investment securities $73,729 $71,716
====================================
Mutual funds consist of several funds invested in U. S. Government securities
and government issued adjustable rate mortgages (ARMS).
Interest income earned on U. S. Treasury, U. S. Government agencies and state
and municipal securities for the years ended December 31, 1999, 1998 and 1997
are as follows:
<TABLE>
<CAPTION>
Interest income
(dollars in thousands) 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------
Securities available for sale:
<S> <C> <C> <C>
U.S. Treasury $147 $293 $280
U.S. Government agencies 1,396 2,008 2,110
Mortgage-backed 851 301 373
Asset-backed 72 ----- -----
Trust preferred 301 ----- -----
Mutual funds 122 147 219
Securities held to maturity:
U.S. Treasury 24 97 132
U.S. Government agencies 115 260 453
State and municipal (nontaxable) 274 175 141
Mortgage-backed 90 146 190
Federal Reserve Bank 32 31 31
- -----------------------------------------------------------------------------------------------------------
Interest income $3,424 $3,458 $3,929
===========================================================================================================
</TABLE>
NOTE 5 - Loans
<TABLE>
<CAPTION>
A summary of loans as of December 31, 1999, 1998 and 1997 is as follows:
(dollars in thousands) 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Commercial and other $107,415 $91,866 $94,029
SBA 46,031 37,019 39,409
Leasing 16,633 3,768 -----
Factoring and asset-based 9,901 7,393 4,915
Real estate construction 40,620 32,340 17,818
Real estate term 96,434 80,009 64,403
Consumer 10,764 9,647 9,042
Unearned fee income (837) (662) (644)
- -----------------------------------------------------------------------------------------------------------
Total loan and lease portfolio 326,961 261,380 228,972
Less allowance for loan or lease losses (5,284) (4,778) (4,493)
- -----------------------------------------------------------------------------------------------------------
Loans and leases, net $321,677 $256,602 $224,479
===========================================================================================================
</TABLE>
Concentrations of credit risk arise when a number of customers are engaged in
similar business activities, or activities in the same geographic region, or
have similar features that would cause their ability to meet contractual
obligations to be similarly affected by changes in economic conditions. Although
the Company has a diversified loan and lease portfolio, a substantial portion of
its customers' ability to honor contracts is reliant upon the economic stability
of the Santa Clara Valley, which in some degree relies on the stability of high
technology companies in its "Silicon Valley." Loans and leases are generally
made on the basis of a secure repayment source, which is based on a detailed
cash flow analysis; however, collateral is generally a secondary source for loan
qualification.
Approximately 29% of the Company's loan and lease portfolio is made up of real
estate term loans. This category of real estate loans includes loans on
income-bearing commercial properties. In addition, 12% of the loan and lease
portfolio is made up of real estate construction loans. These loans consist of
approximately 37% residential and 63% commercial. Included in Consumer loans are
Prime equity loans of $5.3 million or approximately 2% of the total loan
portfolio. Included in the commercial category are mortgage warehouse loans,
loans to real estate developers for short-term investment purposes and loans to
nondevelopers for real estate investment purposes that amount to approximately
4% of the total loan portfolio. This amounts to approximately 47% of the loan
portfolio directly related to real estate or real estate interests.
Approximately 33% of the total loan portfolio is commercial loans; however, no
particular industry represents a significant portion of such loans.
The following is an analysis of the allowance for loan losses for the years
ended December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
(dollars in thousands) 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, beginning of year $4,778 $4,493 $4,005
Provision for loan or lease losses 495 300 705
Charge-offs (152) (234) (288)
Recoveries 163 219 71
- -----------------------------------------------------------------------------------------------------------
Balance, end of year $5,284 $4,778 $4,493
===========================================================================================================
</TABLE>
At December 31, 1999 and 1998, impaired loans totaled $1.4 million and $403 with
a corresponding valuation allowance of $224 and $27, respectively. For the years
ended December 31, 1999 and 1998, the average recorded investment in impaired
loans was approximately $475 and $733, respectively. The Company recognized $41,
$60 and $46 of interest on impaired loans (during the portion of the year they
were impaired), of which $40, $8 and $39 related to impaired loans for which
interest income is recognized on the cash basis for the years ended December 31,
1999, 1998 and 1997, respectively.
The balance of nonaccrual loans as of December 31, 1999 and 1998 was
approximately $1.4 million and $197, respectively. The effect on interest income
had these loans been performing in accordance with contractual terms was $132 in
1999, $22 in 1998, and $61 in 1997. Income actually recognized on these loans
was $112 in 1999, $21 in 1998 and $32 in 1997.
The Company has made loans to executive officers, directors and their affiliates
in the ordinary course of business. An analysis of activity with respect to such
loans during the years ended December 31, 1999, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
(dollars in thousands) 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, beginning of year $1,749 $1,223 $1,652
New loans disbursed 2,717 1,340 495
Repayments of loans (1,725) (814) (924)
- -----------------------------------------------------------------------------------------------------------
Balance, end of year $2,741 $1,749 $1,223
===========================================================================================================
</TABLE>
As of December 31, 1999, loans of approximately $11 million were pledged as
collateral for the Federal Reserve Discount Window.
NOTE 6 - Premises and Equipment
A summary of premises and equipment as of December 31, 1999 and 1998 is as
follows:
(dollars in thousands) 1999 1998
- --------------------------------------------------------------------------------
Land $829 $829
Buildings and improvements 3,153 3,109
Furniture and equipment 2,371 1,748
- --------------------------------------------------------------------------------
Premises and equipment 6,353 5,686
Less accumulated depreciation and amortization 2,541) (1,916)
- --------------------------------------------------------------------------------
Premises and equipment, net $3,812 $3,770
===========================================================++++=================
NOTE 7 - Time Deposits
As of December 31, 1999 and 1998, the Bank had $85 million and $68 million,
respectively, in time deposits in denominations of $100 or more. Interest
expense for these deposits was $3.9 million and $3.3 million in 1999 and 1998,
respectively. Time deposits in denominations of $100 or more which mature in
greater than one year was $54.6 million as of December 31, 1999.
On December 4, 1998 the Bank raised $10 million through the placement of a ten
year synthetic floating rate certificate of deposit. The instrument consists of
two linked transactions, a callable interest rate swap and callable fixed rate
certificate of deposit. Under the swap agreement the Bank pays LIBOR plus five
basis points and receives 6% for a period of ten years. The swap is callable
after one year by the issuer. Simultaneously, the Bank issued a callable 6%
fixed rate 10 year certificate of deposit. The certificate of deposit does not
have any early redemption clauses, other then by death of the holder.
Effectively, the Bank's rate of interest on the combined transaction is LIBOR
plus five basis points.
NOTE 8 - Other Short-term Borrowings
Other short-term borrowings include federal funds purchased and securities sold
under agreements to repurchase and information relating to these borrowings are
summarized below:
<TABLE>
<CAPTION>
(dollars in thousands) 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------
Federal funds purchased
<S> <C> <C> <C>
Balance at December 31, $500 $5,000 -----
Weighted average interest rate at year end 5.50% 5.50% -----
Maximum amount outstanding at any month end 22,000 5,000 $6,000
Average outstanding balance 1,801 380 834
Weighted average interest rate paid 5.54% 6.40% 5.93%
Securities sold under agreements to repurchase
Balance at December 31, $10,497 ----- $16,000
Weighted average interest rate at year end 5.80% ----- 5.72%
Maximum amount outstanding at any month end 15,559 $12,000 16,000
Average outstanding balance 7,421 3,762 11,236
Weighted average interest rate paid 5.61% 5.59% 5.77%
</TABLE>
Any securities used under securities sold under agreements to repurchase are
under the control of the Bank. Securities subject to the agreement to repurchase
represent securities held by the Bank in its securities available for sale
portfolio with a total amortized cost of $13.3 million and a market value of
$13.1 million as of December 31, 1999.
The Company's bank subsidiary has informal arrangements with various
correspondents providing short-term credit for liquidity requirements; such
informal lines aggregated $22 million at December 31, 1999.
NOTE 9 - Accumulated other Comprehensive Income
<TABLE>
<CAPTION>
Accumulated other comprehensive income is as follows for the years ended
December 31, 1999, 1998, and 1997:
- --------------------------------------------------------------- -------------- --------------- --------------
1999 1998 1997
- --------------------------------------------------------------- -------------- --------------- --------------
<S> <C> <C> <C>
Realized losses on securities available for sale, net $(51) $(4) $(47)
Unrealized (loss)appreciation of securities held for sale, (1,099) 199 90
net
- --------------------------------------------------------------- -------------- --------------- --------------
Other comprehensive (loss) income ($1,150) $195 $43
=============================================================== ============== =============== ==============
</TABLE>
NOTE 10 - Earnings per Share
The reconciliation of the numerators and denominators of the basic and diluted
earnings per share (EPS) computations are as follows:
<TABLE>
<CAPTION>
For the year ended December 31, 1999
- -------------------------------------------------------------------------------------------------------------
Per share
Net income Shares amount
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income and basic EPS $5,808 2,375 $2.45
================
Effect of stock option dilutive shares 135
- --------------------------------------------------------------------------------------------
Diluted EPS 2,510 $2.31
=============================================================================================================
For the year ended December 31, 1998
- -------------------------------------------------------------------------------------------------------------
Net income and basic EPS $5,541 2,484 $2.23
================
Effect of stock option dilutive shares 143
- --------------------------------------------------------------------------------------------
Diluted EPS $5,541 2,627 $2.11
=============================================================================================================
For the year ended December 31, 1997
-----------------------------------------------------
Net income and basic EPS $5,114 2,508 $2.04
================
Effect of stock option dilutive shares 132
- --------------------------------------------------------------------------------------------
Diluted EPS $5,114 2,640 $1.94
=============================================================================================================
</TABLE>
NOTE 11 - Income Taxes
Income tax expense for the years ended December 31, 1999, 1998 and 1997 consists
of the following:
<TABLE>
<CAPTION>
(dollars in thousands) 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------
Current:
<S> <C> <C> <C>
Federal $3,218 $3,120 $3,208
State 996 911 921
- -----------------------------------------------------------------------------------------------------------
Total current 4,214 4,031 4,129
- -----------------------------------------------------------------------------------------------------------
Deferred:
Federal (183) (45) (281)
State (47) (11) (75)
- -----------------------------------------------------------------------------------------------------------
Total deferred (230) (56) (356)
- -----------------------------------------------------------------------------------------------------------
Income taxes $3,984 $3,975 $3,773
===========================================================================================================
</TABLE>
Total income tax expense differed from the amount computed by applying the U. S.
federal income tax rates of 34% in years ended December 31, 1999, 1998 and 1997
to income before income taxes as a result of the following:
<TABLE>
<CAPTION>
(dollars in thousands) 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Computed "expected " tax expense $3,329 $3,235 $3,021
California franchise tax, net of federal income tax 627 610 558
Amortization of intangible assets 136 136 142
Federal tax-exempt investment income (97) (52) (42)
Other (11) 46 94
- -----------------------------------------------------------------------------------------------------------
Income taxes $3,984 $3,975 $3,773
===========================================================================================================
</TABLE>
The tax effects of temporary differences that gave rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 31, 1999 and
1998, are presented below:
<TABLE>
<CAPTION>
(dollars in thousands) 1999 1998
- ------------------------------------------------------------------------------------------
Deferred tax assets:
<S> <C> <C>
Allowance for loan and lease losses $1,850 $1,592
Purchase accounting adjustments 95 137
Foreclosure income 43 43
State taxes 337 286
Deferred compensation 105 114
Securities available for sale 567 ----
Other 72 100
- ------------------------------------------------------------------------------------------
Total gross deferred tax assets 3,069 2,272
- ------------------------------------------------------------------------------------------
Deferred tax liabilities:
Securities available for sale ---- 200
Depreciation and amortization 81 81
- ------------------------------------------------------------------------------------------
Total gross deferred tax liabilities 81 281
- ------------------------------------------------------------------------------------------
Net deferred tax assets $2,988 $1,991
==========================================================================================
</TABLE>
Amounts for the current year are based upon estimates and assumptions as of the
date of this report and could vary significantly from amounts shown on the tax
returns as filed. Accordingly, the variances from the amounts previously
reported for 1998 are primarily as a result of adjustments to conform to tax
returns as filed.
Deferred tax assets related to purchase accounting adjustments include the tax
effect of fair market value adjustments of the assets and liabilities of
businesses acquired. The Company believes that the net deferred tax asset is
realizable through sufficient taxable income within the carryback periods and
the current year's taxable income.
NOTE 12 - Detail of Other Expense
Other expense for the years ended December 31, 1999, 1998 and 1997 consists of
the following:
<TABLE>
<CAPTION>
(dollars in thousands) 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Data processing $604 $663 $441
Amortization of core deposit intangibles and goodwill 456 457 473
Legal and professional fees 506 315 331
Client services 437 443 345
Business promotion 389 332 369
Directors and shareholders 339 282 332
Net cost of other real estate owned ----- 3 (72)
Other 1,505 1,440 1,241
- -----------------------------------------------------------------------------------------------------------
Total $4,236 $3,935 $3,460
===========================================================================================================
</TABLE>
NOTE 13 - Stock Option Plan
During 1996 the shareholders of the Company approved the 1996 Stock Option Plan
(the "Plan"), which replaced the then existing two stock option plans. The 1996
Stock Option Plan is described below. In accordance with APB 15, no compensation
cost has been recognized for the Plan. Had compensation cost for the Plan been
determined consistent with SFAS No. 123, the Company's net income and earnings
per share would have been adjusted to the pro forma amounts for options granted
for the years 1998, 1998 and 1997 indicated below:
<TABLE>
<CAPTION>
(dollars in thousands) 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------
Net income:
<S> <C> <C> <C>
As reported $5,808 $5,541 $5,114
Pro forma 4,663 4,854 4,850
- -----------------------------------------------------------------------------------------------------------
Net income per share:
Basic, as reported $2.45 $2.23 $2.04
Basic, pro forma 1.96 1.95 1.93
- -----------------------------------------------------------------------------------------------------------
Diluted, as reported $2.31 $2.11 $1.94
Diluted, pro forma 1.86 1.85 1.84
</TABLE>
The above amounts include the impact on net income and net income per share for
options granted during the years 1995 through 1999; such amounts would have been
substantially different if options granted prior to 1995 had been included in
the computation.
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in the following years:
<TABLE>
<CAPTION>
Assumptions: 1999 1998 1997
- --------------------------------------------------------- ---------------- ----------------- ----------------
<S> <C> <C> <C>
Dividend yield 2.0% 1.8% 1.3%
Volatility 46.7% 50.0% 53.0%
Risk free interest rates 5.4% 5.0% 6.4%
Expected lives (years) 7.2 6.4 6.5
</TABLE>
The 1996 Stock Option Plan provides that either incentive stock options or
nonstatutory stock options may be granted to certain key employees or directors
to purchase authorized, but unissued, Common Stock of the Company. Shares may be
purchased at a price not less than the fair market value of such stock on the
date of the grant. Generally, stock options become exercisable 40% one year
after the date of grant and 20% in each of the following three years. They
expire no later than ten years after the date of the grant. The Plan provides
that outside directors will automatically receive a nonstatutory option covering
5,000 shares annually at an exercise price equal to 100% of the market price of
the Common Stock on the date of grant. The 1996 Stock Option Plan replaced the
previous two plans which had similar provisions. If options granted under the
prior plans expire without being exercised, the corresponding common shares
shall become available for awards under the Plan. During 1999, 1,080 shares
became available under this provision. The number of shares available for future
grants of options under the 1996 Stock Option Plan was 153,487 as of December
31, 1999.
Activity under the stock plans is as follows:
Weighted
Number Average
of Exercise
Options Shares Price
- --------------------------------------------------------------------------------
Balances, December 31, 1996 252,518 $11.40
Granted 100,070 25.60
Cancelled (15,075) 15.70
Exercised (23,553) 8.76
- --------------------------------------------------------------------------------
Balances, December 31, 1997 313,960 15.92
Granted 371,200 31.26
Cancelled (198,230) 35.25
Exercised (35,080) 15.08
- --------------------------------------------------------------------------------
Balances, December 31, 1998 451,850 20.09
- --------------------------------------------------------------------------------
Granted 158,170 27.93
Cancelled (30,182) 25.74
Exercised (19,798) 13.90
- --------------------------------------------------------------------------------
Balances, December 31, 1999 560,040 $22.22
================================================================================
The weighted-average fair value of options granted during 1999, 1998 and 1997
was $12.34, $14.38 and $13.28 respectively.
The following table summarizes options outstanding and exercisable at December
31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-----------------------------------------------------------------------------------------------------------
Number Number Weighted
Range of Outstanding Weighted Average Exercisable Average
Exercise as of Remaining Exercise as of Exercise
Prices December 31, 1999 Life Price December 31, 1999 Price
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$5.38 - $9.31 15,400 3.38 $6.46 15,400 $6.46
11.50 - 11.50 92,500 5.57 9.34 92,500 9.34
13.38 - 16.75 56,930 6.41 16.22 43,870 16.29
17.31 - 25.00 68,460 7.13 23.99 43,220 23.78
25.38 - 26.56 16,450 9.05 26.55 120 25.38
26.69 - 26.69 171,360 8.81 26.69 67,512 26.69
27.19 - 34.25 138,940 9.28 28.11 ----- -----
- -----------------------------------------------------------------------------------------------------------------------------
$5.38 - $34.25 560,040 7.80 $22.22 262,622 $17.18
=============================================================================================================================
<FN>
Options exercisable as of December 31, 1998 and 1997 were 163,674 and 126,679
and had weighted average exercise prices of $13.24 and $11.54 respectively.
</FN>
</TABLE>
NOTE 14 - Commitments and Contingent Liabilities
In the normal course of business, there are outstanding commitments, such as
commitments to extend credit, which are not reflected in the consolidated
financial statements. These commitments involve, to varying degrees, credit risk
in excess of the amount recognized as either an asset or liability in the
consolidated balance sheet. The Company controls the credit risk through its
credit approval process. The same credit policies are used when entering into
such commitments. Management does not anticipate any loss from such commitments.
Amounts committed to extend credit under normal lending agreements aggregated
approximately $164 million and $139 million for undisbursed variable loan
commitments and approximately $5.6 million and $6.3 million for commitments
under unused standby letters of credit and other guarantees at December 31, 1999
and 1998, respectively.
The Bank utilizes various financial instruments with off-balance sheet risk to
reduce its exposure to fluctuations in interest rates. These financial
instruments involve, to varying degrees, credit and interest rate risk in excess
of the amount recognized as either an asset or liability in the statement of
financial position.
The credit risk is the possibility that a loss may occur because a party to a
transaction fails to perform according to the terms of the contract. Interest
rate risk is the possibility that future changes in market prices will cause a
financial instrument to be less valuable or more onerous. The Bank attempts to
control the credit risk arising from these instruments through its credit
approval process and through the use of risk control limits and monitoring
procedures. Interest rate risk is managed by various asset and liability methods
including the utilization of interest rate hedging vehicles.
The Company is obligated under its lease agreements for 95 South Market Street,
San Jose and 50 Oak Court, Danville under a noncancelable operating leases
through September 2004 and July 2001, respectively. The leases are subject to
periodic adjustments based on changes in the CPI. The following table shows
future minimum payments under the leases as of December 31, 1999:
- -------------------------------------------------------------
Years Ending December 31,
(in thousands)
2000 $314
2001 269
2002 236
2003 236
2004 177
Total minimum lease payments
=============================================================
Total minimum lease payments to be received under noncancelable operating
subleases at December 31, 1999 were approximately $890; these payments are not
reflected in the above table. Total rent expense was $330, $281, and $90 for the
years ended December 31, 1999, 1998 and 1997, respectively.
There is ordinary routine litigation incidental to the business pending against
the Company but, in the opinion of management, liabilities (if any) arising from
such claims will not have a material effect upon the consolidated financial
statements of the Company.
NOTE 15 - Fair Value of Financial Instruments
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," requires
disclosure of estimated fair values for the Company's financial instruments.
Fair value estimates, methods and assumptions, set forth below for the Company's
financial instruments, are made solely to comply with the requirements of SFAS
No. 107 and should be read in conjunction with the consolidated financial
statements and notes thereto in this Annual Report.
Fair values are based on estimates or calculations at the transaction level
using present value techniques in instances where quoted market prices are not
available. Because broadly traded markets do not exist for most of the Company's
financial instruments, the fair value calculations attempt to incorporate the
effect of current market conditions at a specific time. Fair valuations are
management's estimates of the values, and they are often calculated based on
current pricing policy, the economic and competitive environment, the
characteristics of the financial instruments, and other such factors. These
calculations are subjective in nature, involve uncertainties and matters of
significant judgment and do not include tax ramifications; therefore, the
results cannot be determined with precision, substantiated by comparison to
independent markets and may not be realized in an actual sale or immediate
settlement of the instruments. The fair valuations have not been updated since
year end; therefore, the valuations may have changed significantly since that
point in time.
The Company has not included certain material items in its disclosure, such as
the value of the long-term relationships with the Company's deposit customers,
since these intangibles are not financial instruments. There may be inherent
weaknesses in any calculation technique, and changes in the underlying
assumptions used, including discount rates and estimates of future cash flows,
could significantly affect the results. For all these reasons, the aggregation
of the fair value calculations presented herein do not represent, and should not
be construed to represent, the underlying value of the Company.
The following table presents a summary of the Company's financial instruments,
as defined by SFAS No. 107 as of December 31, 1999 and 1998:
<TABLE>
<CAPTION>
Fair Value of Financial Instruments
(dollars in thousands) 1999 1998
- --------------------------------------------------------------------------------------------------------
Carrying Fair Carrying Fair
Financial assets Value Value Value Value
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash and due from banks $11,180 $11,180 $11,239 $11,239
Money market investments 5,650 5,653 22,285 22,298
Investment securities 72,516 71,716 46,389 46,563
Loans and leases, net 321,677 322,298 256,602 261,479
Accrued interest receivable 2,209 2,209 1,600 1,600
Financial liabilities
- --------------------------------------------------------------------------------------------------------
Deposits 370,742 368,919 302,442 289,147
Federal funds purchased, securities sold under
repurchase agreements and other borrowings 11,637 11,656 5,743 5,748
Off-balance sheet
Financial Instruments
- --------------------------------------------------------------------------------------------------------
Interest rate floor contract purchased ----- ----- 100 82
</TABLE>
The methodology and assumptions utilized to estimate the fair value of the
Company's financial instruments, not previously discussed above, are described
below:
Financial instruments with fair value approximate to carrying value - The
carrying value of cash and due from banks, money market investments, accrued
interest receivable, noninterest-bearing demand accounts, interest-bearing
demand, money market and savings deposit accounts, accrued interest receivable
and expense approximates fair value due to the short-term nature of these
financial instruments.
Investment securities - The estimated fair values of securities by type are
based on quoted market prices when available.
Loans and leases - The carrying amount of loans and leases is net of unearned
fee income and the reserve for loan and lease losses. The fair valuation
calculation process differentiates loans and leases based on their financial
characteristics, such as product classification, loan category, pricing features
and remaining maturity. Prepayment estimates are evaluated by product and
respective interest rate. Discount rates presented in the paragraphs below have
a wide range due to the Company's mix of fixed and variable rate products.
The fair value of loans and leases is calculated by discounting contractual cash
flows using discount rates that reflect the Company's current pricing for loans
and leases with similar characteristics and remaining maturity. Most of the
discount rates applied to these loans were between 8.2% and 10.6% at December
31, 1999.
Additionally, the allowance for loan and lease losses was applied against the
estimated fair value of loans and leases to recognize future defaults of
contractual cash flows.
Fair value for nonperforming loans and leases is based on discounting estimated
cash flows using a rate commensurate with the risk associated with the estimated
cash flows, or underlying collateral values, where appropriate.
Deposits - The fair value of certificates of deposit and other time deposits is
calculated based on the discounted value of contractual cash flows. The discount
rate is estimated using the rates currently offered for like deposits with
similar remaining maturities.
Other short-term borrowings - A reasonable estimate of the fair value of federal
funds sold is the carrying amount because of the relatively short period of time
between the origination of the instrument and its expected maturity.
The fair value of the Company's securities sold under repurchase agreements is
calculated based on the discounted value of contractual cash flows. The discount
rate is estimated using the rates currently offered for such instruments with
similar remaining maturities.
Commitment to extend credit - The majority of the Company's commitments to
extend credit carry variable and current market interest rates if converted to
loans or leases. Because these commitments are generally unassignable by either
the Company or the borrower, they only have value to the Company and the
borrower. The estimated fair value approximates the recorded deferred fee
amounts and is excluded from the table.
Derivative financial instruments - The fair value of the interest rate floor
generally reflects the estimated amounts the Company would receive based upon
dealer quotes, to terminate such agreements at the reporting date.
NOTE 16 - SJNB Financial Corp.
(Parent Company Only)
The following are the financial statements of SJNB Financial Corp. (parent
company only):
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Balance Sheets
December 31, 1999 and 1998
(dollars in thousands) 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------
Assets
<S> <C> <C>
Cash and equivalents $1,141 $50
Investment in the Bank 36,341 34,603
Other assets 347 829
- ----------------------------------------------------------------------------------------------------------------------------
Total assets $37,829 $35,482
============================================================================================================================
Liabilities and Shareholders' Equity
Total liabilities-Accounts payable ----- -----
- ----------------------------------------------------------------------------------------------------------------------------
Common stock $15,796 $16,776
Retained earnings 22,883 18,406
Net unrealized (loss) gain on securities available for sale (850) 300
- ----------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 37,829 35,482
- ----------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $37,829 $35,482
============================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Statements of Income
Years Ended December 31, 1999, 1998 and 1997
(dollars in thousands) 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash dividend received from Bank $3,779 $4,470 $2,600
Interest income and fees on loans 11 8 13
Other expense (202) (118) (84)
- ----------------------------------------------------------------------------------------------------------------------------
Income before taxes 3,588 4,360 2,529
Income tax benefit 75 45 28
- ----------------------------------------------------------------------------------------------------------------------------
Income before undistributed income of the Bank 3,663 4,405 2,557
Equity in undistributed income of the Bank 2,145 1,136 2,557
- ----------------------------------------------------------------------------------------------------------------------------
Net income $5,808 $5,541 $5,114
============================================================================================================================
Statements of Cash Flows
Years Ended December 31, 1999, 1998 and 1997
(dollars in thousands) 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $5,808 $5,541 $5,114
Adjustments to reconcile net income to net cash
used in operating activities:
Increase in other assets (213) (172) (19)
Equity in undistributed income of the Bank (2,145) (1,136) (2,557)
- ----------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 3,450 4,233 2,538
- ----------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Cash dividend (1,330) (1,390) (1,123)
Common stock repurchased (3,104) (3,498) (2,495)
Stock options exercised 2,075 529 206
- ----------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (2,359) (4,359) (3,412)
- ----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and equivalents 1,091 (126) (874)
Cash and equivalents at beginning of year 50 176 1,050
- ----------------------------------------------------------------------------------------------------------------------------
Cash and equivalents at end of year $1,141 $50 $176
============================================================================================================================
Noncash transaction:
Contribution of stock used in the acquisition of Epic Funding Corp. ----- $501 -----
============================================================================================================================
</TABLE>
NOTE 17 - Regulatory Matters
The Federal Reserve Board, the Comptroller of the Currency and the FDIC have
issued substantially similar risk-based and leverage capital guidelines
applicable to United States banking organizations. In addition, those regulatory
agencies may from time to time require that a banking organization maintain
capital above the minimum levels, whether because of its financial condition or
actual or anticipated growth.
The Federal Reserve Board risk-based guidelines define a two-tier capital
framework. Tier 1 capital consists of common and qualifying preferred
shareholders' equity, less certain intangibles and other adjustments. Tier 2
capital consists of subordinated and other qualifying debt, and the allowance
for loan and lease losses up to 1.25% of risk weighted assets. The total of Tier
1 and Tier 2 capital, less investments in unconsolidated subsidiaries,
represents qualifying total capital, at least 50% of which must consist of Tier
1 capital. Risk-based capital ratios are calculated by dividing Tier 1 and total
capital by risk-weighted assets. Assets and off-balance sheet exposures are
assigned to one of four categories of risk-weights, based primarily on relative
credit risk. The minimum tier 1 risk-based capital ratio is 4% and the minimum
total risk-based capital ratio is 8%. The leverage capital ratio is determined
by dividing Tier 1 capital by adjusted average total assets. Although the stated
minimum leverage capital ratio is 3%, most banking organizations are required to
maintain leveraged capital ratios of at least 100 to 200 basis points above the
3%.
The table below summarizes the Tier 1 and total risk-based capital ratios and
leverage capital ratios of the Company and the Bank as of the dates indicated:
<TABLE>
<CAPTION>
Risk-based and Leverage Capital Ratios
(dollars in thousands)
December 31, 1999 December 31, 1998
----------------------------------------------------------------------
Company-Risk-based Amount Ratio Amount Ratio
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Tier 1 capital $34,971 9.80% $30,798 10.56%
Tier 1 capital minimum requirement 14,274 4.00 11,664 4.00
----------------------------------------------------------------------
Excess $20,697 5.80% $19,134 6.56%
======================================================================
Total capital $39,442 11.05% $34,457 11.82%
Total capital minimum requirement 28,549 8.00 23,328 8.00
----------------------------------------------------------------------
Excess $10,893 3.05% $11,129 3.82%
======================================================================
Risk-adjusted assets $356,861 $291,602
================= =================
Company-Leverage
Tier 1 capital $34,971 8.36% $30,798 9.10%
Minimum leverage ratio requirement 16,727 4.00 13,542 4.00
----------------------------------------------------------------------
Excess $18,244 4.36% $17,256 5.10%
======================================================================
Average total assets $418,177 $338,544
================= =================
Bank-Risk-based
Tier 1 capital $33,421 9.46% $30,125 10.33%
Tier 1 capital minimum requirement 14,132 4.00 11,661 4.00
----------------------------------------------------------------------
Excess $19,288 5.46% $18,464 6.33%
----------------------------------------------------------------------
Total capital $37,848 10.71% $33,783 11.59%
Total capital minimum requirement 28,265 8.00 23,322 8.00
----------------------------------------------------------------------
Excess $9,583 2.71% $10,461 3.59%
======================================================================
Risk-adjusted assets $353,307 $291,524
================= =================
Bank-Leverage
Tier 1 capital $33,421 7.99% $30,125 8.88%
Minimum leverage ratio requirement 16,729 4.00 13,567 4.00
----------------------------------------------------------------------
Excess $16,692 3.99% $16,558 4.88%
======================================================================
Average total assets $418,230 $339,166
================= =================
</TABLE>
The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"),
among other things, identifies five capital categories for insured depository
institutions, (well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized and critically undercapitalized) and requires the
respective Federal regulatory agencies to implement systems for "prompt
corrective action" for insured depository institutions that do not meet minimum
capital requirements within such categories. FDICIA imposes progressively more
restrictive constraints on operations, management and capital distributions,
depending on the category in which an institution is classified. Failure to meet
the capital guidelines could also subject a banking institution to capital
raising requirements. An "undercapitalized" bank must develop a capital
restoration plan and its parent holding company must guarantee the bank's
compliance with the plan. The liability of the parent holding company under any
such guarantee is limited to the lesser of 5% of the bank's assets at the time
it became "undercapitalized" or the amount needed to comply with the plan.
Furthermore, in the event of the bankruptcy of the parent holding company, such
guarantee would take priority over the parent's general unsecured creditors.
The various regulatory agencies have adopted substantially similar regulations
that define the five capital categories identified by FDICIA, using the total
risk-based capital, Tier 1 risk-based capital and leverage capital ratios as the
relevant capital measures. Such regulations establish various degrees of
corrective action to be taken when an institution is considered
undercapitalized. Under the regulations, a "well capitalized" institution must
have a Tier 1 capital ratio of at least 6%, a total capital ratio of at least
10% and a leverage ratio of at least 5% and not be subject to a capital
directive order. An "adequately capitalized" institution must have a Tier 1
capital ratio of at least 4%, or 3% in some cases. Under these guidelines, the
Company and the Bank were considered well capitalized at December 31, 1999 and
1998.
Banking agencies have recently adopted final regulations which mandate that
regulators take into consideration concentrations of credit risk and risks from
non-traditional activities, as well as an institution's ability to manage those
risks, when determining the adequacy of an institution's capital. This
evaluation will be made as part of the institution's regular safety and
soundness examination. Banking agencies also have recently adopted final
regulations requiring regulators to consider interest rate risk (when the
interest rate sensitivity of an institution's assets does not match the
sensitivity of its liabilities or its off-balance-sheet position) in evaluation
of a bank's capital adequacy. Concurrently, banking agencies have proposed a
methodology for evaluating interest rate risk. After gaining experience with the
proposed measurement process, those banking agencies intend to propose further
regulations to establish an explicit risk-based capital charge for interest rate
risk.
The ability of the Company to pay dividends largely depends upon the dividends
paid to it by the Bank. There are legal limitations on the ability of the Bank
to provide funds to the Company in the form of loans, advances or dividends.
Under national banking law, without the prior approval of the Comptroller of the
Currency, the Bank may not declare dividends in any calendar year that exceed
the Bank's net profits for that year, as defined by statute, combined with its
net retained profits, as defined, for the preceding two years. As of December
31, 1999, the Bank may initiate dividend payments without prior regulatory
approval of up to $7.1 million.
Note 18 - Subsequent Event - Acquisition of Saratoga Bancorp
On January 5, 2000, the Company acquired all of the outstanding shares of common
stock of Saratoga Bancorp, the parent company of Saratoga National Bank,
pursuant to an exchange of the Company's common stock for all common stock of
Saratoga Bancorp. Saratoga National Bank, headquartered in Saratoga, California,
operated three branches and as of the acquisition date had $142 million in
assets and $103 million in deposits. Saratoga's San Jose office, which was
located near SJNB's San Jose office was consolidated into SJNB's San Jose office
in January 2000. The shareholders of Saratoga received 0.70 shares of the
Company's common stock for each outstanding share of Saratoga common stock.
Based on the closing price of the Company's stock on January 5, 2000 of $29.125
the transaction is valued at approximately $34.2 million, excluding the value of
any unexercised options, and each Saratoga shareholder received SJNB common
stock valued at $20.39 per share. The merger has been accounted for as a pooling
of interests.
The following unaudited pro forma combined financial information, based on the
historical financial statements of the parties, summarizes the combined results
of operations of the Company and Saratoga Bancorp on a pooling of interests
basis, as if the combination had been consummated on January 1 of each of the
periods presented. These pro forma financials are simply arithmetical
combinations of the Company's and Saratoga Bancorp's separate financial results,
which do not reflect any direct costs or potential savings which are expected to
result from the consolidation of the operations and are not indicative of the
results of future operations. Excluded from the 1999 results of operations is
approximately $330, net of taxes, of costs directly related to the merger. No
assurances can be given with respect to the ultimate level of expense savings.
Earnings per share were calculated using the exchange ratio of .70 as described
above.
<TABLE>
<CAPTION>
(in thousands, except per share data)
- -----------------------------------------------------------------------------------------------------------
Unaudited As of or for the year ended December 31,
- -----------------------------------------------------------------------------------------------------------
1999 1998 1997
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total assets $568,202 $494,736 $455,963
Loans and leases 400,780 335,943 292,737
Deposits 473,734 405,857 361,391
Shareholders' equity 53,291 50,739 46,764
===========================================================================================================
Net interest income $27,471 $25,603 $23,562
Provision for loan and lease losses (861) (436) (705)
Other income 2,737 1,824 1,490
Other expense (16,691) (14,462) (12,888)
- -----------------------------------------------------------------------------------------------------------
Income before income taxes 12,656 12,529 11,459
Income taxes (4,949) (5,040) (4,749)
- -----------------------------------------------------------------------------------------------------------
Net income $7,707 $7,489 $6,710
===========================================================================================================
Net income per share - basic $2.21 $2.06 $1.86
Net income per share - diluted 2.07 1.92 1.74
===========================================================================================================
</TABLE>
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- --------------------------------------------------------------------------------
FINANCIAL DISCLOSURE
- --------------------
Not applicable.
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------------------------------
Information concerning directors, executive officers, promoters and control
persons and compliance with Section 16(a) of the Exchange Act is incorporated by
reference to the text under the captions "Election of Directors," "Executive
Compensation and Transactions with Directors and Officers" and "Section 16(a)
Beneficial Ownership Reporting Compliance" in the Registrant's Proxy Statement
for its 1999 Annual Meeting of Shareholders.
ITEM 11: EXECUTIVE COMPENSATION
- --------------------------------
Information concerning executive compensation is incorporated by reference to
the text under the caption "Executive Compensation and Transactions with
Directors and Officers" in the Registrant's Proxy Statement for its 2000 Annual
Meeting of Shareholders.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- ------------------------------------------------------------------------
Information concerning security ownership of certain beneficial owners and
management is incorporated by reference to the text under the captions "Security
Ownership of Directors and Management" and "Security Ownership of Certain
Beneficial Owners" in the Registrant's Proxy Statement for its 2000 Annual
Meeting of Shareholders.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------
Information concerning certain relationships and related transactions is
incorporated by reference to the text under the caption "Executive Compensation
and Transactions with Directors and Officers" of the Registrant's Proxy
Statement for its 2000 Annual Meeting of Shareholders.
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
- -------------------------------------------------------------------------
(a) 1. All Financial Statements
See Index to Financial Statements on page 35 hereof.
(a) 2. Financial statements schedules required. None. (Information included in
Financial Statements).
(a) 3. Exhibits
The following exhibits are filed as part of this report:
Exhibit Number
(2)a. Agreement and Plan of Merger by and among the Registrant, Saratoga
Bancorp and Saratoga National Bank, dates as of August 27, 1999, is
hereby incorporated by reference to Exhibit 2.1 of the Registrant's
Registration Statement on Form S-4 as filed on October 14, 1999, under
Registration No. 333-89013.
(3)(i). The Registrant's Restated Articles of Incorporation, as amended are
hereby incorporated by reference to Exhibit (3) a. of the Registrant's
Quarterly Report on Form 10-Q for the quarterly period ended June 30,
1999.
(3)(ii). The Registrant's restated Bylaws, as amended as of January 26, 2000
and February 23, 2000.
*(10)a. The Registrant's 1992 Employee Stock Option Plan is hereby
incorporated by reference from Exhibit 4.1 of the Registrant's on Form
S-8, as filed on September 4, 1992, under Registration No. 33-51740.
*(10)b. Amendment No. 1 to the 1992 Employee Stock Option Plan is hereby
incorporated by reference from Exhibit (10) b. of the Registrants
Annual Report on Form 10-K for the fiscal year ended December 31,
1998.
*(10)c. The form of Incentive Stock Option Agreement being utilized under the
1992 Employee Stock Option Plan is hereby incorporated by reference
from Exhibit 4.2 of the Registrant's Registration Statement on Form
S-8, as filed on September 4, 1992, under Registration No. 33-51740.
*(10)d. The form of Stock Option Agreement being utilized under the 1992
Employee Stock Option Plan is hereby incorporated by reference from
Exhibit 4.3 of the Registrant's Registration Statement on Form S-8, as
filed on September 4, 1992, under Registration No. 33-51740.
*(10)e. The Registrant's Amended 1996 Stock Option Plan is incorporated by
reference to Exhibit 99.1 of the Registrant's Form S-8 filed June 15,
1999, under Registration No. 333-80683.
*(10)f. The form of Nonstatutory Stock Option Agreement for outside Directors
being utilized under the Amended 1996 Stock Option Plan is hereby
incorporated by reference to Exhibit (10) f. of the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31,
1998.
*(10)g. The form of Nonstatutory Stock Option Agreement for Employees being
utilized under the Amended 1996 Stock Option Plan is hereby
incorporated by reference to Exhibit (10) g. of the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31,
1998.
*(10)h. The form of Incentive Stock Option Agreement being utilized under the
Amended 1996 Stock Option Plan is hereby incorporated by reference to
Exhibit (10) h. of the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1998.
*(10)i. The Saratoga Bancorp 1982 Stock Option Plan.
*(10)j. The Saratoga Bancorp 1994 Stock Option Plan (Amended).
*(10)k. Forms of Incentive Stock Option Agreement, Non-Statutory Stock Option
Agreement and Non-Statutory Stock Option Agreement for Outside
Directors.
*(10)l. Agreement between James R. Kenny and SJNB Financial Corp. and San Jose
National Bank dated March 27, 1996 is hereby incorporated by reference
to Exhibit (10) m. of the Registrant's Quarterly Report on Form 10-QSB
for the quarterly period ended March 31, 1996.
*(10)m. Agreement between Eugene E. Blakeslee and SJNB Financial Corp. and San
Jose National Bank dated March 27, 1996 is hereby incorporated by
reference to Exhibit (10) n. of the Registrant's Quarterly Report on
Form 10-QSB for the quarterly period ended March 31, 1996.
(10)n. Sublease dated April 5, 1982, for premises at 95 South Market Street,
San Jose, CA is hereby incorporated by reference to Exhibit (10) n. of
the Registrant's Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1994.
(10)o. Sublease by and between McWhorter's Stationary and San Jose National
Bank, dated July 6, 1995, and as amended August 11, 1995 and September
21, 1995, for premises at 95 South Market Street, San Jose CA is
hereby incorporated by reference to Exhibit (10) o. of the
Registrant's Quarterly Report on Form 10-QSB for the quarterly period
ended September 30, 1995.
(10)p. Agreement of Purchase and Sale dated July 27, 1988 for 12000
Saratoga-Sunnyvale Road, Saratoga, CA.
(10)q. Form of Director Supplemental Compensation Agreement dated September
24, 1998 between Saratoga National Bank and Robert G. Egan, John F.
Lynch III and V. Ronald Mancuso, respectively.
(10)r. Form of Director Life Insurance Endorsement Method Split Dollar Plan
Agreement dated September 24, 1998 between Saratoga National Bank and
Robert G. Egan, John F. Lynch III and V. Ronald Mancuso, respectively.
(10)s. Form of Director Surrogate Supplemental Compensation Agreement dated
September 24, 1998 between Saratoga National Bank and Victor E.
Aboukhater and William D. Kron, respectively.
(10)t. Form of Director Surrogate Life Insurance Endorsement Method Split
Dollar Plan Agreement dated September 24, 1998 between Saratoga
National Bank and Victor E. Aboukhater and William D. Kron,
respectively.
(10)u. Form of Officer Supplemental Compensation Agreement dated September
24, 1998 between Saratoga National Bank and Earl Lanna, Mary Rourke,
Sandra Swenson, Barbara Resop and Cathe Franklin, respectively.
(10)v. Form of Officer Life Insurance Endorsement Method Split Dollar Plan
Agreement dated September 24, 1998 between Saratoga National Bank and
Earl Lanna, Mary Rourke, Sandra Swenson, Barbara Resop and Cathe
Franklin, respectively.
(10)w. Richard L. Mount Executive Supplemental Compensation Agreement dated
September 24, 1998.
(10)x. Richard L. Mount Life Insurance Endorsement Method Split Dollar Plan
Agreement dated September 24, 1998.
(10)y. Richard L. Mount Executive Benefits Agreement dated June 18, 1999.
(22) Subsidiary of Registrant.
(23) Consent of KPMG LLP.
(27) Financial Data Schedule.
* Indicates management contract or compensation plan or arrangement.
(b) Reports on Form 8-K
Registrant: Current Report of Form 8-K filed on December 16, 1999.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Date: February 29, 2000 SJNB Financial Corp.
By: /s/J.R. Kenny By: /s/E.E. Blakeslee
--------------------------------- -----------------------------
James R. Kenny Eugene E. Blakeslee
President and Chief Executive Vice President &
Executive Officer Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
/s/ J.R. Kenny /s/ F.J. Gorry
- --------------------------------- ---------------------------------
James R. Kenny F. Jack Gorry, Director
President, Chief Executive Officer February 29, 2000
and Director
(Principal Executive Officer)
February 29, 2000
/s/ E.E. Blakeslee /s/ A.K. Lund
- --------------------------------- ---------------------------------
Eugene E. Blakeslee Arthur K. Lund, Director
Executive Vice President and February 29, 2000
Chief Financial Officer and
Chief Accounting Officer
(Principal Financial Officer and
Principal Accounting Officer
February 29, 2000
/s/ R.S. Akamine /s/ L. Oneal
- --------------------------------- ---------------------------------
Ray S. Akamine, Director Louis Oneal, Director
February 29, 2000 February 29, 2000
/s/ R.A. Archer /s/ D. Rubino
- --------------------------------- ---------------------------------
Robert A. Archer Diane Rubino, Director
Chairman and Director February 29, 2000
February 29, 2000
/s/ A.B. Bruno /s/ D.L. Shen
- --------------------------------- ---------------------------------
Albert V. Bruno, Director Douglas L. Shen, Director
February 29, 2000 February 29, 2000
/s/ R. Diridon /s/ G.S. Vandeweghe
- --------------------------------- ---------------------------------
Rod Diridon,Sr., Director Gary S. Vandeweghe
February 29, 2000 February 29, 2000
<PAGE>
SJNB Financial Corp.
Form 10-K
Exhibits
December 31, 1999
The following exhibits are filed as part of this report:
(2)a. Agreement and Plan of Merger by and among the Registrant, Saratoga
Bancorp and Saratoga National Bank, dates as of August 27, 1999, is
hereby incorporated by reference to Exhibit 2.1 of the Registrant's
Registration Statement on Form S-4 as filed on October 14, 1999, under
Registration No. 333-89013.
(3)(i). The Registrant's Restated Articles of Incorporation, as amended are
hereby incorporated by reference to Exhibit (3) a. of the Registrant's
Quarterly Report on Form 10-Q for the quarterly period ended June 30,
1999.
(3)(ii). The Registrant's restated Bylaws, as amended as of January 26, 2000
and February 23, 2000.
*(10)a. The Registrant's 1992 Employee Stock Option Plan is hereby
incorporated by reference from Exhibit 4.1 of the Registrant's
Registration Statement on Form S-8, as filed on September 4, 1992,
under Registration No. 33-51740.
*(10)b. Amendment No. 1 to the 1992 Employee Stock Option Plan is hereby
incorporated by reference from Exhibit (10) b. of the Registrants
Annual Report on Form 10-K for the fiscal year ended December 31,
1998.
*(10)c. The form of Incentive Stock Option Agreement being utilized under the
1992 Employee Stock Option Plan is hereby incorporated by reference
from Exhibit 4.2 of the Registrant's Registration Statement on Form
S-8, as filed on September 4, 1992, under Registration No. 33-51740.
*(10)d The form of Stock Option Agreement being utilized under the 1992
Employee Stock Option Plan is hereby incorporated by reference from
Exhibit 4.3 of the Registrant's Registration Statement on Form S-8, as
filed on September 4, 1992, under Registration No. 33-51740.
*(10)e. The Registrant's Amended 1996 Stock Option Plan is incorporated by
reference to exhibit 99.1 of the Registrant's Form S-8 filed June 15,
1999, under Registration No. 333-80683.
*(10)f. The form of Nonstatutory Stock Option Agreement for outside Directors
being utilized under the Amended 1996 Stock Option Plan is hereby
incorporated by reference to Exhibit (10) f. of the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31, 1998
*(10)g. The form of Nonstatutory Stock Option Agreement for Employees being
utilized under the Amended 1996 Stock Option Plan is hereby
incorporated by reference to Exhibit (10) g. of the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31,
1998.
*(10)h. The form of Incentive Stock Option Agreement being utilized under the
Amended 1996 Stock Option Plan is hereby incorporated by reference to
Exhibit (10) h. of the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1998.
*(10)i. The Saratoga Bancorp 1982 Stock Option Plan.
*(10)j. The Saratoga Bancorp 1994 Stock Option Plan (Amended).
*(10)k. Forms of Incentive Stock Option Agreement, Non-Statutory Stock Option
Agreement and Non-Statutory Stock Option Agreement for Outside
Directors.
*(10)l. Agreement between James R. Kenny and SJNB Financial Corp.and San Jose
National Bank dated March 27, 1996 is hereby incorporated by reference
to Exhibit (10) m. of the Registrant's Quarterly Report on Form 10-QSB
for the quarterly period ended March 31, 1996.
*(10)m. Agreement between Eugene E. Blakeslee and SJNB Financial Corp. and San
Jose National Bank dated March 27, 1996 is hereby incorporated by
reference to Exhibit (10) n. of the Registrant's Quarterly Report on
Form 10-QSB for the quarterly period ended March 31, 1996.
(10)n. Sublease dated April 5, 1982, for premises at 95 South Market Street,
San Jose, CA is hereby incorporated by reference to Exhibit (10) n. of
the Registrant's Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1994.
(10)o. Sublease by and between McWhorter's Stationary and San Jose National
Bank, dated July 6, 1995, and as amended August 11, 1995 and September
21, 1995, for premises at 95 South Market Street, San Jose CA is
hereby incorporated by reference to Exhibit (10) o. of the
Registrant's Quarterly Report on Form 10-QSB for the quarterly period
ended September 30, 1995.
(10)p. Agreement of Purchase and Sale dated July 27, 1988 for 12000
Saratoga-Sunnyvale Road, Saratoga, CA.
(10)q. Form of Director Supplemental Compensation Agreement dated September
24, 1998 between Saratoga National Bank and Robert G. Egan, John F.
Lynch III and V. Ronald Mancuso, respectively.
(10)r. Form of Director Life Insurance Endorsement Method Split Dollar Plan
Agreement dated September 24, 1998 between Saratoga National Bank and
Robert G. Egan, John F. Lynch III and V. Ronald Mancuso, respectively.
(10)s. Form of Director Surrogate Supplemental Compensation Agreement dated
September 24, 1998 between Saratoga National Bank and Victor E.
Aboukhater and William D. Kron, respectively.
(10)t. Form of Director Surrogate Life Insurance Endorsement Method Split
Dollar Plan Agreement dated September 24, 1998 between Saratoga
National Bank and Victor E. Aboukhater and William D. Kron,
respectively.
(10)u. Form of Officer Supplemental Compensation A greement dated September
24, 1998 between Saratoga National Bank and Earl Lanna, Mary Rourke,
Sandra Swenson, Barbara Resop and Cathe Franklin, respectively.
(10)v. Form of Officer Life Insurance Endorsement Method Split Dollar Plan
Agreement dated September 24, 1998 between Saratoga National Bank and
Earl Lanna, Mary Rourke, Sandra Swenson, Barbara Resop and Cathe
Franklin, respectively.
(10)w. Richard L. Mount Executive Supplemental Compensation Agreement dated
September 24, 1998.
(10)x. Richard L. Mount Life Insurance Endorsement Method Split Dollar Plan
Agreement dated September 24, 1998.
(10)y. Richard L. Mount Executive Benefits Agreement dated June 18, 1999.
(22) Subsidiary of Registrant.
(23) Consent of KPMG LLP.
(27) Financial Data Schedule.
* Indicates management contract or compensation plan or arrangement.
BYLAWS
OF
SJNB FINANCIAL CORP.
(Amended 2/23/2000)
ARTICLE I
Offices
Section 1. Principal Office. The Board of Directors shall fix the location of
the principal executive office of the corporation at any place within or outside
the State of California. If the principal executive office is located outside
this State, and the corporation has one or more business offices in this State,
the Board of Directors shall fix and designate a principal business office in
the State of California.
Section 2. Other Offices. Branch or other subordinate offices may at any time be
established by the Board at such other places as it deems appropriate.
ARTICLE II
Meetings of Shareholders
Section 1. Place of Meetings. Meetings of shareholders shall be held at any
place within or outside the State of California designated by the Board of
Directors. In the absence of any such designation, shareholders' meetings shall
be held at the principal executive office of the corporation.
Section 2. Annual Meeting. The annual meeting of shareholders shall be held on
the 4th Wednesday of May of each year at 10:00 a.m.., or such other date or such
other time as may be fixed by the Board of Directors. However, if this day falls
on a legal holiday, then the meeting shall be held at the same time and place on
the next succeeding full business day. At this meeting, directors shall be
elected, and any other proper business within the power of the shareholders may
be transacted.
Section 3. Special Meetings. Special meetings of the shareholders may be called
at any time by the Board, the Chairman of the Board, the President, or by the
holders of shares entitled to cast not less than ten percent (10%) of the votes
at such meeting. If a special meeting is called by any person or persons other
than the Board of Directors, the request shall be in writing, specifying the
time of such meeting and the general nature of the business proposed to be
transacted, and shall be delivered personally or by registered mail to the
Chairman of the Board, the President, any Vice President or the Secretary of the
corporation. The officer receiving the request shall cause notice to be promptly
given to the shareholders entitled to vote that a meeting will be held at a time
requested by the person or persons calling the meeting, not less than 35 nor
more than 60 days after the receipt of the request. If the notice is not given
within 20 days after receipt of the request, the person or persons requesting
the meeting may give the notice. Nothing in this paragraph shall be construed as
limiting, fixing or affecting the time when a meeting of shareholders called by
action of the Board of Directors may be held.
Section 4. Notice of Meetings. Written notice, in accordance with Section 5 of
this Article II, of each annual or special meeting of shareholders shall be
given not less than 10 nor more than 60 days before the date of the meeting to
each shareholder entitled to vote thereat. Such notice shall state the place,
date, and hour of the meeting and (a) in the case of a special meeting, the
general nature of the business to be transacted, and no other business may be
transacted, or (b) in the case of the annual meeting, those matters which the
Board, at the time of the mailing of the notice, intends to present for action
by the shareholders, but, subject to the provisions of applicable law, any
proper matter may be presented at the meeting for such action. The notice of any
meeting at which directors are to be elected shall include the names of nominees
intended at the time of the notice to be presented by management for election.
If action is proposed to be taken at any meeting for approval of (a) a contract
or transaction in which a director has a direct or indirect financial interest,
pursuant to Section 310 of the Corporations Code of California, (b) an amendment
of the Articles of Incorporation, pursuant to Section 902 of that Code, (c) a
reorganization of the corporation, pursuant to Section 1201 of that Code, (d) a
voluntary dissolution of the corporation, pursuant to Section 1900 of that Code,
or (e) a distribution in dissolution other than in accordance with the rights of
outstanding preferred shares, pursuant to Section 2007 of that Code, the notice
shall also state the general nature of that proposal.
Section 5. Manner of Giving Notice. Notice of a shareholders' meeting shall be
given either personally or by first-class mail or telegraphic or other written
communication, charges prepaid, addressed to the shareholder at the address of
that shareholder appearing on the books of the corporation or given by the
shareholder to the corporation for the purpose of notice. If no such address
appears on the corporation's books or is given, notice shall be deemed to have
been given if sent to that shareholder by first-class mail or telegraphic or
other written communication to the corporation's principal office or if
published at least once in a newspaper of general circulation in the county of
which that office is located. Notice shall be deemed to have been given at the
time when delivered personally or deposited in the mail or sent by telegram or
other means of written communication. An affidavit of mailing or other means of
giving any notice in accordance with the above provisions, executed by the
Secretary, Assistant Secretary or other transfer agent shall be prima facie
evidence of the giving of the notice or report.
Section 6. Quorum. The presence in person or by proxy of the holders of a
majority of the shares entitled to vote at any meeting shall constitute a quorum
for the transaction of business. The shareholders present at a duly called or
held meeting at which a quorum is present may continue to transact business
until adjournment, notwithstanding the withdrawal of enough shareholders to
leave less than a quorum, if any action taken (other than adjournment) is
approved by at least a majority of the shares required to constitute a quorum.
Section 7. Adjourned Meeting and Notice Thereof. Any shareholders' meeting,
whether or not a quorum is present, may be adjourned from time to time by the
vote of a majority of the shares, the holders of which are either present in
person or represented by proxy thereat, but in the absence of a quorum (except
as provided in Section 6 of this Article) no other business may be transacted at
such meeting.
When any meeting of shareholders, either annual or special, is adjourned to
another time or place, notice need not be given of the adjourned meeting if the
time and place are announced at the meeting at which the adjournment is taken.
However, when any shareholders' meeting is adjourned for more than 45 days from
the date set for the original meeting, or, if after adjournment a new record
date is fixed for the adjourned meeting, notice of the adjourned meeting shall
be given as in the case of an original meeting. At any adjourned meeting the
corporation may transact any business which may have been transacted at the
original meeting.
Section 8. Voting. The shareholders entitled to notice of any meeting or to vote
at any such meeting shall be only persons in whose name shares stand on the
stock records of the corporation on the record date determined in accordance
with Section 10 of this Article.
Voting shall in all cases be subject to the provisions of Section 702 through
704, inclusive, of the California General Corporation Law (relating to voting
shares held by a fiduciary, in the name of a corporation, or in joint
ownership).
The shareholders' vote may be by voice or ballot; provided, however, that any
election for directors must be by ballot if demanded by any shareholder before
the voting has begun. On any matter other than elections of directors, any
shareholder may vote part of the shares in favor of the proposal and refrain
from voting the remaining shares or vote them against the proposal (other than
the election of directors), but, if the shareholder fails to specify the number
of shares which the shareholder is voting affirmatively, it will be conclusively
presumed that the shareholder's approving vote is with respect to all shares
that the shareholder is entitled to vote. If a quorum is present, the
affirmative vote of the majority of the shares represented at the meeting and
entitled to vote on any matter (other than the election of directors) shall be
the act of the shareholders, unless the vote of a greater number or voting by
classes is required by the California General Corporation Law or by the Articles
of Incorporation.
No shareholder shall be entitled to cumulate votes for any candidate or
candidates.
In any election of directors, the candidates receiving the highest number of
votes of the shares entitled to be voted for them up to the number of directors
to be elected, shall be elected.
Section 9. Nominations for Directors. Nominations for election to the Board of
Directors may be made by the Board or by any shareholder entitled to vote in the
election of directors. Nominations, other than those made by or on behalf of the
existing management of the corporation, shall be made in writing and shall be
mailed or delivered to the President of the corporation not less than 14 days
nor more than 50 days prior to any meeting of shareholders called for the
election of directors; provided, however, that if less than 21 days' notice of
the meeting is given to shareholders, such nomination shall be mailed or
delivered to the President of the corporation not later than the close of
business on the seventh day following the date on which the notice of meeting
was mailed. Such written nomination shall include the following information to
the extent known to the nominating shareholder: (a) the name and address of each
proposed nominee; (b) the principal occupation of each proposed nominee; (c) the
total number of voting shares that will be voted for each proposed nominee; (d)
the name and residence address of the nominating shareholder; and (e) the number
of shares of voting stock of the corporation owned by the nominating
shareholder. Nominations not made in accordance herewith may, in his discretion,
be disregarded by the Chairman of the meeting, and upon his instructions, the
inspectors of election may disregard all votes cast for each such nominee.
Section 10. Record Date. The Board may fix, in advance, a record date for the
determination of the shareholders entitled to notice of any meeting or to vote
or entitled to receive payment of any dividend or other distribution, or any
allotment of rights, or to exercise rights in respect to any other lawful
action. The record date so fixed shall be not more than 60 days nor less than 10
days prior to the date of the meeting nor more than 60 days prior to any other
action. When a record date is so fixed, only shareholders of record on that date
are entitled to notice of and to vote at the meeting or to receive the dividend,
distribution, or allotment of rights, or to exercise of the rights, as the case
may be, notwithstanding any transfer of shares on the books of the corporation
after the record date. A determination of shareholders of record entitled to
notice of or to vote at a meeting of shareholders shall apply to any adjournment
of the meeting unless the Board fixes a new record date for the adjourned
meeting. The Board shall fix a new record date if the meeting is adjourned for
more than 45 days.
If no record date is fixed by the Board, the record date for determining
shareholders entitled to notice of or to vote at a meeting of shareholders shall
be at the close of business on the business day next preceding the date on which
the meeting is held. The record date for determining shareholders for any
purpose other than set forth in this Section 10 or Section 12 of this Article
shall be at the close of business of the day on which the Board adopts the
resolution relating there-to, or the sixtieth day prior to the date of such
other action, whichever is later.
Section 11. Consent of Absentees. The transactions of any meeting of
shareholders, however called and noticed, and wherever held, are as valid as
though had at a meeting duly held after regular call and notice, if a quorum is
present either in person or by proxy, and if, either before or after the
meeting, each of the persons entitled to vote, not present in person or by
proxy, signs a waiver of notice, or a consent to the holding of the meeting or
an approval of the minutes thereof. All such waivers, consents, or approvals
shall be filed with the corporate records or made a part of the minutes of the
meeting. 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, except that if action is taken or proposed to be taken for approval of
any of those matters specified in the second paragraph of Section 4 of this
Article II, the waiver of notice or consent shall state the general nature of
the proposal.
Section 12. Action by Written Consent Without a Meeting. Subject to the
Corporation's Articles of Incorporation and Section 603 of the California
General Corporation Law, any action which may be taken at any annual or special
meeting of shareholders may be taken without a meeting and without prior notice
if a consent in writing, setting forth the action so taken, is signed by the
holders of the outstanding shares 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, or their
proxies; provided, however, that the board of directors of this corporation, by
resolution, shall have previously approved any such action. All such consents
shall be filed with the Secretary of the corporation and shall be maintained in
the corporate records. Provided, however, that (1) unless the consents of all
shareholders entitled to vote have been solicited in writing, notice of any
shareholder approval without a meeting by less than unanimous written consent
shall be given, as provided by Section 603(b) of the California Corporations
Code, and (2) in the case of election of directors, such a consent shall be
effective only if signed by the holders of all outstanding shares entitled to
vote for the election of directors; provided, however, that subject to
applicable law, a director may be elected at any time to fill a vacancy on the
Board of Directors that has not been filled by the directors, by the written
consent of the holders of a majority of the outstanding shares entitled to vote
for the election of directors. Any written consent may be revoked by a writing
received by the Secretary of the corporation prior to the time that written
consents of the number of shares required to authorize the proposed action have
been filed with the Secretary.
Unless a record date for voting purposes be fixed as provided in Section 10 of
the Article, the record date for determining shareholders entitled to give
consent pursuant to this Section 12, when no prior action by the Board has been
taken, shall be the day on which the first written consent is given.
Section 13. Proxies. Every person entitled to vote shares or execute written
consents has the right to do so either in person or by one or more persons
authorized by a written proxy executed and dated by such shareholder and filed
with the Secretary of the corporation prior to the convening of any meeting of
the shareholders at which any such proxy is to be used or prior to the use of
such written consent. A validly executed proxy which does not state that it is
irrevocable continues in full force and effect unless (1) revoked by the person
executing it, before the vote pursuant thereto, by a writing delivered to the
corporation stating that the proxy is revoked or by a subsequent proxy executed
by, or by attendance at the meeting and voting in person by, the person
executing the proxy; or (2) written notice of the death or incapacity of the
maker of the proxy is received by the corporation before the vote pursuant
thereto is counted; provided, however, that no proxy shall be valid after the
expiration of 11 months from the date of its execution unless otherwise provided
in the proxy.
Section 14. Inspectors of Election. In advance of any meeting of shareholders,
the Board may appoint any persons other than nominees for office as inspectors
of election to act at such meeting and any adjournment thereof. If no inspectors
of election are so appointed, or if any persons so appointed fail to appear or
fail or refuse to act, the Chairman of any such meeting may, and on the request
of any shareholder or shareholder's proxy shall, appoint inspectors of election
at the meeting. The number of inspectors shall be either one (1) or three (3).
If inspectors are appointed at a meeting on the request of one or more
shareholders or proxies, the holders of a majority of shares or their proxies
present shall determine whether one (1) or three (3) inspectors are to be
appointed.
The duties of such inspectors shall be as prescribed by Section 707(b) of the
California General Corporation Law and shall include: determining the number of
shares outstanding and the voting power of each; the shares represented at the
meeting; the existence of a quorum; the authenticity, validity and effect of
proxies; receiving votes, ballots or consents; hearing and determining all
challenges and questions in any arising in connection with the right to vote;
counting and tabulating all votes or consents, determining when the polls shall
close; determining the result; and doing such acts as may be proper to conduct
the election or vote with fairness to all shareholders. If there are three
inspectors of election, the decision, act, or certificate of a majority is
effective in all respects as the decision, act, or certificate of all.
ARTICLE III
Directors
Section 1. Powers. Subject to the provisions of the California General
Corporation Law and any limitations in the Articles of Incorporation and these
Bylaws 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 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 without prejudice to such general powers, but subject to the same
limitations, it is hereby expressly declared that the Board shall have the
following powers in addition to the other powers enumerated in these Bylaws:
(a) To select and remove all the other officers, agents, and employees of the
corporation, prescribe any powers and duties for them that are consistent
with law, or with the Articles or these Bylaws, fix their compensation, and
require from them security for faithful service.
(b) To conduct, manage, and control the affairs and business of the corporation
and to make such rules and regulations therefor not inconsistent with law,
or with the Articles or these Bylaws, as they may deem best.
(c) To adopt, make, and use a corporate seal, and to prescribe the forms of
certificates of stock, and to alter the form of such seal and of such
certificates from time to time as in their judgment they may deem best.
(d) To authorize the issuance of shares of stock of the corporation from time
to time, upon such terms and for such consideration as may be lawful.
(e) To borrow money and incur indebtedness for the purposes of the corporation,
and to cause to be executed and delivered therefor, in the corporate name,
promissory and capital notes, bonds, debentures, deeds of trust, mortgages,
pledges, hypothecations, or other evidences of debt and securities therefor
and any agreements pertaining thereto.
(f) To prescribe the manner in which and the person or persons by whom any or
all of the checks, drafts, notes, contracts and other corporate instruments
shall be executed.
(g) To appoint and designate, by resolution adopted by a majority of the
authorized number of directors, one or more committees, each consisting of
two or more directors, including the appointment of alternate members of
any committee who may replace any absent member at any meeting of the
committee.
Section 2. Number and Qualification of Directors. The authorized number of
directors shall be not less than nine (9) nor more than seventeen (17) until
changed by an amendment to this Bylaw adopted by the vote or written consent of
holders of a majority of the outstanding shares entitled to vote. The exact
number of directors shall be sixteen (16), until changed, within the limits
specified above, by a bylaw amending this Section 2, duly adopted by the Board
of Directors or by the shareholders.
No person (except, in respect to the limitation in clause (a) below, of this
Section 2.3, or any person who shall be a member of the Board of Directors of
this Corporation on the date these Bylaws shall be adopted) shall be a member of
the Board of Directors of this Corporation (a) who has not been a resident, for
a period of at least one (1) year immediately prior to his election, of a state
in which the Corporation or any of its subsidiaries maintains an office, or (b)
who owns, together with his family residing with him, directly or indirectly,
more than one percent (1%) of the outstanding shares of any banking corporation,
affiliate or subsidiary thereof, or bank holding company engaged in business in
California, other than the Corporation or any of its subsidiaries or affiliates,
or (c) who is a director, officer, employee, agent, nominee, or attorney of any
banking corporation, affiliate or subsidiary thereof, or bank holding company
engaged in business in California, other than the Corporation or any of its
subsidiaries or affiliates, or (d) who has or is the nominee of anyone who has a
contract, arrangement or understanding with any banking corporation, or
affiliate or subsidiary thereof, or bank holding company, other than the
Corporation or any of its subsidiaries or affiliates, or with any officer,
director, employee, agent, nominee, attorney or other representative thereof
that he will reveal or in any way utilize information obtained as a director or
that he will, directly or indirectly, attempt to effect or encourage any action
of the Corporation.
Section 3. Election and Term of Office. In the event that the authorized number
of directors shall be fixed at nine (9) or more, the Board of Directors shall be
divided into three classes, designated Class I, Class II and Class III. Each
class shall consist of one-third of the directors or as close an approximation
as possible. The initial term of office of the directors of Class I shall expire
at the annual meeting to be held during fiscal year 2000, the initial term of
office of the directors of Class II shall expire at the annual meeting to be
held during fiscal year 2001 and the initial term of office of the directors of
Class III shall expire at the annual meeting to be held during fiscal year 2002.
At each annual meeting, commencing with the annual meeting to be held during
fiscal year 2000, each of the successors to the directors of the class whose
term shall have expired at such annual meeting shall be elected for a term
running until the third annual meeting next succeeding his or her election until
his or her successor shall have been duly elected and qualified. In the event
that the authorized number of directors shall be fixed with at least six (6) but
less than nine (9), the Board of Directors shall be divided into two classes,
designated Class I and Class II. Each class shall consist of one-half of the
directors or as close an approximation as possible. At each annual meeting, each
of the successors to the directors of the class whose term shall have expired at
such annual meeting shall be elected for a term running until the second annual
meeting next succeeding his or her election and until his or her successor shall
have been duly elected and qualified. Notwithstanding the rule that the classes
shall be as nearly equal in number of directors as possible, in the event of any
change in the authorized number of directors, each director then continuing to
serve as such shall nevertheless continue as a director of the class of which he
or she is a member until the expiration of his or her current term, or his or
her prior death, resignation or removal. At each annual election, the directors
chosen to succeed those whose terms then expire shall be of the same class as
the directors they succeed, unless, by reason of any intervening changes in the
authorized number of directors, the Board of Directors shall designate one or
more directorships whose term then expires as directorships of another class in
order more nearly to achieve equality of number of directors among the classes.
This section only may be amended or repealed by approval of the Board of
Directors and the outstanding shares (as defined in Section 152 of the
California General Corporation Law) voting as a single class, notwithstanding
Section 903 of the California General Corporation Law.
Section 4. Vacancies. Any director may resign effective upon giving written
notice to the Chairman of the Board, the President, the Secretary, or the Board,
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.
Vacancies in the Board may be filled by a majority of the remaining directors,
though less than a quorum, or by a sole remaining director, and each director so
elected shall hold office until the next annual meeting and until such
director's successor has been elected and qualified. Provided, however, that a
vacancy in the Board existing as the result of a removal of a director may not
be filled by the directors, unless the Articles or a bylaw adopted by the
shareholders so provides.
The Board may declare vacant the office of a director who has been declared of
unsound mind by an order of court or convicted of a felony.
The shareholders may elect a director or directors at any time to fill any
vacancy or vacancies not filled by the directors. Any such election by written
consent, other than to fill a vacancy created by removal, requires the consent
of a majority of the outstanding shares entitled to vote. Any such election by
written consent to fill a vacancy created by removal requires the unanimous
consent of the outstanding shares entitled to vote. If the Board accepts the
resignation of a director tendered to take effect at a future time, the Board or
the shareholders shall have power to elect a successor to take office when the
resignation is to become effective.
Section 5. Place of Meeting. Regular meetings of the Board shall be held at any
place within the State of California which has been designated in the notice of
meeting or if there is no notice, at the principal office of the corporation, or
at a place designated by resolution of the Board or by the written consent of
the Board. Any regular or special meeting is valid wherever held if held upon
written consent of all members of the Board given either before or after the
meeting and filed with the Secretary of the corporation.
Section 6. Regular Meetings. Immediately following each annual meeting of
shareholders and at the same place, the Board shall hold a regular meeting for
the purpose of organization, any desired election of officers, and the
transaction of other business. Notice of this meeting shall not be required.
Other regular meetings of the Board shall be held without notice either on the
4th Wednesday of each month, at the hour of 8:30 a.m., or at such different date
and time as the Board may from time to time fix by resolution; provided,
however, should said day fall upon a legal holiday observed by the corporation
at its principal office, the said meeting shall be held at the same time and
place on the next succeeding full business day. Call and notice of all regular
meetings of the Board are hereby dispensed with.
Section 7. Special Meetings. Special meetings of the Board for any purpose or
purposes may be called at any time by the Chairman of the Board, the President,
or the Secretary or by any two directors.
Special meetings of the Board shall be held upon four days written notice by
mail or 24 hours notice delivered personally or by telephone or telegraph or by
facsimile. Any such notice shall be addressed or delivered to each director at
such director's address as it is shown upon the records of the corporation or as
may have been given to the corporation by the director for purposes of notice
or, if such address is not shown on such records or is not readily
ascertainable, at the place in which the meetings of the directors are regularly
held. Such notice may, but need not, specify the purpose of the meeting, nor the
place if the meeting is to be held at the principal office of the corporation.
Notice of any meeting of the Board need not be given to any director who attends
the meeting without protesting either prior thereto or at its commencement, the
lack of notice to such director.
Notice by mail shall be deemed to have been given at the time a written notice
is deposited in the United States mail, postage prepaid. Any other written
notice shall be deemed to have been given at the time it is personally delivered
to the recipient or is delivered to a common carrier for transmission, or
actually transmitted by the person giving the notice by electronic means, to the
recipient. Oral notice shall be deemed to have been given at the time it is
communicated, in person or by telephone or wireless, to the recipient or to a
person at the office of the recipient who the person giving the notice has
reason to believe will promptly communicate it to the recipient.
Section 8. Quorum. A majority of the authorized number of directors constitutes
a quorum of the Board for the transaction of business, except to adjourn as
hereinafter provided. Every act or decision done or made by a majority of the
directors present at a meeting duly held at which a quorum is present shall be
regarded as the act of the Board, unless a greater number be required by the
Articles and subject to the provisions of Section 310 of the California General
Corporation Law (as to approval of contracts or transactions in which a director
has a direct or indirect material financial interest), Section 311 (as to
appointment of committees), and Section 317(e) (as to indemnification of
directors). A meeting at which a quorum is initially present may continue to
transact business notwithstanding the withdrawal of directors, if any action
taken is approved by at least a majority of the required quorum for such
meeting.
Section 9. Participation in Meetings by Conference Telephone. Members of the
Board may participate in a meeting through use of a conference telephone or
similar communications equipment, so long as all members participating in such
meeting can hear one another. Participation in a meeting pursuant to Section 9
constitutes "presence" in person at such meeting.
Section 10. Waiver of Notice. The transactions of any meeting of the Board,
however called and noticed or wherever held, are as valid as though had at a
meeting duly held after regular call and notice if a quorum is present and if,
either before or after the meeting, each of the directors not present signs a
written waiver of notice, a consent to holding such meeting or an approval of
the minutes thereof. All such waivers, consents, or approvals shall be filed
with the corporate records or made a part of the minutes of the meeting
Section 11. Adjournment. A majority of the directors present, whether or not a
quorum is present, may adjourn any directors' meeting to another time and place.
Notice of the time and place of holding an adjourned meeting need not be given,
unless the meeting is adjourned for more than twenty-four hours, in which case
notice of the time and place shall be given before the time of the adjourned
meeting, in the manner specified in Section 7 of this Article III, to the
directors who were not present at the time of the adjournment.
Section 12. Action Without Meeting. Any action required or permitted to be taken
by the Board may be taken without a meeting if all members of the Board shall
individually or collectively consent in writing to such action. Such action by
written consent shall have the same effect as a unanimous vote of the Board.
Such consent or consents shall be filed with the minutes of the proceedings of
the Board.
Section 13. 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. This
Section shall not be construed to preclude any director from serving the
corporation in any other capacity as an officer, agent, employee, or otherwise,
and receiving compensation for those services.
Section 14. Rights of Inspection. Every director of the corporation shall have
the absolute right at any reasonable time to inspect and copy all books,
records, and documents of every kind and to inspect the physical properties of
the corporation and also of its subsidiary corporations, domestic or foreign.
Such inspection by a director may be made in person or by agent or attorney and
includes the right to copy and obtain extracts.
ARTICLE IV
Officers
Section 1. Officers. The officers of the corporation shall be a president, a
secretary, and a chief financial officer. The corporation may also have, at the
discretion of the Board, a chairman of the board, a vice chairman of the board,
one or more vice presidents, one or more assistant vice presidents, one or more
assistant treasurers, one or more assistant secretaries and such other officers
as may be elected or appointed in accordance with the provisions of Section 3 of
this Article. One person may hold two or more offices, except those of president
and chief financial officer.
Section 2. Election. The officers of the corporation, except such officers as
may be elected or appointed in accordance with the provisions of Section 3 or
Section 5 of this Article, shall be chosen by, and shall serve at the pleasure
of, the Board, and shall hold their respective offices until their resignation,
removal, or other disqualification from service, or until their respective
successors shall be elected, subject to the rights, if any, of an officer under
any contract of employment.
Section 3. Subordinate Officers. The Board may elect, and may empower the
President to appoint, such other officers as the business of the corporation may
require, each of whom shall hold office for such period, have such authority,
and perform such duties as are provided in these Bylaws or as the Board may from
time to time determine.
Section 4. Removal and Resignation. Subject to the rights, if any, of an officer
under any contract of employment, any officer may be removed, either with or
without cause, by the Board at any time, or, except in the case of an officer
chosen by the Board, by any officer upon whom such power of removal may be
conferred by the Board.
Any officer may resign at any time by giving written notice to the corporation,
but without prejudice to the rights, if any, of the corporation under any
contract to which the officer is a party. Any such resignation shall take effect
at the date of the receipt of such notice or at any later time specified
therein; and, unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
Section 5. Vacancies. A vacancy in any office because of death, resignation,
removal, disqualification or any other cause shall be filled in the manner
prescribed in these Bylaws for regular election or appointment to such office.
Section 6. Chairman of the Board. The Chairman of the Board, if there shall be
such an officer, shall, if present, preside at all meetings of the Board and of
the shareholders, and exercise and perform such other powers and duties as may
be from time to time assigned by the Board.
Section 7. Vice Chairman. The Vice Chairman of the Board, if there shall be such
an officer, shall, in the absence of the Chairman of the Board of Directors,
preside at all meetings of the Board and of the shareholders, and exercise and
perform such other powers and duties as may be from time to time assigned by the
Board.
Section 8. President. Subject to such powers, if any, as may be given by the
Board to the Chairman of the Board, if there be such an officer, the President
is the General Manager and Chief Executive Officer of the corporation and has,
subject to the control of the Board, general supervision, direction, and control
of the business and officers of the corporation. In the absence of both the
Chairman of the Board and the Vice Chairman, or if there be none, the President
shall preside at all meetings of the shareholders and at all meetings of the
Board. The President has the general powers and duties of management usually
vested in the office of President and General Manager of a corporation and such
other powers and duties as may be prescribed by the Board.
Section 9. Vice Presidents. In the absence or disability of the President, the
Vice Presidents in order of their rank as fixed by the Board or, if not ranked,
the Vice President designated by the Board, shall perform all the duties of the
President, and when so acting shall have all the powers of, and be subject to
all the restrictions upon, the President. The Vice Presidents shall have such
other powers and perform such other duties as from time to time may be
prescribed for them respectively by the Board or the Bylaws, and the President,
or the Chairman of the Board.
Section 10. Secretary. The Secretary shall keep or cause to be kept, at the
principal office and such other place as the Board may order, a book of minutes
of all the meetings of shareholders, the Board, and its committees, with the
time and place of holding, whether regular or special, and, if special, how
authorized, the notice thereof given, the names of those present or represented
at shareholders' meetings, and the proceedings thereof.
The Secretary shall keep, or cause to be kept, a copy of the Bylaws of the
corporation at the principal office or business office in accordance with
Section 213 of the California General Corporation Law. The Secretary shall keep,
or cause to be kept, at the principal office or at the office of the
corporation's transfer agent or registrar, if one be appointed, a share
register, or a duplicate share register, 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 same, 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, of the Board and of any committees thereof required by these
Bylaws or by law to be given, shall keep the seal of the corporation in safe
custody, and shall have such other powers and perform such other duties as may
be prescribed by the Board.
Section 11. Assistant Secretary. The Assistant Secretary or the Assistant
Secretaries, in the order of their seniority, shall, in the absence or
disability of the Secretary, or in the event of such officer's refusal to act,
perform the duties and exercise the powers and discharge such duties as may be
assigned from time to time by the President or by the Board of Directors.
Section 12. Chief Financial officer. The Chief Financial Officer shall keep and
maintain, or cause to be kept and maintained, adequate and correct books and
records of the properties and business transactions of the corporation,
including accounts of its assets, liabilities, receipts, disbursements, gains,
losses, capital, retained earnings, and shares, and shall send or cause to be
sent to the shareholders of the corporation such financial statements and
reports as are by law or these Bylaws required to be sent to them. The books of
account shall at all times be open to inspection by any director of the
corporation.
The Chief Financial Officer shall deposit all monies and other valuables in the
name and to the credit of the corporation with such depositories as may be
designated by the Board. The Chief Financial officer shall disburse the funds of
the corporation as may be ordered by the Board, shall render to the President
and directors, whenever they request it, an account of all transactions as Chief
Financial Officer and of the financial condition of the corporation, and shall
have such other powers and perform such other duties as may be prescribed by the
Board.
Section 13. Assistant Treasurer. The Assistant Treasurer or the Assistant
Treasurers, in the order of their seniority, shall, in the absence or disability
of the Chief Financial Officer, or in the event of such officer's refusal to
act, perform the duties and exercise the powers of the Chief Financial Officer,
and shall have such additional powers and discharge such duties as may be
assigned from time to time by the President or by the Board of Directors.
Section 14. Salaries. The salaries of the officers shall be fixed from time to
time by the Board of Directors and no officer shall be prevented from receiving
such salary by reason of the fact that such officer is also a director of the
corporation.
Section 15. Officers Holding More Than One Office. Any two or more offices,
except those of President and Chief Financial Officer, may be held by the same
person, but no officer shall execute, acknowledge or verify any instrument in
more than one capacity.
Section 16. Inability to Act. In the case of absence or inability to act of any
officer of the corporation and of any person herein authorized to act in his
place, the Board may from time to time delegate the powers or duties of such
officer to any other officer, or any director or other person whom it may
select.
ARTICLE V
Other Provisions
Section 1. Inspection of Corporate Records. The corporation shall keep at its
principal executive office a record of its shareholders, giving the names and
addresses of all shareholders and the number and class of shares held by each
shareholder. A shareholder or shareholders of the corporation holding at least
five percent (5%) in the aggregate of the outstanding voting shares of the
corporation may:
(a) Inspect and copy the record of shareholders; names and addresses and
shareholdings during usual business hours upon five business days prior
notice demand upon the corporation; or
(b) Obtain from the transfer agent, if any, for the corporation, upon five
business days prior written demand and upon the tender of its usual charges
for such a list (the amount of which charges shall be stated to the
shareholder by the transfer agent upon request), a list of the
shareholders' names and addresses who are entitled to vote for the election
of directors and their shareholdings, as of the most recent record date for
which it has been compiled or as of the date specified by the shareholder
subsequent to the date of demand.
Section 2. Inspection of Bylaws. The corporation shall keep at its principal
office the original or a copy of these Bylaws as amended to date which shall be
open to inspection by shareholders at all reasonable times during business
hours.
Section 3. Endorsement of Documents; Contracts. Subject to the provisions of
applicable law, any note, mortgage, evidence of indebtedness, contract, share
certificate, conveyance, or other instrument in writing and any assignment or
endorsements thereof executed or entered into between this corporation and any
other person, when signed by the President or any Vice President and the
Treasurer or any Assistant Treasurer of this corporation shall be valid and
binding upon this corporation in the absence of actual knowledge on the part of
the other person that the signing officers had not the authority to execute the
same. Any such instruments may be signed by any other person or persons and in
such manner as from time to time shall be determined by the Board, and, unless
so authorized by the Board, no officer, agent, or employee shall have any power
or authority to bind the corporation by any contract or arrangement or to pledge
its credit or to render it liable for any purpose or amount.
Section 4. Certificates of Stock. Every holder of shares of the corporation
shall be entitled to have a certificate signed in the name of the corporation by
the President or Vice President and by the Chief Financial Officer or Assistant
Financial Officer or by the Secretary or Assistant Secretary, certifying the
number of shares and the class or series of shares owned by the shareholder. Any
or all of the signatures on the certificates may be facsimile. If any officer,
transfer agent, or registrar who has signed 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.
Except as provided in this Section, no new certificate for shares shall be
issued in lieu of an old one unless the latter is surrendered and canceled at
the same time. The Board may, however, in case any certificate for shares is
alleged to have been lost, stolen, or destroyed, authorize the issuance of a new
certificate in lieu thereof, and the corporation may require that the
corporation be given a bond or other adequate security sufficient to indemnify
it against any claim that may be made against it (including expense or
liability) on account of the alleged loss, theft, or destruction of such
certificate or the issuance of such new certificate.
Prior to the due presentment for registration of transfer in the stock transfer
book of the corporation, the registered owner shall be treated as the person
exclusively entitled to vote, to receive notifications and otherwise to exercise
all the rights and powers of an owner, except as expressly provided otherwise by
the laws of the State of California.
Section 5. Representation of Shares of Other Corporations. The President or any
other officer or officers authorized by the Board or the President are each
authorized to vote, represent, and exercise on behalf of the corporation all
rights incident to any and all shares of any other corporation or corporations
standing in the name of the corporation. The authority herein granted may be
exercised by any such officer in person or by any other person authorized to do
so by proxy or power of attorney duly executed by said officer.
Section 6. Annual Report to Shareholders. Except when this corporation has 100
or more holders of record of its shares (determined as provided in Section 605
of the Corporations Code), the annual report to shareholders referred to in
Section 1501 of the California General Corporation Law is expressly waived, but
nothing herein shall be interpreted as prohibiting the Board from issuing annual
or other periodic reports to shareholders.
Section 7. Seal. The corporate seal of the corporation shall consist of two
concentric circles, between which shall be the name of the corporation, and in
the center shall be inscribed the word "Incorporated" and the date of its
incorporation.
Section 8. Fiscal Year. The fiscal year of this corporation shall begin on the
first day of January and end on the 31st day of December of each year.
Section 9. Construction and Definitions. Unless the context otherwise requires,
the general provisions, rules of construction, and definitions contained in the
California General Corporation Law shall govern the construction of these
Bylaws. Without limiting the generality of this provision, the singular number
includes the plural, the plural number includes the singular, and the term
"person" includes both a corporation and a natural person.
Section 10. Bylaw Provisions Contrary to or Inconsistent with Provisions of Law.
Any article, section, subsection, subdivision, sentence, clause or phrase of
these Bylaws which, upon being construed in the manner provided in Section 9 of
this Article, shall be contrary to or inconsistent with any applicable provision
of the California General Corporation Law or other applicable law of the State
of California or of the United States shall not apply so long as said provisions
of law shall remain in effect, but such result shall not affect the validity of
applicability of any other portions of these Bylaws, it being hereby declared
that these Bylaws would have been adopted and each article, section, subsection,
subdivision, sentence, clause or phrase thereof, irrespective of the fact that
any one or more articles, sections, subsections, subdivisions, sentences,
clauses or phrases is or are illegal.
ARTICLE VI
Indemnification
Section 1. Definitions. For the purposes of this Article, "agent" includes 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 which
was a predecessor corporation of the corporation or of another enterprise at the
request of such predecessor corporation; "proceeding" includes any threatened,
pending, or completed action or proceeding, whether civil, criminal,
administrative or investigative and "expenses" includes without limitation
attorneys' fees and any expenses of establishing a right to indemnification
pursuant to law.
Section 2. Extent of Indemnification. The corporation shall, to the maximum
extent permitted by the California General Corporation Law, advance expenses to
and indemnify each of its agents against expenses, judgments, fines, settlements
and other amounts actually and reasonably incurred in connection with any
proceeding arising by reason of the fact any such person is or was an agent of
the corporation.
Section 3. Insurance. The corporation shall have power to purchase and maintain
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 of 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 Article.
ARTICLE VII
Amendments
Section 1. Amendment By Shareholders. New Bylaws may be adopted or these Bylaws
may be amended or repealed by the vote or written consent of holders of a
majority of the outstanding shares entitled to vote; provided, however, that if
the Articles of the corporation set forth the number of authorized directors of
the corporation, the authorized number of directors may be changed only by an
amendment of the Articles.
Section 2. Amendment By Directors. Subject to the rights of the shareholders as
provided in Section 1 of this Article VII, Bylaws, other than a bylaw or an
amendment of a bylaw changing the authorized number of directors, may be
adopted, amended, or repealed by the Board of Directors.
SARATOGA BANCORP
1982 STOCK OPTION PLAN
INDEX
ARTICLE COMMENCING
NO. DESCRIPTION ON PAGE
1. PURPOSE 2
2. ADMINISTRATION 2
3. PARTICIPANTS 2
4. THE SHARES 3
5. GRANT, TERMS AND CONDITIONS OF OPTIONS 3
6. ADJUSTMENT OF AND CHANGES IN THE SHARES 7
7. LISTING OR QUALIFICATION OF SHARES 8
8. BINDING EFFECT OF CONDITIONS 8
9. AMENDMENT AND TERMINATION OF THE PLAN 9
10. EFFECTIVENESS OF THE PLAN 9
11. PRIVILEGES OF STOCK OWNERSHIP; SECURITIES LAW COMPLIANCE; 9
NOTICE OF SALE
12. INDEMNIFICATION 10
13. INFORMATION TO OPTIONEES 10
<PAGE>
SARATOGA BANCORP
1982 STOCK OPTION PLAN
1. PURPOSE.
The purpose of this 1982 Stock Option Plan (the "Plan") of Saratoga Bancorp
(hereinafter referred to individually as the "Holding Company") and its
Affiliates (Saratoga Bancorp and its Affiliates are hereinafter referred to
collectively as "Saratoga"), is to secure for Saratoga and its stockholders the
benefits of the incentive inherent in the ownership of Common Stock of the
Holding Company by those key full-time employees, officers and directors of
Saratoga who will share responsibility with management of Saratoga for its
future growth and success.
The word "Affiliate," as used in this Plan, means any bank or corporation
in an unbroken chain of banks or corporations beginning or ending with the
Holding Company, if at the time of the granting of an option, each such bank or
corporation other than the last in that chain owns stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of stock
in one of the other banks or corporations in the chain.
2. ADMINISTRATION.
The following provisions shall govern the administration of the Plan:
(a) The Plan shall be administered by a committee of the Board of
Directors of the Holding Company appointed for this purpose by the Board of
Directors (the "Committee") composed of not less than three (3) directors.
The Board of Directors may from time to time remove members from or add
members to the Committee. Vacancies on the Committee, howsoever caused,
shall be filled by the Board of Directors. The Board of Directors shall
designate a Chairman and Vice-Chairman of the Committee from among the
Committee members. Acts of the Committee (i) at a meeting, held at a time
and place and in accordance with rules adopted by the Committee, at which a
quorum of the Committee is present and acting, or (ii) reduced to and
approved in writing by a majority of the members of the Committee, shall be
the valid acts of the Committee.
(b) The Holding Company shall effect the grant of options under the
Plan by execution of instruments in writing in a form approved by the
Committee. Subject to the express terms and conditions of the Plan and the
terms of any option outstanding under the Plan, the Committee shall have
full power to construe the Plan and the terms of any option granted under
the Plan, to prescribe, amend and rescind rules and regulations relating to
the Plan or such options and to make all other determinations necessary or
advisable for the Plan's administration, including, without limitation, the
power to (i) determine which persons meet the requirements of Section 3
hereof for selection as participants in the Plan and which persons are
considered to be "employees" for purposes of the Internal Revenue Code of
1986, as amended (the "Code"), and therefore eligible to, receive incentive
stock options under the Plan; (ii) determine to whom of the eligible
persons, if any, options shall be granted under the Plan; (iii) establish
the terms and conditions required or permitted to be included in every
option agreement or any amendments thereto, and except as set forth in
Article 9, include terms and conditions which modify or amend or are
inconsistent with the terms of this Plan as necessary to carry out the
purposes of this Plan and determine whether options to be granted
thereunder shall be "incentive stock options," as defined in the Code, or
"non-qualified stock options;" (iv) specify the number of shares to be
covered by each option; (v) in the event a particular option is to be an
incentive stock option, determine and incorporate such terms and
provisions, as well as amendments thereto, as shall be required in the
judgment of the Committee, so as to provide for or conform such option to
any change in any law, regulation, ruling or interpretation applicable
thereto; (vi) determine the fair market value of Holding Company stock used
by a Participant to exercise options pursuant to Section 5(b) hereof; and
(vi) to make all other determinations deemed necessary or advisable for
administering the Plan. The Committee's determination on the foregoing
matters shall be conclusive.
(c) No member of the Stock Option Committee, while serving as such,
shall be, or during the one-year period prior to such service shall have
been, eligible to participate in the Plan or in any other such stock
option, stock appreciation right, stock bonus or other stock plan of
Saratoga.
3. PARTICIPANTS.
Participants in the Plan shall be those directors, officers and key
full-time salaried employees of Saratoga to whom options may be granted from
time to time by the Committee.
4. THE SHARES.
The shares of stock initially subject to options authorized to be granted
under the Plan shall consist of three hundred fifteen thousand, seven hundred
forty (315,740) shares of Common Stock, no par value (the "Shares"), of the
Holding Company, or the number and kind of shares of stock or other securities
which shall be substituted for such shares or to which such shares shall be
adjusted as provided in Section 6. The Shares subject to the, Plan may be set
aside out of the authorized but unissued shares of Common Stock of the Holding
Company not reserved for any other purpose or out of shares of Common Stock
subject to an option which, for any reason, terminates unexercised as to the
Shares.
5. GRANT, TERMS AND CONDITIONS OF OPTIONS.
Options may be granted at any time prior to the termination of the Plan to
directors, officers and key full-time salaried employees of Saratoga who, in the
judgment of the Committee, contribute to the successful conduct of the
Saratoga's operation through their judgment, interest, ability and special
efforts; provided, however, that: (i) an eligible director, officer or employee
shall not participate in the granting of his or her own option; (ii) the
aggregate fair market value (determined as of the time an option is granted) of
the Common Stock for which any employee may be granted incentive stock options
in any calendar year prior to 1987 under this Plan and any other incentive stock
option plans (which qualify under section 422A of the Code, as amended) of
Saratoga shall not exceed $100,000 plus any unused limit carryover to such year
as such term is defined in section 422A(c)(4) of the Code, and the aggregate
fair market value of the Common Stock with respect to which incentive stock
options are exercisable for the first time by any employee during any calendar
year beginning after 1986 under this Plan and any other incentive stock option
plans (which qualify under section 422A of the Code) of Saratoga shall not
exceed $100,000; (iii) except in the case of termination by death or disability
and as set forth in Section 5(c) below, the granted option must be exercised by
optionee no later than three (3) months after any termination of employment with
Saratoga and said employment must have been continuous since the granting of the
option.
In addition, options granted pursuant to the Plan shall be subject to the
following terms and conditions:
(a) Option Price. The purchase price under each option shall be not less
than one hundred percent (100%) of the fair market value of the Shares subject
thereto on the date the option is granted, as such value is determined by the
Committee. The fair market value of such stock shall be determined in accordance
with any reasonable valuation method. If, however, any eligible Participant owns
stock of the Holding Company possessing more than 10% of the total combined
voting power of all classes of stock of the Holding Company or of any of its
Affiliates, the option price of any option granted to such optionee shall be not
less than 110% of such fair market value.
(b) Duration and Exercise of Options. Subject to all other provisions of
this Plan, each option shall be exercisable for the full number of shares of
Common Stock subject thereto, or any part thereof, in such installments and at
such intervals as the Board or the Committee may determine in granting such
options. No incentive stock option granted prior to January 1, 1987 shall be
exercisable while there is outstanding any other option granted under the Plan
or any other incentive stock option plans (which qualify under Section 422A of
the Code) of the Holding Company or any of its Affiliates to the same employee
at an earlier date. Each option shall terminate and expire, and shall no longer
be subject to exercise, as the Board or Committee may determine in granting such
option, but in no event later than ten (10) years after the date of grant
thereof, provided, however, that any option granted to a Participant who owns
more than 10% of the total combined voting power of all classes of stock of the
Holding Company or of its affiliates shall terminate and expire no later than
five (5) years after the date of grant thereof. In no event shall an option vest
at a rate of less than twenty percent (20%) per year during the first five (5)
years of the option term. The Board or Committee may, in its sole discretion,
accelerate the time of exercise of any option. The termination of the Plan shall
not alter the maximum duration, the vesting provisions, or any other term or
condition of any option granted prior to the termination of the plan.
To the extent the right to purchase Shares has vested under a Participant's
stock option agreement, options may be exercised from time to time by delivering
payment in full at the Option Price for the number of shares being purchased by
either: (a) cash, certified check, official Bank check or the equivalent thereof
acceptable to the Holding Company equal to the Option Price; or (b) shares of
Holding Company stock with a fair market value as of the date of exercise equal
to the Option Price, or (c) shares of Holding Company stock with a fair market
value as of the date of exercise less than the full amount of the Option Price
plus cash, certified check, official Bank check or the equivalent thereof
acceptable to the Holding Company equal to the remaining amount of the Option
Price; provided, however, that an optionee may only deliver shares of Holding
Company stock in full or partial payment of the Option Price under clause (b) or
(c) above if such shares have been owned by such optionee for at least six
months. Such payment shall be accompanied by written notice to the Secretary of
the Holding Company identifying the option or part thereof being exercised and
specifying the number of Shares for which payment is being tendered. The Holding
Company shall deliver to the optionee, which delivery shall be not less than
fifteen (15) days and not more than thirty (30) days after the giving of such
notice, without transfer or issue tax to the optionee (or other person entitled
to exercise the option) at the principal office of the Holding Company, or such
other place as shall be mutually acceptable, a certificate or certificates for
such Shares dated the date the options were validly exercised; provided,
however, that the time of such delivery may be postponed by the Holding Company
for such period as may be required for it with reasonable diligence to comply
with any requirements of law. If an option covers incentive and non-qualified
stock options, separate stock certificates shall be issued; one or more for
stock acquired upon exercise of the incentive stock options and one or more for
the stock acquired upon exercise of the non-qualified stock options. If the
option price is satisfied in whole or in part by delivery of Holding Company
stock, separate stock certificates shall be issued, one or more for the number
of shares of stock received equal to the number of shares of Holding Company
stock delivered and one or more for the remainder of the shares received upon
the exercise.
The Holding Company shall have the right, upon the exercise of an option,
to deduct any sums from the wages, salary, bonus and other compensation paid by
the Holding Company to the optionee that are required to be withheld upon the
taxable income, if any, recognized by the optionee in connection with the
exercise in whole or in part of any option or the sale of Common Stock issued to
the optionee upon exercise of the option. This withholding of tax shall be made
from the Holding Company's concurrent or next payment of wages, salary, bonus or
other income to the optionee or by payment to the Holding Company by the
optionee of the required withholding tax, as the Board or Committee may
determine. The payment of withholding tax by the optionee shall be in the form
of cash or any other form of lawful consideration that the Board or Committee
determines to be appropriate. Subject to the approval of the Board or Committee,
an optionee may make a withholding election to pay such tax by the withholding
of shares from the total number of shares deliverable pursuant to the exercise
of the option or by delivering a sufficient number of previously acquired shares
of Holding Company Common Stock, which have been held by such optionee for at
least six months, to the Holding Company. In the case of election by a member of
the Board or an officer of the Holding Company, the election must be made at
least 6 months after the grant of the option and either (a) 6 months or more
prior to the date the option exercise becomes taxable or (b) during the window
period beginning on the third business day following the release of the
quarterly earnings and ending on the earlier of the twelfth business day
following the date of such release or the date the exercise becomes taxable. The
value of shares withheld or delivered shall be the fair market value of such
shares on the date the exercise becomes taxable.
(c) Termination of Employment or Officer or Director Status. Upon the
termination of an optionee's status as an employee, officer or director of
Saratoga, his or her rights to exercise an option then held shall be only as
follows:
DEATH OR DISABILITY: If an optionee's employment or status as an officer or
director is terminated by death or disability, such optionee or such
optionee's qualified representative (in the event of the optionee's mental
disability) or the optionee's estate (in the event of optionee's death)
shall have the right for a period of twelve (12) months following the date
of such death or disability to exercise the option to the extent the
optionee was entitled to exercise such option on the date of the optionee's
death or disability, provided that the actual date of exercise is in no
event after the expiration of the term of the option.
Disability, shall be determined under Section 422A of the Code in effect at
the date of such disability.
An optionee's "estate" shall mean the optionee's legal representative or
any person who acquires the right to exercise an option by reason of the
optionee's death.
CAUSE: If an employee, officer or director is determined by the Board of
Directors to have committed an act of embezzlement, fraud, dishonesty,
breach of fiduciary duty to Saratoga, or to have deliberately disregarded
the rules of Saratoga which resulted in loss, damage or injury to Saratoga,
or if an optionee makes any unauthorized disclosure of .any of the secrets
or confidential information of Saratoga, induces any client or customer of
Saratoga to break any contract with Saratoga or induces any principal for
whom Saratoga acts as agent to terminate such agency relations, or engages
in any conduct which constitutes unfair competition with Saratoga, or if an
optionee is removed from any office of Saratoga by the Federal Deposit
Insurance Corporation or any other bank regulatory agency, the optionee or
the optionee's estate shall have the right for a period of thirty (30) days
following the date of such termination to exercise the option to the extent
the optionee was entitled to exercise such option on the date of
termination of employment or officer or director status, provided the
actual date of exercise is in no event after the expiration of the term of
the option. The option shall so terminate whether or not after termination
of employment or officer or director status the optionee may receive
payment from Saratoga for vacation pay, for services rendered prior to
termination, for services for the day on which termination occurred, for
salary in lieu of notice, or for other benefits. In making such
determination, the Board of Directors shall act fairly and shall give the
optionee an opportunity to appear and be heard at a hearing before the full
Board of Directors and present evidence on the optionee's behalf. For the
purpose of this paragraph, termination of employment or officer or director
status shall be deemed to occur when Saratoga dispatches notice or advice
to the optionee that the optionee's employment or status as an officer or
director is terminated and not at the time of optionee's receipt thereof.
OTHER REASONS: If an optionee's employment or status as an officer or
director is terminated for any reason other than those mentioned above
under "Death or Disability" and "Cause," the optionee may, within three (3)
months following such termination, exercise the option to the extent such
option was exercisable by the optionee on the date of termination of the
optionee"s employment or status as an officer or director, provided that
the date of exercise is in no event after the expiration of the term of the
option.
(d) Transferability of Option. Each option shall be transferable only by
Will or the laws of descent and distribution and shall be exercisable during the
optionee's lifetime only by the optionee.
(e) Other Terms and Conditions. Options may also contain such other
provisions as the Committee shall deem appropriate, which except as provided in
Section 2(b), shall not be inconsistent with any of the foregoing terms. No
option, however, nor anything contained in the Plan, shall confer upon any
optionee any right to continue in the employ or in the status as an officer or
director of Saratoga, nor limit in any way the right of Saratoga to terminate an
optionee's employment or status as an officer or director at any time.
(f) Use of Proceeds from Stock. Proceeds from the sale of Shares pursuant
to the exercise of options granted under the Plan shall constitute general funds
of the Holding Company.
(g) Rights as a Shareholder. The optionee shall have no rights as a
shareholder with respect to any Shares until the date of issuance of a stock
certificate for such Shares. No adjustment shall be made for dividends or other
rights for which the record date is prior to the date of such issuance, except
as provided in Section 6 hereof.
6. ADJUSTMENT OF AND CHANGES IN THE SHARES.
In the event the shares of Common Stock of the Holding Company, as
presently constituted, shall be changed into or exchanged for a different number
or kind of shares of stock or other securities of the Holding Company or of
another corporation (whether by reason of reorganization, merger, consolidation,
recapitalization, reclassification, split-up, combination of shares, or
otherwise), or if the number of shares of Common Stock of the Holding Company
shall be increased through the payment of a stock dividend or through a stock
split, the Board of Directors shall substitute for or add to each share of
Common Stock of the Holding Company theretofore appropriated or thereafter
subject or which may become subject to an option under the Plan, the number and
kind of shares of stock or other securities into which each outstanding share of
Common Stock of the Holding Company shall be so changed, or for which each share
shall be exchanged, or to which each such share shall be entitled, as the case
may be. In addition, the Committee shall make appropriate adjustment in the
number and kind of shares as to which outstanding options, or portions thereof
then unexercised, shall be exercisable, so that any optionee's proportionate
interest in the Holding Company by reason of his rights under unexercised
portions of such options shall be maintained as before the occurrence of such
event. Such adjustment in outstanding options shall be made without change in
the total price to the unexercised portion of the option and with a
corresponding adjustment in the option price per share.
In the event of sale, dissolution or liquidation of the Holding Company or
upon any reorganization, merger or consolidation in which the Holding Company is
not the surviving or resulting corporation, the Committee shall provide for the
assumption by the surviving or resulting corporation of every option outstanding
hereunder, on such terms as shall be required to preserve the rights and
benefits of any option then outstanding under the Plan; provided, that each
optionee shall have the right until five (5) days before the effective date of
such merger or consolidation in which the Company is not the surviving
corporation to exercise in whole or in part any unexpired option or options
issued to such optionee, without regard to the installment provisions of section
5(b) of the Plan or any option agreement. This right of exercise shall be
conditioned upon the exercise of a definitive agreement of merger or
consolidation.
To the extent the foregoing adjustments relate to stock or securities of
the Holding Company, such adjustments shall be made by the Committee, whose
determination in that respect shall be final, binding and conclusive.
Except as expressly provided in this Section 6, an optionee shall have no
rights by reason of any of the following events: (1) subdivision or
consolidation of shares of stock of any class; (2) payment of any stock
dividend; (3) any other increase or decrease in the number of shares of stock of
any class; (4) any dissolution, liquidation, merger, consolidation, spin-off of
assets or stock of another corporation. Any issue by the Holding Company of
shares of stock of any class, or securities convertible into shares of any
class, shall not affect the number or price of shares of Common Stock subject to
the option, and no adjustment by reason thereof shall be made.
The grant of an option pursuant to the Plan shall not affect in any way the
right or power of the Holding Company to make adjustments, reclassifications,
reorganizations or changes of its capital or business structure or to merge or
to consolidate or to dissolve, liquidate or sell, or transfer all or any part of
its business or assets.
7. LISTING OR QUALIFICATION OF SHARES.
All options granted under the Plan are subject to the requirement that, if
at any time the Board of Directors or the Committee shall determine in its
discretion that the listing or qualification of the Shares subject thereto on
any securities exchange or under any applicable law, or the consent or approval
of any governmental regulatory body, is necessary or desirable as a condition
of, or in connection with, the issuance of Shares under the option, the option
may not be exercised in whole or in part unless such listing, qualification,
consent or approval shall have been effected or obtained free of any condition
not acceptable to the Board of Directors or the Committee.
8. BINDING EFFECT OF CONDITIONS.
The conditions and stipulations herein contained, or in any option granted
pursuant to the Plan shall be, and constitute, a covenant running with all of
the Shares acquired by the optionee pursuant to this Plan, directly or
indirectly, whether the same have been issued or not, and those shares owned by
the optionee shall not be sold, assigned or transferred by any person save and
except in accordance with the terms and conditions herein provided, and the
optionee shall agree to use the optionee's best efforts to cause the officers of
the Holding Company to refuse to record on the books of the Holding Company any
assignment or transfer made or attempted to be made except as provided in the
Plan and to cause said officers to refuse to cancel old certificates or to issue
or deliver new certificates therefor where the purchaser or assignee has
acquired certificates or the Shares represented thereby, except strictly in
accordance with the provisions of the Plan.
9. AMENDMENT AND TERMINATION OF THE PLAN.
The Board of Directors shall have complete power and authority to terminate
or amend the Plan; provided, however, that the Board of Directors shall not,
without the approval of the shareholders of the Holding Company: (i) increase
the maximum number of shares for which options may be granted under the Plan;
(ii) change the computation as to minimum option prices set forth in Paragraph
5(a); (iii) extend beyond ten (10) years the period, during which options may be
granted or exercised; or (iv) amend the requirements as to the class of
employees, officers or directors eligible to receive options. Except as provided
in Section 6, no termination, modification or amendment of the Plan may, without
the consent of an employee, officer or director to whom such option shall
theretofore have been granted, adversely effect the rights of such employee,
officer or director under such option. Unless the Plan shall have been
terminated by action of the Board of Directors prior thereto, it shall terminate
ten years from its adoption by the Board of Directors unless earlier terminated
by the Board of Directors.
10. EFFECTIVENESS OF THE PLAN.
The Plan shall become effective only upon approval by the Board of
Directors. The exercise of any options granted pursuant to the Plan shall be
conditioned upon approval of the Plan by the shareholders of the Holding Company
and the Registration of the Shares subject to the Plan with the Securities and
Exchange Commission and Qualification of the Shares subject to the Plan with the
Commissioner of Corporations of the State of California unless in the opinion of
counsel to the Holding Company such Registration or Qualification is not
necessary.
11. PRIVILEGES OF STOCK OWNERSHIP SECURITIES LAW COMPLIANCE; NOTICE OF SALE.
No optionee shall be entitled to the privileges of stock ownership as to
any Shares not actually issued and delivered to the optionee. No Shares shall be
purchased upon the exercise of any option unless and until any then applicable
requirements of any regulatory agencies having jurisdiction and of any exchanges
upon which the Common Stock of the Holding Company may be listed shall have been
fully complied with. The Holding Company shall diligently endeavor to comply
with all applicable securities laws before any options are granted under the
Plan and before any Shares are issued pursuant to the exercise of such options.
The optionee shall give the Holding Company notice of any sale or other
disposition of any such Shares not more than five (5) days after such sale or
other disposition.
12. INDEMNIFICATION.
To the extent permitted by applicable law in effect from time to time, no
member of the Board of Directors or the Committee shall be liable for any action
or omission of any other member of the Board of Directors or Committee nor for
any act or omission on the member's own part, excepting only the member's own
willful misconduct or gross negligence. Saratoga shall pay expenses incurred by,
and satisfy a judgment or fine rendered or levied against, a present or former
director or member of the Committee in any action against such person (whether
or not Saratoga is joined as a party defendant) to impose a liability or penalty
on such person for an act alleged to have been committed by such person while a
director or member of the Committee arising with respect to the Plan or
administration thereof or out of membership on the Committee or by Saratoga, or
all or any combination of the preceding so long as the Director or Committee
member was acting in good faith, within what such director or Committee member
reasonably believed to have been within the scope of his or her employment or
authority and for a purpose which he or she reasonably believed to be in the
best interests of Saratoga or its shareholders. Payments authorized hereunder
include amounts paid and expenses incurred in settling any such action or
threatened action. This section does not apply to any action instituted or
maintained in the right of Saratoga by a shareholder or holder of a voting trust
certificate representing shares of Saratoga. The provisions of this section
shall apply to the estate, executor, administrator, heirs, legatees or devisees
of a director or Committee member, and the term "person" as used in this section
shall include the estate, executor, administrator, heirs, legatees, or devisees
of such person.
13. INFORMATION TO OPTIONEES.
The Company shall provide to each optionee, during the period for which he
or she has one or more outstanding options, copies of all annual reports and all
other information which is provided to shareholders of the Company. The Company
shall not be required to provide such information to key employees whose duties
in connection with the Company assure their access to equivalent information.
SARATOGA BANCORP
1994 STOCK OPTION PLAN
(Amended May 21, 1998)
TABLE OF CONTENTS
Page
1. PURPOSE. 2
2. ADMINISTRATION. 2
3. ELIGIBILITY. 3
4. THE SHARES. 3
5. OPTION GRANTS. 4
6. TERMS AND CONDITIONS APPLICABLE TO ALL OPTIONS. 6
7. ADJUSTMENT OF, AND CHANGES IN, THE SHARES. 7
8. AMENDMENT, EFFECTIVENESS AND TERMINATION OF THE PLAN. 9
9. INFORMATION TO OPTIONEES. 9
10. PRIVILEGES OF STOCK OWNERSHIP, SECURITIES LAW COMPLIANCE
AND NOTICE OF SALE. 9
11. NOTICE OF SALE. 9
12. INDEMNIFICATION. 10
<PAGE>
SARATOGA BANCORP
1994 STOCK OPTION PLAN
(AMENDED MAY 21, 1998)
1. PURPOSE.
The purpose of this Saratoga Bancorp 1994 Stock Option Plan (the "Plan") is
to provide a method whereby those key employees, directors and consultants of
Saratoga Bancorp and its affiliates (hereinafter collectively referred to as the
"Company"), who are primarily responsible for the management and growth of the
Company's business and who are presently making and are expected to make
substantial contributions to the Company's future management and growth, may be
offered incentives in addition to those presently available, and may be
stimulated by increased personal involvement in the fortunes and success of the
Company to continue in its service, thereby advancing the interests of the
Company and its shareholders.
The word "affiliate," as used in the Plan, means any bank or corporation in
any unbroken chain of banks or corporations beginning or ending with the
Company, if at the time of the granting of an option, each such bank or
corporation other than the last in that chain owns stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of stock
in one of the other banks or corporations in the chain.
2. ADMINISTRATION.
The following provisions shall govern the administration of the Plan:
(a) Subject to paragraphs (b) and (c) below, the Plan shall be administered
by the Board of Directors or a duly appointed committee of the Board consisting
of Non-Employee Directors. The term "Non-Employee Director" as used in the Plan
shall have the meaning set forth in Rule 16b-3 as promulgated by the Securities
and Exchange Commission ("SEC") under Section 16(b) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), as such rule may be amended from
time to time, and as interpreted by the SEC ("Rule 16b-3"). The committee
required by this paragraph shall consist of the minimum number of Non-Employee
Directors from time to time required by Rule 16b-3.
(b) The Board and any such committee is referred to hereinafter as the
"Committee," except where otherwise expressly provided or where the context
requires otherwise. The Board of Directors may from time to time remove members
from or add members to the Committee. Vacancies on the Committee, however
caused, shall be filled by the Board of Directors. The Board of Directors may
designate a Chairman and Vice-Chairman of the Committee from among the Committee
members. Acts of the Committee (i) at a meeting, held at a time and place and in
accordance with rules adopted by the Committee, at which a quorum of the
Committee is present and acting, or (ii) reduced to and approved in writing by
all members of the Committee, shall be the valid acts of the Committee.
(c) Options granted to employees or directors of the Company subject to
Section 16(b) of the Exchange Act shall be approved by the Committee or shall be
approved or ratified, in compliance with Section 14 of the Exchange Act, by the
affirmative votes of the holders of a majority of the voting securities of the
Company present or represented and entitled to vote at a meeting of shareholders
duly called and hold pursuant to law, provided that any such ratification shall
occur not later than the date of the next annual meeting of shareholders
following the grant.
(d) The grant of options under the Plan shall be affected by execution of
instruments in writing in a form approved by the Committee. Subject to the
express terms and conditions of the Plan, the Committee shall have full power to
construe the Plan and the terms of any option granted under the Plan, to
prescribe, amend and rescind rules and regulations relating to the Plan or such
options and to make all other determinations necessary or advisable for the
Plan's administration, including, without limitation, the power to (i) determine
which persons meet the requirements of Section 3 hereof for selection as
participants in the Plan; (ii) determine to whom of the eligible persons, if
any, options shall be granted under the Plan; (iii) establish the terms and
conditions required or permitted to be included in every option agreement or any
amendments thereto, including whether options to be granted thereunder shall be
"incentive stock options," as defined in Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code") or nonstatutory stock options not
described in Section 422; (iv) specify the number of shares to be covered by
each option; (v) determine the fair market value of shares of the Company's
common stock for any purpose under this Plan; (vi) grant options in exchange for
cancellation of options granted earlier at different exercise prices; (vii) take
appropriate action to amend any option hereunder, provided that no such action
may be taken without the written consent of the affected optionee; and (viii)
make all other determinations deemed necessary or advisable for administering
the Plan. The Committee's determination on the foregoing matters shall be
conclusive.
3. ELIGIBILITY.
The persons who shall be eligible to receive the discretionary grant of
options under this Plan shall be those key employees and officers of the Company
(including officers who may also be directors of the Company), persons who
became employees of the Company within thirty days of the date of grant of an
option, consultants of the Company who render bona fide services to the Company
other than in connection with the offer or sale of securities in a capital
raising transaction ("Consultants"), and directors. Notwithstanding any other
provision of this Plan no person shall be granted options to purchase more than
an aggregate of 100,000 shares under this Plan.
4. THE SHARES.
The shares of stock subject to options authorized to be granted under the
Plan shall consist of three hundred twenty-eight thousand five hundred
eighty-two (328,582) shares of the Company's no par value common stock (the
"Shares"), or the number and kind of shares of stock or other securities which
shall be substituted for such Shares or to which such Shares shall be adjusted
as provided in Section 7 hereof, provided that, such number of Shares shall be
adjusted downward to the extent necessary to conform to the requirements of
Section 260.140.45 of the Rules of the California Commissioner of Corporations,
so that at no time shall the total number of shares issuable upon exercise of
all outstanding options and the total number of shares provided for under any
stock bonus or similar plan of the Company exceed the applicable percentage as
calculated in accordance with the conditions and exclusions of such Rule.
Upon the expiration or termination for any reason of an outstanding option
under the Plan (or under the Company's expired 1982 Amended Stock Option Plan)
which has not been exercised in full, all unissued Shares thereunder shall again
become available for the grant of options under the Plan. Shares of the
Company's common stock which are (i) delivered by an optionee in payment of the
exercise price of an option pursuant to Section 7(a), or (ii) delivered by an
optionee, or withheld by the Company from the shares otherwise due upon exercise
of a nonstatutory stock option, in satisfaction of applicable withholding taxes
as permitted by Section 7(c) shall again become available for the grant of
options under the Plan only to those eligible participants who are not subject
to Section 16 of the Exchange Act.
The aggregate amount of Shares subject to options granted to all
Non-Employee Directors as a group (not including such options which terminate
unexercised) shall not exceed fifty percent (50%) of the Shares, as adjusted
pursuant to Section 7.
5. OPTION GRANTS.
Options, in the discretion of the Committee, may be granted at any time
prior to the termination of the Plan to persons who are employees of the
Company, including employees who are also directors of the Company, to
Consultants of the Company or to Non-Employee Directors. Options granted by the
Committee shall be subject to the following terms and conditions:
(a) Grant of Options. Options granted to employees pursuant to the Plan may
be either incentive stock options or nonstatutory stock options. If the
aggregate fair market value of the shares issuable upon exercise of incentive
stock options which are exercisable for the first time during any one calendar
year under all incentive stock options held by an optionee exceeds $100,000
(determined at the time of the grant of the options), such options shall be
treated as nonstatutory stock options to the extent of such excess. Options
granted to Non-Employee Directors and to Consultants shall be nonstatutory stock
options.
(b) Option Price. The purchase price under each option shall not be less
than one hundred percent of the fair market value of the Shares subject thereto
on the date the option is granted; provided, however, that the purchase price of
an option granted to an individual who owns stock possessing more than ten
percent of the total combined voting power of all classes of stock of the
Company shall not be less than one hundred ten percent of the fair market value
of the Shares subject thereto on the date the option is granted. For any
purposes under this Plan, fair market value per share shall mean, where there is
a public market for the Company's common stock, the mean of the bid and asked
prices (or the closing price if listed on a stock exchange or the Nasdaq
National Market) of the Company's common stock for the date of grant, as
reported in the Wall Street Journal (or, if not so reported, as otherwise
reported by the Nasdaq Stock Market or the National Quotation Bureau). If such
information is not available for the date of grant, then such information for
the last preceding date for which such information is available shall be
considered as the fair market value.
(c) Duration of Options. Each option shall be for a term determined by the
Committee; provided, however, that the term of any option may not exceed ten
years and, provided further, that the term of any incentive stock option granted
to an individual who owns stock possessing more than ten percent of the total
combined voting power of all classes of stock of the Company shall not exceed
five years. Each option shall vest in such manner and at such time as the
Committee shall determine and the Committee may accelerate the time of exercise
of any option; provided, however, that no option shall vest for exercise at a
rate of less than twenty percent per year during the five year period following
the date of grant of an option.
(d) Termination of Director, Employment or Consultant Status. Upon the
termination of an optionee's status as an employee or Consultant or member of
the Board of Directors of the Company, his or her rights to exercise an option
then held shall be only as follows:
DEATH OR DISABILITY: If an optionee's employment or consulting relationship
or tenure on the Board of Directors is terminated by death or disability,
such optionee or such optionee's qualified representative (in the event of
the optionee's mental disability) or the optionee's estate (in the event of
optionee's death) shall have the right for a period of twelve (12) months
(or such longer period as the Committee may determine at the date of grant
or during the term of the option) following the date of such death or
disability to exercise the option to the extent the optionee was entitled
to exercise such option on the date of the optionee's death or disability;
provided the actual date of exercise is in no event after the expiration of
the term of the option. To the extent the option is not exercised within
such period the option will terminate. An optionee's "estate" shall mean
the optionee's legal representative or any person who acquires the right to
exercise an option by reason of the optionee's death.
CAUSE: If an optionee's employment or consulting relationship is terminated
because such optionee is determined by the Board to have committed an act
of embezzlement, fraud, dishonesty, breach of fiduciary duty to the
Company, or to have deliberately disregarded the rules of the Company which
resulted in loss, damage or injury to the Company, or if an optionee makes
any unauthorized disclosure of any of the secrets or confidential
information of the Company, induces any client or customer of the Company
to break any contract with the Company or induces any principal for whom
the Company acts as agent to terminate such agency relations, or engages in
any conduct which constitutes unfair competition with the Company, or if an
optionee is removed from any office of the Company by any bank regulatory
agency, the optionee shall have the right for a period of thirty days to
exercise the option to the extent the option was exercisable on the date of
termination; provided that the date of exercise is in no event after the
expiration of the term of the option. To the extent the option is not
exercised within such period the option will terminate. In making the
determination pursuant to this paragraph, the Board shall act fairly and
shall give the optionee whose employment or Consultant status has been
terminated an opportunity to appear and be heard at a hearing before the
full Board and present evidence on the optionee's behalf. For the purpose
of this paragraph, termination of employment or Consultant status shall be
deemed to occur when the Company dispatches notice or advice to the
optionee that the optionee's employment or status as a Consultant is
terminated, and not at the time of optionee's receipt thereof.
OTHER REASONS: If an optionee's employment or consulting relationship or
tenure on the Board of Directors is terminated for any reason other than
those mentioned above under "Death or Disability" and "Cause," the optionee
may, within three months (or such longer period as the Committee may
determine at the date of grant or during the term of the option) following
such termination, exercise the option to the extent such option was
exercisable on the date of termination of the optionee's employment or
status as a Consultant; provided the date of exercise is in no event after
the expiration of the term of the option and provided further that any
option which is exercised more than three months following termination
shall be treated as a nonstatutory option whether or not it was designated
as such at the time it was granted. To the extent the option is not
exercised within such period the option will terminate.
6. TERMS AND CONDITIONS APPLICABLE TO ALL OPTIONS.
The following terms and conditions shall apply to all options granted
pursuant to the Plan:
(a) Exercise of Options. To the extent the right to purchase Shares has
vested under an optionee's stock option agreement, options may be exercised from
time to time by delivering payment therefor in cash, certified check, official
bank check, or the equivalent thereof acceptable to the Company, together with
written notice to the Secretary of the Company, identifying the option or part
thereof being exercised and specifying the number of Shares for which payment is
being tendered. An optionee may also exercise an option by the delivery and
surrender of shares of Company Common Stock which (a) have been owned by the
optionee for at least six months or such other period as the Committee may
require; and (b) have an aggregate fair market value on the date of surrender
equal to the exercise price. In addition, an option may be exercised by
delivering to the Company (i) an exercise notice instructing the Company to
deliver the certificates for the Shares purchased to a designated brokerage firm
and (ii) a copy of irrevocable instructions delivered to the brokerage firm to
sell the Shares acquired upon exercise of the option and to deliver to the
Company from the sale proceeds sufficient cash to pay the exercise price and
applicable withholding taxes arising as a result of the exercise.
The Company shall deliver to the optionee, which delivery shall be not less
than fifteen (15) days and not more than thirty (30) days after the giving of
such notice, without transfer or issue tax to the optionee (or other person
entitled to exercise the option), at the principal office of the Company, or
such other place as shall be mutually acceptable, a certificate or certificates
for such Shares dated the date the options were validly exercised; provided,
however, that the time of such delivery may be postponed by the Company for such
period as may be required for it with reasonable diligence to comply with any
requirements of law.
(b) Transferability of Option and Shares. Each option shall be transferable
only by will or the laws of descent and distribution and shall be exercisable
during the optionee's lifetime only by the optionee, or in the event of
disability, the optionee's qualified representative. In addition, in order for
Shares acquired upon exercise of incentive stock options to receive the tax
treatment afforded such Shares, the Shares may not be disposed of within two
years from the date of the option grant nor within one year after the date of
transfer of such Shares to the optionee.
(c) Withholding. The Company shall have the right to condition the issuance
of Shares upon exercise of an option upon payment by the optionee of any
applicable taxes required to be withheld under federal, state or local tax laws
or regulations in connection with such exercise. An optionee may elect to pay
such tax by (i) requesting the Company to withhold a sufficient number of Shares
from the total number of Shares issuable upon exercise of the option or (ii)
delivering a sufficient number of shares of Company common stock which have been
held by the optionee for at least six months (or such other period as the
Committee may require) to the Company. The value of shares withheld or delivered
shall be the fair market value of such shares on the date the exercise becomes
taxable as determined by the Committee. Such an election is subject to approval
or disapproval by the Committee, and if the optionee is subject to Section 16 of
the Exchange Act, the timing of the election must satisfy the requirements of
Rule 16b-3.
(d) Other Terms and Conditions. Options may also contain such other
provisions, which shall not be inconsistent with any of the foregoing terms, as
the Committee shall deem appropriate. No option, however, nor anything contained
in the Plan, shall confer upon any optionee any right to continue in the employ
or in the status as a director or Consultant of the Company, nor limit in any
way the right of the Company to terminate an optionee's employment or status as
a Consultant at any time.
7. ADJUSTMENT OF, AND CHANGES IN, THE SHARES.
(a) Changes in Capitalization. In the event the shares of Common Stock of
the Company, as presently constituted, shall be changed into or exchanged for a
different number or kind of shares of stock or other securities of the Company
or of another corporation (whether by reason of reorganization, merger,
consolidation, recapitalization, reclassification, stock split, reverse stock
split, combination of shares, or otherwise), or if the number of Shares of
common stock of the Company shall be increased through the payment of a stock
dividend, there shall be substituted for or added to each Share of common stock
of the Company theretofore appropriated or thereafter subject or which may
become subject to an option under the Plan, the number and kind of shares of
stock or other securities into which each outstanding share of common stock of
the Company shall be so changed, or for which each share shall be exchanged, or
to which each such share shall be entitled, as the case may be. In addition,
appropriate adjustment shall be made in the number and kind of Shares as to
which outstanding options, or portions thereof then unexercised, shall be
exercisable, so that any optionee's proportionate interest in the Company by
reason of his or her rights under unexercised portions of such options shall be
maintained as before the occurrence of such event. Such adjustment in
outstanding options shall be made without change in the total price to the
unexercised portion of the option and with a corresponding adjustment in the
option price per share.
(b) Dissolution, Liquidation, Sale or Merger. In the event of a proposed
dissolution or liquidation of the Company, options outstanding under the Plan
shall terminate immediately before the consummation of such proposed action. The
Board will, in such circumstances, provide written notice to the optionees of
the expected dates of termination of outstanding options and consummation of the
proposed dissolution or liquidation.
In the event of a proposed sale of all or substantially all of the assets
of the Company, or the merger of the Company with or into another corporation in
a transaction in which the Company is not the surviving corporation, outstanding
options may be assumed or equivalent options may be substituted by the successor
corporation (or a parent or subsidiary of the successor corporation), unless the
successor corporation does not agree to assume the options or to substitute
equivalent options. If outstanding options are not assumed or substituted by
equivalent options, all outstanding options shall terminate immediately before
the consummation of such sale or merger (subject to the actual consummation of
the sale or merger) and the Company shall provide written notice to the
optionees of the expected dates of termination of the options and consummation
of such transaction. If the transaction is not consummated, unexercised options
shall continue in accordance with their original terms.
(c) Notice of Adjustments, Fractional Shares. To the extent the foregoing
adjustments relate to stock or securities of the Company, such adjustments shall
be made by the Committee, whose determination in that respect shall be final,
binding and conclusive. No right to purchase fractional shares shall result from
any adjustment in options pursuant to this Section 8. In case of any such
adjustment, the shares subject to the option shall be rounded down to the
nearest whole share. Notice of any adjustment shall be given by the Company to
each holder of an option which was in fact so adjusted and such adjustment
(whether or not such notice is given) shall be effective and binding for all
purposes of the Plan.
No adjustment shall be made for dividends or other rights for which the
record date is prior to the date of such issuance, except as provided in this
Section.
Any issue by the Company of shares of stock of any class, or securities
convertible into shares of any class, shall not affect the number or price of
shares of common stock subject to the option, and no adjustment by reason
thereof shall be made. The grant of an option pursuant to the Plan shall not
affect in any way the right or power of the Company to make adjustments,
reclassifications, reorganizations or changes of its capital or business
structure or to merge or to consolidate or to dissolve, liquidate or sell, or
transfer all or any part of its business or assets.
8. AMENDMENT, EFFECTIVENESS AND TERMINATION OF THE PLAN.
The Board shall have complete power and authority to terminate or amend the
Plan; provided, however, that the Board shall not, without the approval of the
shareholders of the Company, amend the Plan in a manner that requires
shareholder approval for continued compliance with the terms of Rule 16b-3, as
promulgated under the Exchange Act, Section 422 of the Code, any successor
rules, or other regulatory authority. Except as provided in Section 8, no
termination, modification or amendment of the Plan may, without the consent of
the optionee to whom such option was previously granted under the Plan,
adversely affect the rights of such optionee. Any consent required by the
preceding sentence may be obtained in any manner deemed appropriate by the
Committee.
The Plan became effective upon adoption by the Board of Directors and
approval by the shareholders of the Company at the Company's 1994 annual meeting
of shareholders.
The Plan, unless sooner terminated, shall terminate on March 18, 2004, ten
years from the date the Plan was originally adopted by the Board. An option may
not be granted under the Plan after the Plan is terminated.
9. INFORMATION TO OPTIONEES.
The Company shall provide to each optionee, during the period for which he
or she has one or more outstanding options, copies of all annual reports and all
other information which is provided to shareholders of the Company. The Company
shall not be required to provide such information to key employees whose duties
in connection with the Company assure their access to equivalent information.
10. PRIVILEGES OF STOCK OWNERSHIP, SECURITIES LAW COMPLIANCE AND NOTICE OF SALE
No optionee shall be entitled to the privileges of stock ownership as to
any Shares not actually issued and delivered to the optionee. The exercise of
any option under the Plan shall be conditioned upon the registration of the
Shares with the SEC and qualification of the options and underlying Shares under
the California securities laws, unless in the opinion of counsel to the Company
such registration or qualification is not necessary. The Company shall
diligently endeavor to comply with all applicable securities laws applicable to
the Plan.
11. NOTICE OF SALE.
The optionee shall give the Company notice of any sale or other disposition
of any Shares acquired upon exercise of an incentive stock option not more than
five days after such sale or disposition.
12. INDEMNIFICATION.
To the extent permitted by applicable law in effect from time to time, no
member of the Board or the Committee shall be liable for any action or omission
of any other member of the Board or Committee nor for any act or omission on the
member's own part, excepting only the member's own willful misconduct or gross
negligence. The Company shall pay expenses incurred by, and satisfy a judgment
or fine rendered or levied against, a present or former director or member of
the Committee in any action against such person (whether or not the Company is
joined as a party defendant) to impose liability or a penalty on such person for
an act alleged to have been committed by such person while a director or member
of the Committee arising with respect to the Plan or administration thereof or
out of membership on the Committee or by the Company, or all or any combination
of the preceding; provided the director or Committee member was acting in good
faith, within what such director or Committee member reasonably believed to have
been within the scope of his or her employment or authority and for a purpose
which he or she reasonably believed to be in the best interests of the Company
or its shareholders. Payments authorized hereunder include amounts paid and
expenses incurred in settling any such action or threatened action.
This section does not apply to any action instituted or maintained in the
right of the Company by a shareholder or holder of a voting trust certificate
representing shares of the Company.
The provisions of this section shall apply to the estate, executor,
administrator, heirs, legatees or devisees of a director or Committee member,
and the term "person" as used in this section shall include the estate,
executor, administrator, heirs, legatees or devisees of such person.
SARATOGA BANCORP
INCENTIVE STOCK OPTION AGREEMENT
Saratoga Bancorp, a California corporation (the "Company") , has granted to
______________ (the "Optionee"), an option (the "Option") to purchase a total of
______ shares of Common Stock, at the price determined as provided herein, and
in all respects subject to the terms, definitions and provisions of the Saratoga
Bancorp 1994 Stock Option Plan (the "Plan"). The terms defined in the Plan shall
have the same defined meanings herein.
1. Nature of the Option. This Option is intended to qualify as an Incentive
Stock Option as defined in Section 422 of the Code.
2. Exercise Price. The exercise price is $ ________ for each share of Common
Stock, which price is not less than the fair market value per share of the
Common Stock on the date of grant.
3. Exercise of Option. This Option shall be exercisable during its term in
accordance with the provisions of Section 6 of the Plan as follows:
(a) Right to Exercise.
(i) This Option shall vest cumulatively from the date of grant of the
Option, exercisable during a period of ____months after the date of
grant as follows:____% of the Shares subject to the Option shall be
vested on the first anniversary of the date of grant, and an
additional ____% of the Shares subject to the option shall vest on
each anniversary of the date of grant thereafter. [insert other
vesting provisions as determined by the committee, not less than 20%
per year over a five year term.]
(ii) This Option may not be exercised for less than 10 shares nor for
a fraction of a share.
(iii) In the event of Optionee's death, disability or other
termination of employment, the exercisability of the Option is
governed by Sections 5, 6, 7 and 8 below.
(b) Method of Exercise. This Option shall be exercisable by written notice
which shall state the election to exercise the Option, the number of shares
in respect of which the Option is being exercised, and such other
representations and agreements as may be required by the Company pursuant
to the provisions of the Plan. Such written notice shall be signed by the
Optionee and shall be delivered in person or by certified mail to the
Secretary of the Company accompanied by payment of the exercise price.
No Shares will be issued pursuant to the exercise of an Option unless such
issuance and such exercise shall comply with all relevant provisions of law
and the requirements of any stock exchange or inter-dealer quotation system
upon which the shares of the Company's Common Stock may then be listed or
quoted. Assuming such compliance, the shares shall be considered
transferred to the Optionee on the date on which the Option is exercised
with respect to such Shares. An Optionee shall have no rights as a
shareholder of the Company with respect to any shares until the issuance of
a stock certificate to the Optionee for such shares.
4. Method of Payment. Payment of the exercise price shall be by cash, certified
check, official bank check, or the equivalent thereof acceptable to the Company,
or by the delivery of previously owned shares of the Company's Common Stock held
for the requisite period necessary to avoid a charge to the Company's reported
earnings and with a fair market value on the date of surrender equal to the
exercise price.
5. Termination of Status as an Employee For Any Reason Other Than Cause. If
Optionee ceases to serve as an Employee, he may, but only within three months
after the date he ceases to be an Employee of the Company, exercise this Option
to the extent that the Option was vested as of the date of such termination;
provided that in no event is the date of exercise beyond expiration of the
option. To the extent that the Option was not vested as of the date of such
termination, or if Optionee does not exercise this Option within the time
specified herein, the Option shall terminate.
6. Termination of Status as an Employee For Cause. If Optionee's status as an
Employee is terminated for Cause, as provided in Section 6(d) of the Plan, this
Option shall terminate on the thirtieth day after the date of termination of
employment. "Cause" may consist of an act of embezzlement; fraud; dishonesty;
breach of fiduciary duty to the Company; deliberate disregard of the rules of
the Company which result in loss, damage or injury to the Company; the
unauthorized disclosure of any of the secrets or confidential information of the
Company; the inducement of any client or customer of the Company to break any
contract with the Company or the inducement of any principal for whom the
Company acts as agent to terminate such agency relations; engagement in any
conduct which constitutes unfair competition with the Company; or the removal of
Optionee from any office of the Company by any bank regulatory agency.
7. Disability of Optionee. Notwithstanding the provisions of Section 5 above, if
Optionee is unable to continue his employment with the Company as a result of
his disability (as defined below), he may, within twelve months from the date of
termination of employment, exercise his Option to the extent the Option was
vested as of the date of such termination; provided that in no event is the date
of exercise beyond expiration of the Option; and, provided further, that, in
certain situations, an exercise after three months following such termination
may preclude favorable tax treatment normally accorded incentive stock options
(i.e., the option will be taxed as a non-qualified stock option). To the extent
that the Option was not vested as of the date of termination, or if Optionee
does not exercise such Option within the time specified herein, the Option shall
terminate. For purposes of this provision, "disability" shall mean the inability
of Optionee to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment and shall be determined by
the Board of Directors or the Committee on the basis of such medical evidence as
the Board of Directors or Committee deems warranted under the circumstances.
8. Death of Optionee. In the event of the death of Optionee while Optionee is an
Employee of the Company, the Option may be exercised, at any time within twelve
(12) months following the date of death, by Optionee's estate or by a person who
acquired the right to exercise the Option by bequest or inheritance, but only to
the extent the Option was vested as of the date of death; provided that in no
event is the date of exercise beyond expiration of the Option.
9. Non-Transferability of Option. This Option may not be transferred in any
manner otherwise than by will or by the laws of descent or distribution and may
be exercised during the lifetime of Optionee only by him. The terms of this
Option shall be binding upon the executors, administrators, heirs, successors
and assigns of the Optionee.
10. Term of Option. Subject to earlier termination as provided in the Plan, this
Option shall terminate 10 years from the date of grant of this Option, and may
be exercised during such term only in accordance with the Plan and the terms of
this Option.
11. Early Disposition of Stock. Optionee understands that if he disposes of any
shares received under this Option within two (2) years after the date of this
Agreement or within one (1) year after such shares were transferred to him, he
will be treated for federal income tax purposes as having received ordinary
income at the time of such disposition in an amount generally measured by the
difference between the exercise price and the lower of the fair market value of
the shares at the date of the exercise or the fair market value of the shares at
the date of disposition. Optionee agrees to notify the Company in writing within
5 days after the date of any such disposition. Optionee understands that if he
disposes of such shares at any time after the expiration of such two-year and
one-year holding periods, any gain on such sale will be taxed as long-term
capital gain.
12. Qualification as an Incentive Stock Option. Optionee understands that the
option is intended to qualify as an "incentive stock option" within the meaning
of Section 422 of the Code. Optionee understands, further, that: (a) under the
Code , if an optionee is unable to continue his or her employment with the
Company as a result of a total and permanent disability (as defined in Section
22(e)(3) of the Code), and if the other requirements for incentive stock option
treatment contained in Section 422 of the Code are satisfied, Optionee will be
entitled to exercise the Option within twelve (12) months of such termination
without defeating incentive stock option treatment; but (b) if Optionee is
unable to continue his or her employment with the Company as a result of his or
her disability, and such disability is not a total and permanent disability (as
defined in Section 22(e)(3) of the Code), the Option will not qualify as an
incentive stock option unless it is exercised within three (3) months of the
date of termination (i.e., while the Option may be exercised for a period of
twelve (12) months after such termination, the exercise more than three (3)
months following termination will result in the Option being taxed as a
non-qualified stock option). Finally, Optionee understands that: (a) the
exercise price for the shares subject to this option has been determined in
accordance with the Plan at a price not less than 100% (or, if Optionee owned at
the time of grant more than 10% of the voting securities of the Company, 110%)
of the fair market value of the shares at the time of grant; (b) the Company
believes that the methodology by which the fair market value was determined at
such time represented a good faith attempt, as defined in the Code and the
regulations thereunder, at reaching an accurate appraisal of the fair market
value of the shares; and (c) the Company shall not be responsible for any
additional tax liability incurred by Optionee in the event that the Internal
Revenue Service were to determine that the Option does not qualify as an
incentive stock option, for any reason, including a determination that the
valuation did not represent a good faith attempt to value the shares.
DATE OF GRANT:
Saratoga Bancorp
By:
Duly Authorized on Behalf
of Saratoga Bancorp
Optionee hereby agrees to accept as binding, conclusive and final all decisions
or interpretations of the Board of Directors and the committee upon any
questions arising under the Plan.
Dated:
Optionee:
<PAGE>
SARATOGA BANCORP
NONSTATUTORY STOCK OPTION AGREEMENT
Saratoga Bancorp, a California corporation (the "Company"), has granted to
______________ (the "Optionee"), an option (the "Option") to purchase a total of
_______ shares of Common Stock, at the price determined as provided herein, and
in all respects subject to the terms, definitions and provisions of the Saratoga
Bancorp 1994 Stock Option Plan, as amended (the "Plan"). The terms defined in
the Plan shall have the same defined meanings herein.
1. NATURE OF THE OPTION.
This Option is intended by the Company and the Optionee to be a
nonstatutory stock option and does not qualify for any special tax benefits to
the Optionee. This option is not an Incentive Stock Option within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended.
2. EXERCISE PRICE.
The exercise price is $______ for each share of Common Stock, which price
is not less than the fair market value per share of the Common Stock on the date
of grant.
3. EXERCISE OF OPTION.
This Option shall be exercisable during its term in accordance with the
provisions of Section 5 of the Plan as follows:
(a) Right to Exercise.
(i) This Option shall be immediately exercisable.
(ii) This Option may not be exercised for less than ten shares nor for
a fraction of a share.
(iii) In the event of Optionee's death, disability or other
termination of employment, the exercisability of the option is
governed by Sections 5, 6, 7 and 8 below.
(b) Method of Exercise. This Option shall be exercisable by written notice
which shall state the election to exercise the Option, the number of
shares in respect of which the option is being exercised, and such
other representations and agreements as may be required by the Company
pursuant to the provisions of the Plan. Such written notice shall be
signed by the Optionee and shall be delivered in person or by
certified mail to the Secretary of the Company.
No shares will be issued pursuant to the exercise of an option unless such
issuance and such exercise shall comply with all relevant provisions of law and
the requirements of any stock exchange or inter-dealer quotation system upon
which the Shares may then be listed or quoted. Assuming such compliance, the
shares shall be considered transferred to the Optionee on the date on which the
option is exercised with respect to such shares. An Optionee shall have no
rights as a shareholder of the Company with respect to any shares, until the
issuance of a stock certificate to the Optionee for such shares.
4. METHOD OF PAYMENT.
Payment of the exercise price shall be by cash, certified check, official
bank check, or by the delivery of previously owned shares of the Company's
Common Stock held for the requisite period to avoid a charge to the Company's
reported earnings and with a fair market value on the date of surrender equal to
the exercise price. In addition, the Optionee may exercise the Option by
delivering to the Company, together with the exercise notice, (i) a copy of
irrevocable written instructions provided by the Optionee to a designated
brokerage firm to effect the immediate sale of the purchased Shares and remit to
the Company, out of the sale proceeds available on the settlement date,
sufficient funds to cover the aggregate exercise price payable for the purchased
Shares plus all applicable federal, state and local income and employment taxes
required to be withheld by the Company by reason of such purchase and (ii)
written instructions to the Company to deliver the certificates for the
purchased Shares directly to such brokerage firm in order to complete the sale
transaction.
5. TERMINATION OF STATUS AS AN EMPLOYEE OR DIRECTOR FOR ANY REASON OTHER THAN
CAUSE.
If an Optionee ceases to serve as an Employee or Director, he may, but only
within three months after the date he ceases to be an Employee or Director of
the Company, exercise this Option to the extent that the Option was vested as of
the date of such termination; provided that in no event is the date of the
exercise beyond expiration of the Option. To the extent that the option was not
vested as of the date of such termination, or if Optionee does not exercise this
option within the time specified herein, the Option shall terminate.
6. TERMINATION OF STATUS AS AN EMPLOYEE FOR CAUSE.
If an Optionee's status as an Employee is terminated for Cause, as provided
in Section 5(d) of the Plan, this Option shall terminate on the thirtieth day
after the date of termination of employment. "Cause" may consist of an act of
embezzlement; fraud; dishonesty; breach of fiduciary duty to the Company;
deliberate disregard of the rules of the Company which result in loss, damage or
injury to the Company; the unauthorized disclosure of any of the secrets or
confidential information of the Company; the inducement of any client or
customer of the Company to break any contract with the Company or the inducement
of any principal for whom the Company acts as agent to terminate such agency
relations; engagement in any conduct which constitutes unfair competition with
the Company; or the removal of Optionee from any office of the Company by any
bank regulatory agency.
7. DISABILITY OF OPTIONEE.
Notwithstanding the provisions of Section 5 above, if Optionee is unable to
continue his employment with the Company as a result of his disability (as
defined below), he may, within twelve months from the date of termination of
employment, exercise his option to the extent the Option was vested as of the
date of such termination; provided that in no event is the date of exercise
beyond expiration of the Option. To the extent that the Option was not vested as
of the date of termination, or if he does not exercise such Option within the
time specified herein, the option shall terminate. For purposes of this
provision, "disability" shall mean the inability of Optionee to engage in any
substantial gainful activity by reason of any medically determinable physical or
mental impairment and shall be determined by the Board of Directors or the
Committee on the basis of such medical evidence as the Board of Directors or
Committee deems warranted under the circumstances.
8. DEATH OF OPTIONEE.
In the event of the death of Optionee while Optionee is an Employee or
Director or during the period referred to in Section 5 above, the option my be
exercised, at any time within twelve (12) months following the date of death (or
such longer period as the committee determines), by Optionee's estate or by a
person who acquired the right to exercise the Option by bequest or inheritance,
but only to the extent the Option was vested as of the date of death; provided
that in no event is the date of exercise beyond expiration of the option.
9. NON-TRANSFERABILITY OF OPTION.
This Option may not be transferred in any manner otherwise than by will or
by the laws of descent or distribution and may be exercised during the lifetime
of Optionee only by him. The terms of this option shall be binding upon the
executors, administrators, heirs, successors and assigns of the Optionee.
10. TERM OF OPTION.
Subject to earlier termination as provided in the Plan, the Option shall
terminate ten (10) years from the date of grant of this Option, any may be
exercised during such term only in accordance with the Plan and the terms of
this Option.
11. TAXATION UPON EXERCISE OF OPTION.
Optionee understands that upon exercise of this Option, he will generally
recognize income for tax purposes in an amount equal to the excess of the then
fair market value of the Shares over the exercise price. The Company will be
required to withhold tax from Optionee's current compensation with respect to
such income; to the extent that Optionee's current compensation is insufficient
to satisfy the withholding tax liability, the company may require the Optionee
to make a cash payment to cover such liability as a condition of exercise of
this Option. (The Optionee may elect to pay such tax by (i) requesting the
Company to withhold a sufficient number of shares from the shares otherwise due
upon exercise or (ii) by delivering a sufficient number of shares of the
Company's Common Stock which have been previously held by the Optionee for such
period of time as the Committee may require. The aggregate value of the shares
withheld or delivered, as determined by the Committee must be sufficient to
satisfy all such applicable taxes, except as otherwise permitted by the
Committee. If the Optionee is subject to Section 16 of the Securities Exchange
Act of 1934, as amended, the Optionee's election must be made in compliance with
rules and procedures established by the Committee.)
Date of Grant: SARATOGA BANCORP
By:
Name:
Duly authorized on behalf of
Saratoga Bancorp
Optionee hereby agrees to accept as binding, conclusive and final all
decisions or interpretations of the Board of Directors or the Committee upon any
questions arising under the Plan.
Dated:
Optionee:
<PAGE>
SARATOGA BANCORP
NONSTATUTORY STOCK OPTION AGREEMENT
FOR OUTSIDE DIRECTORS
Pursuant to the automatic nondiscretionary terms of Section 5 of the
Saratoga Bancorp 1994 Stock Option Plan (the "Plan"), Saratoga Bancorp, a
California corporation (the "Company"), hereby grants to _________________ (the
"Optionee"), an option (the "Option") to purchase a total of ________ shares of
Common Stock, at the price determined as provided herein, and in all respects
subject to the terms, definitions and provisions of the Plan. The terms defined
in the Plan shall have the same defined meanings herein.
1. Nature of the Option. This Option is intended by the Company and the
Optionee to be a nonstatutory stock option and does not qualify for any special
tax benefits to the Optionee. This option is not an Incentive Stock Option
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended.
2. Exercise Price. The exercise price is $ _______ for each share of Common
Stock, which price is not less than the fair market value per share of the
Common Stock on the date of grant.
3. Exercise of Option. This Option shall be immediately exercisable in
accordance with Section 5(c) of the Plan. This Option may not be exercised for
less than ten shares nor for a fraction of a share. In the event of Optionee's
death, disability or other termination of his status as an Outside Director, the
exercisability of the Option is governed by Sections 6, 7 and 8 below.
4. Method of Exercise. This Option shall be exercisable by written notice
which shall state the election to exercise the Option, the number of shares in
respect of which the Option is being exercised, and such other representations
and agreements as may be required by the Company pursuant to the provisions of
the Plan. Such written notice shall be signed by the Optionee and shall be
delivered in person or by certified mail to the Secretary of the Company.
No shares will be issued pursuant to the exercise of an Option unless such
issuance and such exercise shall comply with all relevant provisions of law and
the requirements of any stock exchange or inter-dealer quotation system upon
which the Shares may then be listed or quoted. Assuming such compliance, the
shares shall be considered transferred to the Optionee on the date on which the
Option is exercised with respect to such shares. An Optionee shall have no
rights as a shareholder of the Company with respect to any shares until the
issuance of a stock certificate to the Optionee for such shares.
5. Method of Payment. Payment of the exercise price shall be by cash,
certified check, official bank check, or by the delivery of previously owned
shares of the Company's Common Stock held for the requisite period to avoid a
charge to the Company's reported earnings and with a fair market value on the
date of surrender equal to the exercise price. In addition, the Optionee may
exercise the Option by delivering to the Company, together with the exercise
notice, (i) a copy of irrevocable written instructions provided by the Optionee
to a designated brokerage firm to effect the immediate sale of the purchased
Shares and remit to the Company, out of the sale proceeds available on the
settlement date, sufficient funds to cover the aggregate exercise price payable
for the purchased Shares plus all applicable federal, state and local income and
employment taxes required to be withheld by the Company by reason of such
purchase and (ii) written instructions to the Company to deliver the
certificates for the purchased Shares directly to such brokerage firm in order
to complete the sale transaction.
6. Termination of Status as an outside Director For Any Reason Other Than
Cause. If an Optionee ceases to serve as an outside Director, he may, but only
within three months after the date he ceases to be an outside Director, exercise
this Option; provided that in no event is the date of exercise beyond expiration
of the option. To the extent that Optionee does not exercise this option within
the time specified herein, the Option shall terminate.
7. Disability of Optionee. Notwithstanding the provisions of section 6
above, if Optionee is unable to continue his service as an outside Director as a
result of his disability, he may, within twelve months from the date of such
disability exercise this Option; provided that in no event is the date of
exercise beyond expiration of the Option. To the extent that Optionee does not
exercise this Option within the time specified herein, the option shall
terminate.
8. Death of Optionee. In the event of the death of Optionee while Optionee
is an Outside Director, the option may be exercised, at any time within twelve
(12) months following the date of death by Optionee's estate or by a person who
acquired the right to exercise the Option by bequest or inheritance; provided
that in no event is the date of exercise beyond expiration of the Option. To the
extent that this Option is not exercised within the time specified herein, the
option shall terminate.
9. Non-Transferability of Option. This Option may not be transferred in any
manner otherwise than by will or by the laws of descent or distribution and may
be exercised during the lifetime of Optionee only by him. The terms of this
Option shall be binding upon the executors, administrators, heirs, successors
and assigns of the optionee.
10. Term of Option. Subject to earlier termination as provided in the Plan,
this Option shall terminate ten years from the date of grant of this option, and
may be exercised during such term only in accordance with the Plan and the terms
of this Option.
DATE OF GRANT:
Saratoga Bancorp
By:
Duly Authorized on Behalf of Saratoga Bancorp
Optionee hereby agrees to accept as binding, conclusive and final all
decisions or interpretations of the Board of Directors or the Committee upon any
questions arising under the Plan.
Dated: By:
-----------------------------
Optionee
AGREEMENT OF PURCHASE AND SALE
BY THIS AGREEMENT, dated for reference purposes the 27th day of July, 1988,
Saratoga National Bank ("Buyer"), does herein agree to purchase from Independent
Holdings, Inc., a California Corporation ("Seller"), that certain real property
and improvements thereon, situated in the City of Saratoga, County of Santa
Clara, State of California, ("Property"), described as follows:
Parcel 1 as identified in that certain preliminary title report issued by
Continental Land Title Company, dated as of April 29, 1988, No. HL144634 ("Title
Report"), a copy of which is attached hereto, marked Exhibit "A", and
incorporated by reference herein.
1. Purchase Price. The purchase price shall be One Million Eight Hundred
Thousand and no/100 ($1,800,000.00) Dollars., payable in lawful money of the
United States of America as follows:
a. Fifty Thousand and no/100 ($50,000.00) Dollars (CASH) evidenced by
Personal Check as deposit on the purchase price, receipt of which is
hereby acknowledged by Broker. Said sum shall be paid by Buyer to
Seller, which shall be nonrefundable and paid to Seller outside of
escrow.
b. One Million Eight Hundred Thousand and no/100 ($1,800,000.00) Dollars
including the above deposit, to be paid at the close of escrow, less
the balance of the note to be assumed by Buyer.
c. Buyer to assume the existing first note secured by deed of trust, or
at Buyer's option, to pay off said first note.
2. Escrow. Within ten (10) days after Buyer's execution hereof an escrow
shall be opened by depositing a signed copy of this Agreement with the Escrow
Holder. Escrow Holder is hereby authorized and instructed to act in accordance
with the provisions of this Agreement, which Agreement together with Escrow
Holder's Standard general provisions, shall constitute Escrow Holder's escrow
instructions. Seller and Buyer shall each deposit such other instruments and
funds as are necessary to close the escrow and complete the sale and purchase of
the property in accordance with the terms hereof. The obligations of each party
which are herein agreed to be undertaken by each party in the escrow shall be
and are hereby made agreements of such party in and under this Agreement
independent of the escrow. If any requirements relating to the duties or
obligations of Escrow Holder hereunder are not acceptable to Escrow Holder, or
if Escrow Holder requires additional instructions, the parties agree to make
such deletions, substitutions and additions to these escrow instructions
relating to such duties or obligations of Escrow Holder or clarification of
these instructions as counsel for Seller and for Buyer shall mutually approve,
and which do not substantially change this Agreement or its intent. Seller and
Buyer agree to perform, observe and fulfill the requirements of this Agreement
notwithstanding said deletions, substitutions or additions to said escrow
instructions. Seller and Buyer shall deposit all necessary documents with the
escrow holder in a timely manner. The date for close of escrow shall be
determined pursuant to Section 20 hereof.
3. Title. Buyer acknowledges receipt of a copy of the above-referenced
Title Report attached hereto as Exhibit "A" and approves the report.
4. Transfer Tax; Escrow Fees. Seller hereby agrees to pay any County
Documentary Tax. Buyer and Seller shall each pay one-half of the escrow fees for
this transaction, and any city conveyance tax.
5. Properties. Real property taxes and the current installment of any
special assessments shall be prorated through escrow to the close of escrow,
such proration to be based upon the current tax bill for the Property.
Non-delinquent tenant rentals shall be prorated through escrow to the close of
escrow. Rentals delinquent at the closing shall be prorated to the close of
escrow when and if collected.
b. Deposits. The amount of any security deposits and other tenant
deposits retained by Seller shall be credited to Buyer in the
escrow, and Buyer shall agree to hold Seller harmless from any
claim by any tenant for the return of such deposits.
c. Utilities. Seller shall be responsible for all utility services
to the Property and payment therefore until 5:00 P.M. on the
closing date and Buyer shall be responsible for utility services
and payments therefore thereafter. Seller shall be entitled to a
return of any deposits posted by it with any utility company and
Buyer shall be obligated to post its own deposits. Seller shall
notify each utility company of the change in ownership but Buyer
shall execute all forms necessary to assume responsibility for
utility services after the close of escrow.
d. Service and Maintenance Contracts. Seller shall be responsible
for payment of all service and maintenance contracts to 5:00 P.M.
of the closing date and Buyer shall be responsible for such
payment thereafter.
Taxes. Tax information including assessments, it any has been obtained and
conveyed to Buyer by the Broker named below from the records of the County
Assessor.
Assessments. Any existing assessment and/or improvement bonds, either
currently of record or levied prior to recordation of the Grant Deed to Buyer
shall be assumed by Buyer.
Possession. Possession of the subject property shall be delivered to Buyer
immediately upon recordation of the Grant Deed.
Entire Agreement. This Agreement contains the entire agreement and
understanding of the parties hereto and is executed voluntarily after full
investigation, and is not made in reliance upon any representation or statement
made by the Seller or Broker. Buyer hereby acknowledges receipt of a copy
hereof. This Agreement shall survive the recordation of the Grant Deed and the
close of escrow.
Assignment. Buyer may assign its rights hereunder with the prior written
consent of Seller. Seller may assign its rights hereunder so long as it
covenants to remain responsible for the full performance hereof through close of
escrow.
Destruction and Condemnation. In the event the Property shall be damaged by
reason of an insured peril, this transaction shall close as scheduled but Seller
shall pay over to Buyer in Escrow, at closing, all insurance proceeds received,
and assign to Buyer Seller's rights to insurance proceeds not yet received in
connection with the casualty. Notwithstanding any other provisions hereof,
closing in such event shall in no case occur later than ninety (90) days
following the date of the casualty, or the date close of escrow would otherwise
have occurred under the terms hereof, whichever occurs later.
In the event of damage to the Property occasioned by an uninsured peril,
Seller may, at its option, either (1) terminate this agreement, or (2) restore
the Property, in which case the time set for close of escrow shall be extended
for up to 120 days to permit said restoration.
In the event that, prior to the Close of Escrow, a governmental entity
shall commence any action of eminent domain to take any portion or all of the
Property, the closing called for herein shall occur and Buyer shall be entitled
to the award relating to the eminent domain proceeding(s).
12. A. FLOOD CONTROL ACT. To the best of Seller's actual knowledge, the
property is not located in a "flood zone" as set forth on H.U.D. "Special Flood
Zone Area Maps." As a condition to obtaining financing on most properties
located in "flood zones," some banks, savings and loan associations and
insurance lenders require that H.U.D. flood insurance be carried where such
properties are security for the loan. This requirement is mandated by the H.U.D.
National Flood Insurance Program and became effective March 1, 1975. Buyer
acknowledges that Buyer has not received or relied upon any representations from
either Seller or Broker(s) regarding the application, legal effect,
interpretation or economic consequences of the National Flood Insurance Program
and related legislation.
B. SPECIAL STUDIES ZONE ACT. To the best of Seller's actual knowledge, the
Property is not located in a Special Study Zone as designed under the
Alquist-Priolo Special Studies Zone Act, Sections 2621-2630 inclusive of the
California Public Resources Code, or is otherwise in an area of high geologic
hazard, and as such the construction or development on the Property of any
structure for human occupancy may be subject to the findings of a geologic
report prepared by a geologist registered in the State of California, unless
such a report is waived by the applicable governmental authority under the terms
of that Act. Buyer acknowledges that Buyer has not received or relied upon any
representation on this subject matter by Seller or Broker(s).
13. LIQUIDATED DAMAGES; SPECIFIC PERFORMANCE
THE PARTIES AGREE THAT IT WOULD BE IMPRACTICABLE AND EXTREMELY DIFFICULT AT THE
TIME OF MAKING THIS AGREEMENT TO ESTIMATE THE DAMAGES WHICH SELLER MAY SUFFER BY
REASON OF ANY DEFAULT BY BUYER IN THE TIMELY PERFORMANCE OF ITS OBLIGATION TO
PURCHASE THE PROPERTY AS PROVIDED HEREIN. THE PARTIES HERETO FURTHER AGREE THAT
THEIR BEST ESTIMATE, BASED ON ALL RELEVANT FACTS, OF THE TOTAL DAMAGE THAT
SELLER WOULD SUFFER IN THE EVENT OF ANY DEFAULT IN THE TIMELY PERFORMANCE BY
BUYER OF BUYER'S OBLIGATION TO PURCHASE THE PROPERTY, IS AND SHALL BE FIFTY
THOUSAND DOLLARS ($50,000.00). ACCORDINGLY, IN THE EVENT BUYER FAILS TO PERFORM
ITS OBLIGATION TO PURCHASE THE PROPERTY UNDER THIS AGREEMENT, UNLESS SELLER IS
THEN IN DEFAULT HEREUNDER, SELLER SHALL BE RELEASED FROM ITS OBLIGATION TO SELL
THE PROPERTY TO BUYER AND SELLER SHALL BE ENTITLED, AS ITS SOLE AND EXCLUSIVE
REMEDY, TO RETAIN THE AMOUNT OF THE DEPOSIT THERETOFORE RELEASED TO SELLER FROM
THE ESCROW AS LIQUIDATED DAMAGES. SELLER AND BUYER HAVE BOTH PLACED THEIR
INITIALS IN THE SPACES BELOW TO INDICATE THAT THEY HAVE READ, UNDERSTAND AND
AGREE TO THIS LIQUIDATED DAMAGES PROVISION.
14. Attorney's Fees. In the event of any controversy, claim or dispute
between the parties hereto arising out of or relating to this Agreement or the
breach thereof, the prevailing party shall be entitled to recover from the
losing party reasonable expenses, attorney's fee and costs.
15. Dual Agency. It is the common business practice of Saratoga Investment
Company and its agents to exclusively list investment real estate and also to
represent Buyers in the purchase of that same real estate. Therefore, Saratoga
Investment Company does hereby give notice to the undersigned Buyer and Seller
that it is representing both Buyer and Seller in this transaction. It is further
disclosed that the undersigned Buyer's agent is representing both Buyer and
Seller in this transaction. The signatures of the Buyer and Seller below attest
that this disclosure was made in writing prior to Buyer and Seller entering into
this Agreement.
16. Time. Time is of the essence of this Agreement.
17. Binding Effect. This Agreement is binding upon the heirs, executors,
administrators, successors and/or assigns of all parties thereto.
18. Seller's Exculpation. Neither the Seller nor any officer, agent or
representative of the Seller shall be held to any personal liability hereunder,
nor shall resort be had to their private property for satisfaction of any claim
hereunder or in connection with the affairs of the Seller, and only the Property
herein shall be liable. This limitation shall extend to any agreement, covenant.
assignment, assumption or action made, delivered, executed or done under or in
connection with this agreement.
19. Condition of Property. By close of escrow as herein prescribed, and
delivery by Seller to Buyer of possession of the Property at closing, Buyer
shall be conclusively deemed to have accepted the property in its "as is"
condition without representation or warranty by Seller. Buyer represents and
warrants that it has relied upon its own inspections and that of its
professional advisers in its examination of the Property and all improvements
thereupon.
20. Contingency. Buyer acknowledges that Seller does not presently own the
Property, but that Seller has entered into an option agreement with the current
owner for acquisition of the Property and the other parcels referenced in the
Title Report. Said parcels collectively comprise the Park Saratoga Shopping
Center. Within Seller's agreement with the owner, escrow is scheduled to close
on or before August 31, 1988. Escrow created hereunder shall be scheduled to
close contemporaneously therewith, but not later than the August 31, 1988
closing date unless extended as herein set forth. If Buyer elects to extend the
Closing Date, then Buyer shall make an additional payment to Seller of
$50,000.00 by August 29, 1988 (which shall be nonrefundable and paid to Seller
outside of escrow), and the Closing Date shall be extended to September 30,
1988. If Seller is unable for any reason (except seller's willful breach of its
agreement with the owner) to acquire title to the entire Park Saratoga Shopping
Center within one hundred twenty (120) days after exercise of the option, then
this Agreement shall automatically terminate and be of no further force and
effect, and Buyer shall be entitled to the return of all deposits made pursuant
to this Agreement.
21. Reciprocal Easement Agreement. Prior to close of escrow, but contingent
thereon, Buyer and Seller shall enter into a Reciprocal Easement Agreement in
the form attached hereto as Exhibit "B." Said Agreement shall be recorded at
close of escrow.
22. Bank Lease. Buyer shall take title subject to the existing leasehold of
Saratoga National Bank and shall agree to assume all obligations of Lessor
thereunder and to hold Seller harmless therefrom.
NOTICE: TO SELLER AND BUYER: Saratoga Investment Company, the Broker in
this transaction, is not authorized to give legal or tax advice, no
representation or recommendation is made by Saratoga Investment Company or its
agents or employees as to the legal sufficiency, legal effect or tax
consequences of this document or any transaction relating thereto, since these
are matters which should be discussed with your attorney.
BROKER BUYER
SARATOGA INVESTMENT COMPANY SARATOGA NATIONAL BANK
/s/ Norman A. Nason /s/ Richard L. Mount,
Norman A. Nason Richard L. Mount, President
NOTICE: THE AMOUNT OF REAL ESTATE COMMISSIONS IS NOT FIXED BY LAW. THEY ARE SET
BY EACH BROKER INDIVIDUALLY AND MAY BE NEGOTIATED BETWEEN THE SELLER AND BROKER.
On this 28th day of July, 1988, the purchase depicted herein is hereby accepted
and I (we) agree to sell the subject property on the stated terms and
conditions. The Seller acknowledges receipt of a copy of this Agreement. I (we)
further agree to pay SARATOGA INVESTMENT COMPANY Broker, a real estate
commission being $11,500.00.
SELLER
INDEPENDENT HOLDINGS INC.
/s/ Martin Zanbel
Date: July 28, 1988
DIRECTOR SUPPLEMENTAL COMPENSATION AGREEMENT
This Agreement is made and entered into effective as of _________, 1998 by
and between Saratoga National Bank, a national banking association chartered
under the federal laws of the United States of America with its principal
offices located in the City of Saratoga, Santa Clara County, California (the
"Bank"), and __________________, an individual residing in the State of
California (the "Director").
RECITALS
WHEREAS, the Director is a member of the Board of Directors of the Bank and
has served in such capacity since 1982;
WHEREAS, the Bank desires to establish a compensation benefit for directors
who are not also officers or employees of the Bank in order to attract and
retain individuals with extensive and valuable experience as directors; and
WHEREAS, the Director and the Bank wish to specify in writing the terms and
conditions upon which this additional compensatory incentive will be provided to
the Director, or as applicable, to the Director's spouse or designated
beneficiaries, as the case may be.
NOW, THEREFORE, in consideration of the services to be performed by the
Director in the future, as well as the mutual promises and covenants contained
herein, the Director and the Bank agree as follows:
AGREEMENT
1. Terms and Definitions.
1.1. Administrator. The Bank shall be the "Administrator" and, solely
for the purposes of ERISA as defined in subparagraph 1.9 below, the "fiduciary"
of this Agreement where a fiduciary is required by ERISA.
1.2. Applicable Percentage. The term "Applicable Percentage" shall
mean that percentage listed on Schedule "A" attached hereto which is adjacent to
the number of calendar years which shall have elapsed from the date of the
Director's commencement of service to the Bank. Notwithstanding the foregoing or
the percentages set forth on Schedule "A," but subject to all other terms and
conditions set forth herein, the "Applicable Percentage" shall be: (i) provided
payments have not yet begun hereunder, one hundred percent (100%)upon the
occurrence of a "Change in Control" as defined in subparagraph 1.4 below, or the
Director's death, or Disability (as defined in subparagraph 1.6 below), which
death or Disability occurs prior to the termination of the Director's service on
the Board of Directors of the Bank; and (ii) notwithstanding subclause (i) of
this subparagraph 1.2, zero percent (0%)in the event the Director takes any
intentional action which prevents the Bank from collecting the proceeds of any
life insurance policy which the Bank may happen to own at the time of the
Director's death and of which the Bank is the designated beneficiary.
Furthermore, notwithstanding the foregoing, or anything contained in this
Agreement to the contrary, in the event the Director takes any intentional
action which prevents the Bank from collecting the proceeds of any life
insurance policy which the Bank may happen to own at the time of the Director's
death and of which the Bank is the designated beneficiary: (1) the Director's
estate or designated beneficiary shall no longer be entitled to receive any of
the amounts payable under the terms of this Agreement, and (2) the Bank shall
have the right to recover from the Director's estate all of the amounts paid to
the Director's estate (with respect to amounts paid prior to the Director's
death or paid to the Director's estate) or designated beneficiary (with respect
to amounts paid to the designated beneficiary) pursuant to the terms of this
Agreement prior to and after Director's death.
1.3. Beneficiary. The term "beneficiary" or "designated beneficiary"
shall mean the person or persons whom the Director shall designate in a valid
Beneficiary Designation, a copy of which is attached hereto as Schedule "C," to
receive the benefits provided hereunder. A Beneficiary Designation shall be
valid only if it is in the form attached hereto and made apart hereof, completed
and signed by the Director and received by the Administrator prior to the
Director's death.
1.4. Change in Control. The term "Change in Control" shall mean the
occurrence of any of the following events with respect to the Bank (with the
term "Bank" being defined for purposes of determining whether a "Change in
Control" has occurred to include any parent bank holding company owning 100% of
the Bank's outstanding common stock): (i) a change in control of a nature that
would be required to be reported in response to Item 6(e) of Schedule 14A of
Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), or in response to any other form or report to the
regulatory agencies or governmental authorities having jurisdiction over the
Bank or any stock exchange on which the Bank's shares are listed which requires
the reporting of a change in control; (ii) any merger, consolidation or
reorganization of the Bank in which the Bank does not survive;(iii) any sale,
lease, exchange, mortgage, pledge, transfer or other disposition(in one
transaction or a series of transactions) of any assets of the Bank having an
aggregate fair market value of fifty percent (50%) of the total value of the
assets of the Bank, reflected in the most recent balance sheet of the Bank; (iv)
a transaction whereby any "person" (as such term is used in the Exchange Act) or
any individual, corporation, partnership, trust or any other entity becomes the
beneficial owner, directly or indirectly, of securities of the Bank representing
twenty-five percent (25%) or more of the combined voting power of the Bank's
then outstanding securities; or (v) a situation where, in any one-year period,
individuals who at the beginning of such period constitute the Board of
Directors of the Bank cease for any reason to constitute at least a majority
thereof, unless the election, or the nomination for election by the Bank's
shareholders, of each new director is approved by a vote of at least
three-quarters (3/4) of the directors then still in office who were directors at
the beginning of the period.
1.5. The Code. The "Code" shall mean the Internal Revenue Code of
1986, as amended (the "Code").
1.6. Disability/Disabled. The term "Disability" or "Disabled" shall
have the same meaning given such terms in any policy of disability insurance
maintained by the Bank for the benefit of directors including the Director. In
the absence of such a policy which extends coverage to the Director in the event
of disability, the terms shall mean bodily injury or disease (mental or
physical) which wholly and continuously prevents the performance of duty for at
least three months.
1.7. Director Benefits. The term "Director Benefits" shall mean the
benefits determined in accordance with Schedule "B", and reduced or adjusted to
the extent: (i) required under the other provisions of this Agreement,
including, but not limited to, Paragraphs 5, 6 and 7 hereof; (ii) required by
reason of the lawful order of any regulatory agency or body having jurisdiction
over the Bank; or (iii) required in order for the Bank to properly comply with
any and all applicable state and federal laws, including, but not limited to,
income, employment and disability income tax laws (e.g., FICA, FUTA, SDI).
1.8. Early Retirement Date. The term "Early Retirement Date" shall
mean the Retirement, as defined below, of the Director on a date which occurs
prior to the Director attaining sixty-two (62) years of age, but after the
Director has attained fifty-five (55) years of age.
1.9. Effective Date. The term "Effective Date" shall mean the date
first written above.
1.10. ERISA. The term "ERISA" shall mean the Employee Retirement
Income Security Act of 1974, as amended.
1.11. Plan Year. The term "Plan Year" shall mean the Bank's fiscal
year.
1.12. Retirement. The term "Retirement" or "Retires" shall refer to
the date which the Director acknowledges in writing to the Bank to be the last
day of service as a member of the Board of Directors of the Bank.
1.13. Surviving Spouse. The term "Surviving Spouse" shall mean the
person, if any, who shall be legally married to the Director on the date of the
Director's death.
1.14. Removal for Cause. The term "Removal for Cause "shall mean
termination of the service of the Director by reason of any of the following
determined in good faith by the Bank's Board of Directors:
(a) The willful, intentional and material breach or the habitual
and continued neglect by the Director of his or her
employment responsibilities and duties;
(b) The continuous mental or physical incapacity of the
Director, subject to disability rights under this Agreement;
(c) The Director's willful and intentional violation of any
federal banking or securities laws, or of the Bylaws, rules,
policies or resolutions of Bank, or the rules or regulations
of the Board of Governors of the Federal Reserve System,
Federal Deposit Insurance Corporation, Office of the
Comptroller of the Currency, or other regulatory agency or
governmental authority having jurisdiction over the Bank,
which has a material adverse effect upon the Bank;
(d) The written determination by a state or federal banking
agency or governmental authority having jurisdiction over
the Bank that the Director (i) is of unsound mind, or (ii)
has committed a gross abuse of authority or discretion with
reference to the Bank, or (iii) otherwise is not suitable to
continue to serve as a member of the Board of Directors of
the Bank;
(e) The Director's conviction of (i) any felony or (ii) a crime
involving moral turpitude, or the Director's willful and
intentional commission of a fraudulent or dishonest act; or
(f) The Director's willful and intentional disclosure, without
authority, of any secret or confidential information
concerning Bank or taking any action which the Bank's Board
of Directors determines, in its sole discretion and subject
to good faith, fair dealing and reasonableness, constitutes
unfair competition with or induces any customer to breach
any contract with the Bank.
2. Scope, Purpose and Effect.
2.1. Contract of Employment. Although this Agreement is intended to
provide the Director with an additional incentive to continue to serve as a
member of the Board of Directors of the Bank, this Agreement shall not be deemed
to constitute a contract of employment between the Director and the Bank nor
shall any provision of this Agreement restrict the right of the Bank to move or
cause the removal of the Director including, without limitation, by(i) refusal
to nominate the Director for election for any successive term of office as a
member of the Board of Directors of the Bank, or (ii) complying with an order or
other directive from a court of competent jurisdiction or any regulatory
authority having jurisdiction over the Bank which requires the Bank to take
action to remove the Director.
2.2. Fringe Benefit. The benefits provided by this Agreement are
granted by the Bank as a fringe benefit to the Director and are not a part of
any salary reduction plan or any arrangement deferring a bonus or a salary
increase. The Director has no option to take any current payments or bonus in
lieu of the benefits provided by this Agreement.
3. Payments Upon Early Retirement or Retirement and After Retirement.
3.1. Payments Upon Early Retirement. The Director shall have the right
to Retire on a date which constitutes an Early Retirement Date as defined in
subparagraph 1.7 above. In the event the Director elects to Retire on a date
which constitutes an Early Retirement Date, the Director shall be entitled to be
paid the Applicable Percentage of the Director Benefits, in substantially equal
monthly installments on the first day of each month, beginning with the month
following the month in which the Early Retirement Date occurs or upon such later
date as may be mutually agreed upon by the Director and the Bank in advance of
said Early Retirement Date, payable (i) for the period designated in Schedule
"D" in the case of the balance in the Benefit Account and (ii) until the
Director's death in the case of the Index Benefit defined in Schedule "B".
3.2. Payments Upon Retirement. If the Director remains a member of the
Board of Directors of the Bank until attaining sixty-two (62) years of age, the
Director shall be entitled to be paid the Applicable Percentage of the Director
Benefits, in substantially equal monthly installments on the first day of each
month, beginning with the month following the month in which the Director
Retires or upon such later date as may be mutually agreed upon by the Director
and the Bank in advance of said Retirement date, payable (i) for the period
designated in Schedule "D" in the case of the balance in the Benefit Account and
(ii) until the Director's death in the case of the Index Benefit defined in
Schedule "B". At the Bank's sole and absolute discretion, the Bank may increase
the Director Benefits as and when the Bank determines the same to be
appropriate.
3.3. Payments in the Event of Death After Retirement. The Bank agrees
that if the Director Retires, but shall die before receiving all of the Director
Benefits Payments specified in Schedule "B", the Bank agrees to pay the
Applicable Percentage of the Director Benefits to the Director's designated
beneficiary in lump sum. If a valid Beneficiary Designation is not in effect,
then the remaining amounts due to the Director under the terms of this Agreement
shall be paid to the Director's Surviving Spouse. If the Director leaves no
Surviving Spouse, the remaining amounts due to the Director under the terms of
this Agreement shall be paid to the duly qualified personal representative,
executor or administrator of the Director's estate.
4. Payments in the Event Death or Disability Occurs Prior to Retirement.
4.1. Payments in the Event of Death Prior to Retirement. If the
Director dies at any time after the Effective Date of this Agreement, but prior
to Retirement, the Bank agrees to pay the Applicable Percentage of the Director
Benefits to the Director's designated beneficiary in lump sum. If a valid
Beneficiary Designation is not in effect, then the remaining amounts due to the
Director under the terms of this Agreement shall be paid to the Director's
Surviving Spouse. If the Director leaves no Surviving Spouse, the remaining
amounts due to the Director under the terms of this Agreement shall be paid to
the duly qualified personal representative, executor or administrator of the
Director's estate.
4.2. Payments in the Event of Disability Prior to Retirement. In the
event the Director becomes Disabled at any time after the Effective Date of this
Agreement but prior to Retirement, the Director shall be entitled to be paid the
Applicable Percentage of the Director Benefits, in substantially equal monthly
installments on the first day of each month, beginning with the month following
the month in which the Director becomes Disabled, payable (i) for the period
designated in Schedule "D" in the case of the balance in the Benefit Account and
(ii) until the Director's death in the case of the Index Benefit defined in
Schedule "B".
5. Payments in the Event Service Is Terminated Prior to Retirement. As
indicated in subparagraph 2.1 above, the Bank reserves the right to remove or
cause the removal of the Director at any time prior to the Director's
Retirement. In the event that the Director shall be removed and his or her
service as a member of the Board of Directors of the Bank terminated, other than
by reason of death, Disability or Retirement, prior to the Director's attaining
sixty-two (62) years of age, then this Agreement shall terminate upon the date
of such termination of service; provided, however, that the Director shall be
entitled to the following benefits as may be applicable depending upon the
circumstances surrounding the Director's termination of service:
5.1. Termination Without Cause. If the Director's service as a member
of the Board of Directors of the Bank is terminated for reasons other than as
specified in paragraph 5.3 below, and such termination is not subject to the
provisions of subparagraph 5.4 below, the Director shall be entitled to be paid
the Applicable Percentage of the Director Benefits, is substantially equal
monthly installments on the first day of each month, beginning with the month
following the month in which the Director attains fifty-five (55) years of age
or any month thereafter, as requested in writing by the Director and delivered
to the Bank or its successor thirty (30) days prior to the commencement of
installment payments; provided, however, that in the event the Director does not
request a commencement date as specified, such installments shall be paid on the
first day of each month, beginning with the month following the month in which
the Director attains sixty-two (62) years of age. The installments shall be
payable (i) for the period designated in Schedule "D" in the case of the balance
in the Benefit Account and (ii)until the Director's death in the case of the
Index Benefit defined in Schedule "B".
5.2. Voluntary Termination by the Director. If the Director's service
as a member of the Board of Directors of the Bank is terminated by voluntary
resignation and such resignation is not subject to the provisions of
subparagraph 5.4 below, the Director shall be entitled to be paid the Applicable
Percentage of the Director Benefits, in substantially equal monthly installments
on the first day of each month, beginning with the month following the month in
which the Director attains fifty-five (55) years of age or any month thereafter,
as requested in writing by the Director and delivered to the Bank or its
successor thirty (30) days prior to the commencement of installment payments;
provided, however, that in the event the Director does not request a
commencement date as specified, such installments shall be paid on the first day
of each month, beginning with the month following the month in which the
Director attains sixty-two (62) years of age. The installments shall be payable
(i) for the period designated in Schedule "D" in the case of the balance in the
Benefit Account and (ii) until the Director's death in the case of the Index
Benefit defined in Schedule "B".
5.3. Termination by Removal for Cause. The Director agrees that if the
Director's service as a member of the Board of Directors of the Bank is
terminated by "removal for cause," (as defined in subparagraph 1.14 of this
Agreement) and pursuant to subparagraph 1.14 (c), (d) or (e), the Director shall
forfeit any and all rights and benefits the Director may have under the terms of
this Agreement and shall have no right to be paid any of the amounts which would
otherwise be due or paid to the Director by the Bank pursuant to the terms of
this Agreement. In the event that the Director's service as a member of the
Board of Directors of the Bank is terminated by "removal for cause" pursuant to
subparagraph 1.14(a), (b) or (f), the Director shall be entitled to be paid the
Applicable Percentage of the Director Benefits, as defined above, in
substantially equal monthly installments on the first day of each month,
beginning with the month following the month in which the Director attains
fifty-five (55) years of age or any month thereafter, as requested in writing by
the Director and delivered to the Bank or its successor thirty (30) days prior
to the commencement of installment payments; provided, however, that in the
event the Director does not request a commencement date as specified, such
installments shall be paid on the first day of each month, beginning with the
month following the month in which the Director attains sixty-two (62) years of
age. The installments shall be payable (i) for the period designated in Schedule
"D" in the case of the balance in the Benefit Account and (ii) until the
Director's death in the case of the Index Benefit defined in Schedule "B".
5.4. Termination on Account of or After a Change in Control. In the
event: (i) the Director's service as a member of the Board of Directors of the
Bank is terminated in conjunction with, or by reason of, a "Change in Control"
(as defined in subparagraph 1.4 above); or (ii) by reason of the Bank's actions
and without the Director's prior written consent, any change occurs in the scope
of the Director's position, responsibilities, duties, fees, benefits, or
location of meetings (which in the event of relocation of more than thirty (30)
miles from the location of the Board or committee meetings prior to a Change in
Control shall constitute such a change in location) after a Change in Control
occurs, then the Director shall be entitled to be paid the Applicable Percentage
of the Director Benefits, as defined above, in substantially equal monthly
installments on the first day of each month, beginning with the month following
the month in which the Director attains fifty-five (55) years of age or any
month thereafter, as requested in writing by the Director and delivered to the
Bank or its successor thirty (30) days prior to the commencement of installment
payments; provided, however, that in the event the Director does not request a
commencement date as specified, such installments shall be paid on the first day
of each month, beginning with the month following the month in which the
Director attains sixty-two (62) years of age. The installments shall be payable
(i) for the period designated in Schedule "D" in the case of the balance in the
Benefit Account and (ii) until the Director's death in the case of the Index
Benefit defined in Schedule "B".
5.5. Payments in the Event of Death Following Termination. If the
Director dies prior to receiving all of the Director Benefits described in this
Paragraph 5 to which the Director is entitled, then the Bank will make such
payments to the Director's designated beneficiary in lump sum. If a valid
Beneficiary Designation is not in effect, then the remaining amounts due to the
Director under the terms of this Agreement shall be paid to the Director's
Surviving Spouse. If the Director leaves no Surviving Spouse, the remaining
amounts due to the Director under the terms of this Agreement shall be paid to
the duly qualified personal representative, executor or administrator of the
Director's estate.
6. Section 280G Adjustment. The Director acknowledges and agrees that the
parties have entered into this Agreement based upon certain financial and tax
accounting assumptions. Accordingly, with full knowledge of the potential
consequences the Director agrees that, notwithstanding anything contained herein
to the contrary, in the event that any payment or benefit received or to be
received by the Director, whether payable pursuant to the terms of this
Agreement or any other plan, arrangement or agreement with the Bank (together
with the Director Benefits, the "Total Payments"), will not be deductible (in
whole or in part) as a result of Code Section 280G or other applicable
provisions of the Code, the Total Payments shall be reduced until no portion of
the Total Payments is nondeductible as a result of Section 280 G or such other
applicable provisions of the Code. For purposes of this limitation:
(a) No portion of the Total Payments, the receipt or enjoyment of
which the Director shall have effectively waived in writing prior to the date of
payment of any future Director Benefits payments, shall be taken into account;
(b) No portion of the Total Payments shall be taken into account,
which in the opinion of the tax counsel selected by the Bank and acceptable to
the Director, does not constitute a "parachute payment" within the meaning of
Section 280G of the Code;
(c) Any reduction of the Total Payments shall be applied to
reduce any payment or benefit received or to be received by the Director
pursuant to the terms of this Agreement and any other plan, arrangement or
agreement with the Bank in the order determined by mutual agreement of the Bank
and the Director;
(d) Future payments shall be reduced only to the extent necessary
so that the Total Payments (other than those referred to in clauses (a) or (b)
above in their entirety) constitute reasonable compensation for services
actually rendered within the meaning of Section 280G of the Code, in the opinion
of tax counsel referred to in clause (b) above; and
(e) The value of any non-cash benefit or any deferred payment or
benefit included in the Total Payments shall be determined by independent
auditors selected by the Bank and acceptable to the Director in accordance with
the principles of Section 280G of the Code.
7. Right To Determine Funding Methods. The Bank reserves the right to
determine, in its sole and absolute discretion, whether, to what extent and by
what method, if any, to provide for the payment of the amounts which maybe
payable to the Director, the Director's spouse or the Director's beneficiaries
under the terms of this Agreement. In the event that the Bank elects to fund
this Agreement, in whole or in part, through the use of life insurance or
annuities, or both, the Bank shall determine the ownership and beneficial
interests of any such policy of life insurance or annuity. The Bank further
reserves the right, in its sole and absolute discretion, to terminate any such
policy, and any other device used to fund its obligations under this Agreement,
at any time, in whole or in part. Consistent with Paragraph 9 below, neither the
Director, the Director's spouse nor the Director's beneficiaries shall have any
right, title or interest in or to any funding source or amount utilized by the
Bank pursuant to this Agreement, and any such funding source or amount shall not
constitute security for the performance of the Bank's obligations pursuant to
this Agreement. In connection with the foregoing, the Director agrees to execute
such documents and undergo such medical examinations or tests which the Bank may
request and which may be reasonably necessary to facilitate any funding for this
Agreement including, without limitation, the Bank's acquisition of any policy of
insurance or annuity. Furthermore, a refusal by the Director to consent to,
participate in and undergo any such medical examinations or tests shall result
in the immediate termination of this Agreement and the immediate forfeiture by
the Director, the Director's spouse and the Director's beneficiaries of any and
all rights to payment hereunder.
8. Claims Procedure. The Bank shall, but only to the extent necessary to
comply with ERISA, be designated as the named fiduciary under this Agreement and
shall have authority to control and manage the operation and administration of
this Agreement. Consistent therewith, the Bank shall make all determinations as
to the rights to benefits under this Agreement. Any decision by the Bank denying
a claim by the Director, the Director's spouse, or the Director's beneficiary
for benefits under this Agreement shall be stated in writing and delivered or
mailed, via registered or certified mail, to the Director, the Director's spouse
or the Director's beneficiary, as the case may be. Such decision shall set forth
the specific reasons for the denial of a claim. In addition, the Bank shall
provide the Director, the Director's spouse or the Director's beneficiary with a
reasonable opportunity for a full and fair review of the decision denying such
claim.
9. Status as an Unsecured General Creditor. Notwithstanding anything
contained herein to the contrary: (i) neither the Director, the Director's
spouse or the Director's designated beneficiaries shall have any legal or
equitable rights, interests or claims in or to any specific property or assets
of the Bank as a result of this Agreement; (ii) none of the Bank's assets shall
be held in or under any trust for the benefit of the Director, the Director's
spouse or the Director's designated beneficiaries or held in any way as security
for the fulfillment of the obligations of the Bank under this Agreement; (iii)
all of the Bank's assets shall be and remain the general unpledged and
unrestricted assets of the Bank; (iv) the Bank's obligation under this Agreement
shall be that of an unfunded and unsecured promise by the Bank to pay money in
the future; and (v) the Director, the Director's spouse and the Director's
designated beneficiaries shall be unsecured general creditors with respect to
any benefits which may be payable under the terms of this Agreement.
Notwithstanding subparagraphs (i) through (v) above, the Bank and the
Director acknowledge and agree that, in the event of a Change in Control, upon
request of the Director, or in the Bank's discretion if the Director does not so
request and the Bank nonetheless deems it appropriate, the Bank shall establish,
not later than the effective date of the Change in Control, a Rabbi Trust or
multiple Rabbi Trusts (the "Trust" or "Trusts")upon such terms and conditions as
the Bank, in its sole discretion, deems appropriate and in compliance with
applicable provisions of the Code, in order to permit the Bank to make
contributions and/or transfer assets to the Trustor Trusts to discharge its
obligations pursuant to this Agreement. The principal of the Trust or Trusts and
any earnings thereon shall be held separate and apart from other funds of the
Bank to be used exclusively for discharge of the Bank's obligations pursuant to
this Agreement and shall continue to be subject to the claims of the Bank's
general creditors until paid to the Director or its beneficiaries in such manner
and at such times as specified in this Agreement.
10. Discretion of Board to Accelerate Payout. Notwithstanding any of the
other provisions of this Agreement, the Board of Directors of the Bank may, if
determined in its sole and absolute discretion to be appropriate, accelerate the
payment of the amounts due under the terms of this Agreement, provided that
Director (or Director's spouse or designated beneficiaries):(i) consents to the
revised payout terms determined appropriate by the Bank's Board of Directors;
and (ii) does not negotiate or in anyway influence the terms of proposed
altered/accelerated payout (said decision to be made solely by the Bank's Board
of Directors and offered to the Director [or Director's spouse or designated
beneficiaries] on a "take it or leave it basis").
11. Miscellaneous.
11.1. Opportunity To Consult With Independent Advisors. The Director
acknowledges that he has been afforded the opportunity to consult with
independent advisors of his choosing including, without limitation, accountants
or tax advisors and counsel regarding both the benefits granted to him under the
terms of this Agreement and the (i) terms and conditions which may affect the
Director's right to these benefits and (ii) personal tax effects of such
benefits including, without limitation, the effects of any federal or state
taxes, Section 280G of the Code, and any other taxes, costs, expenses or
liabilities whatsoever related to such benefits, which in any of the foregoing
instances the Director acknowledges and agrees shall be the sole responsibility
of the Director notwithstanding any other term or provision of this Agreement.
The Director further acknowledges and agrees that the Bank shall have no
liability whatsoever related to any such personal tax effects or other personal
costs, expenses, or liabilities applicable to the Director and further
specifically waives any right for the Director, himself, and his heirs,
beneficiaries, legal representatives, agents, successors, and assigns to claim
or assert liability on the part of the Bank related to the matters described
above in this subparagraph 11.1. The Director further acknowledges and agrees
that he has read, understands and consents to all of the terms and conditions of
this Agreement, and that he enters into this Agreement with a full understanding
of its terms and conditions.
11.2. Arbitration of Disputes. All claims, disputes and other matters
in question arising out of or relating to this Agreement or the breach or
interpretation thereof, other than those matters which are to be determined by
the Bank in its sole and absolute discretion, shall be resolved by binding
arbitration before a representative member, selected by the mutual agreement of
the parties, of the Judicial Arbitration and Mediation Services, Inc.
("JAMS"),located in San Francisco, California. In the event JAMS is unable or
unwilling to conduct the arbitration provided for under the terms of this
Paragraph, or has discontinued its business, the parties agree that a
representative member, selected by the mutual agreement of the parties, of the
American Arbitration Association ("AAA"), located in San Francisco, California,
shall conduct the binding arbitration referred to in this Paragraph. Notice of
the demand for arbitration shall be filed in writing with the other party to
this Agreement and with JAMS (or AAA, if necessary). In no event shall the
demand for arbitration be made after the date when institution of legal or
equitable proceedings based on such claim, dispute or other matter in question
would be barred by the applicable statute of limitations. The arbitration shall
be subject to such rules of procedure used or established by JAMS, or if
thereare none, the rules of procedure used or established by AAA. Any award
rendered by JAMS or AAA shall be final and binding upon the parties, and as
applicable, their respective heirs, beneficiaries, legal representatives,
agents, successors and assigns, and may be entered in any court having
jurisdiction thereof. The obligation of the parties to arbitrate pursuant to
this clause shall be specifically enforceable in accordance with, and shall be
conducted consistently with, the provisions of Title 9 of Part 3 of the
California Code of Civil Procedure. Any arbitration hereunder shall be conducted
in Saratoga, California, unless otherwise agreed to by the parties.
11.3. Attorneys' Fees. In the event of any arbitration or litigation
concerning any controversy, claim or dispute between the parties hereto, arising
out of or relating to this Agreement or the breach hereof, or the interpretation
hereof, the prevailing party shall be entitled to recover from the
non-prevailing party reasonable expenses, attorneys' fees and costs incurred in
connection therewith or in the enforcement or collection of any judgment or
award rendered therein. The "prevailing party" means the party determined by the
arbitrator(s) or court, as the case may be, to have most nearly prevailed, even
if such party did not prevail in all matters, not necessarily the one in whose
favor a judgment is rendered.
11.4. Notice. Any notice required or permitted of either the Director
or the Bank under this Agreement shall be deemed to have been duly given, if by
personal delivery, upon the date received by the party or its authorized
representative; if by facsimile, upon transmission to a telephone number
previously provided by the party to whom the facsimile is transmitted as
reflected in the records of the party transmitting the facsimile and upon
reasonable confirmation of such transmission; and if by mail, on the third day
after mailing via U.S. first class mail, registered or certified, postage
prepaid and return receipt requested, and addressed to the party at the address
given below for the receipt of notices, or such changed address as may be
requested in writing by a party.
If to the Bank: Saratoga National Bank
12000 Saratoga-Sunnyvale Rd.
Saratoga, California 95070
Attn: Chairman of the Board
If to the Director:
______________________
______________________
______________________
11.5. Assignment. Neither the Director, the Director's spouse, nor any
other beneficiary under this Agreement shall have any power or right to
transfer, assign, anticipate, hypothecate, modify or otherwise encumber any part
or all of the amounts payable hereunder, nor, prior to payment in accordance
with the terms of this Agreement, shall any portion of such amounts be:
(i)subject to seizure by any creditor of any such beneficiary, by a proceeding
at law or in equity, for the payment of any debts, judgments, alimony or
separate maintenance obligations which may be owed by the Director, the
Director's spouse, or any designated beneficiary; or (ii) transferable by
operation of law in the event of bankruptcy, insolvency or otherwise. Any such
attempted assignment or transfer shall be void and unenforceable without the
prior written consent of the Bank. The Bank's consent, if any, to one or more
assignments or transfers shall not obligate the Bank to consent to or be
construed as the Bank's consent to any other or subsequent assignment or
transfer.
11.6. Binding Effect/Merger or Reorganization. This Agreement shall be
binding upon and inure to the benefit of the Director and the Bank and, as
applicable, their respective heirs, beneficiaries, legal representatives,
agents, successors and assigns. Accordingly, the Bank shall not merge or
consolidate into or with another corporation, or reorganize or sell
substantially all of its assets to another corporation, firm or person, unless
and until such succeeding or continuing corporation, firm or person agrees to
assume and discharge the obligations of the Bank under this Agreement. Upon the
occurrence of such event, the term "Bank" as used in this Agreement shall be
deemed to refer to such surviving or successor firm, person, entity or
corporation.
11.7. Nonwaiver. The failure of either party to enforce at anytime or
for any period of time any one or more of the terms or conditions of this
Agreement shall not be a waiver of such term(s) or condition(s) or of that
party's right thereafter to enforce each and every term and condition of this
Agreement.
11.8. Partial Invalidity. If any term, provision, covenant, or
condition of this Agreement is determined by an arbitrator or a court, as the
case may be, to be invalid, void, or unenforceable, such determination shall not
render any other term, provision, covenant or condition invalid, void or
unenforceable, and the Agreement shall remain in full force and effect
notwithstanding such partial invalidity. 11.9. Entire Agreement. This Agreement
supersedes any and all other agreements, either oral or in writing, between the
parties with respect to the subject matter of this Agreement and contains all of
the covenants and agreements between the parties with respect thereto. Each
party to this Agreement acknowledges that no other representations, inducements,
promises, or agreements, oral or otherwise, have been made by any party, or
anyone acting on behalf of any party, which are not set forth herein, and that
no other agreement, statement, or promise not contained in this Agreement shall
be valid or binding on either party.
11.10. Modifications. Any modification of this Agreement shall be
effective only if it is in writing and signed by each party or such party's
authorized representative.
11.11. Paragraph Headings. The paragraph headings used in this
Agreement are included solely for the convenience of the parties and shall not
affect or be used in connection with the interpretation of this Agreement.
11.12. No Strict Construction. The language used in this Agreement
shall be deemed to be the language chosen by the parties hereto to express their
mutual intent, and no rule of strict construction will be applied against any
person.
11.13. Governing Law. The laws of the State of California, other than
those laws denominated choice of law rules, and, where applicable, the rules and
regulations of the Board of Governors of the Federal Reserve System, Federal
Deposit Insurance Corporation, Office of the Comptroller of the Currency, or
other regulatory agency or governmental authority having jurisdiction over Bank,
shall govern the validity, interpretation, construction and effect of this
Agreement.
IN WITNESS WHEREOF, the Bank and the Director have executed this Agreement
on the date first above-written in the City of Saratoga, Santa Clara County,
California.
THE BANK THE DIRECTOR
SARATOGA NATIONAL BANK
By:____________________________ _____________________________
William D. Kron __________________
Chairman of the Board of Directors
SCHEDULE A
CALENDAR YEAR APPLICABLE PERCENTAGE
__________, 1982 to December 31, 1998. . . . 80.00%
December 31, 1999. . . . . . . . . . . . . . 90.00%
December 31, 2000. . . . . . . . . . . . . . 100.00%
SCHEDULE B
DIRECTOR BENEFITS
1. Director Benefits Determination.
The Director Benefits shall be determined based upon the following:
a. Benefit Account:
Benefit Account shall be established as a liability reserve
account on the books of the Bank for the benefit of the Director.
Prior to the date on which the Director becomes eligible to
receive payments under the Agreement, such Benefit Account shall
be increased (or decreased) each Plan Year (including the Plan
Year in which the Director ceases to be employed by the Bank) by
an amount equal to the annual earnings or loss for that Plan Year
determined by the Index (described in subparagraph c below), less
the Opportunity Cost (described in subparagraph d below) for that
Plan Year.
b. Index Benefit:
After the date on which the Director becomes eligible to receive
payments under the Agreement, the Index Benefit for the Director
for any Plan Year shall be determined by subtracting the
Opportunity Cost for that Plan Year from the earnings, if any,
established by the Index.
c. Index:
The Index for any Plan Year shall be the aggregate annual
after-tax income from the life insurance contracts described
hereinafter as defined by FASB Technical Bulletin 85-4. This
Index shall be applied as if such insurance contracts were
purchased on the Effective Date.
Insurance Company(ies)/Policy Number(s):
___________________________
___________________________
___________________________
If such contracts of life insurance are actually purchased by the
Bank, then the actual policies as of the dates purchased shall be
used in calculations to determine the Index and Opportunity Cost.
If such contracts of life insurance are not purchased or are
subsequently surrendered or lapsed, then the Bank shall receive
and use annual policy illustrations that assume the above
described policies were purchased from the above named insurance
company(ies) on the Effective Date to calculate the amount of the
Index and Opportunity Cost.
d. Opportunity Cost:
The Opportunity Cost for any Plan Year shall be calculated by
multiplying (a) the sum of (i) the total amount of premiums set
forth in the insurance policies described above, (ii) the amount
of any Index Benefits (described at subparagraph b above), and
(iii) the amount of all previous years after-tax Opportunity
Costs; by (b) the average annualized after-tax cost of funds
calculated using a one-year U.S. Treasury Bill as published in
the Wall Street Journal. The applicable tax rate used to
calculate the Opportunity Cost shall be the Bank's marginal tax
rate until the Director's Retirement, or other termination of
service (including a Change in Control). Thereafter, the
Opportunity Cost shall be calculated with the assumption of a
marginal forty-two percent (42%) corporate tax rate each year
regardless of whether the actual marginal tax rate of the Bank is
higher or lower.
EXAMPLE
INDEX BENEFITS
[n] [A]
Index
End of Cash Surrender [Annual Opportunity Annual Cumulative
Year Value of Life Policy Cost Benefit Benefit
Insurance Policy Income] A0 = premium B-C D+Dn-1
An-An-1 A0+Cn-1x.05x
(1-42%)
0 $1,000,000 -- -- -- --
1 $1,050,000 $50,000 $29,000 $21,000 $21,000
2 $1,102,500 $52,500 $29,841 $22,659 $43,659
3 $1,157,625 $55,125 $30,706 $24,419 $68,078
.
.
.
Assumptions: Initial Insurance = $1,000,000
Effective Tax Rate = 42%
One Year US Treasury Yield = 5%
2. Director Benefits Payments.
The Director shall be entitled to payment of the Applicable Percentage of
(i) the balance in the Benefit Account in installments upon the terms as
specified in the Agreement, and (ii) the Index Benefit for each Plan Year
payable in installments until the Director's death.
SCHEDULE C
BENEFICIARY DESIGNATION
To the Administrator of the Saratoga National Bank Director Supplemental
Compensation Agreement: Pursuant to the Provisions of my Director Supplemental
Compensation Agreement with Saratoga National Bank, permitting the designation
of a beneficiary or beneficiaries by a participant, I hereby designate the
following persons and entities as primary and secondary beneficiaries of any
benefit under said Agreement payable by reason of my death:
Primary Beneficiary:
______________________ ____________________ _____________________________
Name Address Relationship
Secondary (Contingent) Beneficiary:
______________________ _____________________ ____________________________
Name Address Relationship
THE RIGHT TO REVOKE OR CHANGE ANY BENEFICIARY DESIGNATION IS HEREBY RESERVED.
ALL PRIOR DESIGNATIONS, IF ANY, OF PRIMARY BENEFICIARIES AND SECONDARY
BENEFICIARIES ARE HEREBY REVOKED.
The Administrator shall pay all sums payable under the Agreement by reason
of my death to the Primary Beneficiary, if he or she survives me, and if not
Primary Beneficiary shall survive me, then to the Secondary Beneficiary, and if
no named beneficiary survives me, then the Administrator shall pay all amounts
in accordance with the terms of my Director Supplemental Compensation Agreement.
In the event that a named beneficiary survives me and dies prior to receiving
the entire benefit payable under said Agreement, then and in that event, the
remaining unpaid benefit payable according to the terms of my Director
Supplemental Compensation Agreement shall be payable to the personal
representatives of the estate of said beneficiary who survived me but died prior
to receiving the total benefit provided by my Director Supplemental Compensation
Agreement.
Dated: ___________, 1998 __________________________
__________________
CONSENT OF THE DIRECTOR'S SPOUSE TO THE ABOVE BENEFICIARY DESIGNATION:
I, ______________, being the spouse of __________________, after being
afforded the opportunity to consult with independent counsel of my choosing, do
hereby acknowledge that I have read, agree and consent to the foregoing
Beneficiary Designation which relates to the Director Supplemental Compensation
Agreement entered into by my spouse effective as of ___________, 1998. I
understand that the above Beneficiary Designation may affect certain rights
which I may have in the benefits provided for under the terms of the Director
Supplemental Compensation Agreement and in which I may have a marital property
interest.
Dated: ___________, 1998
__________________________
__________________
SCHEDULE D
DISTRIBUTION ELECTION
Pursuant to the provisions of my Director Supplemental Compensation Agreement
with Saratoga National Bank, I hereby elect to have any distribution of the
balance in my Benefit Account paid to me in installments as designated below:
thirty-six (36) monthly installments with the amount of each
installment determined as of each installment date by dividing
the entire amount in my Benefit Account by the number of
installments then remaining to be paid, with the final
installment to be the entire remaining balance in the Benefit
Account.
sixty (60) monthly installments with the amount of each
installment determined as of each installment date by dividing
the entire amount in my Benefit Account by the number of
installments then remaining to be paid, with the final
installment to be the entire remaining balance in the Benefit
Account.
one hundred twenty (120) monthly installments with the amount of
each installment determined as of each installment date by
dividing the entire amount in my Benefit Account by the number of
installments then remaining to be paid, with the final
installment to be the entire remaining balance in the Benefit
Account.
one hundred eighty (180) monthly installments with the amount of
each installment determined as of each installment date by
dividing the entire amount in my Benefit Account by the number of
installments then remaining to be paid, with the final
installment to be the entire remaining balance in the Benefit
Account.
Dated: ____________, 1998
Signed: _______________________
__________________
LIFE INSURANCE
ENDORSEMENT METHOD SPLIT DOLLAR PLAN
AGREEMENT
Insurer/Policy Number: _______________________________
Bank: Saratoga National Bank
Insured: __________________
Relationship of Insured to Bank: Director
Date: June 18, 1999
The respective rights and duties of the Bank and the Insured in the above
policy(ies) (individually and collectively referred to as the "Policy") shall be
as follows:
I. DEFINITIONS
Refer to the Policy provisions for the definition of all terms in this
Agreement.
II. POLICY TITLE AND OWNERSHIP
Title and ownership shall reside in the Bank for its use and for the use of
the Insured all in accordance with this Agreement. The Bank alone may, to
the extent of its interest, exercise the right to borrow or withdraw the
Policy cash values. Where the Bank and the Insured (or beneficiary[ies] or
assignee[s], with the consent of the Insured) mutually agree to exercise
the right to increase the coverage under the subject split dollar Policy,
then, in such event, the rights, duties and benefits of the parties to such
increased coverage shall continue to be subject to the terms of this
Agreement.
III. BENEFICIARY DESIGNATION RIGHTS
The Insured (or beneficiary[ies] or assignee[s]) shall have the right and
power to designate a beneficiary or beneficiaries to receive his or her
share of the proceeds payable upon the death of the Insured, and to elect
and change a payment option for such beneficiary, subject to any right or
interest the Bank may have in such proceeds, as provided in this Agreement.
IV. PREMIUM PAYMENT METHOD
The Bank shall pay an amount equal to the planned premiums and any other
premium payments that might become necessary to maintain the Policy in
force.
V. TAXABLE BENEFIT
Annually the Insured will receive a taxable benefit equal to the assumed
cost of insurance as required by the Internal Revenue Service. The Bank (or
its administrator) will report to the Insured the amount of imputed income
received each year on Form W-2 or its equivalent.
VI. DIVISION OF DEATH PROCEEDS
Subject to Paragraph VII herein, the division of the death proceeds of the
Policy is as follows:
1. The Insured's beneficiary(ies), designated in accordance with
Paragraph III, shall be entitled to an amount equal to eighty percent
(80%) of the net at risk insurance portion of the proceeds. The net at
risk insurance portion is the total proceeds less the cash value of
the Policy.
2. The Bank shall be entitled to the remainder of such proceeds.
3. The Bank and the Insured (or beneficiary[ies] or assignee[s]) shall
share in any interest due on the death proceeds on a pro rata basis in
the ratio that the proceeds due the Bank and the Insured,
respectively, bears to the total proceeds, excluding any such
interest.
VII. DIVISION OF CASH SURRENDER VALUE
The Bank shall at all times be entitled to an amount equal to the Policy's
cash value, as that term is defined in the Policy, less any Policy loans
and unpaid interest or cash withdrawals previously incurred by the Bank and
any applicable Policy surrender charges. Such cash value shall be
determined as of the date of surrender of the Policy or death of the
Insured as the case may be.
VIII.PREMIUM WAIVER
If the Policy contains a premium waiver provision, any such waived amounts
shall be considered for all purposes of this Agreement as having been paid
by the Bank.
IX. RIGHTS OF PARTIES WHERE POLICY ENDOWMENT OR ANNUITY ELECTION EXISTS
In the event the Policy involves an endowment or annuity element, the
Bank's right and interest in any endowment proceeds or annuity benefits
shall be determined under the provisions of this Agreement by regarding
such endowment proceeds or the commuted value of such annuity benefits as
the Policy's cash value. Such endowment proceeds or annuity benefits shall
be treated like death proceeds for the purposes of division under this
Agreement.
X. TERMINATION OF AGREEMENT
This Agreement shall terminate at the option of the Bank following thirty
(30) days written notice to the Insured upon the happening of any one of
the following:
1. The Insured's right to receive benefits pursuant to the terms and
conditions of that certain Director Supplemental Compensation
Agreement effective as of ___________, 1998, shall terminate for any
reason other than the Insured's death; or
2. The Insured shall be discharged from service with the Bank as a result
of a removal for cause under subparagraph (c), (d) or (e) below.
Notwithstanding the foregoing, this Agreement shall remain in effect
in the event that the Insured is removed pursuant to subparagraph (a),
(b) or (f) below. The term "removal for cause" shall mean termination
of the service of the Insured by reason of any of the following
determined in good faith by the Bank's Board of Directors:
(a) The willful, intentional and material breach or the habitual and
continued neglect by the Insured of his or her employment
responsibilities and duties;
(b) The continuous mental or physical incapacity of the Insured,
subject to disability rights under this Agreement;
(c) The Insured's willful and intentional violation of any federal
banking or securities laws, or of the Bylaws, rules, policies or
resolutions of Bank, or the rules or regulations of the Board of
Governors of the Federal Reserve System, Federal Deposit
Insurance Corporation, Office of the Comptroller of the Currency,
or other regulatory agency or governmental authority having
jurisdiction over the Bank, which has a material adverse effect
upon the Bank;
(d) The written determination by a state or federal banking agency or
governmental authority having jurisdiction over the Bank that the
Insured (i) is of unsound mind, or (ii) has committed a gross
abuse of authority or discretion with reference to the Bank, or
(iii) otherwise is not suitable to continue to serve as a member
of the Board of Directors of the Bank;
(e) The Insured's conviction of (i) any felony or (ii) a crime
involving moral turpitude, or the Insured's willful and
intentional commission of a fraudulent or dishonest act; or
(f) The Insured's willful and intentional disclosure, without
authority, of any secret or confidential information concerning
Bank or taking any action which the Bank's Board of Directors
determines, in its sole discretion and subject to good faith,
fair dealing and reasonableness, constitutes unfair competition
with or induces any customer to breach any contract with the
Bank.
Upon such termination, the Insured (or beneficiary[ies] or assignee[s])
shall have a ninety (90) day option to receive from the Bank an absolute
assignment of the Policy in consideration of a cash payment to the Bank,
whereupon this Agreement shall terminate. Such cash payment shall be the
greater of:
1. The Bank's share of the cash value of the Policy on the date of such
assignment, as defined in this Agreement.
2. The amount of the premiums which have been paid by the Bank prior to
the date of such assignment.
Should the Insured (or beneficiary[ies] or assignee[s]) fail to exercise
this option within the prescribed ninety (90) day period, the Insured (or
beneficiary[ies] or assignee[s]) agrees that all of his or her rights,
interest and claims in the Policy shall terminate as of the date of the
termination of this Agreement.
Except as provided above, this Agreement shall terminate upon distribution
of the death benefit proceeds in accordance with Paragraph VI above.
XI. INSURED'S OR ASSIGNEE'S ASSIGNMENT RIGHTS
The Insured may not, without the prior written consent of the Bank, which
shall not be unreasonably withheld, assign to any individual, trust or
other organization, any right, title or interest in the Policy nor any
rights, options, privileges or duties created under this Agreement.
XII. AGREEMENT BINDING UPON THE PARTIES
This Agreement shall be binding upon the Insured and the Bank, and their
respective heirs, successors, personal representatives and assigns, as
applicable.
XIII.NAMED FIDUCIARY AND PLAN ADMINISTRATOR
The Bank is hereby designated the "Named Fiduciary" until resignation or
removal by its Board of Directors. As Named Fiduciary, the Bank shall be
responsible for the management, control, and administration of this
Agreement as established herein. The Named Fiduciary may allocate to others
certain aspects of the management and operations responsibilities of this
Agreement, including the employment of advisors and the delegation of any
ministerial duties to qualified individuals.
XIV. FUNDING POLICY
The funding policy for this Agreement shall be to maintain the Policy in
force by paying, when due, all premiums required.
XV. CLAIM PROCEDURES
Claim forms or claim information as to the subject Policy can be obtained
by contacting The Benefit Marketing Group, Inc. (770-952-1529). When the
Named Fiduciary has a claim which may be covered under the provisions
described in the Policy, it should contact the office named above, and they
will either complete a claim form and forward it to an authorized
representative of the Insurer or advise the named Fiduciary what further
requirements are necessary. The Insurer will evaluate and make a decision
as to payment. If the claim is payable, a benefit check will be issued to
the Named Fiduciary.
In the event that a claim is not eligible under the Policy, the Insurer
will notify the Named Fiduciary of the denial pursuant to the requirements
under the terms of the Policy. If the Named Fiduciary is dissatisfied with
the denial of the claim and wishes to contest such claim denial, it should
contact the office named above and they will assist in making inquiry to
the Insurer. All objections to the Insurer's actions should be in writing
and submitted to the office named above for transmittal to the Insurer.
XVI. GENDER
Whenever in this Agreement words are used in the masculine or neuter
gender, they shall be read and construed as in the masculine, feminine or
neuter gender, whenever they should so apply.
XVII.INSURANCE COMPANY NOT A PARTY TO THIS AGREEMENT
The Insurer shall not be deemed a party to this Agreement, but will respect
the rights of the parties as set forth herein upon receiving an executed
copy of this Agreement. Payment or other performance in accordance with the
Policy provisions shall fully discharge the Insurer from any and all
liability.
IN WITNESS WHEREOF, the Insured and a duly authorized Bank officer or
director have signed this Agreement at Saratoga, California as of the date first
above written.
SARATOGA NATIONAL BANK INSURED
__________________________ ________________________________
Richard L. Mount __________________
President and Chief
Executive Officer
BENEFICIARY DESIGNATION FORM
Primary Designation:
Name Relationship
__________________________ ________________________________
__________________________ ________________________________
__________________________ ________________________________
Contingent Designation:
__________________________ ________________________________
__________________________ ________________________________
__________________________ ________________________________
___________________________ _____________, 1999
__________________
DIRECTOR SUPPLEMENTAL COMPENSATION AGREEMENT
This Agreement is made and entered into effective as of _________, 1998 by
and between Saratoga National Bank, a national banking association chartered
under the federal laws of the United States of America with its principal
offices located in the City of Saratoga, Santa Clara County, California (the
"Bank"), and __________________, an individual residing in the State of
California (the "Director").
RECITALS
WHEREAS, the Director is a member of the Board of Directors of the Bank and
has served in such capacity since 19__;
WHEREAS, the Bank desires to establish a compensation benefit for directors
who are not also officers or employees of the Bank in order to attract and
retain individuals with extensive and valuable experience as directors; and
WHEREAS, the Director and the Bank wish to specify in writing the terms and
conditions upon which this additional compensatory incentive will be provided to
the Director, or as applicable, to the Director's spouse or designated
beneficiaries, as the case may be.
NOW, THEREFORE, in consideration of the services to be performed by the
Director in the future, as well as the mutual promises and covenants contained
herein, the Director and the Bank agree as follows:
AGREEMENT
1. Terms and Definitions.
1.1. Administrator. The Bank shall be the "Administrator" and, solely for
the purposes of ERISA as defined in subparagraph 1.10 below, the "fiduciary" of
this Agreement where a fiduciary is required by ERISA.
1.2. Applicable Percentage. The term "Applicable Percentage" shall mean
that percentage listed on Schedule "A" attached hereto which is adjacent to the
number of calendar years which shall have elapsed from the date of the
Director's commencement of service to the Bank. Notwithstanding the foregoing or
the percentages set forth on Schedule "A," but subject to all other term sand
conditions set forth herein, the "Applicable Percentage" shall be: (i) provided
payments have not yet begun hereunder, one hundred percent (100%)upon the
occurrence of a "Change in Control" as defined in subparagraph 1.4 below, or the
Director's death, or Disability (as defined in subparagraph 1.7 below), which
death or Disability occurs prior to the termination of the Director's service on
the Board of Directors of the Bank; and (ii) notwithstanding subclause (i) of
this subparagraph 1.2, zero percent (0%) in the event the Director takes any
intentional action which prevents the Bank from collecting the proceeds of any
life insurance policy which the Bank may happen to own at the time of the
Surrogate's death and of which the Bank is the designated beneficiary.
Furthermore, notwithstanding the foregoing, or anything contained in this
Agreement to the contrary, in the event the Director takes any intentional
action which prevents the Bank from collecting the proceeds of any life
insurance policy which the Bank may happen to own at the time of the Surrogate's
death and of which the Bank is the designated beneficiary: (1) the Director's
estate or designated beneficiary shall no longer be entitled to receive any of
the amounts payable under the terms of this Agreement, and (2) the Bank shall
have the right to recover from the Director's estate all of the amounts paid to
the Director's estate (with respect to amounts paid prior to the Surrogate's
death or paid to the Director's estate) or designated beneficiary (with respect
to amounts paid to the designated beneficiary) pursuant to the terms of this
Agreement prior to and after Surrogate's death.
1.3. Beneficiary. The term "beneficiary" or "designated beneficiary "shall
mean the person or persons whom the Director shall designate in a valid
Beneficiary Designation, a copy of which is attached hereto as Schedule "C," to
receive the benefits provided hereunder. A Beneficiary Designation shall be
valid only if it is in the form attached hereto and made a part hereof,
completed and signed by the Director and received by the Administrator prior to
the Director's death.
1.4. Change in Control. The term "Change in Control" shall mean the
occurrence of any of the following events with respect to the Bank (with the
term "Bank" being defined for purposes of determining whether a "Change in
Control" has occurred to include any parent bank holding company owning 100% of
the Bank's outstanding common stock): (i) a change in control of a nature that
would be required to be reported in response to Item 6(e) of Schedule 14A of
Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), or in response to any other form or report to the
regulatory agencies or governmental authorities having jurisdiction over the
Bank or any stock exchange on which the Bank's shares are listed which requires
the reporting of a change in control; (ii) any merger, consolidation or
reorganization of the Bank in which the Bank does not survive; (iii) any sale,
lease, exchange, mortgage, pledge, transfer or other disposition (in one
transaction or a series of transactions) of any assets of the Bank having an
aggregate fair market value of fifty percent (50%) of the total value of the
assets of the Bank, reflected in the most recent balance sheet of the Bank;(iv)
a transaction whereby any "person" (as such term is used in the Exchange Act) or
any individual, corporation, partnership, trust or any other entity becomes the
beneficial owner, directly or indirectly, of securities of the Bank representing
twenty-five percent (25%) or more of the combined voting power of the Bank's
then outstanding securities; or(v) a situation where, in any one-year period,
individuals who at the beginning of such period constitute the Board of
Directors of the Bank cease for any reason to constitute at least a majority
thereof, unless the election, or the nomination for election by the Bank's
shareholders, of each new director is approved by a vote of at least
three-quarters (3/4) of the directors then still in office who were directors at
the beginning of the period.
1.5. The Code. The "Code" shall mean the Internal Revenue Code of 1986, as
amended (the "Code").
1.6. Director Benefits. The term "Director Benefits" shall mean the
benefits determined in accordance with Schedule "B", and reduced or adjusted to
the extent: (i) required under the other provisions of this Agreement,
including, but not limited to, Paragraphs 5, 6 and 7 hereof; (ii) required by
reason of the lawful order of any regulatory agency or body having jurisdiction
over the Bank; or (iii) required in order for the Bank to properly comply with
any and all applicable state and federal laws, including, but not limited to,
income, employment and disability income tax laws (e.g., FICA, FUTA, SDI).
1.7. Disability/Disabled. The term "Disability" or "Disabled" shall have
the same meaning given such terms in any policy of disability insurance
maintained by the Bank for the benefit of directors including the Director. In
the absence of such a policy which extends coverage to the Director in the event
of disability, the terms shall mean bodily injury or disease (mental or
physical) which wholly and continuously prevents the performance of duty for at
least three months.
1.8. Early Retirement Date. The term "Early Retirement Date" shall mean the
Retirement, as defined below, of the Director on a date which occurs prior to
the Director attaining sixty-two (62) years of age, but after the Director has
attained fifty-five (55) years of age.
1.9. Effective Date. The term "Effective Date" shall mean the date first
written above.
1.10. ERISA. The term "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended.
1.11. Plan Year. The term "Plan Year" shall mean the Bank's fiscal year.
1.12. Removal for Cause. The term "Removal for Cause" shall mean
termination of the employment of the Director by reason of any of the following
determined in good faith by the Bank's Board of Directors:
(a) The willful, intentional and material breach or the habitual and
continued neglect by the Director of his or her employment
responsibilities and duties;
(b) The continuous mental or physical incapacity of the Director,
subject to disability rights under this Agreement;
(c) The Director's willful and intentional violation of any federal
banking or securities laws, or of the Bylaws, rules, policies or
resolutions of Bank, or the rules or regulations of the Board of
Governors of the Federal Reserve System, Federal Deposit
Insurance Corporation, Office of the Comptroller of the Currency,
or other regulatory agency or governmental authority having
jurisdiction over the Bank, which has a material adverse effect
upon the Bank;
(d) The written determination by a state or federal banking agency or
governmental authority having jurisdiction over the Bank that the
Director (i) is of unsound mind, or (ii) has committed a gross
abuse of authority or discretion with reference to the Bank, or
(iii) otherwise is not suitable to continue to serve as a member
of the Board of Directors of the Bank;
(e) The Director's conviction of (i) any felony or (ii) a crime
involving moral turpitude, or the Director's willful and
intentional commission of a fraudulent or dishonest act; or
(f) The Director's willful and intentional disclosure, without
authority, of any secret or confidential information concerning
Bank or taking any action which the Bank's Board of Directors
determines, in its sole discretion and subject to good faith,
fair dealing and reasonableness, constitutes unfair competition
with or induces any customer to breach any contract with the
Bank.
1.13. Retirement. The term "Retirement" or "Retires" shall refer to the
date which the Director acknowledges in writing to the Bank to be the last day
of service as a member of the Board of Directors of the Bank.
1.14. Surrogate. The term "Surrogate" shall mean the individuals elected as
a substitute insured for the Director for purposes related to any insurance
policy applicable to this Agreement.
1.15. Surviving Spouse. The term "Surviving Spouse" shall mean the person,
if any, who shall be legally married to the Director on the date of the
Director's death.
2. Scope, Purpose and Effect.
2.1. Contract of Employment. Although this Agreement is intended to provide
the Director with an additional incentive to continue to serve as a member of
the Board of Directors of the Bank, this Agreement shall not be deemed to
constitute a contract of employment between the Director and the Bank nor shall
any provision of this Agreement restrict the right of the Bank to remove or
cause the removal of the Director including, without limitation, by (i)refusal
to nominate the Director for election for any successive term of office as a
member of the Board of Directors of the Bank, or (ii) complying with an order or
other directive from a court of competent jurisdiction or any regulatory
authority having jurisdiction over the Bank which requires the Bank to take
action to remove the Director.
2.2. Fringe Benefit. The benefits provided by this Agreement are granted by
the Bank as a fringe benefit to the Director and are not a part of any salary
reduction plan or any arrangement deferring a bonus or a salary increase. The
Director has no option to take any current payments or bonus in lieu of the
benefits provided by this Agreement.
3. Payments Upon Early Retirement or Retirement and After Retirement.
3.1. Payments Upon Early Retirement. The Director shall have the right to
Retire on a date which constitutes an Early Retirement Date as defined in
subparagraph 1.8 above.
(a) In the event the Director elects to Retire on a date which
constitutes an Early Retirement Date, and provided that the
Surrogate is alive at the date the Director Retires, the Director
shall be entitled to be paid the Applicable Percentage of the
Director Benefits, in substantially equal monthly installments on
the first day of each month, beginning with the month following
the month in which the Early Retirement Date occurs, payable (i)
for the period designated in Schedule "D" in the case of the
balance in the Benefit Account and (ii) until the first to occur
of the Director's death or the Surrogate's death in the case of
the Index Benefit defined in Schedule "B".
(b) In the event the Director elects to Retire on a date which
constitutes an Early Retirement Date, and provided that the
Surrogate has predeceased the Director at the date the Director
Retires, the Director shall been titled to the payments specified
in subparagraph 3.3 below.
3.2. Payments Upon Retirement.
(a) If the Director remains a member of the Board of Directors of the
Bank until attaining sixty-two (62) years of age, and provided
that the Surrogate is alive at the date the Director Retires, the
Director shall be entitled to be paid the Applicable Percentage
of the Director Benefits, in substantially equal monthly
installments on the first day of each month, beginning with the
month following the month in which the Director Retires or upon
such later date as may be mutually agreed upon by the Director
and the Bank in advance of said Retirement date, payable (i) for
the period designated in Schedule "D" in the case of the balance
in the Benefit Account and (ii) until the first to occur of the
Director's death or the Surrogate's death in the case of the
Index Benefit defined in Schedule "B". At the Bank's sole and
absolute discretion, the Bank may increase the Director Benefits
as and when the Bank determines the same to be appropriate.
(b) If the Director remains a member of the Board of Directors of the
Bank until attaining sixty-two (62) years of age, and provided
that the Surrogate has predeceased the Director at the date the
Director Retires, the Director shall be entitled to the payments
specified in subparagraph 3.3 below.
3.3. Payments in the Event of Surrogate's Death Before Retirement.
Notwithstanding subparagraph 3.1(a) and subparagraph 3.2(a), if the Surrogate
dies before the Director Retires, then upon the Director's Retirement, the
Director Benefits to which the Director would otherwise be entitled shall be
adjusted such that the portion of such Director Benefits which is derived by
reference to an insurance policy, if any, underwritten using a surrogate
insured(a "Surrogate Policy") shall be paid as follows: the Bank shall pay to
the Director the Applicable Percentage of (i) that portion of the balance, if
any, in the Benefit Account as of the date of the Surrogate's death which is
derived by reference to a Surrogate Policy, if any, payable in substantially
equal monthly installments on the first day of each month, beginning with the
month following the month in which the Director Retires (or on such later date
as may be mutually agreed upon by the Director and the Bank in advance of said
Retirement date) for the period designated in Schedule "D". Upon the death of
the Director before receiving all of the Director Benefits to which the Director
is entitled, the Bank shall pay to the Director's designated beneficiary(ies)the
Applicable Percentage of the balance, if any, of the Benefit Account which is
derived by reference to a Surrogate Policy, if any, in lump sum. The remaining
Director Benefits to which the Director is entitled which are derived without
reference to any Surrogate Policy shall continue to be paid as specified in the
applicable provisions of this Agreement.
3.4. Payments in the Event of Death After Retirement.
(a) If the Director Retires, but shall die before receiving all of
the Director Benefits, and provided that the Surrogate is alive
at the date of the Director's death, the Bank will pay to the
Director's designated beneficiary(ies) the Applicable Percentage
of the balance, if any, of the Benefit Account, in lump sum, and
up to twenty (20) annual Index Benefit installment payments in
the amounts that otherwise would have been paid to the Director
if still alive and which are derived by reference to a Surrogate
Policy, if any, minus the number of annual Index Benefit
installment payments made to the Director prior to the Director's
death. Upon the death of the Surrogate, such installment payments
shall cease whether or not any unpaid portion of the twenty (20)
installment payments shall remain unpaid.
(b) If the Director Retires, but the Surrogate shall predecease the
Director, the Director shall be entitled to receive the payments
specified in subparagraph 3.3 above.
(c) If a valid Beneficiary Designation is not in effect, then the
remaining amounts due to the Director under the terms of this
Agreement shall be paid to the Director's Surviving Spouse. If
the Director leaves no Surviving Spouse, the remaining amounts
due to the Director under the terms of this Agreement shall be
paid to the duly qualified personal representative, executor or
administrator of the Director's estate.
4. Payments in the Event Death or Disability Occurs Prior to Retirement.
4.1. Payments in the Event of Death Prior to Retirement.
(a) If the Director dies at any time after the Effective Date of this
Agreement but prior to Retirement, and provided that the
Surrogate is alive at the date of the Director's death, the Bank
agrees to pay to the Director's designated beneficiary(ies) the
Applicable Percentage of the balance, if any, in the Benefit
Account, in lump sum, and up to twenty (20) annual Index Benefit
installment payments in the amounts that otherwise would have
been paid to the Director if still alive and which are derived by
reference to a Surrogate Policy, if any. Upon the death of the
Surrogate, such installment payments shall cease whether or not
any unpaid portion of the twenty (20)installment payments shall
remain unpaid.
(b) If the Director dies at any time after the Effective Date of this
Agreement but prior to Retirement, and provided that the
Surrogate has predeceased the Director, the Bank agrees to pay to
the Director's designated beneficiary(ies) the Applicable
Percentage of the balance, if any, of the Benefit Account in lump
sum.
(c) If a valid Beneficiary Designation is not in effect, then the
remaining amounts due to the Director under the terms of this
Agreement shall be paid to the Director's Surviving Spouse. If
the Director leaves no Surviving Spouse, the remaining amounts
due to the Director under the terms of this Agreement shall be
paid to the duly qualified personal representative, executor or
administrator of the Director's estate.
4.2. Payments in the Event of Disability Prior to Retirement. In the event
the Director becomes Disabled at any time after the Effective Date of this
Agreement but prior to Retirement, the Director shall be paid the Applicable
Percentage of the Director Benefits which the Director may be entitled to
receive, in substantially equal monthly installments on the first day of each
month, beginning with the month following the month in which the Director
becomes Disabled, payable (i) for the period designated in Schedule "D" in the
case of the balance in the Benefit Account and (ii) until the first to occur of
the Director's death or the Surrogate's death in the case of the Index Benefit
defined in Schedule "B".
5. Payments in the Event Service Is Terminated Prior to Retirement. As indicated
in subparagraph 2.1 above, the Bank reserves the right to remove or cause the
removal of the Director at any time prior to the Director's Retirement. In the
event that the Director shall be removed and his or her service as a member of
the Board of Directors of the Bank terminated, other than by reason of death,
Disability or Retirement, prior to the Director's attaining sixty-two (62) years
of age, then this Agreement shall terminate upon the date of such termination of
service; provided, however, that the Director shall be entitled to the following
benefits as may be applicable depending upon the circumstances surrounding the
Director's termination of service:
5.1. Termination Without Cause. If the Director's service as a member of
the Board of Directors of the Bank is terminated for reasons other than as
specified in paragraph 5.3 below, and such termination is not subject to the
provisions of subparagraph 5.4 below, the Director shall be entitled to be paid
the Applicable Percentage of the Director Benefits, in substantially equal
monthly installments on the first day of each month, beginning with the month
following the month in which the Director attains fifty-five (55) years of age
or any month thereafter, as requested in writing by the Director and delivered
to the Bank or its successor thirty (30) days prior to the commencement of
installment payments; provided, however, that in the event the Director does not
request a commencement date as specified, such installments shall be paid on the
first day of each month, beginning with the month following the month in which
the Director attains sixty-two (62) years of age. The installments shall be
payable (i)for the period designated in Schedule "D" in the case of the balance
in the Benefit Account and (ii) until the first to occur of the Director's death
or the Surrogate's death in the case of the Index Benefit defined in Schedule
"B".
5.2. Voluntary Termination by the Director. If the Director's service as a
member of the Board of Directors of the Bank is terminated by voluntary
resignation and such resignation is not subject to the provisions of
subparagraph 5.4 below, the Director shall be entitled to be paid the Applicable
Percentage of the Director Benefits, in substantially equal monthly installments
on the first day of each month, beginning with the month following the month in
which the Director attains fifty-five (55) years of age or any month thereafter,
as requested in writing by the Director and delivered to the Bank or its
successor thirty (30) days prior to the commencement of installment payments;
provided, however, that in the event the Director does not request a
commencement date as specified, such installments shall be paid on the first day
of each month, beginning with the month following the month in which the
Director attains sixty-two (62) years of age. The installments shall be payable
(i) for the period designated in Schedule "D" in the case of the balance in the
Benefit Account and (ii) until the first to occur of the Director's death or the
Surrogate's death in the case of the Index Benefit defined in Schedule "B".
5.3. Termination by Removal for Cause. The Director agrees that if the
Director's service as a member of the Board of Directors of the Bank is
terminated by "removal for cause," (as defined in subparagraph 1.12 of this
Agreement) and pursuant to subparagraph 1.12 (c), (d) or (e), the Director shall
forfeit any and all rights and benefits the Director may have under the terms of
this Agreement and shall have no right to be paid any of the amounts which would
otherwise be due or paid to the Director by the Bank pursuant to the terms of
this Agreement. In the event that the Director's service as a member of the
Board of Directors of the Bank is terminated by "removal for cause" pursuant to
subparagraph 1.12(a), (b) or (f), the Director shall be entitled to be paid the
Applicable Percentage of the Director Benefits, as defined above, in
substantially equal monthly installments on the first day of each month,
beginning with the month following the month in which the Director attains
fifty-five (55) years of age or any month thereafter, as requested in writing by
the Director and delivered to the Bank or its successor thirty (30) days prior
to the commencement of installment payments; provided, however, that in the
event the Director does not request a commencement date as specified, such
installments shall be paid on the first day of each month, beginning with the
month following the month in which the Director attains sixty-two (62) years of
age. The installments shall be payable(i) for the period designated in Schedule
"D" in the case of the balance in the Benefit Account and (ii) until the first
to occur of the Director's death or the Surrogate's death in the case of the
Index Benefit defined in Schedule "B".
5.4. Termination on Account of or After a Change in Control. In the event:
(i) the Director's service as a member of the Board of Directors of the Bank is
terminated in conjunction with, or by reason of, a "Change in Control" (as
defined in subparagraph 1.4 above); or (ii) by reason of the Bank's actions and
without the Director's prior written consent, any change occurs in the scope of
the Director's position, responsibilities, duties, fees, benefits, or location
of meetings (which in the event of relocation of more than thirty (30)miles from
the location of the Board or committee meetings prior to a Change in Control
shall constitute such a change in location) after a Change in Control occurs,
then the Director shall be entitled to be paid the Applicable Percentage of the
Director Benefits, as defined above, in substantially equal monthly installments
on the first day of each month, beginning with the month following the month in
which the Director attains fifty-five (55) years of age or any month thereafter,
as requested in writing by the Director and delivered to the Bank or its
successor thirty (30) days prior to the commencement of installment payments;
provided, however, that in the event the Director does not request a
commencement date as specified, such installments shall be paid on the first day
of each month, beginning with the month following the month in which the
Director attains sixty-two (62) years of age. The installments shall be payable
(i) for the period designated in Schedule "D" in the case of the balance in the
Benefit Account and (ii)until the first to occur of the Director's death or the
Surrogate's death in the case of the Index Benefit defined in Schedule "B".
5.5. Payments in the Event of Death Following Termination. If the Director
dies prior to receiving all of the Director Benefits described in this Paragraph
5 to which the Director is entitled, then the Bank will make such payments to
the Director's designated beneficiary in lump sum. If a valid Beneficiary
Designation is not in effect, then the remaining amounts due to the Director
under the terms of this Agreement shall be paid to the Director's Surviving
Spouse. If the Director leaves no Surviving Spouse, the remaining amounts due to
the Director under the terms of this Agreement shall be paid to the duly
qualified personal representative, executor or administrator of the Director's
estate.
6. Section 280G Adjustment. The Director acknowledges and agrees that the
parties have entered into this Agreement based upon certain financial and tax
accounting assumptions. Accordingly, with full knowledge of the potential
consequences the Director agrees that, notwithstanding anything contained here
into the contrary, in the event that any payment or benefit received or to be
received by the Director, whether payable pursuant to the terms of this
Agreement or any other plan, arrangement or agreement with the Bank (together
with the Director Benefits, the "Total Payments"), will not be deductible (in
whole or in part) as a result of Code Section 280G or other applicable
provisions of the Code, the Total Payments shall be reduced until no portion of
the Total Payments is nondeductible as a result of Section 280G or such other
applicable provisions of the Code. For purposes of this limitation:
(a) No portion of the Total Payments, the receipt or enjoyment of
which the Director shall have effectively waived in writing prior
to the date of payment of any future Director Benefits payments,
shall be taken into account;
(b) No portion of the Total Payments shall be taken into account,
which in the opinion of the tax counsel selected by the Bank and
acceptable to the Director, does not constitute a "parachute
payment" within the meaning of Section 280G of the Code;
(c) Any reduction of the Total Payments shall be applied to reduce
any payment or benefit received or to be received by the Director
pursuant to the terms of this Agreement and any other plan,
arrangement or agreement with the Bank in the order determined by
mutual agreement of the Bank and the Director;
(d) Future payments shall be reduced only to the extent necessary so
that the Total Payments (other than those referred to in clauses
(a) or (b) above in their entirety) constitute reasonable
compensation for services actually rendered within the meaning of
Section 280G of the Code, in the opinion of tax counsel referred
to in clause (b) above; and
(e) The value of any non-cash benefit or any deferred payment or
benefit included in the Total Payments shall be determined by
independent auditors selected by the Bank and acceptable to the
Director in accordance with the principles of Section 280G of the
Code.
7. Right To Determine Funding Methods. The Bank reserves the right to determine,
in its sole and absolute discretion, whether, to what extent and by what method,
if any, to provide for the payment of the amounts which may be payable to the
Director, the Director's spouse or the Director's beneficiaries under the terms
of this Agreement. In the event that the Bank elects to fund this Agreement, in
whole or in part, through the use of life insurance or annuities, or both, the
Bank shall determine the ownership and beneficial interests of any such policy
of life insurance or annuity. The Bank further reserves the right, in its sole
and absolute discretion, to terminate any such policy, and any other device used
to fund its obligations under this Agreement, at any time, in whole or in part.
Consistent with Paragraph 9 below, neither the Director, the Director's spouse
nor the Director's beneficiaries shall have any right, title or interest in or
to any funding source or amount utilized by the Bank pursuant to this Agreement,
and any such funding source or amount shall not constitute security for the
performance of the Bank's obligations pursuant to this Agreement. In connection
with the foregoing, the Director agrees to execute such documents and undergo
such medical examinations or tests which the Bank may request and which may be
reasonably necessary to facilitate any funding for this Agreement including,
without limitation, the Bank's acquisition of any policy of insurance or
annuity. Furthermore, a refusal by the Director to consent to, participate in
and undergo any such medical examinations or tests shall result in the immediate
termination of this Agreement and the immediate forfeiture by the Director, the
Director's spouse and the Director's beneficiaries of any and all rights to
payment hereunder.
8. Claims Procedure. The Bank shall, but only to the extent necessary to comply
with ERISA, be designated as the named fiduciary under this Agreement and shall
have authority to control and manage the operation and administration of this
Agreement. Consistent therewith, the Bank shall make all determinations as to
the rights to benefits under this Agreement. Any decision by the Bank denying a
claim by the Director, the Director's spouse, or the Director's beneficiary for
benefits under this Agreement shall be stated in writing and delivered or
mailed, via registered or certified mail, to the Director, the Director's spouse
or the Director's beneficiary, as the case may be. Such decision shall set forth
the specific reasons for the denial of a claim. In addition, the Bank shall
provide the Director, the Director's spouse or the Director's beneficiary with a
reasonable opportunity for a full and fair review of the decision denying such
claim.
9. Status as an Unsecured General Creditor. Notwithstanding anything contained
herein to the contrary: (i) neither the Director, the Director's spouse or the
Director's designated beneficiaries shall have any legal or equitable rights,
interests or claims in or to any specific property or assets of the Bank as a
result of this Agreement; (ii) none of the Bank's assets shall be held in or
under any trust for the benefit of the Director, the Director's spouse or the
Director's designated beneficiaries or held in any way as security for the
fulfillment of the obligations of the Bank under this Agreement; (iii)all of the
Bank's assets shall be and remain the general unpledged and unrestricted assets
of the Bank; (iv) the Bank's obligation under this agreement shall be that of an
unfunded and unsecured promise by the Bank to pay money in the future; and (v)
the Director, the Director's spouse and the Director's designated beneficiaries
shall be unsecured general creditors with respect to any benefits which may be
payable under the terms of this Agreement.
Notwithstanding subparagraphs (i) through (v) above, the Bank and the
Director acknowledge and agree that, in the event of a Change in Control, upon
request of the Director, or in the Bank's discretion if the Director does not so
request and the Bank nonetheless deems it appropriate, the Bank shall establish,
not later than the effective date of the Change in Control, a Rabbi Trust or
multiple Rabbi Trusts (the "Trust" or "Trusts") upon such terms and conditions
as the Bank, in its sole discretion, deems appropriate and in compliance with
applicable provisions of the Code, in order to permit the Bank to make
contributions and/or transfer assets to the Trust or Trusts to discharge its
obligations pursuant to this Agreement. The principal of the Trust or Trusts and
any earnings thereon shall be held separate and apart from other funds of the
Bank to be used exclusively for discharge of the Bank's obligations pursuant to
this Agreement and shall continue to be subject to the claims of the Bank's
general creditors until paid to the Director or its beneficiaries in such manner
and at such times as specified in this Agreement.
10. Discretion of Board to Accelerate Payout. Notwithstanding any of the other
provisions of this Agreement, the Board of Directors of the Bank may, if
determined in its sole and absolute discretion to be appropriate, accelerate the
payment of the amounts due under the terms of this Agreement, provided that
Director (or Director's spouse or designated beneficiaries): (i) consents to the
revised payout terms determined appropriate by the Bank's Board of Directors;
and (ii) does not negotiate or in anyway influence the terms of proposed
altered/accelerated payout (said decision to be made solely by the Bank's Board
of Directors and offered to the Director [or Director's spouse or designated
beneficiaries] on a "take it or leave it basis").
11. Miscellaneous.
11.1. Opportunity To Consult With Independent Advisors. The Director
acknowledges that he has been afforded the opportunity to consult with
independent advisors of his choosing including, without limitation, accountants
or tax advisors and counsel regarding both the benefits granted to him under the
terms of this Agreement and the (i) terms and conditions which may affect the
Director's right to these benefits and (ii) personal tax effects of such
benefits including, without limitation, the effects of any federal or state
taxes, Section 280G of the Code, and any other taxes, costs, expenses or
liabilities whatsoever related to such benefits, which in any of the foregoing
instances the Director acknowledges and agrees shall be the sole responsibility
of the Director notwithstanding any other term or provision of this Agreement.
The Director further acknowledges and agrees that the Bank shall have no
liability whatsoever related to any such personal tax effects or other personal
costs, expenses, or liabilities applicable to the Director and further
specifically waives any right for the Director, himself, and his heirs,
beneficiaries, legal representatives, agents, successors, and assigns to claim
or assert liability on the part of the Bank related to the matters described
above in this subparagraph 11.1. The Director further acknowledges and agrees
that he has read, understands and consents to all of the terms and conditions of
this Agreement, and that he enters into this Agreement with a full understanding
of its terms and conditions.
11.2. Arbitration of Disputes. All claims, disputes and other matters in
question arising out of or relating to this Agreement or the breach or
interpretation thereof, other than those matters which are to be determined by
the Bank in its sole and absolute discretion, shall be resolved by binding
arbitration before a representative member, selected by the mutual agreement of
the parties, of the Judicial Arbitration and Mediation Services, Inc.("JAMS"),
located in San Francisco, California. In the event JAMS is unable or unwilling
to conduct the arbitration provided for under the terms of this Paragraph, or
has discontinued its business, the parties agree that a representative member,
selected by the mutual agreement of the parties, of the American Arbitration
Association ("AAA"), located in San Francisco, California, shall conduct the
binding arbitration referred to in this Paragraph. Notice of the demand for
arbitration shall be filed in writing with the other party to this Agreement and
with JAMS (or AAA, if necessary). In no event shall the demand for arbitration
be made after the date when institution of legal or equitable proceedings based
on such claim, dispute or other matter in question would be barred by the
applicable statute of limitations. The arbitration shall be subject to such
rules of procedure used or established by JAMS, or if there are none, the rules
of procedure used or established by AAA. Any award rendered by JAMS or AAA shall
be final and binding upon the parties, and as applicable, their respective
heirs, beneficiaries, legal representatives, agents, successors and assigns, and
may be entered in any court having jurisdiction thereof. The obligation of the
parties to arbitrate pursuant to this clause shall be specifically enforceable
in accordance with, and shall be conducted consistently with, the provisions of
Title 9 of Part 3 of the California Code of Civil Procedure. Any arbitration
hereunder shall be conducted in Saratoga, California, unless otherwise agreed to
by the parties.
11.3. Attorneys' Fees. In the event of any arbitration or litigation
concerning any controversy, claim or dispute between the parties hereto, arising
out of or relating to this Agreement or the breach hereof, or the interpretation
hereof, the prevailing party shall be entitled to recover from the
non-prevailing party reasonable expenses, attorneys' fees and costs incurred in
connection therewith or in the enforcement or collection of any judgment or
award rendered therein. The "prevailing party" means the party determined by the
arbitrator(s) or court, as the case may be, to have most nearly prevailed, even
if such party did not prevail in all matters, not necessarily the one in whose
favor a judgment is rendered.
11.4. Notice. Any notice required or permitted of either the Director or
the Bank under this Agreement shall be deemed to have been duly given, if by
personal delivery, upon the date received by the party or its authorized
representative; if by facsimile, upon transmission to a telephone number
previously provided by the party to whom the facsimile is transmitted as
reflected in the records of the party transmitting the facsimile and upon
reasonable confirmation of such transmission; and if by mail, on the third day
after mailing via U.S. first class mail, registered or certified, postage
prepaid and return receipt requested, and addressed to the party at the address
given below for the receipt of notices, or such changed address as maybe
requested in writing by a party.
If to the Bank: Saratoga National Bank
12000 Saratoga-Sunnyvale Rd.
Saratoga, California 95070
Attn: Chairman of the Board
If to the Director: ______________________
______________________
______________________
11.5. Assignment. Neither the Director, the Director's spouse, nor any
other beneficiary under this Agreement shall have any power or right to
transfer, assign, anticipate, hypothecate, modify or otherwise encumber any part
or all of the amounts payable hereunder, nor, prior to payment in accordance
with the terms of this Agreement, shall any portion of such amounts be: (i)
subject to seizure by any creditor of any such beneficiary, by a proceeding at
law or in equity, for the payment of any debts, judgments, alimony or separate
maintenance obligations which may be owed by the Director, the Director's
spouse, or any designated beneficiary; or (ii) transferable by operation of law
in the event of bankruptcy, insolvency or otherwise. Any such attempted
assignment or transfer shall be void and unenforceable without the prior written
consent of the Bank. The Bank's consent, if any, to one or more assignments or
transfers shall not obligate the Bank to consent to or be construed as the
Bank's consent to any other or subsequent assignment or transfer.
11.6. Binding Effect/Merger or Reorganization. This Agreement shall be
binding upon and inure to the benefit of the Director and the Bank and, as
applicable, their respective heirs, beneficiaries, legal representatives,
agents, successors and assigns. Accordingly, the Bank shall not merge or
consolidate into or with another corporation, or reorganize or sell
substantially all of its assets to another corporation, firm or person, unless
and until such succeeding or continuing corporation, firm or person agrees to
assume and discharge the obligations of the Bank under this Agreement. Upon the
occurrence of such event, the term "Bank" as used in this Agreement shall be
deemed to refer to such surviving or successor firm, person, entity or
corporation.
11.7. Nonwaiver. The failure of either party to enforce at any time or for
any period of time any one or more of the terms or conditions of this Agreement
shall not be a waiver of such term(s) or condition(s) or of that party's right
thereafter to enforce each and every term and condition of this Agreement.
11.8. Partial Invalidity. If any term, provision, covenant, or condition of
this agreement is determined by an arbitrator or a court, as the case may be, to
be invalid, void, or unenforceable, such determination shall not render any
other term, provision, covenant or condition invalid, void or unenforceable, and
the Agreement shall remain in full force and effect notwithstanding such partial
invalidity.
11.9. Entire Agreement. This Agreement supersedes any and all other
agreements, either oral or in writing, between the parties with respect to the
subject matter of this Agreement and contains all of the covenants and
agreements between the parties with respect thereto. Each party to this
Agreement acknowledges that no other representations, inducements, promises, or
agreements, oral or otherwise, have been made by any party, or anyone acting on
behalf of any party, which are not set forth herein, and that no other
agreement, statement, or promise not contained in this Agreement shall be valid
or binding on either party.
11.10. Modifications. Any modification of this Agreement shall be effective
only if it is in writing and signed by each party or such party's authorized
representative.
11.11. Paragraph Headings. The paragraph headings used in this Agreement
are included solely for the convenience of the parties and shall not affect or
be used in connection with the interpretation of this Agreement.
11.12. No Strict Construction. The language used in this Agreement shall be
deemed to be the language chosen by the parties hereto to express their mutual
intent, and no rule of strict construction will be applied against any person.
11.13. Governing Law. The laws of the State of California, other than those
laws denominated choice of law rules, and, where applicable, the rules and
regulations of the Board of Governors of the Federal Reserve System, Federal
Deposit Insurance Corporation, Office of the Comptroller of the Currency, or
other regulatory agency or governmental authority having jurisdiction over Bank,
shall govern the validity, interpretation, construction and effect of this
Agreement.
IN WITNESS WHEREOF, the Bank and the Director have executed this Agreement
on the date first above-written in the City of Saratoga, Santa Clara County,
California.
THE BANK THE DIRECTOR
SARATOGA NATIONAL BANK
By:____________________________ _____________________________
Richard L. Mount __________________
President and Chief Executive Officer
SCHEDULE A
CALENDAR YEAR APPLICABLE PERCENTAGE
__________, 1981 to December 31, 1998. . . . 80.00%
December 31, 1999. . . . . . . . . . . . . . 90.00%
December 31, 2000. . . . . . . . . . . . . . 100.00%
SCHEDULE B
DIRECTOR BENEFITS
1. Director Benefits Determination.
The Director Benefits shall be determined based upon the following:
a. Benefit Account:
A Benefit Account shall be established as a liability reserve
account on the books of the Bank for the benefit of the Director.
Prior to the date on which the Director becomes eligible to
receive payments under the Agreement, such Benefit Account shall
be increased (or decreased) each Plan Year (including the Plan
Year in which the Director ceases to be employed by the Bank) by
an amount equal to the annual earnings or loss for that Plan Year
determined by the Index (described in subparagraph c below), less
the Opportunity Cost (described in subparagraph d below) for that
Plan Year.
b. Index Benefit:
After the date on which the Director becomes eligible to receive
payments under the Agreement, the Index Benefit for the Director
for any Plan Year shall be determined by subtracting the
Opportunity Cost for that Plan Year from the earnings, if any,
established by the Index.
c. Index:
The Index for any Plan Year shall be the aggregate annual
after-tax income from the life insurance contracts described
hereinafter as defined by FASB Technical Bulletin 85-4. This
Index shall be applied as if such insurance contracts were
purchased on the Effective Date.
Insurance Company(ies)/Policy Number(s):
_____________________________
_____________________________
If such contracts of life insurance are actually purchased by the
Bank, then the actual policies as of the dates purchased shall be
used in calculations to determine the Index and Opportunity Cost.
If such contracts of life insurance are not purchased or are
subsequently surrendered or lapsed, then the Bank shall receive
and use annual policy illustrations that assume the above
described policies were purchased from the above named insurance
company(ies) on the Effective Date to calculate the amount of the
Index and Opportunity Cost.
d. Opportunity Cost:
The Opportunity Cost for any Plan Year shall be calculated by
multiplying (a) the sum of (i) the total amount of premiums set
forth in the insurance policies described above, (ii) the amount
of any Index Benefits(described at subparagraph b above), and
(iii) the amount of all previous years after-tax Opportunity
Costs; by (b) the average annualized after-tax cost of funds
calculated using a one-year U.S. Treasury Bill as published in
the Wall Street Journal. The applicable tax rate used to
calculate the Opportunity Cost shall be the Bank's marginal tax
rate until the Director's Retirement, or other termination of
service (including a Change in Control). Thereafter, the
Opportunity Cost shall be calculated with the assumption of a
marginal forty-two percent (42%) corporate tax rate each year
regardless of whether the actual marginal tax rate of the Bank is
higher or lower.
EXAMPLE
INDEX BENEFITS
[n] [A] [B] [C] [D]
End of Cash Surrender Index Opportunity Annual Cumulative
Year Value of Life [Annual Cost Benefit Benefit
Insurance Policy Policy A0=premium B-C D+Dn-1
Income] A0+Cn=1x.05x
An-An-1 (1-42%)
0 $1, 000,000 -- -- -- --
1 $1,050,000 $50,000 $29,000 $21,000 $21,000
2 $1,102,500 $52,500 $29,841 $22,659 $43,659
3 $1,157,625 $55,125 $30,706 $24,419 $68,078
.
.
.
Assumptions: Initial Insurance = $1,000,000
Effective Tax Rate = 42%
One Year US Treasury Yield = 5%
2. Director Benefits Payments.
The Director shall be entitled to payment of the Applicable Percentage
of(i) the balance in the Benefit Account in installments, and (ii) the Index
Benefit for each Plan Year payable in installments, upon the terms as specified
in the Agreement until the Director's death
SCHEDULE C
BENEFICIARY DESIGNATION
To the Administrator of the Saratoga National Bank Director Supplemental
Compensation Agreement:
Pursuant to the Provisions of my Director Supplemental Compensation
Agreement with Saratoga National Bank, permitting the designation of a
beneficiary or beneficiaries by a participant, I hereby designate the following
persons and entities as primary and secondary beneficiaries of any benefit under
said Agreement payable by reason of my death:
Primary Beneficiary:
______________________ ____________________ _____________________________
Name Address Relationship
Secondary (Contingent) Beneficiary:
______________________ _____________________ _____________________________
Name Address Relationship
THE RIGHT TO REVOKE OR CHANGE ANY BENEFICIARY DESIGNATION IS HEREBY
RESERVED. ALL PRIOR DESIGNATIONS, IF ANY, OF PRIMARY BENEFICIARIES AND SECONDARY
BENEFICIARIES ARE HEREBY REVOKED.
The Administrator shall pay all sums payable under the Agreement by reason
of my death to the Primary Beneficiary, if he or she survives me, and if no
Primary Beneficiary shall survive me, then to the Secondary Beneficiary, and if
no named beneficiary survives me, then the Administrator shall pay all amounts
in accordance with the terms of my Director Supplemental Compensation Agreement.
In the event that a named beneficiary survives me and dies prior to receiving
the entire benefit payable under said Agreement, then and in that event, the
remaining unpaid benefit payable according to the terms of my Director
Supplemental Compensation Agreement shall be payable to the personal
representatives of the estate of said beneficiary who survived me but died prior
to receiving the total benefit provided by my Director Supplemental Compensation
Agreement.
Dated: ___________, 1998 __________________________
__________________
CONSENT OF THE DIRECTOR'S SPOUSE TO THE ABOVE BENEFICIARY DESIGNATION:
I, ____________, being the spouse of __________________, after being
afforded the opportunity to consult with independent counsel of my choosing, do
hereby acknowledge that I have read, agree and consent to the foregoing
Beneficiary Designation which relates to the Director Supplemental Compensation
Agreement entered into by my spouse effective as of ___________, 1998. I
understand that the above Beneficiary Designation may affect certain rights
which I may have in the benefits provided for under the terms of the Director
Supplemental Compensation Agreement and in which I may have a marital property
interest.
Dated: ___________, 1998
______________________________
_________________
SCHEDULE D
DISTRIBUTION ELECTION
Pursuant to the provisions of my Director Supplemental Compensation
Agreement with Saratoga National Bank, I hereby elect to have any distribution
of the balance in my Benefit Account paid to me in installments as designated
below:
thirty-six (36) monthly installments with the amount of each
installment determined as of each installment date by
dividing the entire amount in my Benefit Account by the
number of installments then remaining to be paid, with the
final installment to be the entire remaining balance in the
Benefit Account.
sixty (60) monthly installments with the amount of each
installment determined as of each installment date by
dividing the entire amount in my Benefit Account by the
number of installments then remaining to be paid, with the
final installment to be the entire remaining balance in the
Benefit Account.
one hundred twenty (120) monthly installments with the
amount of each installment determined as of each installment
date by dividing the entire amount in my Benefit Account by
the number of installments then remaining to be paid, with
the final installment to be the entire remaining balance in
the Benefit Account.
one hundred eighty (180) monthly installments with the
amount of each installment determined as of each installment
date by dividing the entire amount in my Benefit Account by
the number of installments then remaining to be paid, with
the final installment to be the entire remaining balance in
the Benefit Account.
Dated: ____________, 1998
Signed:_______________________
__________________
LIFE INSURANCE
ENDORSEMENT METHOD SPLIT DOLLAR PLAN
AGREEMENT
Insurer/Policy Number: ________________________
Bank: Saratoga National Bank
Participant: _________________
Insured: ______________, as the insured surrogate for Participant
Relationship of Participant to Bank: Director
Date: June 18, 1999
The respective rights and duties of the Bank and the Participant in the above
policy(ies) (the "Policy" or "Policies") shall be as follows:
I. DEFINITIONS
Refer to the Policy provisions for the definition of all terms in this
Agreement. Notwithstanding the foregoing, whenever the term "Insured" is used in
the Policies, unless the Policy provisions otherwise require, it shall mean
[Director's Name] for purposes of any beneficial interest or right to proceeds
from any insurance policy to which this Agreement refers.
II. POLICY TITLE AND OWNERSHIP
Title and ownership shall reside in the Bank for its use and for the use of
the Participant all in accordance with this Agreement. The Bank alone may, to
the extent of its interest, exercise the right to borrow or withdraw the Policy
cash values. Where the Bank and the Participant (or beneficiary[ies] or
assignee[s], with the consent of the Participant) mutually agree to exercise the
right to increase the coverage under the subject split dollar Policy, then, in
such event, the rights, duties and benefits of the parties to such increased
coverage shall continue to be subject to the terms of this Agreement.
III. BENEFICIARY DESIGNATION RIGHTS
The Participant (or beneficiary[ies] or assignee[s]) shall have the right
and power to designate a beneficiary or beneficiaries to receive his or her
share of the proceeds payable upon the death of the Insured, and to elect and
change a payment option for such beneficiary, subject to any right or interest
the Bank may have in such proceeds, as provided in this Agreement.
IV. PREMIUM PAYMENT METHOD
The Bank shall pay an amount equal to the planned premiums and any other
premium payments that might become necessary to maintain the Policy in force.
V. TAXABLE BENEFIT
Annually the Participant will receive a taxable benefit equal to the
assumed cost of insurance as required by the Internal Revenue Service. The
Bank(or its administrator) will report to the Participant the amount of imputed
income received each year on Form W-2 or its equivalent.
VI. DIVISION OF DEATH PROCEEDS
Subject to Paragraph VII herein, the division of the death proceeds of the
Policy is as follows:
A. 1. Subject to paragraph VI.A.2 below, upon the death of the
Participant, the Participant's beneficiary(ies) designated in accordance with
Paragraph III shall be entitled to an amount equal to the net at risk insurance
portion of the proceeds under all Policies. The net at risk insurance portion is
the total proceeds less the cash value of the Policy. Notwithstanding the
foregoing, in the event the Participant [or his or her beneficiary(ies)]becomes
entitled to receive the foregoing death benefit prior to the Participant
becoming entitled to receive 100% of the benefits, if any, specified in that
certain Director Supplemental Compensation Agreement between the Bank and the
Participant, effective __________, 1998 (the "Compensation Agreement"), then the
Participant [or his or her beneficiary(ies)] shall been titled to receive the
same percentage of the foregoing death benefit as the percentage applicable to
the Participant's benefits, if any, under such Compensation Agreement
immediately prior to the Participant's death or, if earlier, the date on which
the Participant [or his or her beneficiary(ies)]commences receiving such death
benefit.
2. Notwithstanding paragraph VI.A.1 above:
(a) If the Insured predeceases the Participant prior to the date on which the
Participant Retires, becomes Disabled, or otherwise terminates service as a
director (as defined or described in the Compensation Agreement),then that
portion of the death proceeds equal to the amount to which the Participant is
entitled under paragraph VI.A.1 of this Agreement shall be held by the Bank in
trust for the Participant under the terms of this Agreement. Such death proceeds
shall be deposited into a separate, segregated interest bearing account. Neither
the Participant nor the Participant's beneficiary(ies)shall have any right to or
interest in such account or the funds therein except as provided in this
Agreement. Such interest bearing account shall be selected by the Bank in its
sole discretion and may be an account at the Bank or at another financial
institution. The Bank shall have no liability whatsoever with respect to the
rate of interest actually earned on such death proceeds. Accrued interest earned
on such death proceeds shall be paid to the Participant within fifteen (15) days
after the end of each calendar quarter (or on such other periodic basis as may
be mutually agreed upon by the Bank and the Participant). The Participant shall
be responsible for payment of all taxes imposed on any income earned, and shall
assume all risk of loss, with respect to such funds. Upon the date on which the
Participant Retires after attaining sixty-two (62) years of age, or becomes
Disabled, or otherwise terminates service as a director (other than by "removal
for cause" as defined in the Compensation Agreement) whichever first occurs, the
Participant shall be entitled to the amount determined in accordance with
paragraph VI.A.1, reduced by the amount of any Index Benefit Payments (or
payments made in lieu of such Index Benefit Payments) made to the Participant or
the Participant's beneficiary(ies) pursuant to the terms of the Compensation
Agreement, payable in lump sum or in such periodic installments as maybe
mutually agreed upon by the Bank and the Participant. Upon the death of the
Participant, the remaining unpaid balance of the death benefit to which the
Participant is entitled shall be paid to the Participant's beneficiary(ies)in
lump sum. In no event shall the Participant and/or the Participant's
beneficiary(ies) receive an aggregate benefit under this Agreement exceeding the
amount to which the Participant is entitled under paragraph VI.A.1 above.
(b) If the Insured predeceases the Participant after the
Participant Retires, becomes Disabled, or otherwise terminates service as a
director (as defined or described in the Compensation Agreement), then that
portion of the death proceeds equal to the amount to which the Participant is
entitled under paragraph VI.A.1 of this Agreement, reduced by the amount of any
Index Benefit Payments (or payments made in lieu of such Index Benefit Payments)
made to the Participant or the Participant's beneficiary(ies) pursuant to the
terms of the Compensation Agreement, shall be paid to the Participant in lump
sum or in such periodic installments as may be mutually agreed upon by the Bank
and the Participant. Upon the death of the Participant, the remaining unpaid
balance of the death benefit to which the Participant is entitled shall be paid
to the Participant's beneficiary(ies) in lump sum. In no event shall the
Participant and/or the Participant's beneficiary(ies)receive an aggregate
benefit under this Agreement exceeding the amount to which the Participant is
entitled under paragraph VI.A.1 above.
B. The Bank shall be entitled to all remaining death proceeds of the
Policy(ies), including any balance remaining in the account referenced
in paragraph VI.A.2 above.
C. The Bank and the Participant (or beneficiary[ies] or assignee[s])
shall share in any interest due on the death proceeds on a pro rata
basis in the ratio that the proceeds due the Bank and the Participant,
respectively, bears to the total proceeds, excluding any such
interest.
VII. DIVISION OF CASH SURRENDER VALUE
The Bank shall at all times be entitled to an amount equal to the Policy's
cash value, as that term is defined in the Policy, less any Policy loans and
unpaid interest or cash withdrawals previously incurred by the Bank and any
applicable Policy surrender charges. Such cash value shall be determined as of
the date of surrender of the Policy or death of the Insured as the case may be.
VIII.PREMIUM WAIVER
If the Policy contains a premium waiver provision, any such waived amounts
shall be considered for all purposes of this Agreement as having been paid by
the Bank.
IX. RIGHTS OF PARTIES WHERE POLICY ENDOWMENT OR ANNUITY ELECTION EXISTS
In the event the Policy involves an endowment or annuity element, the
Bank's right and interest in any endowment proceeds or annuity benefits shall be
determined under the provisions of this Agreement by regarding such endowment
proceeds or the commuted value of such annuity benefits as the Policy's cash
value. Such endowment proceeds or annuity benefits shall be treated like death
proceeds for the purposes of division under this Agreement.
X. TERMINATION OF AGREEMENT
This Agreement shall terminate at the option of the Bank following thirty
(30) days written notice to the Participant upon the happening of any one of the
following:
1. The Participant's right to receive benefits pursuant to the terms and
conditions of that certain Director Supplemental Compensation
Agreement effective as of ___________, 1998, shall terminate for any
reason other than the Participant's or the Insured's death; or
2. The Insured shall be discharged from service with the Bank as a result
of a removal for cause under subparagraph (c), (d) or (e) below.
Notwithstanding the foregoing, this Agreement shall remain in effect
in the event that the Insured is removed pursuant to subparagraph (a),
(b) or (f) below. The term "removal for cause" shall mean termination
of the service of the Insured by reason of any of the following
determined in good faith by the Bank's Board of Directors:
(a) The willful, intentional and material breach or the habitual and
continued neglect by the Insured of his or her employment
responsibilities and duties;
(b) The continuous mental or physical incapacity of the Insured,
subject to disability rights under this Agreement;
(c) The Insured's willful and intentional violation of any federal
banking or securities laws, or of the Bylaws, rules, policies or
resolutions of Bank, or the rules or regulations of the Board of
Governors of the Federal Reserve System, Federal Deposit
Insurance Corporation, Office of the Comptroller of the Currency,
or other regulatory agency or governmental authority having
jurisdiction over the Bank, which has a material adverse effect
upon the Bank;
(d) The written determination by a state or federal banking agency or
governmental authority having jurisdiction over the Bank that the
Insured (i) is of unsound mind, or (ii) has committed a gross
abuse of authority or discretion with reference to the Bank, or
(iii) otherwise is not suitable to continue to serve as a member
of the Board of Directors of the Bank;
(e) The Insured's conviction of (i) any felony or (ii) a crime
involving moral turpitude, or the Insured's willful and
intentional commission of a fraudulent or dishonest act; or
(f) The Insured's willful and intentional disclosure, without
authority, of any secret or confidential information concerning
Bank or taking any action which the Bank's Board of Directors
determines, in its sole discretion and subject to good faith,
fair dealing and reasonableness, constitutes unfair competition
with or induces any customer to breach any contract with the
Bank.
Upon such termination, the Participant (or beneficiary[ies] or assignee[s])
shall have a ninety (90) day option to receive from the Bank an absolute
assignment of the Policy in consideration of a cash payment to the Bank,
whereupon this Agreement shall terminate. Such cash payment shall be the greater
of:
1. The Bank's share of the cash value of the Policy on the date of such
assignment, as defined in this Agreement.
2. The amount of the premiums which have been paid by the Bank prior to
the date of such assignment.
Should the Participant (or beneficiary[ies] or assignee[s]) fail to
exercise this option within the prescribed ninety (90) day period, the
Participant (or beneficiary[ies] or assignee[s]) agrees that all of his or her
rights, interest and claims in the Policy shall terminate as of the date of the
termination of this Agreement.
Except as provided above, this Agreement shall terminate upon distribution
of the death benefit proceeds in accordance with Paragraph VI above.
XI. PARTICIPANT'S OR ASSIGNEE'S ASSIGNMENT RIGHTS
The Participant may not, without the prior written consent of the Bank,
which shall not be unreasonably withheld, assign to any individual, trust or
other organization, any right, title or interest in the Policy nor any rights,
options, privileges or duties created under Agreement.
XII. AGREEMENT BINDING UPON THE PARTIES
This Agreement shall be binding upon the Participant and the Bank, and
their respective heirs, successors, personal representatives and assigns, as
applicable.
XIII.NAMED FIDUCIARY AND PLAN ADMINISTRATOR
The Bank is hereby designated the "Named Fiduciary" until resignation or
removal by its Board of Directors. As Named Fiduciary, the Bank shall be
responsible for the management, control, and administration of this Agreement as
established herein. The Named Fiduciary may allocate to others certain aspects
of the management and operations responsibilities of this Agreement, including
the employment of advisors and the delegation of any ministerial duties to
qualified individuals.
XIV. FUNDING POLICY
The funding policy for this Agreement shall be to maintain the Policy in
force by paying, when due, all premiums required.
XV. CLAIM PROCEDURES
Claim forms or claim information as to the subject Policy can be obtained
by contacting The Benefit Marketing Group, Inc. (770-952-1529). When the Named
Fiduciary has a claim which may be covered under the provisions described in the
Policy, it should contact the office named above, and they will either complete
a claim form and forward it to an authorized representative of the Insurer or
advise the named Fiduciary what further requirements are necessary. The Insurer
will evaluate and make a decision as to payment. If the claim is payable, a
benefit check will be issued to the Named Fiduciary. In the event that a claim
is not eligible under the Policy, the Insurer will notify the Named Fiduciary of
the denial pursuant to the requirements under the terms of the Policy. If the
Named Fiduciary is dissatisfied with the denial of the claim and wishes to
contest such claim denial, it should contact the office named above and they
will assist in making inquiry to the Insurer. All objections to the Insurer's
actions should be in writing and submitted to the office named above for
transmittal to the Insurer.
XVI. GENDER
Whenever in this Agreement words are used in the masculine or neuter
gender, they shall be read and construed as in the masculine, feminine or neuter
gender, whenever they should so apply.
XVII.INSURANCE COMPANY NOT A PARTY TO THIS AGREEMENT
The Insurer shall not be deemed a party to this Agreement, but will respect
the rights of the parties as set forth herein upon receiving an executed copy of
this Agreement. Payment or other performance in accordance with the Policy
provisions shall fully discharge the Insurer from any and all liability.
IN WITNESS WHEREOF, the Participant and a duly authorized Bank officer or
director have signed this Agreement at Saratoga, California as of the date first
above written.
SARATOGA NATIONAL BANK
__________________________ ________________________________
Richard L. Mount ___________________
President and Chief
Executive Officer
BENEFICIARY DESIGNATION FORM
Primary Designation:
Name Relationship
_____________________________ _______________________________________
_____________________________ _______________________________________
_____________________________ _______________________________________
Contingent Designation:
_____________________________ _______________________________________
_____________________________ _______________________________________
_____________________________ _______________________________________
_____________, 1999_____________________
EXECUTIVE SUPPLEMENTAL COMPENSATION AGREEMENT
This Agreement is made and entered into effective as of ______________,1998
by and between Saratoga National Bank, a national banking association chartered
under the federal laws of the United States of America with its principal
offices located in the City of Saratoga, Santa Clara County, California (the
"Employer"), and __________________, an individual residing in the State of
California (the "Executive").
RECITALS
WHEREAS, the Executive has been an employee of the Employer since
_____________, 19__, and is currently serving as its _________________________;
WHEREAS, the Employer desires to establish a compensation benefit program
as a fringe benefit for executive officers of the Employer in order to attract
and retain individuals with extensive and valuable experience in the banking
industry;
WHEREAS, the Executive's experience and knowledge of the affairs of the
Employer and the banking industry are extensive and valuable;
WHEREAS, it is deemed to be in the best interests of the Employer to
provide the Executive with certain fringe benefits, on the terms and conditions
set forth herein, in order to reasonably induce the Executive to remain in the
Employer's employment and to compensate the Employee for valuable services
heretofore rendered to the Employer; and
WHEREAS, the Executive and the Employer wish to specify in writing the
terms and conditions upon which this additional compensatory incentive will be
provided to the Executive, or to the Executive's spouse or the Executive's
designated beneficiaries, as the case may be.
NOW, THEREFORE, in consideration of the services to be performed by the
Executive in the future, as well as the mutual promises and covenants contained
herein, the Executive and the Employer agree as follows:
AGREEMENT
1. Terms and Definitions.
1.1. Administrator. The Employer shall be the "Administrator" and, solely
for the purposes of ERISA as defined in subparagraph 1.9 below, the "fiduciary"
of this Agreement where a fiduciary is required by ERISA.
1.2. Applicable Percentage. The term "Applicable Percentage" shall mean
that percentage listed on Schedule "A" attached hereto which is adjacent to the
number of calendar years which shall have elapsed from the date of the
Executive's commencement of service to the Employer. Notwithstanding the
foregoing or the percentages set forth on Schedule "A," but subject to all other
terms and conditions set forth herein, the "Applicable Percentage" shall be: (i)
provided payments have not yet begun hereunder, one hundred percent (100%) upon
the occurrence of a "Change in Control" as defined in subparagraph 1.4 below, or
the Executive's death, or Disability (as defined in subparagraph 1.6 below),
which death or Disability occurs prior to the termination of the Executive's
employment by the Employer; and (ii)notwithstanding subclause (i) of this
subparagraph 1.2, zero percent (0%) in the event the Executive takes any
intentional action which prevents the Employer from collecting the proceeds of
any life insurance policy which the Employer may happen to own at the time of
the Executive's death and of which the Employer is the designated beneficiary.
Furthermore, notwithstanding the foregoing, or anything contained in this
Agreement to the contrary, in the event the Executive takes any intentional
action which prevents the Employer from collecting the proceeds of any life
insurance policy which the Employer may happen to own at the time of the
Executive's death and of which the Employer is the designated beneficiary: (1)
the Executive's estate or designated beneficiary shall no longer be entitled to
receive any of the amounts payable under the terms of this Agreement, and (2)
the Employer shall have the right to recover from the Executive's estate all of
the amounts paid to the Executive's estate(with respect to amounts paid prior to
the Executive's death or paid to the Executive's estate) or designated
beneficiary (with respect to amounts paid to the designated beneficiary)
pursuant to the terms of this Agreement prior to and after Executive's death.
1.3. Beneficiary. The term "beneficiary" or "designated beneficiary" shall
mean the person or persons whom the Executive shall designate in a valid
Beneficiary Designation, a copy of which is attached hereto as Schedule "C," to
receive the benefits provided hereunder. A Beneficiary Designation shall be
valid only if it is in the form attached hereto and made a part hereof,
completed and signed by the Executive and received by the Administrator prior to
the Executive's death.
1.4. Change in Control. The term "Change in Control" shall mean the
occurrence of any of the following events with respect to the Employer(with the
term "Employer" being defined for purposes of determining whether a "Change in
Control" has occurred to include any parent bank holding company owning 100% of
the Employer's outstanding common stock): (i) a change in control of a nature
that would be required to be reported in response to Item 6(e) of Schedule 14A
of Regulation 14A promulgated under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), or in response to any other form or report to the
regulatory agencies or governmental authorities having jurisdiction over the
Employer or any stock exchange on which the Employer's shares are listed which
requires the reporting of a change in control; (ii) any merger, consolidation or
reorganization of the Employer in which the Employer does not survive; (iii) any
sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one
transaction or a series of transactions) of any assets of the Employer having an
aggregate fair market value of fifty percent (50%) of the total value of the
assets of the Employer, reflected in the most recent balance sheet of the
Employer; (iv) a transaction whereby any "person" (as such term is used in the
Exchange Act) or any individual, corporation, partnership, trust or any other
entity becomes the beneficial owner, directly or indirectly, of securities of
the Employer representing twenty-five percent (25%) or more of the combined
voting power of the Employer's then outstanding securities; or (v) a situation
where, in anyone-year period, individuals who at the beginning of such period
constitute the Board of Directors of the Employer cease for any reason to
constitute at least a majority thereof, unless the election, or the nomination
for election by the Employer's shareholders, of each new director is approved by
a vote of at least three-quarters (3/4) of the directors then still in office
who were directors at the beginning of the period.
1.5. The Code. The "Code" shall mean the Internal Revenue Code of 1986, as
amended (the "Code").
1.6. Disability/Disabled. The term "Disability" or "Disabled" shall have
the same meaning given such terms in any policy of disability insurance
maintained by the Employer for the benefit of employees including the Executive.
In the absence of such a policy which extends coverage to the Executive in the
event of disability, the terms shall mean bodily injury or disease (mental or
physical) which wholly and continuously prevents the performance of duty for at
least three months.
1.7. Early Retirement Date. The term "Early Retirement Date" shall mean the
Retirement, as defined below, of the Executive on a date which occurs prior to
the Executive attaining sixty-two (62) years of age, but after the Executive has
attained fifty-five (55) years of age.
1.8. Effective Date. The term "Effective Date" shall mean the date first
written above.
1.9. ERISA. The term "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended.
1.10. Executive Benefits. The term "Executive Benefits" shall mean the
benefits determined in accordance with Schedule "B", and reduced or adjusted to
the extent: (i) required under the other provisions of this Agreement,
including, but not limited to, Paragraphs 5, 6 and 7 hereof; (ii) required by
reason of the lawful order of any regulatory agency or body having jurisdiction
over the Employer; or (iii) required in order for the Employer to properly
comply with any and all applicable state and federal laws, including, but not
limited to, income, employment and disability income tax laws (e.g., FICA, FUTA,
SDI).
1.11. Plan Year. The term "Plan Year" shall mean the Employer's fiscal
year.
1.12. Retirement. The term "Retirement" or "Retires" shall refer to the
date which the Executive acknowledges in writing to Employer to be the last day
the Executive will provide any significant personal services, whether as an
employee or independent consultant or contractor, to Employer. For purposes of
this Agreement, the phrase "significant personal services" shall mean more than
ten (10) hours of personal services rendered to one or more individuals or
entities in any thirty (30) day period.
1.13. Surviving Spouse. The term "Surviving Spouse" shall mean the person,
if any, who shall be legally married to the Executive on the date of the
Executive's death.
1.14. Termination for Cause. The term "Termination for Cause" shall mean
termination of the employment of the Executive by reason of any of the following
determined in good faith by the Employer's Board of Directors:
(a) The willful, intentional and material breach or the habitual and
continued neglect by the Executive of his or her employment
responsibilities and duties;
(b) The continuous mental or physical incapacity of the Executive,
subject to disability rights under this Agreement;
(c) The Executive's willful and intentional violation of any federal
banking or securities laws, or of the Bylaws, rules, policies or
resolutions of Employer, or the rules or regulations of the Board
of Governors of the Federal Reserve System, Federal Deposit
Insurance Corporation, Office of the Comptroller of the Currency,
or other regulatory agency or governmental authority having
jurisdiction over the Employer, which has a material adverse
effect upon the Employer;
(d) The written determination by a state or federal banking agency or
governmental authority having jurisdiction over the Employer that
Executive is not suitable to act in the capacity for which he or
she is employed by Employer;
(e) The Executive's conviction of (i) any felony or (ii) a crime
involving moral turpitude, or the Executive's willful and
intentional commission of a fraudulent or dishonest act; or
(f) The Executive's willful and intentional disclosure, without
authority, of any secret or confidential information concerning
Employer or taking any action which the Employer's Board of
Directors determines, in its sole discretion and subject to good
faith, fair dealing and reasonableness, constitutes unfair
competition with or induces any customer to breach any contract
with the Employer.
2. Scope, Purpose and Effect.
2.1. Contract of Employment. Although this Agreement is intended to provide
the Executive with an additional incentive to remain in the employ of the
Employer, this Agreement shall not be deemed to constitute a contract of
employment between the Executive and the Employer nor shall any provision of
this Agreement restrict or expand the right of the Employer to terminate the
Executive's employment. This Agreement shall have no impact or effect upon any
separate written Employment Agreement which the Executive may have with the
Employer, it being the parties' intention and agreement that unless this
Agreement is specifically referenced in said Employment Agreement(or any
modification thereto), this Agreement (and the Employer's obligations hereunder)
shall stand separate and apart and shall have no effect on or be affected by,
the terms and provisions of said Employment Agreement.
2.2. Fringe Benefit. The benefits provided by this Agreement are granted by
the Employer as a fringe benefit to the Executive and are not a part of any
salary reduction plan or any arrangement deferring a bonus or a salary increase.
The Executive has no option to take any current payments or bonus in lieu of the
benefits provided by this Agreement.
3. Payments Upon Early Retirement or Retirement and After Retirement.
3.1. Payments Upon Early Retirement. The Executive shall have the right to
Retire on a date which constitutes an Early Retirement Date as defined in
subparagraph 1.7 above. In the event the Executive elects to Retire on a date
which constitutes an Early Retirement Date, the Executive shall be entitled to
be paid the Applicable Percentage of the Executive Benefits, in substantially
equal monthly installments on the first day of each month, beginning with the
month following the month in which the Early Retirement Date occurs or upon such
later date as may be mutually agreed upon by the Executive and the Employer in
advance of said Early Retirement Date, payable (i) for the period designated in
Schedule "D" in the case of the balance in the Benefit Account and(ii) until the
Executive's death in the case of the Index Benefit defined in Schedule "B".
3.2. Payments Upon Retirement. If the Executive remains in the employment
of the Employer until attaining sixty-two (62) years of age, the Executive shall
be entitled to be paid the Applicable Percentage of the Executive Benefits, in
substantially equal monthly installments on the first day of each month,
beginning with the month following the month in which the Executive Retires or
upon such later date as may be mutually agreed upon by the Executive and the
Employer in advance of said Retirement date, payable (i) for the period
designated in Schedule "D" in the case of the balance in the Benefit Account and
(ii) until the Executive's death in the case of the Index Benefit defined in
Schedule "B". At the Employer's sole and absolute discretion, the Employer may
increase the Executive Benefits as and when the Employer determines the same to
be appropriate.
3.3. Payments in the Event of Death After Retirement. The Employer agrees
that if the Executive Retires, but shall die before receiving all of the
Executive Benefits Payments specified in Schedule "B", the Employer agrees to
pay the Applicable Percentage of the Executive Benefits to the Executive's
designated beneficiary in lump sum. If a valid Beneficiary Designation is not in
effect, then the remaining amounts due to the Executive under the terms of this
Agreement shall be paid to the Executive's Surviving Spouse. If the Executive
leaves no Surviving Spouse, the remaining amounts due to the Executive under the
terms of this Agreement shall be paid to the duly qualified personal
representative, executor or administrator of the Executive's estate.
4. Payments in the Event Death or Disability Occurs Prior to Retirement.
4.1. Payments in the Event of Death Prior to Retirement. If the Executive
dies at any time after the Effective Date of this Agreement, but prior to
Retirement, the Employer agrees to pay the Applicable Percentage of the
Executive Benefits to the Executive's designated beneficiary in lump sum. If a
valid Beneficiary Designation is not in effect, then the remaining amounts due
to the Executive under the terms of this Agreement shall be paid to the
Executive's Surviving Spouse. If the Executive leaves no Surviving Spouse, the
remaining amounts due to the Executive under the terms of this Agreement shall
be paid to the duly qualified personal representative, executor or administrator
of the Executive's estate.
4.2. Payments in the Event of Disability Prior to Retirement. In the event
the Executive becomes Disabled at any time after the Effective Date of this
Agreement but prior to Retirement, the Executive shall been titled to be paid
the Applicable Percentage of the Executive Benefits, in substantially equal
monthly installments on the first day of each month, beginning with the month
following the month in which the Executive becomes Disabled, payable (i) for the
period designated in Schedule "D" in the case of the balance in the Benefit
Account and (ii) until the Executive's death in the case of the Index Benefit
defined in Schedule "B".
5. Payments in the Event Employment Is Terminated Prior to Retirement. As
indicated in subparagraph 2.1 above, the Employer reserves the right to
terminate the Executive's employment, with or without cause but subject to any
written employment agreement which may then exist, at any time prior to the
Executive's Retirement. In the event that the employment of the Executive shall
be terminated, other than by reason of death, Disability or Retirement, prior to
the Executive's attaining sixty-two (62) years of age, then this Agreement shall
terminate upon the date of such termination of employment; provided, however,
that the Executive shall be entitled to the following benefits as may be
applicable depending upon the circumstances surrounding the Executive's
termination:
5.1. Termination Without Cause. If the Executive's employment is terminated
by the Employer without cause, and such termination is not subject to the
provisions of subparagraph 5.4 below, the Executive shall be entitled to be paid
the Applicable Percentage of the Executive Benefits, in substantially equal
monthly installments on the first day of each month, beginning with the month
following the month in which the Executive attains fifty-five (55) years of age
or any month thereafter, as requested in writing by the Executive and delivered
to the Employer or its successor thirty (30) days prior to the commencement of
installment payments; provided, however, that in the event the Executive does
not request a commencement date as specified, such installments shall be paid on
the first day of each month, beginning with the month following the month in
which the Executive attains sixty-two (62) years of age. The installments shall
be payable (i) for the period designated in Schedule "D" in the case of the
balance in the Benefit Account and (ii) until the Executive's death in the case
of the Index Benefit defined in Schedule "B".
5.2. Voluntary Termination by the Executive. If the Executive's employment
is terminated by voluntary resignation and such resignation is not subject to
the provisions of subparagraph 5.4 below, the Executive shall be entitled to be
paid the Applicable Percentage of the Executive Benefits, in substantially equal
monthly installments on the first day of each month, beginning with the month
following the month in which the Executive attains fifty-five (55) years of age
or any month thereafter, as requested in writing by the Executive and delivered
to the Employer or its successor thirty (30) days prior to the commencement of
installment payments; provided, however, that in the event the Executive does
not request a commencement date as specified, such installments shall be paid on
the first day of each month, beginning with the month following the month in
which the Executive attains sixty-two (62) years of age. The installments shall
be payable (i) for the period designated in Schedule "D" in the case of the
balance in the Benefit Account and (ii) until the Executive's death in the case
of the Index Benefit defined in Schedule "B".
5.3. Termination for Cause. The Executive agrees that if the Executive's
employment with the Employer is terminated "for cause" (as defined in
subparagraph 1.14 of this Agreement) and pursuant to subparagraph 1.14(c), (d)
or (e), the Executive shall forfeit any and all rights and benefits the
Executive may have under the terms of this Agreement and shall have no right to
be paid any of the amounts which would otherwise be due or paid to the Executive
by the Employer pursuant to the terms of this Agreement. In the event that the
Executive's employment with the Employer is terminated "for cause" pursuant to
subparagraph 1.14(a), (b) or (f), the Executive shall be entitled to be paid the
Applicable Percentage of the Executive Benefits, in substantially equal monthly
installments on the first day of each month, beginning with the month following
the month in which the Executive attains fifty-five (55) years of age or any
month thereafter, as requested in writing by the Executive and delivered to the
Employer or its successor thirty (30) days prior to the commencement of
installment payments; provided, however, that in the event the Executive does
not request a commencement date as specified, such installments shall be paid on
the first day of each month, beginning with the month following the month in
which the Executive attains sixty-two (62) years of age. The installments shall
be payable (i) for the period designated in Schedule "D" in the case of the
balance in the Benefit Account and (ii) until the Executive's death in the case
of the Index Benefit defined in Schedule "B".
5.4. Termination by the Employer on Account of or After a Change in
Control. In the event: (i) the Executive's employment with the Employer is
terminated by the Employer in conjunction with, or by reason of, a "Change in
Control" (as defined in subparagraph 1.4 above); or (ii) by reason of the
Employer's actions any adverse and material change occurs in the scope of the
Executive's position, responsibilities, duties, salary, benefits, or location of
employment (which in the event of relocation of more than thirty(30) miles from
the location of the Executive's office prior to a Change in Control shall
constitute such an adverse and material change) after a Change in Control
occurs; or (iii) the Employer causes an event to occur which reasonably
constitutes or results in a demotion, a significant diminution of
responsibilities or authority, or a constructive termination (by forcing a
resignation or otherwise) of the Executive's employment after a Change in
Control occurs, then the Executive shall be entitled to be paid the Applicable
Percentage of the Executive Benefits, as defined above, in substantially equal
monthly installments on the first day of each month, beginning with the month
following the month in which the Executive attains fifty-five (55) years of age
or any month thereafter, as requested in writing by the Executive and delivered
to the Employer or its successor thirty (30) days prior to the commencement of
installment payments; provided, however, that in the event the Executive does
not request a commencement date as specified, such installments shall be paid on
the first day of each month, beginning with the month following the month in
which the Executive attains sixty-two (62) years of age. The installments shall
be payable (i) for the period designated in Schedule "D" in the case of the
balance in the Benefit Account and (ii) until the Executive's death in the case
of the Index Benefit defined in Schedule "B". In the absence of the occurrence
of an event described above in this subparagraph 5.4 (i), (ii) or (iii), the
provisions of this Agreement shall remain in full force and effect, provided,
however, that the Executive shall not be entitled to receive any payments or
benefits under this Agreement in the event of the Executive's voluntary
termination by resignation under subparagraph 5.2 of this Agreement within
six(6) months following a Change in Control.
5.5. Payments in the Event of Death Following Termination. If the Executive
dies prior to receiving all of the Executive Benefits described in this
Paragraph 5 to which the Executive is entitled, then the Employer will make such
payments to the Executive's designated beneficiary in lump sum. If a valid
Beneficiary Designation is not in effect, then the remaining amounts due to the
Executive under the terms of this Agreement shall be paid to the Executive's
Surviving Spouse. If the Executive leaves no Surviving Spouse, the remaining
amounts due to the Executive under the terms of this Agreement shall be paid to
the duly qualified personal representative, executor or administrator of the
Executive's estate.
6. Section 280G Adjustment. The Executive acknowledges and agrees that the
parties have entered into this Agreement based upon certain financial and tax
accounting assumptions. Accordingly, with full knowledge of the potential
consequences the Executive agrees that, notwithstanding anything contained
herein to the contrary, in the event that any payment or benefit received or to
be received by the Executive, whether payable pursuant to the terms of this
Agreement or any other plan, arrangement or agreement with the Employer
(together with the Executive Benefits, the "Total Payments"), will not be
deductible (in whole or in part) as a result of Code Section 280G or other
applicable provisions of the Code, the Total Payments shall be reduced until no
portion of the Total Payments is nondeductible as a result of Section 280G or
such other applicable provisions of the Code. For purposes of this limitation:
(a) No portion of the Total Payments, the receipt or enjoyment of
which the Executive shall have effectively waived in writing
prior to the date of payment of any future Executive Benefits
payments, shall be taken into account;
(b) No portion of the Total Payments shall be taken into account,
which in the opinion of the tax counsel selected by the Employer
and acceptable to the Executive, does not constitute a "parachute
payment "within the meaning of Section 280G of the Code;
(c) Any reduction of the Total Payments shall be applied to reduce
any payment or benefit received or to be received by the
Executive pursuant to the terms of this Agreement and any other
plan, arrangement or agreement with the Employer in the order
determined by mutual agreement of the Employer and the Executive;
(d) Future payments shall be reduced only to the extent necessary so
that the Total Payments (other than those referred to in clauses
(a) or (b) above in their entirety) constitute reasonable
compensation for services actually rendered within the meaning of
Section 280G of the Code, in the opinion of tax counsel referred
to in clause (b) above; and
(e) The value of any non-cash benefit or any deferred payment or
benefit included in the Total Payments shall be determined by
independent auditors selected by the Employer and acceptable to
the Executive in accordance with the principles of Section 280G
of the Code.
7. Right To Determine Funding Methods. The Employer reserves the right to
determine, in its sole and absolute discretion, whether, to what extent and by
what method, if any, to provide for the payment of the amounts which may be
payable to the Executive, the Executive's spouse or the Executive's
beneficiaries under the terms of this Agreement. In the event that the Employer
elects to fund this Agreement, in whole or in part, through the use of life
insurance or annuities, or both, the Employer shall determine the ownership and
beneficial interests of any such policy of life insurance or annuity. The
Employer further reserves the right, in its sole and absolute discretion, to
terminate any such policy, and any other device used to fund its obligations
under this Agreement, at any time, in whole or in part. Consistent with
Paragraph 9 below, neither the Executive, the Executive's spouse nor the
Executive's beneficiaries shall have any right, title or interest in or to any
funding source or amount utilized by the Employer pursuant to this Agreement,
and any such funding source or amount shall not constitute security for the
performance of the Employer's obligations pursuant to this Agreement. In
connection with the foregoing, the Executive agrees to execute such documents
and undergo such medical examinations or tests which the Employer may request
and which may be reasonably necessary to facilitate any funding for this
Agreement including, without limitation, the Employer's acquisition of any
policy of insurance or annuity. Furthermore, a refusal by the Executive to
consent to, participate in and undergo any such medical examinations or tests
shall result in the immediate termination of this Agreement and the immediate
forfeiture by the Executive, the Executive's spouse and the Executive's
beneficiaries of any and all rights to payment hereunder.
8. Claims Procedure. The Employer shall, but only to the extent necessary to
comply with ERISA, be designated as the named fiduciary under this Agreement and
shall have authority to control and manage the operation and administration of
this Agreement. Consistent therewith, the Employer shall make all determinations
as to the rights to benefits under this Agreement. Any decision by the Employer
denying a claim by the Executive, the Executive's spouse, or the Executive's
beneficiary for benefits under this Agreement shall be stated in writing and
delivered or mailed, via registered or certified mail, to the Executive, the
Executive's spouse or the Executive's beneficiary, as the case may be. Such
decision shall set forth the specific reasons for the denial of a claim. In
addition, the Employer shall provide the Executive, the Executive's spouse or
the Executive's beneficiary with a reasonable opportunity for a full and fair
review of the decision denying such claim.
9. Status as an Unsecured General Creditor. Notwithstanding anything contained
herein to the contrary: (i) neither the Executive, the Executive's spouse or the
Executive's designated beneficiaries shall have any legal or equitable rights,
interests or claims in or to any specific property or assets of the Employer as
a result of this Agreement; (ii) none of the Employer's assets shall be held in
or under any trust for the benefit of the Executive, the Executive's spouse or
the Executive's designated beneficiaries or held in any way as security for the
fulfillment of the obligations of the Employer under this Agreement; (iii) all
of the Employer's assets shall be and remain the general unpledged and
unrestricted assets of the Employer; (iv) the Employer's obligation under this
Agreement shall be that of an unfunded and unsecured promise by the Employer to
pay money in the future; and (v) the Executive, the Executive's spouse and the
Executive's designated beneficiaries shall be unsecured general creditors with
respect to any benefits which may be payable under the terms of this Agreement.
Notwithstanding subparagraphs (i) through (v) above, the Employer and the
Executive acknowledge and agree that, in the event of a Change in Control, upon
request of the Executive, or in the Employer's discretion if the Executive does
not so request and the Employer nonetheless deems it appropriate, the Employer
shall establish, not later than the effective date of the Change in Control, a
Rabbi Trust or multiple Rabbi Trusts (the "Trust" or" Trusts") upon such terms
and conditions as the Employer, in its sole discretion, deems appropriate and in
compliance with applicable provisions of the Code, in order to permit the
Employer to make contributions and/or transfer assets to the Trust or Trusts to
discharge its obligations pursuant to this Agreement. The principal of the Trust
or Trusts and any earnings thereon shall be held separate and apart from other
funds of the Employer to be used exclusively for discharge of the Employer's
obligations pursuant to this Agreement and shall continue to be subject to the
claims of the Employer's general creditors until paid to the Executive or its
beneficiaries in such manner and at such times as specified in this Agreement.
10. Discretion of Board to Accelerate Payout. Notwithstanding any of the other
provisions of this Agreement, the Board of Directors of the Employer may, if
determined in its sole and absolute discretion to be appropriate, accelerate the
payment of the amounts due under the terms of this Agreement, provided that
Executive (or Executive's spouse or designated beneficiaries): (i) consents to
the revised payout terms determined appropriate by the Employer's Board of
Directors; and (ii) does not negotiate or in anyway influence the terms of
proposed altered/accelerated payout (said decision to be made solely by the
Employer's Board of Directors and offered to the Executive [or Executive's
spouse or designated beneficiaries] on a "takeit or leave it basis").
11. Miscellaneous.
11.1. Opportunity To Consult With Independent Advisors. The Executive
acknowledges that he has been afforded the opportunity to consult with
independent advisors of his choosing including, without limitation, accountants
or tax advisors and counsel regarding both the benefits granted to him under the
terms of this Agreement and the (i) terms and conditions which may affect the
Executive's right to these benefits and (ii) personal tax effects of such
benefits including, without limitation, the effects of any federal or state
taxes, Section 280G of the Code, and any other taxes, costs, expenses or
liabilities whatsoever related to such benefits, which in any of the foregoing
instances the Executive acknowledges and agrees shall be the sole responsibility
of the Executive notwithstanding any other term or provision of this Agreement.
The Executive further acknowledges and agrees that the Employer shall have no
liability whatsoever related to any such personal tax effects or other personal
costs, expenses, or liabilities applicable to the Executive and further
specifically waives any right for the Executive, himself, and his heirs,
beneficiaries, legal representatives, agents, successors, and assigns to claim
or assert liability on the part of the Employer related to the matters described
above in this subparagraph 11.1. The Executive further acknowledges and agrees
that he has read, understands and consents to all of the terms and conditions of
this Agreement, and that he enters into this Agreement with a full understanding
of its terms and conditions.
11.2. Arbitration of Disputes. All claims, disputes and other matters in
question arising out of or relating to this Agreement or the breach or
interpretation thereof, other than those matters which are to be determined by
the Employer in its sole and absolute discretion, shall be resolved by binding
arbitration before a representative member, selected by the mutual agreement of
the parties, of the Judicial Arbitration and Mediation Services, Inc. ("JAMS"),
located in San Francisco, California. In the event JAMS is unable or unwilling
to conduct the arbitration provided for under the terms of This Paragraph, or
has discontinued its business, the parties agree that a representative member,
selected by the mutual agreement of the parties, of the American Arbitration
Association ("AAA"), located in San Francisco, California, shall conduct the
binding arbitration referred to in this Paragraph. Notice of the demand for
arbitration shall be filed in writing with the other party to this Agreement and
with JAMS (or AAA, if necessary). In no event shall the demand for arbitration
be made after the date when institution of legal or equitable proceedings based
on such claim, dispute or other matter in question would be barred by the
applicable statute of limitations. The arbitration shall be subject to such
rules of procedure used or established by JAMS, or if there are none, the rules
of procedure used or established by AAA. Any award rendered by JAMS or AAA shall
be final and binding upon the parties, and as applicable, their respective
heirs, beneficiaries, legal representatives, agents, successors and assigns, and
may be entered in any court having jurisdiction thereof. The obligation of the
parties to arbitrate pursuant to this clause shall be specifically enforceable
in accordance with, and shall be conducted consistently with, the provisions of
Title 9 of Part 3 of the California Code of Civil Procedure. Any arbitration
hereunder shall be conducted in Saratoga, California, unless otherwise agreed to
by the parties.
11.3. Attorneys' Fees. In the event of any arbitration or litigation
concerning any controversy, claim or dispute between the parties hereto, arising
out of or relating to this Agreement or the breach hereof, or the interpretation
hereof, the prevailing party shall be entitled to recover from the
non-prevailing party reasonable expenses, attorneys' fees and costs incurred in
connection therewith or in the enforcement or collection of any judgment or
award rendered therein. The "prevailing party" means the party determined by the
arbitrator(s) or court, as the case may be, to have most nearly prevailed, even
if such party did not prevail in all matters, not necessarily the one in whose
favor a judgment is rendered.
11.4. Notice. Any notice required or permitted of either the Executive or
the Employer under this Agreement shall be deemed to have been duly given, if by
personal delivery, upon the date received by the party or its authorized
representative; if by facsimile, upon transmission to a telephone number
previously provided by the party to whom the facsimile is transmitted as
reflected in the records of the party transmitting the facsimile and upon
reasonable confirmation of such transmission; and if by mail, on the third day
after mailing via U.S. first class mail, registered or certified, postage
prepaid and return receipt requested, and addressed to the party at the address
given below for the receipt of notices, or such changed address as may be
requested in writing by a party.
If to the Employer: Saratoga National Bank
12000 Saratoga-Sunnyvale Rd.
Saratoga, California 95070
Attn: Chairman of the Board
If to the Executive:
-----------------------------
-----------------------------
-----------------------------
11.5. Assignment. Neither the Executive, the Executive's spouse, nor any
other beneficiary under this Agreement shall have any power or right to
transfer, assign, anticipate, hypothecate, modify or otherwise encumber any part
or all of the amounts payable hereunder, nor, prior to payment in accordance
with the terms of this Agreement, shall any portion of such amounts be: (i)
subject to seizure by any creditor of any such beneficiary, by a proceeding at
law or in equity, for the payment of any debts, judgments, alimony or separate
maintenance obligations which may be owed by the Executive, the Executive's
spouse, or any designated beneficiary; or (ii) transferable by operation of law
in the event of bankruptcy, insolvency or otherwise. Any such attempted
assignment or transfer shall be void and unenforceable without the prior written
consent of the Employer. The Employer's consent, if any, to one or more
assignments or transfers shall not obligate the Employer to consent to or be
construed as the Employer's consent to any other or subsequent assignment or
transfer.
11.6. Binding Effect/Merger or Reorganization. This Agreement shall be
binding upon and inure to the benefit of the Executive and the Employer and, as
applicable, their respective heirs, beneficiaries, legal representatives,
agents, successors and assigns. Accordingly, the Employer shall not merge or
consolidate into or with another corporation, or reorganize or sell
substantially all of its assets to another corporation, firm or person, unless
and until such succeeding or continuing corporation, firm or person agrees to
assume and discharge the obligations of the Employer under this Agreement. Upon
the occurrence of such event, the term "Employer" as used int his Agreement
shall be deemed to refer to such surviving or successor firm, person, entity or
corporation.
11.7. Nonwaiver. The failure of either party to enforce at any time or for
any period of time any one or more of the terms or conditions of this Agreement
shall not be a waiver of such term(s) or condition(s) or of that party's right
thereafter to enforce each and every term and condition of this Agreement.
11.8. Partial Invalidity. If any term, provision, covenant, or condition of
this Agreement is determined by an arbitrator or a court, as the case may be, to
be invalid, void, or unenforceable, such determination shall not render any
other term, provision, covenant or condition invalid, void or unenforceable, and
the Agreement shall remain in full force and effect notwithstanding such partial
invalidity.
11.9. Entire Agreement. This Agreement supersedes any and all other
agreements, either oral or in writing, between the parties with respect to the
subject matter of this Agreement and contains all of the covenants and
agreements between the parties with respect thereto. Each party to this
Agreement acknowledges that no other representations, inducements, promises, or
agreements, oral or otherwise, have been made by any party, or anyone acting on
behalf of any party, which are not set forth herein, and that no other
agreement, statement, or promise not contained in this Agreement shall be valid
or binding on either party.
11.10. Modifications. Any modification of this Agreement shall be effective
only if it is in writing and signed by each party or such party's authorized
representative.
11.11. Paragraph Headings. The paragraph headings used in this Agreement
are included solely for the convenience of the parties and shall not affect or
be used in connection with the interpretation of this Agreement.
11.12. No Strict Construction. The language used in this Agreement shall be
deemed to be the language chosen by the parties hereto to express their mutual
intent, and no rule of strict construction will be applied against any person.
11.13. Governing Law. The laws of the State of California, other than those
laws denominated choice of law rules, and, where applicable, the rules and
regulations of the Board of Governors of the Federal Reserve System, Federal
Deposit Insurance Corporation, Office of the Comptroller of the Currency, or
other regulatory agency or governmental authority having jurisdiction over
Employer, shall govern the validity, interpretation, construction and effect of
this Agreement.
IN WITNESS WHEREOF, the Employer and the Executive have executed this
Agreement on the date first above-written in the City of Saratoga, Santa Clara
County, California.
THE EMPLOYER THE EXECUTIVE
SARATOGA NATIONAL BANK
By:____________________________ _____________________________
Richard L. Mount, __________________
President and Chief Executive Officer
SCHEDULE A
CALENDAR YEAR APPLICABLE PERCENTAGE
___________, 1987 to December 31, 1998 . . . 50.00%
December 31, 1999. . . . . . . . . . . . . . 60.00%
December 31, 2000. . . . . . . . . . . . . . 70.00%
December 31, 2001. . . . . . . . . . . . . . 80.00%
December 31, 2002. . . . . . . . . . . . . . 90.00%
December 31, 2003. . . . . . . . . . . . . .100.00%
SCHEDULE B
EXECUTIVE BENEFITS
1. Executive Benefits Determination.
The Executive Benefits shall be determined based upon the following:
a. Benefit Account:
A Benefit Account shall be established as a liability reserve
account on the books of the Employer for the benefit of the
Executive. Prior to the date on which the Executive becomes
eligible to receive payments under the Agreement, such Benefit
Account shall be increased (or decreased) each Plan Year
(including the Plan Year in which the Executive ceases to be
employed by the Employer) by an amount equal to the annual
earnings or loss for that Plan Year determined by the Index
(described in subparagraph c below), less the Opportunity Cost
(described in subparagraph d below) for that Plan Year.
b. Index Benefit:
After the date on which the Executive becomes eligible to receive
payments under the Agreement, the Index Benefit for the Executive
for any Plan Year shall be determined by subtracting the
Opportunity Cost for that Plan Year from the earnings, if any,
established by the Index.
c. Index:
The Index for any Plan Year shall be the aggregate annual
after-tax income from the life insurance contracts described
hereinafter as defined by FASB Technical Bulletin 85-4. This
Index shall be applied as if such insurance contracts were
purchased on the Effective Date.
Insurance Company(ies)/Policy Number(s):
----------------------------------------
----------------------------------------
If such contracts of life insurance are actually purchased by the
Employer, then the actual policies as of the dates purchased
shall be used in calculations to determine the Index and
Opportunity Cost. If such contracts of life insurance are not
purchased or are subsequently surrendered or lapsed, then the
Employer shall receive and use annual policy illustrations that
assume the above described policies were purchased from the above
named insurance company(ies) on the Effective Date to calculate
the amount of the Index and Opportunity Cost.
d. Opportunity Cost:
The Opportunity Cost for any Plan Year shall be calculated by
multiplying (a) the sum of (i) the total amount of premiums set
forth in the insurance policies described above, (ii) the amount
of any Index Benefits (described at subparagraph b above), and
(iii) the amount of all previous years after-tax Opportunity
Costs; by (b) the average annualized after-tax cost of funds
calculated using a one-year U.S. Treasury Bill as published in
the Wall Street Journal. The applicable tax rate used to
calculate the Opportunity Cost shall be the Employer's marginal
tax rate until the Executive's Retirement, or other termination
of service (including a Change in Control). Thereafter, the
Opportunity Cost shall be calculated with the assumption of a
marginal forty-two percent (42%) corporate tax rate each year
regardless of whether the actual marginal tax rate of the
Employer is higher or lower.
EXAMPLE
INDEX BENEFITS
[n]
End of Cash Surrender Index Opportunity Annual Cumulative
Year Value of Life [Annual Cost Benefit Benefit
Insurance Policy Policy A0=premium B-C D+Dn-1
Income] A0+cn-1x.05x
An-An-1 (1-42%)
0 $1,000,000 -- -- -- --
1 $1,050,000 $50,000 $29,000 $21,000 $21,000
2 $1,102,500 $52,500 $29,840 $22,650 $43,659
3 $1,157,620 $55,120 $30,700 $24,410 $68,078
.
.
.
Assumptions: Initial Insurance = $1,000,000
Effective Tax Rate = 42%
One Year US Treasury Yield = 5%
2. Executive Benefits Payments.
The Executive shall be entitled to payment of the Applicable Percentage
of(i) the balance in the Benefit Account in installments upon the terms as
specified in the Agreement, and (ii) the Index Benefit for each Plan Year
payable in installments until the Executive's death.
SCHEDULE C
BENEFICIARY DESIGNATION
To the Administrator of the Saratoga National Bank Executive Supplemental
Compensation Agreement:
Pursuant to the Provisions of my Executive Supplemental Compensation
Agreement with Saratoga National Bank, permitting the designation of a
beneficiary or beneficiaries by a participant, I hereby designate the following
persons and entities as primary and secondary beneficiaries of any benefit under
said Agreement payable by reason of my death:
Primary Beneficiary:
- ---------------------- ------------------------ --------------------------
Name Address Relationship
- ---------------------- ------------------------ --------------------------
Name Address Relationship
THE RIGHT TO REVOKE OR CHANGE ANY BENEFICIARY DESIGNATION IS HEREBY RESERVED.
ALL PRIOR DESIGNATIONS, IF ANY, OF PRIMARY BENEFICIARIES AND SECONDARY
BENEFICIARIES ARE HEREBY REVOKED.
The Administrator shall pay all sums payable under the Agreement by reason
of my death to the Primary Beneficiary, if he or she survives me, and if no
Primary Beneficiary shall survive me, then to the Secondary Beneficiary, and if
no named beneficiary survives me, then the Administrator shall pay all amounts
in accordance with the terms of my Executive Supplemental Compensation
Agreement. In the event that a named beneficiary survives me and dies prior to
receiving the entire benefit payable under said Agreement, then and in that
event, the remaining unpaid benefit payable according to the terms of my
Executive Supplemental Compensation Agreement shall be payable to the personal
representatives of the estate of said beneficiary who survived me but died prior
to receiving the total benefit provided by my Executive Supplemental
Compensation Agreement.
Dated: , 1998
CONSENT OF THE EXECUTIVE'S SPOUSE TO THE ABOVE BENEFICIARY DESIGNATION:
I, _____________, being the spouse of __________________, after being
afforded the opportunity to consult with independent counsel of my choosing, do
hereby acknowledge that I have read, agree and consent to the foregoing
Beneficiary Designation which relates to the Executive Supplemental Compensation
Agreement entered into by my spouse effective as of _________,1998. I understand
that the above Beneficiary Designation may affect certain rights which I may
have in the benefits provided for under the terms of the Executive Supplemental
Compensation Agreement and in which I may have a marital property interest.
Dated: , 1998
--------------------- ---------------
SCHEDULE D
DISTRIBUTION ELECTION
Pursuant to the Provisions of my Executive Supplemental Compensation Agreement
with Saratoga National Bank, I hereby elect to have any distribution of the
balance in my Benefit Account paid to me in installments as designated below:
thirty-six (36) monthly installments with the amount of each
installment determined as of each installment date by
dividing the entire amount in my Benefit account by the
number of installments then remaining to be paid, with the
final installment to be the entire remaining balance in the
Benefit Account.
Sixty (60) monthly installments with the amount of each
installment determined as of each installment date by
dividing the entire amount in my Benefit Account by the
number of installments then remaining to be paid, with the
final installment to be the entire remaining balance in the
Benefit Account.
one hundred twenty (120) monthly installments with the
amount of each installment determined as of each installment
date by dividing the entire amount in my Benefit Account by
the number of installments then remaining to be paid, with
the final installment to be the entire remaining balance in
the Benefit Account.
one hundred eighty (180) monthly installments with the
amount of each installment determined as of each installment
date by dividing the entire amount in my Benefit Account by
the number of installments then remaining to be paid, with
he final installment to be the entire remaining balance in
the Benefit Account.
Dated: _______________, 1998
Signed: _____________________________
__________________
LIFE INSURANCE
ENDORSEMENT METHOD SPLIT DOLLAR PLAN
AGREEMENT
Insurer/Policy Number:
Bank: Saratoga National Bank
Insured: __________________
Relationship of Insured to Bank: ____________________
Date: _____________, 1998
The respective rights and duties of the Bank and the Insured in the above
policy(ies) (individually and collectively referred to as the "Policy") shall be
as follows:
I. DEFINITIONS
Refer to the Policy provisions for the definition of all terms in this
Agreement.
II. POLICY TITLE AND OWNERSHIP
Title and ownership shall reside in the Bank for its use and for the use of
the Insured all in accordance with this Agreement. The Bank alone may, to
the extent of its interest, exercise the right to borrow or withdraw the
Policy cash values. Where the Bank and the Insured (or beneficiary[ies] or
assignee[s], with the consent of the Insured) mutually agree to exercise
the right to increase the coverage under the subject split dollar Policy,
then, in such event, the rights, duties and benefits of the parties to such
increased coverage shall continue to be subject to the terms of this
Agreement.
III. BENEFICIARY DESIGNATION RIGHTS
The Insured (or beneficiary[ies] or assignee[s]) shall have the right and
power to designate a beneficiary or beneficiaries to receive his or her
share of the proceeds payable upon the death of the Insured, and to elect
and change a payment option for such beneficiary, subject to any right or
interest the Bank may have in such proceeds, as provided in this Agreement.
IV. PREMIUM PAYMENT METHOD
The Bank shall pay an amount equal to the planned premiums and any other
premium payments that might become necessary to maintain the Policy in
force.
V. TAXABLE BENEFIT
Annually the Insured will receive a taxable benefit equal to the assumed
cost of insurance as required by the Internal Revenue Service. The Bank (or
its administrator) will report to the Insured the amount of imputed income
received each year on Form W-2 or its equivalent.
VI. DIVISION OF DEATH PROCEEDS
Subject to Paragraph VII herein, the division of the death proceeds of the
Policy is as follows:
1. The Insured's beneficiary(ies), designated in accordance with
Paragraph III, shall be entitled to an amount equal to eighty percent
(80%) of the net at risk insurance portion of the proceeds. The net at
risk insurance portion is the total proceeds less the cash value of
the Policy.
2. The Bank shall be entitled to the remainder of such proceeds.
3. The Bank and the Insured (or beneficiary[ies] or assignee[s]) shall
share in any interest due on the death proceeds on a pro rata basis in
the ratio that the proceeds due the Bank and the Insured,
respectively, bears to the total proceeds, excluding any such
interest.
VII. DIVISION OF CASH SURRENDER VALUE
The Bank shall at all times be entitled to an amount equal to the Policy's
cash value, as that term is defined in the Policy, less any Policy loans
and unpaid interest or cash withdrawals previously incurred by the Bank and
any applicable Policy surrender charges. Such cash value shall be
determined as of the date of surrender of the Policy or death of the
Insured as the case may be.
VIII.PREMIUM WAIVER
If the Policy contains a premium waiver provision, any such waived amounts
shall be considered for all purposes of this Agreement as having been paid
by the Bank.
IX. RIGHTS OF PARTIES WHERE POLICY ENDOWMENT OR ANNUITY ELECTION EXISTS
In the event the Policy involves an endowment or annuity element, the
Bank's right and interest in any endowment proceeds or annuity benefits
shall be determined under the provisions of this Agreement by regarding
such endowment proceeds or the commuted value of such annuity benefits as
the Policy's cash value. Such endowment proceeds or annuity benefits shall
be treated like death proceeds for the purposes of division under this
Agreement.
X. TERMINATION OF AGREEMENT
This Agreement shall terminate at the option of the Bank following thirty
(30) days written notice to the Insured upon the happening of any one of
the following:
1. The Insured's right to receive benefits pursuant to the terms and
conditions of that certain Executive Supplemental Compensation
Agreement effective as of ___________, 1998, shall terminate for any
reason other than the Insured's death; or
2. The Insured shall be discharged from service with the Bank as a result
of a termination for cause under subparagraph (c), (d) or (e) below.
Notwithstanding the foregoing, this Agreement shall remain in effect
in the event that the Insured is terminated pursuant to subparagraph
(a), (b) or (f) below. The term "termination for cause" shall mean
termination of the employment of the Insured by reason of any of the
following determined in good faith by the Bank's Board of Directors:
(a) The willful, intentional and material breach or the habitual and
continued neglect by the Insured of his or her employment
responsibilities and duties;
(b) The continuous mental or physical incapacity of the Insured,
subject to disability rights under this Agreement;
(c) The Insured's willful and intentional violation of any federal
banking or securities laws, or of the Bylaws, rules, policies or
resolutions of Bank, or the rules or regulations of the Board of
Governors of the Federal Reserve System, Federal Deposit
Insurance Corporation, Office of the Comptroller of the Currency,
or other regulatory agency or governmental authority having
jurisdiction over the Bank, which has a material adverse effect
upon the Bank;
(d) The written determination by a state or federal banking agency or
governmental authority having jurisdiction over the Bank that the
Insured is not suitable to act in the capacity for which he or
she is employed by the Bank;
(e) The Insured's conviction of (i) any felony or (ii) a crime
involving moral turpitude, or the Insured's willful and
intentional commission of a fraudulent or dishonest act; or
(f) The Insured's willful and intentional disclosure, without
authority, of any secret or confidential information concerning
the Bank or taking any action which the Bank's Board of Directors
determines, in its sole discretion and subject to good faith,
fair dealing and reasonableness, constitutes unfair competition
with or induces any customer to breach any contract with the
Bank.
Upon such termination, the Insured (or beneficiary[ies] or assignee[s])
shall have a ninety (90) day option to receive from the Bank an absolute
assignment of the Policy in consideration of a cash payment to the Bank,
whereupon this Agreement shall terminate. Such cash payment shall be the
greater of:
1. The Bank's share of the cash value of the Policy on the date of such
assignment, as defined in this Agreement.
2. The amount of the premiums which have been paid by the Bank prior to
the date of such assignment.
Should the Insured (or beneficiary[ies] or assignee[s]) fail to exercise
this option within the prescribed ninety (90) day period, the Insured (or
beneficiary[ies] or assignee[s]) agrees that all of his or her rights,
interest and claims in the Policy shall terminate as of the date of the
termination of this Agreement.
Except as provided above, this Agreement shall terminate upon distribution
of the death benefit proceeds in accordance with Paragraph VI above.
XI. INSURED'S OR ASSIGNEE'S ASSIGNMENT RIGHTS
The Insured may not, without the prior written consent of the Bank, which
shall not be unreasonably withheld, assign to any individual, trust or
other organization, any right, title or interest in the Policy nor any
rights, options, privileges or duties created under this Agreement.
XII. AGREEMENT BINDING UPON THE PARTIES
This Agreement shall be binding upon the Insured and the Bank, and their
respective heirs, successors, personal representatives and assigns, as
applicable.
XIII.NAMED FIDUCIARY AND PLAN ADMINISTRATOR
The Bank is hereby designated the "Named Fiduciary" until resignation or
removal by its Board of Directors. As Named Fiduciary, the Bank shall be
responsible for the management, control, and administration of this
Agreement as established herein. The Named Fiduciary may allocate to others
certain aspects of the management and operations responsibilities of this
Agreement, including the employment of advisors and the delegation of any
ministerial duties to qualified individuals.
XIV. FUNDING POLICY
The funding policy for this Agreement shall be to maintain the Policy in
force by paying, when due, all premiums required.
XV. CLAIM PROCEDURES
Claim forms or claim information as to the subject Policy can be obtained
by contacting The Benefit Marketing Group, Inc. (770-952-1529). When the
Named Fiduciary has a claim which may be covered under the provisions
described in the Policy, it should contact the office named above, and they
will either complete a claim form and forward it to an authorized
representative of the Insurer or advise the named Fiduciary what further
requirements are necessary. The Insurer will evaluate and make a decision
as to payment. If the claim is payable, a benefit check will be issued to
the Named Fiduciary.
In the event that a claim is not eligible under the Policy, the Insurer
will notify the Named Fiduciary of the denial pursuant to the requirements
under the terms of the Policy. If the Named Fiduciary is dissatisfied with
the denial of the claim and wishes to contest such claim denial, it should
contact the office named above and they will assist in making inquiry to
the Insurer. All objections to the Insurer's actions should be in writing
and submitted to the office named above for transmittal to the Insurer.
XVI. GENDER
Whenever in this Agreement words are used in the masculine or neuter
gender, they shall be read and construed as in the masculine, feminine or
neuter gender, whenever they should so apply.
XVII.INSURANCE COMPANY NOT A PARTY TO THIS AGREEMENT
The Insurer shall not be deemed a party to this Agreement, but will respect
the rights of the parties as set forth herein upon receiving an executed
copy of this Agreement. Payment or other performance in accordance with the
Policy provisions shall fully discharge the Insurer from any and all
liability.
IN WITNESS WHEREOF, the Insured and a duly authorized Bank officer or
director have signed this Agreement at Saratoga, California as of the date first
above written.
SARATOGA NATIONAL BANK INSURED
__________________________ _____________________________
Richard L. Mount _____________________
President and Chief Executive Officer
BENEFICIARY DESIGNATION FORM
Primary Designation:
Name Relationship
- ----------------------------- -----------------------------
- ----------------------------- -----------------------------
- ----------------------------- -----------------------------
Contingent Designation:
- ----------------------------- -----------------------------
- ----------------------------- -----------------------------
- ----------------------------- -----------------------------
- ----------------------------- , 1998
- --------------- --------
EXECUTIVE SUPPLEMENTAL COMPENSATION AGREEMENT
This Agreement is made and entered into effective as of _______________,
1998 by and between Saratoga National Bank, a national banking association
chartered under the federal laws of the United States of America with its
principal offices located in the City of Saratoga, Santa Clara County,
California (the "Employer"), and Richard L. Mount, an individual residing in the
State of California (the "Executive").
RECITALS
WHEREAS, the Executive has been an employee of the Employer since
_____________, 1982, and is currently serving as its President and Chief
Executive Officer;
WHEREAS, the Employer desires to establish a compensation benefit program
as a fringe benefit for executive officers of the Employer in order to attract
and retain individuals with extensive and valuable experience in the banking
industry;
WHEREAS, the Executive's experience and knowledge of the affairs of the
Employer and the banking industry are extensive and valuable;
WHEREAS, it is deemed to be in the best interests of the Employer to
provide the Executive with certain fringe benefits, on the terms and conditions
set forth herein, in order to reasonably induce the Executive to remain in the
Employer's employment and to compensate the Employee for valuable services
heretofore rendered to the Employer; and
WHEREAS, the Executive and the Employer wish to specify in writing the
terms and conditions upon which this additional compensatory incentive will be
provided to the Executive, or to the Executive's spouse or the Executive's
designated beneficiaries, as the case may be.
NOW, THEREFORE, in consideration of the services to be performed by the
Executive in the future, as well as the mutual promises and covenants contained
herein, the Executive and the Employer agree as follows:
AGREEMENT
1. Terms and Definitions.
1.1. Administrator. The Employer shall be the "Administrator" and, solely
for the purposes of ERISA as defined in subparagraph 1.9 below, the "fiduciary"
of this Agreement where a fiduciary is required by ERISA.
1.2. Applicable Percentage. The term "Applicable Percentage" shall mean
that percentage listed on Schedule "A" attached hereto which is adjacent to the
number of calendar years which shall have elapsed from the date of the
Executive's commencement of service to the Employer. Notwithstanding the
foregoing or the percentages set forth on Schedule "A," but subject to all other
terms and conditions set forth herein, the "Applicable Percentage" shall be: (i)
provided payments have not yet begun hereunder, one hundred percent (100%) upon
the occurrence of a "Change in Control" as defined in subparagraph 1.4 below, or
the Executive's death, or Disability (as defined in subparagraph 1.6
below),which death or Disability occurs prior to the termination of the
Executive's employment by the Employer; and (ii) notwithstanding subclause (i)
of this subparagraph 1.2, zero percent (0%) in the event the Executive takes any
intentional action which prevents the Employer from collecting the proceeds of
any life insurance policy which the Employer may happen to own at the time of
the Executive's death and of which the Employer is the designated beneficiary.
Furthermore, notwithstanding the foregoing, or anything contained in this
Agreement to the contrary, in the event the Executive takes any intentional
action which prevents the Employer from collecting the proceeds of any life
insurance policy which the Employer may happen to own at the time of the
Executive's death and of which the Employer is the designated beneficiary: (1)
the Executive's estate or designated beneficiary shall no longer be entitled to
receive any of the amounts payable under the terms of this Agreement, and (2)
the Employer shall have the right to recover from the Executive's estate all of
the amounts paid to the Executive's estate (with respect to amounts paid prior
to the Executive's death or paid to the Executive's estate) or designated
beneficiary (with respect to amounts paid to the designated beneficiary)
pursuant to the terms of this Agreement prior to and after Executive's death.
1.3. Beneficiary. The term "beneficiary" or "designated beneficiary" shall
mean the person or persons whom the Executive shall designate in a valid
Beneficiary Designation, a copy of which is attached hereto as Schedule "C," to
receive the benefits provided hereunder. A Beneficiary Designation shall be
valid only if it is in the form attached hereto and made a part hereof,
completed and signed by the Executive and received by the Administrator prior to
the Executive's death.
1.4. Change in Control. The term "Change in Control" shall mean the
occurrence of any of the following events with respect to the Employer (with the
term "Employer" being defined for purposes of determining whether a "Change in
Control" has occurred to include any parent bank holding company owning 100% of
the Employer's outstanding common stock): (i) a change in control of a nature
that would be required to be reported in response to Item 6(e) of Schedule 14A
of Regulation 14A promulgated under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), or in response to any other form or report to the
regulatory agencies or governmental authorities having jurisdiction over the
Employer or any stock exchange on which the Employer's shares are listed which
requires the reporting of a change in control; (ii) any merger, consolidation or
reorganization of the Employer in which the Employer does not survive; (iii) any
sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one
transaction or a series of transactions) of any assets of the Employer having an
aggregate fair market value of fifty percent (50%)of the total value of the
assets of the Employer, reflected in the most recent balance sheet of the
Employer; (iv) a transaction whereby any "person" (as such term is used in the
Exchange Act) or any individual, corporation, partnership, trust or any other
entity becomes the beneficial owner, directly or indirectly, of securities of
the Employer representing twenty-five percent(25%) or more of the combined
voting power of the Employer's then outstanding securities; or (v) a situation
where, in any one-year period, individuals who at the beginning of such period
constitute the Board of Directors of the Employer cease for any reason to
constitute at least a majority thereof, unless the election, or the nomination
for election by the Employer's shareholders, of each new director is approved by
a vote of at least three-quarters (3/4) of the directors then still in office
who were directors at the beginning of the period.
1.5. The Code. The "Code" shall mean the Internal Revenue Code of 1986, as
amended (the "Code").
1.6. Disability/Disabled. The term "Disability" or "Disabled" shall have
the same meaning given such terms in any policy of disability insurance
maintained by the Employer for the benefit of employees including the Executive.
In the absence of such a policy which extends coverage to the Executive in the
event of disability, the terms shall mean bodily injury or disease (mental or
physical) which wholly and continuously prevents the performance of duty for at
least three months.
1.7. Early Retirement Date. The term "Early Retirement Date" shall mean the
Retirement, as defined below, of the Executive on a date which occurs prior to
the Executive attaining sixty-two(62) years of age, but after the Executive has
attained fifty-five (55) years of age.
1.8. Effective Date. The term "Effective Date" shall mean the date first
written above.
1.9. ERISA. The term "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended.
1.10. Executive Benefits. The term "Executive Benefits" shall mean the
benefits determined in accordance with Schedule "B", and reduced or adjusted to
the extent: (i) required under the other provisions of this Agreement,
including, but not limited to, Paragraphs 5, 6 and 7 hereof; (ii) required by
reason of the lawful order of any regulatory agency or body having jurisdiction
over the Employer; or (iii) required in order for the Employer to properly
comply with any and all applicable state and federal laws, including, but not
limited to, income, employment and disability income tax laws (e.g., FICA, FUTA,
SDI).
1.11. Plan Year. The term "Plan Year" shall mean the Employer's fiscal
year.
1.12. Retirement. The term "Retirement" or "Retires" shall refer to the
date which the Executive acknowledges in writing to Employer to be the last day
the Executive will provide any significant personal services, whether as an
employee or independent consultant or contractor, to Employer. For purposes of
this Agreement, the phrase "significant personal services" shall mean more than
ten (10) hours of personal services rendered to one or more individuals or
entities in any thirty (30) day period.
1.13. Surviving Spouse. The term "Surviving Spouse" shall mean the person,
if any, who shall be legally married to the Executive on the date of the
Executive's death.
1.14. Termination for Cause. The term "Termination for Cause" shall mean
termination of the employment of the Executive by reason of any of the following
determined in good faith by the Employer's Board of Directors:
(a) The willful, intentional and material breach or the habitual and
continued neglect by the Executive of his or her employment
responsibilities and duties;
(b) The continuous mental or physical incapacity of the Executive,
subject to disability rights under this Agreement;
(c) The Executive's willful and intentional violation of any federal
banking or securities laws, or of the Bylaws, rules, policies or
resolutions of Employer, or the rules or regulations of the Board
of Governors of the Federal Reserve System, Federal Deposit
Insurance Corporation, Office of the Comptroller of the Currency,
or other regulatory agency or governmental authority having
jurisdiction over the Employer, which has a material adverse
effect upon the Employer;
(d) The written determination by a state or federal banking agency or
governmental authority having jurisdiction over the Employer that
Executive is not suitable to act in the capacity for which he or
she is employed by Employer;
(e) The Executive's conviction of (i) any felony or (ii) a crime
involving moral turpitude, or the Executive's willful and
intentional commission of a fraudulent or dishonest act; or
(f) The Executive's willful and intentional disclosure, without
authority, of any secret or confidential information concerning
Employer or taking any action which the Employer's Board of
Directors determines, in its sole discretion and subject to good
faith, fair dealing and reasonableness, constitutes unfair
competition with or induces any customer to breach any contract
with the Employer.
2. Scope, Purpose and Effect.
2.1. Contract of Employment. Although this Agreement is intended to provide
the Executive with an additional incentive to remain in the employ of the
Employer, this Agreement shall not be deemed to constitute a contract of
employment between the Executive and the Employer nor shall any provision of
this Agreement restrict or expand the right of the Employer to terminate the
Executive's employment. This Agreement shall have no impact or effect upon any
separate written Employment Agreement which the Executive may have with the
Employer, it being the parties' intention and agreement that unless this
Agreement is specifically referenced in said Employment Agreement (or any
modification thereto), this Agreement (and the Employer's obligations hereunder)
shall stand separate and apart and shall have no effect on or be affected by,
the terms and provisions of said Employment Agreement.
2.2. Fringe Benefit. The benefits provided by this Agreement are granted by
the Employer as a fringe benefit to the Executive and are not a part of any
salary reduction plan or any arrangement deferring a bonus or a salary increase.
The Executive has no option to take any current payments or bonus in lieu of the
benefits provided by this Agreement.
3. Payments Upon Early Retirement or Retirement and After Retirement.
3.1. Payments Upon Early Retirement. The Executive shall have the right to
Retire on a date which constitutes an Early Retirement Date as defined in
subparagraph 1.7 above. In the event the Executive elects to Retire on a date
which constitutes an Early Retirement Date, the Executive shall be entitled to
be paid the Applicable Percentage of the Executive Benefits, in substantially
equal monthly installments on the first day of each month, beginning with the
month following the month in which the Early Retirement Date occurs or upon such
later date as may be mutually agreed upon by the Executive and the Employer in
advance of said Early Retirement Date, payable (i) for the period designated in
Schedule "D" in the case of the balance in the Benefit Account and (ii) until
the Executive's death in the case of the Index Benefit defined in Schedule "B".
3.2. Payments Upon Retirement. If the Executive remains in the employment
of the Employer until attaining sixty-two (62)years of age, the Executive shall
be entitled to be paid the Applicable Percentage of the Executive Benefits, in
substantially equal monthly installments on the first day of each month,
beginning with the month following the month in which the Executive Retires or
upon such later date as may be mutually agreed upon by the Executive and the
Employer in advance of said Retirement date, payable (i) for the period
designated in Schedule "D" in the case of the balance in the Benefit Account and
(ii) until the Executive's death in the case of the Index Benefit defined in
Schedule "B". At the Employer's sole and absolute discretion, the Employer may
increase the Executive Benefits as and when the Employer determines the same to
be appropriate.
3.3. Payments in the Event of Death After Retirement. The Employer agrees
that if the Executive Retires, but shall die before receiving all of the
Executive Benefits Payments specified in Schedule "B", the Employer agrees to
pay the Applicable Percentage of the Executive Benefits to the Executive's
designated beneficiary in lump sum. If a valid Beneficiary Designation is not in
effect, then the remaining amounts due to the Executive under the terms of this
Agreement shall be paid to the Executive's Surviving Spouse. If the Executive
leaves no Surviving Spouse, the remaining amounts due to the Executive under the
terms of this Agreement shall be paid to the duly qualified personal
representative, executor or administrator of the Executive's estate.
4. Payments in the Event Death or Disability Occurs Prior to Retirement.
4.1. Payments in the Event of Death Prior to Retirement. If the Executive
dies at any time after the Effective Date of this Agreement, but prior to
Retirement, the Employer agrees to pay the Applicable Percentage of the
Executive Benefits to the Executive's designated beneficiary in lump sum. If a
valid Beneficiary Designation is not in effect, then the remaining amounts due
to the Executive under the terms of this Agreement shall be paid to the
Executive's Surviving Spouse. If the Executive leaves no Surviving Spouse, the
remaining amounts due to the Executive under the terms of this Agreement shall
be paid to the duly qualified personal representative, executor or administrator
of the Executive's estate.
4.2. Payments in the Event of Disability Prior to Retirement. In the event
the Executive becomes Disabled at any time after the Effective Date of this
Agreement but prior to Retirement, the Executive shall be entitled to be paid
the Applicable Percentage of the Executive Benefits, in substantially equal
monthly installments on the first day of each month, beginning with the month
following the month in which the Executive becomes Disabled, payable (i) for the
period designated in Schedule "D" in the case of the balance in the Benefit
Account and (ii) until the Executive's death in the case of the Index Benefit
defined in Schedule "B".
5. Payments in the Event Employment Is Terminated Prior to Retirement. As
indicated in subparagraph 2.1 above, the Employer reserves the right to
terminate the Executive's employment, with or without cause but subject to any
written employment agreement which may then exist, at any time prior to the
Executive's Retirement. In the event that the employment of the Executive shall
be terminated, other than by reason of death, Disability or Retirement, prior to
the Executive's attaining sixty-two(62) years of age, then this Agreement shall
terminate upon the date of such termination of employment; provided, however,
that the Executive shall be entitled to the following benefits as may be
applicable depending upon the circumstances surrounding the Executive's
termination:
5.1. Termination Without Cause. If the Executive's employment is terminated
by the Employer without cause, and such termination is not subject to the
provisions of subparagraph 5.4 below, the Executive shall be entitled to be paid
the Applicable Percentage of the Executive Benefits, in substantially equal
monthly installments on the first day of each month, beginning with the month
following the month in which the Executive attains fifty-five (55) years of age
or any month thereafter, as requested in writing by the Executive and delivered
to the Employer or its successor thirty (30) days prior to the commencement of
installment payments; provided, however, that in the event the Executive does
not request a commencement date as specified, such installments shall be paid on
the first day of each month, beginning with the month following the month in
which the Executive attains sixty-two (62) years of age. The installments shall
be payable (i) for the period designated in Schedule "D" in the case of the
balance in the Benefit Account and (ii) until the Executive's death in the case
of the Index Benefit defined in Schedule "B".
5.2. Voluntary Termination by the Executive. If the Executive's employment
is terminated by voluntary resignation and such resignation is not subject to
the provisions of subparagraph 5.4 below, the Executive shall be entitled to be
paid the Applicable Percentage of the Executive Benefits, in substantially equal
monthly installments on the first day of each month, beginning with the month
following the month in which the Executive attains fifty-five (55) years of age
or any month thereafter, as requested in writing by the Executive and delivered
to the Employer or its successor thirty (30) days prior to the commencement of
installment payments; provided, however, that in the event the Executive does
not request a commencement date as specified, such installments shall be paid on
the first day of each month, beginning with the month following the month in
which the Executive attains sixty-two (62) years of age. The installments shall
be payable (i) for the period designated in Schedule "D" in the case ofthe
balance in the Benefit Account and (ii) until the Executive's death in thecase
of the Index Benefit defined in Schedule "B".
5.3. Termination for Cause. The Executive agrees that if the Executive's
employment with the Employer is terminated "for cause" (as defined in
subparagraph 1.14 of this Agreement) and pursuant to subparagraph 1.14(c), (d)
or (e), the Executive shall forfeit any and all rights and benefits the
Executive may have under the terms of this Agreement and shall have no right to
be paid any of the amounts which would otherwise be due or paid to the Executive
by the Employer pursuant to the terms of this Agreement. In the event that the
Executive's employment with the Employer is terminated "for cause" pursuant to
subparagraph 1.14(a), (b) or (f), the Executive shall be entitled to be paid the
Applicable Percentage of the Executive Benefits, in substantially equal monthly
installments on the first day of each month, beginning with the month following
the month in which the Executive attains fifty-five (55) years of age or any
month thereafter, as requested in writing by the Executive and delivered to the
Employer or its successor thirty (30) days prior to the commencement of
installment payments; provided, however, that in the event the Executive does
not request a commencement date as specified, such installments shall be paid on
the first day of each month, beginning with the month following the month in
which the Executive attains sixty-two (62) years of age. The installments shall
be payable (i) for the period designated in Schedule "D" in the case of the
balance in the Benefit Account and (ii) until the Executive's death in the case
of the Index Benefit defined in Schedule "B".
5.4. Termination by the Employer on Account of or After a Change in
Control. In the event: (i) the Executive's employment with the Employer is
terminated by the Employer in conjunction with, or by reason of, a "Change in
Control" (as defined in subparagraph 1.4 above); or (ii) by reason of the
Employer's actions and without the Executive's prior written consent, any change
occurs in the scope of the Executive's position, responsibilities, duties,
salary, benefits, or location of employment (which in the event of relocation of
more than thirty (30) miles from the location of the Executive's office prior to
a Change in Control shall constitute such a change in location) after a Change
in Control occurs; or (iii) the Employer causes an event to occur which
reasonably constitutes or results in a demotion, a significant diminution of
responsibilities or authority, or a constructive termination (by forcing a
resignation or otherwise) of the Executive's employment after a Change in
Control occurs; or (iv) the Executive's employment with the Employer is
terminated within twelve (12) months after a Change in Control occurs and the
Executive notified the Employer of his intention to terminate in a writing
delivered to the Employer within six (6)months after the occurrence of a Change
in Control, then the Executive shall be entitled to be paid the Applicable
Percentage of the Executive Benefits, as defined above, in substantially equal
monthly installments on the first day of each month, beginning with the month
following the month in which the Executive attains fifty-five (55) years of age
or any month thereafter, as requested in writing by the Executive and delivered
to the Employer or its successor thirty (30) days prior to the commencement of
installment payments; provided, however, that in the event the Executive does
not request a commencement date as specified, such installments shall be paid on
the first day of each month, beginning with the month following the month in
which the Executive attains sixty-two (62) years of age. The installments shall
be payable (i) for the period designated in Schedule "D" in the case of the
balance in the Benefit Account and (ii) until the Executive's death in the case
of the Index Benefit defined in Schedule "B".
5.5. Payments in the Event of Death Following Termination. If the Executive
dies prior to receiving all of the Executive Benefits described in this
Paragraph 5 to which the Executive is entitled, then the Employer will make such
payments to the Executive's designated beneficiary in lump sum. If a valid
Beneficiary Designation is not in effect, then the remaining amounts due to the
Executive under the terms of this Agreement shall be paid to the Executive's
Surviving Spouse. If the Executive leaves no Surviving Spouse, the remaining
amounts due to the Executive under the terms of this Agreement shall be paid to
the duly qualified personal representative, executor or administrator of the
Executive's estate.
6. Section 280G Adjustment. If all or any portion of the amounts payable to
the Employee under this Agreement, either alone or together with other payments
which the Employee has the right to receive from the Employer, constitute
"excess parachute payments" within the meaning of Section 280G of the Internal
Revenue Code of 1986, as amended(the "Code"), that are subject to the excise tax
imposed by Section 4999 of the Code (or similar tax and/or assessment), the
Employee shall be responsible for the payment of such excise tax and the
Employer (and its successor) shall be responsible for any loss of deductibility
related thereto. If, at a later date, it is determined (pursuant to final
regulations or published rulings of the Internal Revenue Service, final judgment
of a court of competent jurisdiction, or otherwise) that the amount of excise
taxes payable by the Employee is greater than the amount initially so
determined, then the Employee shall pay an amount equal to the sum of such
additional excise taxes and any interest, fines and penalties resulting from
such under payment. The determination of the amount of any such excise taxes
shall be made by the independent accounting firm employed by the Employer
immediately prior to the change in control, subject to the mutual agreement of
the Employer and Employee.
7. Right To Determine Funding Methods. The Employer reserves the right to
determine, in its sole and absolute discretion, whether, to what extent and by
what method, if any, to provide for the payment of the amounts which may be
payable to the Executive, the Executive's spouse or the Executive's
beneficiaries under the terms of this Agreement. In the event that the Employer
elects to fund this Agreement, in whole or in part, through the use of life
insurance or annuities, or both, the Employer shall determine the ownership and
beneficial interests of any such policy of life insurance or annuity. The
Employer further reserves the right, in its sole and absolute discretion, to
terminate any such policy, and any other device used to fund its obligations
under this Agreement, at any time, in whole or in part. Consistent with
Paragraph 9 below, neither the Executive, the Executive's spouse nor the
Executive's beneficiaries shall have any right, title or interest in or to any
funding source or amount utilized by the Employer pursuant to this Agreement,
and any such funding source or amount shall not constitute security for the
performance of the Employer's obligations pursuant to this Agreement. In
connection with the foregoing, the Executive agrees to execute such documents
and undergo such medical examinations or tests which the Employer may request
and which may be reasonably necessary to facilitate any funding for this
Agreement including, without limitation, the Employer's acquisition of any
policy of insurance or annuity. Furthermore, a refusal by the Executive to
consent to, participate in and undergo any such medical examinations or tests
shall result in the immediate termination of this Agreement and the immediate
forfeiture by the Executive, the Executive's spouse and the Executive's
beneficiaries of any and all rights to payment hereunder.
8. Claims Procedure. The Employer shall, but only to the extent necessary
to comply with ERISA, be designated as the named fiduciary under this Agreement
and shall have authority to control and manage the operation and administration
of this Agreement. Consistent therewith, the Employer shall make all
determinations as to the rights to benefits under this Agreement. Any decision
by the Employer denying a claim by the Executive, the Executive's spouse, or the
Executive's beneficiary for benefits under this Agreement shall be stated in
writing and delivered or mailed, via registered or certified mail, to the
Executive, the Executive's spouse or the Executive's beneficiary, as the case
may be. Such decision shall set forth the specific reasons for the denial of a
claim. In addition, the Employer shall provide the Executive, the Executive's
spouse or the Executive's beneficiary with a reasonable opportunity for a full
and fair review of the decision denying such claim.
9. Status as an Unsecured General Creditor. Notwithstanding anything
contained herein to the contrary: (i) neither the Executive, the Executive's
spouse or the Executive's designated beneficiaries shall have any legal or
equitable rights, interests or claims in or to any specific property or assets
of the Employer as a result of this Agreement; (ii) none of the Employer's
assets shall be held in or under any trust for the benefit of the Executive, the
Executive's spouse or the Executive's designated beneficiaries or held in any
way as security for the fulfillment of the obligations of the Employer under
this Agreement; (iii) all of the Employer's assets shall be and remain the
general unpledged and unrestricted assets of the Employer; (iv) the Employer's
obligation under this Agreement shall be that of an unfunded and unsecured
promise by the Employer to pay money in the future; and (v) the Executive, the
Executive's spouse and the Executive's designated beneficiaries shall be
unsecured general creditors with respect to any benefits which may be payable
under the terms of this Agreement. Notwithstanding subparagraphs (i) through (v)
above, the Employer and the Executive acknowledge and agree that, in the event
of a Change in Control, upon request of the Executive, or in the Employer's
discretion if the Executive does not so request and the Employer nonetheless
deems it appropriate, the Employer shall establish, not later than the effective
date of the Change in Control, a Rabbi Trust or multiple Rabbi Trusts (the
"Trust" or "Trusts") upon such terms and conditions as the Employer, in its sole
discretion, deems appropriate and in compliance with applicable provisions of
the Code, in order to permit the Employer to make contributions and/or transfer
assets to the Trust or Trusts to discharge its obligations pursuant to this
Agreement. The principal of the Trust or Trusts and any earnings thereon shall
be held separate and apart from other funds of the Employer to be used
exclusively for discharge of the Employer's obligations pursuant to this
Agreement and shall continue to be subject to the claims of the Employer's
general creditors until paid to the Executive or its beneficiaries in such
manner and at such times as specified in this Agreement.
10. Discretion of Board to Accelerate Payout. Notwithstanding any of the
other provisions of this Agreement, the Board of Directors of the Employer may,
if determined in its sole and absolute discretion to be appropriate, accelerate
the payment of the amounts due under the terms of this Agreement, provided that
Executive (or Executive's spouse or designated beneficiaries): (i) consents to
the revised payout terms determined appropriate by the Employer's Board of
Directors; and (ii) does not negotiate or in anyway influence the terms of
proposed altered/accelerated payout (said decision to be made solely by the
Employer's Board of Directors and offered to the Executive [or Executive's
spouse or designated beneficiaries] on a "take it or leave it basis").
11. Miscellaneous.
11.1. Opportunity To Consult With Independent Advisors. The Executive
acknowledges that he has been afforded the opportunity to consult with
independent advisors of his choosing including, without limitation, accountants
or tax advisors and counsel regarding both the benefits granted to him under the
terms of this Agreement and the (i) terms and conditions which may affect the
Executive's right to these benefits and (ii) personal tax effects of such
benefits including, without limitation, the effects of any federal or state
taxes, Section 280G of the Code, and any other taxes, costs, expenses or
liabilities whatsoever related to such benefits, which in any of the foregoing
instances the Executive acknowledges and agrees shall be the sole responsibility
of the Executive notwithstanding any other term or provision of this Agreement.
The Executive further acknowledges and agrees that the Employer shall have no
liability whatsoever related to any such personal tax effects or other personal
costs, expenses, or liabilities applicable to the Executive and further
specifically waives any right for the Executive, himself, and his heirs,
beneficiaries, legal representatives, agents, successors, and assigns to claim
or assert liability on the part of the Employer related to the matters described
above in this subparagraph 11.1. The Executive further acknowledges and agrees
that he has read, understands and consents to all of the terms and conditions of
this Agreement, and that he enters into this Agreement with a full understanding
of its terms and conditions.
11.2. Arbitration of Disputes. All claims, disputes and other matters in
question arising out of or relating to this Agreement or the breach or
interpretation thereof, other than those matters which are to be determined by
the Employer in its sole and absolute discretion, shall be resolved by binding
arbitration before a representative member, selected by the mutual agreement of
the parties, of the Judicial Arbitration and Mediation Services, Inc. ("JAMS"),
located in San Francisco, California. In the event JAMS is unable or unwilling
to conduct the arbitration provided for under the terms of this Paragraph, or
has discontinued its business, the parties agree that a representative member,
selected by the mutual agreement of the parties, of the American Arbitration
Association ("AAA"), located in San Francisco, California, shall conduct the
binding arbitration referred to in this Paragraph. Notice of the demand for
arbitration shall be filed in writing with the other party to this Agreement and
with JAMS (or AAA, if necessary). In no event shall the demand for arbitration
be made after the date when institution of legal or equitable proceedings based
on such claim, dispute or other matter in question would be barred by the
applicable statute of limitations. The arbitration shall be subject to such
rules of procedure used or established by JAMS, or if there are none, the rules
of procedure used or established by AAA. Any award rendered by JAMS or AAA shall
be final and binding upon the parties, and as applicable, their respective
heirs, beneficiaries, legal representatives, agents, successors and assigns, and
may be entered in any court having jurisdiction thereof. The obligation of the
parties to arbitrate pursuant to this clause shall be specifically enforceable
in accordance with, and shall be conducted consistently with, the provisions of
Title 9 of Part 3 of the California Code of Civil Procedure. Any arbitration
hereunder shall be conducted in Saratoga, California, unless otherwise agreed to
by the parties.
11.3. Attorneys' Fees. In the event of any arbitration or litigation
concerning any controversy, claim or dispute between the parties hereto, arising
out of or relating to this Agreement or the breach hereof, or the interpretation
hereof, the prevailing party shall be entitled to recover from the
non-prevailing party reasonable expenses, attorneys' fees and costs incurred in
connection therewith or in the enforcement or collection of any judgment or
award rendered therein. The "prevailing party" means the party determined by the
arbitrator(s) or court, as the case may be, to have most nearly prevailed, even
if such party did not prevail in all matters, not necessarily the one in whose
favor a judgment is rendered.
11.4. Notice. Any notice required or permitted of either the Executive or
the Employer under this Agreement shall be deemed to have been duly given, if by
personal delivery, upon the date received by the party or its authorized
representative; if by facsimile, upon transmission to a telephone number
previously provided by the party to whom the facsimile is transmitted as
reflected in the records of the party transmitting the facsimile and upon
reasonable confirmation of such transmission; and if by mail, on the third day
after mailing via U.S. first class mail, registered or certified, postage
prepaid and return receipt requested, and addressed to the party at the address
given below for the receipt of notices, or such changed address as may be
requested in writing by a party.
If to the Employer: Saratoga National Bank
12000 Saratoga-Sunnyvale Rd.
Saratoga, California 95070
Attn: Chairman of the Board
If to the Executive: Richard L. Mount
------------------------------
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11.5. Assignment. Neither the Executive, the Executive's spouse, nor any
other beneficiary under this Agreement shall have any power or right to
transfer, assign, anticipate, hypothecate, modify or otherwise encumber any part
or all of the amounts payable hereunder, nor, prior to payment in accordance
with the terms of this Agreement, shall any portion of such amounts be: (i)
subject to seizure by any creditor of any such beneficiary, by a proceeding at
law or in equity, for the payment of any debts, judgments, alimony or separate
maintenance obligations which may be owed by the Executive, the Executive's
spouse, or any designated beneficiary; or (ii) transferable by operation of law
in the event of bankruptcy, insolvency or otherwise. Any such attempted
assignment or transfer shall be void and unenforceable without the prior written
consent of the Employer. The Employer's consent, if any, to one or more
assignments or transfers shall not obligate the Employer to consent to or be
construed as the Employer's consent to any other or subsequent assignment or
transfer.
11.6. Binding Effect/Merger or Reorganization. This Agreement shall be
binding upon and inure to the benefit of the Executive and the Employer and, as
applicable, their respective heirs, beneficiaries, legal representatives,
agents, successors and assigns. Accordingly, the Employer shall not merge or
consolidate into or with another corporation, or reorganize or sell
substantially all of its assets to another corporation, firm or person, unless
and until such succeeding or continuing corporation, firm or person agrees to
assume and discharge the obligations of the Employer under this Agreement. Upon
the occurrence of such event, the term "Employer" as used in this Agreement
shall be deemed to refer to such surviving or successor firm, person, entity or
corporation.
11.7. Nonwaiver. The failure of either party to enforce at any time or for
any period of time any one or more of the terms or conditions of this Agreement
shall not be a waiver of such term(s) or condition(s) or of that party's right
thereafter to enforce each and every term and condition of this Agreement.
11.8. Partial Invalidity. If any term, provision, covenant, or condition of
this Agreement is determined by an arbitrator or a court, as the case may be, to
be invalid, void, or unenforceable, such determination shall not render any
other term, provision, covenant or condition invalid, void or unenforceable, and
the Agreement shall remain in full force and effect notwithstanding such partial
invalidity.
11.9. Entire Agreement. This Agreement supersedes any and all other
agreements, either oral or in writing, between the parties with respect to the
subject matter of this Agreement and contains all of the covenants and
agreements between the parties with respect thereto. Each party to this
Agreement acknowledges that no other representations, inducements, promises, or
agreements, oral or otherwise, have been made by any party, or anyone acting on
behalf of any party, which are not set forth herein, and that no other
agreement, statement, or promise not contained in this Agreement shall be valid
or binding on either party.
11.10. Modifications. Any modification of this Agreement shall be effective
only if it is in writing and signed by each party or such party's authorized
representative.
11.11. Paragraph Headings. The paragraph headings used in this Agreement
are included solely for the convenience of the parties and shall not affect or
be used in connection with the interpretation of this Agreement.
11.12. No Strict Construction. The language used in this Agreement shall be
deemed to be the language chosen by the parties hereto to express their mutual
intent, and no rule of strict construction will be applied against any person.
11.13. Governing Law. The laws of the State of California, other than those
laws denominated choice of law rules, and, where applicable, the rules and
regulations of the Board of Governors of the Federal Reserve System, Federal
Deposit Insurance Corporation, Office of the Comptroller of the Currency, or
other regulatory agency or governmental authority having jurisdiction over
Employer, shall govern the validity, interpretation, construction and effect of
this Agreement.
IN WITNESS WHEREOF, the Employer and the Executive have executed this
Agreement on the date first above-written in the City of Saratoga, Santa Clara
County, California.
THE EMPLOYER THE EXECUTIVE
SARATOGA NATIONAL BANK
By:______________________________ _____________________________
V. Ronald Mancuso Richard L. Mount
Compensation Committee Chairman
SCHEDULE A
CALENDAR YEAR APPLICABLE PERCENTAGE
__________, 1982 to December 31, 1998. . . . 80.00%
December 31, 1999. . . . . . . . . . . . . . 90.00%
December 31, 2000. . . . . . . . . . . . . .100.00%
SCHEDULE B
EXECUTIVE BENEFITS
1. Executive Benefits Determination.
The Executive Benefits shall be determined based upon the following:
a. Benefit Account:
A Benefit Account shall be established as a liability reserve account
on the books of the Employer for the benefit of the Executive. Prior
to the date on which the Executive becomes eligible to receive
payments under the Agreement, such Benefit Account shall be increased
(or decreased) each Plan Year (including the Plan Year in which the
Executive ceases to be employed by the Employer) by an amount equal to
the annual earnings or loss for that Plan Year determined by the Index
(described in subparagraph c below), less the Opportunity Cost
(described in subparagraph d below) for that Plan Year.
b. Index Benefit:
After the date on which the Executive becomes eligible to receive
payments under the Agreement, the Index Benefit for the Executive for
any Plan Year shall be determined by subtracting the Opportunity Cost
for that Plan Year from the earnings, if any, established by the
Index.
c. Index:
The Index for any Plan Year shall be the aggregate annual after-tax
income from the life insurance contracts described hereinafter as
defined by FASB Technical Bulletin 85-4. This Index shall be applied
as if such insurance contracts were purchased on the Effective Date.
Insurance Company(ies)/Policy Number(s):
Canada Life Assurance/US2651090
Southland Life Insurance/0600080553
Transamerica Life/50335062
If such contracts of life insurance are actually purchased by the
Employer, then the actual policies as of the dates purchased shall be
used in calculations to determine the Index and Opportunity Cost. If
such contracts of life insurance are not purchased or are subsequently
surrendered or lapsed, then the Employer shall receive and use annual
policy illustrations that assume the above described policies were
purchased from the above named insurance company(ies) on the Effective
Date to calculate the amount of the Index and Opportunity Cost.
d. Opportunity Cost:
The Opportunity Cost for any Plan Year shall be calculated by
multiplying (a) the sum of (i) the total amount of premiums set forth
in the insurance policies described above, (ii) the amount of any
Index Benefits (described at subparagraph b above), and (iii) the
amount of all previous years after-tax Opportunity Costs; by (b) the
average annualized after-tax cost of funds calculated using a one-year
U.S. Treasury Bill as published in the Wall Street Journal. The
applicable tax rate used to calculate the Opportunity Cost shall be
the Employer's marginal tax rate until the Executive's Retirement, or
other termination of service (including a Change in Control).
Thereafter, the Opportunity Cost shall be calculated with the
assumption of a marginal forty-two percent (42%) corporate tax rate
each year regardless of whether the actual marginal tax rate of the
Employer is higher or lower.
EXAMPLE INDEX BENEFITS
[n] [A] [B] [C] [D]
End of Cash Surrender Index Opportunity Annual Cumulative
Year Value of Life [Annual Cost Benefit Benefit
Policy A0=premium B-C D+Dn-1
Income A0+Cn-1x.05x
An-An-1 (1-42%)
0 $1,000,000 -- -- -- --
1 $1,050,000 $50,000 $29,000 $21,000 $21,000
2 $1,102,500 $52,500 $29,841 $22,659 $43,659
3 $1,157,625 $55,125 $30,706 $24,419 $68,078
.
.
.
Assumptions: Initial Insurance = $1,000,000
Effective Tax Rate = 42%
One Year US Treasury Yield = 5%
2. Executive Benefits Payments.
The Executive shall be entitled to payment of the Applicable Percentage of
(i) the balance in the Benefit Account in installments upon the terms as
specified in the Agreement, and (ii) the Index Benefit for each Plan Year
payable in installments until the Executive's death.
SCHEDULE C
BENEFICIARY DESIGNATION
To the Administrator of the Saratoga National Bank Executive Supplemental
Compensation Agreement: Pursuant to the Provisions of my Executive Supplemental
Compensation Agreement with Saratoga National Bank, permitting the designation
of a beneficiary or beneficiaries by a participant, I hereby designate the
following persons and entities as primary and secondary beneficiaries of any
benefit under said Agreement payable by reason of my death:
Primary Beneficiary:
______________________ ____________________ ___________________________
Name Address Relationship
Secondary (Contingent) Beneficiary:
______________________ _____________________ ___________________________
Name Address Relationship
THE RIGHT TO REVOKE OR CHANGE ANY BENEFICIARY DESIGNATION IS HEREBY RESERVED.
ALL PRIOR DESIGNATIONS, IF ANY, OF PRIMARY BENEFICIARIES AND SECONDARY
BENEFICIARIES ARE HEREBY REVOKED.
The Administrator shall pay all sums payable under the Agreement by reason
of my death to the Primary Beneficiary, if he or she survives me, and if no
Primary Beneficiary shall survive me, then to the Secondary Beneficiary, and if
no named beneficiary survives me, then the Administrator shall pay all amounts
in accordance with the terms of my Executive Supplemental Compensation
Agreement. In the event that a named beneficiary survives me and dies prior to
receiving the entire benefit payable under said Agreement, then and in that
event, the remaining unpaid benefit payable according to the terms of my
Executive Supplemental Compensation Agreement shall be payable to the personal
representatives of the estate of said beneficiary who survived me but died prior
to receiving the total benefit provided by my Executive Supplemental
Compensation Agreement.
Dated: ___________, 1998 __________________________
Richard L. Mount
CONSENT OF THE EXECUTIVE'S SPOUSE TO THE ABOVE BENEFICIARY DESIGNATION:
I, Patricia A. Mount, being the spouse of Richard L. Mount, after being
afforded the opportunity to consult with independent counsel of my choosing, do
hereby acknowledge that I have read, agree and consent to the foregoing
Beneficiary Designation which relates to the Executive Supplemental Compensation
Agreement entered into by my spouse effective as of ___________, 1998. I
understand that the above Beneficiary Designation may affect certain rights
which I may have in the benefits provided for under the terms of the Executive
Supplemental Compensation Agreement and in which I may have a marital property
interest.
Dated: ___________, 1998 ______________________________
Patricia A. Mount
SCHEDULE D
DISTRIBUTION ELECTION
Pursuant to the Provisions of my Executive Supplemental Compensation Agreement
with Saratoga National Bank, I hereby elect to have any distribution of the
balance in my Benefit Account paid to me in installments as designated below:
thirty-six (36) monthly installments with the amount of each
installment determined as of each installment date by dividing
the entire amount in my Benefit Account by the number of
installments then remaining to be paid, with the final
installment to be the entire remaining balance in the Benefit
Account.
sixty (60) monthly installments with the amount of each
installment determined as of each installment date by dividing
the entire amount in my Benefit Account by the number of
installments then remaining to be paid, with the final
installment to be the entire remaining balance in the Benefit
Account.
one hundred twenty (120) monthly installments with the amount of
each installment determined as of each installment date by
dividing the entire amount in my Benefit Account by the number of
installments then remaining to be paid, with the final
installment to be the entire remaining balance in the Benefit
Account.
one hundred eighty (180) monthly installments with the amount of
each installment determined as of each installment date by
dividing the entire amount in my Benefit Account by the number of
installments then remaining to be paid, with the final
installment to be the entire remaining balance in the Benefit
Account.
Dated: ____________, 1998
Signed: _______________________
Richard L. Mount
LIFE INSURANCE
ENDORSEMENT METHOD SPLIT DOLLAR PLAN
AGREEMENT
Insurer/Policy Number: Canada Life Assurance/US2651090
Southland Life Insurance/0600080553
Transamerica Life/50335062
Bank: Saratoga National Bank
Insured: Richard L. Mount
Relationship of Insured to Bank: President and Chief Executive Officer
Date: _____________, 1998
The respective rights and duties of the Bank and the Insured in the above
policy(ies) (individually and collectively referred to as the "Policy") shall be
as follows:
I. DEFINITIONS
Refer to the Policy provisions for the definition of all terms in this
Agreement.
II. POLICY TITLE AND OWNERSHIP
Title and ownership shall reside in the Bank for its use and for the use of
the Insured all in accordance with this Agreement. The Bank alone may, to
the extent of its interest, exercise the right to borrow or withdraw the
Policy cash values. Where the Bank and the Insured (or beneficiary[ies] or
assignee[s], with the consent of the Insured) mutually agree to exercise
the right to increase the coverage under the subject split dollar Policy,
then, in such event, the rights, duties and benefits of the parties to such
increased coverage continue to be subject to the terms of this Agreement.
III. BENEFICIARY DESIGNATION RIGHTS
The Insured (or beneficiary[ies] or assignee[s]) shall have the right and
power to designate a beneficiary or beneficiaries to receive his or her
share of the proceeds payable upon the death of the Insured, and to elect
and change a payment option for such beneficiary, subject to any right or
interest the Bank may have in such proceeds, as provided in this Agreement.
IV. PREMIUM PAYMENT METHOD
The Bank shall pay an amount equal to the planned premiums and any other
premium payments that might become necessary to maintain the Policy in
force.
V. TAXABLE BENEFIT
Annually the Insured will receive a taxable benefit equal to the assumed
cost of insurance as required by the Internal Revenue Service. The Bank (or
its administrator) will report to the Insured the amount of imputed income
received each year on Form W-2 or its equivalent.
VI. DIVISION OF DEATH PROCEEDS
Subject to Paragraph VII herein, the division of the death proceeds of the
Policy is as follows:
1. The Insured's beneficiary(ies), designated in accordance with
Paragraph III, shall be entitled to an amount equal to eighty percent
(80%) of the net at risk insurance portion of the proceeds. The net at
risk insurance portion is the total proceeds less the cash value of
the Policy.
2. The Bank shall be entitled to the remainder of such proceeds.
3. The Bank and the Insured (or beneficiary[ies] or assignee[s]) shall
share in any interest due on the death proceeds on a pro rata basis in
the ratio that the proceeds due the Bank and the Insured,
respectively, bears to the total proceeds, excluding any such
interest.
VII. DIVISION OF CASH SURRENDER VALUE
The Bank shall at all times be entitled to an amount equal to the Policy's
cash value, as that term is defined in the Policy, less any Policy loans
and unpaid interest or cash withdrawals previously incurred by the Bank and
any applicable Policy surrender charges. Such cash value shall be
determined as of the date of surrender of the Policy or death of the
Insured as the case may be.
VIII.PREMIUM WAIVER
If the Policy contains a premium waiver provision, any such waived amounts
shall be considered for all purposes of this Agreement as having been paid
by the Bank.
IX. RIGHTS OF PARTIES WHERE POLICY ENDOWMENT OR ANNUITY ELECTION EXISTS
In the event the Policy involves an endowment or annuity element, the
Bank's right and interest in any endowment proceeds or annuity benefits
shall be determined under the provisions of this Agreement by regarding
such endowment proceeds or the commuted value of such annuity benefits as
the Policy's cash value. Such endowment proceeds or annuity benefits shall
be treated like death proceeds for the purposes of division under this
Agreement.
X. TERMINATION OF AGREEMENT
This Agreement shall terminate at the option of the Bank following
thirty(30) days written notice to the Insured upon the happening of any one
of the following:
1. The Insured's right to receive benefits pursuant to the terms and
conditions of that certain Executive Supplemental Compensation
Agreement effective as of ___________, 1998, shall terminate for any
reason other than the Insured's death; or
2. The Insured shall be discharged from service with the Bank as a result
of a termination for cause under subparagraph (c), (d) or (e) below.
Notwithstanding the foregoing, this Agreement shall remain in effect
in the event that the Insured is terminated pursuant to subparagraph
a), (b) or (f) below. The term "termination for cause" shall mean
termination of the employment of the Insured by reason of any of the
following determined in good faith by the Bank's Board of Directors:
(a) The willful, intentional and material breach or the habitual and
continued neglect by the Insured of his or her employment
responsibilities and duties;
(b) The continuous mental or physical incapacity of the Insured,
subject to disability rights under this Agreement;
(c) The Insured's willful and intentional violation of any federal
banking or securities laws, or of the Bylaws, rules, policies or
resolutions of Bank, or the rules or regulations of the Board of
Governors of the Federal Reserve System, Federal Deposit
Insurance Corporation, Office of the Comptroller of the Currency,
or other regulatory agency or governmental authority having
jurisdiction over the Bank, which has a material adverse effect
upon the Bank;
(d) The written determination by a state or federal banking agency or
governmental authority having jurisdiction over the Bank that the
Insured is not suitable to act in the capacity for which he or
she is employed by the Bank;
(e) The Insured's conviction of (i) any felony or (ii) a crime
involving moral turpitude, or the Insured's willful and
intentional commission of a fraudulent or dishonest act; or
(f) The Insured's willful and intentional disclosure, without
authority, of any secret or confidential information concerning
the Bank or taking any action which the Bank's Board of Directors
determines, in its sole discretion and subject to good faith,
fair dealing and reasonableness, constitutes unfair competition
with or induces any customer to breach any contract with the
Bank.
Upon such termination, the Insured (or beneficiary[ies] or
assignee[s])shall have a ninety (90) day option to receive from the Bank an
absolute assignment of the Policy in consideration of a cash payment to the
Bank, whereupon this Agreement shall terminate. Such cash payment shall be
the greater of:
1. The Bank's share of the cash value of the Policy on the date of such
assignment, as defined in this Agreement.
2. The amount of the premiums which have been paid by the Bank prior to
the date of such assignment.
Should the Insured (or beneficiary[ies] or assignee[s]) fail to exercise
this option within the prescribed ninety (90) day period, the Insured (or
beneficiary[ies] or assignee[s]) agrees that all of his or her rights,
interest and claims in the Policy shall terminate as of the date of the
termination of this Agreement.
Except as provided above, this Agreement shall terminate upon distribution
of the death benefit proceeds in accordance with Paragraph VI above.
XI. INSURED'S OR ASSIGNEE'S ASSIGNMENT RIGHTS
The Insured may not, without the prior written consent of the Bank, which
shall not be unreasonably withheld, assign to any individual, trust or
other organization, any right, title or interest in the Policy nor any
rights, options, privileges or duties created under this Agreement.
XII. AGREEMENT BINDING UPON THE PARTIES
This Agreement shall be binding upon the Insured and the Bank, and their
respective heirs, successors, personal representatives and assigns, as
applicable.
XIII.NAMED FIDUCIARY AND PLAN ADMINISTRATOR
The Bank is hereby designated the "Named Fiduciary" until resignation or
removal by its Board of Directors. As Named Fiduciary, the Bank shall be
responsible for the management, control, and administration of this
Agreement as established herein. The Named Fiduciary may allocate to others
certain aspects of the management and operations responsibilities of this
Agreement, including the employment of advisors and the delegation of any
ministerial duties to qualified individuals.
XIV. FUNDING POLICY
The funding policy for this Agreement shall be to maintain the Policy in
force by paying, when due, all premiums required.
XV. CLAIM PROCEDURES
Claim forms or claim information as to the subject Policy can be obtained
by contacting The Benefit Marketing Group, Inc. (770-952-1529). When the
Named Fiduciary has a claim which may be covered under the provisions
described in the Policy, it should contact the office named above, and they
will either complete a claim form and forward it to an authorized
representative of the Insurer or advise the named Fiduciary what further
requirements are necessary. The Insurer will evaluate and make a decision
as to payment. If the claim is payable, a benefit check will be issued to
the Named Fiduciary.
In the event that a claim is not eligible under the Policy, the Insurer
will notify the Named Fiduciary of the denial pursuant to the requirements
under the terms of the Policy. If the Named Fiduciary is dissatisfied with
the denial of the claim and wishes to contest such claim denial, it should
contact the office named above and they will assist in making inquiry to
the Insurer. All objections to the Insurer's actions should be in writing
and submitted to the office named above for transmittal to the Insurer.
XVI. GENDER
Whenever in this Agreement words are used in the masculine or neuter
gender, they shall be read and construed as in the masculine, feminine or
neuter gender, whenever they should so apply.
XVII.INSURANCE COMPANY NOT A PARTY TO THIS AGREEMENT
The Insurer shall not be deemed a party to this Agreement, but will respect
the rights of the parties as set forth herein upon receiving an executed
copy of this Agreement. Payment or other performance in accordance with the
Policy provisions shall fully discharge the Insurer from any and all
liability.
IN WITNESS WHEREOF, the Insured and a duly authorized Bank officer or
director have signed this Agreement at Saratoga, California as of the date first
above written.
SARATOGA NATIONAL BANK INSURED
- ----------------------------- ----------------------------
William D. Kron Richard L. Mount
Chairman of the Board
of Directors
BENEFICIARY DESIGNATION FORM
Primary Designation:
Name Relationship
- ----------------------------- ----------------------------
- ----------------------------- ----------------------------
- ----------------------------- ----------------------------
Contingent Designation:
- ----------------------------- ----------------------------
- ----------------------------- ----------------------------
- ----------------------------- ----------------------------
, 1998
- ----------------------------- ---------
Richard L. Mount
SARATOGA NATIONAL BANK
ESP EXECUTIVE BENEFITS AGREEMENT
THIS EXECUTIVE BENEFITS AGREEMENT is entered into on June 18, 1999 by and
between Saratoga National Bank ("Employer") and Richard L. Mount ("Executive")
for the purposes set forth hereinafter.
RECITALS
WHEREAS, the Executive has been an employee of the Employer since April 15,
1982, and is currently serving as its President and Chief Executive Officer;
WHEREAS, the Employer and the Executive desire to establish a benefit
arrangement for the Executive to be funded through insurance premium
contributions by the Executive and certain supplemental insurance premium
contributions by the Employer;
WHEREAS, it is deemed to be in the best interests of the Employer to
provide the Executive with such supplemental insurance premium contributions in
order to eliminate certain unresolved benefit deficiencies in connection with
that certain Executive Supplemental Compensation Agreement between the Employer
and the Executive, dated September 24,1998, on the terms and conditions set
forth herein; and
WHEREAS, the Executive and the Employer wish to specify in writing the
terms and conditions upon which this additional benefit will be provided to the
Executive, or to the Executive's spouse or other designated beneficiary, as the
case may be.
NOW, THEREFORE, in consideration of the services to be performed by the
Executive in the future, as well as the mutual promises and covenants contained
herein, the Executive and the Employer agree as follows:
AGREEMENT
ARTICLE I
DEFINITIONS AND TERMS
1.1 Administrator. The Benefits Marketing Group, Inc. shall be the
"Administrator" and, solely for the purposes of ERISA as defined in subparagraph
1.10 below, the "fiduciary" of this Agreement where a fiduciary is required by
ERISA.
1.2 Anniversary Date. The term "Anniversary Date" shall mean the first day
of each Policy Year.
1.3 Beneficiary. The term "Beneficiary" shall mean the person(s) or
entity(ies) whom the Executive shall designate in a valid Beneficiary
Designation, a copy of which is attached hereto as Schedule "A," to receive the
benefits provided hereunder. A Beneficiary Designation shall be valid only if it
is in the form attached hereto and made a part thereof, completed and signed by
the Executive and received by the Administrator prior to the Executive's death.
1.4 Change in Control. The term "Change in Control" shall mean the
occurrence of any of the following events with respect to the Employer (with the
term "Employer" being defined for purposes of determining whether a "Change in
Control" has occurred to include any parent bank holding company owning 100% of
the Employer's outstanding common stock): (i) a change in control of a nature
that would be required to be reported in response to Item 6(e) of Schedule 14A
of Regulation 14A promulgated under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), or in response to any other form or report to the
regulatory agencies or governmental authorities having jurisdiction over the
Employer or any stock exchange on which the Employer's shares are listed which
requires the reporting of a change in control; (ii) any merger, consolidation or
reorganization of the Employer in which the Employer does not survive; (iii) any
sale, lease, exchange, mortgage, pledge, transferor other disposition (in one
transaction or a series of transactions) of any assets of the Employer having an
aggregate fair market value of fifty percent (50%) of the total value of the
assets of the Employer, reflected in the most recent balance sheet of the
Employer; (iv)a transaction whereby any "person" (as such term is used in the
Exchange Act)or any individual, corporation, partnership, trust or any other
entity becomes the beneficial owner, directly or indirectly, of securities of
the Employer representing twenty-five percent (25%) or more of the combined
voting power of the Employer's then outstanding securities; or (v) a situation
where, in any one-year period, individuals who at the beginning of such period
constitute the Board of Directors of the Employer cease for any reason to
constitute at least a majority thereof, unless the election, or the nomination
for election by the Employer's shareholders, of each new director is approved by
a vote of at least three-quarters (3/4) of the directors then still in office
who were directors at the beginning of the period.
1.5 Code. The "Code" shall mean the Internal Revenue Code of 1986, as
amended (the "Code").
1.6 Committee. The Compensation Committee of the Board of Directors of
Employer.
1.7 Compensation. Compensation, with respect to any Executive, means the
portion of total compensation paid by the Employer, including base salary, any
Employer-paid bonuses, and excluding any non-taxable fringe benefits provided by
the Employer.
1.8 Disability. The term "Disability" shall have the same meaning given
such term in any policy of disability insurance maintained by the Employer for
the benefit of employees including the Executive. In the absence of such a
policy which extends coverage to the Executive in the event of disability, the
term shall mean bodily injury or disease (mental or physical) which wholly and
continuously prevents the performance of duty for at least three months.
1.9 Effective Date. June 18, 1999.
1.10 ERISA. The term "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended.
1.11 Insurance Company. The Company(s) listed in Schedule "B".
1.12 Plan Year. The initial Plan Year shall be the period commencing on
June 18, 1999 and ending on December 31, 1999. Thereafter, the Plan Year shall
be the same as the Policy Year.
1.13 Policy. The Policy purchased from the Insurance Company pursuant to
the terms of this Agreement and listed in Schedule "B".
1.14 Policy Year. The calendar year.
1.15 Retirement Date. The date of termination of the Executive's employment
with the Employer for any reason, including Disability, voluntary or involuntary
termination.
1.16 Surviving Spouse. The term "Surviving Spouse" shall mean the person,
if any, who shall be legally married to the Executive on the date of the
Executive's death.
ARTICLE II
SCOPE, PURPOSE AND EFFECT
2.1 Contract of Employment. Although this Agreement is intended to provide
the Executive with an additional incentive to remain in the employ of the
Employer, this Agreement shall not be deemed to constitute a contract of
employment between the Executive and the Employer nor shall any provision of
this Agreement restrict or expand the right of the Employer to terminate the
Executive's employment. This Agreement shall have no impact or effect upon any
separate written Employment Agreement which the Executive may have with the
Employer, it being the parties' intention and agreement that unless this
Agreement is specifically referenced in said Employment Agreement (or any
modification thereto), this Agreement (and the Employer's obligations hereunder)
shall stand separate and apart and shall have no effect on or be affected by,
the terms and provisions of said Employment Agreement.
2.2 Fringe Benefit. The benefits provided by this Agreement are granted by
the Employer as a fringe benefit to the Executive and are not a part of any
salary reduction plan or any arrangement deferring a bonus or a salary increase.
The Executive has no option to take any current payments or bonus in lieu of the
benefits provided by this Agreement.
ARTICLE III
POLICY APPLICATION AND DATA
3.1 Application. The Employer and the Executive shall apply to the
Insurance Company for the Policy at the earliest practicable date. When the
Policy is issued, it shall be subject to the terms of this Agreement.
3.2 Policy Data. The Insurance Company, Policy number, initial amount of
death benefit, and such other Policy data as may be necessary or advisable to
properly identify the Policy and benefits thereunder shall be recorded on
Schedule "B" attached hereto.
ARTICLE IV
PREMIUM/BONUS PAYMENTS
4.1 Executive Premiums. The Executive shall make five (5)annual premium
payments ("Executive's Premiums") each in an amount equal to $42,079
individually and $210,395 in the aggregate.
4.2 Employer Premiums. The Employer shall make five (5) annual premium
payments ("Employer's Premiums") each in an amount equal to $28,058 individually
and $140,290 in the aggregate.
4.3 Premium Payment Date. The Executive's Premiums and the Employer's
Premiums shall be paid to the Insurance Company concurrently on such date during
the first five (5) Plan Years as may be required by the Insurance Company to
comply with the terms of this Agreement.
4.4 Bonus Payments/Taxes. The Employer shall make five (5)annual bonus
compensation payments to the Executive in the amount of $70,137 individually and
$350,685 in the aggregate (the "Bonus Payments"). The Bonus Payments shall be
paid not later than thirty (30) days prior to the date that Employer Premiums
and Executive Premiums are required to be paid to the Insurance Company during
the first five (5)Plan Years pursuant to this Agreement. The Executive shall be
responsible for the payment of all taxes attributable to his receipt of such
bonus compensation payments from the Employer.
ARTICLE V
OWNERSHIP AND ALLOCATION OF INSURANCE
5.1 Insurance Ownership. The ownership of the Policy cash surrender value
and death benefit shall be as follows: (a) Cash Surrender Value. The Employer
shall own that portion of the total cash surrender value of the Policy equal to
the total amount of the Employer's Premiums and the Executive shall own the
remaining balance of the cash surrender value. (b) Death Benefit. The Employer
shall own that portion of the death benefit pursuant to the Policy equal to the
total of the Employer's Premiums, plus interest on each of the Employer's
Premiums accruing at the rate of six (6%) percent per annum from the date of
each premium payment until the date of death, compounded annually. The remaining
balance of the death benefit shall be owned by the Executive's Beneficiary.
5.2 Limited Rights. Neither the Employer or the Executive shall have or
exercise any right in and to the portion of the Policy cash surrender value or
death benefit which is owned by or is payable to the other party, including the
right to borrow against or from the other party's portion of the cash surrender
value of the Policy, the right to collect the proceeds of the other party's
portion of the death benefits of the Policy, or take any actions which would
reduce the other party's interest in the Policy.
5.3 Policy Possession. The Employer shall maintain possession of the
Policy. The Employer shall make the Policy available to the Insurance Company to
the extent necessary for the purpose of endorsements or filing any change of
Beneficiary in accordance with the provisions of this Agreement. The Policy
shall be returned promptly to the Employer after any such action shall have been
accomplished.
ARTICLE VI
POLICY BENEFIT PAYMENTS
6.1 Policy Withdrawals/Loans. Upon written notice to the Administrator from
the Executive on or after the Executive's Retirement Date, the Executive shall
be entitled to begin receiving Policy benefit payments through withdrawals
and/or loans of the Policy cash surrender value to the extent of the Executive's
ownership interest therein as set forth in subparagraph 5.1 (a). Such benefit
payments shall be received by the Executive in annual installments beginning on
the Anniversary Date coincident with or next following the Retirement Date,
based on a schedule that may be changed from time to time, at the discretion of
the Executive. The calculation of the installments will be based on the
crediting rate of the Policy as of the Retirement Date. Should the crediting
rate of the Insurance Company fluctuate during the period of distribution, the
amount of the remaining installments shall be recalculated on an annual basis as
of each Anniversary Date. Upon the death of the Executive, the Beneficiary shall
receive any remaining amount pursuant to the death benefit payment option which
is elected as set forth in subparagraph 7.3.
6.2 Benefit Payment Determination. Prior to the receipt by the Executive of
any benefit payments under the Policy, the amounts available for withdrawals
and/or loans of the Policy cash surrender value shall be determined by the
Administrator and the Insurance Company and promptly communicated to the
Executive not later than thirty (30) days following receipt of notice from the
Executive to the Administrator of intention to commence benefit payments. The
Executive shall complete all necessary forms prescribed by the Insurance Company
in order to begin receiving such benefit payments
6.3 Third Party Loans. In any Plan Year, the Employer shall have the right
to obtain loans from unrelated persons or entities, including loans from the
Insurance Company or other creditors, and to secure the repayment obligation
arising therefrom, including all interest charges related to any such loans, by
the assignment of its portion of the Policy cash surrender value and/or death
benefit. The amount of such loans, together with the interest accrued thereon,
shall at no time exceed the portion of the Policy cash surrender value which the
Employer owns as described in subparagraph 5.1 (a).
ARTICLE VII
DEATH BENEFITS
7.1 Cooperation/Prompt Action. Upon the Executive's death, the Employer,
Administrator and Beneficiary shall cooperate and promptly take all reasonable
action to cause the Insurance Company to pay the Policy death benefits in
accordance with this Agreement.
7.2 Spousal Consent. The Beneficiary shall be the Executive's Surviving
Spouse unless the Surviving Spouse consents to the designation of another
Beneficiary by signing the consent at Schedule "A" or in the event that there is
no such Surviving Spouse. The identity of the Beneficiary shall also be
designated in the Policy in conformity with Schedule "A".
7.3 Beneficiary Payment Option. Notwithstanding any other provision of this
Agreement, upon the Executive's death, the Beneficiary shall have the right to
receive the benefit payment to which the Beneficiary is entitled in a single
lump sum, or the Beneficiary may elect to receive such benefit payment in
accordance with the death benefit payment option(s) which are available under
the Policy.
ARTICLE VIII
INSURANCE COMPANY LIABILITY
8.1 Non-Binding Effect. The Insurance Company shall be bound only by the
provisions of any endorsements on the Policy, and any payments made or action
taken by it in accordance therewith shall fully discharge it from all claims,
suits and demands of all persons whatsoever. Except as specifically provided by
endorsement on the Policy, no provisions of this Agreement shall be binding upon
the Insurance Company.
ARTICLE IX
CLAIMS/UNSECURED CREDITOR STATUS
9.1 Claims Procedure. The Employer shall, but only to the extent necessary
to comply with ERISA, be designated as the Administrator and named fiduciary
under this Agreement and shall have authority to control and manage the
operation and administration of this Agreement, until such time, if any, as a
successor Administrator shall be named. The Administrator shall make all
determinations as to the rights to benefits under this Agreement. Any decision
by the Administrator denying a claim by the Executive, the Executive's Surviving
Spouse, or the Beneficiary, for benefits under this Agreement shall be stated in
writing and delivered or mailed, via registered or certified mail, to the
Executive, the Executive's Surviving Spouse or the Beneficiary, as the case may
be. Such decision shall set forth the specific reasons for the denial of a
claim. In addition, the Administrator shall provide the Executive, the
Executive's Surviving Spouse or the Executive's Beneficiary with a reasonable
opportunity for a full and fair review of the decision denying such claim.
9.2 Status as an Unsecured General Creditor. Notwithstanding anything
contained herein to the contrary: (i) neither the Executive, the Executive's
Surviving Spouse or the Executive's Beneficiary shall have any legal or
equitable rights, interests or claims in or to any specific property or assets
of the Employer as a result of this Agreement; (ii) none of the Employer's
assets shall be held in or under any trust for the benefit of the Executive, the
Executive's Surviving Spouse or the Executive's Beneficiary or held in any way
as security for the fulfillment of the obligations of the Employer under this
Agreement; (iii) all of the Employer's assets shall be and remain the general
unpledged and unrestricted assets of the Employer;(iv) the Employer's obligation
under this Agreement shall be that of an unfunded and unsecured promise by the
Employer to pay the Employer Premiums and to permit the payment of the
Executive's Premiums from the distributions of bonus compensation paid by the
Employer to the Executive and (v) the Executive, the Executive's Surviving
Spouse and the Executive's Beneficiary shall be unsecured general creditors with
respect to any unpaid Employer Premiums and Executive Premiums which may be
payable under the terms of this Agreement.
Notwithstanding subparagraphs 9.2 (i) through (v) above, the Employer and
the Executive acknowledge and agree that, in the event of a Change in Control,
upon request of the Executive, or in the Employer's discretion if the Executive
does not so request and the Employer nonetheless deems it appropriate, the
Employer shall establish, not later than the effective date of the Change in
Control, a Rabbi Trust or multiple Rabbi Trusts (the "Trust" or "Trusts") upon
such terms and conditions as the Employer, in its sole discretion, deems
appropriate and in compliance with applicable provisions of the Code, in order
to permit the Employer to make contributions and/or transfer assets to the Trust
or Trusts to discharge its obligations pursuant to this Agreement. The principal
of the Trust or Trusts and any earnings thereon shall be held separate and apart
from other funds of the Employer to be used exclusively for discharge of the
Employer's obligations pursuant to this Agreement and shall continue to be
subject to the claims of the Employer's general creditors until paid to the
Executive or the Executive's Surviving Spouse, or Beneficiary in such manner and
at such times as specified in this Agreement.
ARTICLE X
TERMINATION OF AGREEMENT
10.1 This Agreement may be terminated prior to the Executive's death by
mutual agreement of the Executive and the Employer.
10.2 In the event of termination in accordance with subparagraph 10.1
above, the date of termination of this Agreement shall be the last day of the
month coincident with or next following the date of mutual agreement to
terminate. The requirement of annual premium payments by the Executive and the
Employer shall cease after the termination date and ownership of the Policy by
the Employer and the Executive shall be recognized by the Insurance Company as
described in subparagraph 5.1.
ARTICLE XI
MISCELLANEOUS
11.1 Miscellaneous.
(a) Administrator Payment. If the Administrator shall find that any
person to whom any amount is payable under this Agreement is
unable to care for his affairs because of illness or accident, or
is a minor, any payment due (unless a prior claim therefor shall
have been made by a duly appointed guardian, committee or other
legal representative) may be paid to the spouse, a child, a
parent, or a brother or sister, or to any person deemed by the
Administrator to have incurred expense for such person otherwise
entitled to payment, in such manner and proportions as the
Administrator may determine consistent with the provisions of
this Agreement.
(b) Opportunity To Consult With Independent Advisors. The Executive
acknowledges that he has been afforded the opportunity to consult
with independent advisors of his choosing including, without
limitation, accountants or tax advisors and counsel regarding the
(i)benefits granted to him under the provisions of this
Agreement, (ii) terms and conditions which may affect the
Executive's right to these benefits, and(iii) personal tax
effects of such benefits including, without limitation, the
effects of any federal or state taxes, Section 280G of the Code,
and any other taxes, costs, expenses or liabilities whatsoever
related to such benefits, which in any of the foregoing instances
the Executive acknowledges and agrees shall be the sole
responsibility of the Executive notwithstanding any other
provision of this Agreement. The Executive further acknowledges
and agrees that the Employer shall have no liability whatsoever
related to any such personal tax effects or other personal costs,
expenses, or liabilities applicable to the Executive and further
specifically waives any right for the Executive, his Surviving
Spouse or Beneficiary, and any other of his heirs, beneficiaries,
legal representatives, agents, successors, and assigns, to claim
or assert liability on the part of the Employer related to the
matters described above in this subparagraph 11.1(b). The
Executive further acknowledges and agrees that he has read,
understands and consents to all of the terms and conditions of
this Agreement, and that he enters into this Agreement with a
full understanding of its terms and conditions.
(c) Arbitration of Disputes. All claims, disputes and other matters
in question arising out of or relating to this Agreement or the
breach or interpretation thereof, other than those matters which
are to be determined by the Employer or the Administrator in
their respective sole and absolute discretion, shall be resolved
by binding arbitration before a representative member, selected
by the mutual agreement of the parties, of the Judicial
Arbitration and Mediation Services, Inc. ("JAMS"), located in San
Francisco, California. In the event JAMS is unable or unwilling
to conduct the arbitration provided for under the terms of this
subparagraph 11.1 (c), or has discontinued its business, the
parties agree that a representative member, selected by the
mutual agreement of the parties, of the American Arbitration
Association ("AAA"), located in San Francisco, California, shall
conduct the binding arbitration referred to in this subparagraph
11.1 (c). Notice of the demand for arbitration shall be filed in
writing with the other party to this Agreement and with JAMS (or
AAA, if necessary). In no event shall the demand for arbitration
be made after the date when institution of legal or equitable
proceedings based on such claim, dispute or other matter in
question would be barred by the applicable statute of
limitations. The arbitration shall be subject to such rules of
procedure used or established by JAMS, or if there are none, the
rules of procedure used or established by AAA. Any award rendered
by JAMS or AAA shall be final and binding upon the parties, and
as applicable, the irrespective heirs, beneficiaries, legal
representatives, agents, successors and assigns, and may be
entered in any court having jurisdiction thereof. The obligation
of the parties to arbitrate pursuant to this subparagraph 11.1
(c) shall be specifically enforceable in accordance with, and
shall be conducted consistently with, the provisions of Title 9
of Part 3 of the California Code of Civil Procedure. Any
arbitration hereunder shall be conducted in Saratoga, California,
unless otherwise agreed to by the parties.
(d) Attorneys' Fees. In the event of any arbitration or litigation
concerning any controversy, claim or dispute between the parties
hereto, arising out of or relating to this Agreement or the
breach hereof, or the interpretation hereof, the prevailing party
shall be entitled to recover from the non-prevailing party
reasonable expenses, attorneys' fees and costs incurred in
connection therewith or in the enforcement or collection of any
judgment or award rendered therein. The "prevailing party" means
the party determined by the arbitrator(s) or court, as the case
may be, to have most nearly prevailed, even if such party did not
prevail in all matters, not necessarily the one in whose favor a
judgment is rendered.
(e) Notice. Any notice required or permitted of either the Executive
or the Employer under this Agreement shall be deemed to have been
duly given, if by personal delivery, upon the date received by
the party or its authorized representative; if by facsimile, upon
transmission to a telephone number previously provided by the
party to whom the facsimile is transmitted as reflected in the
records of the party transmitting the facsimile and upon
reasonable confirmation of such transmission; and if by mail, on
the third day after mailing via U.S. first class mail, registered
or certified, postage prepaid and return receipt requested, and
addressed to the party at the address given below for the receipt
of notices, or such changed address as may be requested in
writing by a party.
If to the Employer: Saratoga National Bank
12000 Saratoga-Sunnyvale Rd.
Saratoga, California 95070
Attn: Chairman of the Board
If to the Executive: Richard L. Mount
20564 Verde Court
Saratoga, CA 95070
(f) Assignment. Neither the Executive, the Executive's spouse, nor
any other Beneficiary under this Agreement shall have any power
or right to transfer, assign, anticipate, hypothecate, modify or
otherwise encumber any part or all of the amounts payable
hereunder, nor, prior to payment in accordance with the terms of
this Agreement, shall any portion of such amounts be: (i) subject
to seizure by any creditor of any such Beneficiary, by a
proceeding at law or in equity, for the payment of any debts,
judgments, alimony or separate maintenance obligations which may
be owed by the Executive, the Executive's spouse, or any such
Beneficiary; or (ii) transferable by operation of law in the
event of bankruptcy, insolvency or otherwise. Any such attempted
assignment or transfer shall be void and unenforceable without
the prior written consent of the Employer. The Employer's
consent, if any, to one or more assignments or transfers shall
not obligate the Employer to consent to or be construed as the
Employer's consent to any other or subsequent assignment or
transfer.
(g) Binding Effect/Merger or Reorganization. This Agreement shall be
binding upon and inure to the benefit of the Executive and the
Employer and, as applicable, their respective heirs,
beneficiaries, legal representatives, agents, successors and
assigns. Accordingly, the Employer shall not merge or consolidate
into or with another corporation, or reorganize or sell
substantially all of its assets to another corporation, firm or
person, unless and until such succeeding or continuing
corporation, firm or person agrees to assume and discharge the
obligations of the Employer under this Agreement. Upon the
occurrence of such event, the term "Employer" as used in this
Agreement shall be deemed to refer to such surviving or successor
firm, person, entity or corporation.
(h) Nonwaiver. The failure of either party to enforce at anytime or
for any period of time any one or more of the terms or conditions
of this Agreement shall not be a waiver of such term(s) or
condition(s) or of that party's right thereafter to enforce each
and every term and condition of this Agreement.
(i) Partial Invalidity. If any term, provision, covenant, or
condition of this Agreement is determined by an arbitrator or a
court, as the case may be, to be invalid, void, or unenforceable,
such determination shall not render any other term, provision,
covenant or condition invalid, void or unenforceable, and the
Agreement shall remain in full force and effect notwithstanding
such partial invalidity.
(j) Entire Agreement. This Agreement supersedes any and all other
agreements, either oral or in writing, between the parties with
respect to the subject matter of this Agreement and contains all
of the covenants and agreements between the parties with respect
thereto. Each party to this Agreement acknowledges that no other
representations, inducements, promises, or agreements, oral or
otherwise, have been made by any party, or anyone acting on
behalf of any party, which are not set forth herein, and that no
other agreement, statement, or promise not contained in this
Agreement shall be valid or binding on either party.
(k) Modifications. Any modification of this Agreement shall be
effective only if it is in writing and signed by each party or
such party's authorized representative.
(l) Paragraph Headings/Construction. The article, paragraph and
subparagraph headings used in this Agreement are included solely
for the convenience of the parties and shall not affect or be
used in connection with the interpretation of this Agreement.
Masculine terminology and use of the singular shall be construed
to include the feminine and the plural, respectively, and vice
versa, to the extent the context may otherwise require.
(m) No Strict Construction. The language used in this Agreement shall
be deemed to be the language chosen by the parties hereto to
express their mutual intent, and no rule of strict construction
will be applied against any person.
(n) Governing Law. The laws of the State of California, other than
those laws denominated choice of law rules, and, where
applicable, the rules and regulations of the Board of Governors
of the Federal Reserve System, Federal Deposit Insurance
Corporation, Office of the Comptroller of the Currency, or other
regulatory agency or governmental authority having jurisdiction
over Employer, shall govern the validity, interpretation,
construction and effect of this Agreement.
IN WITNESS WHEREOF, the Employer and the Executive have executed this
Agreement on the date first above-written in the City of Saratoga, Santa Clara
County, California.
THE EMPLOYER THE EXECUTIVE
SARATOGA NATIONAL BANK
By:______________________________ _____________________________
V. Ronald Mancuso Richard L. Mount
Compensation Committee Chairman
SCHEDULE A
BENEFICIARY DESIGNATION
To the Administrator of the Saratoga National Bank Executive Benefits
Agreement:
Pursuant to the Provisions of my Executive Benefits Agreement with Saratoga
National Bank, permitting my designation of a beneficiary or beneficiaries, I
hereby designate the following person(s) and entit(y)ies as primary and
secondary beneficiaries of any Benefits under said Agreement payable by reason
of my death:
Primary Beneficiary:
______________________ ____________________ ________________________
Name Address Relationship
Secondary (Contingent) Beneficiary:
______________________ ____________________ ________________________
Name Address Relationship
THE RIGHT TO REVOKE OR CHANGE ANY BENEFICIARY DESIGNATION IS HEREBY RESERVED.
ALL PRIOR DESIGNATIONS, IF ANY, OF PRIMARY BENEFICIARIES AND SECONDARY
BENEFICIARIES ARE HEREBY REVOKED.
The Administrator shall pay all sums payable under the Agreement by reason
of my death to the Primary Beneficiary, if he or she survives me, and if no
Primary Beneficiary shall survive me, then to the Secondary Beneficiary, and if
no named beneficiary survives me, then the Administrator shall pay all amounts
in accordance with the terms of my Executive Benefits Agreement. In the event
that a named beneficiary survives me and dies prior to receiving the entire
Benefits payable under said Agreement, then and in that event, the remaining
unpaid Benefits payable according to the terms of my Executive Benefits
Agreement shall be payable to the personal representatives of the estate of said
beneficiary who survived me but died prior to receiving the total Benefits
provided by my Executive Benefits Agreement.
Dated: June 18, 1999 __________________________
Richard L. Mount
CONSENT OF THE EXECUTIVE'S SPOUSE TO THE ABOVE BENEFICIARY DESIGNATION:
I, Patricia A. Mount, being the spouse of Richard L. Mount, after being
afforded the opportunity to consult with independent counsel of my choosing, do
hereby acknowledge that I have read, agree and consent to the foregoing
Beneficiary Designation which relates to the Executive Benefits Agreement
entered into by my spouse effective as of June 18,1999. I understand that the
above Beneficiary Designation may affect certain rights which I may have in the
benefits provided for under the terms of the Executive Benefits Agreement and in
which I may have a marital property interest.
Dated: June 18, 1999 ______________________________
Patricia A. Mount
SCHEDULE B
Insurance Company: Jefferson Pilot Financial Life Insurance Company
Policy No.: ________________________
Initial Death Benefit: $_________________________
Policy
Data:
Consent of Independent Auditors
The Board of Directors
SJNB Financial Corp.
We consent to the incorporation by reference in the registration statements
on Form S-8 (Nos. 33-31392 and 333-89013) of SJNB Financial Corp. of our report
dated January 20, 2000, relating to the consolidated balance sheets of SJNB
Financial Corp. and subsidiary as of December 31, 1999 and 1998, and the related
consolidated statements of income, shareholders' equity and comprehensive
income, and cash flows for each of the years in the three-year period ended
December 31, 1999, which report appears in the December 31, 1999, annual report
on Form 10-K of SJNB Financial Corp.
/s/ KPMG
San Francisco, California
March 2, 2000
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